Jack Nathan Health (JNH) Tickers: JNH and JNHMF Price: $0.76 Shares outstanding: 81M Market cap: 62M Cash: $6M Debt: None JNH is a micro-cap healthcare company that operates primary care medical and allied health clinics in Walmart stores under the banner Jack Nathan Health. Walmart is the highest traffic retailer in the World. Daily global foot traffic in all Walmart stores averages at 37M people. This enables JNH to quickly capture patients at a very low cost as Walmart only charges a nominal fee to JNH to access its locations and website. In return, JNH patients bring more foot traffic in Walmart and their baskets are on average 50% bigger. It's a win win relationship. JNH patients can shop while waiting and have access to quick referral between services offered in JNH clinics. For example, conditions such as fasting permitting, a patient can have a blood test done right after seeing his doctor. The locations are state of the art and look amazing compared to most competitors. JNH just went public in October 2020. That being said, JNH has been operating since 2006. Over the last 15 years, JNH has built a strategic partnership with Walmart in Canada and Mexico. JNH has successfully scaled up to 88 health clinics in Walmart locations by using a low revenue-licensing model. There are 76 operational clinics in Canada and 12 operational clinics in Mexico. Each location under a license based model bring in between $40k and $50k. JNH is now maturing into a high revenue practice model and can be expected to get between 20x and 40x revenues. JNH has expressed a conservative average target of between $1 and $2M in revenues per Canadian location. We believe that this target is very conservative. A high performing clinic can bring in much more. More precisely, JNH management are targeting revenues of between $500 and $1000 per sq feet for their current 76 clinics in Canada and future ones too! For example, Vaughan, the biggest location at roughly 8200 sq feet, could be expected to bring in $6.4M per year. Quite the jump compared to previous $50K license revenue JNH got from most locations under a licensing model. JNH has confirmed that some of the clinics owned by their licensees are already producing 1000$ per square feet and JNH intends to acquire them all. Based on the conservative target expressed above, we believe that JNH can reasonably ramp its sub 4M annual top line to 150M with the current number of clinics and other services offered. After scaling up the number of clinics with Walmart's approval and letting doctors bear the initial risk of starting practices, JNH is now ready to take over and hog the revenue of those clinics. Furthermore by taking over the practice management under the supervision of Dr Glenn Copeland, JNH will now be able to ensure quality control of all services. Let's just say that hiring and managing a practice can be challenging for those lacking business flair such as doctors. JNH publically reported financial Results for the first time on December 30, 2020. For the Q3 2020 financial Results ending October 31, 2020, JNH reported $3.1M for a 9-month period with a loss of $7.6M. That loss was caused by a one-time $7.9M non-cash listing expense. JNH would have been reporting positive net income if not for that one time expense. Most of that loss is attributable to share options given to a close group of advisers that provided and still continue to provide strategic support to jnh management. Investors would be wise to note that JNH has always been profitable since 2006 except for that one time due to the listing. This first report is not indicative of JNH corporate based model. JNH management have confirmed that, based on the publically available information only, the annual revenue run rate has already doubled. We think this is too conservatived and that both top and bottom line have and should expand even further. Signs of a great management, underpromise and over deliver. Since going public, JNH has made quite a few acquisitions with the cash raised from the listing and the warrants. On January 11th, 2021, JNH announced the acquisition of Writi, a cloud based medication-management software platform. At that time, Writi was used by over 800 frontline healthcare workers and in 15 long-term care home. Writi has a stable and growing SaaS revenue of 300K since it creation in 2019. JNH has expressed its intent to use Writi to accelerate its tech offering. Also, with the Writi acquisition, JNH has taken its first step in a new market that direly needs services, long term care homes. JNH has been offering telehealth for a while and it is safe to assume that they will continue to expand in that sector. It is a fantastic opportunity for JNH to have access to Walmart's website to deliver Telehealth. Walmart has been putting a lot of cash to better its online services and JNH can benefit from this growth in online traffic. JNH management have also been vocal about developing their services based on an model similar to Apple where they vertically capture all the services by having a comprehensive tech ecosystem. JNH currently serves 2M patient on an annual basis and is laser focused in capturing more patients by opening more clinics. Compared to its peers, JNH is not making acquisitions of practices to capture more patients. JNH already has captured those patients. JNH is making acquisitions to ramp its top and bottom line. This is a major difference from its peers. On February 18, 2021, JNH announced the acquisition of Redeem Medispa. Medispa offers a complete range of both surgical and non-surgical treatments for conditions such as Botox, migraines, laser therapy, anti-aging, face and body skin tightening, PRP therapies, hair loss and joint pain. The timing of this acquisition could not have been better with the huge increase in people working from home on sofas and using Zoom. Some articles from reputable medias are highlighting an increase of 60% for facial surgeries, they called it the “Zoom Boom”. Also, with the covid pandemic, patient have postponed their massages and other healthcare services thus there is a significant pent up demand. Currently the two Redeem practices bring in a top line of 500K with 25% margins. JNH has confirmed its intent to roll out the Redeem practices in all possible locations. JNH management demonstrated their ability to make yet another intelligent acquisition at a great price, $535K up front and an earning-out of $200K for the opening of first eight new clinics ($25K per opening). It is also important to note that the revenues are immediately captured by JNH and that further rollouts can be done very quickly. On March 9th, 2021, JNH announced the acquisition of 4 primary care medical practices for a purchase price of $560K in cash and 840K shares. Those 4 practices located in prime locations in Ontario currently have a total annual revenue of $2.8M with a adjusted EBITDA of 7%. JNH practice management expertise under the World renowned Dr. Glenn Copeland should expand that margin. On March 22nd, 2021, JNH announced the acquisition of the primary care medical practice located in its flagship location of Vaughan. While the purchase price was not disclose, we can safely assume that it was favorable for JNH based on their excellent track record. The practice currently has revenues of $500K for first 20 months of operations with significant revenue growth and earnings potential moving forward. There are also many other growth opportunities available for JNH. JNH with the help of its strategic partnership with Walmart can expand its on-site and online services in new markets all around the world. During the last Webinar, JNH management have confirmed currently being in brisk conversation with Walmart to expand their reach in 4 new national markets. Rumors have been flying around for a while about JNH entering the China, USA, UK and Latin American markets. On the later, it is good to note that Walmart Mexico is in fact Walmart Mexico and Latin America! On November 19th, 2020, JNH has announced to be expanding in 50 additional locations in Mexico. Furthermore, JNH has also recently announced during its webinar working to increase the number of locations in Canada. The usually media shy CEO of Walmart Canada, also recently stated to the press that he wants more clinics in the province of Quebec. It is also important to note that, there are two substantial underappreciated revenue growth factors available to JNH. First, the direct hiring of doctors and allied health professionals. JNH has been very active by recruiting doctors, chiropractors, kinesiologists, massage therapists, physiologists on the various job websites. That should represents a very nice surprise on the top line. JNH signs long term agreements and offers doctor a split revenue arrangement which should prove very attractive considering that peers such as Apple tree do not. The model is very simple and well though of. The operational costs are controlled. Once securing doctor, JNH can build other services around the primary care clinic. These other services which represent most of the footprint, have much bigger margins, as much as 25%. Second, it is well known in the sector that a doctor that does not manage his practice can see as much as twice the number of patient thus any managing doctors brought into the JNH family via an acquisition should bring in more revenue. JNH had also a partnership with Dynacare, a reputable lab company that pays JNH licensing fees to locate in JNH clinics. Dynacare started to offer serum covid 19 testing. Also important to note that one needs a referral from a doctor to get those tests. JNH has the doctors. Client capture! Management have also shown to be very capable by taking a page out of the book of the Big Boys i.e. Apple, Walmart, Disney by offering a bundle of services based on a monthly fee. Shout out to Scott Galloway and his term “Rundle”. This is a proven method to ramp up the top line and secure recurring revenues. The human being is simply incapable of having a full grasp on the element of time. Too many have spent tons of money of monthly membership without fully taking advantage of the service. Like gym membership for myself. The share price of JNH went up to $2.72 during the telehealth rage back in November 2020. The share price is now sitting at rock bottom valuation due to the acceleration of the expiry of warrants issued for 75 cents and the general pessimist pullback on healthcare stocks due to the covid19 vaccine rollout. Insiders currently own 55% of the fully diluted float and have been buying massively on the open market. These same insiders have confirmed being under voluntary share lockup. JNH management have also confirmed that the fully diluted tradeable float is around 20-25%, 16M-20M shares. JNH has confirmed that a small group of early stage investors that is close to founders are holding 20-25% of the fully diluted shares. As the saying goes, show me the incentive and I will tell you the outcome. Management do want share price to appreciate! Shares of JNH are available on the TSX venture and the OTCQB market. JNH has confirmed working on DTC elegibility which should help US based MM buy shares. JNH has currently 6M cash on hand and doesn't need to raise additional money to fuel future growth. JNH management have shown to be excellent at acquiring great practices at great prices. JNH has expressed a strong commitment to not dilute shareholders and will explore bank arrangement and other possibilities. However, JNH has huge ambition and growth plans, should the smart move be to raise more cash, management will consider every option for the benefit of its shareholders. The CEO stated that every dollar spent produces upwards of 10. What is in store for the future? JHN management have express strong bullish sentiment in their company and confirmed that we can expect robust M&A, significant technology rollout as well as a very significant uptick in revenues month over month and by the end of the year with a massive increase in patient engagement. The future looks bright for JNH. With the help of Walmart it is currently building a strong position and is a becoming a leader in the healthcare sector. It might even help solve the issues plaguing healthcare: costs and inefficiencies. Last thoughts With the aging of the population, JNH as the wind in its back. Spending in healthcare will represents a significant portion of GDP in the future, as much as 20% of the US GDP in 2028. Healthcare is one of 3 sectors that have true inflation in prices. Healthcare is one of my favorite sector as it is very defensive and just ripe for being disrupted. The runway is huge and the path is clear. These are early days for JNH. They are laser focused on growing as fast as possible. JNH has confirmed that we can expect many additional acquisitions. If JNH management hits their targets, the company could well see its top line grow from $4M to $150M without factoring the surprise factors mentioned above, further clinic expansions, tech rollout and new markets. In our opinion, the share price is a rock bottom valuation and, giving JNH a multiple of 10 which is reasonable compared to its peers, it could see significant expansion up to 12$. That will take some time. Short term sp is more difficult to assess as each acquisitions are raising the top line massively and JNH has been a very active buyer. Suffice to say that going from 4M top line to 150M based on a shift from license to practice management model is transformational yet not that difficult with the help of a giant such as Walmart and acquisitions right in your own backyard i.e. acquiring the licensees. Rarily have we seen an opportunity such as JNH where a microcap with a strategic partnership with a giant can scale easily on the international market. Long JNH
