CareRx Corp

TSX:CRRX

Good morning, everyone, and welcome to the CareRx First Quarter 2025 Financial Results Conference Call. Please note that this call is being broadcast live over the Internet, and the webcast will be available for replay beginning approximately 1 hour following the completion of the call. Details of how to access the webcast replay are available in today's news release announcing the company's financial results as well as the company's website at www.carerx.ca. Today's call is accompanied by a slide presentation. Those listening on the phones can access the slide presentation from the company's website in the Relations section under Events and Presentations by loading the webcast and choosing the nonstreaming audio option.

Certain matters discussed in today's call or answers that may be given to questions asked can constitute forward-looking statements that are subject to risks and uncertainties related to CareRx's future financial and business performance. Actual results could differ materially from those anticipated in these forward-looking statements. The risk factors that may affect results are detailed in CareRx's continuous disclosure record, which you can access in the SEDAR+ database under www.sedar.ca.

CareRx is under no obligation to update any forward-looking statements discussed today, and investors are cautioned not to place undue reliance on these statements. [Operator Instructions]. I would now like to turn the conference over to Mr. Puneet Khanna, President and CEO of CareRx Corporation. Please go ahead, Mr. Khanna.

Thank you, and good morning, everyone. Welcome to our first quarter 2025 earnings call. With me this morning is our Chief Financial Officer, Suzanne Brand. In the first quarter of 2025, we delivered revenue of $89.6 million and adjusted EBITDA of $7.8 million. As expected, average bed count in the quarter was slightly above the fourth quarter of 2024.

As we previously announced, in early December, we opened a new state-of-the-art high-volume fulfillment center in North Burnaby, British Columbia. With this expansion, we commenced the consolidation of our existing Burnaby and Vancouver pharmacy operations to the new CareRx lower mainland location. The transition of all beds to this new facility was completed in the first quarter of 2025.

At the end of the quarter, we were proud to host the BC Ministry of Health and the BC Care Providers Association for a tour of this new pharmacy. With a shared commitment to improving health outcomes for seniors, we are excited about the ongoing opportunities to contribute to the future of senior care in British Club.

In April, the Ontario Ministry of Health announced the postponement of the previously scheduled changes to the long-term care pharmacy funding for another year. These changes would have reduced the fixed professional fee under the fee per bed capitation model from an annual amount of $1,500 per bed to $1,400 per bed. We have a collaborative relationship with the Ontario government and are optimistic that together, a permanent and mutual beneficial platform for funding will be developed. We look forward to building on this partnership as we continue to demonstrate the value of long-term care pharmacy.

Finally, we strengthened our management team with the addition of Erwin Van Hout as Senior Vice President, Information Technology. Erwin joins us with a wealth of experience in the health care sector and a proven track record of balancing innovation and operational excellence. He has held senior roles at Deloitte at several hospital health systems, including sick kids hospital in Toronto, where he led the implementation of critical IT infrastructure and implemented cutting-edge technologies for the new 22-story tower. I'm excited to have Erwin's health care IT-focused experience leading the next phase of our growth journey.

I will now turn over the call to Suzanne, who will discuss our first quarter financial results in more detail. Suzanne?

Thank you, Puneet, and good morning, everyone. Revenue for the first quarter of 2025 was essentially in line with the first quarter of 2024 at $89.6 million and decreased slightly from $92.2 million in the fourth quarter of 2024. Revenue remained stable year-over-year, primarily due to a change in the mix of branded and generic pharmaceuticals dispensed.

The quarter-over-quarter revenue decrease was due to 2 fewer operational days in the quarter. Adjusted EBITDA for the first quarter increased by 4.5% to $7.8 million from $7.4 million in the first quarter of last year and increased by 3% from the fourth quarter of 2024. Adjusted EBITDA margin increased by 40 bps points year-over-year to 8.7% and increased 50 basis points quarter-over-quarter. The year-over-year improvement in adjusted EBITDA was primarily the result of efficiencies and cost savings initiatives.

We generated net income of $227,000 in the first quarter compared with a net loss of $517,000 in the first quarter of 2024 and a net loss of $2.2 million in the fourth quarter. The elimination of the net loss was driven primarily by a decrease in finance and depreciation and amortization expenses, partially offset by increase in transaction, restructuring and other costs and a reduced favorable adjustment in the fair value of contingent consideration liability.

Cash as of March 31 was $11.2 million compared with $9.1 million at the end of the fourth quarter. Net debt decreased by $2.8 million to $33.4 million compared to $36.2 million last quarter. The quarter-over-quarter increase in our cash balance and decrease in net debt was due to a net increase in cash generated from operations and payments to the term loan.

Net debt to annualized run rate adjusted EBITDA at the end of the first quarter was 1.1x, down from 1.2x in the fourth quarter of 2024. We continue to remain committed to returning capital to shareholders through our active share buyback program under the normal course issuer bid, supported by our strong capital position and the belief that our share price does not adequately reflect the fundamental value in our underlying business and our near- and long-term growth potential.

Finally, it's important to reiterate that CareRx operates exclusively within Canada, serving only Canadian customers, and we source our medications and equipment almost exclusively from Canadian suppliers. As a result, we are highly insulated from the threat of tariffs. And with that, I turn the call back over to Puneet.

Thank you, Suzanne. As I previously mentioned, in December, we opened a new state-of-the-art pharmacy in North Burnaby, British Columbia. This new pharmacy fulfillment center is designed to enhance service delivery for the homes and residents serviced by CareRx throughout the B.C. Lower Mainland and at the same time, provide an improved experience and work environment for our employees.

We have successfully consolidated the Burnaby and Vancouver pharmacies into the new lower mainland location with all of our beds fully transitioned to this facility at the end of the first quarter. The new CareRx Lower Mainland site is the largest pharmacy in our network based on the number of beds serviced.

As a part of our ongoing process improvement and cost reduction initiatives, in January, our team visited high-volume European pharmacy facilities. These highly efficient, large-scale operations utilize technology similar to our packaging robotics while also implementing additional innovative systems and processes that substantially improve output and minimize downtime.

We are now collaborating with these operators and benchmarking our performance against these best-in-class international high-volume pharmacies. We also continue to investigate cost-saving procurement opportunities that streamline the business by leveraging scaled buying power.

Finally, as mentioned earlier, we are excited to have an experienced health care IT leader on the management team to drive IT-enabled efficiencies and innovation that will elevate our service offerings to our home operating partners and residents while reducing costs and continuing to enhance the work experience for our employees.

As I outlined last quarter, we expect 2025 growth opportunities to be robust. In the first quarter, we had some marginal growth, but we secured 3,000 new beds and have already begun the onboarding process. We will see the revenue contribution from these new beds ramped throughout the next 2 quarters.

We have positioned CareRx with an operating platform and with the capacity to respond immediately to growth opportunities. Home operators in our sales pipeline have acknowledged our optimized operations, innovative services and programs and our ability to evolve to market demand.

As such, we look forward to sharing the further bed wins throughout the rest of the year. As Suzanne shared we continue to generate cash, enabling us to strategically allocate capital towards both growth initiatives and enhance shareholder values in the following ways, one, investment in bed growth and efficiencies; two, tuck-in acquisitions; three, the repurchasing of our shares; and four, to reduce our debt.

We spend each quarter discussing our financials, but never about why we do what we do. Today, I wanted to share the story of Mr. Burdett Burd Sisler, Canada's oldest man and a proud World War II veteran. A few weeks ago, we had the privilege of attending his 110th birthday celebration. Burd has lived through 2 world wars, to solar eclipses and 2 pandemics.

For greater context, Burd has been retired for 55 years. We were inspired by his determination, resilience and wisdom that comes from a life spanning more than a century. This celebration was also a reminder of the importance of our work. It's about helping every resident live with dignity purpose and the highest standard of care. This is at the heart of why we do what we do. With that, I'd now like to open the call to questions. Operator?

[Operator Instructions] And our first question will come from Mr. Gary Ho with Desjardins Capital Markets.

Just with a much healthier balance sheet and your comment in the press release that you're entering a new phase of growth. Are you maybe able to elaborate? Are you more willing to look at acquisitions again? Or is this more organic or even perhaps looking at the smaller contracts that you can bolt on that might have been serviced by mom and pop kind of retail pharmacies. If you can give us more detail, that would be great.

Yes. No. Good question, Gary. And all of the above. So I think for where the network and the platform we've built, we are very bullish on organic growth and are comfortable with the street fight and sort of winning beds on the market there. We do have cash and so the ability to also do tuck-ins and/or buy individual contracts from the mom and pops is something we're pursuing as well. So yes, the answer is all of the above.

Okay. Great. And then maybe just related to that, the bed count growth in your prepared remarks. I just mentioned the 3,000 bed wins. Just wondering if you can share if that's kind of related to kind of what you've talked about kind of previous quarters in the [indiscernible] 21 LTC home? Is that still on track to be onboarded? And if you kind of take a more optimistic approach in terms of getting some of these acquisitions you just mentioned, where do you think you'll end 2025 in terms of bad car growth?

Okay. Yes. So the -- yes, the 21 that you mentioned are part of that 3,000. Those are all scheduled to be onboarded by the end of Q2. And so in sort of in my prepared remarks, like, how do you see sort of that impact revenue-wise, it will be over the next 2 quarters that you see that piece. And then I think outside of that, not as big as the current one, but we do have, again, things that are very close to being in hand over the next quarter or 2 that we'll continue to turn online. And so I think -- and then your last question was in and around where we end. And so I think what you have as your estimates, we're really comfortable with.

Okay. Great. And then just maybe last question, perhaps for Suzanne. There was some noise in the operating expense related to the North Burnaby facility ramp-up last quarter. Curious if there's any kind of onetime costs that's baked into the Q1 numbers that you just released and anything else that we should model for Q2 and going forward?

Gary, thanks for the question, Gary. Really, minimal onetime related costs this quarter. It's just maybe a little bit with respect to some crossover on service as we consolidated everything into the one location by the end of March. So I'd say, incredibly immaterial. So we're in really good shape with respect to those relate both onetime costs.

The next question will come from David Martin with Bloom Burton.

Congratulations on the progress. I kind of have a reverse question about Burnaby. And you -- did you experience a full impact of the benefits of consolidating the operations into Burnaby? And if not in the first quarter, what kind of impact are we going to see on the expense lines moving forward?

Thank you. With respect to the Burnaby opportunity, we haven't got the full impact of all of the consolidation yet, but we do expect to start experiencing those opportunities within the back half of this year. So we will get the full benefit of the, call it, consolidated operations and full impact of the opportunities in the back half of the year.

And what kind of impact should we expect?

In terms of an absolute number?

Yes, I don't -- so I think it will be similar to what we saw in the Oakville location. So we generally don't give guidance on that, but we will see efficiencies in our labor and overtime and just driving operational excellence through that location. So we have already implemented the lean that generally takes 3 to 4 months to start fleshing out. So we're seeing those operating costs go down.

Next question will come from Tania Armstrong-Whitworth with Canaccord Genuity.

Comment. To start maybe just on the employee cost. We did see a bit of an uptick there. And I'm wondering, based on the consolidation occurring as planned, what in uptick in employee cost? Or is this kind of your new sustained run rate?

Thanks, Tania, for the question. The increase in employee cost is fundamentally related to the inflationary costs year-over-year in terms of embedding some of the merit and a little bit of timing. So you would have some of the increased costs attached to the benefits related to those as well. So it's fundamentally timing and inflation related.

Okay. So this can be seen as kind of a new run rate?

It would be close to, yes, kind of a recurring rate.

Okay. Excellent. And then in terms of revenue per bed, I know you mentioned a little bit of there versus branded medication expense mix. Was there like a onetime change that occurred in Q1 to cause revenue to come down a little bit? Or is this kind of just a gradual mission that's been happening?

It's actually, Tania, it's actually a change with respect to a product called PAXLOVID. So in 2024, in kind of the first -- I think it was actually in the first quarter where we actually -- that product was actually being received, let's call it, free via government. So now that is totally a part of the product costs that we have to purchase. So you see that difference with respect to the revenue driver on the mix there.

And just for context, Tania, that was the therapy for COVID. And so you have to remember early on and for a little bit the years -- years after governments were -- we're not going to give it to the pharmacies for free anymore. And so you see that in the COGS.

Your next question will come from Justin Keywood with Stifel GMP.

I'm not sure if I missed it, but on the Ontario Ministry of Health announcing a pause to the scheduled fee change. Is there an anticipation of when that could come into effect? Or is it deferred indefinitely at this point?

It's being deferred year again as we continue to have conversations with them, Justin.

And what is the strategy around that deferral? Because if it does come into effect, it could be what sounds like pretty impactful with the capitation model and the fee per bid reducing by what sounds like 30%?

Yes. I mean it's -- yes, I mean, it's a step down. That was from the previous liberal government that put in that mechanism. This has been frozen for the last number of years. And I think, again, we have a very good relationship with the Ontario government and we collaborate with them. And so I think they realize that it doesn't necessarily make sense. But it's just -- unfortunately, there's been some timing-related things with ministers changing and an election that we had at the beginning of this year that has just caused delays. So they've given themselves another year to investigate and make a decision.

Are we able to quantify that potential impact if it does come into effect and realize that the step down in fees occurs over a number of years. But as far as EBITDA margins or impact on the overall business?

Well, without knowing exactly the entire impact. I mean we can quantify it. It is challenging to -- we need to know exactly how many beds we would have over the kind of approach could look into that.

This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Khanna for any closing remarks. Please go ahead.

Thank you, everyone, for your continued interest in CareRx. We will see you next quarter. Thank you.

This brings today's conference call to a close. You may disconnect your lines. Thank you for participating, and have a pleasant day.