BrightSpring Health Services, Inc. Tangible Equity Unit Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Financial Results: Third quarter total revenue was $2.9 billion, a 29% year-over-year growth, and adjusted EBITDA was $151 million, a 16% year-over-year growth. The company raised the midpoint of its 2024 total revenue guidance to $580 million to $585 million and adjusted EBITDA guidance to the same range.
• Pharmacy Segment: Drove exceptional volume growth, with Specialty and Infusion outpacing forecasts. The LDD portfolio expanded to 123 therapies, with 18 new LDDs expected in the next 16-20 months. SPRYCEL launched generic late in Q3.
• Provider Segment: Saw good growth in census and hours, successfully integrated an acquisition. Home healthcare saw revenue and census growth, and the hospice acquisition closed with positive early results. Rehab and motion program shows potential for growth.
• Operational Focus: Continued M&A and de novo expansion in large growing markets. Focused on operational efficiencies and cost reduction initiatives, aiming for margin expansion in Q4.

Segment Performance

• Pharmacy Solutions: Third quarter revenue was $2.3 billion, representing 35% year-over-year growth. Infusion and Specialty revenue grew 42% YOY, while home and community pharmacy revenue grew 19% YOY. Total scripts dispensed in Q3 were 10.9 million, a 15% YOY growth, with 36% growth in Specialty scripts. Gross profit was $189 million, up 16% YOY, and adjusted EBITDA was $99 million, up 15% YOY, with a margin of 4.4%.
• Provider Services: Segment revenue grew 10% YOY, and adjusted EBITDA margin expanded by 50 basis points. Community and rehab care revenue grew 8%, with rehab billable hours up mid-teens. Home healthcare revenue grew 13%, and average daily census rose 16%. Gross profit was $219 million, up 13% YOY, and adjusted EBITDA was $93 million, up 14% YOY, with a margin of 14.5%.

Guidance

• Raised 2024 total revenue guidance to $11.0 billion to $11.3 billion, with Pharmacy Solutions revenue expected to be $8.5 billion to $8.75 billion and Provider Services revenue $2.5 billion to $2.55 billion.
• Adjusted EBITDA guidance for 2024 is raised to $580 million to $585 million, representing 14.2% to 15.2% growth YOY excluding 2023 QIP. Expect margin expansion in Q4.

Risks

• Regulatory: Impact of IRA on specific drugs, but company views risks as low due to relationships with manufacturers and CMS clarifications on LTC true-up mechanism.
• Market: Biosimilar activity in infusion (e.g., STELARA) has limited material impact due to business mix and operational initiatives.
• Litigation: Legacy legal matters, but cash flow from operations adjusted for such items.

Question and Answer

Q: Congrats on solid quarter. Margin expectations?

A: Q4 typically highest margin quarter. Factors include generic drug launch, hospice rate change, and volume growth.

Q: Exposure to biosimilars?

A: Not material in Specialty oncology; limited impact in infusion due to business mix and operational initiatives.

Q: Haven Hospice acquisition update?

A: Close was good, expected to contribute $1-2 million EBITDA in 2024, potential $15 million over several years.

Q: IRA impact?

A: Company views risks as low with good relationships with manufacturers; CMS clarification on LTC true-up mechanism reduced risk.

Q: MA volumes impact?

A: Relevant in home health, with constructive relationships and sustainable rates with payers.

Q: Key headwinds/tailwinds 2025?

A: Tailwinds include specialty momentum, LDD/generic launches, infusion investment payoff; headwinds to be monitored but company sees continued growth.

Q: Capital deployment priorities?

A: Focus on accretive acquisitions in Pharmacy (LTC/Infusion) and Provider (rehab/home health/hospice), de novo expansions, and scaling with flat divisional/corporate costs.

Q: IRA drug exposure?

A: IMBRUVICA in specialty oncology, STELARA in infusion, limited impact with good manufacturer relationships.

Q: Primary care efforts?

A: Focus on patient growth, ACO contracts, internal managed care plans; patient count and profitability as key metrics.

Q: Provider margin improvement?

A: Due to volume growth, mix shift to higher margin services, efficiency projects, and rate support.

Q: Nonrecurring items in margin?

A: Start-up costs and payer settlement included in guidance, with nonrecurring impact on gross profit but adjusted EBITDA in line.