CareRx Corporation (CRRX) Earnings Call Transcript & Summary

Hello. And welcome to the 2020 Annual and Special Meeting of Shareholders of Centric Health Corporation. Please note that today's meeting is being recorded. [Operator Instructions] Please note that your registered name will be announced along with your question during the Q&A session following the formal portion of the meeting. Guests will not be able to submit questions. [Operator Instructions] It is now my pleasure to turn the meeting over to Kevin Dalton, Chairman of the Board of Directors. Mr. Dalton, the floor is yours.

Thank you. Good morning, ladies and gentlemen. And welcome to the 2020 Annual and Special Meeting of Shareholders of Centric Health Corporation. My name is Kevin Dalton, and I am the Chairman of the Board of Directors of Centric Health. I will also act as Chair of this meeting. We are excited to be hosting our first ever virtual meeting, which is accessible to all our shareholders and other guests regardless of physical location through our online platform. Shareholders will be able to participate, submit questions and vote in real time. The meeting will now come to order. With the consent of the meeting, I appoint Oliver Keung of TSX Trust Company, the company's transfer agent, to act as scrutineer for the meeting. Paul Rakowski, the company's General Counsel and Corporate Secretary, will act as secretary of the meeting. And as a shareholder, will help second all motions. I have received the scrutineer's preliminary report, which shows that as of the deadline for the receipt of proxies, shareholder proxies have been received for 310,138,251 common shares, representing 71.22% of the outstanding shares. Based on the preliminary report, a quorum is present. The final report of the scrutineer is being prepared now and will be filed as a part of the record of this meeting. We will now proceed with the formal business of the meeting. The business of the meeting is described in the management information circular dated May 15, 2020, which accompanied the notice of meeting. I will take the notice of meeting as read. We will conduct the votes on the matters before us by way of an online poll, where every shareholder or proxy holder entitled to vote on the matter will have 1 vote in respect to each share held. The poll will be open for all resolutions at the same time. This will allow you to choose to vote on each resolution immediately or wait until the conclusion of discussion on each resolution prior to casting your vote. Vote can be cast electronically using the voting button on the online site. Once discussion on all items of business has concluded, I will pause to allow you to enter your votes and then declare voting closed on all resolutions. If you have previously voted using the formal proxy or voting instruction form that was mailed to you, you do not need to vote online unless you would like to change your previous vote. We will run through each of the items on the agenda in turn, responding to questions on that item of business. [Operator Instructions] I now declare the polls open. The first item of business is the presentation of the audited consolidated financial statements of the company for the year ended December 31, 2019, and the auditor's report thereon. Shareholders have all been sent copies of the financial statements and electronic copies are available on SEDAR. Accordingly, it is not proposed that the financial statements be read to the meeting. The second item of business is the election of directors. In our management information circular, we submitted 11 nominees for election to the Board. These include, in alphabetical order, Christiane Bergevin, Peter Brown, Kevin Dalton, Ralph Desando, John Ewing, Matt Hills, Bruce Moody, David Murphy, Lyle Oberg, Jack Shevel and Darren Youngleson. Votes for each director may be cast individually. I hereby move that each of the aforementioned individuals be elected as director of the company to hold office until the next Annual Meeting of Shareholders or until their successors are duly elected or appointed. Paul, will you please second the motion?

I second the motion.

[Operator Instructions] We will briefly pause to compile any questions. Paul, are there any questions that were submitted?

No, Kevin. Please proceed.

Thank you. Please cast your votes on item 2 now. As mentioned, in the interest of time, we will continue to consider all of the items of business. You will be able to continue to ask further questions and vote on all items of business throughout the meeting until the polls are closed. The third item of business is the reappointment of the company's auditors. I hereby move that PricewaterhouseCoopers be appointed as independent auditors of the company until the next Annual Meeting of Shareholders or until a successor is appointed, and to authorize the directors to fix their remuneration. Paul, will you please second the motion?

Yes, I second the motion, Kevin.

[Operator Instructions] Again, we will briefly pause to compile any questions. Paul, are there any questions submitted?

No, Kevin. Please proceed.

Great. Please cast your votes on item 3 now. We will now move on to the next item of business. The fourth item of business is the name change resolution to change the name of the corporation from Centric Health Corporation to CareRx Corporation. In light of the company's transformation from a diversified health care service company to the leading specialty pharmacy service provider in Canada, the company believes that it is appropriate to adopt a brand that better reflects its strategic focus and core values. Following the name change, the company also intends to unify its various pharmacy banners under the CareRx banner over the course of the next several months. The form of name change resolution is set out in Appendix A to the management information circular. I hereby move that the name change resolution be adopted. Paul, will you please second the motion?

I second the motion.

[Operator Instructions] We will brief -- again, briefly pause to compile any questions. Paul, are there any questions submitted?

No, Kevin. Please proceed.

Please cast your votes on item 4 now. We will move now -- we will now move on to the next item of business. The fifth and final item of business is the consolidation resolution to consider the consolidation of the company's common shares on the basis of a range of 1 post-consolidation common share for every 10 to 20 pre-consolidation common shares. The Board believes that it may be in the best interest of the company to consolidate the company's outstanding share capital and would like flexibility to do so going forward. The company believes that a share consolidation would more closely align the outstanding share capital with the financial value of the company and will make investing in the company's shares more attractive to a broader range of investors. If the consolidation resolution is approved by shareholders, the Board of Directors will decide whether to implement the share consolidation and what the final ratio will be. The form of consolidation resolution is set out in Appendix B to the management information circular. I hereby move that the consolidation resolution be adopted. Paul, will you please second the motion?

Yes, I second the motion, Kevin.

[Operator Instructions] Again, we will briefly pause to compile any questions. Paul, are there any questions that were submitted?

No, Kevin, please proceed.

Please cast your votes on item 5 now. For those of you who have not voted on all the resolutions over the past several minutes, please do so now. Polls will close in approximately 1 minute. And in the interim period, we will have a brief pause to allow for the completion of voting. [Voting]

The polls are now closed. Based on the scrutineer's preliminary report, I am pleased to inform you that each of the resolutions that were tabled are carried. The final scrutineer's report will be delivered after the meeting and will be published on SEDAR. That concludes the formal portion of the meeting. Unless anyone has any further questions, I will move to terminate the meeting. Paul, will you please second the motion?

I second the motion.

I declare the motion carried and the meeting terminated. Thank you very much for attending our virtual AGM. I would now like to introduce David Murphy, the company's President and Chief Executive Officer; and Andrew Mok, the company's Chief Financial Officer, who will make a brief management presentation. David and Andrew, over to you.

Thank you, Kevin, and good morning, everyone. Thank you for attending our virtual annual and special meeting of shareholders. Now that we have concluded the official business of the meeting, I wanted to take some time to provide a brief business update. Since participants on this call will need to advance the presentation slides themselves, I will be sure to make note of which slide I'm speaking to. We would be pleased to take any questions at the end of the presentation. First, I would like to direct your attention to Slide 5 and the forward-looking statement disclaimer on this slide. Please consider this presentation in the context of this disclaimer. Turning to Slide 6. Our company has undergone a significant transformation over the past 2 years. Not long ago, we were a collection of disparate businesses across a number of different health care verticals, whose growth ambitions were hampered by a very leveraged balance sheet. Today, we have a highly focused strategy, a substantially improved financial position and an operational track record of consistently doing what we say we will do. Our transformation culminated with the recent acquisition of Remedy'sRx Specialty Pharmacy, one of the most respected companies in our sector. The combined company is now Canada's leading provider of specialty pharmacy services to seniors in long-term care and retirement homes. However, as I will explain over the course of this presentation, there is still a lot of upside in our story. We operate in a large, fast-growing market. We are building what we believe is the best national service platform in the sector, a platform that will only get stronger when we complete the integration of Remedy's. And we see a significant number of near-term organic growth and acquisition opportunities that we plan to aggressively pursue. As Slide 7 shows, the market for prescription drugs for Canadian seniors is projected to continue to grow at a high rate in the next decade. Demographic predictions indicate that the number of Canadians over the age of 65 and over the age of 80 will continue to grow, both in absolute number and as a percentage of the total population. On average, seniors use more prescription drugs than any other age group, in large part due to their predisposition to a higher number of chronic conditions. As Slide 8 indicates, more than 400,000 Canadian seniors live in long-term care or retirement homes, a number that is expected to more than double in the next 15 years. The COVID-19 pandemic has resulted in more broad public awareness of the challenges in this sector. We stand with our home operator partners and their teams, and we have a daily firsthand view of the incredible efforts they make to care for their residents despite sustained and significant shortfalls in funding for this critical sector, shortfalls which we hope will be addressed in the aftermath of the pandemic. One of the manifestations of these funding shortfalls is a shortage of nurses in many of these homes. Each nurse may need to care for more than 30 residents, a much higher ratio than you would see in any hospital. And each resident may need multiple daily doses of up to a dozen medications. In order to discharge their daily duties safely and effectively, it is critical that these homes have a best-in-class pharmacy partner. As Slide 9 highlights, our company provides these best-in-class institutional pharmacy capabilities to our home operator partners. For those who are not familiar with our offering or service model, it is very different from a traditional retail pharmacy. Our superb team of pharmacists and supporting staff, combined with state-of-the-art medication packaging technology, allow us to deliver a high-volume, high-accuracy pharmacy solution. In addition to being cost-effective and easy for clinical staff in homes to administer, our use of multidose compliance packaging maximizes resident safety and adherence. We supplement the core pharmacy offering with a range of other specialty clinical services provided by an outstanding team of clinical pharmacists. With 25 fulfillment centers across the country, our network has both the benefits of scale and efficiency and the advantage of being close to our customers and highly responsive to their day-to-day needs. Turning to Slide 10. The combination of Centric and Remedy'sRx Specialty Pharmacy is an exciting and, I believe, truly transformational transaction. Although we are still very early in the integration, it is already clear that these 2 businesses will fit together extremely well. The 2 teams have different experiences and strengths, but these differences are highly complementary, which affords us the opportunity to apply learnings and best practices across the company in a manner that will make the combined company much more than the sum of the 2 businesses that formed it. We are highly focused now on successfully executing the integration. When the integration is completed, I am confident that our customers will see an even stronger, more capable partner that our employees will feel part of something special and that our shareholders will benefit from substantial synergies and value creation opportunities that the combined entity will generate. Slide 11 underscores the extent to which this transaction has expanded our presence and scaled our business. Importantly, on a geographic basis, the scale that the Remedy's acquisition provides is very balanced. In the highly populated Ontario market, the combination of both companies' strong market presence will afford us the opportunity to make our network both more effective and more efficient. And in Western Canada, Centric's historical strength in Alberta is now combined with Remedy's market-leading position in British Columbia. Again, this will allow us to further strengthen our service offering while also improving the profitability of the business in Western Canada. Turning to Slide 12. While we work to integrate the acquisition, we remain firmly focused on further growth opportunities. The company has had great success in the past 2 years, demonstrating our differentiation from competitors and successfully growing our bed count. With the addition of Remedy's, the combined organization has an even more powerful and demonstrable competitive advantage. We believe there are a significant number of opportunities to secure new beds in the next 18 months, and we are aggressively working to pursue these opportunities by demonstrating to home operators the value that we can bring and the kind of partnership that we are able to deliver for them. We also see opportunities for further acquisitions. The Remedy's deal clearly positions our company as the consolidator in a sector that we believe is overdue for consolidation. We will continue to look for accretive acquisitions that will strengthen our network, expand our geographical coverage and even further position us as the best pharmacy partner for national and regional home operators across the country. Slide 13 illustrates the significant opportunity that still exists for further market share gains. Although we are proud to say that we are the #1 player in the sector, we still have less than 12% of the national market. We believe that the future of the institutional pharmacy space will look very different than the current fragmentation that exists in this sector. More than ever before, home operators need a best-in-class pharmacy service partner. And more than ever before, amongst the competitors in this space, there are clear differences in their capabilities, sophistication, financial strength and their commitment to the sector. Our intention is to be the leader that is needed in this industry, that is needed by home operators. And we are confident that this leadership position will translate into consistent market share gains in the years to come. Turning to Slide 14. One of our strategic priorities for 2019 was the deleveraging of our balance sheet. I would like to quickly highlight our progress here, which the team is very proud of. To achieve the market leadership position we aspire to, we knew that it was absolutely critical to strengthen our financial position and create a balance sheet that, instead of being a concern or a weakness, could support and enable our aggressive growth ambitions. In many ways, the work to transform our balance sheet was much more difficult than the efforts to turn the business around operationally. Although some of the proceeds came from the divestiture of noncore assets, the vast majority came from bringing in new investors and partners. It can be a challenge executing on these types of financing activities in the midst of such a significant turnaround, and in recent months, in the midst of some of the most challenging economic times in history. But we are fortunate and grateful to have found partners who believe in our strategy, have confidence in our team and have the vision to see where this company is going. I would like to take this opportunity to thank all of them for their support. Slide 15 illustrates how significantly we reduced our debt, which was once close to $100 million in 2018. Although our debt increased slightly to facilitate the Remedy's acquisition, it is our intention to continue to reduce leverage and strengthen our balance sheet moving forward. We will continue to be responsible in managing and improving our capital structure with a focus on increasing free cash flow, minimizing risk and maximizing our flexibility to aggressively pursue growth opportunities. Turning to Slide 16. One of the things that was approved at this meeting was the rebranding of the company. This is a very exciting day for us and something we have been planning for a while. Particularly now that we have completed the Remedy's acquisition, it is time for us to adopt a new brand identity that better reflects who we are as a company today. Centric Health is a brand that reflects our history as a diversified health care services company. It does not reflect our pharmacy capabilities. It does not reflect our commitment to home operators and to Canadian seniors. The CareRx brand is already used by the company as the operational name of the Centric pharmacy business in British Columbia. We think it is a great choice, one that better reflects our strategic focus and core values. The concept of care is at the core of our value proposition, and the word care is used in most of our legacy pharmacy banners across the country as well as in the Your Partner in Care brand positioning that Remedy's has used successfully over the past few years. Our plan is to unify all of our banners across the country, including Remedy's, under the CareRx brand. Subject to customary Toronto Stock Exchange approvals, we also plan to have the company's trading symbol for its common shares on the TSX changed to CRRX. Please stay tuned for more updates on the rebrand in the very near future, including a new logo and new website that our team has been working hard on and is excited to share with the world. Slide 17 summarizes our key priorities moving forward, which I have already spoken to during this presentation. We will integrate the Remedy's acquisition, aggressively pursue opportunities to win new beds and continue to seek out accretive, strategic acquisitions that will accelerate our path of consolidation and growth. I look forward to reporting on our progress on these priorities in the months and quarters ahead. Finally, I would like to close by thanking the people who have made our success and progress the past 2 years possible: our Board of Directors; our management team; our home operator partners; and our incredible employees, who are truly the difference makers every day in taking care of our customers and driving our success. And of course, I would like to thank our shareholders for their continued support through this period of transformation. Although we have accomplished a great deal, I can assure you that we are just getting started. This is an exciting time for our company, and we look forward to the journey ahead. Thank you. And now both Andrew Mok, our CFO; and myself, would be pleased to take any questions that any of the participants may have. Just wait 10 more seconds. It doesn't appear at this point that we have any questions. Okay. With that, I will close the presentation and the meeting. Thank you all for participating. Thanks for your support of the company, and we look forward to a bright future ahead. Thank you.

This concludes the meeting, you may now disconnect.