Dear Nova Leap Health Corp. (“Nova Leap” or the “Company”)
Shareholders:
All amounts are in United States dollars unless
otherwise specified.
Nova Leap is a story of entrepreneurship born
from the experience of one of my close family members with dementia
requiring home care. The positive impact my family saw from home
care led to the creation of the Company in 2016. At that time, I
believed that we could provide families impacted by dementia with a
level of service that would have a meaningful impact on their lives
and that the demand for our services would grow over time due to an
aging demographic. I am reminded every day of why this industry is
so important to families and the challenge in meeting the
generational demand that will exist for decades to come.
Today, Nova Leap is a very different company
than it was in 2016, when we started with a mere CAD$500,000, but
one very much with a continued focus on providing exceptional
in-home care to families. As we move through the early stages of
2024, I would like to recognize the significant contribution from
our team for the results achieved during 2023. Nova Leap is in
excellent financial condition and is actively seeking M&A
opportunities.
From my perspective, the highlights from 2023
are as follows:
- We established Nova Leap as a cash
flow positive company;
- We paid off all long-term bank debt
during the year, ahead of schedule, positioning the Company to
re-engage its acquisition program;
- We achieved record annual
consolidated Adjusted EBITDA of $1.477 million (CAD$2.0 million),
which was more than the three previous years combined and a 124%
increase over 2022 results;
- In my 2022 year end comments, I
specifically addressed the changes we had made in the U.S.
operating segment. We delivered on these changes with a 73% year
over year increase in U.S. segment Adjusted EBITDA;
- We ended the year with record
Adjusted EBITDA of $571K (CAD$778K) in Q4, the Company’s third
straight quarter of record Adjusted EBITDA;
- Nova Leap’s accounts receivable
collection rate of 99.7% remained exceptional and consistent with
the prior years range of 99.7% - 99.9% between 2020 and 2022;
and
- Insider ownership grew. During the
fourth quarter, insiders continued to acquire shares in the open
market bringing insider ownership to 40.61%. Insider ownership was
38.9% at the end of 2022 and 36.2% at the end of 2021.
In summary, 2023 was a year in which the
leadership team at Nova Leap demonstrated its ability to execute on
operations and to put the Company in excellent financial position
for the next phase of growth.
Allocation of capital plans for 2024:
Management has three primary objectives
pertaining to allocating capital for 2024 as follows:
- Investing in current home care
operations – Our objective is to increase revenues and hours of
service at existing home care locations by hiring experienced sales
personnel that can bring in new business to complement existing
operational teams. More on this below.
- Acquisitions – Nova Leap has
created borrowing capacity with the repayment of all long-term bank
debt. Management plans to leverage some of this capacity for
M&A opportunities in addition to cash generated from
operations, where appropriate.
- Promissory note repayment –
Management intends to repay the approximately $117,000 of
promissory notes remaining from previous acquisitions on
schedule.
Financial objectives:
For the past year, Management has been working
towards an internal objective of sustaining quarterly consolidated
Adjusted EBITDA for existing operations of $450,000. The average of
the past three quarters is just above that mark.
Management has a new objective of achieving
quarterly consolidated Adjusted EBITDA of $750,000 as a next level
which would represent annualized Adjusted EBITDA of $3 million
(CAD$4 million). We are working to achieve this through our
allocation of capital strategy of investing further in current
operations to build on the success of last year and by making
acquisitions. We don’t expect an immediate jump as it will take
some time for our capital allocation decisions to take shape but I
think it is important for shareholders to understand where our
focus lies and what Management is trying to achieve.
Where we have been challenged:
Simply put, our largest challenge in 2023 was
revenue growth. We saw significant achievements in major financial
categories such as gross margin percentage, Adjusted EBITDA, cash
flows, operating income and debt reduction but revenues fell below
expectations. It is a focus in 2024.
On an individual basis, our home care agencies
would all be considered small businesses. At the local level, hours
of service are driven by a recurring revenue model where caregivers
are generally scheduled to assist clients on the same schedule each
week for as long as they require care. These small businesses are
greatly impacted by either obtaining or losing clients requiring
high hours of service. As an example, if a business was doing $2
million in revenue in a year and lost a 24 hour client, revenue
would drop by approximately 15% (assuming remaining hours held
constant). We experienced that in 2023 along with other agencies
where revenue grew for the same reason, including one of our
agencies whose revenue grew by 54%.
A lot of new business is generated by local
reputation, word of mouth, families of past clients, and recurring
referral sources. As we examined our collection of agencies, we
found that the natural attrition of clients was being offset by
agencies that had successful sales personnel that were able to
market our services to a broader base of referral sources than
those agencies without a sales role. As a result, we have allocated
capital to the hiring of sales personnel in some of our larger
markets. We anticipate that these new hires will have a positive
impact on our results over time.
What we offer other home care business
owners:
Home care agency owners regularly engage with us
for two reasons:
- Succession planning/retirement;
and/or
- Seeking a strategic partner for
growth.
The acquisitions that we have made in the past
have been driven by owner succession, meaning that the founder of
the home care agency we acquired was seeking an exit for retirement
purposes and wanted a suitable home for their staff. I believe
owners have chosen Nova Leap so many times to purchase their
businesses because 1) we value people and want to welcome the team
at the acquired agency to their new home with Nova Leap 2) we
acquire these agencies with a view to holding them and supporting
them in perpetuity further respecting the exiting owner’s legacy
and 3) we have a fair and reasonable approach which allows us to
agree on deal terms and structures in an efficient manner.
We are also willing to partner with home care
agency owners that are not quite ready to exit the business
entirely but would rather have a strategic partner to assist with
growing the business for some period of time prior to a full exit.
These types of situations are always of interest to us because
partnering with great people usually leads to a lot of success.
Shareholders and Shareholder Communications:
I have generally sought out, and we have
attracted, shareholders that share my view that significant value
creation transpires over a long period of time. Our two largest
shareholders, of which I am one, own 30% of the stock. Another 10%
is collectively owned by members of the Board and our CFO.
Meaningful blocks are held by entrepreneurs who have built
companies from the ground up with sustained success, founders,
directors or past directors of publicly traded companies that are
or have been successful with value creating roll-up strategies,
similar to the strategy pursued by Nova Leap, senior capital
markets executives with practical counsel and a couple of micro-cap
funds with a long term horizon. I find these types of shareholders
valuable because they have experience they can share that is
directly applicable to our situation. All have been supportive. I
hope that we will attract more of these types of quality investors
over time.
Throughout our history, we have been intentional
in avoiding “hot money” and have done our best to recognize
contributions from existing shareholders by issuing equity at a
premium to market in certain cases, demonstrating our commitment
with insider led offerings, along with reducing the risk of warrant
stripping by mostly not issuing them since our early days.
We do not spend a lot of money on shareholder
communications. We do not provide earnings guidance or hold
quarterly conference calls. I do provide quarterly commentary with
the release of results, present at select capital market events and
hold CEO interviews with some third parties that are uploaded to
YouTube. We believe capital is best spent in growing the Company
and that we will continue to attract quality shareholders based on
Company performance.
We do not have any institutional ownership that
I am aware of and I don’t think we will for some time. I recall two
conversations that I had which may be instructive. The first was in
2019 before the pandemic when we were setting record results each
quarter. I met with an investment fund manager in New York, one
that generally takes concentrated positions over time. His view was
that, while we were making a lot of progress, we would be an
interesting opportunity at $5 million of EBITDA, particularly given
the potential for significant compounding at those levels.
The other meeting was in Toronto near the
beginning of 2023, post-pandemic. It was relayed to me that the
institutional investors that had been previously seeking alpha down
to the sub-CAD$100 million market cap companies had moved back up
to the CAD$250 million market cap area. The message being that it
would take longer to get institutional capital and lots of hard
work.
I think those are important views as it relates
to Nova Leap as I think about achieving future milestones in terms
of levels. We made meaningful progress in 2023 with record Adjusted
EBITDA of $1.477 million. Internally, we are now working towards $3
million of Adjusted EBITDA as our next objective (see Financial
Objectives section above). I see that as the next level that we
need to sustain and one that we can achieve through organic growth
and M&A. If we can achieve that, I believe we will continue to
attract investors with the profile similar to our existing
shareholder base. After $3 million, I view the next level or
milestone to achieve as $5 million of Adjusted EBITDA. Will the
profile of our investor base change at this level? Time will tell.
Regardless, we’re up to the challenge and the hard work it will
take to get there.
Nova Leap as a public company:
Although Nova Leap is a public company,
Management makes decisions considering the long-term implications
to the Company. In this regard, we make decisions more in line with
a private enterprise without regard to how the impact of those
decisions may impact financial results from one quarter to the
next. In other words, we’re willing to allocate capital that may
have a shorter term negative impact on Adjusted EBITDA with an
expectation that it will create Adjusted EBITDA in a sustained
manner longer-term.
At the time of this writing, Nova Leap is a
TSX-V listed company with a CAD$17.6 million market cap ($12.9
million on the OTCQX). Hopefully, the summary of our results will
encourage investors to consider Nova Leap for investment purposes
as part of their own capital allocation strategy.
Thank you for your ongoing support.
Yours truly,
Chris Dobbin, CPA, ICD.DPresident & CEO
FORWARD LOOKING
INFORMATION:
Certain information in this press release may
contain forward-looking statements, such as statements regarding
future expansions and cost savings, and plans regarding future
acquisitions and business growth, including anticipated annualized
revenue or annualized recurring revenue run rate growth and
anticipated consolidated Adjusted EBITDA margins. This information
is based on current expectations and assumptions, including
assumptions described elsewhere in this release and those
concerning general economic and market conditions, availability of
working capital necessary for conducting Nova Leap’s operations,
availability of desirable acquisition targets and financing to fund
such acquisitions, and Nova Leap’s ability to integrate its
acquired businesses and maintain previously achieved service hour
and revenue levels, that are subject to significant risks and
uncertainties that are difficult to predict. Actual results might
differ materially from results suggested in any forward-looking
statements. Risks that could cause results to differ from those
stated in the forward-looking statements in this release include
the impact of the COVID-19 pandemic or any recurrence, including
staff and supply shortages, regulatory changes affecting the home
care industry or government programs utilized by the Company (such
as ERC), other unexpected increases in operating costs and
competition from other service providers. All forward-looking
statements, including any financial outlook or future-oriented
financial information, contained in this press release are made as
of the date of this release and included for the purpose of
providing information about management's current expectations and
plans relating to the future, and these statements may not be
appropriate for other purposes. The Company assumes no obligation
to update the forward-looking statements, or to update the reasons
why actual results could differ from those reflected in the
forward-looking statements unless and until required by securities
laws applicable to the Company. Additional information identifying
risks and uncertainties is contained in the Company's filings with
the Canadian securities regulators, which filings are available at
www.sedar.com.
CAUTIONARY STATEMENT:
Neither TSX Venture Exchange nor its Regulation Services
Provider (as that term is defined in the policies of the TSX
Venture Exchange) accepts responsibility for the adequacy or
accuracy of this release.
For further information:
Chris Dobbin, CPA, ICD.D
Director, President and CEO
T: 902-401-9480
E: cdobbin@novaleaphealth.com
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