Carerx Corp

Good morning, everyone, and welcome to CARE-RX's fourth quarter and year-end 2024 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 one 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 on the company's website at www. Today's call is accompanied by a slide presentation. Those listening on their phones can access the slide presentation from the company's website in the investor section under events and presentations by loading the webcast and choosing the non-streaming audio option. Certain matters discussed in today's call or answers that may be given to questions asked should constitute forward-looking statements that are subject to risks or uncertainties relating to CARE-RX'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 CARE-RX's continuous disclosure record, which you can access on the CEDARplus database under www.cedarplus.ca. CARE-RX is under no obligation to update any forward-looking statements discussed today. And investors are cautioned not to place undue reliance on these statements. I would now like to turn the call over to Puneet Khanna, President and CEO of CareRx Corporation. Please go ahead, Mr. Khanna.

Thank you, and good morning, everyone. Welcome to our fourth quarter 2024 earnings call. With me this morning is our Chief Financial Officer, Suzanne Brand. 2024 marked a year of tremendous success for the team at KRX as we continue to focus on operational excellence and strengthening the ability of our network to scale without proportionally increasing costs. In addition, we simplified our balance sheet, improved cash flow, and put the company in a position to leverage various opportunities while maintaining our disciplined approach to capital allocation. As we enter a phase of growth, we remain committed to further enhancing our service offerings to our home operating partners and residents while delivering long-term value for our shareholders. In the fourth quarter, we delivered revenue of $92.2 million and adjusted EBITDA of $7.6 million. As we anticipated, fourth quarter average bed count was slightly lower than the third quarter as a result of full quarter impact of the previous quarter debt count churn. On October 1st, Suzanne Brand joined CareX as Chief Financial Officer. Suzanne is an exceptional finance and healthcare leader with a track record of developing great teams. She brings a wealth of professional and personal experience and has already made a significant contribution in preparing us for the next stage in our growth story. As we previously announced, In early December, we opened a new state-of-the-art high-volume fulfillment center in North Burnaby, British Columbia. I will provide a more detailed update later in the call. Finally, in November, the final tranche of the company's 8.25% unsecured convertible debentures was converted into common shares at a price of $3 per share. The convertible debentures have now been extinguished in full. This marks the final step in the comprehensive debt restructuring initiative that we undertook beginning in December 2023, which further simplifies our balance sheet and decreases our annual interest expense. I will now turn the call over to Suzanne, who will discuss our fourth quarter financial results in more detail. Suzanne?

Thank you, Puneet, and good morning, everyone. Revenue for the fourth quarter of 2024 increased to $92.2 million from $91.1 million in the fourth quarter of 2023 and decreased from $92.8 million in the third quarter of 2024. The year-over-year revenue increase was driven primarily by an increase in branded pharmaceutical prices during the third quarter of 2024, despite a lower year-over-year Fed count. The quarter-over-quarter revenue decrease was the result of the slight net reduction in the average number of beds serviced. Adjusted EBITDA for the fourth quarter grew 1% to $7.6 million from $7.5 million in the fourth quarter of last year, and declined slightly from the third quarter of 2024. Adjusted EBITDA margin in the fourth quarter was flat year-over-year at 8.2% and decreased 20 basis points quarter-over-quarter. The year-over-year improvement in adjusted EBITDA occurred despite a lower bed count and was primarily the result of efficiencies, exiting unprofitable beds, and cost savings initiatives that commence during the second half of 2023, as well as improved supply terms from the amendment to the procurement agreement with our major pharmaceutical supplier. We posted a net loss of $2.2 million in the fourth quarter compared to a net loss of $3.7 million in the fourth quarter of 2023, and a net loss of $400,000 in the third quarter. This year-over-year decrease in net loss was driven primarily by decreases in finance costs and the impact of certain cost saving initiatives that commenced during the second half of 2023. Cash at December 31st was $9.1 million compared to $8.8 million at the end of the third quarter. Net debt decreased by $1.8 million to $36.2 million compared to $38 million last quarter. The increase in our cash balance and decrease in net debt was due to an increase in cash flow from operations, repayments made to our operating loan, and the repayment of the final tranche of the convertible debenture. Net debt to annualized run rate adjusted EBITDA at the end of the third quarter was 1.2 times and in line with the third quarter of 2024. It's worth highlighting the benefit of the comprehensive debt refinancing program we initiated last year. By restructuring our debt, repaying certain high-cost components, converting from fixed to floating rate, and adding the flexibility of an operating line, the total debt has been reduced by $21.8 million compared to the fourth quarter of 2023. Overall finance costs in 2024 was $9.1 million compared to $14.3 million in 2023, a year-over-year savings of $5.2 million. We continue to remain committed to returning capital to the 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 highlight 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 will turn the call back over to Puneet.

Thank you, Suzanne. 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 BC Lower Mainland, and at the same time, provide an improved experience and work environment for our employees. Following on our success at our Oakville Fulfillment Center, this location will also utilize a high advanced medication packaging technology, allowing for the processing of significantly higher prescription volumes while enhancing safety and reducing waste. We have fully consolidated the Care-Rex Burnaby Pharmacy and are two-thirds transitioning the Care-Rex Vancouver Pharmacy operation into the new location. We are on schedule to have all the beds in the Lower Mainland serviced from our new high volume fulfillment center by the end of the first quarter. Our state-of-the-art lower mainland facility will leverage enhanced and optimized workflows, fully implement lean methodologies, drive efficiencies through streamlined operations, and further elevate our service offering. Building on our year-long process improvement and cost initiatives, we recently completed a tour of three highly efficient, large-scale pharmacies in Europe. These high-volume pharmacies utilize technology that's similar to our packaging robotics while also employing additional innovative systems and processes that significantly enhance throughput and reduce downtime. We are now benchmarking ourselves and collaborating with the best-in-class global high-volume pharmacy operators. The CareRx team is actively evaluating how these advanced automation solutions and processes might be integrated into our own facilities. As I mentioned in my opening, we have positioned KRx with an operating platform that has the capacity and ability to respond immediately to growth opportunities. Our ongoing efforts to optimize our operations have further enhanced our competitive advantage and ability to anticipate an evolving market growth opportunities in terms of new rfps and bed expansions in 2024 were modest as a result of stakeholder timeline delays however we anticipate a robust activity level in 2025. we have already successfully secured 3 000 beds that are expected to be online in the first half of this year and we expect to continue this growth momentum this increase in beds represents an inflection in our growth trajectory and validates our patience and efforts in streamlining our operation and improving best practices over the past year. As Suzanne mentioned, we are now generating cash and we will use our capital to deliver on both growth and shareholder value as follows. One, to support investments for bed growth that provide high returns for the organization. Two, for accretive acquisition. Three, the continued repurchase of our shares as we strongly believe we are still undervalued. And fourth and finally, for debt repayment. I'm thankful to the Carex team for their efforts and success in building an organization that is ready for significant future growth while never losing sight on the importance of the people entrusted in our care. With that, I would now like to open the call to questions. Operator?

Thank you. We will now begin the question and answer session. To ask a question, you may press star and 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key. At this time, we will pause momentarily to assemble our roster. Today's first question comes from Gary Ho with Mr. Arden's Capital Markets. Please go ahead.

Thank you. Good morning. Anit, maybe we can start off with you. Just wanted to hear your thoughts and your last comments there on recent contracts. You mentioned 3,000 in the first half of this year. Just curious if that includes the recent Yorkfield-Southbridge acquisition of 21 long-term care homes. That's in that number, or will that be additive to it? Maybe just generally, maybe just comment on these contracts, please.

Yeah, we usually don't specify specific customers, but as we've mentioned in the past, that any of our existing customers who do acquire beds, our contracts automatically do turn them on and self-bridge as a customer of ours. And the announcement they had, this would be inclusive of that number.

Okay, and then anything else in terms of the pipeline for RFPs that you can comment that you're working on today that could benefit later on this year?

You know, I think sort of as my prepared comment, last year was a bit of an anomaly where we found there was a lot of start-stop. What we see in view this year, sort of this, This growth rate, we feel we can continue to sustain it throughout the year and maybe even accelerate it. The pipeline is extremely robust right now.

Okay, great. And then my second question may be for Suzanne. Just on the margins, 8.2% was a bit softer than what we're looking for. In particular, there was an increase in other expenses. 15% year-over-year. I think outside of inflationary comments, there wasn't much called out in the MD&A. Can you maybe flush that out a bit more? Any one-time expenses group in that line item? And furthermore, kind of your confidence in it, Mark, sometime this year?

Yeah, I can speak to that for sure. So other expenses, I would say some of the specifics in debt within in and around some additional expenses related to getting the mainland ready. So that was definitely one of the contributors. Maybe secondarily would also be some of the expenses related to off-boarding some of the old contracts. And lastly, there would be a little bit of non-alignment with respect to some of our other services that we provide. to our respective homes, just a little bit of timing related to cost of revenue and the expenses. So I'm confident though that we will have that under control in terms of the go forward position. So I would say that would be the main component to that driver.

So maybe can I question that a little bit. So the ones that you called out are more one time, it sounds like the first two buckets, would that be

biggest driver of that 15 year-over-year increase agree yes okay yeah and then and then your confidence in that 10 target yeah we continue to strive for that internally um that is something that is definitely a part of our our uh that is definitely a part of our our objective okay great uh those are my questions are we here thanks a lot darren

The next question comes from David Martin with Bloomberg. Please go ahead.

Good morning. Follow-on question. Just to confirm, the Rivera beds worth in the December year-end bed counts, they'll come in the first quarter?

Correct, yeah. We're just waiting for the licenses to be transferred from the ministry. Okay.

And what kind of margin improvement do you expect with North Burnaby coming online? And will it be immediate or will it take time?

No, yeah, it'll take a bit of time. We'll most probably start seeing that late fall by the time we can drive all of the efficiency to have it humming like Oakville.

Does it come at the same time you'll be expecting to get more beds in BC?

We're trying to get more beds everywhere, David. But yeah, what it will allow is as we, again, we have pipeline visibility across the country and by region that we are targeting. And so what it will allow is As we continue to bring in beds in the BC Lower Mainland, we will bring it at a much more accretive value. So even if we were to turn on beds in the next couple of months, it would still be better than what we would have been able to historically do. But for us to get the full value of what we've built, it'll take until the fall to get that full value out.

Got it. Okay, that's it for me. Thanks.

The next question is from Tanya Armstrong with Canaccord Genuity. Go ahead. Good morning, Suzanne.

Good morning. So firstly, I was wondering if you could elaborate on what some of those other automation solutions you've referenced that you saw at the European facilities you toured are, and I guess a kind of timeline of how these can be integrated into your own facilities.

Yeah. You know, I can get geeky on these things, so I will try to not go overboard. There's most probably some solutions we can implement fairly quickly. And we're already brought some things in-house that we're testing with respect to bolt-ons that either go right before or right after our machines, and the ones you've seen, say, in Oakville. So they're really add-ons where you don't really have to have integration, but it's just some of the manual processes that, again, are right before or right after the robotics can now also be automated. And so we're bringing some of those in for testing. I think some of it was just on process and workflow integration, And again, you've seen the canisters that go into the robotics. It's just canister management and pieces like that. And they are using some predictive AI technology in anticipating canister replenishment. And we will be bringing that solution in later this spring as well.

Excellent. Thank you for that, Colin. You probably mentioned this on the last call, but I don't remember. Could you quantify for me how much of the decline in bed service is due to your own rationalization of those unprofitable beds?

Yes. Since we started, it would have been just over 2,000.

And that's all baked in as of Q4. We shouldn't expect that to continue going into Q1?

Correct.

Yes. And just last question for me. This was asked early, double-digit EVM margin. I know you are still striving for that. I think on the previous call, it was alluded to that that date will be pushed out from kind of exiting 2024 into the first half of 2025, assuming those Rivera beds do come online, H1. Can we assume that you're still on track to hit a double-digit EBITDA margin in the first half of this year?

Again, that's our internal target. That was the last component of what we needed to get to the double-digit. So we still believe that will happen at the first half once all these beds are onboarded.

Perfect. I will get back to the queue.

Thank you, guys.

Thank you.

The next question comes from Justin Keywood with People's. Please, Dylan.

Good morning. Thanks for taking my call. With the Ontario Ford government majority win, does this impact the outlook for CareRx as it relates to pricing, either positive or neutral?

I mean, considering what the announcements were yesterday, Justin, and how markets reacted, I think a lot of the focus for the government the next little bit will be tariffs. So I'm not sure if that will make any real impact on us. As Suzanne said, we're fairly insulated from the impact of tariffs. I do think outside of that, the government has work that they want to accomplish. And the Ford government's been very, very supportive of the long-term care sector in general. And so we think, you know, once this distraction is settled or at least there's some sort of plan, I do think as the government gets back to business, we'll be ready to continue to engage with them.

Maybe I can just add to that that we really are quite insulated, as Puneet said, from tariffs and really minimal purchases out of the U.S. and looking to really move that into Canadian suppliers, so very minimal impact.

Thank you. And then some of the mention of the increased automation, we're able to provide an updated forecast for CAPEX in 2025, please? It'll stay as our .

Sorry about that. I apologize for overstepping there, but it'll stay within the approximate $8 million mark.

And that would include some of the new innovation seen in Europe?

Yes. Yeah. You know what? So we generally do eight annually, so we'll still be on track for that. It won't change it.

Okay. And then just finally on the outlook for bed growth, I assume this is by organic means. I know in the past, CareX has been acquisitive. Is that... Is that also part of the growth outlook for 2025 or is it more of a organic focus?

Thanks. No, you know what? It's sort of, again, as in my prepared statements, I think the organic growth engine is now reared up and in full gear. So that is where we're going to win our unfair share. I think unlike what we grew before where it was all M&A, I think now what you'll see is we will also have some tuck-ins that come in with this as there's some opportunities there. So we've got the cash, and so if there are opportunities where we can bring things in and just, you know, we don't want bricks and mortar anymore, but if we can insert it into the large centers we build, it makes a creative sense for us. We're going to turn that on again as well. It just won't be as transformative as in the past.

Thank you. Thanks, Justin.

The next question comes from Hans Osiris with Cormark Security. Please go ahead.

Hey, so firstly, you're saying H1 adds for the 3000. Will the deal close in time? And we're hearing it may not close until Q1.

Yeah, so we will onboard those all in the first half of this year. So again, we've known about it. So we've already done the background transitionary work. So we can transition those as we're confident they'll all be on before the end of Q2.

Okay. And then can you tell us the exit bed count at the end of Q4? We only have the average beds during the quarter from your filings.

Yeah, Suzanne, do you have that? Yeah, I do have it, 87124.

Okay. And then can you guide us on where you think your exit 2025 bed count will be so we can get a better feel for the financial profile in 26?

Yeah, we don't provide that guidance. Okay. Okay, thank you.

Thank you. At this time, there are no first questions. I would like to turn the call back to Mr. Conno for closing remarks.

Thank you, everyone, for participating in today's call and for your continued interest in Care REC. We look forward to reporting on our continued progress next quarter. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines.