CareRx Corporation (CRRX) Earnings Call Transcript & Summary

We will now move on to the next item of the business. The next item of the business is the approval of the company's proposed acquisition of the long-term care pharmacy business of Medical Pharmacies Group Limited. On April 16, 2021, the company signed an asset purchase agreement to acquire the long-term care pharmacy business of Medical Pharmacies for consideration of $75 million of cash and the issuance of 1 million CareRx common shares. The Medical Pharmacies' long-term care pharmacy business is comprised of 18 pharmacy fulfillment centers that serve approximately 36,000 residents in long-term care homes, retirement homes and other similar settings across Canada. The formal resolution [ and approval of the Medical Pharmacies acquisition ] is set out in the Appendix B of the circular and requires approval of a majority of the votes cast by shareholders present in person or represented by proxy at the meeting. A description of the Medical Pharmacies acquisition can be found starting on Page 14 of the circular. I hereby move to adopt the resolution set out in Appendix B to the management information circular to approve the Medical Pharmacies acquisition.

I second the motion.

[Operator Instructions] We will briefly pause to compile any questions.

There are no questions, and we can proceed to voting now.

Please cast your votes now. [Voting]

The next and final item of business [Technical Difficulty] of up to 14,289,751 common shares of the company upon the conversion of subscription receipts and broker warrants that were issued in connection with a brokered and nonbrokered private placement financing that closed on May 19, 2021. The proceeds of the private placement will be used to pay a portion of the cash closing price for the Medical Pharmacies acquisition. The formal resolution approving the private placement is set out in Appendix C to the circular and requires the approval of a majority of the votes cast by disinterested shareholders present in person or represented by proxy at the meeting. Details of the private placement can be found starting on Page 19 of the circular. I hereby move to adopt the resolution set out in Appendix C to the management information circular to approve the private placements.

I second the motion.

[Operator Instructions] We will briefly pause to compile any questions.

And there are no questions again, Kevin, so we can proceed with the final voting.

Please cast your final -- or your vote now. [Voting]

For those of you who have not voted on all the resolutions over the past several minutes, please do so now. The polls will close in approximately 30 seconds. And in the interim, 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 business of this meeting. I move to terminate this meeting.

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, who will make a brief management presentation. David, over to you.

Thank you, Kevin, and thank you, everyone, 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 business update. Before I begin, I would like to direct your attention to our cautionary note regarding forward-looking financial statements. 2020 was a truly remarkable year for CareRx, a year of progress, achievement and momentum, momentum that has not just continued but actually accelerated in the first half of 2021. It has been a period built on the foundation of all the work our team did in recent years to strengthen and transform CareRx. And we come out of this period positioned for leadership and growth and positioned to drive continued value for our shareholders for years to come. At last year's meeting, I discussed the significant transformation of the company over the past 24 months from an entity with a disparate group of businesses to a singularly focused organization with significant growth opportunities and a plan and platform to execute. 12 months ago, we were just completing a name change to reflect our refined strategic focus. And we had just recently closed what was at the time the largest and most significant pharmacy acquisition in our company's history to date. At the time, I described 3 clear priorities for our company for the remainder of 2020 and into 2021: integrate the Remedy's acquisition with the specific goal to realize significant synergies from bringing the 2 businesses together, continue to grow organically and continue to leverage our position of strength to make strategic acquisitions. 12 months later, I think it's fair to say that we have not only delivered on our priorities but that we have met and exceeded even our most ambitious expectations. We successfully completed the integration of the Remedy's acquisition ahead of schedule, enabling us to realize the benefit of synergies well in advance of our initial time line. We announced a definitive agreement for an even larger acquisition, the long-term care pharmacy business of Medical Pharmacies, which will add nearly twice the number of beds as the Remedy's acquisition did. We completed the tuck-in acquisition of SmartMeds Pharmacy and signed a definitive agreement to acquire a portion of Rexall's long-term care pharmacy business. All of this has and will further strengthen our national fulfillment network and enhance our team and capabilities while transforming our financial performance and demonstrating the power of operating leverage in our business model. This would have been an impressive list of accomplishments under normal circumstances, but it is especially so amidst the backdrop of the pandemic. The COVID-19 pandemic has challenged us in our day-to-day operations as it has challenged most organizations. But it has also had a devastating impact on the residents and staff of our home operator partners and their families. As a key partner in the delivery of care to these homes, the pandemic put specific additional pressures on our business. But I could not be prouder of how our team responded to the challenge not only in the execution of our own business plan but in support of our home operator partners in their time of need. That for me personally is the most meaningful and satisfying accomplishment of the last 12 months. As I noted a moment ago, our primary focus for the second half of 2020 was the integration of the Remedy's acquisition that we closed in May of last year. Remedy's contributed approximately 18,500 beds, and the combined and consolidated fulfillment network created the largest national footprint in our industry, providing the capacity to further scale and absorb new beds. We added some exceptional talent, and we enhanced our ability to provide the highest-quality service to our customers. In a way, it marks the start of a new chapter for CareRx. The successful integration of Remedy's gives me great confidence in our pending acquisition of the long-term care pharmacy business of Medical Pharmacies, which we signed a definitive agreement to purchase in April. With approximately 36,000 beds and 18 facilities located in the same provinces we already serve, Medical Pharmacies is expected to contribute run rate annualized revenue of approximately $150 million and adjusted EBITDA of between $10 million and $12 million. We are further estimating cost saving synergies to be a minimum of $5 million. As a reminder, this acquisition is subject to Competition Bureau and other regulatory approvals. Subject to those approvals, we expect to close this transaction in the third quarter of this year. Following the strategic decision by Rexall to exit the long-term care pharmacy sector, we are very pleased to be able to acquire a portion of their business serving 4,200 beds in Ontario and Northern Alberta, including a fulfillment center in Sudbury, Ontario. When completed, this acquisition is expected to contribute run rate annualized revenue of approximately $14 million and nominal adjusted EBITDA prior to any cost synergies, with the potential to work with Rexall to transition additional beds as it winds down the remainder of its business. Prior to the Medical Pharmacies and Rexall transactions, we completed another strategic and accretive tuck-in acquisition. On April 1, we completed the purchase of SmartMeds Pharmacy, adding approximately 2,400 beds in Ontario. SmartMeds is expected to contribute run rate annual revenue of $13 million and adjusted EBITDA of $1.5 million prior to any integration synergies. In addition to its financial contribution, SmartMeds enhances our capabilities as they are recognized as an innovator in seniors care pharmacy with a reputation for value-added technology and an outstanding service culture. What all of this adds up to once the pending acquisitions are completed is a nearly 300% increase in our bed count since May of last year to more than 92,000. That clearly puts us well down the road to achieving our publicly stated target of 100,000 beds by 2023. In fact, this target is one that we are striving to achieve by the end of this year. We will obviously look to recalibrate our longer-term growth goals in the near future. As importantly, for our customers, our enhanced capabilities and significantly expanded national scale will enable us to deliver an even higher level of service, quality and support. Ultimately, it is their trust and confidence in our company that will underpin our ability to grow with them and win additional business. You can see that our progress and achievements and especially our team's ability to execute on the integration of acquisitions is clearly reflected in our financial performance. Revenue and adjusted EBITDA for 2020 increased 30% and 36%, respectively, year-over-year, reflecting only a partial contribution of the Remedy's business and associated synergies. Our Q1 2021 results reflect the full benefit of the Remedy's business and synergies with revenue up 48% year-over-year and adjusted EBITDA up 100%. Still, Q1 was not fully representative of our earnings potential. As we discussed in our Q1 conference call, our first quarter results were dampened by the temporary reduction in our average bed count due to the impact of COVID-19, which reached its peak in December and January, as well as a resultant delay in the onboarding of a new contract. We have since begun to see a normalization of our bed count and expect this trend to continue throughout the coming months. We have also made strong and steady progress on our goal to strengthen our balance sheet, reducing our net debt-to-annualized run rate adjusted EBITDA to 1.8x at the end of March of this year, down from 4.3x at the end of March of last year. This is a function of both growth in EBITDA and strong management of our debt profile. We expect our recently completed and pending acquisitions will support the continuation of this positive trend. On the equity side, we have successfully raised nearly $85 million this year to fund our current and future growth opportunities, the vast majority of which has or will be applied to accretive acquisitions. I am very proud to say that each of our 2 offerings this year were upsized, and our most recent offering was still well oversubscribed, a testament, we believe, to the long-term value we are creating. The last 12 months have reaffirmed both the significant growth opportunity that exists for our company and our ability to execute on it. Even with the tremendous growth we have achieved, we believe that the best is yet to come. Our near-term focus will be on the closing and integration of the 2 pending acquisitions, but we also expect to remain active as it relates to additional growth opportunities. The Canadian seniors care pharmacy market remains fragmented, and CareRx is very well positioned to continue to deliver growth and increase market share. Upon the completion of the Medical Pharmacies and Rexall transactions, our leading market share position represents only 21% of the beds in Canada. We are now the only national pharmacy player that is singularly focused on servicing the unique and complex needs of congregate care settings, which allows us to offer a customer value proposition that is unmatched in the industry. And with continued growth and scale, we will generate efficiencies and other benefits that will allow us to further invest in the business, support our home operator partners better and deliver improved margins and increased shareholder value. In closing, I want to once again thank the entire CareRx team for their incredible commitment and tireless efforts, especially during this challenging year. You are the foundation for any success our company has. I also want to express my gratitude to our Board of Directors, whose ongoing support, guidance and counsel have been instrumental to our achievements. And I would like to take this opportunity to thank our home operator partners. It is a privilege to support you and the incredible work that you do each and every day to provide care for the most vulnerable members of our society. And finally, I want to thank our shareholders for your continuing confidence and support throughout this period of significant transformation and growth. We are committed to continuing our momentum and delivering on our plan to build long-term shareholder value by being the very best at what we do. I would now like to open the meeting to questions. [Operator Instructions] And we'll pause 15 seconds for questions to come in. It does not appear that there are any questions. So with that, I would like to once again thank you for joining us today. I look forward to updating you on our continued progress in the months ahead. Thank you.

Ladies and gentlemen, thank you for attending today's meeting. You may now disconnect.