Good morning, everyone, and welcome to the CareRx third 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 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. 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 the applicable Canadian securities laws.
Forward-looking information, including financial outlook information, includes statements 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, 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 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 materially, and the factors and assumptions associated with such forward-looking information, please refer to the company's MD&A for the three and nine-month periods ended September 30th, 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 Puneet Khanna, President and CEO of CareRx Corporation. Please go ahead, Mr. Khanna.
Thank you, Megan, and good morning, everyone. Welcome to our third quarter 2026 earnings call. With me this morning is our Chief Financial Officer, Suzanne Brand. In the third quarter, for the three-month period ending September 30th, 2026, we delivered consistent financial and operating performance. We generated revenue of CAD 95.3 million and adjusted EBITDA of CAD 8.1 million, representing an adjusted EBITDA margin of 8.5%. We also delivered net income of approximately CAD 240,000 in the quarter. Average beds serviced increased to 93,225 in Q3. Our financial performance reflects the contribution from the new beds onboarded, combined with the ongoing efforts of our cost-saving and efficiency initiatives. In the third quarter, we substantially onboarded the new national seniors home operator that we announced in Q2. The contract brings approximately 3,000 new beds into our network.
We are able to commence service quickly in communities across the country while providing a seamless transition to our new home partner and timely service to their residents. This level of operational excellence speaks to the strength of the CareRx platform and the value our team brings every day. This win is an important milestone for CareRx and demonstrates our highly differentiated value proposition with respect to exceptional service quality, clinical expertise, resident safety, and innovative technologies. We continue to see an encouraging pipeline of new business, and with our pharmacy network and team ready in place to support additional scale, we are well-positioned to capture that growth.
In August, we closed a comprehensive refinancing transaction with the National Bank of Canada. Our new credit facilities will provide us with greater financial flexibility, dedicated capacity to invest in the business, and lower overall cost of capital.
Suzanne will provide more details in her prepared remarks. We also renewed our normal course issuer bid, as we continue to believe that our share price does not adequately reflect the fundamental value of our underlying business and our growth potential. We have been active under the program, taking advantages of opportunities to repurchase shares at what we view as attractive prices. Since the beginning of September, we have repurchased approximately 250,000 shares, and we see this as a compelling use of capital that reflects our confidence in the business and our commitment to delivering value to shareholders. Also, the Board of Directors declared a quarterly dividend of CAD 0.022 per common share payable in January 2027. This reflects our commitment to a disciplined capital allocation strategy that provides the flexibility to fund growth initiatives while delivering strong returns to shareholders.
Finally, subsequent to quarter-end, we closed one of our pharmacy locations in Western Canada and relocated the beds it serviced to another CareRx fulfillment center as an opportunity to utilize the efficiencies of our network. However, our ongoing efforts to streamline the business and drive efficiencies does not stop at our pharmacy fulfillment centers. We look at all aspects of the company. As such, we will also be relocating our corporate support office from downtown Toronto to Richmond Hill in early 2027, where we will operate our offices adjacent to our fulfillment center. As an organization with an operating mindset, the teams are excited for greater opportunities for collaboration between the corporate support office and our pharmacy teams. I will now turn the call over to Suzanne, who will discuss our third quarter financial results in more detail. Suzanne?
Thank you, Puneet, and good morning, everyone. As Puneet outlined, we delivered consistent results in the third quarter of 2026, with continued growth in beds serviced and revenue. Average beds serviced in the third quarter increased to 93,225 from 91,298 in the same period of 2025, and from 91,719 in the second quarter of 2026. Revenue in the third quarter grew 2.2% to CAD 95.3 million compared to CAD 93.2 million in the third quarter of 2025, and CAD 93.6 million in the second quarter of 2026. The year-over-year increase in revenue was driven primarily by the increase in the number of average beds serviced and partially offset by the previously announced changes for certain unoccupied ward beds in Ontario, which had come into effect on April 1st, 2026.
The third quarter 2026 adjusted EBITDA was approximately CAD 8.1 million compared to CAD 8.3 million in the third quarter of 2025, and CAD 8 million in the second quarter of 2026. Adjusted EBITDA margin was 8.5% compared to 9% a year ago. The year-over-year change reflects the Ontario ward bed changes and an increase in labor expenses, which were largely offset by the increase in bed service, expense management, and efficiencies. We reported net income of approximately CAD 240,000 in the third quarter compared to CAD 1.6 million in the third quarter of 2025. The decrease was mainly due, excuse me, to a non-cash deferred tax expense of approximately CAD 450,000, reflecting the utilization of the previously recognized tax loss carry-forwards, together with upfront fees related to our refinancing. By comparison, there was no income tax expense in the third quarter of 2025.
It is also worth noting that excluding accretion, our finance costs declined 15% year-over-year, reflecting lower borrowing costs. Cash from operations in the quarter was CAD 6.5 million compared to CAD 10.1 million in the third quarter of 2025, and up from CAD 3.7 million in the second quarter of 2026. Turning to our balance sheet. As of September 30th, 2026, we had cash of CAD 10.7 million compared to CAD 9.6 million at the end of the second quarter of 2026. Net debt was CAD 29.6 million at quarter-end compared to CAD 29.1 million at the end of the second quarter of 2026.
The net debt to adjusted EBITDA was 0.9 times at the end of the third quarter, in line with the second quarter of 2026. On August 27th, we closed our new credit agreement with National Bank, replacing our previous credit facility.
The new agreement has a five-year term and includes a CAD 40 million term loan, up to CAD 20 million revolving operating facility, and a CAD 10 million facility dedicated to acquisitions and capital expenditures. Subject to the terms of the credit agreement, CareRx has the flexibility to increase the revolver and Acquisition and Capex Facility by up to an aggregate of CAD 20 million. We used the proceeds of the term loan primarily to repay our previous facility. We expect the new agreement to provide greater financial flexibility, dedicated capacity to invest in the business, lower overall cost of capital.
During the quarter, we renewed our normal course issuer bid, which allows us to repurchase for cancellation up to 1.75 million common shares through September 16th, 2027. In the third quarter, we repurchased approximately 207,000 common shares for cancellation for an aggregate of approximately CAD 670,000.
We stepped up our activity with opportunistic purchases as the quarter progressed, and from September 1 through October 31, 2026, we bought back approximately 258,000 common shares for an aggregate of approximately CAD 830,000 at an average price of almost CAD 3.21 per share. With our share price trading below what we believe is the intrinsic value of the business, and with strong balance sheet and conservative leverage, we view these repurchases as a prudent and disciplined use of capital. Subsequent to the end of the third quarter, on October 8th, we paid dividends in the aggregate amount of CAD 1.4 million.
Consistent with our balanced approach to capital allocation, which prioritizes growth investments, balance sheet strength, and returning capital to shareholders, the board of directors declared a quarterly dividend of CAD 0.022 per common share, payable on January 7, 2027, to holders of record of those common shares as of close of business on December 14, 2026. Our financial position remains very strong, and we believe we are well-positioned to support continued growth while maintaining a conservative leverage profile. With that, I will turn the call back over to Puneet.
Thank you, Suzanne. As we look ahead, CareRx is well-positioned to capitalize on the favorable demographic trends in the growing senior care market. The speed and efficiency with which we substantially onboarded approximately 3,000 new residents this quarter demonstrates the strength of our platform and our capacity to take on additional scale. We will continue to see meaningful organic growth opportunities, both through new customer contracts and within our existing customer base, as our home partners expand through the construction and the acquisition of long-term care and retirement residences. We also continue to seek opportunities for accretive acquisitions and leverage the capacity of our new credit agreement. Looking ahead, we see an opportunity to build on our scale and our clinical expertise to extend our impact beyond traditional pharmacy services and play an even greater role in improving the health and well-being of seniors.
Our partnership with Haleon, engagement with LTC communities, and recognition by the Canadian Foundation for Pharmacy all demonstrate how CareRx is helping shape the future of senior care through meaningful innovation and community-focused care. We intend to build on this momentum and continue making a measurable difference in the lives of seniors across Canada. Finally, I'd like to sincerely thank the entire team for their dedication and hard work, both in the exceptional customer service provided to our new residents and home partner this quarter, and in continuing to deliver the highest level of care to residents and homes we serve every day. With that, I would now like to open the call to questions. Operator?
We will now begin the question-and-answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We will pause for a moment as callers join the queue. The first question comes from Max Czmielewski with Stifel. Please go ahead.
Hi, guys. Nice results, and congratulations again on the contract win, including getting it all onboarded during the quarter. Just want to get a feel for, first of all, any bed churn during the quarter, or I guess, what it shook out to be net with the addition of the national portfolio?
Max, just to remind everybody, the 3,000-bed national win there, those beds come on kind of not linearly through the quarter, so it would be kind of on an average. The exiting bed count at September 30th was 94,256.
Okay. That clears it up for sure. That's great. Acknowledging, I guess, on that same point, acknowledging the spirit of the word average and that some of these new captured beds will show up in the Q4 average. I guess to get to that 6,000-8,000 net new bed additions for 2026, you probably need to add maybe 3,000-4,000 beds in Q4. I guess, does the BD funnel permit any last-mile wins over the next two months?
Yeah. Good morning, Max. We will continue to onboard new customers and wins throughout Q4. I think, as I've mentioned previously, the business is lumpy, and sometimes timing is not in our control. I think what we've demonstrated this past quarter was when customers are ready, our team is ready, and we can take them on as fast as possible. I do think we'll expect to see some of those expected wins slide into the new year.
Okay. Just lastly on maybe the gross margin, it was like 28%, close to 29% in Q3, ticked down a bit from 29.5% sequentially. Wondering if you can give any color on the branded versus generic mix, maybe with respect to the new operator you just onboarded, if there are any things to be aware of, or it is just normal course mix shift?
Max, I will try to answer. You kind of were trailing off there at the end, but excuse me, apologize for that frog there in my throat. Really, with respect to the decline, sorry, let me just speak to the brand versus generic mix for the quarter. It is actually relatively flat quarter-over-quarter. It was a little more, maybe like 1% more brand than generic, but we did see an uptick a little bit in other OTC in terms of our call it mix within the revenue profile. However, really, the decline in margin, and again, speaking back to the onboarding of the beds and call it the attached labor to that, they are not linear. So, we would have had the labor in place to get all of these 3,000 beds on in the quarter for Q3. But meanwhile, the beds came on and on a more average pace.
So, there is a little bit of noise there with respect to timing. Make sense?
Yep. No, that makes lots of sense. Thanks so much.
Yeah. Thanks, Max.
Once again, if you have a question, please press star then one. The next question comes from Gary Ho with Desjardins Capital Markets. Please go ahead.
Thanks, and good morning. Maybe just on that last point there, Suzanne. I think in the disclosure, you talked about timing of expenses. Was not sure if that was the same factor that you just elaborated. And then I guess with the margin at 8.5% this quarter, just wondering if you can size that and were there any one-time or onboarding-related costs in the quarter that will not recur in Q4? And with the full -quarter of new contract, how should we think about margin trajectory from here on out?
Yeah. Thanks, Gary Ho. Again, to your point, Q4 will see the full value of the benefit of the onboard of those 3,000 beds. So, there should be, again, the efficiency gain through that full onboard from, call it, October 1 of all 3,000 beds. So, that is beneficial. We would have had some minor one-time expenses related to onboarding, just as we get It was a very quick onboard for 3,000 beds. So, we will not see any sort of recurring one-time expenses through Q4 for that. So, that will be in the rearview mirror for Q4 as well. Again, really, the labor expenses, again, not being linear with the onboarding of the beds is a major driver.
Okay, great. I have a question on the facility consolidation. You did highlight the Western Canada pharmacy closure post-quarter. Just wondering if that was one that kind of folded into your Burnaby mega facility. Just wondering, what does the consolidation roadmap look like over the next 12-18 months, and the potential margin lift or EBITDA savings from that?
Yeah. We are not at this point disclosing which location, Gary. It just happened this past weekend, but we will shortly. Again, this was an opportunity where we had a location that we could move in, we could gain the efficiency and deliver a better service to our customer while taking on those efficiencies. With respect to go forward, I think we will always look at opportunities. Nothing sort of near term to announce at this point, but we are always looking, as we build capacity in the network, when leases come up, when opportunities are there, we will move on them.
Okay, great. Maybe just one quick question. I am not sure it was highlighted in the disclosure, but we have seen fuel costs kind of gone up more recently, and there is, I believe, a decent component of the cost related to your distribution model. Just wondering if that impacted margins at all this quarter, and just trying to gauge if we do see a normalization, how much of that could come back?
Yeah. The one other point that I would kind of want to bring to highlight for Q4 is just again, with rising gas prices, that has been a challenge. I do not know, maybe we will see something change with that, but I do not think for Q4. It is a direct cost to getting product to our residents, and our network is national. This is and has been impactful as we roll out through Q4 as well. I would say that is an additional sort of incremental cost that was budgeted to be a little bit more effective. Other than that, I think you should really see the trends as they are in the P&Ls as of today.
Okay, great. Those are my questions. Thank you.
Thanks, Gary.
This concludes our question-and-answer session. I would like to turn the conference back over to Puneet Khanna for any closing remarks.
Thanks, Megan. 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.
This brings to a close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.