Good morning, ladies and gentlemen, and welcome to the Neighbourly Pharmacy Inc. Fiscal Year 2022 Q3 Analyst Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Tuesday, February 15th, 2022. I would now like to turn the conference over to Mr. Chris Gardner. Please go ahead. Thank you, operator, and good morning, everyone. Welcome to Neighbourly Pharmacy Inc.'s conference call to discuss our financial and operating results for the third quarter of 2022. I'm Chris Gardner, Neighbourly's Chief Executive Officer, and I'm joined this morning by Terri Smyth, our Chief Financial Officer. Before we begin, I'd like to note that some of our comments today will contain forward-looking information and statements under applicable securities laws that reflect management's current views with respect to future events. Any such information and statements are subject to risks, uncertainties, and assumptions that could cause actual results to differ materially from those projected in forward-looking information and statements. Please refer to the various materials Neighbourly has filed with Canadian securities regulators for a broader description of operational risks, factors that could affect the company's performance. I also want to note that during our commentary, we will reference several non-IFRS financial measures. Although we believe these measures provide useful insight into our performance, they do not have standardized meanings and should be considered as a supplement to rather than a substitute for IFRS financial measures. Reconciliations between the two can be found in our regulatory documents, which are available on our website, which is www.neighbourlypharmacy.ca. Finally, I want to highlight that our discussion this morning will align with our earnings presentation for the third quarter of 2022. This presentation is also available on our website. I'd like to begin this morning's call by discussing both our growth and the pandemic's impact. I'll then pass the call to Terri, who will review our quarterly results in greater detail. Following our prepared remarks, we look forward to taking questions from the analysts on the line. Neighbourly's strong third quarter results are a testament to the quality of our team, who provided exceptional service to our patients and executed upon our integration strategy despite the challenges presented by the COVID-19 pandemic. During the third quarter, Neighbourly's growing community pharmacy network generated a 27% increase in revenues and an 11% increase in adjusted EBITDA. Both our revenues and adjusted EBITDA have demonstrated double-digit improvements in each quarter since our IPO last spring, and the third quarter continues this thread. While the magnitude of these metrics' growth is below the levels witnessed during the first half of the fiscal year, this change is primarily due to the timing of our acquisitions. During the third quarter of 2021, 35 of our 36 acquisitions closed near the beginning of the period. During the third quarter of 2022, 25 of our 26 acquisitions closed just prior to the period's conclusion. Variance and timing aside, acquisitions have consistently served as the foundation of Neighbourly's growth strategy. As our network expands, we are pleased at how we have maintained the efficiency of our integration process. All of our acquisitions were completed during the third quarter as well as one additional acquisition closed subsequently were integrated into Neighbourly's network within 24 hours. This expansion of our network has created new opportunities for synergy and organic improvement. Twenty of our newly acquired pharmacies are located in Alberta, establishing Neighbourly as one of the province's largest community pharmacy operators. As a result of these pharmacy acquisitions, we were able to consolidate compounding across the province into a single central location as well as consolidate one additional location. These are critical steps in operating an efficient and effective network as we are focused on identifying similarly beneficial synergies across our portfolio. Neighbourly's consistent growth has been achieved despite challenges presented by COVID-19. To date, the most pronounced of these challenges has been the introduction of volatility within our same-store sales. Terri will speak to this further in a moment. Although the volatility remains evident in our third quarter results, its magnitude is beginning to wane. More recently, the onset of the more virulent Omicron variant presented a new challenge for our pharmacy teams. During the third quarter, the spike in COVID infections and exposures created staffing shortages across our network. These shortages were exacerbated by the accelerated pace of vaccines and booster shots, both of which are particularly labor-intensive. The threat of Omicron has also impacted new prescription volumes. These volumes had begun to rise over the course of the summer as more clinics resumed normal operations. The presence of Omicron has reversed this trend. Many clinics resumed virtual operations and were seeing less patients. Elective and non-essential procedures were paused, resulting in less outpatient activity in our clinic and hospital locations. Cases of Omicron have begun to subside, and we are hopeful that it will only have a temporary short-term impact on our operations. However, we do anticipate that Omicron will continue to impact results through the fourth quarter of fiscal 2022. Before I pass the call to Terri, I'd like to express our appreciation for every one of our Neighbourly's more than 2,000 team members. Despite the threat of Omicron, these selfless individuals continued to serve upon the pandemic's front lines. In addition to conducting expanded asymptomatic testing, they have now administered more than 140,000 COVID-19 vaccinations as well as more than 55,000 influenza vaccinations. Furthermore, they rose to the challenge when provincial health agencies asked that they accelerate the rollout of COVID-19 vaccinations and boosters. Finally, our team have ensured seamless access to care despite outbreaks impacting their communities and, in some cases, our staff. We would also like to express our particular recognition for our team members in British Columbia, who endured both Omicron and unprecedented flooding during the third quarter. This flooding did disrupt our pharmacy supply chain. At its peak, we were forced to helicopter essential drug orders and equipment into one of our locations. While the flooding itself has subsided, some of our colleagues are still displaced, and a number of our patients and customers have not yet been able to return to their homes. Fortunately, the impact of the flooding upon our operations was largely mitigated through the exceptional efforts of the pharmacy and support teams across the network. As always, I am humbled by our team members' dedication to our patients and their communities. With that, I'll pass the call to Terri. Thank you. Thank you, Chris, and good morning to everyone. Neighbourly's results for the third quarter of 2022 comprised a 16-week period. These results aligned with our expectations and once again demonstrated the effectiveness of our acquisition and integration strategy. Revenue for the third quarter was CAD 139.2 million, a 27.3% increase from the third quarter of 2021. This improvement was primarily driven by the 41 pharmacies added to Neighbourly's network over the prior four quarters. Revenue from these locations accounted for CAD 21.9 million or 73.5% of the quarterly revenue increase. Adjusted EBITDA for the third quarter was CAD 14.5 million, an 11.6% increase from the prior year. This improvement was primarily due to the incremental profitability of our new locations, as well as same-store sales growth across our pharmacy network. These factors were partially offset by the expected incremental public company-related costs and an acute increase in temporary relief labor costs due to Omicron-related absenteeism. Our adjusted EBITDA margin for the third quarter of 2022 was 10.4%, as compared to 11% in the second quarter of this year. We believe the sequential comparison is more useful than a year-over-year comparison, given how much our network has grown and changed over the past 12 months. As we've discussed in the past, pharmacy margins vary depending on their payer mix or their brand versus generic mix. The third quarter includes a full period's contribution from 13 clinic acquisitions, which have a greater mix of specialty and high-cost medication. As a result, while these locations contribute similar absolute EBITDA, they do so at a lower EBITDA margin. As we continue to grow and acquire new locations, EBITDA rates will vary based on the pharmacy mix of acquisitions and the pace of acquisition. During the third quarter, our scan margins improved slightly year-over-year in our comparable pharmacies, excluding the impact of the newly acquired clinic locations. As Chris mentioned, the onset of the Omicron variant created an acute spike in COVID infections among our store teams, coupled with an accelerated pace of labor-intensive vaccinations. The combination of these factors led to temporary increase in labor costs across our network when compared to both the recent quarter and the third quarter of 2021. While these are temporary increases, we do anticipate that they will persist through the fourth quarter. Staffing turnover remains consistent with historical pre-pandemic levels, and the higher costs are purely related to the absenteeism and the need to maintain the continuity of pharmacy care and service in the communities we serve. Finally, we do benefit from some operating leverage during the third quarter, which is a seasonally strong sales period. Turning to operational metrics, Neighbourly's pharmacies filled a total of 2.3 million prescriptions during the third quarter, a 26.5% increase from the prior year. Pharmacy revenues, which are primarily the revenue generated by these prescriptions, represented 78.4% of our total revenues, which is within our historical range. These metrics highlight the strength of our patient-focused strategy and how serving their pharmacy needs is the foundation of Neighbourly's business. Same-store sales growth for the third quarter was 2.2% compared to 5.5% in the prior year. Same-store prescription growth was 2.7% compared to 3.1% in the prior year. Were we to include pharmacy services such as vaccinations, booster shots, testing, and other services, our same-store prescription growth would have been 4%. However, our same-store prescription count historically excludes these types of services. The historical consistency of Neighbourly's same-store sales has been interrupted by the volatility associated with COVID-19. While the impact of the pandemic was most pronounced during the final quarter of 2020 and the first quarter of 2021, it did persist through the second quarter of last year. As a result, this impact is now most pronounced in our year-over-year comparisons. Our business has now fully lapped the higher front shop comparables experienced 2 years ago. As Chris mentioned, new prescription volumes demonstrated promising trends prior to the onset of the Omicron variant. However, in recent periods, these volumes are below last year levels and significantly below pre-pandemic levels. Despite this, on the whole, we are witnessing measured growth across our network and anticipate that this will improve as COVID-19 related precautionary measures are lifted and patients slowly return to seeing physicians within clinic, urgent care, and hospital settings. Corporate, general, and administrative costs were CAD 5.5 million during the third quarter, which equated to 3.9% of revenues. This compares to CAD 3.9 million or 3.6% of revenues during the prior year. As we previously mentioned, this increase is primarily due to costs associated with becoming a public company. We anticipate that our CG&A costs will grow as our network expands. However, these increases will be more than offset by commensurate revenue growth. As a result, we do expect that our CG&A costs as a percentage of revenues will consistently improve as our network expands. This operating leverage is one of the key advantages of Neighbourly's highly scalable platform. Before I conclude, I'd like to speak briefly to the company's capital structure. Neighbourly continues to operate from a secure financial position with over CAD 40 million cash on hand and CAD 150 million of undrawn debt capacity. Our pro forma adjusted EBITDA is CAD 58.7 million, which reflects the inclusion of a full quarter of public company-related costs and the acute COVID-19-related labor spend versus the prior year. With our current debt level, including the estimated lease liabilities of our acquisition that closed following the conclusion of the third quarter and pro forma adjusted EBITDA of CAD 58.7 million, our leverage will be 1.97x, providing us with significant financial flexibility to continue our acquisition growth strategy. I'll now turn the call back to Chris. Thank you. Thank you, Terri. As always, I'd like to conclude this call by speaking briefly to the topic of Neighbourly's acquisition pipeline. While we've acquired 40 new locations during the first three quarters of fiscal 2022, our pipeline remains as robust as it has ever been. We will not hesitate to exceed our historical pace of acquisition should compelling opportunities present themselves. Ultimately, the timing of Neighbourly's acquisitions are not dictated by a need to maintain momentum nor satisfy an arbitrary target. Our pursuit of any given opportunity is instead dictated by the quality of that opportunity. First and foremost, our potential acquisitions must share our values, placing a priority upon patient-focused care. Beyond that, ideal additions to our network operate within smaller markets or established medical clinics, serve as a significant healthcare provider to their communities, derive a majority of the revenue from prescriptions, and possess meaningful scale. Looking across the Canadian landscape, we've identified a significant number of pharmacies that meet these criteria and are in active dialogue with many of these pharmacy owners. We look forward to pursuing the most attractive of these opportunities and continuing to deliver upon our growth strategy. I'll now turn the call back to the operator for questions. Thank you. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by one on your touchtone phone. You'll hear a three-tone prompt acknowledging your request, and your question will be pulled in the order they are received. Should you wish to decline from the polling process, please press star followed by two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. Your first question comes from Irene Nattel with RBC Capital Markets. Please go ahead. Thanks, and good morning, everyone. Just thinking through the M&A pipeline, could you talk us through not only the seasonality of the cadence of M&A, but also what impact Omicron may have had on the discussions that you're having, just simply given how overwhelming it's been? Sure. That's a great question, Irene, and thanks for that. There's always a bit of seasonality when it comes to acquisitions. You know, Omicron aside, COVID aside, generally pharmacy owners typically are not too active in dialogue, you know, through Christmas and the early part of the new year. I would say, you know, COVID or Omicron probably hasn't impacted that. I would say that, you know, similar to prior comments that I've made around the pandemic is that, you know, if you're an aging pharmacy owner and you know, have been working through the past 2 years, it's been a stressful environment. Many of those pharmacy owners, and we continue to see that, you know, are considering, you know, their options and thinking about, you know, whether or not an early exit of their business or an early retirement of their business or perhaps even stepping in with a partner that can take on some of that administrative load, like Neighbourly, where we may be able to step in. We've certainly seen an advance of conversations, I would say, as a result of COVID and Omicron. Pharmacists clearly have stepped up, you know, in a very big way through the past quarter, you know, specifically advancing the pace of booster shots and, you know, taking on asymptomatic testing and supporting their communities, you know, through this most recent wave. That certainly put a lot of pressure, you know, on pharmacy owners, and they're certainly feeling that strain. We have certainly seen an increase of inbound activity as a result of COVID. I would say that pace has steadily increased, you know, quarter- over- quarter as the pandemic has continued on and pharmacy owners, you know, continue to think about their longer-term options and when would be the right time for them personally to think about selling their business. Does that help, Irene? Yeah. That's really helpful, Chris. Thank you. I guess, in a related question, you know, can you talk a little bit more about the nature and the magnitude of the staffing shortages, how you're finding replacements, what the challenges are, maybe an attempt to quantify the incremental cost, but also how that might be playing in with the M&A pipeline, you know, as an additional consideration that pharmacists didn't necessarily need to think about before. Yeah, no, it's again another good question. What I'll tell you is that over the past 7 weeks, about 8% of our workforce has either had COVID or has assumed a positive COVID case. So as you can imagine, you know, in smaller markets or in pharmacies or, you know, in many of the communities that we serve, where we may have 1 or 2 pharmacists, you know, in that location, it's expensive to replace them. That's certainly very much reflected, I think, on the tail end of Q3's results, and certainly will be, you know, very, I think, evident in the first part of Q4 results, until Omicron subsides. I'm grateful to say that, you know, fortunately, despite the fact that we've had a lot of cases across our network, that we haven't had any serious impacts, and all of our staff that, you know, have contracted Omicron have been able to return. But it has certainly put a pressure on the business. We've had to deploy third-party relief, internal resources, additional flights, hotels, travel, and that's certainly something, you know, I think that is very much out of the norm. This is something that the industry is facing. It's certainly, you know, put as much pressure on independent pharmacy owners, you know, that are considering selling. I think that's probably one of the factors that's also escalating their desire in some cases to consider selling is the amount of work that they've had to put in to fill in for staffing or to mitigate the Omicron or COVID cases that may have happened in their pharmacy location. It is definitely an impact. I think quantity-wise. Sorry. To quantify it for you, it's about 40 basis points or call it CAD 500, 000 is what we feel the incremental cost due to that absenteeism and having to replace at a higher cost or over time. The positive news, Irene, is that cases are going down every week in our pharmacies, and I think that just naturally follows the trends of cases in Canada. You know, we do think this is acute and this too will pass, but it will have a little bit of a carryover, I would say, into Q4 for sure. Does that answer your question, Irene? That's great. Yeah, it does. Absolutely. Sorry. I had put myself on mute so you wouldn't hear the typing. Yeah, that's great. Thank you. No problem. Thank you. Your next question comes from Patricia Baker with Scotiabank. Please go ahead. Yeah, good morning, everyone. Just a few questions. My primary question has been answered. Terri, when you were giving the details of the quarter, you talked about same-store sales and same script count. You mentioned that if you had included services, the same-store script count would have been up 4% year-over-year basis. Just curious, can you just talk about the services piece of the business and how much bigger that was this year on its own relative to the prior year? Just specifically clinical services, you're wondering? Yes, please. So- Yeah. Okay. Year-over-year, it was about 34% higher. On the- On the same-store basis. That's impressive. Okay. Then what can you tell us about what you saw front of store, that 2.2% same-store sales increase? What categories, you know, were prominent in that? Well, cough and cold season, although not as strong as pre-pandemic levels, was higher than the prior year. Yeah. Patricia, we're certainly. There's been pockets of good, and cough and cold has certainly, you know, been one of those categories. Obviously, there was a more pronounced flu season this year versus last year. Through Q3, we were still cycling over year-over-year very high growth in the prior year. We had- Mm-hmm Almost double-digit, you know, same-store sales on the previous year. We actually had slightly negative comps, you know, through Q3. That has since turned positive in Q4 as we've cycled that year-over-year impact and anticipate having kind of positive front of store sales going forward. It certainly was a drag on our- Mm-hmm ... same-store sales results in Q3, but is not anticipated to be so in Q4. Cough and cold has certainly been a bright spot. On the downside, there's you know certainly a shift of you know PPE some of that share shift that we received you know at this point last year with some you know non-essential retailers not being open like household cleaning supplies, that sort of thing. You know we certainly don't have, but we've certainly seen you know a very big bounce back of over-the-counter medication. Okay. Thank you. Just going back to Omicron just for a second. I wanna just double-check. There will be an impact in Q4. Will that impact be on staffing shortages but then also fewer patient visits as well as you experienced in Q3? I would say probably consistent to Q3, but hopefully will lighten up towards the tail end of Q4. The staffing shortages are subsiding very, very quickly, so that cost- Mm-hmm I think it is probably more acute in the first period and a half to the first two periods of Q4. I think largely it will have been mitigated by the end of the quarter. The impact of clinics closing and the pausing of elective surgeries certainly has had an impact. I mean, we saw a step down in new prescriptions versus the same period last year, let alone versus the pre-pandemic levels when new restrictions were announced. As those restrictions come off, we anticipate that that's gonna step up. Through the summer, we saw a gradual progression up on new prescriptions as clinics started to return to normal, and we you know, we saw a bit more of a return of elective surgeries, a little bit more outpatient visits, you know, from hospital, urgent care clinics, clinic settings. That definitely paused through the first part of Omicron, but now we're starting to see, you know, as provinces remove some of those restrictions, a little bit more of a return back to what it was trending, pre-Omicron, if that helps. It's very helpful. Thank you so much, both of you. Thanks, Patricia. Thank you. Your next question comes from Peter Sklar with BMO. Please go ahead. Good morning, Chris and Terri. Just in terms of supply chain, I assume that McKesson supplies most of your, you know, supplies most of what you need in the pharmacy and, I believe, in the front. Like, how has McKesson been in terms of supply chain, and have they had any interruptions at their end? Sure. That's a great question, Peter. You know, McKesson is certainly one of our largest. We have others and backups and other suppliers. What I would say generally around supply chain, I think this is probably more of a global statement, there were significant impacts in Western Canada, you know, through Q3, largely brought on by the significant flooding, you know, that happened in BC, as well as Omicron, you know, staffing impacts in the distribution network, that definitely did impact, I would say, on-shelf availability of more so on front of store versus pharmacy, but was definitely, you know, pretty acutely experienced in Western Canada, more so than I would say in Eastern Canada. That being said, you know, the pharmacy supply chain, which represents the majority of our revenue, was very resilient. You know, I certainly would applaud all pharmacy wholesalers for, you know, the work that they did really to prioritize ensuring that, you know, pharmacy goods continued to flow to pharmacies despite, you know, some very meaningful impacts. I mean, during the height of flooding in BC, we literally, you know, helicoptered in goods into a pharmacy that was completely surrounded, their community was completely surrounded by water. You know, obviously, that was in partnership, you know, with our wholesale partners. I would say, you know, Q3 definitely had an impact on front of store, you know, in Western Canada more so I'd say than Eastern Canada. I think, you know, it was largely mitigated given the fact that the majority of our revenue is derived from, you know, prescription medication and the prescription supply chain. I think it was pretty robust. There certainly has been shortages in specific products, specific lines. Given the nature, you know, of over-the-counter medication, you know, if, for example, through cough and cold and flu season, you know, if one product is not available, a patient is not leaving, you know, without a treatment. Our pharmacies, you know, we're doing a great job of kind of redirecting to an alternative therapy. I'd say not as bad as it could have been, certainly. It definitely had an acute impact, specifically in BC with the flooding and the logistical issues that you know that caused. Does that help you? Okay. Yeah, that's helpful. Thanks. Question on deal sourcing. I noticed in the slide deck, you talk about you have a nationwide marketing initiatives in terms of deal sourcing. What do you mean by that? Are you putting ads in trade journals or are you developing a database? What does that mean? Yeah. I'll talk about a couple of them, and I would say a couple of them are proprietary, so I don't necessarily want to share. We do track every independent pharmacy in Canada, as well as, you know, the ownership, you know, who owns the pharmacy, as well as where they are in their life cycle of ownership. We have a business development team that is actively, you know, cold calling pharmacies and reaching out to pharmacies and talking to pharmacy owners about their future and, uh, making sure that Neighbourly is kind of top of mind when, when they think about selling or they think about retirement or they think about succession planning. We do have other marketing tools that we have in market that are a combination of things, and some of those are proprietary that really have helped us create a high level of brand awareness among pharmacy owners, so that they think about, you know, Neighbourly as a potential buyer when they think, you know, about succession planning or selling their business. I would say that database and the underlying CRM behind that, you know, is very robust and continues to get robust, you know, more robust every day as we continue to, you know, talk to more pharmacy owners. That's really led to, you know, what is a very healthy and robust pipeline among very attractive targets. You know, with 6,500 independent pharmacies, you know, we've identified, 3,600, you know, independents that we feel kind of fit our model of, you know, being in a smaller community or, co-located with a clinic, and kind of, you know, meet our operating kind of expectations. We continue to have active dialogue with a lot of those and, as a result of that, the pipeline, you know, continues to be very robust. Okay. Like in this very robust M&A backdrop that you've described, like, have any other consolidators emerged besides Rubicon? I'm just wondering what, you know, you're seeing in terms of the competitive backdrop in terms of this consolidation of the industry. We haven't really seen any change in the market when it comes to consolidation. You know, we still believe we're the only national consolidator of independent pharmacies in Canada and have certainly been the most active in the market. You know, there are some regional players that are more province specific that, you know, continue to be active as, you know, maybe have 5 stores looking to buy their 6th or maybe have 20 stores looking to buy their 21st. But we don't see any national change of the landscape. In competitive bid processes where we have been in competitive bid processes, they're no more competitive today than I would say they were 2 years or 3 years or 4 years ago. Okay. Does that help you? Okay. Yeah, that's good. Thanks for your comments, Chris. No problem. Thanks, Peter. Thank you. Your next question comes from Zachary Evershed with National Bank. Please go ahead. Thank you. Good morning. Morning, Zachary. Can you remind us how long your acquisition process usually takes for each stage, from start to finish? Are you having any issues setting up meetings or traveling for due diligence in the current environment? No. Great question, Zachary. I would say it really varies by the individual owner and their desire to sell and how quickly they wanna sell. We can move, you know, I'd say through a deal process, through, you know, sourcing to LOI to a signed purchase agreement, you know, probably within 8 weeks. Based on the provincial regulations as well as, you know, third-party plans and integration, it could take, you know, 90 days post-signing, you know, a letter of intent to close. That is largely driven by regulatory requirements, not necessarily, you know, our desire or a pharmacy owner's desire or to move quicker. So we've seen, you know, pharmacy owners move as quickly as 8 weeks. We've seen, you know, pharmacy owners, you know, from LOI to a purchase agreement. We've seen, you know, pharmacy owners take, you know, multiple months, right? We really try to tailor our approach to, you know, what's right for the individual pharmacy owner. We always keep in mind that this is the biggest financial decision, you know, they will ever make, likely in their career. I mean, they're selling their business. They're selling, you know, a business that they may have built for 20 years, 30 years, 40 years. Sometimes, they wanna take a lot more time to be thoughtful about, you know, who the right owner would be in the future. Quite often they're calling us, but that pace really is driven, you know, by an owner's timeline, not necessarily, you know, based on ours. We've been able to keep, you know, our diligence timelines and confirmatory diligence, you know, very much in line with what they were historically. Fortunately, we're a lot, you know, able to do a lot of the confirmatory and legal regulatory diligence, you know, from desktop. Confirmatory is a bit more of a light touch because we, you know, are often using the same pharmacy systems and same POS systems as most independent owners, you know, we know what we're looking for. We can get a lot of that reporting remotely, and then our confirmatory on-site visits, you know, are relatively succinct, I would say. There's really been, I'd say, no impact of either doing diligence or closing or integrating pharmacies as a result of Omicron or through the pandemic. Does that help, Zachary? Yeah. That's great color. Thank you. I think that you addressed this, but I'll ask directly. Have seller expectations for price evolved in relation to staffing shortages, or is it steady as she goes? I think it's pretty consistent. We're seeing, you know, a pretty consistent, you know, level of expectation when it comes to pricing. I don't think the expectations have changed through the pandemic. I think if anything has changed through the pandemic, it's really probably more their timing and their desire to potentially retire and sell. We haven't really seen kind of any upward or downward pressure on pricing as a result of either Omicron or the pandemic in general. Thank you very much. I'll turn it over. Thanks, Zachary. Thank you. Your next question comes from Chelsea Stellick with iA Capital. Please go ahead. Hi. Good morning. Just a couple questions from me. First one, I guess just, you know, in terms of inflation, are you seeing an impact on drug pricing and whether or not you see this squeezing your margins? Thanks, Chelsea, and good morning. It's a good question. We've certainly seen inflation on our front of store. We you know steadily see costs increasing, you know, from downward pressure from manufacturing costs and wholesale distribution costs. We have not seen any inflation creep through on pharmacy pricing, largely because pharmacy pricing is regulated. You know, generics are regulated through existing pricing framework through the pan-Canadian Pharmaceutical Alliance. Brand pricing is regulated through the Patented Medicine Prices Review Board. You know, while there may be inflation you know through supply chain or through manufacturing, the drug prices themselves are actually fixed and regulated. We haven't seen any inflation you know come through on drug pricing. There would be really no inflationary impact on, you know, the 78% of our revenue that is pharmacy related because those costs are really have not been impacted by any form of inflation. We're certainly seeing inflation up front of store, as I mentioned. You know, I would say a small amount of inflation on rate, certainly much less than I would say other service sector roles, just given the professional nature of kind of pharmacists and pharmacy roles, which is the majority of our labor. But certainly nothing on drug pricing. Does that answer your question, Chelsea? Yes. Thank you so much. In terms of, you know, any impacts that you're seeing on your business in terms of global supplies of pharmaceuticals getting tight, you know, that we're seeing in the U.S., some drug shortages getting announced, is there any impact on you guys? There's certainly been acute impacts on specific molecules. I would say it probably hasn't changed significantly in the last quarter than it did, you know, in the four quarters preceding it. There have certainly been acute disruptions. You know, for example, we haven't really seen any material impact yet at this point as a result of, you know, the bridge issues and cross-border kind of shipping. The supply chain has been, you know, relatively resilient. However, there has been significant service disruptions, more to do with, you know, COVID staffing. But fortunately, the pharmacy supply chain has been relatively resilient and fairly stable despite some of those headwinds. Perfect. Thanks. Then just one final question from me. In terms of acquisitions and looking at, you know, revenue per store, is it like are you seeing what you have been seeing historically or has there been a shift in sort of the revenue per store in terms of the acquisitions that you're looking at and the ones that are gonna follow going forward? I think they've been pretty consistent. I mean, generally, you know, if we buy clinic pharmacies, they tend to be a little lighter on revenue because they don't have, you know, as large front of store sales. When we buy community pharmacies, they tend to have a higher average revenue per location than clinic locations. Mix does absolutely matter. You know, similarly, you know, to, you know, our comments on EBITDA, mix absolutely does matter. Like, not all pharmacies are created equal. I think on aggregate, you know, our contribution per location stays relatively the same, but the revenue can fluctuate, you know, quite significantly. You know, in our large 20-store acquisition in Alberta, you know, revenue range from, you know, I would say CAD 6 million per location down to as low as maybe CAD 1.5 million per location. It does have a wide range of revenue per location, and that seems to be consistent to what we see in the market. But, you know, generally on average, you know, pretty consistent, whether it be community or clinic formats, you know, within those two buckets. Chelsea, our most recent acquisitions have been in and around that average, CAD 3 million per store that we've historically seen. CAD 3 million? Yeah. Okay. Good. That's great. Thank you so much. That's all for me. Thanks, Chelsea. Thank you. Your next question comes from Chris Li with Desjardins. Please go ahead. Hi. Good morning, Chris and Terri. Just maybe start with a follow-up on the EBITDA margin question. This quarter, it was down about 150 basis points. You called out about 40 basis points was related to the temporary labor cost increase. Is the remainder really largely because of the mix impact from those lower gross margin medical clinics? That's correct. That's exactly right, Chris. Yeah. Because they have a higher cost molecule, so higher revenues, but their gross profit dollars per script are relatively similar to the boutique non-clinic pharmacies. Because your denominator is higher, it drives your rate down. Yeah. Okay. I think we probably mentioned this on prior calls, but we tend to focus on absolute contribution per location, and that tends to be what we focus on. The EBITDA rate by location will shift considerably. It differs by province, it differs by mix, it differs by format. In this most recent quarter, because to Terri's earlier point, it was definitely a notable impact by recent acquisitions, which had a full quarter impact, which was 13 clinical locations in Ontario. That definitely kind of blended the rate down. I would say that, you know, what we've looked at from a pipeline, you know, I would say is probably gonna blend it up again, but every acquisition is a bit different, and our base stores that we entered the fiscal year in are performing quite well. EBITDA is very much in line with our expectations. Actually, it's 3 basis points up, I think, for the full year. The recent addition of those clinical locations certainly did bring down the blended rate, but we think that blended rate will likely move up over time. Okay, that's fair. Because that was my other question, I guess for Q4, is it fair to assume we'll maybe see a similar year-over-year margin percentage decline as we saw in Q3, but then as you head into fiscal 2023, that rate should improve because you're getting 26 or 27 pharmacies that are, presumably have higher margin percentage? Yeah. I think you're largely right. I would say, you know, Q4 will probably have a very similar rate, 'cause it has the same, you know, depending on the timing of acquisitions in Q4 and how much of an in-quarter impact some of the other acquisitions that we're working on have. But yeah, I think that's a fair assessment. Okay, that's helpful. Then in terms of vaccination, it sounds like from the press release that was vaccination overall, did it have a net negative impact on EBITDA considering the accelerated labor and resources that you have to dedicate to doing vaccination? It's a really good question. I would certainly say we didn't make any money from you know providing accelerated vaccinations. We're obviously doing it 'cause it is absolutely the right thing to do for community pharmacy and for the communities that we operate in and really to help you know control and suppress the pandemic. You know so we're gladly doing it. But the incremental labor cost you know to deliver those vaccines is fairly material. Given the fact that you know as I mentioned in an earlier comment over the past 7 weeks 8% of our workforce you know unfortunately has either gotten COVID or has a presumed COVID case. We were trying to ramp up volumes on vaccinations and really increase the pace of second doses and boosters as governments asked us to accelerate the pace with staffing, you know, shortages. You know, we were bringing in, I would say higher cost staff, you know, with incremental travel costs, hotel costs, and sometimes plane costs to ensure that our pharmacies remained open, but also could support that increased speed of delivery of vaccinations. You know, I don't know that it was a drag, but it certainly wasn't accretive, let's say, in the quarter. Do you think it could become accretive longer term? I just ask the question because unfortunately, I think vaccination will be with us for a while longer. If that business continues to grow into next year, are you able to adjust your business such that you will be making money on that going forward? Oh, yeah, no, I absolutely believe, you know, in future years that, you know, this will be economically viable for pharmacies. Doing as many as we did in such a short period of time, bringing in additional staffing is not necessarily favorable. We've seen, you know, a trend. A couple of things are happening, you know, moving away from provincial booking tools, you know, a little less onerous on administration, but also the willingness by a lot of the provincial regulators to let, you know, other professionals also support in vaccine delivery within pharmacy. In certain provinces, we have regulated techs, for example, that are administering vaccines. It's obviously at a much, you know, more cost-effective base. If vaccines were a little bit more spread out, then they could be done a little bit more through regular workflow, so we're not actually bringing in incremental labor. We anticipate that will likely be the case, you know, as we shift from pandemic to endemic, where boosters are probably gonna become, you know, a reality. The reality is, I think it will be done much more efficiently, and less reactively, therefore, you know, likely, much more viable for a community pharmacy. Okay, that's very helpful. Maybe just a couple of quick ones left. You know, switching gear a little bit. I know we're still more than a year away from the expiration of the generic p rice agreement. I know that the brand drug price reduction was recently delayed again. Do you expect the generic price agreement to be extended as well? Is there a possibility? Are you hearing anything on that front? We haven't heard a whole lot, you know, on that front. Though, what I would tell you is, you know, in conversations that we've had, you know, with generic manufacturers, you know, they certainly would advocate that, prices should probably be going up. They're in an inflationary environment, you know, their costs are increasing. You know, cost of distribution, fuel, labor, is all going up and, you know, that framework has historically, you know, brought prices down. I think there's certainly a strong argument, you know, that prices, you know, should reflect, you know, some form of CPI or inflation or at the very least, remain static. You know, we're not anticipating, you know, while it's a year out, we haven't heard that negotiations have actively started, which is, you know, probably a good sign that this framework is just likely gonna be extended as is. We're not expecting kind of any material shift in the framework. The framework works, it's a good model. Given kind of the inflationary environment and some of the pressures that manufacturers and supply chain are facing, I think it would be difficult, I think to justify, you know, further cost reductions, you know, on that piece of the business. Okay, perfect. Lastly, just related to that, I mean, in your conversation with potential sellers, does drug reform come up as often a reason for them to sell, or is not really a main reason or consideration? I think it. You know, it's I often. It doesn't come up a lot in the conversations that we have with individual pharmacy owners. You know, their lifestyle situation, where they are in life, their workload, the complexity of running the business, you know, tends to be the driving factor more than future reforms. You know, do we think if reform happened, that there would be a further escalation of consolidation? Yeah, you know, probably I think will continue to advance consolidation. It's not something that I think is in the forefront of a pharmacy owner's decision to think about, you know, selling their business or retire. That tends to be more driven by lifestyle factors and kind of where they are in the life cycle of their ownership and, you know, whether they wanna retire early or this is, you know, selling their business kind of right on their, you know, expected timelines. But those tend to drive more the decisions, I think, than, you know, any external factors of reform or other regulatory changes. Does that help answer your question, Chris? Yep, that's very helpful. Thanks, and best of luck. Thanks, Chris. Thank you. There are no further questions at this time. Mr. Gardner, you may proceed. Well, thank you, operator. This concludes Neighbourly's conference call for the third quarter of 2022. I would again like to thank our more than 2,000 team members for their incredible efforts in supporting patient care and Canadians' health and wellness since the onset of COVID-19. They are truly making a difference, and I could not be prouder of the work they are doing. They have stepped up to support an accelerated pace of vaccinations and boosters in the wake of the Omicron variant and continue to place a priority upon supporting their communities. For those of you who have joined us midway this morning, I would encourage you to revisit our remarks at the beginning of the call related to forward-looking information. A replay of the call and the accompanying presentation will both be available on our website, www.neighbourlypharmacy.ca. Thank you again for joining us, and we look forward to speaking with you again soon. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.