Description

Event Driven idea – Sharecare – SHCR

358M shares at $0.68 – mkt cap $243M. Cash of $128M with no debt and $50M in pref. EV of $155M. ~$445M in revenue and adj EBITDA breakeven.

I believe SHCR is very mispriced and very timely.

SHCR is a comprehensive healthcare platform that is technology and data driven and enables clients to manage all their member populations’ healthcare needs and benefits in one place. SHCR’s 3 segments are Enterprise, Life Sciences and Provider.

SHCR’s Enterprise segment sells into health plans and employer groups and represents ~53% of total revenue. The segment has access to a massive amount of data from claims and eligibility information as SHCR helps clients manage benefits for their 13M covered lives.

SHCR life sciences SHCR generates ad revenue from life sciences platforms similar to a WebMD. This should be a 20%+ EBITDA margin business in the right hands. The trends in their life sciences segment have been fine – growth last Q in a down mkt.

SHCR Provider – records retrieved of 6.9M in 2023. SHCR offers providers a suite of data and information-driven solutions that are tailored to improve productivity and efficiency and enhance patient care and management while upholding the latest compliance, security and privacy standards. The trends in their provider segment have been pretty good with the most recent Q being its best financial performance to date.

SHCR is interesting because the company is likely in the 9th inning  of a strategic alts process that should lead to a significant rerating in the stock. 10% holder and Director John Chadwick of Claritas Capital proposed a $1.35-1.80/sh bid for the company back in October. This is interesting bc the company ran a strat review in late 2022 throuh mid 2023, so this Director has a really good idea what the segments are worth (plus he’s been involved in SHCR for many years). It seems plausible that he could lower his bid by 20c but I believe this is a real interest in the co. I suppose he also could have made this non binding bid to force the board into a strat review to brind out some monetization. The company then decided to embark on a full review of strat alts with a special committee and advisors. As seen here from March 12th I think there is definitely more than one party interested in some and/or all of SHCR’s assets.

The CFO believes each of SHCR’s 3 segments is each worth more than the current market cap. This is likely an exaggeration but not by much. The CFO and the recently replaced CEO have said the provider segment could be separated without much trouble. My sense is there is definitely interest in provider and the company could certainly sell it to bring in a lot of cash if they elect to see if the new CEO can significantly improve the remaining business. I think it is equally or more likely that the company is taken out in either an MBO lead by Claritas or a strategic leap frogs and takes it out. 1) the stock price is so low that it makes this a very good MBO window/candidate as the board could justify a takeout 50-80% higher because it is a huge premium. And if they get topped by a strategic with an 80% premium I see the board taking the deal and everybody cashes in on their pay packages/RSUs and the train reck of a stock this has been can be put to bed / fixed privately in the right hands.

The most relevant comp is likely former public company Castlight which was acquired a couple years ago at 2x revs. https://www.prnewswire.com/news-releases/castlight-health-and-vera-whole-health-to-combine-to-pioneer-and-scale-value-based-care-in-commercial-market-301454477.html

Ciox Health would be another peer to look at. 

Here is Canaccord’s recent SOTP. I don’t think its worth splitting hairs at this point as SHCR’s EV is so low at $155M, even if we use slightly sub 1x revs there is  ~50% upside. 

This opportunity likely presents itself because SHCR is the epitome of a busted SPAC, there isn’t real cash flow yet, and they are in the middle of a dispute with a large customer and didn't give 2024 guidance. But SHCR has the cash burn under control, and has $128M in cash – I would expect them to be fairly aggressive buyers of their stock if the review concludes without a deal. The current EV is $155M. founder and formed CEO Jeff Arnold who also founded Webmd has invested over $1B into the Sharecare tech, I believe Arnold was not elite at closing business (selling to accounts) and the new CEO is likely far more skilled at executing on selling.

Other) 

 This is what SHCR said in June of 2023 after completing the prior strat review. My read from the CFO is that provider definitely could be separated without much trouble.

"The significant interest we received during our strategic review process not only confirmed the fundamental value of each of our business channels but, more importantly, that they are, in fact, all together better"

Cannel Capital also penned the following letter about a month ago - I didn't see it on the major newswires when it came out. https://www.newsfilecorp.com/release/204254/Cannell-Capital-LLC-Sends-Letter-to-Sharecare-Inc.-Director-Alan-G.-Mnuchin

Catalyst

strat alts review conclusion