Earnings call transcript: CareRx Q4 2024 shows steady revenue growth

CareRx Corporation, a Canadian healthcare pharmacy services provider with a market capitalization of $114.28 million, reported a 1.2% increase in revenue for the fourth quarter of 2024, reaching 92.2 million dollars. Despite a net loss reduction to 2.2 million dollars from 3.7 million dollars in the same quarter of the previous year, the company’s stock saw a slight decline of 1.12% in the latest trading session. According to InvestingPro analysis, the stock has demonstrated remarkable strength with a 69.43% return over the past year and appears undervalued based on its Fair Value assessment. CareRx’s strategic focus on operational efficiencies and innovative technology integration is poised to support its growth trajectory in 2025.

Key Takeaways

• Revenue increased by 1.2% year-over-year, reaching 92.2 million dollars.
• Net loss reduced to 2.2 million dollars, improving from 3.7 million dollars in Q4 2023.
• Adjusted EBITDA grew by 1%, maintaining an 8.2% margin.
• Stock price decreased by 1.12% following the earnings release.
• New pharmacy fulfillment center and technology advancements were highlighted.

Company Performance

CareRx demonstrated resilience in Q4 2024, with a modest revenue increase and a significant reduction in net loss. The company’s focus on operational consolidation and technology integration, such as the opening of a new pharmacy fulfillment center in North Burnaby, BC, and advanced medication packaging technology, positions it well for future growth. Analysts tracking the stock maintain a bullish outlook, with price targets ranging from $1.56 to $2.95. CareRx’s strategic initiatives aim to capitalize on increasing demand within the Canadian healthcare sector. For deeper insights into CareRx’s valuation and growth potential, InvestingPro subscribers can access comprehensive analysis and 7 additional ProTips.

Financial Highlights

• Revenue: 92.2 million dollars, up 1.2% year-over-year.
• Adjusted EBITDA: 7.6 million dollars, a 1% increase from the previous year.
• Adjusted EBITDA Margin: 8.2%, unchanged year-over-year.
• Net Loss: 2.2 million dollars, improved from 3.7 million dollars in Q4 2023.
• Cash Balance: 9.1 million dollars.
• Net Debt: 36.2 million dollars, reduced by 1.8 million dollars.

Outlook & Guidance

CareRx has secured 3,000 new beds expected to come online in the first half of 2025, supporting its goal of achieving a double-digit EBITDA margin. Capital allocation priorities include investments in bed growth, accretive acquisitions, share repurchases, and debt repayment. The company projects approximately 8 million dollars in capital expenditures for 2025.

Executive Commentary

CEO Puneet Khanna emphasized the company’s readiness to capitalize on growth opportunities with its scalable operating platform. CFO Suzanne Brand reiterated the company’s commitment to achieving operational objectives. Khanna also noted a strategic shift towards integrating smaller acquisitions alongside traditional mergers and acquisitions.

Risks and Challenges

• Supply chain constraints could impact medication sourcing and pricing.
• Regulatory changes in Canadian healthcare may affect operational costs.
• Economic fluctuations could influence long-term care facility demand.
• Competition from other healthcare service providers may intensify.
• Technological implementation risks could affect operational efficiency.

Q&A

During the earnings call, analysts inquired about the Southbridge acquisition, which includes 21 long-term care homes, contributing to the 3,000-bed growth target. Executives confirmed minimal impact from recent Ontario government announcements and highlighted the new North Burnaby facility’s expected efficiencies by late fall. InvestingPro data reveals the company maintains a "GREAT" overall financial health score of 3.08, suggesting strong fundamentals to support its expansion plans. For comprehensive analysis of CareRx’s financial position and growth prospects, investors can access the detailed Pro Research Report, available exclusively to InvestingPro subscribers.

Full transcript - CareRx Corp (CRRX) Q4 2024:

Conference Call Moderator: Good morning, everyone, and welcome to CareRx’s Fourth Quarter and Year End twenty twenty four 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 one 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 by loading the webcast and choosing the Non Streaming Audio option.

Certain matters discussed in today’s call or answers that may be given to questions asked could constitute forward looking statements that are subject to risks or uncertainties relating to CareRx’s future financial and business performance. Actual results could differ materially from those anticipated in these forward looking statements. The risk factors that may affect results are detailed in CareRx’s continuous disclosure record, which you can access on the SEDAR Plus database under www.cedarplus.ca. CareRx is under no obligation to update any forward looking statements discussed today, and investors are cautioned not to place undue reliance on these statements. I would now like to turn the call over to Puneet Khanna, President and CEO of CareRx Corporation.

Please go ahead, Mr. Khanna.

Puneet Khanna, President and CEO, CareRx Corporation: Thank you, and good morning, everyone. Welcome to our fourth quarter twenty twenty four earnings call. With me this morning is our Chief Financial Officer, Suzanne Brand. Twenty twenty four marked a year of tremendous success for the team at CareRx as we continue to focus on operational excellence and strengthening the ability of our network to scale without proportionally increasing costs. In addition, we simplified our balance sheet, improved cash flow and put the company in a position to leverage various opportunities while maintaining our disciplined approach to capital allocation.

As we enter a phase of growth, we remain committed to further enhancing our service offerings to our home operating partners and residents, while delivering long term value for our shareholders. In the fourth quarter, we delivered revenue of $92,200,000 and adjusted EBITDA of $7,600,000 As we anticipated, fourth quarter average bed count was slightly lower than the third quarter as a result of full quarter impact of the previous quarter bed count turn. On October 1, Suzanne Brand joined CareRx as Chief Financial Officer. Suzanne is an exceptional finance and healthcare leader with a track record of developing great teams. She brings a wealth of professional and personal experience and has already made a significant contribution in preparing us for the next stage in our growth story.

As we previously announced, in early December, we opened a new state of the art high volume fulfillment center in North Burnaby, British Columbia. I will provide a more detailed update later in the call. Finally, in November, the final tranche of the company’s 8.25% unsecured convertible debentures was converted into common shares at a price of $3 per share. The convertible debentures have now been extinguished in full. This marks the final step in the comprehensive debt restructuring initiative that we undertook beginning in December 2023, which further simplifies our balance sheet and decreases our annual interest expense.

I will now turn the call over to Suzanne, who will discuss our fourth quarter financial results in more detail. Suzanne?

Suzanne Brand, Chief Financial Officer, CareRx Corporation: Thank you, Puneet, and good morning, everyone. Revenue for the fourth quarter of twenty twenty four increased to $92,200,000 from $91,100,000 in the fourth quarter of twenty twenty three and decreased from $92,800,000 in the third quarter of twenty twenty four. The year over year revenue increase was driven primarily by an increase in branded pharmaceutical prices during the third quarter of twenty twenty four despite a lower year over year bed count. The quarter over quarter revenue decrease was a result of the slight net reduction in the average number of beds serviced. Adjusted EBITDA for the fourth quarter grew 1% to $7,600,000 from $7,500,000 in the fourth quarter of last year and declined slightly from the third quarter of twenty twenty four.

Adjusted EBITDA margin in the fourth quarter was flat year over year at 8.2% and decreased 20 basis points quarter over quarter. The year over year improvement in adjusted EBITDA occurred despite a lower bed count and was primarily the result of efficiencies, exiting unprofitable beds and cost savings initiatives that commenced during the second half of twenty twenty three as well as improved supply terms from the amendment to the procurement agreement with our major pharmaceutical supplier. We posted a net loss of $2,200,000 in the fourth quarter compared to a net loss of $3,700,000 in the fourth quarter of twenty twenty three and a net loss of $400,000 in the third quarter. This year over year decrease in net loss was driven primarily by decreases in finance costs and the impact of certain cost saving initiatives that commenced during the second half of twenty twenty three. Cash at December 31 was $9,100,000 compared to $8,800,000 at the end of the third quarter.

Net debt decreased by $1,800,000 to $36,200,000 compared to $38,000,000 last quarter. The increase in our cash balance and decrease in net debt was due to an increase in cash flow from operations, repayments made to our operating loan and the repayment of the final tranche of the convertible debentures. Net debt to annualized run rate adjusted EBITDA at the end of the third quarter was 1.2 times and in line with the third quarter of twenty twenty four. It’s worth highlighting the benefit of the comprehensive debt refinancing program we initiated last year by restructuring our debt, repaying certain high cost components, converting from fixed to floating rate and adding the flexibility of an operating line, the total debt has been reduced by $21,800,000 compared to the fourth quarter of twenty twenty three. Overall finance costs in 2024 was $9,100,000 compared to $14,300,000 in 2023, a year over year savings of $5,200,000 We continue to remain committed to returning capital to the shareholders through our active share buyback program under the normal course issuer bid, supported by our strong capital position and the belief that our share price does not adequately reflect the fundamental value in our underlying business and our near and long term growth potential.

Finally, it’s important to highlight that CareRx operates exclusively within Canada, serving only Canadian customers and we source our medications and equipment almost exclusively from Canadian suppliers. As a result, we are highly insulated from the threat of tariffs. And with that, I will turn the call back over to Puneet.

Puneet Khanna, President and CEO, CareRx Corporation: Thank you, Suzanne. In December, we opened a new state of the art pharmacy in North Burnaby, British Columbia. This new pharmacy fulfillment center is designed to enhance service delivery for the homes and residents serviced by CareRx throughout the BC Lower Mainland and at the same time provide an improved experience and work environment for our employees. Following on our success at our Oakville fulfillment center, this location will also utilize a high advanced medication packaging technology, allowing for the processing of significantly higher prescription volumes, while enhancing safety and reducing waste. We have fully consolidated the Carex Burnaby pharmacy and are two thirds transitioning the Carex Vancouver pharmacy operations into the new location.

We are on schedule to have all the beds in the Lower Mainland service from our new high volume fulfillment center by the end of the first quarter. Our state of the art Lower Mainland facility will leverage enhanced and optimized workflows, fully implement lean methodologies, drive efficiencies through streamlined operations and further elevate our service offering. Building on our year long process improvement and cost initiatives, we recently completed a tour of three highly efficient large scale pharmacies in Europe. These high volume pharmacies utilize technology that’s similar to our packaging robotics, while also employing additional innovative systems and processes that significantly enhance throughput and reduce downtime. We are now benchmarking ourselves and collaborating with these best in class global high volume pharmacy operators.

The CareRx team is actively evaluating how these advanced automation solutions and processes might be integrated into our own facilities. As I mentioned in my opening, we have positioned CareRx with an operating platform that has the capacity and ability to respond immediately to growth opportunities. Our ongoing efforts to optimize our operations have further enhanced our competitive advantage and ability to anticipate an evolving market. The growth opportunities in terms of new RFPs and debt expansions in 2024 were modest as a result of stakeholder timeline delays. However, we anticipate a robust activity level in 2025.

We have already successfully secured 3,000 beds that are expected to be online in the first half of this year and we expect to continue this growth momentum. This increase in beds represents an inflection in our growth trajectory and validates our patience and efforts in streamlining our operations and improving best practices over the past year. As Suzanne mentioned, we are now generating cash and we will use our capital to deliver on both growth and shareholder value as follows: one, to support investments for bed growth that provide high returns for the organization two, for accretive acquisitions three, the continued repurchase of our shares as we strongly believe we are still undervalued and fourth and finally for debt repayment. I’m thankful to the Carex team for their efforts and success in building an organization that is ready for significant future growth, while never losing sight on the importance of the people entrusted in our care. With that, I would now like to open the call to questions.

Operator?

Conference Call Moderator: Thank you. We will now begin the question and answer session. Today’s first question comes from Gary Ho with Mr. Jordan Capital Markets. Please go ahead.

Gary Ho, Analyst, Jordan Capital Markets: Thank you. Good morning. Amit, maybe we can start off with you. Just wanted to hear your thoughts from your last comments there on recent contract wins. I think you mentioned 3,000 in the first half of this year.

Just curious if that includes the recent Yorkfield Southbridge acquisition of 21 long term care homes that’s in that number or will that be additive to it? Maybe just generally maybe just comment on these contract wins, please.

Puneet Khanna, President and CEO, CareRx Corporation: Yes. We usually don’t specify specific customers, but as we’ve mentioned in the past that any of our existing customers who do acquire beds, we our contracts automatically do turn them on and Southbridge is a customer of ours. And the announcement they had, this would be inclusive of that number.

Gary Ho, Analyst, Jordan Capital Markets: Okay. And then anything else in terms of the pipeline for RFPs that you can comment that you’re working on today that could benefit later on this year?

Puneet Khanna, President and CEO, CareRx Corporation: Yes. I think sort of as my prepared comments, last year was a bit of an anomaly where we found there was a lot of start stop. What we see in view this year, sort of this growth rate, we feel we can continue to sustain it throughout the year and maybe even accelerate it. There’s just the pipeline is extremely robust right now.

Gary Ho, Analyst, Jordan Capital Markets: Okay, great. And then my second question maybe for Suzanne, just on the margins, 8.2% was a bit softer than what we’re looking for. In particular, there was an increase in other expenses, 15% year over year. I think outside of inflationary comments, there wasn’t much called out in the MD and A. Can you maybe flush that out a bit more?

Any one time expenses group in that line item? And furthermore, kind of your confidence in the market sometime this year?

Suzanne Brand, Chief Financial Officer, CareRx Corporation: Yes, I can speak to that for sure. So other expenses, I would say some of the specifics in that would have been in and around some additional expenses related to getting the Mainland ready. So that was definitely one of the contributors. Maybe secondarily would also be some of the expenses related to off boarding some of the old contracts. And lastly, there would be a little bit of non alignment with respect to some of our other services that we provide to our respective homes, just a little bit of timing related to, call it, the revenue and the expenses.

So I’m confident though that we’re we will have that under control in terms of the go forward position. So I would say that would be the main components to that driver.

Gary Ho, Analyst, Jordan Capital Markets: So maybe you can question that a little bit. So the ones that you called out that are more one time, it sounds like the first two buckets,

Puneet Khanna, President and CEO, CareRx Corporation: Would that be the biggest driver of

Gary Ho, Analyst, Jordan Capital Markets: that 15% year over year increase?

Tanya Armstrong, Analyst, Canaccord Genuity: Agreed.

Gary Ho, Analyst, Jordan Capital Markets: Yes. Okay. And then your confidence in that 10% target?

Suzanne Brand, Chief Financial Officer, CareRx Corporation: Yes. We continue to strive for that internally. That is something that is definitely a part of

Tanya Armstrong, Analyst, Canaccord Genuity: our objective.

Gary Ho, Analyst, Jordan Capital Markets: Okay, great. Those are my questions. I’ll repeat. Thanks a lot, Gary.

Conference Call Moderator: The next question comes from David Martin with Bloom Burton. Please go ahead.

David Martin, Analyst, Bloom Burton: Good morning. Follow on question. Just to confirm, the Rivera Beds works in the December year end bed count, they’ll come in the first quarter?

Puneet Khanna, President and CEO, CareRx Corporation: Correct. Yes. We’re just waiting for the licenses to be transferred from the ministry.

David Martin, Analyst, Bloom Burton: Okay. And what kind of margin improvement do you expect with North Burnaby coming online? And will it be immediate or will it take time?

Puneet Khanna, President and CEO, CareRx Corporation: No, yes, we will it’ll take a bit of time. It will most probably start seeing that late fall by the time we can drive all of the efficiencies to have it humming like Oakville.

David Martin, Analyst, Bloom Burton: And does it come at the same time you’ll be expecting to get more beds in BC?

Puneet Khanna, President and CEO, CareRx Corporation: We’re trying to get more beds everywhere, David. Yes. What it will allow is as we again, we have pipeline visibility across the country and by region that we are targeting. And so what it will allow is as we continue to bring in beds in the BC Lower Mainland, we will bring it at a much more accretive value. So even if we were to turn on beds in the next couple of months, it would still be better than what we would have been able to historically do.

But for us to get the full value of what we build, it will take up until the fall to get that full value out.

David Martin, Analyst, Bloom Burton: Got it. Okay. That’s it for me. Thanks.

Puneet Khanna, President and CEO, CareRx Corporation: Thanks a lot.

Conference Call Moderator: The next question is from Tanya Armstrong with Canaccord Genuity. Please go ahead.

Tanya Armstrong, Analyst, Canaccord Genuity: Good morning. Good morning. Suzanne. So firstly, I was wondering if you could elaborate on what some of those other automation solutions you’ve referenced that you saw at the European facilities you toured are and I guess the kind of timeline of how these can be integrated into your own facilities?

Puneet Khanna, President and CEO, CareRx Corporation: Yes. So, I mean, I can get geeky on these things. I will try to not go overboard. There is most probably some solutions we can implement fairly quickly and we have already brought some things in house that we’re testing with respect to bolt ons that either go right before or right after our machines and the ones you’ve seen say in Oakville. So they’re really add ons where you don’t really have to have integration, but it’s just some of the manual processes that again are right before, right after the robotics can now also be automated.

And so we’re bringing some of those in for testing. I think some of it was just on process and workflow. And again, you’ve seen the canisters that go into the robotics. It’s just canister management and pieces like that and they are using some predictive AI technology in anticipating canister replenishment and we will be bringing that solution in later this spring as well.

Tanya Armstrong, Analyst, Canaccord Genuity: Excellent. Thank you for that color. And then you probably mentioned this on the last call, but I don’t remember. Could you quantify for me how much of the decline in bed service is due to your own rationalization of those unprofitable beds?

Puneet Khanna, President and CEO, CareRx Corporation: Yes. Since we started, it would have been just over 2,000.

Tanya Armstrong, Analyst, Canaccord Genuity: And that’s all baked in as of Q4. We shouldn’t expect that to continue going into Q1?

Gary Ho, Analyst, Jordan Capital Markets: Correct. Yes.

Conference Call Moderator: Okay.

Tanya Armstrong, Analyst, Canaccord Genuity: And just last question for me. This was asked for only double digit EBITDA margin. I know you are still striving for that. I think on the previous call, it was alluded to that that date will be pushed out from kind of exiting 2024 into the first half of twenty twenty five. Assuming those Rivera beds do come online H1, can we assume that you’re still on track to hit a double digit EBITDA margin in the first half of this year?

Puneet Khanna, President and CEO, CareRx Corporation: Again, that’s our internal target. We were that was the last component of what we needed to get to the double digit. So we still believe that will happen at the first half once all these beds are onboarded.

Tanya Armstrong, Analyst, Canaccord Genuity: Perfect. I will get back in the queue. Thank you guys.

Gary Ho, Analyst, Jordan Capital Markets: Thanks, Tim.

Conference Call Moderator: The next question comes from Justin Keywood with Stifel. Please go ahead.

Justin Keywood, Analyst, Stifel: Good morning. Thanks for taking my call. With the Ontario forward government majority win, does this impact the outlook for CareRx as it relates to pricing either positive or neutral?

Puneet Khanna, President and CEO, CareRx Corporation: I mean, considering what the announcements were yesterday, Justin, and how markets reacted. I think a lot of the focus for the government, the next little bit will be tariffs. I mean, on a so I’m not sure if that will make any real impact on us. As Suzanne said, we’re fairly insulated from the impact of tariffs. I do think outside of that, the government has work that they want to accomplish and the Ford government has been very, very supportive of the long term care sector in general.

And so we think once this distraction is settled or at least there’s some sort of plan, I do think as the government gets back to business, we’ll be ready to continue to engage with them.

Gary Ho, Analyst, Jordan Capital Markets: Okay. Thank you. I mean, I can just add

Suzanne Brand, Chief Financial Officer, CareRx Corporation: to that that we really are quite insulated, as Puneet said, from tariffs and really minimal purchases out of The U. S. And looking to really move that into Canadian suppliers. So very minimal impact.

Justin Keywood, Analyst, Stifel: Thank you. And then some of the mention of the increased automation, are you able to provide an updated forecast for CapEx in 2025, please?

Gary Ho, Analyst, Jordan Capital Markets: Yes, we can. It will say

Puneet Khanna, President and CEO, CareRx Corporation: as I go ahead,

Suzanne Brand, Chief Financial Officer, CareRx Corporation: Yes, sorry about that. I apologize for overstepping there. But it will stay within the approximate $8,000,000 mark.

Justin Keywood, Analyst, Stifel: And that would include some of the new innovation seen in Europe?

Gary Ho, Analyst, Jordan Capital Markets: Yes.

Puneet Khanna, President and CEO, CareRx Corporation: Yes. So we generally do eight annually, so we’ll still be on track for that. It won’t change it.

Justin Keywood, Analyst, Stifel: Okay. And then just finally on the outlook for bed growth, I assume this is by organic means. I know in the past Carex has been acquisitive. Is that also part of the growth outlook for 2025 or is it more of an organic focus? Thanks.

Puneet Khanna, President and CEO, CareRx Corporation: No. You know what, it’s sort of again, as in my prepared statements, I think the organic growth engine is now reared up and in full gear. So that is where we’re going to win our unfair share. I think unlike what we grew before where it was all M and A, I think now what you’ll see is we will also have some tuck ins that come in with this as there’s some opportunities there. So we’ve got the cash and so if there are opportunities where we can bring things in and just we don’t want bricks and mortar anymore, but if we can insert it into the large centers we build, it makes accretive sense for us.

We’re going to turn that on again as well. It just won’t be as transformative as in the past.

Gary Ho, Analyst, Jordan Capital Markets: Thank you. Thanks, Joseph.

Conference Call Moderator: The next question comes from Hamzah Saris with Cormark Securities. Please go ahead.

Hamzah Saris, Analyst, Cormark Securities: So firstly, you’re saying H1 adds for the 3,000. Will the deal close in time? And we’re hearing it may not close until you get to Q1?

Puneet Khanna, President and CEO, CareRx Corporation: Yes. So we’re yes, so we’re we will onboard those all in the first half of this year. So again, we’ve known about it. So we’ve already done the background transitionary work. So we can transition those beds.

We’re confident they’ll all be on before the end of Q2.

Hamzah Saris, Analyst, Cormark Securities: Okay. And then can you tell us the exit bed count at the end of Q4? We only have the average beds during the quarter from your filings.

Puneet Khanna, President and CEO, CareRx Corporation: Yes. Suzanne, do you have that?

Suzanne Brand, Chief Financial Officer, CareRx Corporation: Yes, I do have it, 80 sevenone hundred and 24.

Hamzah Saris, Analyst, Cormark Securities: Okay. And then can you guide us on where you think your exit 2025 that count will be so we can get a better feel for the financial profile in 2026?

Puneet Khanna, President and CEO, CareRx Corporation: Yes, we don’t provide that guidance.

Gary Ho, Analyst, Jordan Capital Markets: Okay. Okay. Thank you.

Puneet Khanna, President and CEO, CareRx Corporation: Thanks.

Conference Call Moderator: Thank you. At this time, there are no further questions. I would like to turn the call back to Mr. Connor for closing remarks.

Puneet Khanna, President and CEO, CareRx Corporation: Thank you, everyone, for participating in today’s call and for your continued interest in Carex. We look forward to reporting on our continued progress next quarter. Thank you.

Conference Call Moderator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect your lines.

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