Pharmacorp RX is out with their Q2 earnings this morning and the top line is right in the middle of my estimate - a good start.
PCRX is a 2026 Wolf Pick, selected at $0.425 and as of this morning an 18% gain. Respectable, but I’m here for a much better return that the upper teens. I’ve had the company in a Buy Zone for a little while leading into these results, and reiterated that in last weekend’s What’s Wolf Watching article.
If you’re new to the story, Pharmacorp RX is an aggressive consolidator of the independent Canadian pharmacy scene, with right of first refusal access to over 1100 locations. At this time last year, they owned and operated just four pharmacies. Two days ago, they announced closing two additional locations bringing that number up to sixteen.
The Q2 numbers presented here are only for six pharmacies in total, with ten additional agreements closed since the start of their third quarter. The remainder of the year will be extremely interesting.
In that recent WWW article, I had these predictions on the top line and what I was hoping to see on the rest of the P&L:
The revenue line was in range at a 76% increase for $7.72M, but how do the rest of their financials look? Let’s find out.
Balance Sheet:
Due to the significant acquisitions between June 30th and today, the balance sheet they present here is rather meaningless.
As stated the very healthy current ratio of 7.4 including $24M in cash will look dramatically different when they present their Q3 in November. They spent upwards of $30M on these acquisitions and also raised $11.5M in the seven or so weeks since the end of last quarter.
Notable that their aging report on their A/R is immaculate.
Cash Flow:
Above I said I would be fine with a cash neutral position. Well, they didn’t achieve that with $1.85M in operational burn in their first half, but here is why that doesn’t bother me.
Prior to working capital adjustments, their OCF was just shy of $900k to the positive and more than 4x greater than last year.
All of PCRX’s working capital adjustments worked against them so far YTD, including a significant pay down in their A/P. Their entire one year liability commitments is now less than $4M. Headline number isn’t great but the detail is justifiable.
Share Capital:
As of June 30, 174.1M shares outstanding, 48% dilution since this time last year
9.2M options, all I believe to be ITM, but none expire for six years. I can’t say I love ten year options for company’s with continuous need of capital.
27.4M warrants, average price at 50 cents where the SP is today.
11% insider ownership & 6% institutional
No open market insider activity but several insiders have participated in their last two capital raises in a significant way
Post financials raised $11.5M (22.5M shares at $0.51 with 1/2 warrant at $0.60)
Income Statement:
Revenue of $7.73M, an increase of 76% above the $4.4M posted a year ago. Gross margins improved by 50 basis points to 40.3% which generated 78% more gross profit dollars.
Cash burning controllable expenses grew by 52% (removed $55k of SBC this quarter from payroll costs). While high, that’s still some significant conversion when the company delivered 78% more GP dollars. That also includes $385k vs $304k last year in professional fees, a number likely related to legal fees from their ongoing acquisition pipeline. Expect that number to grow in Q3.
Nearly Wolf Trifecta worthy.
Net income was slightly profitable in the quarter of $121k vs a loss of $385k last year, nearly a half million dollar improvement.
YTD metrics (6 months):
$14.9M of revenue, a 76% increase over last year
39.6% a 50 bp decline
Net Income of $242k vs a loss of $131k last year
Summary:
So I was looking for between $7.5 and $8M in revenue. Check. Net income near break even. Check. Cash flow neutral. Not really but I’m calling it acceptable due to the working capital adjustments which I highly suspect will balance out in future quarters.
Overall, I saw what I needed to see here to keep the thesis going.
The float is now nearing 200M shares. I’ve said from the Wolf Pick selection and on many occurrences since - if you invest here, you’re going to have to stomach some additional dilution. These acquisitions, particularly the larger locations are not cheap, and they are not generating the operational cash flow to do it on their own.
Pharmacorp’s revenue was $5.8M in 2024, increased to $20.9M last year. I expect with these acquisitions they will eclipse $40M quite easily this year, and a $100M year in 2027 does not sound like a ridiculous target at this point.
One of the things that impressed me the most was managements ability to improve these pharmacy metrics, and do it relatively out of the gate post acquisition. Not only do they have the pharmacy/prescription expertise in their management group, but these guys appear to be merchants too by improving the front of the store too. Once they get larger, this will give them additional buying power as well which should improve margins and marketing.
I’ve (half tongue in cheek) called them the potential Well Health of the Canadian Pharmacy market. That may turn out to be a rather idiotic comparison in a couple of years, but here are Well Health’s first three years of metrics as they were first getting started.
Revenue progression is rather similar, but Well burned a total of $12M through those initial first three years while losing $14M in net income. Pharmacorp’s metrics are trending much better than that.
Pharmacorp’s market cap is currently right around $100M. Well Health was $180M at the end of 2019 and $1.3 billion at the end of 2020. Everything of course was going crazy at that stage of Covid, particularly serial acquirers, but I think you get the picture.
November financials could get fun. Maintaining my borderline generous 3.25 star rating as they are progressing as I had expected.
Disclaimer:
My intent is for my reviews to be a bolt on to due diligence that you have already completed. I receive dozens of review requests a week, therefore my own DD may be great or none whatsoever. Unless otherwise stated or implied, my opinions are on the financial performance of the company based on their most recent filings. I conduct these reviews to assist other retail investors whose research skills are limited when it comes to reviewing financial statements. I do not accept compensation of any kind from company’s I review.
Wolf FINS Reviews are intended to be informational and are based on personal opinion. They are not intended to be financial advice, and all readers are encouraged to perform their own due diligence prior to their investment decisions, including discussions with their investment advisor.