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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Hi, everyone. Welcome back to the SmallCap Discoveries conference call. Today on our call, we have CEO, Chris Dobbin from Nova Leap Health. Nova Leap Health trades on the TSX Venture Exchange under the symbol NLH and on the OTC under NVLPF. The company is trading at $0.76 with roughly 79 million shares outstanding or about a $60 million market cap. I'd now like to hand it over to Paul Andreola.
Great. Thank you so much, Trevor. Yes, great to have Chris back. Chris, we haven't spoken in probably well over a year. A lot has happened in that time since we last spoke. The world is certainly a little bit different than back then. Thanks for joining us today. Why don't I just hand it over to you and remind us again what Nova Leap Health does for those that are new to the story.
Yes, sure. Thanks for having me. I appreciate the opportunity back and have, I guess, another discussion with you guys. So Nova Leap Health, as Trevor alluded to, we're on the Venture Exchange. We were founded back in 2016, went public in April 2016. We're in the in-home care space. So primarily in the nonmedical space. So think of providing care to seniors within their home. That's primarily what we do, and it's primarily on the nonmedical side of things with a real focus on dementia care. So about 70% of our clients live with dementia. So we help them with activities of daily living, again, mostly within their home. So we've been pretty active over the last few years. The company was created after a family experience. My father-in-law was diagnosed with Parkinson's many, many years ago. We saw, I guess, the good and bad of home care. The bad where they weren't really trained properly, and the good where we had an agency provided care for the better part of 2 years. So good family experience there as much as it was a difficult situation. We saw a home care company for sale shortly after he passed away. My wife had an idea we acquire that company, and it opened our eyes in terms of the need that exists in the market. So we've been -- Nova Leap is an acquisition story, a roll-up story. We've been buying smaller mom-and-pop home care companies, primarily in the U.S. So sort of look at the map behind me, we have locations all through the Northeast, so Vermont, New Hampshire, Rhode Island, Mass, down in Midwest in Ohio as well as South Central and Arkansas and Oklahoma. So we've gone from $40,000 of revenue at the end of 2016 to north of USD 5 million of revenue last quarter. So -- it's been -- we're still a small -- certainly a small publicly traded company but have been -- have grown quite significantly over the last few years. So the only other thing I'll mention, perhaps is that because people think about the U.S. and sort of the reimbursements down there, we're not in the Medicare/Medicaid space. I know that lots of Canadian companies that have ventured down there and have been in that space or are in that space. We're in what's considered to be the private pay space. So we charge or bill our seniors or their family on a per hour basis, and that's reimbursed out of pocket, with the exception of coverage that may be through VA, Veteran Affairs, or long-term care insurance. So think of Nova Leap Health Corp. primarily as a non-medical private pay in-home care company because that's predominantly what we are.
Sounds great. So yes, you've done a number of acquisitions since I got to know you way back when. Maybe describe what these acquisitions look like. What are the typical deal term size, things like that?
Sure. So they really do meet the definition of mom and pop. So on average, I think we've acquired maybe $1.7-ish million of revenue, so really, really small businesses. And so what are we getting for that? So we're looking for a company that's been around for 10 or 15 years, historically profitable, good management team. And so what you end up having is a local operating team, might be 3 or 4 people within an office, and then you have caregivers in the field, either in people's homes or in certain occasions within a facility type setting, and there may be 70 or 75 folks in the field. So it's really the team that we're acquiring as part of an acquisition as well as the brand we tend to keep. The client base obviously comes along with that and then any referrals that come from past clients or existing referral sources. So there's no CapEx. There's no real estate or small leased office. This is really a service-based business. And we're just really acquiring future cash flows based on the historical results of the business.
What kind of multiples do you see when you're acquiring these businesses?
We're pretty consistent. We're generally paying between 3, 3.5 to 5x. I'd say I'd see -- we've seen a little bit of an uptick in certain areas, particularly in the larger transactions in the space ever since COVID. And I think that's driven by the fact that, number one, if you think about it, most people want to stay within their home as it is. All the past surveys for seniors have indicated that 80% to 85% folks want to remain in their home, which is obviously positive for the industry. We know what's happened with COVID, at least initially in facility type settings. And so home care provided the most secure type setting because you weren't -- they didn't have common areas and so on, you weren't around a lot of people. And so I think there's a larger focus on home care standard right now. And so we are seeing greater demand for home care companies, which I think has resulted in some valuation uptick; not crazy, but probably a little bit higher in certain areas than what we've seen previous to COVID.
So that was actually going to be one of my questions, is just that. So COVID, clearly, there's a lot of news around the senior care facilities, where there's a lot of serious outbreaks. Has that changed the dynamic of your business right now? Are you seeing more sort of organic demand? Or is it -- or have things been sort of fixed and its business back to normal?
I mean we certainly felt the impact of COVID initially back in Q2 2020. I mean it's pretty easy to look at our -- any of our press releases in our deck, we always put our quarterly results there, sort of the steady incline, then we had a dip in Q2, starting to see it come back Q3, and keeps coming up a little bit. I mean there are incremental steps. But I'd say the businesses we've acquired -- we had pre-COVID are still down a little bit. It's not for a lack of demand. It's lack of staff. That's our biggest challenge right now. It's just getting the staffing resources to the level to meet the demand. That's the biggest challenge in the industry which is no different than the restaurant business, service-based businesses in the U.S. I think there have been some government programs that have been implemented in the U.S. that probably made it tougher for people to come back to work. Some states elected those federal program to get out of those programs in late June, but the rest of the programs run out sort of mid- to late September. So we'll see what happens in those months. But I'm pleased that things are coming back, which has been good, but there are still some agencies that aren't back to pre-COVID levels. But the good thing is they're moving in the right direction, but staffing is still the biggest challenge we have.
It's interesting the last couple of questions I've asked. You've answered my follow-on question before I've been able to ask it. Just that challenges. So I'd imagine staffing would be a challenge as we're seeing in a lot of different industries. But what other challenges are you facing now that -- either due to COVID or just in general that you face as part of the business?
I mean staffing is definitely the biggest one. I mean it really is. It's the driver of everything we do, right? I mean our -- even though we deal with fairly complex situations, I mean you think the dementia is a complex by nature, it's easy to understand our business. We have someone that needs help within their home. We provide a staff member that goes into their home and provides care, whether it's dementia care, mobility issues, personal grooming, light housekeeping, bathing, meal prep, medication reminders, transportation arranging. You name it, we can cover all those things. That's pretty easy to get. But at the same time, we're still dealing with COVID situations, right? And that -- I mean it's still out there. We've all heard of the different strains that exist. And in certain parts of the areas that we would operate in the States, I think some would be more inclined just by general population to get the vaccine versus others. And so that's presented a challenge just in terms of safety for everybody's perspective. So that's been obviously news since early 2020, and we're still sort of working through that. But I think we've managed it pretty well.
Listen, because M&A is relatively complex, and it's -- not everybody does it well. Why don't we talk a little bit about your background? You're not -- this is not the industry you sort of studied for. Maybe give us a bit of a background as to how it helps your business.
Yes. I'm a pretty boring guy. So I went through the CA or the CPA program as it is now. So it's a Chartered Accountant. I worked with Grant Thornton for about, I don't know, 7 or 7.5 years, both on the audit side that initially I was in, and then the latter part, I was a senior tax manager helping entrepreneurs with their taxes and so on. I got approached by BMO Harris Private Banking. So then I was essentially helping wealthier individuals with a number of different things from estate planning to reorganizing their corporate affairs, just general business things, negotiations and so on. And then -- and that was a great job, by the way, it was really good. But I ended up leaving there at the end of '09, I think it was. I -- just one of these things where I had an opportunity to go to Toronto, but honestly didn't want to go there. And so there was no upward mobility for me where I was. And so I just left. And I thought I'd end up buying a small business, but I ended up starting a company that was on the M&A side, advisory side and the private capital markets. So I ended up doing private equity deals, a lot of debt financing, negotiating acquisitions for larger Atlantic Canadian-based companies. And so -- and I really enjoyed that. It was a lot of fun for me to help these companies. And then my father-in-law was diagnosed with Parkinson's. And so I ended up -- obviously, we ended up seeing the benefit of home care and then sort of mirrored some of my M&A background or advisory background to the home care industry. And so that's kind of come full circle, I guess, from that perspective.
So clearly, you know your numbers. That's what I was hoping to get out of it but...
Yes, we got a lot of -- I think I know the numbers, I spent a lot of time looking at them. we've got a lot of CPAs on the Board and surrounded by a bunch of them. So I think genuinely, we know the numbers.
Okay. Good, good, good. Why don't we talk a little bit about the numbers. So you report in U.S. dollars. Last quarter, like you mentioned, you did just over $5 million in revenue, up from $44,000, I think you had mentioned a couple of years ago. Break that down for us. What does $5 million revenue look like? What are your gross margins? What kind of EBITDA margins do you get from that? Anything you can sort of tell us about that?
Yes. If we talk about pre-COVID and where we are now in terms of building back. I think that's relevant. Yes. I mean, the revenue has been pretty consistent, upticking again, just the trend has always been sort of incremental steps moving forward. That's typically driven by a little bit of organic growth, but mostly by M&A, for sure, that has a significant impact, and that would be the largest driver of our business going forward. Gross margins are really consistent. I mean if you go back last 3 years, anywhere from 33% to 35%, very, very consistent, so I would say, predictable. We do have pricing power. I think that's important to note because there are increasing wages in certain states. We always pay above minimum wage laws, but we're always increasing our carryover rates each year. And so that generally leads us to increase our billing rates as well. So we have that ability. We're not cap, like we may be like a Medicare or Medicaid tech company, could be in terms of a set rate for a task or an outcome. We don't -- we're not -- that's why we're not in that business. We do have pricing power. So margins are pretty predictable. And then if you look at -- maybe the best way to do it, would be break in, in the operating segments. So we have the Canadian operating segment, the U.S. segment and then there's the head office cost. That's the way I look at the business. So pre-COVID, I think U.S. segment, Canadian segment were pretty consistent. They were up north of 12.5%. I think there's a couple of quarters where they were like 12.9%, 12.5%. And the Canadian segment actually has performed -- and then what we had was -- so we're in that, call it, $12.5-ish range of EBITDA at the operating segment level. Then we have the head office cost and the cost of being publicly traded companies and so on. And that was coming down pretty nicely every year. I mean I think if we look back, I may not have these numbers right. I think in -- 2017, it was like 58% of revenue; in 2017 (sic) [ 2018 ] it was, I don't know, it was down to 11%; and 2019, it was down to 7%. So it kept coming down every year as we scale, which makes sense.But that has kind of leveled off, and that hasn't really moved much because our revenue from 2019 and 2020 was virtually identical, right? It was a flat year from us from that perspective. But what ended up happening is we still have really good operating margins in the Canadian segment, like those have been very good. Every quarter, pretty good. But the U.S. segment really took a hit. And so we went from this 12% down to, I think, in Q4 of 2020, which was our worst quarter, we were down to 4%, 4.5-ish percent maybe 4.7% , I don't remember the exact ones now. But -- and then last couple of quarters, it's starting to build back up. So the view I have is that we're eventually going to get back to pre-COVID levels with the existing operations, one that we had when COVID started. And then we're overlaying other acquisitions on top of that. And so my expectation is we'll start to see an acceleration of EBITDA because I believe we're going to get back to the levels that we had pre-COVID now. It may not be next quarter or the quarter after that. I mean I don't know, but that's what I think is going to happen based on what I've seen in terms of trending.
Got you. Now a little while ago, you did, I think, a $5.5 million financing. And if I remember correctly, as of the end of last quarter, you had about $6.5 million in cash. Does that sound about right?
Yes, that's right.
Okay. How does that position you as far as any further acquisitions? And I recall reading that you guys did an acquisition probably about a month ago or announced one, right? Give us a lay of the land of sort of what you have in the pipeline and then what your capital -- potential capital requirements are to close that or anything new?
Right. Yes. So we did do the non-brokered, oversubscribed, like that in their private placement only because it was significant for us because we're such a small company, and it was the largest private placement we've done. And I'm not a guy who likes to do private placements. I don't mind asking for money. It's just who wants dilution when you don't have to do it. So we actually hadn't raised equity. We did a convertible debt around, but we had never -- we hadn't raised equity since I think mid- to late 2018. So this was the first time we had done that. It sold out very quickly and so from people who have been watching the company for sometime. So it's kind of the first time I didn't actually have to go hold my hat around and ask everybody. And honestly, it's the first time we actually had [indiscernible]. Yes. So that was interesting, that process. So I just shared that with the group because we might not be in that situation again, but it's going to be that situation at least once. So -- and then just our convertible debt, we forced converting because the share price allowed us to do it. So that [indiscernible] the balance sheet. And then so you think about the cash, we just reported, I think it was like $6.45 million on Q2. And then I think what's also interesting is we qualified for the ERC, which is the Employee Retention Credit in the U.S. This is about USD 3.2 million that's owed to us, some of the money started to trickle in. So think about what we have, roughly USD 9 million plus the unutilized operating line. So we definitely have capital to deploy. Means, some we keep as working capital just as a cushion, but there's probably $7 million there that could be deployed for acquisitions, which is great for us. I mean it's the most we've really ever had available, and I think we can put that to good use. We've looked at -- I mean we just -- yes, so we just announced 2 deals. One was a Rhode Island-based business [indiscernible] New England, but that's an expansion for us in Rhode Island. We got a great operator there. It's been a great success for us. And so we've given her a larger territory to manage, which is how we do things on a regional director basis. And the second was we just announced an Oklahoma based company [indiscernible] in Tulsa. And so that's sort of between Fort Smith and Arkansas, where we already are and Chickasha, which is about 40 minutes southwest of Oklahoma City. So it starts to fill in that geography pretty nicely for us and just hired a regional director to run those 2 states for us, which is good. So those are 2 announcements that we just made. We've been really active. A lot of opportunities in front of us, a lot of similar-sized ones we've done, some significantly larger. So I think we'll be -- we're in a good position, certainly for the remainder of the year, and we'll continue to be active as we have been in the past. Historically, we've closed one deal per quarter. We can certainly do more than that. Look, we entered into a deal not too long ago, but we pulled out due diligence, right? So you have those, right? So that happens and -- but we're pretty enactive.
You just answered my next question again. I was going to ask sort of the pace of acquisition. So an investor may kind of look at on average, one a quarter. Is that what we're -- what we can sort of -- at least one a quarter that you're looking at doesn't necessarily mean you can be closing, I guess?
It's -- that's been our pace. If you look at the acquisitions we've done, just divide by the quarter, it ends up being one a quarter. That's not by design, [indiscernible] really not. It just happens to be. That's the way things have fallen. And sometimes we ended up doing 3 deals in 2 months or in 6 weeks or whatever it is and -- but it still works out to one per quarter. But we are really active right now. Looking at the number of deals, as we always do, one of the questions that I always get is around pipeline. It's just is never ending funnel of opportunities. We look at a deal, we don't want, another one comes, maybe a direct outreach program, which we have, because we're always reaching the owners directly or maybe through brokers and the network because we're one of the predominant buyers in the U.S. But the opportunities are always there. Like, they're just -- they always come.
No shortage.
Yes.
No shortage, then. Got you. So one thing I noticed. You talked about in your financials. But there was a goodwill impairment. Can you explain what happened with that, means it's something that I might not understand that.
Yes. So obviously, when we buy businesses, we have to allocate the purchase price to goodwill and other intangible assets, but the bulk of that goes to goodwill, right? So we ended up buying a business back in late 2017, which, I'll just say, wasn't profitable before we took it over. And so we knew we had some challenges ahead of us, but I thought we could turn around a lot faster, get much more profitable than what we've been able to do. And so that's been a disappointment for us really. But just one of these scenarios where we made an acquisition, hasn't turned out as we expected, still believe in the business. But again, it just -- it really hasn't driven the level of profitability that we had anticipated.
Okay. And clearly, a goodwill impairment like that, that's not a cash issue, that's an accounting issue.
It is an accounting issue. It actually drives me crazy as an accountant. The money we spend on looking at goodwill impairment, it really does because it -- you're restricted in terms of how you have to look at it solely from a reporting perspective. And the reporting, the requirements under accounting standards may not necessarily jive with what you believe as an operator. But they are there for a reason, and it's the same business we took the goodwill impairment on back in, I think, Q2 of 2020. So it's that one business that's caused us a little bit of grief. We've got some great people there. It just really hasn't performed to our level of expectation based on the purchase price.
[Operator Instructions] I think I met you probably in 2018, so about 3 years ago, it might have been longer than that.
Yes.
Fine. You sort of laid out your strategy. You've nailed it to a T, I'd almost say, from when we first met. Looking out 5 years, where do you see the business say, 5 years from now, what does it look like at that point?
Yes. I mean all I can say is it would be a lot bigger. I mean people want the revenue and the EBITDA, and I get the questions all the time, but -- so maybe I will touch on that. I mean if you think that we're $20 million annualized right now, my belief is we can always drive -- once we get to $40 million, that would represent about an 8% to 10% EBITDA margin on a consolidated level. So that's what I believe is still -- I believe that and I still believe that. It's all a function of the deals that come in front of us, whether or not we're successful on some of the brokered ones, because the reality is we could accelerate growth substantially from where we are today. But certain things have to happen. And whether they do or not, I don't know. I do believe we will be a significantly -- our size will be much, much, much larger than where we are today. We're just scratching the surface. We didn't -- when we started the business, we didn't have systems and processes and people. We're actually attracting good quality people, like, people are coming to us now, and that didn't happen when we first met back in 2018. So that has been nice. And it is nice to bring senior people that have good experience. It's a different level that can help us drive forward. So I can only answer your question by saying, I think we're going to be a lot bigger. We're a pretty consistent company, and we're very consistent. Like everything we do, I don't think there's any surprises any time we have a press release. There may come a time where we do a much larger transaction, as we've looked at them and they come in front of us. And if we think there's a deal that's going to be -- that's going to benefit the company, we'll do that. But again, I don't know how to answer your question other than, let's say...
Maybe a little different. Like geographically, do you think you're still in the Northeast? Or would you consider moving out of there? And then the other side would be you're pretty focused on a certain type of care. Do you ever move out of that or add different technologies or different services that you don't right now? Would you look at that?
Yes. So from a geography perspective, we'll definitely expand. Like, no question. We're looking at the Southeast right now. I mean we will expand, absolutely. And I think it's important to note, I think the question is, does it make -- like why would you go to South Central U.S. when there's more opportunities in New England as an example? And I think people get caught up on sometimes thinking that we, as a Nova Leap like at Halifax are the operators, we're not the operators. We own the businesses. We are good people who run the businesses. So we can buy a business in Seattle, and, like, if it's profitable, it's going to help us, right? We just have to make sure we have a good operator that's running the business in Seattle. That's how it works. We could buy one in California if it wasn't so litigious there. We could buy one. So we're looking for good businesses. We're looking for good businesses that have good people. Like, that's really what it's all about. So we'll definitely expand our geography, like no question about it. From a service-based perspective in terms of sort of the mix and so on, our focus is dementia care because that's the type of care that's required from us, like, that's the market that's driving that -- they're demanding it from us. So I often get people, why do you only focus on dementia, why not workers comp or why not hip and knee surgery, why not? Why not? Why not? And it's because, well, this is what they're asking us to provide service. And so that -- having said that, we expanded into Boston, an acquisition we made late last year. And that's not a dementia service. That's sort of a private pay, more medical-type care than the nonmedical, probably 1/3 of that business would be medical. That's different for us. So there's a bit of a shift there for that one business. We do look at different technologies and figure -- and try to assess, does it make sense for us to do something in-house at some point. And you always look at those types of things. But from my perspective right now, we're pretty good at the core thing that we do. We're going to stick to that, but we certainly are always evaluating other opportunities to see if they can add value to the company.
Got you. Well, this is pretty rare. We've obviously done a very good job of discussing the business because I don't have any questions from any of the listeners. So I feel good about that. Why don't we -- I'll just leave it with you. What's the key takeaway or the key message you want investors to leave with today about Nova Leap? What -- yes, what's the key takeaway?
Yes. If I really -- if I think about the -- I've been going around since 2016, right? We always had people who looked at us, like, you're small, you don't have the experience. Like we've done it. Like we're there. But we're no longer in sort of the show-me, prove-it-to-me sort of stage. We're well past that. And we're not this hot stock of the day, at least today and maybe not the right industry. But yet it's like The Tortoise and the Hare or The Little Blue Engine, any of those books that we read as a kid. Like, we just keep doing it. And our stock keeps doing it. I mean we IPO'ed at $0.10, we're at $0.76 or whatever it was today, and it's been as high as $0.99. Shareholders have made money. And every time we brought shareholders in, they made money. They've made money because we take them to the next level, they usually turn over, we bring in new investors, and that's the way it's been. We're just going to keep doing what we're doing. It works for us. Will we do larger deals at some point? Yes. Yes, I'm pretty confident we will. And that will take the company to the next level. When it does, then that will be a different level of investors, more institutional type investors, broader audience, like all the things that come with that. So in my mind, look, I just picked up $20,000 a share in the last 2 or 3 days. Like I'm a buyer at these levels. Well that's positive or negative, you guys can figure that out. But, like this is a good opportunity. And for people who want to participate in a good opportunity, then it's in front of them. I mean if you think about an aging demographic, you think about the need for home care, but we're in that space. And that need is for another 50 years before it starts to slowly decline based on demographics. We have a 50-year run for this company. I mean it's tremendous. I just -- that's why I get so excited talking about it. So look, I don't need to do a big sales pitch. I mean, I buy stock in the market when I can. I own a lot of the company, roughly 35% inside our ownership. We are seeing institutions start to come in and take the stock. And so I just think that -- and from my perspective, we're still very much under the radar. Like, I still think we're under the radar. Still -- I still come across people all the time who haven't heard about us. We're a tiny, tiny company. And I put my investor hat on, I want to invest in a tiny company that's at least proven something, that at least appears to have a long track record to keep doing good things, right? That seems attractive to me. That's why I've invested, and that's why I'm bullish in terms of where we are.
No, let me repeat. I've seen you execute. So the business certainly has shown investors that you guys know what you're doing and you've accomplished what you set out to do. And thanks again, because you answered the other question I was going to ask the 35% ownership. The insiders, obviously, they're eating their own cooking. And you guys have a -- a significant vested interest in seeing this work. So listen, congratulations. I think you should be commended for sort of executing on the business plan and doing what you should be doing and shareholders have been rewarded by it. Listen, Chris, if people want more information, what's your website address or how should they best get that information?
Yes, novaleaphealth.com is the website. We do have an investor deck that we update after every quarterly release, so that should be current. I think it's got pretty much everything you need there from the Board of Directors, the management team, the cap table, comps and just general information about the industry. So always happy to take any feedback from those that are looking at it. But I think that's probably the best way to get information on us at this particular point in time. Other than that, obviously, SEDAR and everything, they can read there.
Well, fantastic, Chris. Yes, great to see a company performing like you guys have in an industry that's got demographics working in its favor. So I really want to thank you for coming back and updating everybody. Look forward to catching up with you in the next little while and hopefully, by then, the stock is up considerably more as well to make sure all investors are happy. So thanks again, Chris, and until next time, see you later.
All right. Thanks, Paul. Appreciate it. Thanks, Trevor. Thanks, guys.
Yes.