Carerx Corp

Good morning everyone and welcome to the CareRx second 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 one hour following the completion of the call. Details of how to access the webcast replay are available on today's news release announcing the company's financial results as well as on the company's website at www.carerx.ca. Today's call is accompanied By slide presentation, those listening on their phones can access a slide presentation from the company's website in the investor section under events and presentation by loading the webcast and choosing the non-streaming audio option. Certain statements made during today's call including answers that may be given to questions may include forward look information, including information constituting a financial outlook under applicable Canadian security laws. Forward-looking information, including financial outlook information, includes statements regarding future events, conditions, or results, including the company's future plans, strategies, objectives, and expectations. Forward-looking information and financial outlooks are based on information available to management. as well as their assumptions and expectations as of date of this presentation. The company assumes no obligation to update any forward-looking information as a result of new information or future events, except as required under applicable law. Forward-looking information is subject to risks and uncertainties, some of which may be unknown to management or beyond the control of the company, which could cause actual results to differ materially from those contemplated by the forward-looking statements or financial outlook provided today. Given these risks and uncertainties, investors are cautioned not to place undue reliance on companies' forward-looking information. additional information on the risk factor that would cause actual results to differ materially from those contemplated by the forward-looking information, and the factors and assumptions associated with such forward-looking information, please refer to Companies MD&A for the three- and six-month period ended June 30, 2025 and 2024, and other documents filed on the company's profile on www.cedarplus.cn. I would now like to turn the call over to Puneet Khanna, President and CEO of CareRx Corporation. Please go ahead.

Thank you, and good morning, everyone. Welcome to our second quarter 2025 earnings call. With me this morning is our Chief Financial Officer, Suzanne Brand. In the second quarter, ending June 30th, 2025, we delivered revenue of $91.4 million. and adjusted EBITDA of $8 million. The 3,000 new beds we recently secured have now fully been onboarded, and we expect the full revenue contribution of these beds will start to be realized in the third quarter. I would like to acknowledge and sincerely thank all of the members of the Carex team who are supporting the delivery of the best in pharmacy services and programs to these new residents and homes. as well as those who continue to deliver exceptional care to our existing residents and home partners. I will now turn the call over to Suzanne, who will discuss our second quarter financial results in more detail. Suzanne?

Thank you, Puneet, and good morning, everyone. Revenue for the second quarter of 2025 of $91.4 million was essentially in line with the second quarter of 2024 and increased from 89.6 million in the first quarter of 2025. The quarter-over-quarter revenue increase was due to an increase in the average number of beds serviced. As Puneet mentioned, we expect the full revenue contribution from the new beds we recently onboarded to occur in the third quarter. Adjusted EBITDA for the second quarter increased by 7% to 8 million, from $7.5 million in the second quarter of last year and increased by 3% from last quarter. Adjusted EBITDA margin increased by 60 basis points year-over-year to 8.8% and increased 10 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 $561,000 in the second quarter compared with a net loss of $1.4 million in the second quarter of 2024 and net income of $227,000 in the first quarter. The year-over-year elimination of the net loss was driven primarily by a non-cash adjustment related to an intangible asset impairment recorded during Q2 of 2024 as a result of the sale of a non-core pharmacy location. And decreases in finance costs, depreciation, and amortization expense were partially offset by increase in transaction, restructuring, and other costs. Cash at June 30th was $8.7 million compared with $11.2 million at the end of the first quarter. Net debt increased by $1.4 million to $34.8 million compared to $33.4 million last quarter. The quarter-over-quarter decrease in our cash balance and increase in net debt was due to the retirement of a vendor take-back loan and the timing of certain working capital items. Net debt to adjusted EBITDA at the end of the second quarter was 1.1 times and in line with the first quarter of 2025. 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, I will reiterate what we have stated in prior quarters, which is 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, based on the information currently available to us, we believe we are highly insulated from the threat of tariffs. And with that, I will turn the call back over to Puneet.

Thank you, Suzanne.

During the second quarter, we realigned our executive management team to support our strategic priorities, particularly around clinical innovation operational excellence and customer experience. I'm excited with the newly created Chief Clinical Officer role that brings clinical leadership as a focus to the executive table for the first time in CareRx's history. These changes that we have made to our leadership structure create stronger alignment between CareRx's leadership team and its focus on creating outstanding experiences for residents and home partners. As an organization, we believe that an unwavering focus on people and process delivers results. This people process payoff philosophy drives our commitment to innovation, continuous improvement, and operational efficiency across all areas of the business. As mentioned previously, we onboarded 3,000 beds during the second quarter, and we expect the full revenue contribution of these beds will start to be realized in the third quarter. We have positioned KRX with an operating platform and with the capacity to respond immediately to growth opportunities as demonstrated in the second quarter. Our ongoing efforts enhanced our competitive advantage and ability to anticipate evolving market demand. We remain encouraged by the momentum in our business and we believe we are well positioned to continue creating long-term value. Over the past two years, we began a journey centered on people, our employees, the residents we serve, and our home partners. We challenged ourselves to reimagine our processes in ways that not only improve efficiency, but enhance the quality of care and services. While it's still early, we're encouraged by the positive signs we're starting to see and remain focused on shaping a culture rooted in performance, accountability, and 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 join the question queue, you may press star and one on your telephone keypad. You will hear a tone acknowledging your requests. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two. We will pause for a moment as callers join the queue. The first question comes from the line of Gary Ho with Desjardins Capital Markets. Please go ahead.

Thanks. Good morning. First question, good to see the positive sequential VET account growth there. Just wanted to clarify, were they onboarded evenly throughout the quarter? And I'm curious to know the onboarding process. So is the Yorkville-Southbridge onboarding done at the end of Q2, or did some of that trickle into Q3? And also, if you can qualitatively or quantitatively talk about the second half, that camp growth outlook, and you mentioned the RFP being pretty robust there.

Yes. Good morning, Terry. Yeah, so all of the 2400 beds from the Yorkville, Sells Ridge were fully onboarded in the quarter. There were then additional wins we had that took us to the 3000 beds. Most of those beds would have been in the second half of the quarter. And so that's why you see sort of a little bit of a potential miss from market on revenue just because it was back half loaded. And then with respect to the second half of this year, we're still comfortable with the targets that we had put net organic growth of six to 8000 beds for the year. So we're more than halfway on the low end of that target. And the pipeline continues to look robust. Generally, in the summer, we see things are slower, but we are seeing activity for Q3 early days so far.

Got it. Okay, that's great. And then my second question, you talked about in the past your ambitious target to hit 10% margin versus the high 8% in the first half. Can you maybe dig through specifically where the improvements that you see will come from or examples? Is it more people? Is it operational efficiencies, procurement, et cetera? And I'm assuming the potential hub and spoke benefits could be additive if we're thinking more medium term.

Yes. On the short term for us, it will be – we'll get the biggest step from bed growth. For what we've invested and how we've built the network now, those beds that we do add are more accretive. So bed growth is still key for the back half of this year. I'd say followed by the operational efficiency. We've rolled out lean to all our large locations. We are partially way on the midsize locations. Those will all be done by the end of this year. And then the third bucket that I think you had mentioned was procurement. So those are the three kind of near term that we're looking at to drive margin with respect to Hub and Spoke and other initiatives we're looking at. They're not baked into this year. They're more mid to long term.

Okay. And just last one. Suzanne, I think you mentioned the buyback just given the valuation of the stock. How are you thinking about capital allocation priorities as you stand right now and commitment to renewing that buyback in the fall? Yeah, just one of your thoughts on that basis.

Sure. Thanks, Gary. Yeah, with respect to capital allocation, we remain committed to, as Puneet just commented on, bed growth. So we will continue to invest for customer growth. And anything that would bring, you know, operational efficiencies, of course. So that's number one. Number two, any accretive opportunities in terms of acquisition would also be a priority. And lastly, we are and do remain committed to the buyback, the share buyback through the back half.

Okay. Great. Those are my questions. Thank you. Thanks a lot, Gary. Thank you.

Next question comes from the line of David Martin with Bloomberg. Please go ahead.

Yes, congratulations on your progress. I'm wondering, the new beds that have been added, would the revenue per bed be in line with higher or lower than the rest of your network?

Good morning, David. The revenue would be in line, so that doesn't really change with respect to NICs. Where we get is the efficiencies on the margin.

Yeah, yeah, got that. That's good to hear. Also, you talked on the previous question about ways of getting to the double digit adjusted EBITDA margin. You're still committed to that by the end of this year?

Yeah, that's our internal goal. Absolutely. Okay. Okay. That's it for me. Thanks.

Thanks, David. Thank you. Next question comes from the line of Max Chmielewski. But Steve, please go ahead.

Yeah. Hi, Puneet. Hi, Suzanne. Yeah, it's a nice query you put up. I just had a couple of questions here. I mean, just I guess piggybacking on the NCIB question, like solid progress in terms of getting shares um off the market but uh like net net i mean we've seen probably an issuance uh over a buyback here given some movements in in you know stock-based comp and there are some shares issued with a national customer so i guess i just maybe was thinking about clarity in terms of how you guys are trying to balance the repurchasing versus issuance to maybe win business?

Really, for us, the issuance is in and around employee RSUs and those pieces. I don't think we're necessarily using it for customer issuance. And that's why we're just focused on continuing to purchase as much of the stock as we can because we still are bullish that it is an undervalued stock.

Okay. And I guess the other question being chart wells just secured over 1,000 new suites for the Kitchener-Waterloo region where the presumed bed count could be above that. Obviously, this lands well within the Oakville catchment area? Should we consider this as a feasible organic opportunity to add beds in the second half?

Yeah, that is an opportunity for us. They are an existing customer.

Okay. And just lastly, on some of the earlier questions, with the 3,000 beds secured, you said A number of those were sort of back end weighted in the quarter. But if we maybe keep constant revenue per bed, looking into Q3, like should we see something like a 1% sequential revenue improvement based on, you know, yield on those beds for the coming quarter?

With respect to revenue, again, fairly consistent in terms of quarter over quarter, right? The one variable that comes into revenue might be the generic versus brand mix with respect to product purchase. We did have a major product go to biosimilar called Prolia. So you will see some change in revenue just on that brand GX generic product mix. But we do bring those beds on as we bring on additional beds. And again, our concentration on bed growth, we will do it in the most efficient manner with respect to labor costs with that. So we would expect to bring them on very efficiently.

I think if you take the 3,000 beds and sort of based on your revenue model kind of straight line three months or the full quarter, you'll be able to get the delta on what that list would be. I just don't know the number off the top of my head.

Got it. No, no, for sure. I was just sort of trying to determine, you know, on an average bed count basis, like how much... um sort of bleeds into q3 just on a on a bed count basis specifically but that's helpful thank you thank you next question comes from the line of kyle mcfee with qualmark securities please go ahead hello um

Last quarter in Q1, you executed your BC site consolidation. Do you think you were getting the full benefit of the cost and efficiency improvements in the Q2 results you just posted, or are the margin benefits still on the come?

Good morning, Kyle. Those margin benefits are still to come. We didn't expect to get any significant efficiency savings out of that location until the fall or late in the year.

And then can you offer any color on items that may have been impacting your margin profile in Q2? You know, did you run into any costly labor shortages as you got into the early summer vacation season as an example?

We did not experience. Sorry, Penny. We did not experience. Thank you. Sorry, we did not experience any labor impact at this point. Of course, Q2 ending June 30th, we're into the summer now, but pretty efficient and consistent quarter over quarter for Q1 versus Q2.

Got it. Okay. Thank you for the color. That's it for me.

Thanks, Phil. Thank you. Our next question comes from the line of Doug Lowe with LEED Financial. Please go ahead.

Yeah, thank you, operator, and good morning. So, to meet a lot of your commentary has been on pending growth through growing your bet count nationwide. It's obviously a key focus for you, but I was just wondering if you had any insights on whether or not revenue per bed could actually be an independent growth lever. I'm just thinking specifically about revenue augmentation that you could get from new approvals that could be pending within Health Canada that could be relevant to elder care, specifically in Alzheimer's disease or cardiometabolic care. I just wondered if you had any commentary on that as an independent revenue driver.

Yeah, nothing that we expect right now. I think more for us because we are more margin focus, we look at what are the brand drugs coming off patent, Doug. So that's always the focus for us. I think, you know, like we know probably as Suzanne mentioned came off, we're looking and tracking on a drug that will have a little bit of impact for 26. that is expected to become genericized as well. So for us, that's more of the focus. I think with the branded drugs, by the time they get listed on formularies and pieces like that, particularly for seniors, it is slower. So we generally don't track that. Great feedback. Thank you.

Thanks, Doug. Thank you. Next question comes from the line of Tanya Armstrong. But can I call Genuity? Please go ahead.

Oh, good morning, guys. Just following along on a couple of the other questions that have been asked. So on the Burnaby site consolidation, I think you mentioned there was no labor-related expenses in Q2. But I'm wondering if there were still some consolidation expenses that float into Q2 from Q1 that might have impacted the margin.

With respect to that, we have really minimized the impact with respect to things like extra travel in the margin with respect to Vancouver, the lower mainland site. At the end of the day, there are some still some items that we continue to manage in that transition, as Puneet said. We expect to see really the full value of the site late in the year, so into the Q4 timeline.

But we continue to manage costs. Could you elaborate on the quant and the how? Is it half a million or so additional dollars that might come off or what that additional benefit might be through the fall?

Yeah, I think it would be lower than that, Tanya, but it wouldn't be, you know, would not be $500,000, but I would expect that we would see something a little south of that number.

Okay, perfect. And on the new exacts that you've added to your team, congratulations on that. I'm wondering what the increase, if we're going to see an incremental increase

guess comp associated with that on your sense line items no so really what we've done there is it was just a bit of a reshuffling of the existing executive so it's not necessarily we've added any new any new individuals we just streamlined and changed some accountabilities so that there's there weren't any shared accountabilities or overlap. And so it aligns now exactly with our strategic plan.

Okay, excellent. And then just to clarify, I think it was one of the last questions asked, the brands coming off patent that might impact your revenue per bed. You said there was one that might impact you further into 2026. Could you just be more specific on the timeline of that? Is that more like H-126, H-226, and we can keep our revenue per red flat for the rest of this year, or do you think it's going to be a little bit more gradual sequentially?

Yeah, so we are tracking it. It looks like it will be Q2 of next year, but these things, because they have to go through so much government approval, hard to pin right now, but it's not looking like until Q2 of 26.

Okay. And then just on the flip side, are there any new big branded medications that you believe might get approval and would be a big, I guess, script generator that could positively impact your revenue per bed?

On the branded side, particularly with our demographic, the adoption's a bit slower, similar to what I mentioned to Doug in that it can become, they can get approval to sell, but by the time they get listed on the different provincial formularies will take longer because they're higher priced. And the provincial formularies are generally looking at low-cost generics versus branded drugs. So it takes, there's another delay before those get on. And so Again, nothing that we are aware of at this point.

Okay. That's all for me. Thank you.

Thanks. Thank you. Next question comes from the line of Doug Cooper, Beacon Securities. Please go ahead.

Hey, good morning. And congratulations on a good quarter. By my calculations, net income or earnings before taxes and extraordinary items. This is the best quarter in the company's history. So congratulations. I guess getting back to the Chartwell question, Sienna obviously made some acquisitions as well. Chartwell just made some. These companies' occupancy rates are very high. Do you see them continuing to make acquisitions and those beds flowing to you?

Yeah. I think similar to where we were a few years ago in consolidating the market. I think on the home operator side, we're seeing that now. And so that's where, again, having the platform we have where we're multi-provincial and national operator and with the large operators, we will benefit from that as well. And my ask always to them is to buy stuff we don't service.

Yeah. Can you just give us an update on the government's actual new builds or any greenfield operations that are happening when the timing of those to hit the market is?

We're starting to, particularly in Ontario, because the Ford government had put money and made that a mandate to open up more beds and get them online. We're starting to see some of those come online. I think there were some delays in construction, but And if you follow the Minister of Long-Term Care, Minister Kusundoba, she's at a sort of groundbreaking ceremony almost every day or a couple of times a week. And so there's a lot of shovels in the ground right now. So, you know, I think we're starting to see the front end of it starting to come, but those are more rebuilds where they added 20, 30 beds to a home. I think the full redevelopment and new builds will start coming online throughout 26, 27.

And any idea how many? Just give me the ballpark.

I don't have that number on me, Doug.

Okay. Just getting back to, you know, winning business potentially from your existing clients, you know, Charwells and Sienna and so forth. What is the corollary in terms of the incumbents who presumably is losing that business to you and the opportunities maybe there on the M&A side? Are you starting to see some M&A heat up?

No, and I think it's still early and we knew that's going to take a little bit more time to build up sort of a bit of a groundswell there. But again, when when sort of the smaller, mid-sized folks do lose books of business because they were acquired by someone who's one of our customers, you'd have to believe it's going to put pressure on them.

Yeah. And final one for me, we've talked about Quebec in the past as an opportunity. Any progress on there or is it still a little ways out because you've got a bunch of stuff in front of you?

Yeah, a little bit of ways out. And I think what you've seen with us is there's a discipline that we want to move fast, but we're going to be measured before we jump into anything so that we do it right the first time. And that's the approach we're taking with Quebec or any other expansion.

And you're just, you know, as a lead into that, New Brunswick, you know, maybe that was your first sort of pilot project in a bilingual province. How was the New Brunswick pilot going, if I can call it that?

Yeah, it's great. I went out to go see the team in the last quarter. They've been open for a year and doing really, really well. Okay. Great. That's it for me. Thank you. Thanks, Des.

Thank you. This concludes the question and answer session. I would like to turn the conference back over to Mr. Punit Khanna for closing remarks.

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

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