UpHealth Stock Is A Great Bargain At These Levels (NYSE: UPH)

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UpHealth (UPH) just got listed through a SPAC merger that did not go as smoothly as it could have, to put it mildly. They were underfunded and had to resort to additional finance, which has slashed the shares:

UPH Chart


But we should not lose out of sight that the company itself is doing very well, posting two quarters with 28% and 25% sequential revenue growth. Their Integrated Care Platform business model is also very interesting, offering myriad expansion opportunities and cross-selling opportunities with their two other segments.

The company sits in the middle of evolving trends in the US healthcare landscape:

UpHealth market and positioning

UpHealth earnings deck

But we’re not that worried about competition as clients tend to be highly sticky and offer plenty of expansion opportunities. The company offers three platforms:

UpHealth platforms

UpHealth earnings deck

Integrated care management SyntraNet

Integrated care sounds abstract, here are some concrete services they offer:

Integrated care

UpHealth earnings deck

And here is how these are organized:

Digital health encounter

UpHealth earnings deck

  • Treating an integrated care community, creating a 360-degree view of patients and providers.
  • Mixing existing and virtual facilities and systems.
  • Providing advanced, AI-based analytics.
  • It’s the backbone of the company, providing synergies with the other segments and many cross-selling opportunities like providing it for the largest mental health plan provider in California, a contract they just won.

Growth vectors here are:

  • New logos, like County of Alameda, LA Care Health Plan, the California Mental Health Services Authority.
  • The company won a large contract with CalAIM for Medicaid in California.
  • Clients Enrolling more patients and facilities.
  • Adding services (see below).

To see how that works in practice, from the Q3CC:

So if you take the County of Alameda, there are 1.7 million lives in that – there’s about 1.4 platform. Now, there are a number of programs, and there are programs to manage individuals who are homeless, there are programs to manage individuals, who have specific complex conditions, behavioral health conditions, and so on. And the ratio, so if we charge X dollars per member per month for the general population overall, that can increase 10 times when that individual moves into a specific program.

There are plenty of expansion and synergy opportunities and initiatives underway:

Expansion of integrated care

UpHealth earnings deck

What we like here is that the whole tends to be more than the sum of the parts, making the platform as a whole more valuable and sticky by adding services.

The CalAIM program is going to kick in in 2022 with the purpose of demonstrating a new way to manage the Medicaid population (Q3CC):

Its individuals of complex medical conditions, behavioral health and social factors affecting their health. So what we are focused on is expanding our beachhead into the largest plan participating in CalAIM, which is added care health plan, as well as working with some of their provider networks. And what we are initially focused on is the expansion within our largest Medicaid plan in the state actually in the country, and expanding from there into the provider network. And an additional plans that are part of that whole initiatives.

This is a large program with plenty of expansion opportunities in the program itself. At the time of the Q3CC, there were already 2.5M-3M members in the program, but by this year that will increase to half the Medicaid population which is 12M-13M as the program rolls out.

This model works on a PMPM (per member, per month) model in which the company does not assume risk (Q3CC):

We will not be taking risk under those contracts. But at least not yet. We are looking at arrangements as we add services to help manage health programs at models where we could participate in certain incentives attached to outcomes and other metrics that we can help move.

So the prospects of having 6M-6.5M on a PMPM basis is already enticing, but perhaps more importantly, if this shows success, the model can be exported elsewhere.

Then there is their program with Medicare where they are partnering with provider groups like DCEs (Direct Contracting Entity) (Q3CC):

So one of the reasons that we use the word managed care organization as our target customer is that there are many flavors of that kind of organization. Traditional health plans, providers in various risk based and delegated arrangements. But also entities like the DCE direct contracting entity as well as flavors of accountable care organizations. These are all target customers for us. And exactly the set of capabilities that would bring to a health plan, we would bring to the DCE as well, both in terms of technology and infrastructure, and as we outlined value-added services to help them manage programs and metrics that they need to hit as part of that DCE program.

Plenty of expansion opportunities here as well; and since they have not yet modeled this, it would be additional to the 50% revenue growth they guided for 2022.

Virtual care infrastructure

Virtual care infrastructure

UpHealth earnings deck

  • The MARTTI platform is for the US market and provides virtual care including video calls, remote monitoring and diagnostics with connected IoT devices, decision support systems.
  • MARTTI trades 168K encounters per month, 26K + video endpoints at over 2.1K health locations in the US.

Growth vectors are:

  • New logos. The company has contracts with the likes of RWJBarnabas, IU Health System and AxessPointe Health, for an annual contract value of $ 5.5M and a total value (over 26 months) of $ 16.5M. This segment produces contracted, recurring revenues.
  • For international markets, this is packaged as the HelloLyf platform, offering standalone digital clinics.
  • They deployed their first digital clinic in Nagaland, India, the first of its kind (see below).
  • The company is also deploying 550 digital clinics in Madhya Pradesh with already 250 of these operational by the end of Q3.
  • They have another contract to install 260 digital clinics in the Democratic Republic of Congo, a $ 66M contract over 5 years.

Digital Hospital Nagaland

UpHealth earnings deck

Here is management on the capabilities (Q3CC):

The digital hospital is the first of its kind. It allows physicians to remotely examine patients, not just with consultations, but with much expanded capabilities to view and fuse medications, monitor ventilator flow, conduct physical examinations with connected endoscopes, ECGs other diagnostic devices, complete bedside tests, and prescribe medications remotely.


The main services are language interpretation, digital pharmacy and behavioral health, all of which have expansion paths:

Roadmap Services

UpHealth earnings deck

The company has just opened Olympus Recovery, a behavioral health safe space for first responders. It got instant traction being a TRICARE preferred provider and in accreditation talks with 17 different payers. This very much looks an easily replicatable model, the first in many.

Growth strategy and revenue model

The revenue model of the different segments:

Revenue model

UpHealth earnings deck

It’s important to note that Integrated Care and Infrastructure consist of contracted, recurring revenue streams and this was 63% of revenue in Q3.

Their growth strategy has five components:

  • Winning logos.
  • Bring MARTTI’s communication and collaboration infrastructure to SyntraNet, starting with the language services.
  • Cross-selling opportunities, like their whole-person care and behavioral health programs.
  • Strategic partnerships to deliver services, for instance, language and medication management to digital health company partners.
  • Broaden the virtual care infrastructure and replicate it abroad.

The latter seems especially promising as this is a breakthrough new model for many emerging economies (Q3CC):

it’s like infinite demand is how we would put it. So it’s really a question of how much can be fulfilled. The pipeline can be – the pipeline is much more massive. So it’s not the constraining side of the equation here. It’s really how much working capital they would want to deploy to sustain what level of growth. But this is a breakthrough model for the emerging economies, a new model for infrastructure, and how you can deliver not just primary care, but even acute care.

Q3 results

Growth is very solid:

Q3 results

UpHealth earnings deck

  • Q3 was their first quarter as a listed company after the (pretty wobbly) SPAC merger on June 9.
  • Sequential growth was 28% in Q2 and another 25% in Q3.
  • There was a $ 49.8M gain on fair value of convertible liability.
  • 65% of Q3 revenues came from the US, 16% from Europe, and 19% from Asia and Africa.
  • The fastest-growing segment is their infrastructure business, which raked in 55% sequential growth to $ 19.2M.


Management expects $ 180M + in revenues for FY2021, adjusted EBITDA between $ 16M- $ 20M. For 2022, management expects at least 50% revenue growth and be cash flow positive by H2 2022.


Adjusted EBITDA

UpHealth earnings deck

Integrated care and infrastructure together increased from 48% of pro-forma 2020 revenue to over 60% of Q3 revenue, which helped boost gross margins to 40% (from 36% in Q2), and management expects this trend to continue. The gross margin improvement came mostly from increased utilization of the US telehealth and behavioral health businesses.

International virtual care is a high-margin business, especially as the service side ramps up (Q3CC):

So on the infrastructure side of things, Bill, we make a margin and we at a very healthy margin, and then we make a healthy margin on the services side. There is obviously a ramp up on the services side as volumes increase, and so that margin on the services side will start irrelatively modest level and ramp up over time.

But overall numbers are blurring this picture as they have various projects in various stages of development.


Data by YCharts

Cash outflow is still substantial but management expects positive operational cash flow by Q2 2022 under present growth assumptions and a little later should growth be faster (for which they’ll need more working capital).

UpHealth balance sheet

UpHealth earnings deck

But the company has quite a bit of cash, $ 68M at the end of Q3 and it added $ 43M from issuing 26.5M shares at $ 1.75 early in Q4 for a total of $ 111M.


  • 2022 revenue $ 270M.
  • 26.5M shares at $ 1.75 post Q3 financing.
  • Outstanding shares 144M.
  • $ 111M in cash (including financing).
  • $ 160M in convertible notes.

Fully diluted, there are some 180M shares which works out as a $ 360M market cap and a $ 410M EV, which makes the shares remarkably cheap selling at 1.5x EV / S.


While the company’s IPO had a very rough start and was basically mishandled, this has opened up a very good buying opportunity. With the company growing at 50% + and being blessed with multiple avenues for expansion, the only potential worry is cash flow.

But given the scalability of the business model, the gross margin increase and the revenue growth, as well as the special factors explaining the negative cash flow in 2021, we think that’s not much of a concern either and management argues that they can be cash flow positive by Q3 this year.

Given how cheap the shares are and how fast the company is growing, we think the shares are a steal at these levels even if they’re in the segment which is getting hit by the markets right now.

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