CareRx Corporation (CRRX) Q4 FY2025 Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the CareRx's Fourth 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 1 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.carerx.ca. 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 Investors section under Events and Presentations. Certain statements made during today's call, including the answers that may be given to questions, may include forward-looking information, including information consulting -- excuse me, including information constituting a financial outlook under applicable Canadian securities laws. Apologies, everyone. Forward-looking information, including financial outlook information, includes statements regarding forward -- 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 the date of this presentation. Forward-looking statements and financial outlook 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 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 the company's forward-looking information. For additional information on the risk factors that could 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 the company's MD&A for the 3- and 12-month periods ended December 31, 2025 and 2024, and other documents filed on the company's profile on www.sedarplus.ca. I would now like to turn the conference 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 2025 earnings call. With me this morning is our Chief Financial Officer, Suzanne Brand. In the fourth quarter, for the 3-month period ending December 31, 2025, we delivered strong financial and operating performance. We generated revenue of $96.1 million and adjusted EBITDA of $8.8 million, representing an adjusted EBITDA margin of 9.2%. We also delivered net income of $1 million in the quarter after adjusting to remove the effect of a deferred income tax recovery. Average beds serviced increased to 92,250 in Q4. For the year, we delivered revenue of $370.2 million and adjusted EBITDA of $32.9 million. Adjusted EBITDA margin for the year was 8.9%, and we delivered net income of $3.3 million after adjusting to remove the effect of an income tax recovery. We are proud of the financial results of the company as 2025 marks the first full year of positive net income. Our financial performance also reflects the contribution from new beds onboarded throughout the year, combined with the ongoing benefits of our cost savings and efficiency initiatives. I'm very proud of the entire CareRx team from coast to coast, those in our pharmacies, our office-based locations and the team supporting on-site within the homes we service. It is the dedication and hard work of the collective team that has enabled us to deliver these results while continuing to provide high-quality pharmacy services and programs to our residents and home partners. Turning to our full year highlights. In 2025, we added over 4,500 new beds across our network, and we are well positioned to continue to leverage our operating platform. We grew adjusted EBITDA by 8.7% compared to prior year and expanded our adjusted EBITDA margin by 63 basis points. We also reduced net debt by approximately 24% year-over-year, reflecting our strong cash generation and disciplined approach to capital allocation. In line with our commitment to returning capital to shareholders, we initiated a quarterly dividend during the year. We also renewed our normal course issuer bid, reinforcing our view that our share price does not fully reflect the fundamental value and long-term growth potential of our business. 2025 was also a year of important strategic milestones. We hosted Natalia Kusendova-Bashta, Ontario's Minister of Long-Term Care at our Oakville pharmacy location, where we showcased the innovative pharmacy services and technologies we use to deliver integrated pharmacy services and programs across the seniors housing spectrum. We also fully transitioned all regional beds in the BC Lower Mainland to our new Burnaby pharmacy, and we were pleased to host members of the BC legislative assembly for a tour of this new facility. This site is a strategic component of our high-volume operating platform and further enhances our ability to support growth while maintaining a high standard of service for our home operator partners and residents. Taken together, these achievements highlight the momentum in our business and the strength of our platform as we look ahead. I will now turn the call over to Suzanne, who will discuss our fourth quarter financial results in more detail.

Thank you, Puneet, and good morning, everyone. As Puneet outlined, we delivered solid growth in our key financial metrics in the fourth quarter of 2025. Average beds serviced in the fourth quarter increased to 92,250 from 87,658 in the same period of 2024. Revenue in the fourth quarter grew to $96.1 million compared to $92.2 million in the fourth quarter of 2024. The year-over-year increase in revenue was driven primarily by the increase in the number of average beds serviced. Fourth quarter adjusted EBITDA increased to $8.8 million from $7.6 million in the fourth quarter of 2024, and adjusted EBITDA margin improved to 9.2% from 8.2% a year ago. The increase in adjusted EBITDA and adjusted EBITDA margin was driven by the onboarding of new beds and continued realization of cost savings and efficiency initiatives across our operations. After removing the effects of income tax recoveries, we reported net income of $1 million in the fourth quarter compared to a net loss of $2.2 million in the fourth quarter of 2024. The improvement in net income reflects the higher average number of beds serviced, the impact of our cost savings initiatives and reduction in finance costs. We are proud to report our first full year of positive net income as CareRx and specifically positive net income in every quarter of 2025. Cash from operations in the quarter was $9.6 million compared to $8.4 million in the fourth quarter of 2024. Cash from operations was influenced primarily by the contribution from the new onboarding and our ongoing cost-saving initiatives. Turning to our balance sheet. As of December 31, 2025, we had cash of $13.9 million compared to $15.5 million at the end of the third quarter of 2025. Net debt was $27.1 million at quarter end compared to $28.8 million at the end of the third quarter of 2025. The quarter-over-quarter improvement in net debt was driven primarily by repayments to our term loan. Net debt to adjusted EBITDA improved to 0.8x at the end of the fourth quarter compared to 0.9x at the end of the third quarter of 2025. This improvement reflects both the decrease in net debt and the increase in our run rate of adjusted EBITDA. During the quarter, we also paid dividends in the aggregate amount of $1.3 million, consistent with our balanced approach to capital allocation, which prioritizes growth, growth investments, balance sheet strength and returning capital to shareholders. Overall, our financial position remains very strong, and we believe we are well positioned to support continued growth while maintaining conservative leverage profile. And with that, I'll turn the call back over to Puneet.

Thank you, Suzanne. Across CareRx, teams have strengthened relationships with home partners as well as with industry and government stakeholders. We have also delivered improvements in the care we provide to residents, enhanced the clinical support offered to homes and advanced key initiatives throughout a year of growth and momentum. During the fourth quarter, CareRx pharmacists administered over 40,000 flu shots. This is an important contribution to protecting residents in long-term care while preventing hospitalization and underscores the critical role our teams play in preventative care and immunization programs. We were also proud to have a diabetes management study co-led by CareRx pharmacists published in JMIR Diabetes. This work reflects our ongoing focus on clinical excellence, medication management and supporting evidence-based practice research to shape the future of senior care. We continued our support for the Senior Living CaRES Fund, which provides assistance to employees working in the senior living sector, supporting the people who care for seniors every day is core to our mission and values. In addition, our teams remained active in community initiatives, including participating in Lace Up to End Diabetes, writing holiday cards for seniors and sponsoring and attending other community events. These activities allow us to give back to the communities where we live and work, strengthen our relationships with residents and families and reinforce our commitment to being a trusted partner across the continuum of care. We have built a scalable, operationally efficient organization that we believe is exceptionally well positioned to capitalize on the significant long-term growth opportunities we see in the industry. Importantly, our business is built to handle significant growth, and we remain confident in our pipeline and our strategic positioning so that when our home partners are ready to move, we are ready. With that, I would now like to open the call to questions. Operator?

[Operator Instructions] And today's first question comes from Gary Ho at Desjardins Capital Markets.

Puneet, can you maybe give us an update on bed count growth pipeline this year? What are your sales team working on behind the scenes? And also maybe on the flip side, any notable customer that's up for renewal in 2026, we should be watching for?

So on growth, as I said in my prepared comments, we are optimistic and bullish on growth. I think we've publicly stated 6,000 to 8,000 net new organic beds is what we are targeting. Our sales team has hit the ground running this year in both prospecting and pushing those initiatives through the pipeline. So we feel good about that. With respect to large customers, we don't have any significant or large customers that are expiring this year.

Okay. Great. And then second, wondering if you can provide a progress update on your hub-and-spoke strategy trial. What do you hope to accomplish this year? And any plans to build out new mega facilities over the next 12 to 18 months?

Yes. So our hub and spoke continues -- we continue to feel good about where that's going. We now -- out of the pilot site that we do have in Oakville, we now have 2 of our other pharmacies being packaged out of the Oakville location. The -- and we're seeing that volume handled nicely with further capacity. And so we'll continue to expand that throughout the year. We're also looking to take that into BC. We are in the Lower Mainland location, we are servicing outside of our own geography in the Lower Mainland. And so we'll continue to leverage and expand that as well. So -- and then with your second part of your question, yes, we've got -- I think we would like to get 2 more hubs built time lines within the next 24 months, but nothing confirmed at this point, Gary.

Okay. Perfect. And then if I can just sneak one more in, maybe for Suzanne. I know there's a new deferred tax amount on the balance sheet, $23 million. I don't think it was there in Q3. What drove that? And does that impact future income tax rate looking out?

Yes. Thanks, Gary, for the question. The analysis was not complete. The analysis in Q3, we actually did the full analysis in Q4 on our tax position. You did see within the results that we posted a full year of positive net income. And with our future forecast in terms of profitability, it allowed us to recognize the deferred tax asset that we'll be able to offset some capital losses against. So it is a very good news story. It's a positive net income story. And we do have the noncapital losses that we'll be able to utilize. So hence, the deferred tax asset was recognized.

Okay. So maybe I can just clarify to see if I understand this correct. So in previous years, tax years where you had net losses, I guess those weren't recognized on the balance sheet. And as a result, now you have better visibility of having positive net income. And as a result, you can book these deferred taxes. Is that the right way to look at it?

That's exactly right. Yes, that's right. We did not have that profitability in the past.

So does that mean there's no current taxes we should look for in the near term?

In the near term, we will be able to utilize our noncapital losses with respect to being noncash tax positive.

And our next question today comes from Gireesh Seesankar with Bloom Burton.

Now as your partners acquire beds, could you provide some detail on the onboarding economics, specifically incremental margin that gets added as you add in new beds and the lag time from a partner closing an acquisition to the beds coming online?

So with respect to the lag time, it's one of the -- the answer is it depends. So we've seen somewhere if they are long-term care and licenses need to be transferred from the ministries, like we've seen that take as long as a year in some cases. And then in others, just depending on closing or if it's going to Competition Bureau, what we're seeing on the retirement home operator side as that side of the business or our customers continue to consolidate, it seems that it's triggering comp bureau review more and more. And so -- especially with the larger operators. And so a little bit of that is uncertain that we know we've won it, we're going to get it. Timing is not necessarily in our control. And then sort of with your first part of your question on margin profile, because of the way we've built our network, when we do add beds, we do it at very little additional labor. So it is much more incrementally accretive to us than our run rate.

If I can just add to that. Of course, it's dependent on the volume of the bed adds. It is marginally accretive, as Puneet said, with respect to minimal labor required. So with a large add, it's very, very supportive with respect to accretion, with small bed adds, it's a minimal impact. But we do get to absorb the labor.

And would it be possible to quantify the bed count threshold required to break into that double-digit margins? And then beyond just pure scale, what other levers could you pull to further drive margin expansion?

Yes. So I think what we've demonstrated over the last 2 years is that commitment to operational excellence. And when we started on that journey, it was really -- we committed to lean methodology, which is sort of a dedicated daily focus on rooting out waste and wasteful activities in the business and driving efficiencies. And so we'll continue to find opportunities throughout the business. And I think from what we've seen when we went to Europe and the partnerships we've created with best-in-class pharmacies across the EU is that there are still learnings that we are sharing back and forth and driving further efficiencies in our business that way. And so we will continue to drive those throughout the year. And then to Gary's earlier question, even with hub and spoke, as we continue to drive towards that model, there will be a significant upside for us on that part as well.

Just on the -- with the 6,000 to 8,000 beds potentially being added this year, do you think you'll be able to break double-digit margins with those adds?

We're optimistic. Sorry, Gireesh, I apologize, for a little bit of throat there. Optimistic with respect to breaking through to the double digit with the 6,000 to 8,000 as the target.

[Operator Instructions] Our next question today comes from Max Czmielewski with Stifel.

Just firstly, I'd like to ask, you're at historically low leverage. You guys have done a great job in sorting out the balance sheet, and it's in great health now. I guess just with respect to that, can you provide a little bit of color on firm capital allocation plans? I know the dividend is now in place and the buyback continues. But is that the plan? You do expect to invest a little bit more into existing facilities, building out any capacity? I understand Ontario is well positioned to add new beds with its current capacity, but maybe provide a little detail on what you think about using your balance sheet for?

Max, with respect to capital allocation, you are correct. We will continue in terms of our -- the -- we focus on the dividend. We focus on the NCIB in terms of the buyback. But of course, we'll continue with capital allocation between the $8 million and $10 million with respect to pure capital. And then secondarily to that, we'll also look for opportunities from an M&A perspective and how that might obviously impact our business positively. But because we are so -- positioned very effectively on our balance sheet, we'll be able to maneuver that within our current structure.

That's great. And maybe just broadly, with regards to M&A, are you in discussions to any degree? Or does the pipeline looks a little bit more active than it is historically? Just what does that look like?

Yes. It's still early innings on that, Max. So nothing -- we haven't -- we're not bearing any fruit yet. But again, I think we're pretty optimistic on using our cash effectively to fuel growth.

Great. And maybe just on what's over the horizon this year. And I think we've spoken about it in the past, but with the genericization of semaglutide in Canada, maybe lay out your expectations or refreshed expectations and if this will translate into any gross margin expansion in the back half of the year?

So with respect to Ozempic/semaglutide molecule, there is an expectation. Word is, is that it would likely go generic late in the year. So we are watching that, never any guarantees with respect to getting through all the regulatory hurdles. It will -- again, as you know, it's a pass-through from both revenue and cost of sales, but we will be able to push a little bit of upside with respect to our wholesale terms. But at the end of the day, it's just still a little bit of a wait and see on semaglutide to see that it actually does get into the generic space.

Great. Maybe one more question. This is a bit of a shot in the dark. Have there been any discussions with Quebec officials yet on expanding services into the province or even in the maritime provinces for maybe a broader geographic reach? And how are those advancing?

Yes. So we operate in Moncton, New Brunswick already. With the legislation there, we could service into Nova Scotia from that location. And just with the limited geography, that would most probably make the most sense out of the gate for us. So we continue to look for opportunity to expand into that market. And then with Quebec, it's one of those. We are continuing to have ongoing conversations with a number of different individuals. But again, nothing to report back at this point.

And that concludes our question-and-answer session. I'd like to turn the conference back over to Puneet Khanna for any closing remarks.

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

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