Good morning, and welcome to Neighbourly Pharmacy Second Quarter 2023 Conference Call. The speakers on today's call are Chris Gardner, President and CEO of Neighbourly, and Terri Smith, Chief Financial Officer of Neighbourly. Today's discussion may contain forward-looking statements 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 the forward-looking information and statements. Today's commentary will reference several non-IFRS financial measures. Reconciliation between non-IFRS and IFRS measures can be found in Neighbourly's regulatory documents, which are available on their website and on SEDAR. The speakers' remarks this morning will align with Neighbourly's earnings presentation for the second quarter 2023. This presentation is also available on Neighbourly's website. I will now turn the call over to Chris Gardner. Thank you, operator, and good morning, everyone. I'd like to begin this morning by providing a brief update on Rubicon, our largest and most significant acquisition to date. After welcoming Rubicon's 100 locations and 1,500 colleagues to Neighbourly's network at the end of June, I am pleased to say their integration into our network has been smooth and operational performance has been going according to plan. We have integrated the majority of our operating processes, including reporting and financial data, and are progressing well on the major remaining work streams. There are two key work streams that are outstanding in order to be fully integrated, and those include transitioning to a common payroll and a common financial platform, both of which are scheduled to be implemented by the first quarter of fiscal 2024. I'm also pleased to share that to date, we have already realized more than 70% of the projected synergies we had anticipated from Rubicon, and the balance is on track to be delivered once full integration is completed by the first quarter of fiscal 2024. We have now completed the sale of one of the two pharmacies required to be divested in conjunction with the Competition Bureau agreement and anticipate the second sale to be completed in the third quarter. We are also making good progress on the sale of the real estate we acquired with the Rubicon acquisition, and anticipate the majority of owned properties to be sold by the first quarter of fiscal 2024. With much of the heavy lifting of Rubicon's integration behind us, we have once again resumed a more active stance on the M&A front. In the second quarter, we added one new location to our Manitoba portfolio, and yesterday we announced the upcoming acquisition of two community pharmacies in British Columbia and another six in Atlantic Canada. We continue to strengthen our position in BC and are doubling our presence in Atlantic Canada, strategically positioning Neighbourly for continued growth in the region. These acquisitions' purchase prices are in line with our historical purchase price multiples. Once we complete both of these acquisitions in November, our network will span across 284 locations from coast to coast, gaining further scale across Canada. In Q2, we also announced that Terri Smith would be stepping away from her role as CFO and moving to the West Coast to support her family. I would like to thank Terri for her significant leadership of the finance organization and her significant contributions to Neighbourly's successes over those past two years. We wish her the very best in this next chapter of her life. Terri will remain with Neighbourly through the balance of the fiscal year, continuing to lead the integration work towards common payroll and financial systems while supporting Billy through the transition. I would also like to take this opportunity to welcome Billy Wong, who has been appointed Terri's successor and will officially transition into the CFO role, effective tomorrow. I am excited about the diverse financial expertise and leadership Billy brings to Neighbourly. His results-oriented mindset and track record of delivering process efficiencies and improved profitability will serve Neighbourly well as we continue on our growth trajectory. Now, I'd like to turn to our key performance highlights in the second quarter. Neighbourly's underlying business was strong, delivering a 3.6% increase in same-store sales growth, which has been our highest in the past five quarters. Pharmacy revenue continued to grow with a notable increase in the average prescription value of 6.2%. Pharmacy prescription count was down 1.9% on a same-store basis. This was primarily due to changes in frequency dispensing for certain medication at three of our addiction management sites. This accounted for more than half the shortfall in prescriptions, but was offset by corresponding increases in the average value of those prescriptions. Our revenue almost doubled from last year to CAD 179 million, and our Adjusted EBITDA came in at CAD 19.8 million, with a margin rate expanding to 11.1% in the quarter. This rate was 130 basis points higher than our first quarter EBITDA margin results. As we previously highlighted, with the acquisition of Rubicon, margin rates across Neighbourly would increase due to a shift in our geographic mix with stronger margins experienced in Western Canada. This performance is still somewhat muted by the ongoing headwinds associated with a tight labor supply for pharmacists. However, as we'll discuss later, look, we are beginning to see improvements on the recruitment front. I'd like to spend a few moments highlighting the drivers of our same-store sales performance in the quarter. As I mentioned, our overall same-store sales growth was the highest it has been in the last five quarters, coming in at a healthy 3.6%. Driving this growth were pharmacy sales, which increased 4.2% despite a 1.9% decline in script count. As mentioned, the average value of prescriptions increased notably in the quarter with a shift to a longer day supply in a few locations. We continue to see a slower than anticipated recovery in new prescriptions, which is not only due to lower activity in clinical locations, but also an overall scarcity of available prescribing healthcare professionals. Like pharmacists, doctors and nurses are in short supply as the healthcare system is facing some challenging times in the aftermath of the COVID-19 pandemic. Last quarter, I spoke to you about a potential catalyst for new prescriptions growth in Ontario, that had to do with the change of physicians' reimbursement model for virtual consultations. This change came into effect on September 1st. While it is still early days, we are encouraged to see a 200 basis point improvement to the script count trend in Ontario following the recent changes to the reimbursement model compared to the rest of the country. This shift to encouraging more in-person care is an important step to recovery. We continue to watch how this unfolds and anticipate other provinces will follow this trend. As we indicated during our Q1 call, our front store sales saw an uptick, delivering a 2.9% increase in the quarter as we fully lap the impact from higher front of store sales at the onset of the pandemic. In Q2, we experienced strong demand for over-the-counter cough and cold and flu medications, which was a significant driver of our growth. However, we continue to experience some supply chain shortages for these key categories. Finally, on clinical services, we continue to see softer performance, down 17.4% on a same-store basis versus the prior year, against an 86% increase from a year ago when the initial wave of COVID-19 vaccinations was hitting a high point. Q2's trend is a sequential improvement relative to the first quarter when clinical services were down 21.7%. Six weeks into the third quarter, we are seeing a ramp-up in clinical services, driven by the rollout of the COVID-19 Omicron booster shots, as well as the national rollout of the influenza vaccine, as well as a higher level of overall base clinical services. Looking further into our pharmacy KPIs, we filled over 3 million prescriptions in the quarter. That's an increase of 95% compared to the prior year. Pharmacy revenue increased 99%, almost doubling from last year's levels. This trend is also indicative of the value per prescription exceeding the pace of script growth, which reflects a shift to longer day supply of medication. With 78.8% of our revenue in the quarter derived from prescriptions and clinical services, we continue to deliver on our purpose of being there for to serve our patients' pharmacy needs and reinforces the strength, stability, and resilience of our patient-focused strategy. With the ongoing staffing shortages for healthcare practitioners, we believe that pharmacists will play a critical role as healthcare providers across Canada, and as we emerge from this challenging period in the healthcare industry. We were very encouraged to see an expanded scope of practice being announced in both Ontario and British Columbia, including empowering B.C. pharmacists the ability to administer more vaccines and renew prescriptions for people that don't have access to a family physician. I will now let Terri walk you through the details of our financial results, and then I'll come back to wrap up and open it up for Q&A. Thank you, Chris, and good morning, everyone. Neighbourly's results for the second quarter of 2023 comprised a 12-week period and aligned with our expectations. Our results not only demonstrated the effectiveness of our acquisition and integration strategy, but also showed the strength and resiliency of our underlying business. Revenue for the second quarter was CAD 178.9 million, an increase of CAD 88 million or 97% compared to the prior year. This top-line growth was driven by strong same-store sales growth of 3.6% and the contribution of the locations we have added to Neighbourly's network over the prior four quarters. We are pleased with the overall top-line performance and with Rubicon's contribution of CAD 64 million in revenue during the quarter, which was in line with our expectations. Adjusted EBITDA for the second quarter was CAD 19.8 million, a 98% increase from the prior year. Adjusted EBITDA margin was 11.1%, 130 basis points higher than the rate we reported last quarter and an improvement versus the prior year. Our Adjusted EBITDA benefited from the incremental contributions of our new locations, with Rubicon's contribution representing approximately 40% of our total Adjusted EBITDA. We also experienced gross margin expansion that can be attributed to a stronger gross margin profile from a shift in geographic mix, as well as clinic pharmacies being a smaller percentage of our overall mix in Q2. Clinic pharmacies contributed 28% of our pharmacy revenue in the second quarter versus 40% in the prior quarter and 38% in the prior year. Partially offsetting these positive impacts is the incremental spend on pharmacy relief costs as we continue to face a tighter labor supply of pharmacists. While we stated this labor impact would persist through next year, we are seeing this trend slightly improve into our third quarter. We've had good success filling vacant roles and saw a 25% reduction in our vacancy rate as we continue to attract pharmacists into our network. We're actively recruiting talent and have increased our talent and recruitment efforts to manage and mitigate these labor challenges. In addition, our two new central fill locations in Ontario and BC will begin operations during the third quarter, which will assist in mitigating this labor impact over time. By the end of the third quarter, we will have five central fill locations across Canada. Corporate, general, and administrative costs were CAD 6.9 million during the second quarter, which equated to 3.8% of revenue, a sequential improvement relative to 4% in the first quarter of 2023. The second quarter typically experiences an increase in corporate costs relative to the first quarter related to the timing of our AGM and other costs. However, the second quarter CGNA rate declined this year versus our first quarter. This sequential improvement in CGN A as a percentage of revenue was from the scale and synergies realized in our corporate costs with the addition of Rubicon. As Chris mentioned, the integration to a common payroll and finance general ledger platform is well underway, and we expect further synergies will be realized when that integration is completed in the next fiscal year. While our CGNA costs will continue to increase as our network expands, it will be at a lower rate than the corresponding revenue growth. Therefore, our CGNA as a percentage of revenue will continue to decline as we continue to grow. Before I conclude, I'd like to speak briefly to the company's capital structure. Neighbourly continues to operate from a secure financial position. Our pro forma Adjusted EBITDA is CAD 96.8 million, which reflects the inclusion of our recently announced acquisitions expected to close in the third quarter, as well as the elevated labor costs we have been experiencing. Our pro forma net debt level, which includes the estimated lease liabilities from our recently announced acquisitions, is CAD 330 million, resulting in pro forma leverage of 3.4 x. Following the closing of the recently announced acquisitions, we will have approximately CAD 140 million of undrawn debt capacity. With that and our strong free cash flow generation and expected CAD 16 million in proceeds on our properties held for sale, we remain well positioned to continue to fund our acquisition 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 our acquisition pipeline. Looking across the Canadian pharmacy landscape, there are approximately 3,500 pharmacies that meet our acquisition criteria. As I mentioned earlier, we've been able to resume a higher level of activity following the completion of our Rubicon acquisition. In addition to Rubicon's 100 locations, we will have completed 12 acquisitions for fiscal 2023 by the end of November, on track to deliver our targeted 10-15 as previously communicated. We continue to be encouraged by the robustness of our pipeline and expect to resume a normal cadence of acquisitions in fiscal 2024. 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 the one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request. If you would like to withdraw your request, please press the star followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. Our first question comes from George Doumet with Scotiabank. Your line is open. Yeah, hi, guys. Good morning. Just curious about what specific initiatives you did to improve the vacancy rate by 25%. Chris, I know this is a bit of a crystal ball question, but can you maybe comment when was the last time we saw a significant shortage in pharmacists, how long it took for that market to be more balanced, and if you think this time is going to be any different? Hi, good morning, George. Thanks for the question. So, you're right. We certainly made meaningful improvement on the vacancy rate, for specifically pharmacists, you know, in the quarter. I think we referenced this probably in our Q1 call that we felt we had hit the crest of vacancy rates and kind of the peak of retirement and the peak of kind of staffing shortfalls, within our network. We're putting in, you know, mitigation to help support that. You know, through, as Terri mentioned, you know, we've increased our talent acquisition team quite significantly, boosting up our recruitment, university campus efforts, as well as just overall, recruitment practices and have been able to steadily kind of reduce that vacancy rate, you know, from, you know, probably a high of about 85 pharmacists down to, you know, what it is today, about 60. We've made, you know, pretty good headway and continue to make headway kind of week over week over week. The last time we saw kind of this systemic nature of pharmacy shortfall was probably kind of in the early, you know, mid-2000s when but that was a drastically different, I would say, environment. You know, one being driven, you know, this most recent one being driven by probably a larger wave of retirements, and not necessarily outlet creep. We're, you know, we're not seeing a lot of net new pharmacies, you know, opening up in Canada. In fact, we've actually seen a little bit of contraction, in the market where, you know, some subscale pharmacies are actually closing. Whereas in the early 2000s, certainly late 1990s, that was a different time when, you know, pharmacies were expanding rapidly across Canada. You know, grocers were putting pharmacies into their network. You know, Walmart was expanding its presence across Canada, including adding pharmacies to its network. Many pharmacies, you know, were extending operating hours. You know, that strain effectively had was requiring more pharmacists than there was availability of pharmacy grads, you know, coming through the pipeline. This is a much different situation where, you know, we're dealing with kind of an acute step-up of retirements, and we just now have to fill in, you know, kind of those vacancies, which we've been doing and doing pretty steadily. We think by, you know, the summer of next year, we'll probably be at a point of equilibrium, where, you know, with the next phase or the next cohort of graduating classes, you know, in the pharmacy schools across Canada, there'll be 1,300-1,500 grads that will graduate. We think we'll probably be at a you know pretty good equilibrium next year, and then a year later, we'll probably be in a situation you know where we are experiencing a pharmacy surplus situation. For the past I would say decade you know we've been relatively blessed with a pharmacy surplus, a pharmacist surplus situation. Largely that was driven by the fact that the you know the reactions that the industry made you know in the late 1990s and early 2000s, which was increasing pharmacist enrollment into universities, opening up a new pharmacy school in Waterloo, and really just increasing you know the pipeline of future pharmacists that would graduate. I would say that, you know, what we're facing today is very acute, you know, and not unlike what's being experienced in other healthcare channels, you know, whether it be physicians or nurses, which is really just offsetting a wave of retirement, not being driven necessarily by an increase of demand for pharmacists. It's not more pharmacies or extended operating hours or other kind of systemic drivers to why there is a shortfall. Does that help add some color, George? Yeah, that's really helpful. Thanks, Chris. Looking at the Rubicon EBITDA margins, it seems that they're down 110+ basis points when we announced the deal in March. Is that also the pharmacist shortage? Maybe any color around that? Would you expect the recovery in margins to be similar to, call it legacy Neighbourly's? Yeah. I would say, you know, much of what we've experienced has certainly been experienced in Rubicon. You know, we operate in very similar markets, you know, very similar geographies, have very similar kind of staffing constraints. The majority of the G&A, you know, or I would say the EBITDA, reduction, you know, versus kind of the announcement has been driven kind of by labor challenges. You know, we do think this too will pass and we're making great headway on the combined network on recruitment and retention. Again, you know, we think that, you know, that will improve over time. Okay. Just one last one, if I may, maybe on to Terri. Just wondering, given the higher rate environment, do you still think we can acquire 35-40 pharmacies on a leverage-neutral or slightly accretive manner? Yes, we do, George. We have no intention of slowing down the pace, and starting in our next fiscal year, we will return to our historical rates. As I mentioned, we've got a really strong balance sheet, good liquidity, and a lot of funds available to us. It's important to note too that every acquisition that we do make is a profitable business that's immediately accretive. Because all of our acquisitions are capital light, it generates free cash flow immediately as well to help continue to fund the acquisitions. Okay. Thanks, guys. Thanks, George. Our next question comes from Irene Nattel with RBC Capital Markets. Your line is open. That you have 70% of that CAD 2.5 million that you initially targeted as a synergy number. Really, you know, once we get past that CAD 2.5 million, can you talk about other potential sources of incremental synergies? Sure. Patricia, we actually missed the first part of that question. It was a bit silent, but I think I got it from the tail end. You're right. We're about 70% of our targeted synergy target for Rubicon. We think the balance of that will come through the first fiscal quarter of next year once we align to a common financial reporting platform as well as a common payroll as well as eliminate you know some of the IT infrastructure that's in place to support that you know once we get to a common system. We certainly think that there are longer-term you know synergies across the organization. You know, we're certainly benefiting from some of that right now as we've implemented some of our selling programs on both sides. We've taken, you know, some of the best practices from Rubicon and implementing some of the best practices from Neighbourly, you know, into those locations, and some of those include, you know, some of our store-within-a-store programs where we have partners, you know, like with Hallmark or M&M Meats and other type of programs. As well as leveraging, you know, the central fill capability in BC, Alberta, and Saskatchewan that prior was only supporting each other's individual networks. As we bring BC central fill online this quarter, as we bring Ontario central fill online this quarter, and as we expand our Alberta capability as well this quarter, we'll be able to support more of our combined network, which we think will certainly provide longer-term synergies, you know, on the long term. The other thing that we've been focused on is centralizing a lot of our compounding activity, which is, you know, very labor-intensive, very inefficient to do in community pharmacies and sometimes requires additional CapEx investments to meet kind of NAPRA guidelines and NAPRA guidelines kind of vary, you know, province to province. We're actively in the process of centralizing that into specialized compounding hubs as well, which we think, you know, will help reduce some of that labor burden and free up capacity, you know, for further synergies going forward. Does that help, Irene? Yeah. That really helps. Thank you. Then can you give us an idea of order of magnitude when you move to something like a central fill or centralization of compounding activity, what's the magnitude of the cost savings? Right now, you know, I would say we're gonna be using it largely to help offset the labor shortage, right? If we are, you know, short in any particular pharmacy, that becomes one of our key candidates to move to central fill. It buys us a little bit more time and hopefully, you know, can reduce some of the technical tasks in those pharmacies to help free up labor, but more importantly, free up capacity. The net goal, I would say, of our central fill activity is not necessarily to reduce costs or to free up synergy, but really to free up pharmacist capacity to be able to take advantage of, you know, what will be a rapidly expanding scope of practice. Like we've seen, you know, BC, you know, is gonna have minor ailments capability or prescribing authority, you know, in the spring of next year. You know, Ontario will have minor ailment prescribing authority in January. You know, BC is already getting the ability to be able to renew prescriptions when a patient doesn't have a family physician. Really by taking a lot of the high technical touch points out of those pharmacies, we you know, wanna be able to free up capacity that they can over-deliver, in fact, even do a better job of providing community care through clinical services. We view our central fill as being, you know, around driving out costs, but more around freeing up capability to really ramp up and to really do a better job of increasing clinical services quicker, you know, when those services become available. Does that make sense? That's great. Yeah, absolutely. Just one final question, if I may. Can you just provide us some more information about the acquisitions that you announced yesterday? You know, clearly expands the positioning in Atlantic Canada, yay. But what was it about these particular pharmacies that was so attractive to you? You know, what is the current tone around acquisition costs or prices, rather? Sure. Great question. I'll start on the Atlantic deal first. This was, you know, a multi-store operator and partners, you know, that's been well established in Atlantic Canada for a number of years. It is no surprise that, you know, we've been disappointed with the growth that we've had in Atlantic Canada, you know, up until now, with only five locations, you know, across the Atlantic provinces. We were really looking for a great partner to be able to compound our growth in Atlantic Canada. We feel like we found that partner. We've got, you know, a great network, a great team. I spent the better part of last week, you know, meeting with most of the employees, our partners and our pharmacists and team members. We're very excited to be able to welcome them into our network. It allows us to expand our geographic footprint, you know, from what was a light touch point in Newfoundland and New Brunswick to now including Nova Scotia, New Brunswick and Newfoundland. Plus building up operating capability within those provinces as we're acquiring, you know, a very well-established operating team that has capacity to continue to grow and a very solid, you know, pharmacy leader that will help us continue to grow our network through corporate development and advocacy and really helping support our business in Atlantic Canada. We feel like that's a great break the ice opportunity for us in Atlantic Canada, and we're thrilled, you know, to really have this opportunity to more than double our network size in Atlantic Canada. We think that will be the impetus for us to open up, you know, that as a higher growth market going forward. In the case of BC, you know, those were two really good locations, in fact, you know, locations that fall very firmly in a geography that we already cover. We've got great operating capability and overlap kind of in those markets and a great ability to be able to support those pharmacies. You know, we do these two specific pharmacies specifically for many years and they're great community pharmacies, one of two pharmacies within those markets. They kind of fit our geography, fit our approach on patient care, customer service, and really excited to be able to welcome those into our pharmacies. You know, BC has always been a strong market for us for the last couple of years. You know, we've been able to really compound that growth with really attracting great quality owners into our network. So that's exciting. In the case of Atlantic, you know, we were really thrilled that that was a deal that we were sought out, right? We think, you know, we stood very well to be, you know, again, the acquirer of choice because of our unique position as being really one, the only national acquirer of pharmacies. With some of the consolidation that we help precipitate, you know, we're still seeing, you know, fairly good favorability on purchase price multiples and especially when it gets into, you know, larger transaction sizes. You know, we're not seeing creep, you know, in purchase price multiples. We're buying very consistently, I think, with, you know, where we have in the past. In fact, in some cases, we're seeing some downward pressure and we think that's gonna continue. That's great. Thank you. Does that help, Irene? Thank you so much. Thanks, Irene. Our next question comes from Peter Sklar with BMO Capital Markets. Your line is open. Thanks. Good morning, Chris and Terri. Can you talk a little bit about this trend or impact you're seeing where the dispensing frequency moved from daily to weekly? You said at several locations. Is that a regulatory change? I was surprised several, like, is enough to move the needle, so I assume that's at central fill facilities where you're experiencing that. Can you, like, in terms of the same-store sales numbers, reconcile? If I have the numbers correct, I believe your same-store script growth rate as a result of that trend was -1.9%. But your pharmacy same-store sales growth rate was 4.2%. If you could bridge the two numbers. Obviously, lower frequency means higher value. I'm just wondering if there's more to that in terms of reconciling the two numbers. Yeah, for sure. It's a great question, Peter. It's not a regulatory change. This has to do primarily with kind of physician choice on treatment, specifically around addiction management therapy. You know, both are kind of delivered in exactly the same way with the same frequency. However, one has a more favorable reimbursement model than another. This has nothing to do with kind of our central fill operations. This is, you know, really three, four pharmacies that focus in communities where there's a high need for addiction management treatment. You know, effectively, we're doing the exact same amount of work. We're doing the exact same amount of cost of goods, exact same amount of revenue. However, you know, the pie, instead of being split seven times, is being split once. which is why you're seeing a bit of a, you know, divergence between script count and revenue growth. You know, the script count went down, revenue stayed the same, so therefore average prescription value went up considerably. That is really just kind of an acute prescriber thing. However, you know, it is in some of our biggest volume pharmacies, which is why it's had a little bit of a larger impact. That being said, our same-store sales represents only about 50% of our business, right? It's not, you know, just given the fact that we've, you know, more than doubled our business, you know, from last year. You know, the comparable base is less than half of our overall revenue and script count. This is really just due to a couple of isolated locations, which is really just a prescriber choice on what therapy they're choosing to shift people to, you know, through the pandemic and coming out of the pandemic. Does that make sense, Peter? Yes. Yes, that's helpful. Thanks. Then just lastly, just on your M&A model going forward. You know, once you've lapped all the noise of Rubicon and everything's settled down, I just wanna make sure I understand: what is your target acquisition rate in terms of number of pharmacies per year, in terms of, you know, what your capital structure can absorb and, you know, what you can absorb in terms of management time to integrate those facilities? Sure. Maybe I can start, and Terri, you know, feel free to add something, you know, on the capital structure. You know, this year clearly was an unprecedented, you know, year for us with, you know, very large acquisition through Rubicon and then supplementing that within our targeted 10-15 locations. We're on track to, you know, kind of meet and deliver on those expectations with the 115 pharmacies being integrated in the fiscal year. We certainly demonstrated, you know, an operating capability and an integration capability and a capacity to, you know, integrate very large quantities of stores, you know, in a fiscal year. We do wanna return to that historical cadence of 35-40. You know, obviously we will be opportunistic and, you know, when deals come up, you know, they'll be, you know, we didn't necessarily anticipate that we would be buying Rubicon, you know, this year and just thus, the choppiness and kind of acquisition timing and, you know, having a very big year following, you know, a pretty stable, you know, consistent trend of 35-40. You know, we think we're gonna return back to that cadence. Again, you know, with the largest, the single largest independent operator, you know, joining our network this year, you know, more of the targets that we have going forward kind of fall into, you know, what our historical pace has been, so that 35-40. We've got a fairly high degree of confidence, you know, in being able to maintain that. On the capital side, you know, I'm gonna let Terri, you know, add, but I mean, she, we can continue to buy and acquire, you know, with our free cash that's being generated, you know, from the business as well as available debt. You know, we don't anticipate, you know, having to issue new shares or dilute or anything like that. We can continue to acquire. You know, the pace obviously makes a difference and obviously purchase prices make a difference on that. You know, we think that we're in a pretty good position to continue to self-fund going forward. Terri Smyth, I don't know if you wanna dive any more color on that. Yeah. I don't have much more color to add, and Chris is exactly right. We can fund our acquisition strategy at that 35-40, and if in a year it happens to go above 40, we can still fund that with our free cash flow and our debt available to us. With that, we can delever over time as well. Okay. Thanks. Oh, Chris, sorry, one last question. Can you update us on what you're hearing in terms of, you know, that regulatory change with respect to, you know, brand name drugs at the federal level? When do you expect that to be implemented? Yeah. There's still some kinda back and forth on regulatory. The initial, you know, what had been proposed by the Patented Medicine Prices Review Board was challenged in an Ontario court. As a result, what was proposed to be implemented was significantly less than, you know, what had originally been proposed. We're not too worried about, you know, those changes. That has a very limited kind of impact on, you know, our economics. Might have a little bit of top-line deflation, just with the new reference prices that are gonna be used for future brands, with the change of, you know, the U.S. and Switzerland being kicked out of the reference group and the different pricing structure. It's not necessarily gonna have kind of any material impact. You know, it doesn't impact dispensing fees. You know, markups are generally capped above a certain level. It really doesn't have kind of any kind of material kind of impact on us. I mean, we're more focused on, you know, the regulatory wins that are coming up, you know, with Ontario minor ailments. You know, that was going to impact about 50, you know, 50+ pharmacies, you know, for us of our 300, which was, you know, not gonna be meaningful just given smaller percent of the total network. With BC coming online in the spring, where we have, you know, about 70 pharmacies. Combined now we'll have another 120 pharmacies out of a 300 pharmacy network that have additional scope. We're pretty encouraged by that and excited about that. The only other kind of major regulatory touchpoint, and there are, you know, regional and provincial ones that are obviously ongoing, but pCPA is, you know, expected to be renegotiated in April 2023. We really don't have any kind of line of sight, you know, on what that will look like on the existing, you know, generic pricing framework. We're We're anticipating small tweaks likely, you know, maybe some volume, you know, shifting into that framework, but probably no material wholesale changes. Again, we're not necessarily party to those agreements and, we'll probably have to wait until April to kind of see what that looks like. From the brand pricing, not anticipating kind of anything major, you know, on our end. Okay. That's all good. Thank you. Thanks, Peter. Our next question comes from Derek Lessard with TD Securities. Your line is open. Yeah. Good morning, everybody. I just wanted to maybe just touch on the acquisitions again and maybe, you know, if you had any update on sort of how you see leverage evolving as you make acquisitions, but being in a higher interest rate environment. Sure. I mean, I can start, and Terri can feel free to add anything. You know, we're fortunately, you know, as I mentioned, I think on a prior question, you know, we are seeing some favorability on purchase price multiples, especially on single pharmacies. You know, the consolidation that we've helped with in the market has certainly made it a little less competitive, you know, on acquiring independent pharmacies. You know, given the fact that the pipeline has been fairly robust, you know, we've seen, you know, some good discussions and favorability on purchase prices, which we think somewhat helps offset, you know, what is coming or what has happened certainly on, you know, with interest rates and our rates having stepped up over time. That being said, you know, great quality pharmacies, we still believe and we still model out that we can maintain the historic, you know, pace of 35 to 40 a year, you know, with the available free cash and delever at the same time. We still believe it's a better use of capital to continue to grow our network. We still have a robust pipeline with 3,500 pharmacies and, you know, and arguably, you know, more pharmacies reaching out to us now than, you know, than they ever have. That may be compounded a little bit by COVID fatigue or, you know, just maybe the economics of them having to renegotiate their debt, you know, kind of post agreements coming up and interest rates rising. We still feel like we're in a really well-capitalized position to be able to continue to grow. With that little bit of favorability on purchase prices, we think, you know, it still makes a lot of sense to continue to grow at a historical pace. Yeah. The only thing I would add to that, Derek, really, is just as far as the timing of delevering, as you know, our target does still remain at 2.5x leverage. Based on the 35-40, of course, the exact timing depends on the size, number, and timing of the acquisitions, but based on our current model and our target of the 35-40 a year, we estimate we would get back down to our target in the next four-five years. Bear in mind too, we do have some tailwinds coming, you know, over the course of the next year or so with respect to returning script levels, returning back to closer to pre-pandemic levels, labor shortages being mitigated, more availability. That's our view right now. Okay. That's super helpful. Thanks for that. Maybe just remind us on the details around the real estate sale and the use of proceeds. With the Rubicon acquisition, we acquired 19 properties, and we are actively marketing those properties right now to sell them. The use of proceeds will really go towards funding our acquisitions into the coming year. Okay. That's it for me. Thanks. Thanks, Derek. Our next question comes from Zachary Evershed with National Bank. Your line is open. Good morning, everyone. Thanks for taking my questions. Now, you mentioned that the pace of acquisitions makes a difference and more pharmacies are reaching out now for discussions. At the risk of beating a dead horse here, I'll still ask the question a slightly different way. With the balance sheet where it is and the cost of debt on the rise, if you did have a large enough chunk of opportunities come down the acquisition pipeline at the same time, is your preference to take the balance sheet higher, issue equity at these levels, or pass on some of the transactions and stick to your guns at 35-40 per year? Yeah, I think, sorry, go ahead, Terri. I was just gonna say our preference would be to take advantage of those opportunities. As Chris mentioned, you know, given the current macroeconomic environment, the pipeline is getting more robust with, you know, the increase in retirements. In addition to that, the number of individuals, particularly the independent pharmacists looking to buy, you know, their second or third, has reduced, which helps with our pricing and multiples, as Chris spoke to earlier. Yeah. The only thing I would add to that, Zachary, is that, you know, we're not anticipating, you know, another year like this year, you know, where there is gonna be, you know, 120 pharmacies or 115 pharmacies joining our network. And only because, you know, the quantity of kind of larger multi-store operators, you know, are generally concentrated in the 30-10 bucket, you know. And nobody, you know, that was quite as chunky as Rubicon with 100. So, you know, I think we are, you know, still feel very confident in that pace of 35-40, and that, you know, we are being certainly selective on the opportunities that come to the pipeline. You know, we weigh them with geography, with operating capability, but more importantly with, you know, the availability of pharmacy labor and whether or not, you know, we've got a reasonable confidence that we're gonna be able to, you know, maintain the same level of quality of care and attract pharmacists to that market. Is there pharmacy teams gonna be, you know, staying through that acquisition. I would say we're in the enviable situation of being a little bit more selective, you know, on some of those deals. It's highly unlikely that we would surpass kind of that historical pace only because there isn't a significant amount of chunky acquisitions, you know, of Rubicon size, for example, that or there's certainly nobody at that size. We don't anticipate that, you know, we would be overshooting that number by anything material. That's clear. Thanks. The rest of my questions have been answered. I'll turn it over. Thanks, Zachary. Ladies and gentlemen, as a reminder, should you have a question, please press star followed by the one. Our next question comes from Chris Li with Desjardins. Your line is open. Hi. Good morning, everyone. Hi, Chris. I was just wondering, you know, when you think about the list of organic growth drivers that you have, where does expanded scope of practice rank? Would it be sort of the top two? How would you sort of quantify the longer term upside as provinces are given more responsibilities? Sure. Thanks, Chris, and good morning. I would say clinical services is probably number one or number two, you know, and maybe arguably number one when it comes to organic growth for us as a business. I mean, COVID vaccinations aside, the scope of practice has only increased, you know, in every province and will continue to only increase in every province. You know, we're seeing a significant response by provincial governments to really reflect what is the reality of a real lack of access to primary care. We're seeing that's really speeding up the pace of expanded scope of practice. You know, BC, we weren't anticipating getting minor ailments anytime soon, and the government really reacted in a way to help support the fact that there is, you know, a chronic shortfall of physicians. You know, so pharmacists, you know, have already been given the ability or are getting the ability to be able to renew prescriptions if a patient doesn't have a family physician. In the spring, you know, we'll have, you know, minor ailment prescribing, and we think that that will expand, right? You know, when you think about the opportunity, you know, our Alberta pharmacies do exponentially more, you know, when it comes to clinical services, you know, because of their broader scope of practice than any other province in Canada. I mean, I think they do about four times, you know, the average clinical services revenue compared to the rest of our network because of their scope of practice. You know, it is a meaningful driver, and it is a meaningful solution, though it's not probably the only solution, but it's a big solution to help address, you know, the chronic understaffing in primary care and emergency room settings and primary care settings. You know, if you go into an emergency room or an urgent care room, you know, at any given day, there's probably 50% of those patients that, you know, don't have a family physician or their family physician's retired or they don't have access to primary care and are just looking for a prescription renewal, right? That's work that could easily be done in community pharmacy. Much of kind of minor prescribing can be done in community pharmacy that really helps, you know, offload, you know, that burden. We do feel it's really gonna be a meaningful driver, you know, of revenue, you know, for us in the long term. I'm not just talking, you know, this will be a meaningful driver for decades to come. That's why we felt it was really important to be proactive in really helping free up capacity for pharmacists by expanding out our central fill capability. In some cases, we acquired that, you know, through acquisition. In some cases, we're building it and building it based on the learnings, you know, of the networks that we acquired that have central fill capabilities. You know what? I would say it's certainly, you know, in the top two, and I would say arguably probably gonna be, you know, one of the top drivers for improvement in kind of the near term as scope of practice increases, you know, rapidly across multiple provinces. Okay. Does that help, Chris? That's very helpful. Yeah, no. Maybe a related one is, you know, as you know, one of your peers recently launched a pharmacist-run clinic in Alberta to, like you said, take advantage of the province's progressive scope of practice. Is that something that Neighbourly can do as well longer term? That is absolutely something Neighbourly can do longer term. The work that is being done, you know, with that pharmacy-led clinic is really work that's being done, you know, in community pharmacies in Alberta across the province, and really just marketing it in a very different way, you know, with kind of a standalone four walls. I think, you know, with that specific case, I think they were backfilling an existing physician clinic that had left that building. And so it was an easy kind of pilot to do with the government to have a pharmacy-led clinic. We're watching that very closely. You know, we think that the learnings coming out of that and more importantly, you know, what pharmacists in Alberta have really been able to demonstrate when it comes to making a meaningful difference in healthcare access, especially in smaller communities, remote communities, and for those that are really struggling with primary care access, I think it's, you know, it's a tremendous opportunity really for the profession and for the business. We certainly hope that, you know, governments continue to support those type of initiatives. You know, long answer to say, you know, we're doing a lot of that work today in our Alberta pharmacies. We can certainly look at, and we have, you know, vacant or adjacent, you know, medical clinic capacity, you know, in many of our locations, especially the co-located locations. That is something that we can absolutely expand and build upon. Okay. That's very helpful. Maybe just a question for Terri. Hi, Terri. If you exclude Rubicon in the quarter, the Adjusted EBITDA margin was around, I think, 10.3%, which is a good sequential improvement from the 9.8% in the last quarter. I'm just wondering, is the 10.3 kind of a reasonable rate to expect in the foreseeable future until there's some meaningful labor relief, I guess, starting sometime next year? Yes. Yep. I would say so. I mean, there's nothing that we're foreseeing that will change that. Perfect. Thanks everyone, and Terri, all the best, in the future. Thank you, Chris. Our next question comes from Chelsea Stellick with Industrial Alliance. Your line is open. Hello. Good morning, Chris, Terri, and welcome, Billy. I just have one question because most of my questions have been asked. Have you noticed any changes in the pharmacist prescribing activity since October 14th? Yeah, 'cause that was when it went over, I guess, a week ago. It was a week ago. I'm sorry. Welcome back, Chelsea. Sorry, you kind of broke up there on your question. I apologize. Oh, that's okay. Can you hear me now? Yes, I can. Yeah. Perfect. Have you noticed any changes in pharmacist prescribing activity since October 14th? I mean, it's very early, so not significant. We have what I will tell you, though, we have seen, you know, actually a fairly meaningful improvement or step-up in Ontario with the reimbursement changes, you know, for primary care physicians with the reduction of reimbursement for virtual care. We haven't seen, you know, much net new on prescribing, you know, for pharmacists, but I would say the last, to be honest with you, the last three weeks, you know, our pharmacy teams right across Canada have been focused pretty much solely on influenza vaccinations, which, you know, just started rolling out to high-risk groups a couple weeks ago and now to the general population last week, this week and next week. That's kind of primarily, you know, where the majority of our pharmacists have been focused on clinical services, and then on top of that, doing the bivalent COVID-19 vaccination. We do anticipate, you know, not necessarily prescribing per se for pharmacists, but for clinical services in the third quarter, you know, will likely cease to be a drag 'cause it was a drag certainly in Q1, Q2, you know, as we overlapped, you know, high level of vaccine volume. In Q3, you know, with the timing shift of the bivalent booster, you know, happening in the third quarter, along with influenza vaccines, you know, Q3 will likely be a more robust, you know, clinical services quarter. anticipate, you know, being able to take advantage of the more prescribing, you know, kind of post-flu season heading into the winter. Perfect. Does that help, Chelsea? Yeah. Totally. In terms of what sort of activity increase do you expect in the spring of 2023 when they can start issuing contraception? Like, will it be outside this initial activity that we're gonna see right now being able to renew prescriptions for chronic conditions? It's a great question if it's for BC specific and a little bit for Ontario for January as well. There's still a few questions to be answered, you know, which is why I can't be as firm, you know, on the question. We don't know at this point if it's gonna be publicly or privately reimbursed, so we don't know if, you know, governments are gonna be reimbursing, you know, for the minor ailments. We suspect so in Alberta or, sorry, in Ontario. Not sure yet, you know, for BC, but those details are still to come. You know, whether or not we're charging privately or publicly reimbursed. What I can tell you is, you know, we anticipate the demand is gonna be, you know, fairly high, right? I mean, the lack of access to primary care for UTI, birth control, you know, other minor ailments, pink eye, you know, urinary tract infections and all those type of things, you know, are very high, right? Especially when you get into smaller communities, you know, in BC, which is where the majority of our pharmacies are. We think, you know, our pharmacists will really play a key role on helping diagnose and treat the majority of those type of minor ailments. We think, you know, it will be a meaningful driver, especially just with the sheer quantity of pharmacies that we have in BC. With approximately 70 and additional 50 in Ontario that will go live in January. We do think it should be a meaningful improvement. When other provinces have had publicly reimbursed minor ailments, we've certainly seen that be a very strong percentage of the clinical services activity that those pharmacies would have. We're certainly optimistic that both BC and Ontario will take a publicly funded route, not just provide the access in community pharmacy, but also provide reimbursement for the pharmacist to do so and nothing out-of-pocket for the patient. We think that's really will help remove any of the barriers for access to care. We think it should be, you know, we're optimistic that it'll be meaningful in BC, Chelsea. Awesome. I guess if demand is ramping up in spring of 2023 and students are graduating in the summer, what are you doing to prepare for this increased demand on the role for pharmacists in BC? Absolutely. Well, fortunately, you know, we do believe, especially in the spring and heading into the back end of the year, you know, pharmacists do have capacity. These tend to be very easy diagnosis, very quick diagnosis and, you know, we have, you know, pharmacy waiting room or sorry, counseling rooms and the ability to deal with this, a lot of this capacity with our existing workflow. Now that being said, you know, we have actively increased our campus recruitment activities and have actually built up, you know, a very robust talent team, adding talent resources in almost every province across Canada and are very active kind of on both new grads as well as IPGs, international pharmacy grads, you know, kind of coming to the market. You know, we've got lots of activity that's helping support that. We're starting to see that obviously result in less vacancy rates across the network with, you know, a 25% reduction versus last quarter. We think, you know, I don't think we're gonna have a 25% reduction next quarter, but we'll certainly have an improvement next quarter just based on the success that we've been having. That's also gonna result in, you know, having hopefully an increased pipeline through the success that we've been having, you know, for the spring of next year. Perfect. That's all my questions. Thank you so much. Perfect. Thank you, Chelsea. We have run out of time for the question and answer session. Please proceed. Perfect. Thank you. Well, thank you everyone. This concludes Neighbourly's conference call for the second quarter of 2023. For those of you who have joined us midway this morning, I'd 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, that concludes the conference call for today. We thank you for participating and ask that you please disconnect your line.