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HALIFAX, Nova Scotia, March 06, 2025 (GLOBE NEWSWIRE) —
Dear Nova Leap Health Corp. (“Nova Leap” or the “Company”) Shareholders:
All amounts are in United States dollars unless otherwise specified.
This annual letter to shareholders allows me some time to reflect on the past year as well as to provide some insight as to what the future may hold. At the time of this writing, we provide services across a large geographical area covering both rural and urban centers. I hold an enormous sense of gratitude towards our staff that provide compassionate home care on a daily basis and to the families that allow us into their homes as part of their life’s journey. Nova Leap’s story has always been, and remains, about family. Since our inception, we have had the privilege of serving thousands of families across two countries and of attracting a team committed to one of life’s most fulfilling duties – helping others. While Nova Leap has grown to be one of the larger home care companies operating in the United States and Canada, our mission, our values and our approach remains the same today as it did when we started – one family at a time.
“Say what you mean, and mean what you say”
A significant contributor and investor in Nova Leap used to utter that phrase quite frequently and it had me thinking about the lack of trust that exists within the microcap investor space. In the earlier days of Nova Leap, I would travel extensively across the U.S. and Canada trying to raise capital for our growth plans and to let investors know that we existed. One of the comments that I would hear frequently from investors on my second or third trip to see them was that I had done what I said I would do. I was surprised by the comment. It was very much a compliment because, in their own shared experiences, that was not normally the case. I was beginning to understand the uphill battle we faced as a start-up public company coming from an area not well known to investors.
A month ago, I was contacted by a family office that was doing due diligence on Nova Leap. For those that know me, I’m blunt and get to the point. I’m happy to share what I believe in and have little interest in trying to give someone what they want to hear. As much as investors are trying to figure out whether Nova Leap may be a fit for their portfolio, I’m trying to figure out whether the person on the other end of the line is someone we want as an investor. After a lengthy conversation with the normal Q&A, the investor on the other end of the call said “those were all the right answers but I’ve heard that before”. It struck me that, even after eight years of expansion, there is a lack of trust and skepticism that remains towards companies involved in the microcap space.
To that end, this letter serves as a historical record of a point in time. Potential future investors a decade from now will be able to review my annual letters to get a sense of my thinking of the time and to research the resulting outcomes. It is my hope that, over time, we will distinguish ourselves both as a company and as a leadership team that can be viewed positively within the broader capital markets.
Nova Leap continues to be in excellent financial condition and is actively seeking M&A and expansion opportunities.
From my perspective, the financial highlights from 2024 are as follows:
- We entered the year in a very strong financial position as an operating free cash flow positive company with no long-term bank debt;
- We exited the year in a very strong financial position as a profitable, operating free cash flow positive company with very manageable acquisition related long-term bank debt;
- We achieved record annual consolidated Adjusted EBITDA of $1.562 million, the second consecutive year of record results, and a 5.75% increase over 2023 results. At the current exchange rate, 2024 Adjusted EBITDA was approximately CAD$2.2 million.
- As a result of Nova Leap’s consistently strong financial performance, we entered into an amended credit facility that will provide up to an additional $7 million to support continued growth;
- With the amended credit facility, strong balance sheet and operational cash flow, we re-engaged our acquisition program by announcing acquisitions to enter Florida along with further expansion across Massachusetts and Nova Scotia;
- Nova Leap’s accounts receivable collection rate of 99.4% remained exceptional and consistent with the prior years range of 99.7% – 99.9% between 2020 and 2023; and
- Insider ownership grew as it has annually from 36.2% in 2021 to 41.64% at the end of 2024.
In summary, 2024 was a year in which the leadership team at Nova Leap demonstrated its ability to re-engage its acquisition program while continuing to ensure the Company remains in excellent financial condition.
Allocation of capital plans utilizing Free Cash Flow
Management has three primary objectives pertaining to allocating capital for 2025 as follows:
- Investing in current home care operations – Our objective is to increase revenues and hours of service at existing home care locations through the following initiatives:
- Staggered hiring of additional office staff to complement existing office and regional growth plans;
- Replicating the success of local office revenue service lines across the broader organization; and
- Opening of new office locations to build upon the success of existing offices with one new office slated to be open in the Midwest towards the end of Q2;
- Acquisitions – Nova Leap recently closed two acquisitions. Management will continue to evaluate additional opportunities to acquire established home care operations.
- Debt repayment – Management intends to repay acquisition-related debt on schedule as it has in the past.
A fourth consideration is beginning to emerge. Although the stock price has, at times, risen over the past year, it remains at a level that we believe does not accurately reflect anywhere near the value of the Company. Should the stock price remain at or near current levels, I believe we will give much stronger consideration to a share buyback strategy utilizing the Company’s free cash flow. We will weigh such a decision against the broader capital allocation strategies highlighted above and will make an announcement regarding a Normal-Course Issuer Bid, if the strategy is deemed appropriate.
Our focus on organic revenues is showing signs of improvement:
Last year, I wrote of the challenge we had with 2023 revenues and highlighted it as an area of focus for 2024. It has been the only major financial category where we haven’t made meaningful headway after having improved gross margin percentage, Adjusted EBITDA, cash flows, and operating income all while paying off the Company’s bank debt.
Our drop in revenues from 2022 to 2023 was the first time in the Company’s history that we had a material decline. It was also during a period where we were exiting the pandemic and the availability of labor in our industry was at an all time low. Circumstances have changed and availability of labor is certainly more plentiful that it was two years ago. While 2024 revenues were down 1.6% from 2023, the past four quarters have been flat. Acknowledging that we remain a distance from generating the types of organic revenue growth we are striving for, I believe we are making some headway. We have spent the past year analyzing the needs of our business and have begun making significant investments in key personnel. The goal is that these investments will, in turn, lead to the organic growth outcomes that we are seeking.
Why we like buying small home care companies
Since the latter part of 2016, we have been purchasing small, independently owned home care companies. We plan on buying a lot more in the years to come as part of our overall growth strategy. Our focus on these smaller companies is intentional. We recognize that M&A contains inherent risks and we are not fooling ourselves into thinking that every acquisition we make is going to work out in the manner we hope. We’ll make mistakes along the way as we have with some of the acquisitions that have been made to date. However, we believe that we’ll get more right with the acquisitions than we will get wrong and believe we have proven such with our track record.
There are companies within our industry that are substantially larger than the acquisitions that we have made to date and substantially larger than Nova Leap. We believe the best approach is to continue focusing on the smaller businesses that attract lower multiples than the larger ones. If a small acquisition doesn’t work out, neither the management team nor shareholders will be happy but it would not set the company back significantly. However, if we were to undertake a larger acquisition and it did not go as planned, the resources we would need to dedicate to fixing a problem would be substantial and it could set us back years. From that perspective, it is simple risk mitigation and sticking with what we do well. For owners that may be interested in selling their business to Nova Leap, please refer to the “What we offer other home care business owners” section of my March 7, 2024 letter to shareholders.
How we view the use of debt
Since our early days, we have been fortunate to have a lender to support our acquisition program, where required. We believe the appropriate and prudent use of leverage is an effective way to grow the organization. We’re generally comfortable with leveraging up to 3X (times) Adjusted EBITDA on a consolidated basis. While there could be situations where we could exceed that amount for a short period of time, that figure should provide shareholders an indication of our comfort level.
Some comments on scale as an advantage and operational leverage
Scale provides a tremendous advantage because it allows for investment in people and technology. Both lead to an acceleration of growth. When Nova Leap was just starting out, it was a typical entrepreneurial company with a very small group of individuals wearing multiple hats. We were working out of a tiny office that used to serve as a storage area with one window that would barely open and temperatures that would approach 100 degrees in the summer. It was a sweat box. The limiting factor wasn’t the heat, it was the ability of so few people to try and accomplish so much.
As the Company has expanded, we have provided opportunities for people to move up through the organization and to attract amazing, experienced individuals from outside of the organization. That combination of talent allows us to do so much more today than has ever been possible. The cross sharing of ideas, the replication of successful initiatives from one office to another, the implementation of new technologies including artificial intelligence, the standardization and automation of processes, compliance and oversight all contributes to a platform for growth. As a comparison, most of the agencies that we have acquired, with only a few exceptions, have all been very stable stand alone companies that were never able to break through a certain plateau, held back only by resource limitations.
The scale described above should allow for operational leverage. As we have allocated resources in place and structured the Company to grow, we have the ability to expand or acquire new businesses without significant additional resources meaning that most of the Adjusted EBITDA/cash flow that we are acquiring from new businesses should hit our bottom line. Over time, as we acquire more cash flow positive businesses and successfully integrate them to our platform, that should lead to Adjusted EBITDA margin expansion from the 6.1% we finished at in 2024 to north of 10%. I believe we will continue to make significant progress in that regard over the next couple of years.
Nova Leap as a public company and managing from a position of strength:
I want to reinforce what I wrote in last year’s letter to shareholders. 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. An example of this is starting a brand new location as I indicated we will in the Midwest towards the end of Q2.
The leadership team is managing the business from a position of strength. Nova Leap generates operating free cash flow which we can allocate to the areas we believe most appropriate to create value. The business is easy to understand, the industry should continue to expand for the next several decades based on an aging demographic, the cash flow is fairly predictable, and the market is very fragmented with thousands of operators forming what I believe to be an endless pipeline of opportunities.
If the stock market closed for the next five years, I would think that shareholders would remain comfortable that the underlying business would remain strong and would continue to operate as it has. Perhaps the fact that insiders increase their ownership percentage in the company each year is the strongest indication of such comfort. Thank you for your ongoing support.
Yours truly,
Chris Dobbin, CPA, ICD.D
President & 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.sedarplus.com
For further information:
Chris Dobbin, CPA, ICD.D
Director, President and CEO
E:[email protected]
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.
