Hydreight Technologies Inc. ($NURS)

Good morning, everyone, and welcome to Hydreight Technologies First Quarter 2026 Earnings Conference Call. [Operator Instructions] This call will be recorded as well. A replay will be made available on the company's Investor Relations website following this call, and we will send an e-mail out shortly after to our shareholder list just in case you do have to leave for any reason. We're just going to give it a few moments before we begin as we see some people in the wait room, and we'll let them join here. Also before we begin, please note that today's remarks contain forward-looking statements within the meaning of applicable Canadian securities laws. Actual results may differ materially from those expressed or implied today. For a discussion of the assumptions and risk factors involved, please refer to the company's MD&A and other continuous disclosure documents filed on SEDAR+ on the company's profile. Today's discussions also reference certain non-GAAP financial measures, including adjusted revenue, adjusted gross margin and adjusted EBITDA. Reconciliations to the most comparable GAAP measures are provided in the company's MD&A and news release. And we're just going to give it a few moments here, and then we'll begin. And just want to make sure that sound is working. If you guys can just put a thumbs up in that chat section, that would be greatly appreciated. Perfect. And I'll now turn the call over to Shane Madden, the Chief Executive Officer of Hydreight Technologies.

Thank you, Abby. Good morning, everybody, and thank you for joining us. I'm going to start with the headline, and then I want to spend some time this morning on what drove the results, the changing regulation landscape in which we operate, what we're seeing on the consumer demand side and then the results themselves. The headline is that this is a record quarter for Hydreight. We generated CAD 25 million of revenue in the first 3 months of the year. That's more than we recorded across the entire first 3 quarters of 2025 combined and roughly 70% of our full fiscal year 2025 revenue. And that was delivered in just one single quarter. We delivered it profitably and with adjusted EBITDA of CAD 3.3 million, net income of CAD 2.6 million and our third consecutive quarter of margin expansion. For those of you who have followed the story, none of this should feel like a surprise or that it came out of nowhere. For the better part of 2 years, we have been educating our shareholder base, continually messaging quarter after quarter exactly where this business was going. We told anybody that would listen, we were building an infrastructure that would scale that once the platform was live, revenue would flow and the profitability would follow soon thereafter. This quarter is that thesis playing out on the page in the numbers. This is precisely what we built the company to do, and we are energized that the results that we're showing in reality. Let me start with some questions I expect are on many people's minds. What were the 1 or 2 things that drove a record quarter like this? Was it a single large client or a particular pharmacy line perhaps? To be honest, the answer is quite boring and more boring than I think most people would like. And that is exactly why I find it so encouraging actually. There was no single driver, no single customer, no single product. Rather, it was everything working together at the same time the way it was designed to. Existing partners continuing to ramp, new partners continuing to be onboarded and our pharmacy network and product catalog deepening underneath all of it. When a quarter like this depends on an individual client or a product, it's very difficult to be sustainable long term. However, when a record quarter comes from every part of the engine turning at once, it's far more durable, far more repeatable. I think that more than any single number is what has driven these results and gives us confidence in what lies ahead. Next, I want to address regulation directly because it is probably the single most question we get from the investor base. And candidly, that's totally understandable. The legislation and regulatory environment around digital health, telemedicine and compounded medications continues to evolve. And yes, in many respects, it continues to tighten. Here is what every person on this call, I'd like to -- here's what I really would like to clearly get across. That tightening is not a threat to hydrate. It's a tailwind. And I cannot say it strongly enough, and we've spoken about this multiple times on multiple webinars. As the rules grow more complex, as regulation increases, enforcement grows, the bar to operate in this space compliantly only continues to rise. Operators who are not compliant or who try to cut corners will get removed or squeezed out and the businesses that want to participate in this market long term, legitimately scale across multiple states, 50 states in most cases, increasingly, they cannot do that alone. They need precisely what we have spent years building, which is an ecosystem for the digital health space in the United States. It's really about the division of labor. Our customers are the front end of the telehealth funnel. Their focus is on customer acquisition, building a brand and bringing patients in the door. And that is where their energy and their dollars are best spent and should be spent. Hydreight lets them focus on exactly that. We take care of everything behind it, the compliance and regulatory requirements, the administration, the prescriptions and the operational fulfillment, basically the operations of medical care. That separation is our value proposition. And as the back end gets harder and more expensive to manage, more legislatively curtailed, the more essential we become to the front end. So the regulatory screw continues to tighten. It only funnels more of these operators onto our platform, not away from it. We are seeing this in real time across the platform as new operators seek us out to solve their regulatory problems. And we're seeing it not only in real time, we're seeing it in results, as everyone can see here from Q1. The next area I want to spend a moment on is the consumer demand side and what we are seeing in the market. As most of you on this call know, the market for health and performance products has been growing rapidly as more and more consumers focus on fitness, recovery, longevity, weight management and overall wellness, preventative health care as opposed to sick care. Peptides, of course, are the bell of the ball, are the most well-known example of this, but it's much larger than that. And we don't have to project this trend or take it on faith. We see it in the order flow moving across our platform, and we see it accelerating. To add a little bit more color to that and just to kind of showcase where this industry is going, the FDA are holding a public hearing on July 23. It is the Pharmacy Compounding Advisory Committee Board of the FDA, public 2-day hearing in July 23, inviting pharmacies, companies, physicians to have an open review process around 7 peptides and the release of those. This is on the back, of course, of 14 that were released already in February. And this is the movement. Some of the peptides on there, people would know BPC-157, TB-500, some of these things that are in the public space right now. And done kind of uncompliantly, but this is where absolutely the industry is going. There's a second meeting already penciled in for February in 2027. And this showcases the movement towards preventative health care, the movement towards these additional products being accessible in a compliant fashion. Obviously, Hydreight spends a tremendous amount of money on compliance. We've been doing this for 8 years. While the market has come towards us in many cases with these patient-specific self-administered products being released over the last 2 years and an ecosystem needed to support those, this isn't new to us. So we've been structuring the company accordingly for quite a while now, and we're uniquely positioned to support the businesses as these products release and as this movement continues and as regulation tightens. That's part of what makes this so powerful for Hydreight. The leverage our platform brings, which is something we have talked about before, but it warrants repeating. As new products and drug categories are released, we don't need to onboard them on a partner-by-partner basis. Rather, we onboard them once to our platform and then we can make them available to our entire customer base. So one new category becomes thousands of new revenue opportunities for both our partners and for us in a single motion. When you layer that leverage on top of what we believe is still the early innings of a structural shift towards patient-led health care, you can see why we remain so excited about the road ahead. Next, I want to talk about our platform itself and how this quarter presents the clearest signal yet that it's performing as intended as the results show top line growth paired with rising profitability and operating leverage. To put some numbers to that, in Q1, we were able to grow our revenue 67% over the prior quarter with no increase in operating expenses. That gap is the platform doing its job, one, our cost base, the compliance framework, the provider network, the technology is largely fixed. So as more volume flows across the platform, very little incremental cost follows it. Looking at it another way, operating expenses fell to roughly 9% of revenue this quarter. That's down from 15% just last quarter, representing a 41% overall decrease. And while we acknowledge these are already strong growth and profitability numbers, we'd ask you to keep in mind that we remain in the very early stages of scaling, having launched the VSDHOne platform from a revenue-generating perspective only 3 quarters ago. We believe these are early indications of what the platform will ultimately do once it hits its stride. As we turn to our balance sheet, we're happy to report we have only enhanced our financial position since the end of 2025. We closed the quarter with CAD 24.2 million in cash and roughly CAD 32 million in working capital, having completed an oversubscribed CAD 15 million financing in January. With that backdrop, let me turn to the financial results in a little bit more detail. Revenue for the first quarter was CAD 24.9 million compared with CAD 4.5 million in the first quarter of 2025. I'll pause there and let that one sink in for a minute. Growth of approximately 450% year-over-year. Sequentially, revenue grew 67% over the CAD 14.9 million we reported in the fourth quarter of 2025. On an adjusted revenue basis, which reflects gross cash receipts before the deferral of certain business partner contract revenue, we generated CAD 27.6 million versus CAD 6.5 million a year ago. So again, validation of our moat in real results as opposed to structure. Sticking with our top line growth a moment longer, I want to show this next chart, which shows our revenue on a trailing 12-month basis. We think this does a good job of really showing the step change in growth we're seeing in the business right now. Our trailing 12-month revenue is currently CAD 55.8 million, up from CAD 18.5 million just 3 quarters ago, right before VSDHOne launched. That's nearly a tripling in 3 quarters. The most recent quarter alone added more than CAD 20 million to our trailing revenue base, taking us from CAD 35.4 million to CAD 55.8 million. That is by a wide margin, the largest step change we've seen, and it reflects the order flow building through VSDHOne and inflection we've been working toward. Underneath that inflection, I think the consistency is also worth noting. We're now strong together more than 15 consecutive quarters of growth and unbroken 4-year [ time ]. Again, continued validation of not only the ecosystem that Hydreight has built, but basically knowledge of where the market is going. Moving below revenue, our gross profit was CAD 5.1 million, a gross margin of approximately 20% compared with CAD 1.5 million or roughly 33% a year ago. The decline in gross margin is a function of revenue mix as pharmacy sales, which carry a lower margin, significantly outpaced the growth of the other revenue streams. Operating expenses for the quarter were CAD 2.2 million. And as you can see by the chart, have been held largely flat over the past 12 months. Over the same period, we've grown revenue significantly, which has driven our OpEx as a percentage of revenue down from 36% to under 9% in the most recent quarter. This operating leverage flows down to our adjusted EBITDA, which was CAD 3.3 million for the quarter compared with approximately CAD 200,000 a year ago. Our adjusted EBITDA margin reached approximately 13.1%, up from 5.9% in Q3 of 2025 and 10.6% in Q4 of 2025. That represents 3 consecutive quarters of margin expansion. Net income was approximately CAD 2.6 million compared with essentially breakeven a year ago. In terms of cash flow, we used CAD 4.9 million to fund operating activities during the quarter. This was driven by an increase in working capital, principally an increase in pharmacy sales receivables that are tied to the launch and securing of the customized compounding product lines to secure the expansion into these other products. Having closed the quarter with over CAD 24 million in cash and a working capital surplus of over CAD 32 million, our financial position remains stronger than it has ever been. Turning to our outlook. We have guided to CAD 25 million of revenue for the first quarter. We delivered in line with that guidance, reporting CAD 24.9 million in revenue and CAD 27.6 million on an adjusted revenue basis. For the full year, we are reaffirming our guidance, of course, of a minimum of CAD 150 million in revenue. As we previously stated and as we went over with the release of additional categories of products with the movement towards the FDA, including pharmacies and organizations and physicians and businesses towards this movement. As these products are released, we see significantly strong opportunity in Q3 and Q4 of this year as well. This baseline is derived solely from existing partner relationships and currently active current programs, observable transaction volumes and contracted demand and continued utilization of our existing pharmacy and platform infrastructure. So importantly, it does not assume any contribution from potential acquisitions expansion into new international markets or additional enterprise partnerships beyond those already in operation today. It is what is already in the ecosystem, and it is more of an executional challenge, hence, our confidence one and our execution, as you've seen in our Q1 numbers. On that revenue base, we expect to generate an adjusted EBITDA margin of approximately 15% to 17%. The drivers behind this number are visible to us today, and our first quarter results are consistent with the trajectory that underpins the full year outlook. To close, the first quarter delivered record revenue, record profitability, positive net income and a strong, well-capitalized balance sheet and it validated the operating model we have spent the past several years building. The regulatory landscape is moving in our favor. Consumer demand for the categories we serve is accelerating and the majority of the value embedded in our existing partner base is still ahead of us. We look forward to meeting again in a few months to present our Q2 results, which continue to build and extend on the momentum we've presented today. Very, very exciting times for the company, and we appreciate everybody's support. Thank you for your time this morning and continued support of Hydreight.

Thank you, Shane, for that, too. And thank you, everyone, for joining us this morning. This does conclude today's conference call, and a replay will be available on the company's Investor Relations website at hydreight.com shortly. We will now end this webinar here, and we'll also be sharing a recording as well shortly after via e-mail to everyone. Thank you so much, and have a great rest of your day. Bye now.