Q4 2023 Brightspring Health Services Inc Earnings Call

February 29, 2024

On this call.

Operator: Full Year 2023 Earnings Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. We will be turning the call over to BrightSpring Health Services Chief Accounting Officer, Jennifer Phipps. Please go ahead.

Speaker Change: At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone.

Speaker Change: You will then hear an automated message advising your hand as rates.

Speaker Change: To withdraw your question.

Speaker Change: Please press Star one again, please be advised that today's conference is being recorded we will be turning the call over to bright Springs health services.

Speaker Change: <unk> accounting officer, Jennifer <unk>. Please go ahead.

Jen Steps: Good morning, and welcome to the Bright Spring Health services earnings call for the quarter and year ended December 31, 2023. My name is Jen steps and I'm, the Chief Accounting officer at Bright spring I am joined on today's call by John Russo Chief Executive Officer, and Jim Mattingly Chief.

Jennifer Phipps: Good morning, and welcome to the BrightSpring Health Services Earnings Call for the quarter and year ended December 31, 2023. My name is Jen Phipps, and I am the Chief Accounting Officer at BrightSpring. I am joined on today's call by Jon Rousseau, Chief Executive Officer, and Jim Mattingly, Chief Financial Officer. After discussing BrightSpring's Q4 and full year 2023 results, as well as our 2024 outlook and long-term financial targets, we will open the call for questions. In the investor relations section of our website, you will find our earnings press release and slide presentation to accompany today's discussion. Please note that today's discussion will include certain forward-looking statements that reflect our current assumptions and expectations, including those related to our future financial performance and industry and market conditions. Such forward-looking statements are not guarantees of future performance.

Jen Steps: Financial Officer.

Jen Steps: After discussing bright springs fourth quarter, and full year 2023 results as well as our 2020 for outlook and long term financial targets. We will open the call for questions in the Investor Relations section of our website you will find our earnings press release and slide presentation to accompany today's discussion.

Jen Steps: Please note that today's discussion will include certain forward looking statements that reflect our current assumptions and expectations, including those related to our future financial performance and industry and market conditions such forward looking statements are not guarantees of future performance. These forward looking statements are subject to risks and uncertainties that could cause.

Jennifer Phipps: These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations. We encourage you to review the information in today's press release and presentation, as well as in our annual report on Form 10-K that will be filed with the SEC regarding specific risks and uncertainties. Such factors may be updated from time to time in our periodic filings with the SEC, and we do not undertake any duty to update any forward-looking statements except as required by law. During the call, we will use non-GAAP financial measures when talking about the company's performance and financial condition.

Cause actual results to differ materially from our expectations.

Jen Steps: We encourage you to review the information in today's press release and presentation as well as in our annual report on Form 10-K that will be filed with the SEC regarding specific risks and uncertainties such factors may be updated from time to time in our periodic filings with the SEC and we do not undertake any duty to update any forward looking.

Jen Steps: Statements, except as required by law.

Jen Steps: During the call we will use non-GAAP financial measures when talking about the company's performance and financial condition. You can find additional information on these non-GAAP measures and reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures to the extent available without unreasonable effort in today's earnings press release and presentation.

Jennifer Phipps: You can find additional information on these non-GAAP measures and reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures to the extent available without unreasonable effort in today's earnings press release and presentation, which again are available on our investor relations website. Additionally, to more appropriately describe business performance, the results and growth rates mentioned during these prepared remarks and in the investor slides posted to our website exclude the results of our other segment, which is the Equus Workforce Solutions business that was divested in Q4 2022. This webcast is being recorded and will be available for replay on our investor relations website. With that, I will turn the call over to Jon Rousseau, Chief Executive Officer.

Jen Steps: <unk>, which again are available on our Investor Relations website.

Jen Steps: Additionally to more appropriately described business performance the results and growth rates mentioned during these prepared remarks and in the investor slides posted to our website exclude the results of our other segment, which is the Equis workforce services business that was divested in Q4 2022.

Speaker Change: This webcast is being recorded and will be available for replay on our investor Relations website and with that I will turn the call over to John Russo Chief Executive Officer.

John Russo: Thanks, Chad and good morning, everyone. Thank you for joining us today and I'd like to begin by thanking all of our dedicated and professional employees across the country, who drive our mission of making a difference in People's lives and communities every day.

Jon Rousseau: Thanks, Jen, and good morning, everyone. Thank you for joining us today. I'd like to begin by thanking all of our dedicated and professional employees across the country who drive our mission of making a difference in people's lives and communities every day. I would also like to welcome and thank our new public company investors. We look forward to continuing our partnership with you. As a reminder, BrightSpring delivers pharmacy and provider health solutions to complex patients in home and community settings. We believe that our complementary and coordinated portfolio of services delivers enhanced clinical outcomes in patient preferred settings and at a reduced total cost of care. We do this at scale, serving approximately 400,000 people a day across our company.

I would also like to welcome and thank our new public company investors, we look forward to continuing our partnership with you.

As a reminder, bright spring deliveries pharmacy and provider health solutions to complex patients and home and community settings.

We believe that our complimentary and coordinated portfolio of services delivers enhanced clinical outcomes and.

John Russo: In patient preferred settings.

And at a reduced total cost of care and.

John Russo: And we do this at scale.

John Russo: Approximately 400000 people a day.

John Russo: Across our company.

Chronic higher cost and higher need patients referred to as complex.

Jon Rousseau: Chronic higher cost and higher need patients, referred to as complex, constitute 5% of the population, but 50% of the spending in US healthcare. These individuals require multiple services over time, better coordinated care, and more person-centered care. Our solution for these patients is to not only provide services in lower cost preferred home and community settings, but also to do so with a differentiated care model that consists of 3 key pillars, including our pharmacy services, provider services, and home-based primary care. In our pharmacy segment, we provide leading infusion, specialty pharmacy, and home and community pharmacy. These are our 3 pharmacy markets. We believe infusion to be a very attractive market given the localized and demanding nature of infusion services required to be successful in this market, continued growth potential from new therapeutics in the future, and market share opportunity.

John Russo: Constitute 5% of the population, but 50% of the spending in U S health care.

John Russo: These individuals require multiple services over time.

John Russo: Coordinated care and more person centered care.

John Russo: Our solution for these patients is to not only provide services and lower cost preferred home and community settings.

John Russo: But also to do so with a differentiated care model that consists of three key pillars, including our pharmacy services.

John Russo: Provider services and home based primary care.

John Russo: In our pharmacy segment, we provide leading infusion in specialty pharmacy and home <unk> community pharmacy.

John Russo: These are our three pharmacy markets.

We believe infusion to be a very attractive market given the localized and demanding nature of infusion services required to be successful in this market.

John Russo: <unk> growth potential from new therapeutics in the future and market share opportunity.

John Russo: Infusion is also better positioned with customers and has sales synergies when complemented with broader specialty pharmacy capabilities such as ours.

Jon Rousseau: Infusion is also better positioned with customers and has sales synergies when complemented with broader specialty pharmacy capabilities, such as ours. Our oral and injectable specialty pharmacy is one of the two largest independent oncology pharmacies in the US. Oncology is defined by limited distribution drug pharmacy networks that are based on quality, such as our 93 net promoter score, biopharma trust and relationships, and partnership with thousands of prescribers across the country. Oncology is the largest category within the specialty pharmacy industry and growing at approximately 15% annually.

John Russo: Our oral and injectable specialty pharmacy is one of the two largest independent oncology pharmacies in the U S.

John Russo: Oncology is defined by limited distribution drug pharmacy networks that are based on quality such as our 93 net promoter score.

Biopharma Trust and relationships.

In partnership with thousands of prescribers across the country.

John Russo: Oncology is the largest category within the specialty pharmacy industry and growing at approximately 15% annually.

John Russo: And home and community pharmacy, which is referred to as closed door pharmacy.

Jon Rousseau: In home and community pharmacy, which is referred to as closed-door pharmacy, we serve more acute customer and patient pharmacy needs in the home and across a myriad of attractive community settings by going directly to people anywhere they reside 24/7. Our network of over 185 pharmacies allows us to be at any door across the US within a few hours with customized local pharmacy services and clinical programs. We believe the dynamics of these three specific pharmacy assets and markets are attractive, where service levels and quality, local and same-day delivery capability, scale, and volume growth are critical success factors. Our pharmacy segment has more than doubled over the past five years, and in 2023 generated $6.5 billion of revenue and $371 million of adjusted EBITDA. However, our pharmacy services also do not exist in isolation.

We serve more acute customer and patient pharmacy needs in the home and across a myriad of attractive community settings by going directly to people anywhere they reside $24 seven.

John Russo: Our network of over 185 pharmacies allows us to be at any door across the U S. Within a few hours with customized local pharmacy services and clinical programs.

We believe the dynamics of these three specific pharmacy assets and markets are attractive.

John Russo: Our service levels and quality local and same day delivery capability scale and volume growth are critical success factors.

John Russo: Our pharmacy segment has more than doubled over the past five years and in 2023 generated $6 5 billion of revenue and $371 million of adjusted EBITDA.

However, our pharmacy services also do not exist in isolation they.

They leverage enterprise best practices and infrastructure and benefit from our company scale and contracting and they are synergistic with our provider services and home based primary care.

Jon Rousseau: They leverage enterprise best practices and infrastructure and benefit from our company's scale and contracting, and they are synergistic with our provider services and home-based primary care. Every one of our provider patients has a significant medication regimen and medication management need, and we provide the majority of the pharmacy services for our provider patients today. Our ContinuedCare Rx program, which combines in-home medication management alongside home health care, has driven a 73% reduction in hospitalization. The power of this clinical synergy between pharmacy and provider services for patients in the home was documented in a peer-reviewed study published by JAMDA last November. In our provider segment, similar to pharmacy, we are serving large and growing markets consisting of critical services delivered to homes, senior living, and skilled nursing settings to improve healthcare outcomes and costs.

Every one of our provider patients has a significant medication regimen and medication management need and we provide the majority of the pharmacy services for our provider patients today.

John Russo: Our continued care Rx program, which combines in home medication management alongside home healthcare.

Is driven at 73% reduction in hospitalization.

John Russo: The power of this clinical synergy between pharmacy and provider services for patients in the home was documented in a peer reviewed study published by Janda last November.

And our provider segment similar to pharmacy, we're serving large and growing markets consisting of critical services delivered to homes senior living and skilled nursing settings to improve healthcare outcomes and costs.

With home based primary care, we are working to optimize care by going to the patient and better coordinating their services.

Jon Rousseau: With home-based primary care, we are working to optimize care by going to the patient and better coordinating their services. Quality home-based primary care alone reduces hospitalizations by about 50%. Given these outcomes and this growing capability, we have sought new payment models, both internal shared savings and payer capabilities, and external partnerships with payers to help more optimally manage their members. Our strategy is straightforward. One, drive organic growth in our core service lines, which enjoy strong secular tailwinds and where we have demonstrated above-market growth rates. Two, further coordinate our services and care management capabilities to drive integrated care and value-based care. Three, continue to execute accretive acquisitions to fill in geographies and drive market density and share.

Quality home based primary care alone reduces hospitalizations by about 50%.

John Russo: And given these outcomes and this growing capability, we have sought new payment models.

Both internal shared savings and payer capabilities and external partnerships with payers to help more optimally manage their members.

John Russo: Our strategy is straightforward.

John Russo: One drive organic growth in our core service lines, which enjoys strong secular tailwind and where we have demonstrated above market growth rates.

John Russo: To further coordinate our services and care management capabilities to drive integrated care and value based care.

John Russo: And three continue to execute accretive acquisitions to fill in geographies and drive market density and share.

John Russo: Most importantly, we will continue to invest in our people.

Jon Rousseau: Most importantly, we will continue to invest in our people, our systems and processes, and our quality as key underpinnings to our strategies and our focus on growth and efficiency. As most recent evidence of this and our continued investment in people, we announced a $100 million equity grant at the time of the IPO to all full-time company employees who have been with us for at least a year, which is over 20,000 of our teammates. We are extremely excited about the opportunities in front of us over the next year and the longer term. We have strategically positioned BrightSpring to be a major player in the areas of greatest need in healthcare and in some of the most exciting growth markets within healthcare services. I am confident that in each of these markets, BrightSpring will be among the long-term winners.

John Russo: Our systems and processes and our quality as key underpinnings to our strategies and our focus on growth and efficiency.

John Russo: As most recent evidence of this and our continued investment in people, we announced a 100 million of equity grant at the time of the IPO to all full time company employees who've been with us for at least a year, which is over 20000 of our teammates.

John Russo: We are extremely excited about the opportunities in front of us over the next year and the longer term we.

John Russo: We have strategically positioned bright spring to be a major player in the areas of greatest need in healthcare and in some of the most exciting growth markets within health care services.

John Russo: And I am confident that in each of these markets bright spring will be among the long term winners.

For the year 2023.

John Russo: We are proud of our results and growing revenue by 18% and adjusted EBITDA by 7% to $538 million.

Jon Rousseau: For the year 2023, we are proud of our results in growing revenue by 18% and adjusted EBITDA by 7% to $538 million, which largely reflected organic growth and was the highest point of the range previously communicated in the S-1. Q4 was another strong quarter as we grew revenue by 22% and adjusted EBITDA by 4%. Notably, adjusted for a one-time Q4 2022 payer rate catch-up, Q4 2023 increased an additional 12% as compared to the reported growth rate of 4%. Q4 2023 growth was consistent with strong Q3 2023 results, including 19% revenue growth and 13% adjusted EBITDA growth year over year. We have continued to demonstrate double-digit adjusted EBITDA growth in the recent quarters and at this time expect double-digit year-over-year growth continuing into Q1 2024.

John Russo: Which largely reflected organic growth and was the highest point of the range previously communicated in the S. One.

John Russo: Q4 was another strong quarter as we grew revenue by 22% and adjusted EBITDA by 4%, notably adjusted for one time Q4, 2022 payor rate catch up.

John Russo: Q4, 2023 increased an additional 12%.

John Russo: As compared to the reported growth rate of 4%.

John Russo: Q4, 2023 growth with consistent with strong Q3, 2023 results, including 19% revenue growth and 13% adjusted EBITDA growth year over year.

John Russo: We have continued to demonstrate double digit adjusted EBITDA growth in the recent quarters and at this time expect double digit year over year growth continuing into Q1 2024.

John Russo: For the full year 2024, we expect adjusted EBITDA to be in the range of $550 million to $564 million excluding acquisitions.

Jon Rousseau: For the full year 2024, we expect adjusted EBITDA to be in the range of $550 to 564 million, excluding acquisitions. This includes the impact of approximately $6 million of new public company costs, primarily D&O insurance, and excludes certain quality incentive payments received in prior years, and if received again, would result in potential upside. With the debt paydown from IPO proceeds, recent credit rating upgrades, and the successful recent completion of the company's debt refinancing at a 7-year term, our annual cash flow is increased by approximately $100 million from reduced interest expense, resulting in a strong normalized cash flow profile as we focus on driving to and below our 3x or less leverage target over time.

John Russo: This includes the impact of approximately $6 million of new public company costs, primarily D&O insurance and excludes certain quality incentive payments received in prior years and if received again would result in potential upside.

John Russo: With the debt Paydown from IPO proceeds.

John Russo: Recent credit rating upgrades and a successful recent completion of the company's debt refinancing at a seven year term.

John Russo: Our annual cash flow has increased by approximately 100 million from reduced interest expense.

John Russo: Resulting in a strong normalized cash flow profile as we focus on driving two and below our three times or less leverage target over time.

John Russo: In summary, bright spring is uniquely positioned to serve the large markets and growing needs in healthcare through leading and lower cost services.

Jon Rousseau: In summary, BrightSpring is uniquely positioned to serve the large markets and growing needs in healthcare through leading and lower-cost services with differentiated scale, capabilities, and historical performance. We provide critical services to people with more significant long-term needs where they are. With that, I'll turn the call over to Jim to further discuss our impressive 2023 results and momentum that is driving us into 2024.

With differentiated scale capabilities and historical performance.

John Russo: We provide critical services to people with more significant long term needs where they are.

With that I'll turn the call over to Jim to further discuss our impressive 2023 results and momentum that is driving us into 2024.

Jim Mattingly: Thank you John for the fourth quarter of 2023, we realized $2 4 billion in revenue, which represented 22, 1% growth.

Jim Mattingly: Thank you, Jon. For Q4 2023, we realized $2.4 billion in revenue, which represented 22.1% growth. Our adjusted EBITDA for the quarter was $143 million, representing 3.8% growth and an adjusted EBITDA margin of 6%. Of note, adjusted for a one-time Q4 2022 payer rate catch-up, Q4 2023 increased an additional 12.7% as compared to the reported growth rate of 3.8%. Cash flow from operations in Q4 2023 was $162 million. For the full year 2023, revenue grew 18.5% to $8.8 billion, and adjusted EBITDA grew 7% to $538 million.

Jim Mattingly: Our adjusted EBITDA for the quarter was $143 million, representing three 8% growth and an adjusted EBITDA margin of 6%.

Jim Mattingly: Of note.

Jim Mattingly: Adjusted for a one time Q4 2022 peer rate catch up.

Jim Mattingly: Q4, 2023 increase an additional 12, 7% as compared to the reported growth rate of three 8%.

Jim Mattingly: Cash flow from operations in Q4, 2023 was $162 million.

For the full year of 2023 revenue grew 18, 5% to $8 8 billion and adjusted EBITDA grew 7% to $538 million.

Jim Mattingly: Adjusted EBITDA margin for the full year of six 1% reflected mix shift and in particular, the strong and continued growth of our leading specialty pharmacy business and its margin characteristics of the specialty industry. We.

Jim Mattingly: Adjusted EBITDA margin for the full year of 6.1% reflected mix shift and, in particular, the strong and continued growth of our leading specialty pharmacy business and its margin characteristic of the specialty industry. We remain focused on margin stability and expansion over the next several years as we continue to operationalize enterprise efficiencies on an ongoing basis and each business grows its margin with continued scaling and targeted operational initiatives. During 2023, our cash flow from operations was $211 million. Turning to segment performance. For Q4 2023, year-over-year pharmacy revenue increased $406 million or 29.5% to $1.8 billion, and pharmacy segment EBITDA decreased $4 million or 3.9% to $93 million.

Jim Mattingly: We remained focus on margin stability and expansion over the next several years as we continue to operationalize enterprise efficiencies on an ongoing basis and each business' gross margin with continued scaling and targeted operational initiatives.

Jim Mattingly: During 2023, our cash flow from operations was $211 million.

Jim Mattingly: Turning to segment performance for the fourth quarter of 2023.

Jim Mattingly: Year over year pharmacy revenue increased $406 million or 29, 5% to $1 8 billion.

Jim Mattingly: In pharmacies segment, EBITDA decreased $4 million or three 9% to $93 million.

Jim Mattingly: As previously mentioned at the company level more relevant comparability for Q4 2023 year over year growth rate was impacted by Q4, 2022 payer rate adjustments and catch up by approximately 17%.

Jim Mattingly: As previously mentioned at the company level, more relevant comparability for Q4 2023 year-over-year growth rate was impacted by Q4 2022 payer rate adjustments and catch-up by approximately 17%. Provider revenue increased $25 million or 4.4% to $589 million. Provider segment EBITDA increased $9 million or 12% to $86 million as compared to Q4 of the prior year. For the full year 2023, pharmacy revenue increased $1.3 billion or 23.9% to $6.5 billion. Pharmacy segment EBITDA increased $27 million or 7.7% to $371 million compared to the prior year.

Jim Mattingly: Provider revenue increased 25 million or four 4% to $589 million and provider segment, EBITDA increased $9 million or 12% to $86 million as compared to the fourth quarter of the prior year.

Jim Mattingly: For the full year 2023, pharmacy revenue increased $1 3 billion or 23, 9% to $6 5 billion and pharmacy segment, EBITDA increased $27 million or seven 7%.

Jim Mattingly: To $371 million compared to the prior year.

Jim Mattingly: Provider revenue increased $122 million or five 6% to $2 3 billion and provider segment, EBITDA increased $18 million or six 2% to $307 million as compared to the prior year.

Jim Mattingly: Provider revenue increased $122 million or 5.6% to $2.3 billion, and provider segment EBITDA increased $18 million or 6.2% to $307 million as compared to the prior year. In terms of business metrics, scripts dispensed were 9.6 million for Q4, an increase of 8.3% year over year. Revenue per script was $186, an increase of 20%, driven by mix and outsized growth in infusion and specialty pharmacy. Home health care average daily census was 42,000, an increase of 8.4%. For the full year, scripts dispensed were 37 million, an increase of 9.5% year over year, with infusion and specialty pharmacy prescription growth of over 20%, and home and community prescription growth of over 8%.

In terms of business metrics scripts expense were $9 6 million for the fourth quarter, an increase of eight 3% year over year Rev.

Jim Mattingly: Revenue per script was $186, an increase of 20% driven by mix and outsized growth in infusion and specialty pharmacy.

Jim Mattingly: In home Health care average Daily census was 42000, an increase of eight 4%.

Jim Mattingly: For the full year scripts expense were $37 million, an increase of nine 5% year over year with infusion in specialty pharmacy prescription growth of over 20%.

Jim Mattingly: And home and community prescription growth of over 8%.

Jim Mattingly: Revenue per script was $174, an increase of 13% year over year, driven by mix and outsized growth in infusion and specialty pharmacies.

Jim Mattingly: Revenue per script was $174, an increase of 13% year over year, driven by mix and outsized growth in infusion and specialty pharmacy. Home health care average daily census was 40,000, an increase of 8%. Turning to 2024 guidance, we are currently projecting revenue between $9.35 and $9.50 billion, with pharmacy revenue between $6.95 and $7.05 billion, and provider revenue between $2.40 and $2.45 billion. Adjusted EBITDA is expected to be between $550 and $564 million, representing an adjusted EBITDA margin of approximately 6%. Following our IPO, we paid off all of the company's second lien debt and repaid a portion of the first lien debt.

Jim Mattingly: In home Health care average daily census was 40000, an increase of 8%.

Jim Mattingly: Turning to 2024 guidance. We're currently projecting revenue between 935 and $9 five zero billion with pharmacy revenue between $6 95, and 7.05 billion and provider revenue between $2 four zero and 245 billion.

Jim Mattingly: Adjusted EBITDA is expected to be between $550 and $564 million, representing an adjusted EBITDA margin of approximately 6%.

Following our IPO, we paid off all of the Companys second lien debt and repaid a portion of the first lien debt.

Jim Mattingly: We secured updated ratings from Moody's and S&P, improving from B to B to B, <unk>, B, plus ratings and refinanced the remaining $2 $5 $6 6 billion of debt and a new tranche that expires in 2031.

Jim Mattingly: We secured updated ratings from Moody's and S&P, improving from B2/B to B1/B+ ratings and refinanced the remaining $2.566 billion of debt in a new tranche that expires in 2031. The combined equity and debt transactions have reduced annual interest expense by over $100 million. Following our IPO and the debt refinancing, our leverage currently sits at 4.3x, with a long-term target of below 3x and a strong focus on cash flow generation and deleveraging.

The combined equity and debt transactions have reduced annual interest expense by over $100 million.

Jim Mattingly: Following our IPO and the debt refinancing our leverage currently sits at four three times with a long term target of below three times and a strong focus on cash flow generation and deleveraging.

Jim Mattingly: With an improved capital structure and significantly lower interest expense and our ongoing focus on cash flow generation and with Capex of 0.8% of revenue a reduction in days sales outstanding by three seven days to $33 seven days and days of inventory on hand, relatively flat and an excellent levels in two.

Jim Mattingly: With an improved capital structure, significantly lower interest expense, and our ongoing focus on cash flow generation, and with CapEx at 0.8% of revenue, a reduction in days sales outstanding by 3.7 days to 33.7 days, and days of inventory on hand relatively flat and at excellent levels in 2023, we remain confident in our ability to delever while we continue to execute on our growth strategy, including funding attractive and tuck-in acquisitions. I will now turn it back over to Jon for some final thoughts.

Speaker Change: <unk> thousand 23, we remain confident in our ability to delever, while we continued to execute on our growth strategy, including funding attractive and tuck in acquisitions I will now turn it back over to John for some final thoughts.

John Russo: And thank you for all of your time today to go through bright Springs platform, including our focus on building out the most relevant health care services and care management capabilities demanded and required both today and in the future in the United States.

Jon Rousseau: Thank you. Thank you for all of your time today to go through BrightSpring's platform, including our focus on building out the most relevant healthcare services and care management capabilities demanded and required both today and in the future in the United States. This ends our prepared remarks. Operator, please open the line for questions. Operator, I'm actually just gonna make one additional comment while you go ahead and give you a few seconds to queue up any of the questions. Just one more quick clarification. On the prior comment about 2024, to be crystal clear, and again, the expectation for adjusted EBITDA is to be in the range of $550 to $564 million excluding acquisitions.

Speaker Change: This ends our prepared remarks, operator, please open the line for questions.

Speaker Change: Okay.

Speaker Change: And operator, I am actually just going to make one additional comment while you go ahead and give you a few seconds to queue up any other questions.

Speaker Change: Just one more quick clarification on the on the prior comment about 2024.

Speaker Change: To be crystal clear and again the expectation for adjusted EBITDA is to be in the range of $5 $50 million to $564 million excluding acquisitions.

Speaker Change: For the purposes of comparability to 2023, we note that this includes the impact of about $6 million, a new public company cost, which is primarily D&O and includes partial credit for certain quality incentive payments received in prior years that is entirely consistent with what we had included.

Jon Rousseau: For the purposes of comparability to 2023, we note that this includes the impact of about $6 million of new public company costs, which is primarily D&O, and includes partial credit for certain quality incentive payments received in prior years. That is entirely consistent with what we had included in our 2024 forecast before. We note that if received in full, again, it could potentially result in additional potential upside. Just wanted to make that quick clarification so it was crystal clear. With that, operator, we're happy to take questions. Thank you.

Speaker Change: In our 2024 forecast before and we note that if received in full again it could potentially result in additional potential upside.

Speaker Change: I just wanted to make that quick clarification. So it was crystal clear with that operator, we're happy to take questions. Thank you.

Speaker Change: Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone.

Operator: Thank you. As a reminder, if you would like to ask a question, please press star one one on your telephone. We also ask that you wait for your name and company to be announced before proceeding with your question. One moment for the Q&A roster. Our first question today will be coming from Jamie Perse of Goldman Sachs. Your line is open.

Speaker Change: I also ask that you wait for your name the company to be announced before proceeding with your question.

One moment for the Q&A roster.

Speaker Change: Our first question today will be coming from Jamie Paris of Goldman Sachs. Your line is open.

Jamie Paris: Hi, Thank you good morning, and I'll, just say a quick congrats on the IPO.

Jamie Perse: Hey, thank you. Good morning, and I'll just say a quick congrats on the IPO. I wanted to start with the value of the platform that you've talked a lot about, the sales synergies that you see across the business. As you've talked to folks over the last few months, what do you think is most misunderstood about the complementary nature of the businesses and how you actually execute on generating some of those sales synergies? What data can you share about where you are in that process, you know, the number of patients getting multiple services or leads generated internally?

Jamie Paris: I wanted to start with the value of the platform that you've talked a lot about the.

Jamie Paris: The sales synergies that you're seeing across the business and at least talk to folks over the last.

Jamie Paris: A few months what do you think is most misunderstood about the complementary nature of the business is and how you actually execute on generating some of those sales synergies or data can you share about where you are in that process.

Jamie Paris: The number of patients getting multiple services or leads generated internally.

Speaker Change: Yeah, Hey, Jamie I appreciate the question good morning.

Jon Rousseau: Yeah. Hey, Jamie, appreciate the question. Good morning. Look, I think first off, what's critical to understand is that, you know, this 5% of the population that makes up 50% of the spend in healthcare and needs better solutions where they are and in the home, they all have the need for multiple services. Everybody needs their medications managed. Everybody needs a doctor. Most people need provider services in their home. They don't need just one service. Most providers only offer one service. We have the ability to offer a comprehensive set of care capabilities that drive not only better outcomes, it gives us access to many, many, many more volume and care opportunities in the organization.

Speaker Change: Look I think first off what's critical to understand is that the 5% of the population that makes up 50% of the spend in healthcare and need better solutions, where they are and in the home. They all have the need for multiple services everybody needs. Their medications managed everybody needs a doctor most people need provider services in their home they don't need to.

Speaker Change: One service most providers only offer one service. So we have the ability to offer a comprehensive set of care capabilities that drive not only better outcomes. It gives us access to many many many more volume and care opportunities in the organization and really dramatically increases our addressable market sizes and.

Jon Rousseau: It really dramatically increases our addressable market sizes and really has helped to fuel additional incremental growth for the organization, all while we drive quality outcomes and better coordinated care. That is a very unique capability set that we feel is imperative to drive value-based care type outcomes in the future. I would say as you look at our company today, we derive a substantial amount of EBITDA from these internal care integrations. It's primarily from the majority of our provider patients. Every single one of them has an important medication management need and regimen. For the majority of our provider patients we serve, we're also providing the medication management, the pharmacy services in a more coordinated way.

Speaker Change: It really has helped to fuel additional incremental growth for the organization all while we drive we drive quality outcomes and better coordinated care and that is a very unique capability set that we feel is imperative to drive value based care type outcomes in the future.

Speaker Change: I would say as you look at our company today, we derive a substantial amount of EBITDA from these internal care integrations, it's primarily from the majority of our provider patients every single one of them has an important medication management need and regimen and for the majority of our provider patients. We serve we are also providing the medication.

Management, the pharmacy services and a more coordinated way.

Speaker Change: Upwards of about 35000, additional referrals, a year and upwards of about double digit amount of our EBITDA in the 10% to 15% range and so it is a significant adder to what we do today. In addition to providing better outcomes for our people as we look forward there is a much bigger.

Jon Rousseau: I mean, that's upwards of about 35,000 additional referrals a year, and upwards of about double-digit amounts of our EBITDA in the 10% to 15% range. It is a significant adder to what we do today, in addition to providing better outcomes for our people. As we look forward, there is a much bigger opportunity. There are upwards of over 400,000 to 500,000 additional referrals a year that we could potentially be taking, if we were to serve all of the services and needs that our patients have today. That is our goal over the next 5 to 10 years to continue to drive more integrated care.

Speaker Change: <unk> there are upwards of over 400 to 500000 additional referrals a year that we could potentially.

Be taking if we were to serve all of the services and needs that our patients have today that is our goal over the next five to 10 years to continue to drive more integrated care it would more than double the company. If all we were doing was fully serving all of our patients needs because we have those care capabilities today.

Jon Rousseau: It would more than double the company if all we were doing was fully serving all of our patients' needs because we have those care capabilities today. It's a huge opportunity going forward. It's meaningful today. I wouldn't, though, want to lose sight of the fact that we have core service lines that are demonstrating best-of-breed growth in each one of its markets through its external referrals, obviously, first and foremost. We view the internal integrated care opportunity as a significant adder to leading businesses in their own right in their markets.

Speaker Change: So it's a huge opportunity going forward its meaningful today I wouldnt want to lose sight of the fact that we have core service lines that are demonstrating best of breed growth in each one of its markets through its external referrals, obviously first and foremost so we view the internal integrated care opportunity.

It's a significant adder to leading businesses in their own right in their markets and then going forward. If we have this care capability. The ultimate opportunity is not to drive more internal care integrations for more volume, but it's to leverage those skills and home based primary care to drive to serve our patients in value based care models.

Jon Rousseau: Going forward, if we have this care capability, the ultimate opportunity is not to drive more internal care integrations for more volume, but it's to leverage those skills in home-based primary care to drive, to serve our patients in value-based care models where we are starting to more derive the economic benefits for the great outcomes that we produce every day. That's a potentially nine-figure EBITDA opportunity as we look out 4, 5, and 6 years and beyond, and something we're really leaning into. Is that helpful?

Speaker Change: <unk>, where we are starting to more derive the economic benefits for the great outcomes that we produce every day, that's a potentially nine figure EBITDA opportunity as we look out four five and six years and beyond and something we're really leaning into is that helpful.

Speaker Change: Yes, yes, that's super helpful.

Jamie Perse: Yes. Yeah, that's super helpful. I wanted to ask one separate question just on the longer-term margin targets, the 6% to 7% that you're talking about for EBITDA margins. You know, given the growth and margin rates of your businesses, you've got some natural mix pressure, and we've ended up, you know, kind of on the lower end of that range. Can you talk about the offsets to that mix pressure, whether it's margin at the business unit level, corporate leverage or otherwise, and what would need to happen to kind of make progress and move more consistently into the higher end of that range?

Speaker Change: I wanted to ask one separate question just on the longer term margin target, 6% to 7% that youre talking about for EBITDA margins.

Speaker Change: Given the growth and margin rates of your business is you've got some natural mix pressure and we've ended up kind of on the lower end of that range. So can you talk about the offsets to that mix pressure, whether it's ed.

Speaker Change: Margin at the business unit level, corporate leverage or otherwise what would need to happen to kind of make progress and move more consistently into the higher end of that range.

Speaker Change: Yes, we've seen margin stability in every single one of our business lines right. So to the extent you have seen any EBITDA margin change in our company is purely due to business mix as we have a very high performing oncology specialty pharmacy business that continues to ramp at rates double and triple the rates of the industry.

Jon Rousseau: Yeah. We've seen margin stability in every single one of our business lines, right? So, you know, to the extent you've seen any EBITDA margin change in our company, it's purely due to business mix as we have. You know, a very high performing oncology specialty pharmacy business that continues to ramp at rates, you know, double and triple the rates of the industry. You know, that's a good thing. You know, so the EBITDA dollars for the organization and the growth we're driving from that is nothing but a good thing. You know, that said, if you were to step back and look at the aggregate margins, we think we're gonna continue to focus on efficiency initiatives and operational initiatives, as in particular, our infusion in home health and hospice businesses continue to scale.

Speaker Change: That's a good thing so the EBITDA dollars for the organization and the growth we're driving from that is nothing but a good thing that said if you were to step back and look at the aggregate margins. We think we're going to continue to focus on our efficiency initiatives and operational initiatives as in particular, our infusion in home health and <unk>.

Speaker Change: Businesses continue to scale, we think theres opportunity there with scale and further best practices with with our leadership teams and then at the corporate level one of the one of the obvious benefits of our company as is the procurement and purchasing synergies that we're able to drive across the interest across the company and leverage our infrastructure.

Jon Rousseau: We think there's opportunity there with scale and further best practices with our leadership teams. At the corporate level, you know, one of the obvious benefits of our company is the procurement and purchasing synergies that we're able to drive across the company and leverage our infrastructure. You know, just as we sit here today, there's another $12 million of OpEx annualized, you know, that we think is gonna start to come online in terms of savings in the April-May timeframe. We've got an initiative on the coding side in one of our businesses in the company that we think could be a $10 million opportunity. You know, we are always looking at those opportunities in the organization.

Speaker Change: Just as we sit here today, there is another $12 million of Opex annualized that we think is going to start to come online in terms of savings in the April may timeframe.

Speaker Change: Got an initiative on the coding side and one of our businesses in the company that we think could be a $10 million opportunity and so we are always looking at those opportunities in the organization. So whether it's terrific continued EBITDA dollar growth in specialty whether it's opportunities 1% to 2% margins as we scale certain businesses are.

Jon Rousseau: You know, whether it's you know terrific continued EBITDA dollar growth in specialty, whether it's opportunities you know 1 to 2% margins as we scale certain businesses, or whether it's continuing to leverage the unique size we have to drive efficiency across the organization, you add all those three things up and that spits out the range that we would expect to be in over the next three years from an aggregate perspective at the enterprise.

Speaker Change: Whether it's continuing to leverage the unique size, we have to drive efficiency across the organization you add all those three things up and that and that spits out the range that we would expect to be in over the next three years from a from an aggregate perspective at the enterprise.

Speaker Change: Okay, Great I'll leave it there thank you.

Thanks, Jamie.

Jamie Perse: Okay, great. I'll leave it there. Thank you.

Thank you one moment to the next question.

Jon Rousseau: Thanks, Jamie.

Operator: Thank you. One moment for the next question. Our next question will be coming from Brian Tanquilut of Jefferies. Your line is open.

Speaker Change: And our next question will be coming from Brian Chin of Jefferies. Your line is open.

Brian Chin: Hey, good morning, guys and congrats on the IPO in the quarter.

Brian Tanquilut: Hey, good morning, guys, and congrats on the IPO and the quarter. Jon, maybe just a follow-up to the answer that you gave Jamie to the second question. If we're thinking about the growth rate for the company over the next three to five years, where would you set that, and how should we be thinking about the key drivers there and maybe also how that compares to, you know, historical growth rates, right? Is that just conservatism or, you know. Just curious, like how you're thinking about growth in general.

Speaker Change: John maybe just a follow up to the answer that you gave Jamie.

Speaker Change: The second question so.

Speaker Change: If we're thinking about the growth rates for the company over the next three to five years, where would you set that and how should we be thinking about the key drivers there and maybe also how that compares to.

Speaker Change: Historically growth rates right.

Speaker Change: Conservatism or just curious how youre thinking about growth in general.

Speaker Change: Yes, Thanks, Brian Hope Youre doing well.

Speaker Change: Look we envision growth rates into the future being being consistent with our historical growth rates. I mean, you look back over the long term our six year CAGR is 14% as a company.

Jon Rousseau: Yeah. Thanks, Brian. Hope you're doing well. Look, we envision growth rates into the future being consistent with our historical growth rates. I mean, you look back over the long term, our six-year CAGR is 14% as a company. Our three-year CAGR is about 12% as a company. You know, for a company of our size within healthcare services, I think there's been one other company, maybe a clinical trial support company of our size that has produced those sort of growth rates, you know, at over $500 million a year over the last 15 years. We're in some pretty rarefied territory when it comes to growth rate. I think our historical growth rate in the S&P would put us in the top 10 to 15%, another benchmark.

Our three year CAGR is about 12% as a company for a company of our size within healthcare services I think there's been one other company, maybe maybe a clinical trial.

Speaker Change: Support company of our size.

Produce those sort of growth rates at over $500 million a year over the last 15 years. So we're in some pretty rarefied territory. When it comes to growth rate I think our historical growth rate in the S&P would put us in the top 10% to 15% another benchmark our.

Speaker Change: <unk> over the next five years or for this thing.

Jon Rousseau: You know, our expectations over the next five years are for the same. You know, I think there is a little bit of normalization in growth rate with scale and potentially conservatism baked in, as you said, but nothing has changed about our expectations for growth in the company. We have never been more excited about the growth levers we have in the organization. When you look at our combined platform and our ability to drive both growth in our core service lines and then incremental growth through internal care integrations and value-based care in the future, and our ability to uniquely drive accretive acquisitions comparatively, we've never been more excited about our growth. You know, January and February were a record, you know, two more record months in terms of volume on the pharmacy side of our business.

Speaker Change: I think there is a little bit of normalization and growth rate with scale and potentially conservatism baked in.

Speaker Change: As you said, but nothing has changed about our expectations for growth in the company. We have never been more excited about the growth levers we have in the organization.

Speaker Change: When you look at our combined platform and our ability to drive both growth in our core service lines, and then incremental growth through internal care integrations and value based care in the future and our ability to uniquely drive accretive acquisitions comparatively we've never been more excited about our growth January and February were a re.

Speaker Change: Record two more record months in terms of volume on the pharmacy side of our business I mean, just just incredible volume results in January in particular in our pharmacy business and so nothing has really changed about our outlook. We previously communicated mid to upper single digit growth rates organically, we think for a company of our size.

Jon Rousseau: I mean, just incredible volume results in January, in particular, in our pharmacy business. You know, nothing has really changed about our outlook. You know, we previously communicated mid to upper single digit growth rates organically. You know, we think for a company of our size, that's very good. We supplement that, you know, with a very accretive acquisitions, but our goal as a company is to drive double-digit growth and, you know, we've got a lot of unique levers to be able to do that, and that's gonna continue to be our focus.

Speaker Change: That's very good we supplement that with a very accretive acquisitions, but our goal as a company is to drive double digit growth and we've got a lot of unique levers to be able to do that and that's going to continue to be our focus.

Speaker Change: No that's awesome, maybe Jim just a quick question on the guidance.

Brian Tanquilut: No, that's awesome. Maybe, Jim, just a quick question on the guidance. Curious what is embedded in there in terms of acquisitions? And then just the DIR stuff, just to clarify, if you can quantify how much is in there and what is the potential upside from those payments. Thanks.

Speaker Change: Curious what is embedded in there in terms of acquisitions and then just the DIR steps.

Speaker Change: To clarify if you can quantify how much is in there and what is the potential upside from.

Speaker Change: From those statements.

Speaker Change: Yes, Brian Thanks, a lot good to hear from you. So the guidance is consistent with the way we've been talking about it in and consistent with our with our expectations.

Jim Mattingly: Yeah, Brian, thanks a lot. Good to hear from you. The guidance is consistent with the way we've been talking about it and consistent with our expectations. We have about half credit for the quality incentive in 2024 with some conservatism in several businesses, including pharmacy for the balance of the year. We're confident in our ability to achieve that 550 to 564 range for adjusted EBITDA for the year.

Speaker Change: We have about half credit for the quality incentive in 'twenty four with some conservatism in several businesses, including pharmacy for the balance of the year and we're confident in our ability to achieve that 550 to 564.

Speaker Change: Range for adjusted EBITDA for the year.

Speaker Change: Okay.

Speaker Change: And Brian just that.

Speaker Change: Number that number assumes no new acquisitions.

Jon Rousseau: Brian, that number assumes no acquisitions.

Speaker Change: Okay got it that's what I was going to ask awesome. Thank you guys and congrats again.

Brian Tanquilut: Okay, got it. That's what I was gonna ask you. Awesome. Thank you, guys, and congrats again.

Speaker Change: Thank you one moment for the next question.

Operator: Thank you. One moment for the next question. The next question will be coming from A.J. Rice of UBS.

Speaker Change: The next question will be coming from a J rice.

Speaker Change: UBS hi, everybody.

Speaker Change: Thanks, Hi, everybody just two.

A.J. Rice: Hi, everybody. Thanks. Just to maybe drill down because I think there are some questions about what's in and what's not in those specialty quality incentive payments. You booked $30 million in 2023. It sounds like you got $16 million in your 2024 outlook. Is there anything magical about 16 that you know you got that versus the 30? Why the 16? Is that number something that could conceivably grow? I mean, is the upside potential to 30, or is there some reason to think, given the growth in the business, that they could be even more than that if you hit everything you're hoping for? Just give us a little more specific flavor on what's in, what's out, and how you ended up with that number of 16 for this year.

Speaker Change: Maybe drill down because I think there are some questions about what's in and what's not in those specialty quality incentive payments. So you booked $30 million and 23, it sounds like you've got $16 million and 24 outlook is there anything magical about 16 that you know you got that versus the 30.

Speaker Change: Why why the 16 and then.

Speaker Change: Is that number something that could conceivably grow I mean, the upside potential to 30 or is there. Some reason to think given the growth in the business that there could be even more than that.

Speaker Change: You hit everything Youre, hoping forward just give us a little more specific flavor on what's in what's out and how you ended up with that.

Speaker Change: Number of <unk> 16 for this year.

Speaker Change: Yeah, Thanks, a J.

Speaker Change: Say again that the number are included in our 2024 forecast or a range today is 100% consistent with everything that we had communicated to people.

Jon Rousseau: Yeah. Thanks, AJ. Yeah, I'll just say again that the number included in our 2024 forecast or range today is 100% consistent with everything that we had communicated to people during the roadshow in months back. So nothing has changed around that. Look, there is some tiering structure, you know, to some of these incentives where you can have some variability. You know, as we look out, you know, into the year, you know, we did want to apply some conservatism, and we wanted to land on an assumption that would give us confidence in our guide in all potential scenarios and to achieve our guide under any scenario. You know, that's really what was embedded in our thinking.

Speaker Change: During the road show and months back so nothing has changed around that look there is some tearing structure.

Speaker Change: Some of these incentives where you can have some variability.

Speaker Change: As we look out into the year, we did want to apply some conservatism and we wanted to land on an assumption that would give us confidence in our guide and all potential scenarios and to achieve our guide under any scenario, that's really what what was embedded in our thinking but the numbers that you you quoted are correct.

Jon Rousseau: The numbers that you quoted are correct, and we're optimistic that if history occurs again, given our very unique quality capabilities in this company, you know, that there could be some upside there.

Speaker Change: And we're optimistic that it history occurs again, given our given our very very unique quality capabilities in this company.

Speaker Change: That there could be some upside there.

Speaker Change: Okay.

Speaker Change: Just maybe drill down a little further on the acquisition so theres no acquisitions baked in for your outlook for 'twenty four.

A.J. Rice: Okay. Just to maybe drill down a little further on the acquisitions. There's no acquisitions baked in for your outlook for 2024. Give us a little flavor for what the pipeline is. Obviously, that you have a wide array of businesses. Are there particular areas that you're focused on for acquisitions? And as you're thinking about how those acquisitions get valued and what prices you're able to obtain on that, has there been any change in thinking on that?

Speaker Change: Give us a little flavor for what the pipeline is obviously that you have a wide array of businesses are there particular areas that you're focused on for acquisitions and has your thinking about how those acquisitions get valued.

Speaker Change: Prices Youre able to obtain on that has there been any change in thinking on that.

Speaker Change: Yes, no thats another area of complete consistency our acquisition pipeline has been as large as ever as attractive as ever most of our deals are proprietary given our relationships many folks want to sell to our company. They look at us as a winner in the future of health care in a long term home.

Jon Rousseau: Yeah, no, that's another area of complete consistency. Our acquisitions pipeline has been as large as ever, as attractive as ever. Most of our deals are proprietary, given our relationships. Many folks want to sell to our company. They look at us as a winner in the future of healthcare and a long-term home. We have tremendous access. Our pipeline has 100 potential deals in it at any point in time. We're very measured and deliberate about the deals we do. Historically, our average pro forma multiple on acquisitions is 4x EBITDA. There's, you know, a lot of potential value creation there, obviously. In addition to using acquisitions as a strategy to, you know, continue to drive market density in targeted geographies.

Speaker Change: So we have tremendous access our pipeline is a 100 potential deals in at any point in time, we're very measured and deliberate about the deals we do historically, our average pro forma multiple on acquisitions, it's four times EBITDA.

Speaker Change: So there is.

There's a lot of potential value creation. There. Obviously in addition to using acquisitions as a strategy to continue to drive market density in targeted geographies.

Speaker Change: But.

Speaker Change: But this will be an.

Jon Rousseau: This will be an entirely consistent year from our perspective. You know, we have several deals that we would expect to close in the March-April timeframe. You know, two in particular are gonna be bread and butter, just small tuck-in deals and geographies. Actually, it's sub 3x EBITDA. You know, again, a capability I think that few other companies have, and, you know, we will continue to use as an advantage and to use very judiciously. A lot of these acquisitions are also de-leveraging, just given our ability to drive operational execution after we buy them and to leverage our scale and synergies at our company, you know, to drive these sort of multiples.

Speaker Change: Entirely consistent year from our perspective.

Speaker Change: <unk> had several deals that we would expect to close in the March April timeframe.

Speaker Change: Two in particular are going to be bread and butter, just small tuck in deals in geographies actually it's sub three times EBITDA again capability I think that few other companies have and we will continue to use that as an advantage and to use very judiciously. A lot of these acquisitions are also deleveraging just given our ability to drive operational.

Speaker Change: After we buy them and to leverage our scale and synergies that are at our company to drive these sort of multiples. That's really just that just another benefit of our of our one company platform and scale is our ability to drive to drive. These these multiples not only through our operational prowess, but through our our cost synergies that we're able to drive and when we <unk>.

Jon Rousseau: That's really, you know, just another benefit of our one company platform and scale is our ability to drive these multiples, not only through our operational prowess, but through our cost synergies that we're able to drive and when we integrate them within 30 days. You know, we would expect a typical level of M&A. You know, we've guided, I think, to the sort of 7 to 12 range of acquired EBITDA. You know, again, it's something that we have the ability to dial up or down a little bit, but we are very deliberate about any transaction we do. You know, we have an almost 100% track record of growing acquisitions that we've acquired.

Speaker Change: Integrate them within 30 days. So we would expect a typical level of M&A, we've guided I think to the sort of set at 7% to 12 range of acquired EBITDA again, it's something that we have the ability to.

Speaker Change: Dial up or down a little bit, but we are very deliberate about any transaction. We do we have an almost 100% track record of growing acquisitions that we've acquired.

Speaker Change: And so so that's that's going to be a consistent view nothing changed going forward for the organization.

Jon Rousseau: you know, so that's gonna be a consistent view. Nothing changed going forward for the organization.

Speaker Change: Okay. Thanks, great.

A.J. Rice: Okay, thanks. Great.

Speaker Change: Thank you one moment for the next question.

Operator: Thank you. One moment for the next question. Our next question will be coming from Joanna Gajuk of Bank of America. Your line is open.

Speaker Change: And our next question will be coming from Joanna <unk>.

Speaker Change: <unk> of Bank of America. Your line is open.

Speaker Change: Hi, Hi, good morning, Thanks for taking the question.

Joanna Gajuk: Hi. Good morning. Joanna Gajuk here. Thanks for taking the question. So I guess maybe just a quick follow-up on the discussion around the QIP, the quality payments, and to the point of you know, the likelihood you actually get the same amount, and when will you know?

Speaker Change: So I guess, maybe just quick.

Speaker Change: Follow up on the question around the <unk>.

Speaker Change: Peter quality payments.

Speaker Change: And to the point of the likelihood you actually get the same amount and when will you know.

Speaker Change: Yes, Joanna that plays out later in the year, we should have more visibility through Q2, and Q3 on that and I would just reiterate that we do have confidence in our guide and all potential scenarios and to achieve it under under any scenario. So.

Jon Rousseau: Yeah, Joanna, that plays out later in the year. We should have more visibility through Q2 and Q3 on that. I would just reiterate that we do have confidence in our guide in all potential scenarios and to achieve it under any scenario. Again, just given our quality results, you know, our ability to get some of these incentives in the past is extremely unique versus other companies. You know, but it's, you know, this is all done through, you know, third party, you know, quality measures that roll in as the year goes on. We would expect to have some visibility going forward, and hopefully if history repeats itself, you know, that would be incrementally good news for the organization.

Speaker Change: Again, just given our quality results our ability to get some of these incentives in the past is extremely unique versus other companies and and but this is all done through.

Speaker Change: Third party quality measures that roll in as the year goes on but we would expect to have some visibility going forward.

Speaker Change: And hopefully if history repeats itself that would be incrementally good news for the organization.

Speaker Change: Thanks for that and my question is around I guess, some other comments you are making around the organic growth that you outlined in the slides and you can talk about long term.

Joanna Gajuk: Thanks for that. My question is around, I guess, some other comments you were making around the organic growth, and you outline in the slides, and you talk about long-term growing high single digits. I know the slide also talks about 9% organic growth CAGR the last couple of years. Can you give us the organic revenue growth for Q4 and the full year? Or maybe the other way to ask the question would be, you know, some metrics that you gave at, say, home health care census grew 8%, you know, how much was organic of that 8%? Also as it relates to your guidance for 2024, you know, what number do you assume?

Speaker Change: Hey, Joe.

Speaker Change: Can you.

Speaker Change: Talk about 9% organic growth.

Speaker Change: The last couple of years.

Speaker Change: Can you give us.

Speaker Change: The organic revenue growth.

Speaker Change: Q4, and the full year.

Speaker Change: Or maybe the other way to ask the question would be I'm not sure that you stay home health census grew 8% how much of that 8% and and also as it relates to your guidance for 'twenty or what number do you still expect to.

Speaker Change: How many bin novel Alright assumed.

Joanna Gajuk: Also specifically, how many denovos are assumed for 2023 or 2024, sorry?

Speaker Change: For 2023, 24 I'm sorry.

Speaker Change: Yes, Thanks Joanna.

Speaker Change: Our first and turn it over to Chad will go in reverse order. So for 2024, that's an organic number.

Jon Rousseau: Yeah. Thanks, Joanna. I'll start first and turn it over to Jen. We'll go in reverse order. For 2024, you know, that's an organic number. And, you know, we're gonna assume and we're executing on a pretty consistent level of de novos in the organization. It'll probably be in the high teens ultimately across our service lines. You know, those are very high return on capital endeavors that help us further penetrate markets and states and build market density. Jen, I'll turn it over to you for any historical and 2023 organic revenue growth numbers.

Speaker Change: And we're going to assume and we are executing on a pretty consistent level of the nodes in the organization and it will probably be in the high teens ultimately across our service lines. Those are very high return on capital endeavors that help us further penetrate.

Speaker Change: Markets in states and build market density.

John Russo: John I'll turn it over to you for any historical in 2023 organic revenue growth numbers.

John Russo: Yes. Good morning, Julianna, you asked first about Q4 and that the revenue growth rate is 22, 1% for the quarter that represents almost entirely organic growth. We had very few acquisitions as you know in 2023, as we were approaching our IPO process and.

Jennifer Phipps: Yes. Good morning, Joanna. You asked first about Q4, and that the revenue growth rate is 22.1% for the quarter. That represents almost entirely organic growth. We had very few acquisitions, as you know, in 2023 as we were approaching our IPO process. You know, of note, there was very little revenue contribution associated with those particular acquisitions. In Q4, as we noted, we had 3.8% organic growth from an EBITDA perspective. As we discussed, that was actually impacted by the one-time payer rate adjustment in the year-over-year related to a Q4 2022 payer rate adjustment that we booked. That growth outside of that would have been 12.7% higher.

John Russo: Of note there was very little revenue contribution associated with those particular acquisitions.

John Russo: In Q4, as we noted we had three 8% organic growth from an EBITDA perspective, and as we discussed that that was actually impacted by the onetime payout rate adjustment and a year over year related to Q4 of 2022 Payor rate adjustment that we bought so that growth outside of that.

John Russo: Would have been $12, 7% higher.

John Russo: And it continued the momentum that we had in Q3, where we had posted 13% organic EBITDA growth in that particular period as you look at the year our growth associated with the full year is actually largely organic for the same reasons that we mentioned.

Jennifer Phipps: It continued, you know, the momentum that we had in Q3, where we had posted 13% organic EBITDA growth in that particular period. As you look at the year, our growth associated with the full year is actually largely organic for the same reasons that we mentioned.

Speaker Change: Okay. That's helpful and my last question.

When it comes to guidance.

Joanna Gajuk: Okay. That's helpful. My last question, when it comes to guidance, any comment on operating cash flow for the year? You talk about some savings of the interest expense, but I guess there's also the settlement payment. How should we think about 2024 operating cash flow? Thank you.

Speaker Change: Any comment on the operating cash flow for the year, you talked about some savings on the interest expense, but I guess, there's also the settlement payments. So how should we think about the.

Speaker Change: 24 operating cash flow. Thank you.

Speaker Change: Sure Joanna when you think about operating cash flow.

Jim Mattingly: Sure, Joanna. When you think about operating cash flow, you know, in 2023, we generated $211 million of total cash flow. That number will certainly increase going into 2024. We believe it will approach around $300 million in 2024 with the inclusion of the TEU as a partial drag on that number and also normalizing for working capital. As we discussed previously, working capital was net favorable during 2023 and returns to a normalized level in 2024. We're expecting between, you know, $275 million and $300 million-ish around on operating cash flow.

Speaker Change: 2023, we generated $211 million of total cash flow.

Speaker Change: That number will certainly increase going into 2024, we believe it will approach around $300 million in 2024 with the inclusion of the <unk>.

Speaker Change: Partial drag on that number.

Speaker Change: And also normalizing for working capital as we discussed previously working capital was was net favorable during 2023 and returns to a normalized level in 2024. So we're expecting between $2 75 to 300 is around.

Speaker Change: On operating cash flow.

Speaker Change: Okay.

Speaker Change: Thank you one moment to the next question.

Operator: Thank you. One moment for the next question. Our next question will be coming from Whit Mayo of Leerink Partners. Your line is open.

Speaker Change: Our next question will be coming from Whit Mayo.

Speaker Change: Of Leerink partners. Your line is open.

Hey, good morning.

Speaker Change: John maybe just an update on timing of your the acquisition of the Isoneph plan, maybe just some more color on that the size, which markets. The overlap you have with your current platform and maybe just elaborate on any additional strategic thoughts that you'd like to share on that.

Whit Mayo: Hey, good morning. Jon, maybe just an update on timing of your, the acquisition of the I-SNF plan. Maybe just some more color on that, the size, which markets, you know, the overlap you have with your current platform, and maybe just elaborate on any additional strategic thoughts that you'd like to share on that.

Yes, sure we went under definitive on that we had in December it's a small deal we expect about $2 5 million of annualized EBITDA before we grow it further.

Jon Rousseau: Yeah, sure. We went under definitive on that, Whit, in December. It's a small deal. You know, we expect about $2.5 million of annualized EBITDA before we grow it further. You know, it's at a modest multiple of about, you know, 7x. For anything, obviously, in that sort of a space, you know, that's actually an incredibly low multiple, and that's how we operate. You know, we take baby steps to get into these things with almost zero risk. That again is a reflection of our value-based care strategy, where, as I said, you know, we are looking to have internal payer models, which are ACO capabilities. 2023 was the first year that we had an ACO capability to derive shared savings on our own patients, our patients under our home-based primary care clinicians.

Speaker Change: At a modest multiple of about seven times for for anything obviously in that sort of a space that is actually at incredibly low multiple and that's how we operate we take baby steps to get into these things with almost zero risk. So that again is a reflection of our of our value based care strategy, where.

Speaker Change: As I said, we are looking to have internal payer models, which are ACO capabilities 2023 was the first year that we had an ACO capability to derive shared savings on our own patients are patients under our home based primary care clinicians and then the other angle on internal payer source.

Speaker Change: <unk> is more managed care models, because acos are Medicare shared savings models. So from the managed care model you have ice nips and <unk>, where you are taking risk. This.

Jon Rousseau: Then the other angle on internal payer sources is more managed care models because ACOs are Medicare shared savings models. From the managed care model, you have I-SNFs and D-SNFs where, you know, you are taking risk. This is a baby step into that in Kentucky and Tennessee. We would look to expand that organically in about 20 more states over the next 5 to 6 years. That's an annual process that you have to work through to get those approvals in new states.

Speaker Change: This is a baby step into that in Kentucky, and Tennessee, We would look to expand that organically and about 20 more states over the next five years to six years. That's an annual process that you have to work through to get those approvals in new states.

Speaker Change: And again the rationale is that if we are the primary care for a growing number of patients and we have access to three or 400000 people every year through our pharmacy and patient base that can go under our primary care. We know these patients already how can we manage them ourselves with Medicare and managed care.

Jon Rousseau: Again, the rationale is that if we are the primary care for a growing number of patients, and we have access to 300 to 400 thousand people every year through our pharmacy and patient base that can go under our primary care, we know these patients already, how can we manage them ourselves, you know, with Medicare and then managed care models? You know, the I-SNF is if our NPs are going into skilled nursing facilities and senior living communities every day, if they're going into people's homes on home health every day, those people are all eligible for I-SNF and D-SNF plans. If they can join our plan, side by side with an ACO, if they're straight Medicare, you know, we have it covered from being able to offer our patients our internal plans.

Speaker Change: Model and so the ice snip is if rmp's, we're going into skilled nursing facilities and senior living communities. Every day, if they are going into people's homes on home health everyday those people are all eligible for ICF in decent plans. So if they can join our plan.

Speaker Change: The buy side with an ACO, if theyre straight Medicare we haven't covered from being able to offer our patients our internal plans now with those care management capabilities that we have we are also looking to partner with payers to do the same thing into more optimally manage their members for them obviously in a different payment construct we're talking to several.

Jon Rousseau: Now, with those care management capabilities that we have, we are also looking to partner with payers to do the same thing and to more optimally manage their members for them, obviously, in a different payment construct. You know, we're talking to several right now. Our goal is certainly over the next year or two, to start to, you know, execute, with multiple payers externally, to drive these very unique outcomes and reduce hospitalizations for them as well. You know, people are very excited to do that. Those conversations have been going on, you know, for, you know, for a decent period of time now.

Speaker Change: Right now our goal is certainly over the next year or two to start to execute with multiple payers externally.

Speaker Change: To drive these very unique outcomes and reduce hospitalizations for them as well.

Speaker Change: People are very excited to do that and those conversations have been going on for for a decent period of time now.

Speaker Change: That's helpful and maybe just an update on I'll just on labor, a new pharmacy isn't really an area of concern but.

Whit Mayo: All right. No, that's helpful. Maybe just an update on just on labor. I know pharmacy isn't really an area of concern, but maybe just on the provider side. I think maybe a little bit more inflation on low-skilled labor, just what you have in your plan.

Speaker Change: Maybe just on the provider side, I think maybe a little bit more inflation of low skilled labor just what you have in your plan, how that's trending versus prior years, just anything that gives us a sense of how confident you are that you have your arms around it maybe $100 million of stock grants as the answer but just any thoughts would be helpful.

Whit Mayo: How that's trending versus prior years, just, you know, anything that gives us a sense of how confident you are that you have your arms around it. Maybe $100 million of stock grants is the answer, but just any thoughts would be helpful.

Speaker Change: Yeah, No sure I mean being several years past Covid I mean things really settled down going on two years ago in the labor market at least at least for us.

Jon Rousseau: Yeah, no, sure. Being several years past COVID, things really settled down, you know, going on two years ago in the labor market, at least for us. Even during COVID, you know, our retention improved. Our hiring numbers went up every single year for the last seven years. Our hiring numbers have gone up, and our retention has improved. We've had a unique ability to do that. You know, our model assumes, you know, sort of that 3 to 4% labor growth increase, you know, which is pretty customary. That's the world we're in today. You know, we just continue to manage it really well. You're exactly right on the pharmacy side.

Speaker Change: And even during Covid, our retention improve our hiring numbers went up every single year for the last seven years, our hiring numbers have gone up.

Speaker Change: And our retention has improved and so we've had a unique ability to do that our model assumes sort of that 3% to 4% labor growth increase.

Speaker Change: Which is which is pretty customary that's that's the world. We're in today and we just continue to manage it really well youre exactly right on the pharmacy side.

Speaker Change: Given the.

Speaker Change: The ability to scale that that model from a labor perspective, we've got about $1 million of revenue per FTE on the pharmacy side. So.

Jon Rousseau: You know, just given the ability to, you know, scale that model from a labor perspective, we've got about $1 million of revenue per FTE on the pharmacy side. You know, $100 million of a pharmacy, you only need 100 people. It's a great labor model. On the provider side, you know, people wanna work at a company that focuses on quality. You know, we've continued to invest in our teams repeatedly through comp and benefits and training, career ladder programs. We have partnerships with nursing schools. We started an international sourcing program for nurses two years ago. Those people have started to come here now. They will this year. You know, we just really attack it from multiple angles.

Speaker Change: $100 million of the pharmacy, you only need 100 people. It has a great labor model and then on the provider side people want to work at a company that focuses on quality. We've continued to invest in our teams repeatedly through comp and benefits and training career ladder programs. We have partnerships with nursing schools, we started in international.

Speaker Change: Sourcing program for nurses two years ago. Those people. It takes forever. Those people have started to come here now they will this year. So we just really attack it from multiple angles, we view HR as an area of competitive differentiation and in our numbers that prove that out so.

Jon Rousseau: You know, we view HR as an area of competitive differentiation. Our numbers have proved that out. You know, we also benefit from our settings. You know, on the pharmacy side versus retail, I think people really prefer to work in our sort of closed-door pharmacies. On the provider side, you know, a lot of people really wanna be out and about. You know, they don't wanna be in an institution, and they love our settings. Labor has been a massive focus for the company. We have a great culture and, you know, I love where we're at. You know, that is not an area of concern whatsoever for us as we look at the year or the next couple of years.

Speaker Change: We also benefit from our settings on the pharmacy side versus retail I think people really prefer to work in our sort of closed or pharmacies, and then and then on the provider side a lot of people really want to be out and about they don't want to be in an institution and they love our settings and so.

Speaker Change: Labor has been it has been a massive focus for the company, we have a great great great culture and.

Speaker Change: Level. We're at that is that is not an area of concern whatsoever for us as we look at the year in the next couple of years.

Speaker Change: Also fixed.

Speaker Change: Thank you one moment for my next question.

Whit Mayo: Awesome. Thanks.

Operator: Thank you. One moment for the next question. Our next question will be coming from Stephen Baxter of Wells Fargo. Your line is open.

Speaker Change: And our next question will be coming from Stephen Baxter.

Speaker Change: Wells Fargo. Your line is open.

Stephen Baxter: Yes, hi, thanks.

Stephen Baxter: So your revenue growth in the pharmacy business has been really impressive in recent years I guess first can you help us understand the assumptions you are making in the revenue growth guidance for the pharmacy business for 2024, and how should we think about how your approach in further <unk> launches and generic conversions in the guidance.

Stephen Baxter: Yeah. Hi, thanks. Your revenue growth in the pharmacy business has been really impressive in recent years. I guess first, you know, can you help us, you know, understand the assumptions you're making in the revenue growth guidance for the pharmacy business for 2024? I guess, how should we think about how you're approaching, you know, further LDD launches and generic conversions in the guidance? And what could be potential drivers of upside as the year plays out? And then just to kind of put a, you know, a pin in the discussion around the quality incentive payments, just confirming that your expectation is still that 2024 is the last year for these payments, regardless of whatever the ultimate amount turns out to be. Thank you.

Stephen Baxter: What can be potential drivers of upside as the year plays out and then just to kind of put a pin in the discussion around the quality incentive payments just confirming that your expectation is still that 'twenty 'twenty. Four is the last year for these payments regardless of whatever the ultimate amount of turns out to be thank you.

Speaker Change: Yeah, Hey, Steven Thank you on your latter question the answer is yes.

Jon Rousseau: Yeah. Hey, Stephen, thank you. On your latter question, the answer is yes. On your prior questions, yeah, look, I mean, we've been able to grow pharmacy around a 20% CAGR over the last three and six years. It's actually accelerated to 22% in three years, versus a six-year CAGR of 20%. You know, obviously, with our scale, you know, those are very, very big numbers, comparatively. I would point out that the provider business also has grown its revenue CAGR at 10% historically. It's a 10% six-year CAGR and an 11% three-year CAGR. Broad-based growth in the organization from, you know, what we consider to be best-of-breed businesses in the company.

Speaker Change: And then on your prior questions. Yeah look I mean, we've been able to grow pharmacy around a 20% CAGR over over the last three and six years, it's actually accelerated to 22% in three years.

Speaker Change: The six year CAGR of 20%, obviously with our scale those are very very big numbers in big numbers compare comparatively I would point out that the provider business also has grown its revenue CAGR at 10% historically, it's a 10% six year CAGR and an 11% three year CAGR and.

Speaker Change: So broad based growth in the organization from what we consider to be best of breed businesses in the company as we look at 2024 again I would just reiterate that as the business has continued to scale I think there could be some conservatism baked into our number in terms of revenue growth for this year.

Jon Rousseau: You know, as we look at 2024, you know, again, I would just reiterate that as the businesses continue to scale, you know, I think there could be some conservatism baked into our number in terms of revenue growth for this year. I would just add that nothing has changed in our outlook, from, you know, in terms of going forward versus where we've been historically. You know, we're as focused as ever on driving best practices in our business and driving, you know, unique multiple growth levers that we have access to. We're coming off January and February, where we saw the most referrals and volume we've ever had.

I would just add that nothing has changed in our outlook.

Speaker Change: From in terms of going forward versus where we've been historically.

Speaker Change: We are as focused as ever on driving best practices in our business and driving unique multiple growth levers that we have access to it.

Speaker Change: And we're coming off January and February where we just we saw the most referrals in volume we've ever had.

Speaker Change: Thank you one moment to the next question.

Operator: Thank you. One moment for the next question. Our next question will be coming from Ann Hynes of Mizuho Securities. Your line is open.

Speaker Change: And our next question will be coming from Hong.

Speaker Change: Mr. Hu security your line is open.

Speaker Change: Great. Thanks.

Speaker Change: We're talking about guidance.

Ann Hynes: Great, thanks. Can you just talk when talking about guidance, what are the key assumptions that would get you to the low end, and what are the key assumptions that would get you to the high end? Then secondly, just on leverage, I know your target leverage is below three times over the long term. Can you give more just an intermediate goal for maybe 2024 and 2025, and what your definition of long term is when you think you can get below three times? Thanks.

Speaker Change: The key assumptions that would get you to the low end and what are the key assumptions that would get you to the high end and then secondly, just on leverage I know you try and get leverage below three times over the long term.

Speaker Change: Good morning, just intermediate goal for maybe 2000 22025, and what your definition of long term. When you think you can get below three times.

Speaker Change: Yes. Thank you for the question I mean look on the range for this year.

Jon Rousseau: Yeah. Thank you for the question. I mean, look, on the range for this year, you know, the range is really around the midpoint of what we had communicated before. I think if we just stay on plan and on track, you know, we feel very good about that number. You know, if we continue to improve like we would expect, you know, hopefully, we can beat it. You know, we talked about some potential quality incentives as upside in the number as well. You know, as we think about leverage going forward, you know, we, you know, 3x is our long-term goal. I mean, our long-term goal is below 2x, right? You know, what's long term? You know, as you look out long term, 5 years or so.

Speaker Change: The range is really around the midpoint of what we had communicated before I think if we just stay on plan and on track we feel very good about that number if we continue to improve like we would expect hopefully we can beat it we talked about some potential quality incentives as upside in the number as well.

Speaker Change: As we think about leverage going forward, we have three times as our long term goal. Our long term goal is below two times Ryan what's long term as you look out long term five years or so, but we want to continue to drive to drive leverage as low as we can for into into the future. I mean, if you look at our cash flow profile now youre, probably looking at a.

Jon Rousseau: We wanna continue to drive leverage as low as we can for, you know, into the future. I mean, if you look at our cash flow profile now, you're probably looking at a couple of years, 2.5, 3 years to get to that 3x number. That's how we think about it.

Ryan: Couple of years 253 years to get to that three times number that's how we think about it.

Ryan: Alright.

Speaker Change: Thank you one moment for the next question.

Pito Chickering: All right. Thanks.

Ann Hynes: All right. Thanks.

Operator: Thank you. One moment for the next question. Our next question will be coming from Jack Wallace of Guggenheim. Your line is open.

Our next question will be coming from Jack Wallace.

Speaker Change: Of Guggenheim Your line is open.

Speaker Change: Thanks for taking my questions I, just wanted to double click into the value based care strategy.

Jack Wallace: Hey, team. Thanks for taking my questions. I just wanted to double-click into the value-based care strategy and, you know, marry that with the capital deployment. It sounds like to me the de novos are going to be, you know, versus M&A are gonna be helping to unlock that capability, thinking about the primary care element there. But the second part of that is, you know, how much EBITDAs are you getting from value-based care just today? If you could kind of help us wrap our models around how much, you know, kind of de novos are gonna be pointed at primary care to unlock additional value-based care EBITDA in the next couple of years. Thank you.

Speaker Change: Marry that with the capital deployment it sounds like to me the de novo's are going to be the the.

M&A is going to be helping to unlock that capabilities and keep up the the primary care element there.

Speaker Change: The second part of that is how much EBITDA is are you getting from value based care initiatives today and.

Speaker Change: If you could.

Speaker Change: Kind of help us wrap our models around.

Speaker Change: Much dependent de Novo's pointed out primary care to unlock additional nine discount even on the next couple of years. Thank you.

Speaker Change: Yes. Thank you so as we refer to quote unquote de novo's, I mean, thats really opening new pharmacies infusion suites, new home health hospice.

Jon Rousseau: Yeah. Thank you. So as we refer to quote-unquote de novos, I mean, that's really opening, you know, new pharmacies, infusion suites, new home health, hospice, branches, rehab, outpatient clinics. De novos for home-based primary care in the sense that, yes, our first strategy with home-based primary care and value-based care is to grow it out organically and just hiring up our doctors and NPs. You know, that's really what our focus is, you know, the patients are there, you know, in the thousands and hundreds of thousands we're managing. You know, we'll be managing about 20,000 patients at least by the end of the year. You know, we hope that number, you know, scales dramatically orders of magnitude larger in the next 3 to 4 years.

Speaker Change: <unk> rehab outpatient clinics de novo's for home based primary care in the sense that yes, our first strategy with with home based primary care and value based care is to grow it out organically and just hiring up our doctors and NPS. That's really what our focus is is the patients are there.

Speaker Change: Thousands and hundreds of thousands were managing and we will be managing about 20000 patients at least by the end of the year and we hope that number scaled dramatically orders of magnitude larger than the next three years to four years. So it's really ramping up our clinician count to be able to do that across call. It our 'twenty target states over the.

Jon Rousseau: It's really ramping up our clinician count to be able to do that across, you know, call it our 20 target states over the next 5 years or so. You know, there are some very small tuck-in opportunities, you know, where you acquire, you know, a clinician here or there in a market or a practice of 10 clinicians. But, you know, the way that we practice home-based primary care is different. We go to the home, which we feel like gives you the best care outcome and biggest impact on cost reduction. There's not a lot of comps that do that. There's really just several regional ones, and then it gets much smaller from there. We are looking to build out a model on a national scale that really hasn't been done before.

Speaker Change: Over the next five years or so.

Speaker Change: There are some very small tuck in opportunities.

Speaker Change: Where you acquire a clinician here or there in a market or a practice of 10 clinicians, but the way that we practice home based primary care is different we go to the home, which we feel like gives you the best care outcome and biggest impact on cost reduction theres not a lot of comps that do that theres really just several regional.

Speaker Change: <unk> and then it gets it gets much smaller from there. So we are looking to build out a model on a national scale that really hasn't been done before but it is an organic strategy again. We are we are leveraging the service lines and the patients that we have in pharmacy provider.

Jon Rousseau: It is an organic strategy. Again, we are leveraging the service lines and the patients that we have in pharmacy and provider. You know, that's the whole point. That's what's unique about us, is we have access to these patients today. With these capabilities, you know, your step change could occur and your acceleration could occur if you're able to do this for external payer partners as well, in addition to your own internal patients that you're serving in primary care. You know, our ability to provide these sort of high quality and very impactful outcomes for payers as well, you know, that is where you could see some step change and some acceleration over the next few years and why we have both an internal and an external payer strategy.

Speaker Change: The whole point, that's what's unique about us is we have <unk>.

Speaker Change: Access to these patients today and then with these capabilities your step change could occur in your acceleration could occur if youre able to do this for external payer partners as well in addition to your own internal patients that youre that youre serving in primary care. So our ability to provide these sort of.

Speaker Change: High quality and very impactful outcomes for payers as well that is where you could see some step change and some acceleration over the next few years and why we have both an internal and an external.

Speaker Change: Our strategy for 2024, our expectations are to be in the mid.

Jon Rousseau: You know, for 2024, our expectations are to be in the, you know, mid-single digits of EBITDA. You know, again, this is an initiative that really we started building out 12 to 18 months ago. You know, true to our form, we've never lost money on this. You know, we don't go make flyers and bets. You know, we don't go lose $40 million a year building something out. That is not what we do. You know, we were able to leverage our platform to slowly start building this out in a very common sense way. But we hope to accelerate it into the future. In our 5 to 7 year plan is that, you know, this becomes 20, 25, 30% of our EBITDA from the company.

Speaker Change: Mid single digits of EBITDA again. This is an initiative that really we started building out 12 months to 18 months ago.

Speaker Change: True to our form we've never lost money on this we don't go make Flyers and Thats. We don't go lose $40 million a year of building something out that is not what we do we were able to leverage our platform to slow we start building. This out in a very common sense way and but we hope to accelerated into the future and our 5% to seven year plan is that.

Speaker Change: This becomes 2025% 30% of our EBITDA from the company, but.

Speaker Change: But it is going to be a build out over time and one that is mostly focus on our organic.

Jon Rousseau: It's gonna be a build-out over time and one that's mostly focused on our organic.

Speaker Change: And then as a follow up to that is there any.

Speaker Change: Any material backend.

Jack Wallace: Then as a follow-up to that, is there, you know, any material kind of, you know, back-end infrastructure investments you need to make in order to take on that additional risk and, you know, whether that's market dependent or kind of more, you know, national company platform-wise? Thank you.

Speaker Change: Backend infrastructure investments need to make in order to take.

Speaker Change: Take on that additional risk and whether that's market dependent or kind of more.

Speaker Change: National Company platform wide. Thank you.

Yes no.

Speaker Change: Building this out over the past 12 months to 18 months, our focus has been on the operational and infrastructure and data side. That's actually why we haven't probably grown as fast in the last 12 months to 18 months, we didn't want to take 2030 40000 patients before we had all of the infrastructure and capabilities in place and so 23 was the first year, where we were in an ACO.

Jon Rousseau: Yeah. No. You know, as we've been building this out over the past 12 to 18 months, our focus has been on the operational, infrastructure, and data side. That's actually why we haven't probably grown as fast in the last 12 to 18 months. We didn't wanna take 20,000, 30,000, 40,000 patients before we had all of the infrastructure and capabilities in place. 2023 was the first year where we were in an ACO. The data, the analytics, the real-time patient monitoring, cost controls, triage, and stratification of your patient base, you know, our ability to do that internally and to have that daily level of visibility to manage external contracts as well, you know, that is in place today.

And so the data and the analytics and the real time patient monitoring and cost controls in triage and.

Speaker Change: And stratification of your patient base, our ability to do that internally and to have that daily level of visibility to manage external contracts as well and that is that is in place today.

Speaker Change: Excellent. Thank you so much.

Speaker Change: Thank you.

Jack Wallace: Excellent. Thank you so much.

One moment to the next.

Speaker Change: Question.

Operator: Thank you. One moment for the next question. Our next question will be coming from Pito Chickering of Deutsche Bank. Your line is open.

Speaker Change: Our next question will be coming from <unk> Chickering Deutsche Bank. Your line is open.

Speaker Change: Hey, good morning, guys. Thanks for taking my questions.

Pito Chickering: Hey. Good morning, guys. Thanks for taking my questions. Can I follow up on Stephen's question just on the pharmacy? You grew, you know, 30% in the Q4 and guidance is around 7.4% at the midpoint. Is there a wave of limited distribution drugs from 2022 or 2023 that are slowing? Just trying to bridge the Q4 results, 2023 guidance. I get the law of large numbers, but is there anything structurally different in 2024 than there was in 2023?

Speaker Change: Can I follow up on Stephen's question, just on the pharmacy, which grew 30% at fourth quarter guidance is for at some 0.4% at the midpoint is there a wave of limited distribution drugs to 'twenty two 'twenty three there. So I'm just trying to bridge the <unk> adults.

Speaker Change: I get the law of large numbers, but is there anything structurally different in 'twenty four than it was in 'twenty three.

Speaker Change: No there's not.

Speaker Change: We're up to 116 limited distribution drugs again, we're winning those drugs peto based on our quality results with with manufacturers and our other data and hub and value add programs that we're able to offer them. We expect to win another 12 to 16 of those drugs, depending on what comes out of the pipeline this year.

Jon Rousseau: No, there's not. You know, we're up to 116 limited distribution drugs. Again, we're winning those drugs, Peto, based on our quality results with manufacturers and our other data and hub and value add programs that we're able to offer them. You know, we expect to win, you know, another 12 to 16 of those drugs, depending on what comes out of the pipeline this year. Nothing has changed in terms of our outlook. You know, we've got a really strong position just given our quality and our relationships with the trade and nothing's changed in terms of our outlook and our enthusiasm on this market going forward.

Speaker Change: <unk>.

But nothing has changed in terms of our outlook.

Speaker Change: We've got a really we've got a really strong position just given our quality and our relationship with.

Speaker Change: With the trade and.

Speaker Change: Nothing nothing has changed in terms of our outlook.

Speaker Change: Our enthusiasm on this market going forward.

Speaker Change: Alright, great.

Speaker Change: Second question is on margins I guess your guide to compress a little bit can you just give us the detail on the interplay between the gross margin pressures from pharmacies or that mix impact or is there any gross margin impact headwind or tailwind is actually on the provider side and how you offset that with SG&A leverage. Thanks, so much.

Pito Chickering: All right, great. Then second question is on margins. I guess your guide decompress a little bit. Can you just give us the detail on the interplay between the gross margin pressures from pharmacy, sort of that mixed impact, versus any gross margin impacts, head or tailwind actually on the provider side, and how you offset that with SG&A leverage? Thanks so much.

Speaker Change: Yes, I mean look I mean, as I said before.

Jon Rousseau: Yeah. I mean, look, I mean, as I said before, you know, our growth in specialty, it's, you know, it's good growth. It's EBITDA dollar growth. You know, our services are really high value add. You know, our margins tend to be in line with the industry. You know, on the specialty pharmacy side, you know, these are the margins of the industry, you know, where we feel like we're a best-in-class player, you know, certainly from a growth perspective. You know, as that business, you know, continues to hopefully scale, you know, you will see, some level, you know, of margin impact on the company as that business just continues to scale that math.

Speaker Change: Our growth in specialty it's.

Speaker Change: Its good growth, it's EBITDA dollar growth our services are really high value add our margins tend to be in line with the industry.

Speaker Change: On the specialty pharmacy side.

Speaker Change: These are the margins of the industry.

Speaker Change: We feel like we are a best in class player certainly from a growth perspective.

Speaker Change: As that business continues to hopefully scale.

Speaker Change:

Speaker Change: You will see.

Speaker Change: Some level.

Speaker Change: Of margin impact on the company is that business just continues to scale. That's math now we feel like that will be offset by growth in the other businesses as well.

Jon Rousseau: Now we feel like that will be offset by growth in the other businesses as well, and what we're able to do by leveraging the platform in our scale. You know, as mentioned really before, it's a combination of, you know, I would say really five factors, you know, and, you know, I'll wrap it up maybe with this. You know, number one, you've got that outsized growth in specialty. Number two, though, we expect to see very strong growth across all of our service lines that are higher margin. Number three, we're able to leverage our platform scale and drive efficiency programs. I mentioned before, you know, we feel like we've got $25 million at least sitting out there that we're gonna execute on over the next 12 months.

Speaker Change: And what we're able to do by leveraging the platform in our scale and so as I mentioned really before it's a combination of.

Speaker Change: I'd say it really five factors.

Speaker Change: I'll wrap it up maybe with this number one you've got that outsized growth.

Speaker Change: In specialty.

Number two though we expect to see very strong growth across all of our service lines that are higher margin.

Speaker Change: Number three we're able to leverage our platform scale and drive efficiency programs I mentioned before.

Speaker Change: We feel like we've got $25 million at least sitting out there that we're going to execute on over the next 12 months.

Speaker Change: Number four our ability to do accretive acquisitions, when you look at that multiple and do the math on the margin that we're that we're buying at a four times multiple that's that's upside phase.

Jon Rousseau: Number four, our ability to do accretive acquisitions. When you look at that multiple and do the math on the margin that we're buying at a 4x multiple, that's upside, favorable pressure on our margin. Then number four, as we're able to continue to scale value-based care into the future, you know, that's gonna be significantly higher margin too. You sort of pull all those together, and that's what makes us really confident in being able to, you know, both grow the revenue of the company and over the next three years, you know, have a very stable EBITDA margin as well, just given the favorable combination of all of those factors.

Favorable pressure on our margin and then number four is we're able to continue to scale value based care into the future that's going to be significantly higher margin too and you sort of pull all those together.

Speaker Change: And Thats, what makes us really confident in being able to both grow the revenue of the company and over the next three years.

Have a very stable EBITDA margin as well just given the favorable combination of all of those factors.

Speaker Change: Great. Thanks, so much.

Speaker Change: Thank you.

Pito Chickering: Great. Thanks so much.

Speaker Change: Thank you.

Jon Rousseau: Thank you.

Speaker Change: At this time, we will be turning the call back to <unk> for closing remarks. Please go ahead.

Operator: Thank you. At this time, we'll be turning the call back to Jon Rousseau for closing remarks. Please go ahead.

Speaker Change: Thank you everybody for your time. This morning, we appreciate you tuning in we're incredibly excited moving forward, we look forward to your long term partnership and.

Jon Rousseau: Thank you, everybody, for your time this morning. We appreciate you tuning in. We're incredibly excited moving forward. We look forward to your long-term partnership. Thanks for your time today, and we look forward to talking with you in the near future. Have a good day.

Speaker Change: And thanks for your time today, and we look forward to talking with you in the near future have a good day.

Speaker Change: This concludes today's conference call you may disconnect.

Operator: This concludes today's conference call. You may disconnect.

Q4 2023 Brightspring Health Services Inc Earnings Call

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