CareRx Corporation ($CRRX)

Good morning, everyone, and welcome to CareRx's First Quarter 2026 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 answers that may be given to questions, may include forward-looking information, including information constituting a financial outlook under applicable Canadian securities laws. Forward-looking information, including financial outlook information, include statements regarding future events, conditions or results, including the company's future plans, strategies, objectives and expectations and statements regarding changes in long-term care, capitation funding for Pharmacy Services in Ontario, including the impact of such funding changes on the company's 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, including statements containing a financial outlook, are 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 financial outlook and the factors and assumptions associated with such forward-looking information, please refer to the company's MD&A for the 3 months ended March 31, 2026, and 2025, and other documents filed on the company's profile on www.sedarplus.ca. I would now like to turn the call over to Mr. Puneet Khanna, President and CEO of CareRx Corporation. Please go ahead, Mr. Khanna.

Thank you, Mike, and good morning, everyone. Welcome to our first quarter 2026 earnings call. With me this morning is our Chief Financial Officer, Suzanne Brand. In the first quarter, for the 3-month period ending March 31, 2026, we delivered strong financial and operating performance. We generated revenue of $93.9 million and adjusted EBITDA of $8.4 million, representing an adjusted EBITDA margin of 9%. We also delivered net income of $1.2 million in the quarter. Average beds serviced was 92,036 in Q1. Our financial performance reflects the contribution from new beds onboarded throughout the last year, combined with ongoing benefits of our cost savings and efficiency initiatives. Over the past 3 years, we have been focused on developing a high-performance team and a culture of providing quality care for the residents we serve. Our approach is not only what we do, but how we do it. And I'm proud to share that in the quarter, the CareRx team was honored with external validation of the impact we are making. We are awarded the Public Protector Award from Pharmacy Practice and Business, part of the Canadian Health Network in recognition of our unwavering commitment to caring for seniors across Canada and responding quickly in complex situations even during emergencies and natural disasters. This achievement reflects our relentless pursuit of delivering the highest level of care and the strength of collaboration across our entire organization. CareRx was also named to The Globe and Mail's 2026 Women Lead Here list, recognizing Canadian organizations with strong representation of women in executive leadership. With a diverse workforce at CareRx comprised of 74% women, it is important that 77% of our people leaders are women or from underrepresented groups. Thank you to our team for helping build an inclusive workplace where diverse leadership can grow and thrive. We are also pleased to continue our engagement with government and welcomed both Ron Wiebe, MLA for Grande Prairie-Wapiti; and Brad Willsey, Registrar of the Alberta College of Pharmacy, to our CareRx Grand Prairie Pharmacy, where they learned about the specialized pharmacy services we provide to seniors and care settings across the region. Finally, subsequent to the end of Q1, the Ontario Ministry of Health announced that the current annual long-term care pharmacy capitation rate of $1,500 per licensed bed will be maintained and that the ministry will not implement the previously scheduled reductions in the fee per bed rate. This is a significant milestone that we have been advocating for over the past few years, and this provides us long-term stability and funding visibility. In addition, the ministry announced the removal of funding for unoccupied licensed ward beds. We estimate that the removal of funding for unoccupied ward beds will result in an approximate reduction of up to $2 million in capitation fees in 2026. However, the financial impact remains uncertain as it is dependent on several factors, including the pace and extent of bed redevelopment by LTC operators. We are actively evaluating mitigation strategies to offset the net impact of these changes to capitation funding in Ontario. We are also in discussion with our home partners to understand their construction schedules and the additional LTC home bed capacities at these redeveloped sites. We remain focused on continuing to work collaboratively with the Ontario government and sector partners on shared priorities in enhancing long-term care. I will now turn over the call to Suzanne, who will discuss our first quarter financial results in more detail. Suzanne?

Thank you, Puneet, and good morning, everyone. As Puneet outlined, we delivered solid growth in our key financial metrics in the first quarter of 2026. Average beds serviced in the first quarter increased to 92,036 beds from 87,675 beds in the same period of 2025. Revenue in the first quarter grew to $93.9 million compared to $89.6 million in the first quarter of 2025. This year-over-year increase in revenue was driven primarily by the increase in the number of average beds serviced. The modest quarter-over-quarter decline in revenue compared to the fourth quarter of 2025 was driven by typical seasonality, including the effect of fewer working days in the quarter and by slightly lower bed count due to some normal churn. The first quarter of 2026 adjusted EBITDA increased to $8.4 million from $7.8 million in the first quarter of 2025. And the adjusted EBITDA margin improved to 9% from 8.7% a year ago. We reported net income of $1.2 million in the first quarter compared to net income of $0.2 million in the first quarter of 2025. The increase in adjusted EBITDA, adjusted EBITDA margin and net income was driven by the onboarding of new beds and the continued realization of cost savings and efficiency initiatives across our operations. Cash from operations in the quarter was $6.9 million compared to $7.4 million in the first quarter of 2025. Cash from operations was influenced primarily by changes in noncash working capital items. Turning to our balance sheet. As of March 31, 2026, we had cash of $14.8 million compared to $13.9 million at the end of the fourth quarter of 2025. Net debt was $25 million at quarter end compared to $27.1 million at the end of the fourth quarter of 2025. The quarter-over-quarter improvement in net debt was driven by a higher cash balance and the repayment of our term loan. Net debt to adjusted EBITDA was 0.8x at the end of the first quarter and in line with 0.8x at the end of the fourth quarter of 2025. 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 will turn the call back over to Puneet.

Thank you, Suzanne. CareRx takes our role in the healthcare sector very seriously. And as a leader in senior care, health advocacy and inclusion, we are committed to shaping a better future for those we serve. At the heart of everything we do is an unwavering commitment to the safety and well-being of the patients who trust us with their care because in long-term care pharmacy, getting it right is not optional. It is everything. And we know that kind of culture is only possible when our people feel empowered to grow, to lead and to thrive. That is why we are committed to the success of our team as we are to the patients we serve. We take pride in advancing research to improve the medication management system in homes while also creating opportunities for our pharmacists to practice to their full scope and deliver optimal patient health outcomes. With that, I would now like to open the call to questions. Operator?

[Operator Instructions] The first question we have will come from Gary Ho of Desjardins Capital Markets.

I appreciate you quantifying the unoccupied beds impact for the year. I was curious if you're able to provide a bed count range implication perhaps. Is that how you would show the bed count looking out? And second, if you look at other provinces, are there other beds that are in the similar bucket that could be at risk?

So no impact to our bed count. So the way we report is based on active patient profiles in the pharmacy system. So the pharmacy system doesn't capture ward beds per se. And so that is part of the reason we've given a range up to $2 million because we are looking at other people's definitions of ward beds being the government, our home operators and quantifying from them from our end. And so we don't have a number that we're going to share at this time because, again, I think we're still trying to quantify it. And the $2 million that we did was based on sort of that worst case and straight-lining it throughout the year going, assuming nothing gets redeveloped. And we know beds are being redeveloped. And as they get redeveloped, those sites actually add additional capacity. So that's the first part of it. And then with respect to other provinces, they don't have more beds in any other provinces that we're aware of.

Okay. So just to clarify, so next quarter when you report, the implications of this will come through on the revenue per bed? Or will it come through both revenue per bed and the bed count?

Hi Gary, Suzanne here. Sorry, Puneet, would you like to answer?

No, go ahead.

To Puneet's point, so the bed count is based on active. And so again, what's within our system. So the other implication, though, would be a very minor impact on the revenue per bed as you would see that, call it, straight line $2 million at this point. So as those get redeveloped and they get, call it, reimbursed through the capitation fee model, it would then manage itself through.

Okay. Great. And then maybe as a related question, I know previously, you had a 10% margin target exiting this year, and that was before this announcement. So I know it's still fairly new, but any read into how you'd hope to hit the double-digit EBITDA margin now? Perhaps maybe just talk about speeding up other initiatives like Hub and Spoke?

Yes. No, I think that's exactly how we are looking at it, Gary, going -- we have a strategic plan that looks out multiple years. And so really, what we've done with the team now is to look at any of those initiatives to say we've got to mitigate this. We're still focused on that double-digit target. So what are the initiatives that be it cost savings, be it efficiency, be it margin enhancement or revenue, like which things can be moved more quickly or move forward and what would that take? And so we're still focused on that outcome.

Okay. And then maybe I can sneak one more in. Just in your financials, there's mention of the company issuing 174,000 shares as a part of multiyear agreement with a national customer. Is that a new customer win? And is it common to issue stock? Just wanted to see if you can provide a bit more color. And I think there was a corresponding $4.6 million added in intangibles. I wasn't sure if that's related?

Gary, unrelated. So the 174,000 issuance is a legacy arrangement that was -- and has been in the financial statements over time. So that's not new. And the additional on the intangibles is related to the onboarding of new customers.

The next question we have will come from David Martin of Bloom Burton.

This is Gireesh, on for Dave. Just want to follow up on one of Gary's questions. Could you provide some additional color on the timing of this $2 million lost in capitation fees? Is it all hitting like next quarter in '26 -- for '26? Or is the ministry sort of implementing a slow phaseout with what we're seeing with some of these larger homeowners and operators?

Gireesh, so the rollout on the ward bed funding for home operators and pharmacies are different. So the pharmacies would -- the impact is effective April 1, and it would be each month over the remaining year -- over the remaining of this year.

Okay. And in the past, I mean, you guys were sort of shedding some of the beds with smaller clients. Is this still continuing? Is that what we're seeing with this decline? And is the target for the year still in that 6,000 to 8,000 beds range?

Yes. No, we're still comfortable with our targets and are aggressively pushing towards those growth targets. I think to Suzanne's comments in her prepared statement, we are done shedding or actively shedding. This is just a normal churn that we've seen in the business historically.

[Operator Instructions] The next question we have will come from Max Czmielewski of Stifel.

Puneet, Suzanne, nice quarter. I think a lot of the questions that I had were pretty much asked already, but I know there's a lot of variance in the ward bed dynamics. But maybe from your perspective, can you give any detail towards maybe what your targets are in terms of maybe 6,000 to 8,000 beds for the year? And what you might be -- the net impact of what you might be losing for ward suites versus what you could reasonably see being remodeled into serviceable capitated beds for the year?

Yes. So I think on the 6,000 to 8,000, again, we are comfortable. We see the pipeline is more robust than that. And so again, we are comfortable with that target. With respect to the redevelopment on some of these ward beds of the additional, I think we're still early innings on that, Max. So hard for us to say. And that's why, again, we thought let's put out what we're comfortable and let's be a bit high on the 2 just to be -- sort of have worst-case scenario. And then once we get to more quantification, we'll be able to understand really what the number is.

Great. And just to ask a topical question, asked it before, but with the expected launch of the first generic semaglutide in Canada, any visibility, even high-level comments on what you could see in terms of volume or what you might be thinking about for inventory management on the pharmacy side?

Thanks, Max. So the -- I think it was recently posted in the last -- just couple of weeks actually, last week, the approval by Health Canada of the first semaglutide to Apotex. So we are actively working to understand the launch quantities. So one of the challenges with this particular product will be volumes and being able and capable to fulfill the market. We do expect that we should have some allocation of that. And that would -- we would wash out our current inventory that we have and then flip to the generic semaglutide. We do expect that we should be able to get some allocation of volume that would likely, call it, start into the fourth quarter of 2026.

So with respect to that allocation, if you were to start building inventory for generics versus the branded inventory that you have stocked currently, would it be reasonable to say that maybe the actual impact on the gross margin would start to materialize probably more early in 2027?

That would be fair. Late -- at best case scenario would be late in 2026 just because, as you just said, we'll wash through the current brand inventory that we have along with ensuring that there's enough allocation to us. But Q1 2027 early would be conservative.

And sorry to belabor this question, and I know that this has come up in the past. But in terms of maybe rebates and just procurement on the pharmacy side with maybe a greater influx of generic semaglutide and prescription volume there, would you expect to see better economics from your suppliers as that flows through?

100%, we would have better economics for sure. It's just around right now. It's a little bit of a, call it, unicorn type product. So we'll work with our preferred vendor in terms of what that actual opportunity is if it will be treated exactly the same as the other oral solid dose because this is a prefilled syringe in terms of its application. So sometimes those will have a little bit of a different model, but we definitely will have a better opportunity from a GP point of view there.

Perfect. That's great. And maybe just a high-level question to reiterate capital allocation plans for the year. Are we still sort of expecting something in the $10 million range for CapEx?

Yes, still the plan, $10 million.

Showing no further questions. This concludes the question-and-answer session. I would now like to turn the conference back over to Mr. Khanna for any closing remarks. Sir?

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 disconnect your lines. Thank you again all for participating, and have a pleasant day. Take care.