Carerx Corp

Good morning, everyone, and welcome to the CareRx's third quarter 2025 financial results conference call. Please note that this call is being broadcasted live over the internet, and the webcast should be available for beginning approximately one hour following from 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.CareRx.ca. Today's call has been 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. Certain statements made during today's call, including answers that may be given to questions, may include forward-looking 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 the information available to management as well as their assumptions and expectations as of the date of the presentation. Forward-looking statements and financial outlook on information is given as of the date of this presentation, and 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 laws. Forward-looking information is subject to risk and uncertainty, 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 the company's forward-looking information. For additional information on the risk factors that could cause actual results to differ materially from those contemporary forward-looking information and the factors and assumptions associated from such forward-looking information, please refer to the company's MD&A for the three- and nine-month periods ended September 30, 2025, and 2024. and other documents filed on the company's profile on www.cedarplus.ca. I would now like to turn the call over to Puneet Khanna, President and CEO of CareRx Corporation. Thank you and over to you, sir.

Thank you and good morning, everyone. Welcome to our third quarter 2025 earnings call. With me this morning is our Chief Financial Officer, Suzanne Brand. We achieved growth across all key metrics in the third quarter, both year over year and quarter over quarter. In Q3, we delivered revenue of $93.2 million and adjusted EBITDA of $8.3 million, with our adjusted EBITDA margin expanding once again, now to 9%. Net income in the quarter was $1.6 million, our third consecutive quarter of positive net income. Average bed service grew to $91,000, The tremendous progress we've made in our financial and operating results are a testament to the Carex team's dedication and hard work. I'd like to acknowledge and sincerely thank the teams across the country who every day support the delivery of the best in pharmacy services and continue to deliver exceptional care to our residents and home partners. On September 3rd, KRX hosted Ontario's Minister of Long-Term Care, the Honourable Natalia Kusendova-Bashta, at our Oakville pharmacy location to showcase the innovative pharmacy services and technologies we use to deliver integrated pharmacy services and programs to residents across the seniors' housing spectrum. We also highlighted the critical role our team plays in personalized medication management and enhanced clinical support, helping drive safer, more effective care for Canada's aging population. We continue to have a productive and collaborative relationship with the government, and together with the Ministry, our home partners, and long-term care associations, our team is excited to help shape the future of senior care. As a reflection of the CareRx team's commitment to a disciplined capital allocation strategy, that provides the flexibility to fund growth initiatives while delivering strong return to shareholders. In the third quarter, the company announced its intention to pay a quarterly dividend, and on October 15th, 2025, paid a dividend of two cents per share. This milestone underscores our confidence in our strong financial position, robust operating performance, and the sustainability of our cash flows. Additionally, we renewed our annual normal course issuer bid since we continue to believe that our share price does not adequately reflect the fundamental value in our underlying business and near and long-term growth potential. Through our balanced capital allocation strategy, which includes investments in organic and strategic growth, share buybacks, and now dividends, We are well positioned to drive shareholder value and are optimistic about our momentum. I will now turn the call over to Suzanne, who will discuss our third quarter financial results in more detail. Suzanne?

Thank you, Puneet, and good morning, everyone. As Puneet outlined earlier, we achieved broad-based growth in the quarter, both year-over-year and quarter-over-quarter. Average beds serviced in the third quarter increased to 91,298 from 89,099 in the third quarter of 2024 and from 90,048 in the second quarter of 2025. Revenue of 93.2 million remained consistent from 92.8 million last year and 91.4 million in the second quarter of 2025. The year-over-year revenue comparison reflects a change in the mix of branded and generic pharmaceuticals dispensed, even as the number of average beds serviced increased. Adjusted EBITDA for the third quarter increased year-over-year by over 7% to $8.3 million from $7.8 million in the third quarter of last year, an increase by over 4% from last quarter. Adjusted EBITDA margin increased by 60 basis points year-over-year to 9% and increased 20 basis points quarter-over-quarter. The year-over-year and sequential improvement in adjusted EBITDA and adjusted EBITDA margin was primarily the result of the onboarding of the new beds and improved efficiencies and cost savings initiatives. We delivered our third consecutive quarter of positive net income at $1.6 million compared with a net loss of $360,000 in the third quarter of 2024 and net income of $561,000 last quarter. The growth in our net income was due primarily to new onboards and lower finance and transaction costs. Cash from operations was 10.1 million compared to 12.2 million last year and 3.8 million in the second quarter of 2025. The year-over-year comparison is largely due to changes in non-cash working capital items. Cash at September 30th grew to 15.5 million from 8.7 million at the end of the second quarter which was the primary driver behind the improvement in net debt to $28.8 million compared to $34.8 million last quarter. Net debt to adjusted EBITDA at the end of the third quarter improved to 0.9 times from 1.1 times in the second quarter of 2025. Subsequent to quarter end and following the September 30th National Day for Truth and Reconciliation, the company completed a number of transactions that reduced our quarter-end cash balance. We made a dividend payment of $1.3 million, repaid $2 million of principal and interest on our outstanding debt, and repurchased for cancellation 139,500 shares under our normal course issuer bid at an aggregate cost of approximately $497,000. The initiation of a quarterly dividend and the renewal of our share buyback program are evidence of the confidence we have in the strength of our financial position, our sustained and improving operating performance, and the predictability of our cash flows. And with that, I will turn the call back over to Puneet.

Thank you, Suzanne. Before we close, I would like to take a moment to highlight some of the ways we continue to engage with our communities, employees, and industry partners this quarter. We were proud to introduce our new Voices of KRX video series on LinkedIn, a bi-monthly social media video series which shines a light on KRX team members. Through their stories, we showcase the compassion, dedication, and professionalism that defines our organization. What inspires them about working at KRX with seniors in our communities and the positive impact our teams have on residents and their families. In addition, our teams also presented at ISMP Canada, the Institute for Safe Medication Practices, where they shared important insights on medication safety in long-term care. Their participation demonstrated our ongoing leadership and expertise in advancing best practices in medication management across our homes and pharmacies nationwide. Finally, I'm proud that our team continues to actively participate in community events, including Long-Term Care Community Engagement Day, an event that brings together residents, health teams, families, and community leaders to share stories and celebrate the vital role long-term care homes play in our communities. We also participated in the Strides for Seniors Walk and Run, which raised over $2 million to support York Region's first nonprofit residential respite dementia care center. These initiatives allow us to collaborate with partners across the continuum of care, advocate for the needs of seniors, and strengthen our connection to the people and communities we serve. Together, these activities reflect our commitment not only to operational performance, but to being a trusted voice and a partner in the long-term care and seniors care sector. 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 then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. Participants are requested to kindly restrict their questions to one followed by a follow-up question per participant. At this time, we will pause momentarily to assemble our roster. We have the first question from the line of Girish Chesankar from Bloomburton. Please go ahead.

Good morning, Penny and Susan. Thank you very much for taking my question. Just on bed growth, it was fairly modest from the end of Q2 to now. Could you provide any color on the gross bed growth for this quarter? And were there any large rollovers? Also, how many beds did you end the quarter with?

Good morning, Grish. So I can tell you from a year-to-date growth, we've had just over 4,200 beds we did have about 800 beds in Q3 that were supposed to start in the last 10 days. And then the customer asked us to push and roll that over into the first two weeks of October. So that was a bit of a push where obviously we wanted to win it, but you want to start off the relationship with the customer, right? And We ended up pushing that into Q4.

Okay, thanks. And how much visibility do you have on new bedwinds for the remainder of the year? And you're still confident in that 6,000 to 8,000 beds added for the year expectation?

Yeah, so if you look, I mean, I think if you look at the 4,200, we've already added year-to-date plus the eight I just mentioned, we're already at five. And so... even on the low end of our target at six, it's in sight and we are looking to close a few more deals, which would get us to at least that number.

Thank you. And just one last one. Are you still on pace for the double-digit EBITDA margin by the end of the year? And have you felt the full impact of the Burnaby facility yet?

Thank you. So with respect to Burnaby, we continue to manage and try to, we will get those efficiencies in the latter half, so in that last quarter. So we're starting to see those efficiencies and gaining that with the lower mainland now. We're doing everything we can with respect to driving margin expansion in terms of exiting with respect to double-digit growth, but that is something that we would really strive for as we pull through the efficiencies in the P&L in the future.

Thank you very much. I'll hop back in queue.

Thanks, Parish. Thank you. We have the next question from the line of Gary Ho from Desjardins Capital Markets. Please go ahead.

Good morning. So I believe the extended care contract is a shorter term contract. Just wondering if you've kind of reopened that file with that client for the next contract term, would you approach the bidding differently this time around?

Hey, good morning, Gary. So we are pursuing everyone all the time, everywhere, whatever the saying is. So yeah, you know, we think we have a compelling service offering and value proposition to customers as well. And so we're always engaged in ongoing conversations with anyone not serviced by us. And I think to answer your question, when we amalgamated a number of these pharmacies a few years ago, I think we were still trying to knit it together and figure out who and what we could become. I think we now are pretty confident in in, again, that service delivery and who we are. And so, you know, and I think some of the wins you're starting to see over the last couple of quarters are representative of that. And I think we would take that to the market going forward, be it that opportunity or anyone else.

Okay, great. And then my second question, I know you've been ramping up the Oakville and North Burnaby mega-facilities. Any discussions on looking at our third facility yet, or is that too early? And also, just want to get an update on your piloting of the hub-and-spoke strategy, leveraging the scale of these facilities, and what are you seeing so far from locations you've onboarded or tested so far?

Yeah, so still a bit early to make a decision on anything else. I think from our pilots and what we have moving with The hub and spoke, we are extremely encouraged by it. Obviously, we are in budget cycle and sort of taking that into our consideration, into our model. But, you know, we're being able to leverage those high-volume packaging machines, so particularly in Oakville, the BD ROAs that we have, to get more use out of it to cover off other locations. And so, you know, you're really... using that value to help offset labor costs in other pharmacies. So, yeah, look, we're excited. We think that is the future. But I think as with anything we've done, we're going to be measured and make sure before we jump into anything.

Okay, great. Those are my two questions. Thank you. Thanks, Gary. Thank you. We have the next question from the line of Justin Keywood from Stifel. Please go ahead.

Hi, good morning. Thanks for taking my call. Are you able just to refresh us on the organic growth opportunity? I believe there's several potential RFPs or contracts that are set to go in the next 12 to 18 months.

So good morning, Justin. Thanks for the question. So the pipeline continues to look robust You know, I think, you know, we're seeing a number of things like just organic opportunities where we're starting, you know, we're seeing either RFPs or our sales team that is soliciting have targeted a number of things and we have those built into our pipeline. You know, I think I've publicly stated 6 to 8,000 was our target for this year. We are comfortable for that same target next year for what we see in the pipeline. And then I think, you know, the other thing that will continue to be a really strong tailwind are the new developments and new builds that we're seeing. And, you know, I think the Ford government announced those 58,000 new and redeveloped beds, which we will see more and more of them come online in 26 and 27. So we expect to have some growth based on there. And then I think the last piece, similar to what we did over the last couple of years on M&A and consolidation. We are seeing that on the home operator side. So when you look at the large REITs and the large players in this market, they're consolidating. And so we definitely have some upside there as well.

That's very helpful. And then on the mention of the Ontario government investing more in long-term care, Is there any elements of the federal budget today that we should be looking out for that could be of note for CareX and the sector in general?

Not that we expect. So health is provincial, and particularly with pharmacy, it's provincially driven. So that's why most of our focus is in conversations with provincial governments in the jurisdictions we operate in.

Okay, understood. Thank you for taking my questions.

Thank you. We have the next question from the line of Kyle McPhee from Cornmark Securities. Please go ahead.

Hi, everyone. Just on the topic of margin expansion, potentially still on the come, beyond what you've already successfully delivered in recent years here, Is there any material margin expansion still on offer from your efficiency and cost savings efforts? Or is any material margin expansion largely just going to come from organically adding beds, getting that favorable contribution margin? Just help us understand how those moving pieces might play out over the next year or so.

Yeah. Thanks for the question, Kyle. So, yeah, I think a couple of different levers for us to pull here. One is As you said, the bed growth in the system and the network and the platform we've built, we've built capacity. When you're adding beds into these locations, we are not doing it at the same labor increment that is required. you're adding beds, not necessarily adding the same amount of labor. So we will get the efficiency from that standpoint. You know, I think, you know, we had gone down the path of the lean daily management. We have almost 70% of the network rolled out. We obviously started with our largest locations working our way down so that we got the biggest bang for our buck. So there's those opportunities. And then, you know, I think similar to the question that was asked earlier on hub and spoke, we feel there's opportunity on margin that. And then just on procurement and continuing to consolidate vendors that we use in our business as further opportunity.

Yep. Maybe I can just add to that a little bit. With respect to purchasing efficiencies, Penny just already commented on that. continue with some of the major providers of things like delivery and supplies. And then we'll continue maybe at a, you know, it won't be as material, but, you know, in terms of managing all of the lines, right, whether that be, you know, customer delinquency and or customer expenses, we continue to manage, ensure that we deliver efficiencies through those methods as well.

Got it. Okay. Thanks for all that color in. For the visible near-term bed ads that you would know about internally, how is that contribution margin shaping up on those beds versus the map of the past? Is the competitive environment changing at all? Irrational actors out there bidding down the economics, or maybe most of what you're adding is not even facing competitive bidding processes. Can you offer any thoughts on that?

Sure. Thanks for the question. We continue to manage and pull on our new offerings from customers at the most economic way. So we continue to manage and ensure that we're doing it most efficiently. Again, as Penny commented earlier, we'll do that with most efficient labor add and in the most competitive way. So I haven't seen anything different in terms of our approach.

No, and I think the other piece is in what we're starting to unleash and being able to offer with respect to robustness in services and programs, that is valuable to the customer too. So the mindset we've taken, Kyle, is sort of that operating partnership mindset to say, what can we bring forward? that helps save nursing time? How do we keep residents healthier longer in these homes so they're not being transferred back and forth between hospitals? And all of those pieces are valued by prospects and customers.

Okay. I'll squeeze in one last one here. Can you just offer some CapEx guidance for 2026? It sounds like you're still in your budgeting process, but maybe high level. you know, the budget and how it allocates across maintenance versus investment in bed ads versus, you know, investment in your efficiency plan.

Yeah. I appreciate that question. We are still, as you said, hammering out our 2026 planning horizon. With that, you know, we continue to be in around the $8 million to $10 million mark with respect to capital additions annually. And, you know, we are... Every year is a little bit different with respect to debt allocation, but, you know, we'll put the capital behind what provides value at the end of the day. But, again, $8 to $10 million from a 2026 perspective.

Okay. Thank you very much. That's it for me.

Thanks, all. Thank you. We have the next question. We'll end with Doug Lee from LEED Financial. Please go ahead.

Yeah, good morning. Congratulations on the quarter, folks. All arrows pointing upward here. Congratulations. So maybe just building on Kyle's question about CapEx, maybe just over a longer-term time horizon. I mean, your footprint in Canada is considerable in all of what we consider to be the high-value geographies, but there are a few pockets where you could establish fulfillment centers if desired, I guess. So just wondering if there are any plans in order to expand your geographic footprint independent of the organic bed count growth that you talked about in your original comments.

Thanks, Doug. You know what, I think we are comfortable in the provinces we are in. I think we've been fairly forthcoming in a discussion that we discussed. We sort of jumped over Quebec to go into the Maritimes in Moncton, New Brunswick. So, we do operate there. You know, we are interested in the Quebec market, but I think I'll be a bit of a broken record here in saying, you know, look, we, you know, we understand the uniqueness of that market and, you know, no different than Centrafil or Hub & Spoke or any of the other pieces we do. You know, we like to do our homework and be comfortable before we jump into anything. And so, you know, we'll continue to look at Quebec or any other markets as they present themselves to us.

Well, thanks for that, Kohler. And then not really a follow-up, but a different question. I mean, I see that, you know, in the commentary in your MD&A, I mean, you continue to talk about the potential for professional fee reduction in the province of Ontario. Fortunately, that's the gift that keeps on not giving five years and counting. But I was just wondering if there's a time frame over which this officially goes away or officially gets established as part of your pricing dynamics in Ontario. That's it for me.

Yeah. Yeah. You know what? Look, you know, I think it is one of those that we've seen that continue to just get rolled over. Again, you know, I think to the conversations we've had, you know, I think the Ford government in Ontario said, very supportive of long-term care. This minister particularly is a nurse, understands the value of pharmacists as an interdisciplinary participant and collaborator in the care spectrum. So, look, I think we feel optimistic by our relationship, and those are ongoing conversations we have with both the minister and her staff.

Thanks for that.

Thank you. Thank you. We have the next question from line of Douglas Cooper from Beacon Securities. Please go ahead. Hi, good morning, everybody.

I just want to dig in further to something with, can you hear me? Yes, we can. Hey, Doug. Hey, Doug. Just something that was brought up earlier about the consolidation of your, of the major home operators, extended care, well, Charwell and Sienna in particular for you guys. How many beds of the bed growth this quarter, how many were realized through, if any, from wins, from M&A activity they did, getting beds that you didn't have prior to their M&A activity? And if not seen yet in the third quarter, what do you think that will come in the fourth quarter or early next year?

Good question, Doug. So I... I don't know off the top of my head, but I think there was one small home that got added this quarter. I don't believe we anticipate anything for next quarter, but we do expect some of those bed ads to come through early in 2026.

Can you quantify them at all?

You know, it's a retirement group that was acquired, so I think total suites was 1,000, but we don't get full connectivity on all of it, so we're just working through what the exact number of beds would be serviced on that business. But if I had to guess, I would say it would be 500 to 650, but again, to be determined. Okay.

With your balance sheet now in probably the best shape it's been at, certainly in recent memory, and I can't remember the last time debt to EBITDA was below one, will this accelerate any M&A activities you may be contemplating, particularly, I guess, for those companies that may lose beds upon a Sienna or Charwell acquisition that gets moved to you, somebody's losing them, that may be fodder for acquisition? Just some comments on M&A, given your balance sheet and the opportunities.

Thanks, Doug. With respect to the balance sheet, thank you. It is in probably the best shape that we've seen in a very long time. It is one of those things where it provides great opportunity in terms of making the right choices in terms of how we want to invest for value in the future. So while we have and can rely on the strength of our balance sheet, it really does open up opportunities for M&A that does become available, and that allows us with flexibility in how we handle that. So it is very strong, and we do have opportunity for choice in how we want to add beds. And I'll maybe add a lot to that.

Yeah, and look, I think all our competitors No, we are open for business, and they all know how to get a hold of me, Doug.

Okay. And final one for me, just on the dividend, what prompted the implementation of a dividend as opposed to M&A, for example, or paying down debt further or whatever? Is it going to be $0.03 per quarter? Is that what you anticipate going forward?

So we did a robust review of cash strategy, which was presented to the board. And look, I think we felt we were able to provide some value back to shareholders who've been supportive of the business for a long time and at the same time continue to have the opportunity. We've got cash. We're going to continue to generate cash to to do M&A to support growth to do the NCIB. So, we didn't feel like we were handcuffing ourselves and, you know, and I think I've been sort of forecasting that a little bit in sort of the last few quarters saying, you know, look, we are really comfortable where debt's at and paying down debt just didn't make sense at this point. Okay.

Just a final one for me. Suzanne, what was free cash flow in the quarter? Operating cash flow, you had $10 million, but what was free cash flow? Dividend payment represents what of free cash flow in the quarter?

Dividend payment represented about $1.2 million with respect to cash flow for the quarter. I'm not sure if I misheard you, but I just want to make sure that I thought I heard you say $0.03, but it's $0.02 just to confirm.

Just wondering what free cash flow was in the quarter.

So the free cash flow in the quarter would have been approximately $10 million. I can get that number more accurately for you.

Okay, that would be great. That's it for me. Thank you. Thanks, Ed.

Thank you. This concludes our question and answer session. I would now like to turn the conference back over to the management for closing comments.

Thank you, everyone, for participating in today's call and your continued interest in CareRx. 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.