Good morning, everyone, and welcome to CareRx's Third Quarter 2024 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 Investor 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 would constitute forward-looking statements that are subject to risks or uncertainties relating to CareRx's future financial and business performance, as the 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+ database under www.sedarplus.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.
Thank you, and good morning, everyone. Welcome to our third quarter 2024 earnings call. With me this morning is our new Chief Financial Officer, Suzanne Brand, and our Vice President, Business Planning and Analysis, Davide Pernarella. When I assumed the role of CEO 18 months ago, the CareRx team and I set out to implement a series of strategic measures designed to position the company to most effectively capture the next phase of significant growth that will occur in the senior care sector over the next decade. We undertook a rigorous operational analysis to design a best-in-class standardized operating model. We have also embraced lean principles across the organization to increase productivity and to promote a culture of continuous improvement, with a focus to drive ongoing benefits from our operating platform. These investments have enhanced service levels to our home partners while strengthening the CareRx employee experience.
We have also rationalized unprofitable beds, which will result in better returns on our capital. And as we announced last quarter, we renegotiated better supply terms with our principal pharmaceutical wholesaler. The CAD 70 million debt refinancing that we closed in the fourth quarter of 2023 was another major milestone for CareRx. In one year, we have reduced our net debt by almost CAD 25 million, and with a stronger and more flexible balance sheet, we have reduced our financing costs and enhanced our margins. These initiatives are designed to guide us to our primary goal: developing an operating platform that can accommodate significant growth while providing a consistent path of enhanced profitability and EBITDA growth. I'm proud to announce that the third quarter of 2024 marks our fifth consecutive quarter of growth in EBITDA.
In the third quarter, we delivered financial results consistent with our expectations: revenue of CAD 92.8 million and an adjusted EBITDA of CAD 7.8 million. Further to our ongoing productivity and efficiency initiatives, on October 1st, we announced that we will be opening a new state-of-the-art high-volume fulfillment center in North Burnaby, British Columbia, which I will speak to later in the call. Also, on October 1st, Suzanne Brand joined CareRx as Chief Financial Officer. Suzanne is an exceptional finance and healthcare leader with a track record of developing great teams. Suzanne brings a wealth of professional and personal experience, and we are excited that she's joining us for the next stage in our growth story. I will turn it over to Suzanne to say a few words.
Thank you, Puneet, and good morning, everyone. I'm delighted to join the CareRx team for what is sure to be an exciting journey over the next decade, and I look forward to working with all of you in the years ahead. I'm very passionate about healthcare for Canadians, and the care of our seniors is especially important to me. In addition to my previous role as CFO of Teva Canada and my experience with Wyeth Pharmaceuticals, which became a part of Pfizer, I've been directly involved in the long-term care sector, having spent 10 years volunteering as the treasurer of the Ivan Franko Homes, a long-term care home for elderly and with special care services. I'm enthusiastic about contributing insights I've gained from my experience at larger organizations and helping establishing structures and processes for scalable growth.
One of the qualities that attracted me to CareRx is its energized and entrepreneurial team, and I look forward to building upon the company's strong foundation for growth and success in the years ahead. I will now turn the call over to Davide, who will discuss our third-quarter financial results in more detail. Davide.
Thank you, Suzanne, and good morning, everyone. Before I begin, a reminder that our financial statements and MD&A for the third quarter have been filed with SEDAR+ and are also available on our website. Revenue for the third quarter of 2024 declined to CAD 92.8 million from CAD 93.8 million in the third quarter of 2023, an increase from CAD 92 million in the second quarter of 2024. The year-over-year revenue decline was driven primarily by a net reduction in the average number of beds serviced, partially offset by an increase in branded pharmaceutical prices. The quarter-over-quarter revenue increase was due to an increase in branded pharmaceutical prices during the quarter that more than offset the decrease in quarter-over-quarter revenue as a result of the slight net reduction in the average number of beds serviced.
Adjusted EBITDA for the third quarter grew 6.2% to CAD 7.8 million from CAD 7.3 million in the third quarter of last year and grew 3.4% from the second quarter of 2024. Adjusted EBITDA margin in the third quarter increased 60 basis points to 8.4% from the third quarter of 2023 and increased 20 basis points quarter-over-quarter. The year-over-year improvement in adjusted EBITDA was primarily the result of efficiencies and cost savings initiatives that commenced during the second half of 2023, as well as improved supply terms from the amendment to the procurement agreement with our major pharmaceutical supplier. While we continue to expect some modest variability in our costs for the foreseeable future and may experience some modest variability in our margins and adjusted EBITDA growth, our pipeline remains robust, and we expect the positive trend to continue.
We posted a net loss of CAD 360,000 in the third quarter, compared to a net loss of CAD 1.4 million in both the third quarter of 2023 and second quarter of 2024. This quarter-over-quarter and 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 2023. Cash at September 30th was CAD 8.8 million, compared to CAD 7.2 million at the end of the second quarter. Net debt decreased by CAD 8.5 million to CAD 38.3 million, compared to CAD 46.8 million last quarter. The increase in our cash balance and decrease in net debt was due to an increase in cash flow from operations and repayments made to our operating and term loan.
Net debt to annualized run rate Adjusted EBITDA at the end of the third quarter was 1.2 x, compared to 1.6 x in the second quarter of 2024. We remain committed to returning capital to shareholders through our active share buyback program under the Normal Course Issuer Bid, supported by our strong capital position and belief that our share price does not adequately reflect the fundamental value in our underlying business and near and long-term growth potential. And with that, I will turn the call back over to Puneet.
Thank you, Davide. Earlier this month, we announced that we will be opening 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 our success at our Oakville fulfillment center, this location will also utilize advanced high-volume medication packaging technology, allowing for the processing of significantly higher prescription volumes while enhancing safety and reducing waste. With this expansion, CareRx will be consolidating its existing Burnaby and Vancouver pharmacy operations into the new North Burnaby location beginning in early December 2024. This transition is expected to be completed by the end of the first quarter of 2025.
By uniting our Burnaby and Vancouver pharmacies under one roof, we expect to leverage enhanced and optimized workflows, fully implement lean methodologies, drive efficiencies through streamlined operations, and further enhance our service offering to our home partners and residents. We believe that we are approaching the next stage of growth in the Canadian long-term care sector, and as the market leader, we are uniquely positioned to benefit from the secular growth trend that will play out over the coming decade. Governments recognize the urgent need to add long-term care beds to accommodate our aging population. For example, earlier this year, the Ontario government announced it will invest over CAD 155 million in 2024 and 2025 to help fast-track the construction of new or redeveloped long-term care homes.
This funding is a part of the government's CAD 6.4 billion plan to build 58,000 new and upgraded long-term care beds across the province by 2028. In addition to new construction and developments, we will grow through organically winning homes, bidding on a robust RFP pipeline, growing alongside our existing partners as they acquire, as well as through our own tuck-in acquisitions, and finally, by expanding the suite of products and services offered to our customers. As I stated earlier, we have positioned the organization and our operating platform with the capacity and the ability to respond immediately to these opportunities. Our ongoing efforts to optimize our operations will further enhance our competitive advantage and our ability to anticipate evolving market demands. While the specific timing of onboarding can vary, this pipeline of opportunities remains highly visible and extremely robust.
To date, we have secured almost 3,000 beds for the next year, and we expect the pace of growth to improve. I'm thankful to the team for their efforts and success in embracing the changes to our operating processes, as this progress enables us to enhance service delivery and customer-centric strategies while further optimizing our network to support significant future growth. With that, I would now like to open the call to questions. Operator.
Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press the star, followed by the one on your touch-tone phone. Questions will be taken in the order received. Should you wish to cancel your request, please press the star, followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. Once again, that is star one. Should you wish to ask a question. Your first question is from David Martin from Bloom Burton. Your line is now open.
Good morning, Puneet. This is Girish for David.
Hello.
Hey, Gurish.
Congrats on the new facility. Just a quick question on that. Can you describe some of the logistics on how the facility will be working? Will it be more of a hub-and-spoke model in BC and how that essentially will be working?
Yeah. It's going to be a replica of what you've seen in Oakville, Girish, the same operational workflow and layout. The key difference will be we've brought in a different high-volume packaging solution. There's pros and cons with sort of the ones we have versus the new ones we're looking at, so we just want to test that new high-volume packaging solution, but the output of it would be similar to what you've seen in Oakville.
Okay. Thanks. And in terms of financial impact of the consolidation of these pharmacies, what are we looking at, like a reduction in overall expenses? Would margins improve?
Hi, Girish. It's Davide here. In terms of contribution and impact, that's part of our plan to double-digit margins in the following year. So without providing guidance specific to that, it's part of our plan to reach those double-digit margins.
Okay. Thank you.
Yeah.
Okay. And last question, just on your pipeline. You mentioned you secured almost 3,000 beds for next year, and there was expectation for bed growth into the second half of this year. Are we still expected to see any beds going forward into the fourth quarter, or are we looking more towards 2025 for growth?
It's more looking towards 2025. As I'd mentioned last quarter, we've won the beds. We're unable to disclose at this point specifics because the customers asked us not to, but they're just waiting for the regulatory approvals, and so it's just caught up with the government, and those are the things that are sort of out of our hands where we've won it, so at this point, we've pushed that all into the first half of the year, those 3,000 beds.
Okay. Thank you very much for taking my questions, Davide and Puneet. I'll get back in the queue.
Thank you once again. Please press star one should you wish to ask a question. Your next question is from Max Smulenok from Ventum Capital Markets. Your line is now open.
Hi, guys. Good morning. I just had a question on the, I guess, more of a follow-up on the facility in North Burnaby. I can't quite hang my hat on CapEx numbers from when you did the consolidation in Oakville for Ontario Southwest, but presumably that was in sort of the CAD 2 million range. Could you give some color on what you're expecting that to be in maybe next quarter and Q1 of 2025?
Thanks. It's Davide here. So yeah, total net CapEx for this facility will be about CAD 3 million, and we'll see that come in primarily next quarter and some in the first quarter of next year.
Okay. Great. And I know you'd sort of communicated that any margin impact from this consolidation is already contemplated in your double-digit adjusted EBITDA margin target. But again, just following up on that, do you have any expectations for when that should be achieved? Is that sort of the second half of next year? Whereabouts are we pushing that to?
Yeah. So we indicated it would be early next year. So once we've done that full move, which is going to be done by the end of Q1, so late Q1, early Q2 is our expectation.
Okay. And just finally, on the renewed wholesale agreement with your supplier, presumably that was the full impact of that was felt in this quarter. I know you had to work through some higher-cost inventory last quarter, but what can we expect to see in terms of margin expansion attributable to that specifically in Q4? Is it sort of the same step up as we saw this quarter?
Thanks. It was fully baked in this quarter, so anything incremental directly attributed to that amendment is not expected. But there are other, as branded drugs move to generic, there's a potential benefit and upside in the coming quarters.
Okay. Thanks so much.
Thanks, Max.
Thank you. There are no further questions at this time. Please proceed.
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.
Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.