Q2 2024 Brightspring Health Services Inc Earnings Call

August 2, 2024

Operator: Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will 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. I would now like to hand the conference over to your speaker today, Jennifer Phipps, Chief Accounting Officer at BrightSpring. Please go ahead.

Jennifer Phipps: Good morning. Thank you for participating in today's conference call. My name is Jennifer Fitts, Chief Accounting Officer at BrightSpring. I'm joined on today's call by Jon Russo, Chief Executive Officer, and Jim Mattingly, Chief Financial Officer. Earlier today, BrightSpring released financial results for the quarter ended June 30, 2024. A copy of the press release and presentation is available on the company's website. 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 actual results to differ materially from our expectations.

Jennifer Phipps: We encourage you to review the information in today's press release and presentation, as well as in our quarterly report on Form 10-Q that will be filed with the SEC. Specific risk factors and uncertainties can also be found in our 10-K previously filed with the SEC. 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. 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.

Jennifer Phipps: 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.

Jon Rousseau: Thank you, Jen. Good morning, and thank you for joining BrightSpring's Q2 2024 earnings call. I'd also like to thank all of our employees and teammates, our clinicians, pharmacists, caregivers, and administrative and support employees who work hard every day to provide needed solutions to the customers and patients we serve, as well as to our other key stakeholders in healthcare. We are pleased to report strong second quarter performance with total revenue in the quarter of $2.7 billion, representing 26% growth year-over-year, an adjusted EBITDA of $139.1 million, which represented 17% growth year-over-year and exceeded our internal plan. Adjusted EBITDA growth metrics throughout my remarks exclude a certain non-recurring quality incentive payment, or QIP, of $30 million in the second quarter of 2023.

Jon Rousseau: Within the $2.7 billion of total revenue, Pharmacy Solutions revenue was $2.1 billion, growing 32% compared to Q2 of last year, and Provider Services revenue was $616 million, growing 8% compared to Q2 of last year. We reported Pharmacy Solutions adjusted EBITDA of $94 million, which grew 19% year-over-year, and Provider Services EBITDA of $86 million, grew 16% year-over-year. Following strong performance in the first half of the year and continued business momentum, we are raising our adjusted EBITDA guidance for 2024 to be in the range of $570 million to $580 million, representing 12% to 14% growth, excluding the QIP payment in 2023.

Jon Rousseau: Our outperformance in the first half and increasing confidence in the second half of 2024 has led us to increase the midpoint of our adjusted EBITDA guidance by nearly $35 million since the start of the year. Jim will discuss the financial performance and outlook in more detail in a few minutes. Underpinning BrightSpring's success in Q2 and throughout the first half of 2024 is our dedication to delivering timely, preventative, and coordinated care to our seniors and specialty patients in the home and in low-cost settings. Our platform's performance and our core strategy continue to be underpinned by three key hallmarks and strategies. First, we serve large and growing markets of complex patient populations in lower cost home and community settings, which have significant and tangible quality and cost benefits.

Jon Rousseau: We bring a compassionate, local, and personal touch and an efficient care model to these complex patients, which preserves and improves quality of living and health while lowering the risk of complications in institutional patient days. We do this through standardized best practices, the use of leading technologies, and our proactive approach to addressing patient needs. Second, BrightSpring is focused on driving outsized volume growth and market share gains through our high-quality operations and sales and marketing capabilities, supplemented with integrated care as well as de novos and accretive acquisitions to deepen and expand geographically and grow our volume further.

Jon Rousseau: As a result of our high quality and dependable care model and our commercial capabilities, we drive volume growth across our business in addition to serving a patient base with a comparatively high degree of recurring revenue. Third, we benefit from our scale and complementary services, which allows for greater efficiencies, the deployment of best practices throughout the organization, and enhanced growth. We leverage our scale and are ever evolving the way we go to market, procure goods, and contract for services to drive these efficiencies with a continuous improvement mindset and culture. We drive acquisition synergies through procurement, operational synergies, and best practices enabled by our platform. A good example of this is the recent announcement of the planned acquisition of Haven Hospice, a Florida-based company holding a certificate of need for comprehensive hospice care services in 18 counties in the state.

Jon Rousseau: Haven operates in a highly desirable geography where we believe our capabilities can be implemented to improve operational metrics, financial performance, and growth. Last, our scale and complementary service lines also result in a unique comparative level of payer diversification. In the pharmacy world, there is retail, and then there are all of the many places where customers and higher acuity people need their medications with customized services every day, often 24/7, and that's us. In the provider world, there's hospitals and doctor's offices, and then there are homes and other community settings where people need their care every day, and that's us. We serve patients in home and community settings with a highly beneficial and valuable model. We focus on driving volume and market share growth, and we leverage our scale and complementary services in important and meaningful ways.

Jon Rousseau: Turning back to the Q2 performance, Pharmacy Solutions revenue of $2.1 billion represented 32% growth compared with the Q2 of last year. Revenue momentum continued quarter-over-quarter, driven by ongoing execution supporting specialty product ramp-ups and launches from 2023 to 2024, infusion patient and volume growth, and strength in Home and Community Pharmacy volume. The Infusion and Specialty business was particularly strong, growing 40% year-over-year, with specialty continuing to perform exceptionally well with outsized revenue growth. Home and Community Pharmacy revenue grew 13% year-over-year in the Q2, driven by very solid script volume growth. We saw robust volume growth across our Pharmacy Solutions segment with 10.1 million total scripts dispensed in the Q2, representing an increase of approximately 10% in total compared to the prior year.

Jon Rousseau: In Home and Community Pharmacy, scripts dispensed grew in the high single digits year-over-year, highlighting the reliability, accuracy, high quality, and customized services that we continue to deliver to patients across settings. Our strong revenue performance in the quarter resulted in Pharmacy Solutions adjusted EBITDA of $94 million, representing 19% growth year-over-year. Pharmacy Solutions adjusted EBITDA margin at 4.5% was in line with our expectations and influenced by outsized growth in Specialty. Specialty pharmacy performed particularly well in the quarter with continued momentum in scripts dispensed, delivering 36% volume growth. The continued outperformance in Specialty can be attributed to strong execution across our LDD and high-value generics portfolio, anchored by our quality and innovative national sales and marketing strategies.

Jon Rousseau: We continue to expand access to limited distribution drugs and coverage of prescribers, which drives referrals that are supported by our comprehensive patient service offerings, bringing higher quality of care to patients that is rated at world-class levels and helps to extend lives. The innovative, personalized, and high-touch service and clinical programs that we deliver continue to be preferred by patients, as evidenced by consistently high net promoter scores from prescribers and patients that approach or exceed 90. We continue to grow our limited distribution drug network in oncology, rare and orphan drugs, and other select indications with 118 LDDs.

Jon Rousseau: Most recently, we were selected as a pharmacy partner by Day One Biopharmaceuticals for distribution of OJEMDA, which is utilized to treat central nervous system tumors in children 6 months and older, specifically relapsed or refractory pediatric low-grade glioma, the most common central nervous system tumor in children. We're excited by this opportunity and all others like them to improve the lives of patients and families through this partnership and believe it speaks to the differentiated level of care and support that we deliver to patients every day. We expect to add an additional 18 LDDs to our portfolio over the next 12 to 18 months. We continue to grow volume robustly in high-value generics, and we see a meaningful opportunity to grow the specialty business further with 11 large brand drugs converting to generic over the next 5 to 6 years.

Jon Rousseau: The first of these now expected in Q4 this year. We are also pleased with the volume performance in our Home and Community Pharmacy business. For example, BrightSpring recently began services with one of the largest skilled nursing providers in the country as a long-term care pharmacy provider to all patients across all healthcare facilities of this customer. This sizable new customer addition speaks to the quality of care and services that we provide to our valued partners and patients. In Provider Services, we saw very solid revenue growth of 8%, driven by strength in Home Health Care, particularly home health and hospice, as well as in our rehab business. To highlight, Home Health Care average daily census grew 13% year-over-year to 44,246 in Q2, and rehab billable hours grew in the high single digits.

Jon Rousseau: The number of patients that we serve across our platform continues to grow, enabled by our highly skilled health professionals and the company's continued commitment to coordinated care in our patients' preferred settings. The addition of Haven Hospice, which is expected to close this quarter, will expand our services into the attractive and hard-to-access Florida market with the opportunity to provide compassionate and high-quality care that has been rated in the top 5% of all hospice providers nationally to more patients and their families. We remain enthusiastic about the trajectory of the provider business in the coming years. Our provider business also realized very solid adjusted EBITDA of $86 million, representing 16% year-over-year growth and a 14.0% margin compared to 13.1% in Q2 2023, driven by increased scale and additional operational efficiencies.

Jon Rousseau: We continue to work hard to deliver patient-centric plans in home and community settings, driving significant reductions in hospital readmissions for seniors, duals, and behavioral patients. Ultimately, our ability to deliver higher quality care in preferred settings and in a more efficient way enables improved outcomes, increased patient satisfaction, and reduced costs, which help drive referrals to meet ever-increasing demand and address significant societal needs. As we've discussed previously, BrightSpring was eligible to receive a last annual quality incentive payment or QIP in specialty from one of our PBM partners in Q2. As we had discussed, the bar for this QIP was extremely high, and while we delivered an outstanding Net Promoter Score of 87 for these particular members, it was below the threshold of 90 in the contract and below the NPS that we track and see for all other payer and PBM members.

Jon Rousseau: While we're disappointed to not receive this payment, as has been known, this program is now concluded, and we benefited from receiving these QIP payments in the three years prior based on our extremely high levels of quality and patient-focused care. Relative to peers and industry standards, we continue to deliver exceptional service levels, which are the foundation of the strong growth and financial performance we are experiencing in 2024 and expect to continue to experience in the future. Across our business, our employees work hard every day to deliver high quality and compassionate care to the people that we serve. We continue to invest in our employees who contribute to the success of the company and truly believe that our healthcare workers, clinicians, skilled caregivers, operators, and sales and marketing teams enable us to deliver leading levels of patient-centric care and support in our industry.

Jon Rousseau: To reward our employees for their hard work and dedication and to further create and foster an ownership culture at the company, in Q2, we completed the 100 million all-employee equity grant that was announced at the IPO. BrightSpring awarded approximately 20,000 full-time and tenured employees with employee-specific share grants to commemorate their dedication to the company and their impact on patients in the communities that we all live in. To summarize, the first half of 2024 has been very successful as we continue to execute on our goals and strategies as we have for the past 7 years. We are optimistic about the performance across the entire portfolio, not only heading into the second half of the year, but also as we head into 2025.

Jon Rousseau: Within pharmacy, we are particularly excited by our strong manufacturing and customer partnerships, our valued referral relationships, our high-quality scores, and our growing portfolio of limited distribution drugs, generics, and specialty. We continue to drive improved operational performance with a real focus on efficiency initiatives across infusion and home and community pharmacy. On the provider side, we are outpacing the industry on volume growth and remain confident in our ability to grow daily census and hours while we continue to reduce hospitalizations and readmissions by delivering the right care management at the right time and in the right setting to patients. Our integrated platform service capabilities continue to advance and allow BrightSpring to improve the coordination of patient-centric care for people who require multiple health services.

Jon Rousseau: Moving forward in the back half of the year and into 2025 and beyond, BrightSpring continues to remain focused on targeting volume growth in attractive markets, delivering needed solutions, driving operational best practices, and providing more coordinated and high-quality care, leveraging the scale and complementary nature of our platform to deliver healthy financial results. I will now turn the call over to Jim to discuss our Q2 financial results and 2024 guidance in more detail. Jim?

Jim Mattingly: Thanks, John. Before I provide financial results for the quarter, please note that all growth metrics for gross profit and adjusted EBITDA compared to 2023 exclude a certain $30 million quality incentive payment, or QIP, that BrightSpring received in Q2 2023. Total revenue in Q2 2024 was $2.7 billion, representing 26% growth from the prior year period. Pharmacy Solutions segment revenue was $2.1 billion, achieving growth of 32% year-over-year. Within the Pharmacy segment, infusion and specialty revenue was $1.6 billion, representing growth of 40% from last year, and home and community pharmacy revenue was $528 million, representing growth of 13% year-over-year. In the Provider Services segment, we reported revenue of $616 million, representing growth of 8% compared to the prior year period.

Jim Mattingly: Within the Provider Services segment, Home Health Care reported $254 million in revenue for Q2, growth of 13% versus last year, and Community and Rehab Care revenue was $362 million, representing growth of 5% year-over-year. Moving down the P&L, the total company gross profit in Q2 was $389 million, representing growth of 14% compared with Q2 of last year. Adjusted EBITDA for the total company was $139 million for Q2, growing 17% compared to last year. Adjusted EPS for the total company was $0.10 for Q2. Turning back to segment performance, Pharmacy Solutions gross profit was $183 million, growing 16% compared with Q2 of last year.

Jim Mattingly: Adjusted EBITDA for Pharmacy Solutions was $94 million for Q2, growing 19% compared to last year. Provider Services gross profit was $206 million, growing 12% versus Q2 of last year. Adjusted EBITDA for Provider Services was $86 million for Q2, growing 16% versus last year. On a total company basis, cash flow from operations was negative $15 million in Q2 2024, which was in line with our expectations and included a $90 million cash payment related to the legacy pharmacy legal matter, which was disclosed at the IPO. Excluding that historical legal case payment, cash flow from operations was $75 million in Q2.

Jim Mattingly: We remain on track to deliver approximately $275 million of annual run rate operating cash flow, excluding disclosed legacy litigation expenses and IPO related expenses, as we continue to remain focused on improving our leverage ratio towards our goal of 3x within three years. As of June 30, our net debt outstanding is approximately $2.7 billion, with our leverage ratio at 4.51x, which was better than our internal projection and which reflected the anticipated legal settlement cash payment in the quarter. As a reminder, net interest expense includes interest income related to cash flow hedges due to our 3 receive variable, pay fixed interest rate swap agreements that we have in place set to mature on September 30, 2025.

Jim Mattingly: Quarterly interest expense is still expected to be approximately $50 million per quarter, including approximately $1.6 million in interest expense related to the TEU instrument. Turning to our guidance for 2024, we are increasing our expectations for revenue and adjusted EBITDA. Total revenue is now expected to be in the range of $10.45 to 10.9 billion, including Pharmacy Solutions revenue of $8.0 billion to $8.4 billion and Provider Services revenue of $2.45 billion to $2.5 billion. As you will recall, we increased our adjusted EBITDA guidance range last quarter to $555 million to $570 million, excluding the potential QIP.

Jim Mattingly: Today, we are raising our total adjusted EBITDA outlook again to the range of $570 million to $580 million for full year 2024. This updated range represents a like-for-like increase in company adjusted EBITDA of approximately $13 million at the midpoint and represents 12.2% to 14.2% growth versus full year 2023 when you exclude the QIP received in 2023. Since the start of the year, we have increased the midpoint of our adjusted EBITDA guidance by nearly $35 million. At the midpoint of our adjusted EBITDA range, the adjusted EBITDA margin is approximately 5.4%, and we continue to expect to see margin expansion throughout the remainder of the year. With that, I'll now turn it back to Jon.

Jon Rousseau: Thank you for your time today to go through BrightSpring's Q2 results and guidance update. We will now open up the line for questions. Operator?

Operator: Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from Brian Tanquilut of Jefferies. Your line is open.

Brian Tanquilut: Hey, good morning, guys, and congrats on a really strong quarter. I guess my question first, Jon, you know, you've seen really good and strong traction in specialty, and I think the guidance implies sequential growth in Pharmacy Solutions revenues into the back half of the year. As we look at historical trend in terms of back half, first half, it seems like it's up sequentially, but maybe not by quite as much as historical trend. Is this conservatism, or is there anything we need to be thinking about as it relates to the ramp in Pharmacy Solutions revenue in the back half? Thanks.

Jon Rousseau: Hey, Brian. Good morning. Thanks for the question. No, our growth rate that we're seeing in Pharmacy remains, you know, really strong, and we've got more momentum on the volume side in that business, really, than we ever have. Even at this point in time, seven years in. You know, we would expect similar growth rates into the second half. Again, we feel more positive about those growth rates than we have. You know, typically we get about 53% of our EBITDA in the second half, due to days, and due to taxes, and other items. You know, we expect margins to always increase in the second half as well. We're leveraging fixed costs in corporate, which is flat in the second half as we continue to drive volume.

Jon Rousseau: Very consistent volume expectations in terms of growth rates for the second half, and no reason to believe those will slow down heading into 2025.

Brian Tanquilut: Awesome. Maybe since you mentioned margins, and I think Jim mentioned that, you know, their expectations for a contained margin improvement, if you can just walk us through what the dynamics are or what are the moving pieces that would drive the sequential margin improvement in the back half of the year?

Jon Rousseau: Yeah, we see about a 5.3, 5.4% EBITDA margin for the full year. Obviously that's going to be higher than the 5.1 in the second half. You know, really it's just a couple of things which are very clear and very tangible. We benefit from favorability in the way the days fall in the calendar months in the second half versus the first half of the year. Taxes are lower. You get payroll taxes resetting in the first half of the year. That's a meaningful number. As I said, you know, we're going to continue to drive, I think, really strong volume growth rates here. I mean, you can see, you know, on the pharmacy side, we're pushing 30% and even on the provider side, close to 10%. We expect that to continue.

Jon Rousseau: Our assumption for corporate in the back half is flat after we've made, you know, we've continued to make a lot of IT and people investments throughout the first half of the year. You know, we did have some ramp-up costs as we've been onboarding a few very large customers on the home and community pharmacy side. We incurred those costs in the first half ahead of the volume ramping up in those contracts as well. You know, as an organization, we continue to focus on operational excellence. You know, there's just many operational initiatives which are continuing to kick in here in the second half of the year, you know, for meaningful impact as we continue to drive lean and automation across the organization.

Jon Rousseau: You know, really last, I mean, the hospice final rule came in a little bit better than was estimated, but that's going to go live in Q4 too. It's really a combination of multiple factors that we feel we have very direct line of sight on that will drive that margin improvement into the second half.

Brian Tanquilut: That's awesome. Congrats again. Thanks, John.

Operator: Thank you. Our next question comes from A.J. Rice of UBS. Your line is open.

A.J. Rice: Hi, everyone. Thanks for the question. Just the strong specialty performance. Can you just comment on areas of growth? Is it new drug coming online? Are you gaining share? What's driving that? Comment on the margin trajectory as that business grows, maybe looking out a little further. On the one hand, in Pharmacy Solutions, I guess the mix shift could pressure margin, but I think as new business improves over time, you'd see margin improvement. Maybe delve into that a little more, if possible.

Jon Rousseau: Yeah. Thanks, A.J. Appreciate the comment about the specialty growth. I would also note that the growth in the organization that we're seeing is really broad-based. If you look at really almost every single one of our service lines, you know, they are growing in the organization. We're really seeing very, very strong performance across the entirety of the portfolio. You know, specialty did see the highest growth rate. It was really driven by everything you mentioned. Brand growth through continued ramps in LDD drugs, both from the last couple of years and even the 5 LDD drugs we've launched so far this year.

Jon Rousseau: You know, our continued focus on high value generics and then a very large sales force that's executing out there in the field every day in prescriber offices with clinicians, patients, and families driving, I think strong market share improvement. We continue to win some hub business and our fee for service and data business continues to increase at double-digit rates this year. Broad-based growth in the organization, also within specialty. You know, specialty's margins ticked up a little bit into Q2. We expect that to continue into the back half as well. We expect the same for the trend dynamic for overall pharmacy.

A.J. Rice: Okay. It sounds like in your prepared comments, you're calling out a new service agreement with a large long-term care provider. So I assume that's the institutional pharmacy business. Haven't heard people calling out big new business wins in that segment in a while. Is there an increase in RFP activity? Is this just a client that you've been working on for a while that came over the finish line? Or how would you characterize that competitive landscape and the opportunities there?

Jon Rousseau: Yeah, I mean, you know, the breadth of Home and Community Pharmacy covers a lot of attractive end market segments. That business grew its volume right around 10%, revenue of about 13%. You know, we continue to see that. We believe we'll continue to see that into the future. We've got a great quality operation there and set proprietary service programs for customers that serve very well. You know, we have a high-performing sales team too, and the business is very technology-enabled. Those elements are really driving very productive customer relationships. I think at this point, we've won some 35,000 or 40,000 new patients in beds from competitors this year.

Jon Rousseau: We just really focus on service model, all the operations, and that's continuing to drive preference with customers, including, in this case, you know, a very large customer that we onboarded back half of Q2, which will be beneficial in the second half of next year in 2025.

Brian Tanquilut: Okay. Thanks a lot.

A.J. Rice: Okay. Thanks a lot.

Operator: Thank you. Our next question comes from Whit Mayo of Leerink. Your line is open.

Whit Mayo: Hey, thanks. Good morning. Just back on the LDD launches, just wanna make sure. I heard you that you've got 18 more that are coming. I don't know how many are launching in the second half versus 2025. Just remind us, are those accretive at launch, or do they require some investments and the earnings slope is a little bit more on a lag?

Jon Rousseau: Yeah, good morning, Whit. We're up to 118 limited distribution drugs now. We do expect, you know, our most recent view after Q2 is probably another 18 or so wins in the next 15 or so months. That cadence of about 1 a month, we would expect to continue. Again, that's based on the quality of our service to patients and our focus on manufacturing relationships and other service offerings to them. The momentum there very much continues. Those are accretive day one. There are a few investments that go into place to get ready for launch. At launch, those are accretive from day one at the respective GP margins and EBITDA per script margins right out of the gate.

Whit Mayo: Okay. Kinda one a month. All right. Second question, just on home infusion, just sorta curious where you are in the growth of that business, how many locations you have, where you think you can go, and sort of how you're prioritizing the geographies that you plan on entering. Thanks.

Jon Rousseau: Yeah. I think our view on infusion hasn't really changed. We're in about 35 states today, so we've got a really good national presence, which is critically important. The volume growth there has continued to be good. You know, we are focused on some operational initiatives in that business, and we've been making some investments in those throughout this year. We really believe infusion is going to be a more meaningful driver for us into 2025 and beyond, as we continue to focus on operational excellence in that business and trying to really win on service levels.

Jon Rousseau: That has been a very consistent plan and story for the past, you know, six to nine months right now, and we're excited for that business as we get into 2025 in particular.

Whit Mayo: Thanks.

Operator: Thank you. Our next question comes from David Larsen of BTIG. Your line is open.

David Larsen: Hey, congratulations on the good quarter. Can you talk a little bit about cross-selling efforts within the provider division? For example, PT to OT and home health, hospice, group homes, and so forth. Do your sales people have like a CRM that has all of the available solutions in it, and can they sort of see account by account what the upsell potential is, and just what the sort of growth potential is with cross-selling efforts? Thank you.

Jon Rousseau: Yeah. Hey, David. Good morning. Thank you for the question. You know, historically, a lot of our integrated care synergies have been driven through our pharmacy services also provided to our provider patients, which is a real benefit to them, receiving those one-stop services from one organization and really high-quality pharmacy services. You know, we do continue to have a lot more of those integrated care opportunities in the organization as we look ahead. All of our data is integrated into one data lake. You know, it's been five years of significantly investing into our IT infrastructure and building out a data lake. That data is all in one place and available for all of our analytical slicing and dicing to track.

Jon Rousseau: What we've been doing really, towards the second half of last year and more intensively this year, is we do continue to invest in resources to drive these integrated care opportunities. You know, we're building out our clinical nursing hub. You know, these are nurses who are care coordinators for patients, and we're actually now creating and building out an integrated care team within the organization of professionals that's looking at patients at each step in their journey and in a very clinically appropriate way, you know, working with them to provide the best services through their transitions. You know, that is occurring in the organization. We are making investments in that because we believe that there is much greater opportunity.

Jon Rousseau: As we've been saying since the IPO, you know, I believe in the next year in 2026, we're really gonna start to see the fruits of more and more integrated care in the organization. You know, we obviously have very clinically appropriate home health to hospice transitions, some personal care, home health being delivered to the same patients, therapy as well. You know, those are occurring today, but we see an opportunity to really increase that in the future. It takes focus, and so we're investing in an integrated care team to do that. You know, I would say that we are continuing to make very significant strides in home-based primary care. You know, we are, at this point, on the precipice of signing a very meaningful contract with a large payer.

Jon Rousseau: You know, we are not talking about that now, but we would plan to be talking about that in Q3 and Q4, and hopefully, that's the first of many to come in the future. You know, we're not talking a whole lot about that third pillar of primary care and integrated care, but we are continuing to be heads down and investing in it. Hopefully, as we get into as early as 2025, you know, we start to see eight figures of EBITDA from those efforts.

David Larsen: Okay, it sounds like the breadth of services that you have is one of the reasons why you're winning all of this share from your hospital clients, which obviously I like. Can you maybe just talk about the broader sort of acute care environment? Obviously, there was a lull in volumes like a year and a half ago with COVID. It seems like all these volumes are coming back up. Just what are you seeing in terms of broad-based demand for acute care and then obviously post-acute services from the market? Thanks.

Jon Rousseau: Yeah. Obviously, our platform is really unique, and we have the ability to be an integrated care provider at scale, I think very different from most others outside of one or two of the payers. But first and foremost, we really focus on quality and growth within each individual service line. We focus on each one of our core service lines to really drive best practices within each one of them. You know, we believe additional integrated care opportunities are upside and on top of that across the platform, and that's something that, you know, we are leaning into further in the future as we've talked about, but really on top of each one of the core service lines executing at a high level and continuing to expand and deepen geographically and gain market share.

Jon Rousseau: As it relates to the hospitals and the acute systems, again, with our platform, we really do benefit from complementary diversification. You know, David, we see referrals across such a myriad of different referral sources across our service lines. You know, for example, in specialty pharmacy and oncology and orphan, you know, we're not seeing a, you know, you're not seeing sort of any dependencies on hospital systems. I mean, that's really more of a function of the oncology market and prescribers. You know, our rehab business is really not tethered to acute pharmacies either. You know, where we work with the acute hospitals either.

Jon Rousseau: Where we work with the hospitals the most on things like home health and hospice, you know, we're seeing double-digit growth rates there. You know, we just continue to focus on quality and commercial capabilities in each one of our service lines to drive volume and market share. You know, we are fortunate with this very unique platform to drive referral sources from a very diversified set of partners and relationships.

David Larsen: Thanks very much.

Operator: Thank you. Our next question comes from Joanna Gajuk of Bank of America. Your line is open.

Joanna Gajuk: Hi. Good morning. Thanks for taking the question. On the provider segment, right, the margins was pretty good, 14%, so up nicely year-over-year. I guess, I assume I know what the drivers are, but I would like to hear, you know, is there anything specific to call out there on the margins? Is that, you know, 14% margin sustainable going forward?

Jon Rousseau: Yeah. Hey, Joanna. Good morning. Thanks for the question. You know, when I received the question, I think from Brian earlier around second half margins, of the items I mentioned, numerous of them driving that, you know, one that you could add to the list is just continued growth in provider. Provider comparatively has higher margins, so as that business continues to perform well, you know, that'll be a tailwind in the second half. Additionally, yes, we do see sustainability in those margins. You know, we really just focus on quality, patient care, and continuing to drive volume growth. Stability, you know, on the provider side, from a margin standpoint is just really underpinned by operational performance, volume growth, and seeing some leverage in our fixed costs on that side of the business.

Joanna Gajuk: Thank you. To that end, I guess, this Haven Hospice acquisition, I guess it's only second half, but I guess it's gonna be also additive to the segment EBITDA, maybe 1% or so. Is that a way to think about it in a ballpark?

Jon Rousseau: Yeah. It's, you know, I'd have to double confirm your math on the 1%, but we're excited about Haven. You know, I think that's a good example of our M&A prowess. You know, that was a tricky deal, in terms of some idiosyncratic characteristics of that particular target. But Florida CONs are a very rare commodity. I mean, you're talking about one or two of these become available over a 20-year period of time. You know, our ability to form relationships there and get to know the sellers, and to work with them through what was a very complicated process, I think is a good example of how we're very opportunistic on M&A and the types of transactions we will do.

Jon Rousseau: You know, we structured that very uniquely in a way that we think really works for the balance sheet. You know, that's a business that we will lean into from a quality and an operational perspective to try to drive operational and performance. With that, we would expect to see both volume census growth and operational improvements and margin growth occur over time, really over the next year to year and a half in that business. You know, that's the business that we ultimately see as a $15 million-plus EBITDA business. It'll take us a little bit of time to get there going through that not-for-profit conversion.

Jon Rousseau: You know, but it really will be applying our operational best practices to that situation and trying to serve more Floridians with really high-quality hospice in those CON counties like we see an opportunity to do. You know, that's gonna be a little bit of a build-up. We lean into situations where we can really apply our operational capabilities to improve the businesses. You know, this is a great example of doing that in a really attractive market.

Joanna Gajuk: Right. I guess, on the comment around the home health and hospice businesses growing double digits, how much of that, I guess, is organic? I guess, is that revenue or is that volume? I'm just interested in what you see in terms of your volumes, organic volumes in home health and hospice.

Jon Rousseau: Yeah, that is largely organic. You know, I've been particularly pleased on the home health side of our business. You know, in hospice, we are a top five quality provider in the United States. It's a continued focus on reaching patients and many more patients who really deserve and need hospice care at the end of their life, you know, which clearly reduces costs and hospitalization and provides an outstanding quality result for families and patients themselves. You know, hospice, very stable, incredible quality platform. Just we actually made a change there on the leadership side with our sales team, bringing in a best-in-class sales leader for hospice. We're really excited about that.

Jon Rousseau: You know, on the home health side, we've continued to add some just incredible talent into that business in the first half of the year, and we're really seeing the results, which is very pleasing to me. You know, home health census was up and admits were up. We're in the mid-teens year-over-year in Q2, but we're also seeing operational performance across a variety of initiatives in the organization. Look, we remain, as I've said before, very optimistic about home health over the long term. You know, you have some of the bigger providers in the United States being acquired, and we believe that just creates opportunity in the future. The rate cost savings from CMS themselves has never been more clear in terms of the benefit on home health.

Jon Rousseau: We're optimistic in the future that, you know, rates will get back to very appropriate levels of increases here over the next year or 2. You know, we're really trying to set ourselves up to capitalize on that, you know, over the next 3 to 5 years.

Jim Mattingly: Joanna,

Joanna Gajuk: Thank you.

Jim Mattingly: Joanna, it's Jim Mattingly. One quick follow-up on your previous question about Haven Hospice, just for clarity.

Joanna Gajuk: Thank you.

Jim Mattingly: We have not included Haven Hospice on our guidance. We've announced the transaction but haven't closed it yet. We will include, you know, any change to our guidance, which will be immaterial once that transaction closes with an update in the second half of the year, just for clarity.

Joanna Gajuk: Great. Thank you. Thanks so much. Thanks so much for that. Thank you.

Operator: Thank you. Our next question comes from Erin Wright of Morgan Stanley. Your line is open.

Erin Wright: Great. Thanks for taking my question. You know, it's a little early to ask, and you're not going to give formal guidance, but you mentioned 2025 several times on the call. Just can you speak to some of those bigger picture kind of high level headwinds and tailwinds that we should be thinking about as we're kind of modeling out 2025, both from a top line profit perspective? Thanks.

Jon Rousseau: Yeah, good morning, Erin. You know, the outlook for our looking out several years out. We're, you know, we're shifting into 2025 planning mode, but we'll be getting into those details more intensively into Q3. You know, I think at this point in time, we just see great momentum in the business. Obviously, you know, raising our second half guide was a reflection of that at this point in time. You know, we've raised our guidance since the time of the IPO, about $35 million of EBITDA. You know, we just continue to see very good momentum in the thing about not only in the second half, but continuing into 2025.

Jon Rousseau: You know, as we sit here today, we would envision very similar growth rates into 2025 with potentially some upside, you know, in that if we do a little bit more M&A.

Erin Wright: Okay. On that front, on the M&A side, you know, can you speak to the nature of the acquisition pipeline, the health of that today relative to, let's say, a year ago in terms of how you're thinking about the pipeline?

Jon Rousseau: Yeah, sure. I mean, we continue just to have an overflow of opportunities like we always have. The pipeline is very similar to always, which is extremely full. We just have to, you know, be very judicious about which deals we do. We really pick carefully. We've been focused on deals that are very accretive here in the last year in particular, that are 4x pro forma EBITDA or less typically. That's really where our focus has been. There is an opportunity to do significantly more EBITDA. You know, we just have a focus on the balance sheet as well and getting to that 3x leverage target here in the next two and a half years. You know, very pleased with the cash flow in Q2.

Jon Rousseau: We actually, you know, the vast majority of the cash payment related to that 20-year-old lawsuit went out the door in Q2. You know, adjusted for that, you know, we had about $75 million of OCF in the quarter. That obviously annualizes to about $300 million for the year. You know, we continue to see our OCF at an annualized run rate of about $280 million as we work towards, you know, that 3x leverage target in the future. You know, we believe we can continue to augment our growth rates through very accretive M&A, combined with organic growth to achieve our growth objectives while we work towards that leverage target.

Erin Wright: Okay, great. Thank you.

Operator: Thank you.

Jon Rousseau: Sure.

Operator: Our next question comes from Ann Hynes of Mizuho Securities. Your line is open.

Jim Mattingly: Hi, good morning. In your prepared remarks, you referenced just the oncology pipeline over the next 5 years. I know the company has a lot of leverage to that. Can you remind us maybe what drug is going generic at the end of the year? I think you said it was Q4 2024. Is this earlier than expected? Maybe how we should think from a modeling perspective over the next, you know, 3 to 5 years. Like, will this kind of generic wave add, like, 2% to your growth, 3% to your growth just from, you know, just from that leverage? That would be great. Thank you.

Ann Hynes: Hi, good morning. In your prepared remarks, you referenced just the oncology pipeline over the next 5 years. I know the company has a lot of leverage to that. Can you remind us maybe what drug is going generic at the end of the year? I think you said it was Q4 2024. Is this earlier than expected? Maybe how we should think from a modeling perspective over the next, you know, 3 to 5 years. Like, will this kind of generic wave add, like, 2% to your growth, 3% to your growth just from, you know, just from that leverage? That would be great. Thank you.

Jon Rousseau: Yeah. Hey, Ann. No, oncology is obviously two of the biggest areas of the massive specialty pharmacy market. It's a market that grows, you know, it into the double digits at 12, 10 to 15% depending on the quarter. You know, we have an extremely strong position as one of the two biggest independents in specialty pharmacy oncology in the United States. And again, our growth has just continued to be underpinned by great quality and very strong manufacturing relationships, in addition to a sales force that really focuses on high-value generics. You know, there's some $90 billion of new brand oncology drug launches expected in the next 7 years, $90 billion. The FDA pipeline has never been deeper.

Jon Rousseau: A lot of those drugs are gonna be trending more towards, you know, niche drugs and more specific specialty indications, more narrower indications. That's beneficial for numerous reasons as well. The pipeline in oncology has never been more robust, and we have, you know, an incredibly strong position in that market, you know, which has been built over the last 10 to 15 years. You know, there's 11 big brand drugs going generic over the next 6 to 7 years. We show what those are on our PowerPoint on our website. You know, that's good for everybody. You know, generic conversions are good for everybody. You know, one that we've gotten visibility here in Q2, because you really sort of don't know exact timing or dynamics around generic launches until you get very close to them.

Jon Rousseau: Sprycel is going generic here in Q4. You know, we were able to get as much confirmation as we could here in Q2. You know, that'll certainly be a positive event like any brand to generic conversion is. We expect Sprycel to be the first one of these next 11 meaningful generics to go here in Q4.

Stephen Baxter: Great. Thank you.

Ann Hynes: Great. Thank you.

Operator: Thank you. As a reminder to ask a question, please press star one one. Our next question comes from Pito Chickering of Deutsche Bank. Your line is open.

Pito Chickering: Hey, good morning, guys. Going back to the back half of your margin ramp that Brian and Joanne have already asked, you know, like, you raised the revenue guidance by, you know, $125 million and EBITDA by $13 million. That's a lot more, you know, EBITDA guidance raised than the revenue would suggest. Look, if you think about, you know, the EBITDA guidance raised of $8, 9 million more than the revenue raised, can you help sort of quantify exactly where that's coming from? I mean, how much came from hospice? Did you get any better provider Medicaid rates or any supplemental payments? You know, I get that the margin change improves as providers have a better margin, but I just wanna break down what happened from last guidance to today's guidance.

Jon Rousseau: Yeah. Thanks, Pito. I mean, you know, as I sort of mentioned before, there's about eight factors, you know, more, but principally about eight factors in summary that are driving second half margins. You know, I can talk a little bit more specifically into the businesses, but, you know, first off, typically second half margins are higher for a variety of reasons. We've seen that every year historically. You know, second, just volume growth as we leverage fixed costs, as I mentioned before. You know, we've been making a lot of corporate investments in our people and compliance, quality and IT as we always do. Corporate is estimated to be flat in the back half of the year.

Jon Rousseau: Leveraging fixed costs not only in corporate, but in the businesses as we just continue to drive, you know, very high volume growth here, you know, approaching double digits on the provider side and 30% on pharmacy. You know, really third, I mentioned before, we get a benefit from calendar days. You know, there's more shipping and Monday through Fridays in the back half of the year, that's meaningful. Fourth is the reduction in payroll taxes. Fifth, we get some rate support here in the back half of the year, particularly around hospice into Q4. You know, fifth, a lot of operational initiatives that we've been working on continuously.

Jon Rousseau: We have a continuous improvement, you know, lean focus in this organization, but, you know, there is very meaningful benefit that we are driving in the company through continued process focus and automation. You know, we're seeing some of those projects really roll on in the back half of the year. You know, I would say you've got new customer growth, you know, meaningful growth with, in particular, on the home and community pharmacy side with one of the biggest skilled nursing providers in the country that we spent money to ramp up in Q2, but that's starting to roll on in terms of revenue here in Q3 and then into Q4. Specialty growth will continue to be very positive. Home health, hospice, and rehab growth continues to be very strong in the back half of the year.

Jon Rousseau: You know, really then I just sort of, you know, end with and really, A, you know, as you said, the provider business is gonna continue to grow. That has a higher margin disproportionately. If you look at the margins in the back half, it's both on the provider side and on the pharmacy side. If you were to look into our margins business by business, we expect really every single one of them to tick up into the back half of the year.

Pito Chickering: Okay. Let's just ask this, I guess a different way. You raised EBITDA guidance by $13 million in the three different buckets, pharmacy, provider, corporate, kind of where did that $13 million come from? Thanks.

Jon Rousseau: Yeah. I mean, it's gonna be a pretty even mix. We've seen, as I said before, just really broad-based growth in the organization. You know, I think that's a hallmark of what we're doing here at this company. We really try to drive excellence in every one of our service lines, and then secondarily, we try to augment that platform through integrated care and leveraging our scale and our size to drive operational efficiencies. We augment all of that third with accretive acquisitions. That's always been our strategy. You know, it's really at this point in time, at least working, you know, better than ever before. We think those are key strategies required to be successful in the future of healthcare.

Jon Rousseau: You know, again, I mean, you know, we're gonna get some leverage on a lot of our OpEx in the back half of the year, so we really focus on gross profit margin. As your volume grows, what's your GP margin and how much of that can you keep because you're being very disciplined on the OpEx side? We're continuing to drive a lot of these operational initiatives. You know, we drive the core through our service line. We leverage that core through integrated care and our size, scale, and efficiency. We complement all of that with accretive acquisitions. You know, those three strategies that have served us well for the last seven years are really powering the company so far this year, and we see that into the back half in 2025.

Pito Chickering: Thank you.

Operator: Thank you. Our next question comes from Stephen Baxter of Wells Fargo. Your line is open.

Stephen Baxter: Hey, thanks. I just wanted to follow up on, you know, some of the gross margin commentary. It looks like in Q1 and Q2, the revenue growth rate on the pharmacy side of the business was very similar. Then in Q2, we saw the gross profit growth jump up to, I think, 16%, excluding QIP payments. I think that was 6% growth in Q1. I wanted to hear a little bit more about what drove the acceleration and whether the rest of the year should maybe look more like Q2 than Q1 gross profit growth. Thank you.

Jon Rousseau: Yeah. Thank you, Stephen. So as we've said before, you know, margins do just naturally tick up through the course of the year for a variety of reasons. Then you've got some favorability on mix, on the both really the product side. Primarily the product side, a little bit payer, primarily product side in Q2 in specialty, and that was favorable to their margin. You know, our generics continue to perform very well and those on the margin ticked up a little bit comparatively in Q2 versus brands if you were to look at Q2 versus Q1, and that has a favorable margin impact.

Operator: Our next question comes from Jack Wallace of Guggenheim Securities. Your line is open.

Jack Wallace: Hey, congrats on the quarter. Thanks for taking my questions. Quickly, just on the provider side, since we get some nice volume gains there, just thinking about the sourcing of those market share gains. How much of that is kinda incremental density in existing markets versus expansions into newer markets? Thanks.

Jon Rousseau: Yeah. Hey, Jack. The majority of that is probably gonna be just, growth in current markets, figure 90/10 on that growth in current markets versus, say, newer growth coming from de novos or small tuck-in M&A. 90-95% of that is just from execution in our core markets and growth there. You know, really each one of our markets that we're in on the provider side, you know, we're growing, you know. I'd say on community living, kind of at the market growth rate, really everywhere else, you know, growing above market.

Jack Wallace: Gotcha. That's helpful. Then just another one, just kinda double-clicking the Q2 margin. You know, were there any kind of material puts and takes there associated with supporting de novos, some of the, you know, recent tuck-ins, and then also any impact from diabetes care payments? Thank you.

Jon Rousseau: Yeah. It's, you know, I would say we did have some investments in the quarter to continue to seed future growth. You know, we're always very thoughtful about that. You know, the quarter could have been materially higher if we don't continue to invest for the future like we do. You have, you know, quite a few de novos, you know, still working towards profitability, which is consistent with their plans, and they'll get there. You know, those will drive nice EBITDA into the future. We did onboard a very large customer contract, which was $several million of startup costs in the quarter. You know, those would principally be the two. You know, we continue to make investments in our people and in IT.

Jon Rousseau: You know, we think we've made a lot of those investments here in the last year, and corporate's gonna even out in the back half of the year, as we just continue to invest in the platform and position ourselves for the future.

Jack Wallace: Thank you.

Operator: Thank you. This concludes the question and answer session. I would now like to turn it back to Jon Rousseau for closing remarks.

Jon Rousseau: Thank you, Dee Dee. Thanks, everybody, for joining our call today. We really appreciate the time. It was really another successful quarter for BrightSpring. We continue to focus on serving as many patients as we can who need our high quality and high ROI services in the US in a very differentiated way with a very differentiated platform. You know, we're continuing to drive a very consistent set of winning strategies, and we look forward to talking with you again in another quarter. Have a great day. Thank you.

Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.

All participants are in a listen only mode. After the speaker's presentation. There will 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 I would now like to hand, the conference over to your speaker today, Jennifer Fats Chief Accounting officer at Bright Spring. Please go ahead.

Good morning. Thank you for participating in today's conference call. My name is Jennifer <unk>, Chief Accounting officer at break frame I'm joined on today's call by John Russo Chief Executive Officer, and Jim Mattingly, Chief Financial Officer earlier today right frame released financial results for the quarter ended June 30.

'twenty 'twenty four a copy of the press release and presentation is available on the company's website. 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 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 quarterly report on Form 10-Q that will be filed with the SEC.

C specific risk factors and uncertainties can also be found in our 10-K previously filed with the SEC 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. 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 and today's earnings press release and presentation.

Which again are available on our Investor Relations website. 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: Thank you Chad.

John Russo: Morning, and thank you for joining bright spring second quarter 2024 earnings call.

John Russo: I'd also like to thank all of our employees and teammates are clinicians pharmacists caregivers administrative and support employees, who work hard every day to provide needed solutions to the customers and patients we serve as well as to our other key stakeholders in health care.

John Russo: We are pleased to report strong second quarter performance with total revenue in the quarter up $2 7 billion, representing 26% growth year over year.

John Russo: Adjusted EBITDA of $139 1 billion, which represented 17% growth year over year.

John Russo: Seeded our internal plan.

John Russo: Adjusted EBITDA growth metrics throughout my remarks exclude a certain nonrecurring quality incentive payments or to IP of $30 million in the second quarter of 2023.

John Russo: Within the $2 7 billion of total revenue pharmacy solutions revenue was $2 1 billion growing 32% compared to the second quarter of last year and provider services revenue was $660 million growing 8% compared to the second quarter of last year.

John Russo: We reported pharmacy solutions, adjusted EBITDA of $94 million, which grew 19% year over year and provider services EBITDA of $86 million grew 60% year over year.

John Russo: Following strong performance in the first half of the year and continued business momentum we are raising our adjusted EBITDA guidance for 2024 to be in the range of 570 million to $580 million.

John Russo: Presenting 12%, 14% growth, excluding the <unk> payment in 2023.

John Russo: Our outperformance in the first half and increasing confidence in the second half of 2024 has led us to increase the midpoint of our adjusted EBITDA guidance by nearly $35 million since the start of the year.

John Russo: Jim will discuss our financial performance and outlook in more detail in a few minutes.

John Russo: Underpinning bright spring success in the second quarter and throughout the first half of 2024 is our dedication to delivering timely preventative and coordinated care to our seniors and specialty patients in the home and in low cost settings or.

John Russo: Our platform's performance in our core strategy continues to be underpinned by three key hallmarks that strategies.

John Russo: First we serve large and growing markets of complex patient populations and lower cost, helping community settings, which has significant intangible quality and cost benefits.

John Russo: We bring a compassionate local and personal touch and inefficient care model to these complex patients, which preserves that improves quality of living and health, while lowering the risk of complications and institutional patient days.

John Russo: We do this through standardized best practices, the use of leading technologies and our proactive approach to addressing patient needs.

John Russo: Second bright spring is focused on driving outsized volume growth and market share gains through our high quality operations and sales and marketing capabilities.

John Russo: Supplemented with integrated care as well as de novo's, and accretive acquisitions to deepen and expand geographically and grow our volume further.

John Russo: As a result of our high quality and dependable care model and our commercial capabilities, we drive volume growth across our business. In addition to serving our patient base with a comparatively high degree of recurring revenue.

John Russo: Third we benefit from our scale and complementary services, which allows for greater efficiencies the deployment of best practices throughout the organization and enhance growth.

We leverage our scale and our ever evolving the way we go to market procure goods and contract for services to drive these efficiencies with a continuous improvement mindset and culture we.

John Russo: We drive acquisition synergies through procurement and operational synergies and best practices enabled by our platform. A good example of this is the recent announcement of the planned acquisition of Haven hospice.

John Russo: A Florida based company holding a certificate of need for comprehensive hospice care services and 18 counties in the state.

John Russo: <unk> operates in a highly desirable geography, where we believe our capabilities can be implemented to improve operational metrics financial performance and growth.

John Russo: And last our scale and complementary service lines also result in a unique comparative level of payer diversification.

John Russo: And the pharmacy World. There is retail and then there are all of the many places where customers in higher acuity people need their medications with customized services every day, often 24, seven and that's up in the provider World. There's hospitals in doctors' offices, and then there are homes that other community settings, where people.

Be there every day and that's up <unk>.

John Russo: We serve patients and home and community settings, with a highly beneficial and valuable model, we focus on driving volume and market share growth and we leverage our scale and complementary services and important and meaningful ways.

John Russo: Turning back to the second quarter performance Pharmacy solutions revenue of $2 1 billion represented 32% growth compared with the second quarter of last year <unk>.

John Russo: Revenue momentum continued quarter over quarter, driven by ongoing execution supporting specialty product ramp ups and launches from 2023 and 2024 infill.

John Russo: Infusion patient and volume growth and strength in home and community pharmacy volume.

John Russo: The infusion, especially business was particularly strong growing 40% year over year with specialty continuing to perform exceptionally well with outsized revenue growth.

John Russo: Oh in community Pharmacy revenue grew 13% year over year in the second quarter, driven by very solid script volume growth.

John Russo: We saw robust volume growth across our pharmacy segment with $10 1 million total scripts dispensed in the second quarter, representing an increase of approximately 10% in total compared to the prior year.

John Russo: And home and community pharmacy scripts dispense grew in the high single digits year over year, highlighting the reliability accuracy high quality and customized services that we continue to deliver to patients across settings.

John Russo: Our strong revenue performance in the quarter resulted in pharmacy solutions, adjusted EBITDA of $94 million, representing 19% growth year over year.

John Russo: Pharmacy solutions adjusted EBITDA margin at four 5% was in line with our expectations and influenced by outsized growth in specialty.

John Russo: Specialty pharmacy performed particularly well in the quarter with continued momentum in scripts dispense delivering 36% volume growth.

John Russo: The continued outperformance in specialty can be attributed to strong execution across our <unk> and high value generics portfolio anchored by our quality and innovative national sales and marketing strategies, we continue to expand access to limited distribution drugs and coverage of prescribers, which drives referrals.

John Russo: That are supported by our comprehensive patient service offerings, bringing higher quality of care to patients that is rated at world class levels and helps to extend lives.

John Russo: The innovative personalized and high touch service and clinical programs that we deliver continue to be preferred by patients as evidenced by consistently high net promoter scores from prescribers and patients that approach or exceed 90.

John Russo: We continue to grow our limited distribution drug networking oncology rare and orphan drugs and other select indications with 118 Ltd's.

John Russo: Most recently, we were selected as a pharmacy partner by day, one biopharmaceutical for distribution of the agenda, which is utilized to treat central nervous system tumors in children six months and older.

John Russo: Specifically relapsed or refractory pediatric low grade glioma, the most common central nervous system tumor and children.

John Russo: We're excited by this opportunity and all others like that to improve the lives of patients and families through this partnership and believe it speaks to the differentiated level of care and support that we deliver to patients every day.

John Russo: We expect to add an additional 18 ldds to our portfolio over the next 12 to 18 months, we continue to grow volume robustly in high value generics and we see a meaningful opportunity to grow the specialty business further with 11 large brand drugs converting to generic over the next five to six years. The first of these.

John Russo: Now expected in Q4 this year.

John Russo: We are also pleased with the volume performance in our home and community pharmacy business.

John Russo: For example, bright spring recently began services with one of the largest skilled nursing providers in the country as a long term care pharmacy provider to all patients across all health care facilities of this customer.

John Russo: This sizable new customer addition speaks to the quality of care and services that we provide to our valued partners and patients.

John Russo: And provider services, we saw very solid revenue growth of 8% driven by strength in home health care, particularly home health and hospice as well as in our rehab business.

John Russo: To highlight home health care average daily census grew 13% year over year to 44246 in the second quarter and rehab billable hours grew in the high single digits.

John Russo: Number of patients that we serve across our platform continues to grow enabled by our highly skilled health professionals and the company's continued commitment to coordinated care and our patients preferred settings. The.

John Russo: The addition of Haven hospice, which is expected to close this quarter, we'll expand our services into the attractive and hard to access Florida market with the opportunity to provide capacity and high quality care that has been rated in the top 5% of all hospice providers nationally.

John Russo: More patients and their families.

John Russo: We remain enthusiastic about the trajectory of the provider business in the coming years.

Our provider business also realized very solid adjusted EBITDA of $86 million, representing 16% year over year growth and a 14.0% margin compared to 13, 1% in Q2 2023.

Driven by increased scale and additional operational efficiencies.

John Russo: We continue to work hard to deliver patient centric plans at home and community settings.

John Russo: Driving significant reductions in hospital readmissions for seniors duals and behavioral patients.

John Russo: Ultimately, our ability to deliver higher quality care and preferred settings and in a more efficient way enables improved outcomes increased patient satisfaction and reduce costs, which helped drive referrals to meet ever increasing demand and address significant societal needs.

John Russo: As we've discussed previously bright spring was eligible to receive the last annual quality incentive payments or to IP and specialty from one of our <unk> partners to the second quarter.

John Russo: As we have discussed the bar for this Q IP was extremely high and while we delivered an outstanding net promoter score of 87 for these particular members. It was below the threshold of 90 in the contract and below the NPS that we track and see for all of their payer and PBF efforts.

John Russo: While we are disappointed to not received this payment.

John Russo: As has been known this program has now concluded and we benefited from receiving these <unk> payments and the three years prior based on our extremely high levels of quality and patient focused care realm.

John Russo: Relative to peers and industry standards, we continue to deliver exceptional service levels, which are the foundation of the strong growth and financial performance. We are experiencing in 2024 and expect to continue to experience in the future.

Across our business our employees work hard every day to deliver high quality and capacity to care for the people that we serve.

We continue to invest in our employees, who contribute to the success of the company and truly believe that our health care workers clinicians skilled caregivers operators and sales and marketing teams enable us to deliver leading levels of patient centric care and support in our industry.

John Russo: To reward our employees for their hard work and dedication and to further create and foster an ownership culture at the company in the second quarter. We completed the 100 million all employee equity grant that was announced at the IPO.

John Russo: Bright spring awarded approximately 20000 full time and tenured employees with employees specific share grants to commemorate their dedication to the company and their impact on patients and the communities that we all live in.

John Russo: To summarize the first half of 2024 has been very successful as we continue to execute on our goals and strategies as we have for the past seven years.

John Russo: We are optimistic about the performance across the entire portfolio not only heading into the second half of the year, but also as we head into 2025.

John Russo: Within pharmacy, we are particularly excited by our strong manufacturing and customer partnerships are valued referral relationships, our high quality scores and our growing portfolio of limited distribution drugs in generics and specialty.

John Russo: We continue to drive improved operational performance with a real focus on efficiency initiatives across infusion and hoping community pharmacy on.

John Russo: On the provider side, we are outpacing the industry on volume growth and remain confident in our ability to grow daily census, and hours, while we continue to reduce hospitalizations and readmissions by delivering the right care management at the right time and in the right setting to patients.

Our integrated platform service capabilities continue to advance and allow bright spring to improve the coordination of patient centric care for people who require multiple health services.

John Russo: Moving forward in the back half of the year and into 2025 and beyond Bright spring continues to remain focused on targeting volume growth in attractive markets delivering needed solutions driving operational best practices, and providing more coordinated and high quality care leveraging the scale and complementary.

John Russo: The nature of our platform to deliver healthy financial results.

John Russo: I will now turn the call over to Jim to discuss our second quarter financial results and 2024 guidance in more detail Jim.

Jim Mattingly: Thanks, John before I provide financial results for the quarter. Please note that all growth metrics for gross profit and adjusted EBITDA compared to 2023, excluding certain $30 million quality incentive payments are Q IP that <unk> received in the second quarter of 2023.

Jim Mattingly: Total revenue in the second quarter of 2024 was $2 7 billion, representing 26% growth from the prior year period.

Jim Mattingly: Pharmacy solutions segment revenue was $2 1 billion achieving growth of 32% year over year.

Jim Mattingly: Within the pharmacy segment infusion in specialty revenue was $1 6 billion representing growth of 40% from last year.

Jim Mattingly: In home and community pharmacy revenue was $528 million representing growth of 13% year over year.

Jim Mattingly: And the provider services segment, we reported revenue of $616 million representing growth of 8% compared to the prior year period.

Jim Mattingly: Within the provider services segment home health care reported $254 million in revenue for the second quarter growth of 13% versus last year and community and rehab care revenue was $362 million representing growth of 5% year over year.

Jim Mattingly: Moving down the P&L.

Jim Mattingly: Total company gross profit in the second quarter was $389 million representing growth of 14% compared with the second quarter of last year.

Jim Mattingly: Adjusted EBITDA for the total company was 139 million for the second quarter growing 17% compared to last year.

Jim Mattingly: And adjusted EPS for the total company was <unk> 10 for the second quarter.

Jim Mattingly: Turning back to the segment performance Pharmacy solutions gross profit was $183 million growing 16% compared with the second quarter of last year. Adjusted EBITDA performance fee solutions was $94 million for the second quarter growing 19% compared to last year.

Jim Mattingly: Our services gross profit was $206 million growing 12% versus the second quarter of last year.

Jim Mattingly: Adjusted EBITDA for provider services was $86 million for the second quarter growing 16% versus last year.

Jim Mattingly: On a total company basis cash flow from operations was negative $15 million in the second quarter of 2024, which was inline with our expectations and included a $90 million cash payment related to the legacy pharmacy legal matter, which was disclosed at the IPO.

Jim Mattingly: Excluding that historical legal case payment cash flow from operations was $75 million in Q2.

Jim Mattingly: As of June 30, our net debt outstanding is approximately $2 7 billion with our leverage ratio at $4 five one times.

Jim Mattingly: Which was better than our internal projections, and which reflected the anticipated legal settlement cash payment in the quarter.

Jim Mattingly: As a reminder, net interest expense includes interest income related to cash flow hedges due to our three received variable pay fixed interest rate swap agreements that we have in place set to mature on September 32025.

Jim Mattingly: Quarterly interest expense is still expected to be approximately $50 million per quarter, including approximately $1 6 million and interest expense related to the <unk> instrument.

Jim Mattingly: Turning to our guidance for 2024, we are increasing our expectations for revenue and adjusted EBITDA.

Jim Mattingly: Total revenue is now expected to be in the range of $10 45 to $10 9 billion, including pharmacy solutions revenue of 8.0 billion to $8 4 billion and provider services revenue of $2 $4 5 billion to $2 5 billion.

Jim Mattingly: As you will recall, we increased our adjusted EBITDA guidance range last quarter.

To 555 million to $570 million, excluding the potential Q IV.

Jim Mattingly: Today, we are raising our total adjusted EBITDA outlook again to the range of $570 million of $580 million for full year 2024.

Jim Mattingly: This updated range represents a like for like increase in company adjusted EBITDA of approximately $13 million at the midpoint and represents 12, 2% to 14, 2% growth versus full year 2023, when you exclude the QEP received in 2023.

Jim Mattingly: Since the start of the year, we have increased the midpoint of our adjusted EBITDA guidance by nearly $35 million.

Jim Mattingly: At the midpoint of our adjusted EBITDA range. The adjusted EBITDA margin is approximately five 4% and we continue to expect to see margin expansion throughout the remainder of the year.

John Russo: With that I'll now turn it back to John.

John Russo: Thank you for your time today to go through price Springs second quarter results and guidance update we.

Speaker Change: We will now open up the line for questions operator.

Speaker Change: Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced.

Speaker Change: Draw. Your question. Please press star one again, please standby, while we compile the Q&A roster.

Speaker Change: And our first question comes from Brian <unk> of Jefferies. Your line is open.

Hey, good morning, guys and congrats on a really strong quarter.

Speaker Change: I guess my question first John.

Speaker Change: Really good and strong traction in specialty and I think the guidance implies sequential growth in.

Speaker Change: Pharmacy solutions revenues into the back half of the year.

Speaker Change: As we look at historical trends during the back half first half it seems like it's up sequentially, but maybe not by quite as much as historical trend as it can.

Speaker Change: <unk> is there anything we need to be thinking about as it relates to the ramp.

Speaker Change: In pharma solutions revenue in the back half thanks.

Speaker Change: Hey, Brian Good morning, Thanks for the question.

Speaker Change: No our growth rate that we're seeing in pharmacy remains.

Speaker Change: You know really strong and we've got more momentum on the volume side in that business really than we ever have.

Even at this point in time seven years, and so we would expect similar growth rates into the second half and and again, we feel more positive about those growth rates than we have typically we get about 53% of our EBITDA in the second half due.

Speaker Change: Due to days and due to taxes and other items, we expect margins to always increase in the second half as well, we're leveraging fixed costs and corporate which is flat in the second half as we continue to drive volume.

Speaker Change: But very <unk>.

Speaker Change: Insistent volume expectations in terms of growth rates for the second half.

Speaker Change: And no reason to believe those will those will slow down or or slowdown heading into 2025.

Awesome, and then maintenance you mentioned margins and I think Jim mentioned that there are expectations for continued margin improvement. If you can just walk us through what the dynamics are what are the moving pieces that would drive that sequential margin improvement in the back half of the year.

Speaker Change: We see about a 354% EBITDA margin for the full year. So obviously that is going to be higher than the five one in the second half you know really it's just a couple of things, which are very clear and very tangible we benefit from our Fei.

Speaker Change: <unk> and the way the days fall in the calendar months in the second half versus the first half of the year taxes are lower you get payroll taxes resetting in the first half of the year. That's a meaningful number as I said you know we're going to continue to drive I think.

Speaker Change: Really strong volume growth rates here I mean, you can see on the pharmacy side were pushing 30% and even on the provider side close to 10%. We expect that to continue our assumption for corporate in the back half is flat. After we've made we've continued to make a lot of IC and people investments throughout the first half of the year and.

Speaker Change: And then we did have some ramp up costs as we've been on on boarding a few very large customers on the home and community pharmacy side, we incurred those those costs in the first half ahead of the volume ramping up and those contracts as well and then you know as an organization we continue to focus on operational excellence.

Speaker Change: No.

Speaker Change: Theres, just many operational initiatives, which are which are continuing to kick in here in the second half of the year for meaningful impact as we continue to drive lean and automation across the organization.

Speaker Change: Really lapped the hospice final rule came in a little bit better than.

And then was estimated but that's going to go live in Q4 too. So it's really a combination of multiple factors that we feel we have very direct line of sight on.

Speaker Change: That will that will drive that margin improvement into the second half.

Speaker Change: Congrats again, thanks, Jon.

Speaker Change: Thank you.

Speaker Change: Our next question comes from AJ Rice of UBS. Your line is open.

AJ Rice: Hi, everyone.

AJ Rice: So the question just the strong <unk>.

AJ Rice: <unk> performance can you just comment on <unk>.

AJ Rice: Areas of growth.

AJ Rice: New drug yet.

Speaker Change: It's coming online are you gaining share what's driving that and then comment on the margin trajectory as that business grows maybe looking.

Speaker Change: Looking out a little further.

Speaker Change: On the one hand, and pharmacy solutions I guess, the mix shift could pressure margin, but I think as new business improves over time, you'd see margin improvement, so maybe delve into that a little more possible.

Yeah, Thanks, a J.

Speaker Change: The comment about the specialty growth I would also note that the growth in the organism that we're seeing is really broad based.

Speaker Change: If you look at it really almost every single one of our service lines.

Speaker Change: They are growing in the organization. So we're really seeing very very strong performance across the entirety of the portfolio specialty did see the highest growth rate. It was really driven by everything you mentioned brand growth through continued ramps and LD drugs. Both from the last couple of years and even.

Speaker Change: The five L. L D drugs, we've launched so far this year, our continued focus on high value generics and then a very large sales force that's executing out there in the field everyday and prescriber offices with with.

With clinicians patients and families thriving.

Speaker Change: Strong market share improvement, we continue to win some hub business in our in our fee for service and data business continued to increase.

Speaker Change: At double digit rates.

Speaker Change: So.

Speaker Change: Growth in Europe.

Speaker Change: Also within specialty, especially as margin ticked up a little bit into Q2, we expect that to continue into the back half as well.

And we expect the same for the trend dynamic for overall pharmacy.

Speaker Change: No.

Speaker Change: Okay and it sounds like in your prepared comments, you're calling out a new.

Speaker Change: Service agreement with a large long term care provider.

Speaker Change: The institutional pharmacy business.

Speaker Change: You heard our people, calling out big new business wins in that segment in a while is is there an increase in RF P activity Theres, just a client that you've been working on for a while that came over the finish line or how would you characterize that competitive landscape and the opportunities there.

Speaker Change: Yeah, well I mean, the breath of home and community pharmacy.

Speaker Change: It covers a lot of attractive end market segments.

Speaker Change: That business grew it grew its volume right.

Speaker Change: Right around 10% revenue of about 13%, we continue to see that we believe will continue to see that into the future.

Speaker Change: <unk> got a great quality.

Speaker Change: Quality.

Speaker Change: The operator Karen.

Speaker Change: Right very service programs for customers that served us very well, we have a high performing sales team too and it is.

Speaker Change: He is very technology enabled so those elements are really driving very productive customer relationships I think at this point. We've won some 35 or 40000, new patients and beds from competitors. This year and we just really focus on service model all the operations and Thats continuing to drive <unk>.

Speaker Change: Preference with with customers, including in this case.

Speaker Change: Very very large customer that we on boarded back half of Q2, which will be beneficial in the second half of next year.

Speaker Change: 95.

Speaker Change: Okay. Thanks, a lot.

Speaker Change: Thank you.

Speaker Change: Yeah.

Speaker Change: Our next question comes from Whit Mayo of Leerink. Your line is open.

Speaker Change: Oh, Hey, Thanks, Good morning, just back on the LGD launches just want to make sure I heard you that you've got 18 more that are coming I don't know how many you're launching in the second half versus 2025, and just remind us are those accretive at launch or do they require.

Speaker Change: Require some investments in the earning slope is a little bit more on a lag.

Speaker Change: Yeah. Good morning, what we're up to 118 limited distribution drugs now we do expect our most recent view after Q2 is.

Speaker Change: Another 18, or so wind in the next in the next 15 or so months, so that cadence of about one a month, we would expect to continue again, that's based on the.

Speaker Change: The quality of our service.

Speaker Change: To patients and our focus on manufacturing relationships and and other and other service offerings to them. So the momentum there very much continues those are accretive day one.

Speaker Change: There are a few investments that go into place to get ready for launch but at launch those those are accretive.

Speaker Change: From day one.

Speaker Change: At the respective GP margins in.

Speaker Change: And EBITDA per script margins.

Speaker Change: Right out of the gate.

Speaker Change: Okay, so kind of one month alright.

Speaker Change: Second question just on home infusion just sort of curious where you are in the in.

Speaker Change: And the growth of that business. How many locations you have where you think you can go in and sort of how you're prioritizing.

Speaker Change: The geographies that you plan on entering thanks.

Speaker Change: Yes, I think our view on on infusion hasn't really changed we're in about 35 states. Today. So we've got a really good national presence, which is critically important the volume growth. There is continued to be good.

Speaker Change: We are focused on some operational initiatives in that business and we've been making some investments in those throughout this year. We really believe infusion is going to be a more meaningful driver for us into 2025 and beyond.

Speaker Change: As we continue to focus on operational excellence in that business and trying to really went on service levels.

Speaker Change: That has been a very consistent plan and story for the past.

Speaker Change: Six to nine months right now and we're we're excited for that business as we get into 2025 in particular.

Thanks.

Speaker Change: Thank you.

Speaker Change: Our next question comes from David Larsen of <unk>. Your line is open.

Speaker Change: Hey, congratulations on the good quarter can you talk a little bit about cross selling efforts within the provider Division. So for example, P. T O T in home Health Hospice group homes and so forth.

Speaker Change: Our sales people have like our CRM that has all of the available solutions Ana and can we sort of see account by account what the installed potentially isn't just with the sort of growth potential is with cross selling efforts. Thank you.

Speaker Change: Yeah, Hey, David Good morning, Thank you for the question.

Speaker Change: Historically, a lot of our a lot of our integrated care synergies have been driven through our pharmacy services also provided to our provider patients, which is which is a real benefit to them receiving those one stop services from one organization that really high quality pharmacy services. We do continue to have a lot more of it.

Speaker Change: Those integrated care opportunities in the organization as we look ahead all of our data.

Speaker Change: Is integrated into one data lake it's been five years of significantly investing into our it infrastructure and building out a data lake that that data is all in one place and available for all of our analytical slicing and dicing.

Speaker Change: Track, what we've been doing really towards the second half of last year and more intensively. This year as we do continue to invest in resources to drive these integrated care opportunities. We're building out our clinical nursing hub. You know these are nurses, who are care coordinators for patients and we're actually now.

Speaker Change: Creating and building out an integrated care team within the organization of professionals that that's looking at patients that at each step in their journey and in a very clinically appropriate way working with them to provide the best services through their through their transition and so.

Speaker Change: That is that is occurring in the organization, we are making investments in that because we believe that there is much much greater opportunity. So as we've been saying since the IPO I believe into next year and 26, we're really going to start to see the fruits of more and more integrated care and the organization. You know, we obviously have very clinically appropriate.

Speaker Change: Health to hospice transitions, some personal care and home health being delivered to the same patients therapy as well those are occurring today, but we see an opportunity to really increase that in the future. It takes focus and so we're investing in an integrated care team to do that I would say that we are continuing to make very significant.

Speaker Change: Rides and home based primary care.

Speaker Change: We are at this point on the precipice of signing a very meaningful contract.

Speaker Change: With a large payer.

Speaker Change: We are not talking about that now, but we would plan to be talking about that in Q3, and Q4 and hopefully that's the first of many to come in.

Speaker Change: And in the future but.

We're not we're not talking a whole lot about about that third pillar of primary care and integrated care, but we are continuing to be heads down and investing in it and hopefully as we get into as early as 2025, we start to see eight figures of EBITDA from those efforts.

Speaker Change: Okay. It sounds like the breadth of services that you have is one of the reasons why you're winning all of this share from your hospital clients, which obviously I like can you maybe just talk about the broader sort of acute care environment. Obviously, there was a lull in volumes a few like a year year and a half ago with Colgate it.

Like all of these volumes are coming back up just what are you seeing in terms of broad based demand for acute care and then obviously post acute services from the market. Thanks.

Obviously, our platform is really unique and we have the ability to be an integrated care provider at scale I think very different from most others out outside of one or two of the payers.

Speaker Change: But first and foremost, we really focus on quality and growth within each individual service line and so we focus on each one of our core service lines to really drive.

Speaker Change: Best practices within within.

Speaker Change: Within each one of them, we believe additional integrated care opportunities are upside and on top of that across the platform and that's something that we are leaning into further in the future as we've talked about but really on top of each one of the core service lines executing at a high level and continuing to expand and deepen geographic.

Speaker Change: And gain market share.

Speaker Change: As it relates to the hospitals and the acute systems again with our with our platform, we really do benefit from complementary diversification, David we see referrals across such a myriad of different referral sources across our service lines for example in specialty pharmacy and encore.

Speaker Change: Allergy and orphan.

Speaker Change: We're not seeing or you're not seeing sort of any dependencies on hospital systems, I mean, thats really more of a function of the oncology market and and prescribers. Our rehab business is really not tethered to acute pharmacies either.

Where we worked with sorry to acute hospitals, either where we work with the hospitals. The most the most on things like home health and hospice, we're seeing double digit growth rates. There. So we just continue to focus on quality and and commercial capabilities in each one of our service lines to drive volume and market share and then we are fortunate with this very unique.

Speaker Change: Before him to drive referral sources from a very diversified set of partners and relationships.

Speaker Change: Thanks very much.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Joanna <unk> of Bank of America. Your line is open.

Speaker Change: Hi, good morning, Thanks for taking the question. So on the provider segments weighed on margins was pretty good 14%, so up nicely year over year, So I guess I.

Speaker Change: I assume I know what the driver sorry about that we'd like to hear you know so anything specific to call out there on the margins and is that you know 14% margin sustainable going forward.

Speaker Change: Yeah, Hey, Joanna good morning. Thanks for the question you know when I received a question I think from Brian earlier around second half margins.

Speaker Change: Of the items I mentioned numerous of them driving that one that that you could add to the list. It's just continued growth in provider provider comparatively have higher margins. So as that business continues to perform well that'll be a tailwind in the second half. Additionally, yes, we do see sustainability in those margins, we really just focus on quality.

Speaker Change: Patient care and continuing to drive volume growth and so stability.

Yeah on the provider side from a margin standpoint, it's just really underpinned by operational performance and volume growth and seeing some some leverage in our fixed cost on that side of the business.

Speaker Change: Thank you and do that and I guess that this.

Speaker Change: Haven Hospital acquisition.

Speaker Change: I guess, it's all in the second half, but I guess, it's going to be also additive to them.

Speaker Change: Segment, EBIT down maybe 1% or so is that a way to think about in the ballpark.

Speaker Change: Yeah.

Speaker Change: I don't I'd have to double confirm your math on the 1%, but we're excited about Haven I think that's a good example of our M&A prowess that was a tricky deal.

Speaker Change: In terms of some idiosyncratic characteristics of that particular target.

Speaker Change: But Florida Oh ends are are a very very rare commodity I mean, youre talking about one or two of these become available over a 20 year period of time, our ability to form relationships, there and get to know this.

Speaker Change: Sellers and to work with them through what was a very complicated process. I think is a good example of how we're very opportunistic on M&A and the types of transactions. We will do we structured that very uniquely in a way that we think really works for the balance sheet.

Speaker Change: That's a business that we will we will lean into from a quality and an operational perspective to try to drive operational performance and with that we would expect to see both volume census growth and operational improvements and margin growth occur over time really over the next year to year and a half in that business. That's a business that we.

Speaker Change: Ultimately see the $50 million, plus EBITDA business, but it'll take us a little bit of time to get there going through that not for profit conversion.

Speaker Change: But it really will be applying our operational best practices to that situation and trying to serve more floridians with really high quality hospice and those C. O N counties like we see an opportunity to do so that could be a little bit of a buildup, we lean into situations, where we can really apply our operational capabilities to improve the business.

Is this is a great example of doing that in a really attractive market.

Alright, and I guess on that comment around home health and hospice business is growing double digits.

Speaker Change: How much of that I guess, it's organic and I guess is that revenue or is that volume and just interested in what you're seeing in terms of your volumes organic volumes.

AJ Rice: Hi, its rice.

AJ Rice: Yes that is largely organic and I've been particularly pleased on the home health side of our business.

AJ Rice: In hospice, we are a top five.

AJ Rice: The Pfizer in the United States. So it's a continued focus on reaching patients and many more patients who really deserve and need hospice care at the at the end of their life, which clearly reduces cost and hospitalization and provides an outstanding quality.

AJ Rice: Result for families and patients themselves, so hospice very very stable incredible quality platform and.

AJ Rice: We actually we actually made a change there on the leadership side with our sales team, bringing in our best in class sales leader for Hospice, we're really excited about that you know on the.

Home Health side, we've continued to add some some just incredible talent into that business in the first half of the year and we're really seeing the results, which is very pleasing to me.

Census was up and admit we're up we're in the mid teens year over year in Q2, but we're also seeing.

AJ Rice: Operational performance across a variety of initiatives in the organization. So look we remain as I've said before.

AJ Rice: Optimistic about home health over the long term you know you have some of the bigger bigger providers in the United States being acquired.

AJ Rice: And we believe that just creates opportunity in the future.

AJ Rice: The cost.

AJ Rice: Cost savings from CMS themselves has never been more clear in terms of the benefit on home health and so we're optimistic in the future that rates will get back to very appropriate levels of increases here over the next year or two and we're really trying to set ourselves up to capitalize on that.

AJ Rice: Over the next three to five years.

Speaker Change: Joanna one Joanna it's dramatically one one quick follow up on your previous question about Haven hospice just for clarity.

Speaker Change: We have not included Haven hospice on our guidance.

Speaker Change: We've announced the transaction, but haven't closed it yet. So we will include any change to our guidance, which will be immaterial once that once that transaction closes with an update in the second half of the year just for.

Speaker Change: Clarity.

Speaker Change: Great. Thanks, so much thanks, so much for that thank you.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Erin Wright of Morgan Stanley. Your line is open.

Great. Thanks for taking my question.

Speaker Change: It's a little early to ask and Youre not going to give formal guidance, but you mentioned 2025 several times on the call just keep going with.

Speaker Change: Bigger picture kind of high level.

Speaker Change: Headwind and tailwind that we should be thinking about as you're kind of modeling out 2025 close to nine top line profit perspective. Thanks.

Speaker Change: Yeah, good morning Erinn.

Speaker Change: It did.

Speaker Change: Okay.

Speaker Change: Alright.

Now looking out several years out.

Speaker Change: <unk> shipped.

Speaker Change: Chip.

Speaker Change: $5 spending mode, but we will be getting into those details here more intensively into Q3 I think at this point in time, we just see great momentum in the business.

Speaker Change: Obviously.

Speaker Change: Raising our second half guide was a reflection of that at this point in time.

Speaker Change: We've raised our guidance since the time of the IPO about $35 million of EBITDA. We just continued to see very good momentum in that.

Speaker Change: Just think about not only in the second half of continuing into 2025 as we sit here today, we would we would envision a very similar growth rates and ended 2025 with potentially some upside in that if we do a little bit more M&A.

Okay.

Speaker Change: Okay and on that front on the M&A side.

Speaker Change: Can you speak to the nature of the acquisition pipeline the health of that today relative to let's say a year ago in terms of how youre thinking about the pipeline.

Speaker Change: Yes, sure I mean, we continue to.

Speaker Change: To have an overflow of opportunities like we always have the pipeline is it very similar to always which is extremely full.

Speaker Change: And we just have to be very judicious about which deals. We do we really pick carefully we've been focused on deals that are that are very accretive here in the last in the last year in particular that are four times pro forma EBITDA less typically.

Speaker Change: And that's really where our focus has been but there is an opportunity to do significantly more EBITDA and we just have a focus on the balance sheet as well and getting to that three times leverage target here in the next two two and a half years very pleased with the cash flow in Q2, we actually the vast majority of the cash payment.

Speaker Change: Weighted to that 20 year old lawsuit went out the door in Q2.

Speaker Change: Adjusted for that we had about $75 million of OCI for the quarter.

Speaker Change: That obviously annualize to about $300 million for the year. So we continue to see our ocs at an annualized run rate of about $2 80, as we work towards.

Speaker Change: That three times leverage target in the future and we believe we can continue to augment our growth rate through very accretive M&A.

Speaker Change: Combined with combined with organic growth to achieve our growth objectives, while we work towards that leverage target.

Speaker Change: Okay, great. Thank you.

Speaker Change: Thank you Sir.

Speaker Change: Our next question comes from Ann Hynes Mizuho Securities. Your line is open.

Speaker Change: Hi, Good morning in your prepared remarks, you reference just the oncology pipeline over the next five years I know the company has a lot of leverage to that can you remind us maybe what drugs going generic at the end of the year. I think you said it was Q4 'twenty four is this earlier than expected and maybe how we should think from them.

Speaker Change: Modeling perspective over the next three to five years like will this kind of a generic wave adds like 2% to your growth 2% to your growth just from.

Speaker Change: Just from that leverage that would be great. Thank you.

Speaker Change: Yeah, Hey, Ann.

Speaker Change: I know oncology has obviously two of the biggest areas of the.

Speaker Change: The massive specialty pharmacy market.

Speaker Change: It's a market that grows.

It ended.

Speaker Change: Into the double digits at 12, 10% to 15% depending on the quarter. So we have an extremely strong position as one of the two biggest independent specialty pharmacy oncology in the United States.

Speaker Change: And again our growth is just continued to be underpinned by great quality and very strong manufacturing relationships. In addition to a salesforce that really focuses on high value generic.

Speaker Change: Some $90 billion of new brand oncology drug launches expected in the next seven years <unk> 90 billion.

Speaker Change: The FDA pipeline has never been deeper a lot of those drugs are going to be trending more towards niche.

Speaker Change: Niche drugs and more specific specialty indications more narrower indication that's beneficial for numerous reasons as well, but the pipeline has never been more robust and we have an incredibly strong position in that market.

Speaker Change: Which has been built over the last 10 to 15 years.

Speaker Change: <unk> Big brand drugs growing generic over the next six to seven years, we show what those are on our Powerpoint on our website. That's good for everybody you know generic conversions are good for everybody.

Speaker Change: One that we've got visibility here.

In Q2, because you you really sort of don't know exact timing or dynamics around generic launches until you get very close to them.

But <unk> is going generic here in Q4, we were able to get as much confirmation as we could here in Q2.

Speaker Change: And that will certainly be a positive event like any branches generic conversion is and we expect price to be the first one of these 11.

Speaker Change: Next 11 meaningful generics to go here in Q4.

Speaker Change: Yeah.

Speaker Change: Great. Thank you.

Speaker Change: Thank you as a reminder to ask a question. Please press star one line.

Speaker Change: And our next question comes from Peter Chickering of Deutsche Bank. Your line is open.

Peter Chickering: Hey, good morning, guys.

Speaker Change: Going back to the back half of your margin ramp that Brian and Joann have already asked you raised the revenue guidance by.

Speaker Change: 195.

Speaker Change: EBITDA by $13 million.

So that's a lot more EBITDA guidance raised and the revenue would suggest so if you think about the EBITDA guidance range of eight 9 million more than the revenue raise can you help quantify exactly where its coming from I mean, how much came from hospice did you get any better provider.

Speaker Change: Medicaid rates or any supplemental payments.

Speaker Change: Get that the margin change improves as steeply as providers have a better margin, but I was wondering what happened from last guidance to today's guidance.

Speaker Change: Yeah. Thank Tito I mean is it sort of mentioned before theres about eight factors more but principally about eight factors in summary that are driving second half margins.

Speaker Change: I can talk a little bit more specifically into the businesses, but first off typically second half margins are higher for a variety of reasons, we've seen that every year historically.

Speaker Change: Second just volume growth as we leveraged fixed costs as I mentioned before we've been making a lot of corporate investments in our people in compliance quality in it as we always do corporate is estimated to be flat in the back half of the year leveraging fixed costs not only in corporate but in the businesses as we just continue to drive.

Speaker Change: Very high volume growth here approaching double digits on the provider side and 30% on pharmacy really third I mentioned before we get a benefit from calendar days, there's more shipping in Monday through Friday and in the back half of the year. That's meaningful fourth is the is the reduction in payroll taxes fifth we get some rate.

Speaker Change: Support here in the back half of the year, particularly around hospice into Q4 fifth a lot of operational initiatives that we've been working on continuously we have a continuous improvement lean focus in this organization, but there is there is very meaningful benefit that we are driving in the company through continued process focus and automation.

Speaker Change: We're seeing them some of those projects really roll off in the back half of the year I would say you've got new customer growth meaningful growth with in particular on the home and community pharmacy side with one of the biggest.

Speaker Change: Field nursing providers in the country that we spent money to ramp up in Q2, but that's starting to roll on in terms of revenue here in Q3, and then into Q4 specialty growth will continue to be very positive and then home health and hospice and rehab growth continues to be very strong in the back half of the year really then I'd, just sort of and with and really a.

As you said the provider business is going to continue to grow that that has a higher margin disproportionately. If you look at the margins in the back half it's both on the provider side and on the pharmacy side. If you were to look into our markets business by business. We expect really every single one of them to pick up into the back half of the year.

Speaker Change: Okay, I'll, let Mr assets, I guess, a different way you raised EBITDA guidance about $13 million.

In the three different buckets pharmacy provider corporate kind of where does that 30 million come from.

Speaker Change: Yes, I mean, it's going to be a pretty even mix we've seen as I said before just really broad based growth in the organization.

Speaker Change: I think that that's a hallmark of <unk>.

Speaker Change: Of what we're doing here at this company.

Speaker Change: We really try to drive excellence in every one of our service lines and then secondarily, we try to augment that platform through integrated care and leveraging our scale and our size to drive operational efficiencies and then we augment all of that third with accretive acquisitions, that's always been our strategy and it's really at this point.

Speaker Change: Time at least working better than ever before and we think those are those are key strategies required to be successful in the future of health care and again I mean, we're going to get some leverage on a lot of our opex in the back half of the year. So we really focus on gross profit margin and as your volume grows what's your GP margin and how much of that can you keep because youre being very disciplined.

On the Opex side, and we're continuing to drive a lot of these operational initiatives, but it is drive the core through our service line.

Speaker Change: Leverage that core through integrated care, and our size and scale and efficiency and then its complement all of that with accretive acquisitions.

Speaker Change: Those three strategies that have served us well for the last seven years or really covering the company. So far this year and we see that into the back half of 2025.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Stephen Baxter of Wells Fargo. Your line is open.

Stephen Baxter: Hey, Thanks, just wanted to follow up on some of the gross margin commentary it looks like in the first and the second quarter. The revenue growth rate on the pharmacy side of the business is very similar but then in the second quarter, we solid gross profit growth jump up to I think 16%, excluding Q IP payments I think that was 6% growth.

Stephen Baxter: In the first quarter I wanted to hear a little bit more about what drove the acceleration and whether the rest of the year, maybe look more like the second quarter first quarter gross profit growth. Thank you.

Speaker Change: Yes, Thank you Steven.

Speaker Change: As we've said before margins do just naturally pick up through the course of the year for a variety of reasons.

Speaker Change: And then you've got some favorability on the on mix.

Speaker Change: Both really the product side, primarily the product side, a little bit payer, primarily product side in Q2, and specialty and that was favorable to their margin. Our generics continue to perform very well and those and those are on the margin ticked up a little bit comparatively in Q2 versus brands. If you were to look at Q2 versus Q1 in that.

Speaker Change: The favorable margin impact.

Yeah.

Speaker Change: Our next question comes from Jack Wallace of Guggenheim Securities. Your line is open.

Jack Wallace: Congrats on the quarter, thanks for taking my questions.

Jack Wallace: Quickly just on the provider side just to get some nice volume gains there just thinking about the sourcing of those market share gains and how much of that is kind of incremental density in existing markets versus expansion into newer markets.

Speaker Change: Yeah, Hey, Jack.

Speaker Change: The majority of that is probably going to be just the growth in current markets figure 90, 10 on that growth in current markets versus say newer growth coming from de novo's or small small tuck in M&A, but 1990, 5% of that is just from execution in our in our core markets and growth there.

Speaker Change: Really really each one of our markets that we're in on the provider side.

Speaker Change: We are growing.

Speaker Change: Say on community living kind of at the market growth rate really everywhere else growing above market.

Speaker Change: Okay. That's helpful and then just.

Speaker Change: Another one is kind of double clicking into two <unk> margin were there any kind of material puts and takes there associated with supporting de novo's.

Speaker Change: Recent tuck ins.

Speaker Change: And then also any impact from diabetes care payments. Thank you.

Speaker Change: Yeah.

Speaker Change: I would say we did have some investments in the quarter to continue to seed future growth. We're always very thoughtful about that the quarter could have been materially higher if we don't continue to invest for the future like we do.

Speaker Change: But you have quite a few de novo's still working towards profitability, which is consistent with with their plans and they will get there.

Speaker Change: We'll drive those will drive nice EBITDA and to the future. We did onboard a very large customer contract, which was several million dollars of startup costs in the quarter.

Speaker Change: Those would principally be the two and we continue to make investments in our people and in it.

We think we've made a lot of those investments here in the last year and corporate is going to even out in the back half of the year as we just continue to invest in the platform and position ourselves for the future.

Speaker Change: Thank you.

Speaker Change: Thank you. This concludes the question and answer session I would now like to turn it back to John Russo for closing remarks.

John Russo: Thank you Didi, thanks, everybody for joining our call today, we really appreciate the time it was really another successful quarter for bright spring, we continue to focus on serving as many patients as we can who need our high quality and high ROI services in the U S and a very differentiated way with a very differentiated platform, we're continuing to drive the very.

John Russo: Instead of winning strategies and we look forward to talking with you again in another quarter have a great day. Thank you.

Speaker Change: This concludes today's conference call. Thank you for participating and you may now disconnect.

Q2 2024 Brightspring Health Services Inc Earnings Call

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