Q1 2025 Guardian Pharmacy Services Inc Earnings Call

Operator: Good day, everyone, and welcome to the Guardian Pharmacy's first quarter 2025 earnings call. This time, all participants are in a listen only mode. Later, you will have the opportunity to ask a question during the question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator.

Good day, everyone and welcome to the Guardian pharmacies first quarter 2025 earnings call.

At this time all participants are in a listen only mode.

Later, you'll have the opportunity to ask a question during the question and answer session. If at any time during the call you require immediate assistance. Please press star zero for the operator.

Operator: Today's speakers will be Fred Burke, President and CEO of Guardian Pharmacy, and David Morris, EVP and CFO of Guardian Pharmacy.

Fred Burke: Today's speakers will be Fred Burke, President and CEO of Guardian of Pharmacy, and David Morris EVP and CFO of Guardian pharmacy before we begin I'd like to remind everyone that the statements included in this conference call and in the press release issued today may constitute forward looking statements within the meaning.

Operator: Before we begin, I'd like to remind everyone that the statements included in this conference call and in the press release issued today may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These statements include, but are not limited to, comments regarding our plans, objectives, business outlook, and our financial results for 2025 and beyond. Actual results could differ materially from those expressed or implied in forward-looking statements because of a number of risk factors and uncertainties, which are discussed in the company's quarterly report on Form 10-Q and earnings release issued today. Guardian Pharmacy undertakes no obligation to update any forward-looking statement.

Of the private Securities Litigation Reform Act.

Fred Burke: These statements include but are not limited to comments regarding our plans objectives and business outlook and our financial results for 2025 and beyond.

Fred Burke: Actual results could differ materially from those expressed or implied in forward looking statements because of a number of risk factors and uncertainties, which are discussed in the company's quarterly report.

Fred Burke: On Form 10-Q and earnings release issued today.

Fred Burke: Guardian pharmacy undertakes no obligation to update any forward looking statements. Additionally on this afternoon's call. The company will reference certain non-GAAP financial measures such as EBITDA and adjusted EBITDA included in our earnings release as well as on our website are reconciliations of these non-GAAP financial measure.

Operator: Additionally, on this afternoon's call, the company will reference certain non-GAAP financial measures, such as EBITDA and adjusted EBITDA. Included in our earnings release, as well as on our website, are reconciliations of these non-GAAP financial measures to the GAAP measures reported in our financial statements.

Fred Burke: Yours to the GAAP measures reported in our financial statements.

Operator: This afternoon's call is being recorded, and a replay of this call will be available later today.

Fred Burke: This afternoons call is being recorded and a replay of this call will be available later today I'm now pleased to introduce the president and CEO of Guardian pharmacies Friedberg.

Fred Burke: I am now pleased to introduce the President and CEO of Guardian Pharmacy, Fred Burke. Welcome to Guardian Pharmacy's first quarter, 25 per-inch cost. On today's call, I'll share financial highlights, discuss our recent pharmacy expansions, and provide an update on some of the industry trends we're closely monitoring.

Fred Burke: Welcome to Guardian pharmacies first quarter 25 earnings call.

Fred Burke: On today's call I will share financial highlights discuss our recent pharmacy expansions and provide an update on some of the industry trends we're closely monitoring.

Fred Burke: However, before moving into our agenda, I would like to take the opportunity to introduce Ashley Stockton, our new Senior Director of Investor Relations. who joins us with close to 30 years' experience in the equity markets. Most recently, she was head of institutional equity sales in the southeast for J.P. Morgan.

Fred Burke: However, before moving into our agenda I would like to take the opportunity to introduce actually Stockton, our newest senior director of Investor Relations, who joins us with close to 30 years experience in the equity markets. Most recently she was head of institutional equity sale.

Fred Burke: In the southeast for J P. Morgan welcome Ashley.

Fred Burke: Welcome, Ash.

Fred Burke: Now, moving on with our agenda, starting with the first quarter highlights, I'm pleased to report a strong start to the year, which includes revenue of $329 million, an increase of 20% year-on-year. resident count at the end of the quarter of approximately 189,000, a 15% increase from the first quarter last year. and adjusted EBITDA of $23.4 million, representing an increase of 16% compared to last year. excluding pubco costs. This represents growth of 20%. As for guidance, given our strong first quarter We think we will end up in the upper half of our revenue range and remain confident in our adjusted EBITDA range.

Fred Burke: Now moving on with our agenda, starting with the first quarter highlights Im pleased to report a strong start to the year, which includes revenue of $329 million, an increase of 20% year on year.

Fred Burke: Resident count at the end of the quarter of approximately 189000% to 15% increase from the first quarter last year and adjusted EBITDA of $23 4 million, representing an increase of 16% compared to last year.

Fred Burke: Excluding pubco costs this represents growth of 20%.

Fred Burke: As for guidance given our strong first quarter. We think we will end up in the upper half of our revenue range and remain confident in our adjusted EBITDA range.

Fred Burke: I want to emphasize how pleased I am with our strong double-digit growth in the first quarter and the meaningful progress we've made on integrating multiple acquisitions and advancing our strategic initiative. The underlying trends in our core business remain strong, and our acquisition pipeline is highly active, with several near-term opportunities on the horizon. We remain deeply committed to growing our business in a way that drives sustainable, long-term value for shareholders.

Fred Burke: I want to emphasize how pleased I am with our strong double digit growth in the first quarter and the meaningful progress we've made on integrating multiple acquisitions and advancing our strategic initiatives.

Fred Burke: The underlying trends in our core business remains strong and our acquisition pipeline is highly active with several near term opportunities on the horizon.

Fred Burke: We remain deeply committed to growing our business in a way that drives sustainable long term value for shareholders, David will share more detail about our financial results and our outlook for the remainder of the year.

Fred Burke: David will share more detail about our financial results and our outlook for the remainder of the year.

Fred Burke: Today, we are pleased to announce that we closed an acquisition of a small pharmacy in Wichita, Kansas on April 1st, bringing our total number of pharmacies to 52. This new pharmacy will work with our Kansas City location, allowing better service and further penetration of the Kansas market. Furthermore, we are continuing to integrate the two 2024 acquisitions, Freedom and Heartland.

Fred Burke: Today, we are pleased to announce that we closed an acquisition of a small pharmacy in Wichita, Kansas on April 1st bringing.

Fred Burke: Bringing our total number of pharmacies to 52.

Fred Burke: This new pharmacy will work with our Kansas City location, allowing better service and further penetration of the Kansas market.

Fred Burke: Furthermore, we are continuing to integrate the two 'twenty 'twenty four acquisitions freedom Hartland.

Fred Burke: David will elaborate on this, but as a reminder, we have developed a tried and tested integration playbook that takes acquired pharmacies from break-even, which most of them are when we acquire them, to operating at our company margin profile over the course of three to four years. Additionally, we continue to bring a number of our Greenfield startups fully operational. Contiguous expansions strengthen our regional presence in a given market and are typically driven by our existing local pharmacy operators. As an example, Columbus, Ohio, launched by Cincinnati. Cincinnati Pharmacies experienced significant growth since acquisition in 2020 and their new Columbus Pharmacy will improve service to the communities we already serve in this area and continue their growth.

Fred Burke: David will elaborate on this but as a reminder, we have developed a tried and tested integration playbook. It takes acquired pharmacies from breakeven, which most of them are when we acquire them to operating at our company margin profile over the course of three to four years.

Fred Burke: Additionally, we continue to bring a number of our greenfield startups fully operational.

Fred Burke: Contiguous expansion strengthen our regional presence in a given market that are typically driven by our existing local pharmacy operators as an example, Columbus, Ohio launched bad Cincinnati.

Fred Burke: The Cincinnati pharmacy has experienced significant growth since acquisition in 2020.

Fred Burke: And their new Columbus Pharmacy will improve service to the communities we already serve in this area and continue their growth.

Fred Burke: And you'll remember, we also have the following contiguous startups coming up to scale, Oklahoma City, Omaha, and Naples.

Fred Burke: And you'll remember we also have the following contiguous startups coming up to scale, Oklahoma City, Omaha and Naples.

Fred Burke: The impact of tariffs is top of mind for many in our industry right now. At Guardian, we feel comfortable we will avoid major impact and I'd like to share why. First, our pricing structure for branded drugs should insulate us. As a reminder, 70% of our revenue comes from Part D, and we are paid on a spread based on the average wholesale price, or AWP, of the drug. On the branded drug side, if manufacturers pass on tariffs in the form of a price increase, Guardian is protected because the AWP will increase commensurately. and our reimbursement algorithm is calculated off that AWP.

Fred Burke: The impact of tariffs is top of mind for many in our industry right now at Guardian, we feel comfortable we will avoid major impact and I'd like to share why.

Fred Burke: First our pricing structure for branded drugs should insulate us as a reminder, 70% of our revenue comes from part D. And we are paid on a spread based on the average wholesale price our AWP of the drug.

Fred Burke: On the branded drug side, if manufacturers pass on tariffs in the form of a price increase Guardian is protected because of the AWP will increase commensurately and a reimbursement algorithm is calculated off that AWP.

Fred Burke: on generic drugs. It's a more complicated picture impacted by where the APIs are sourced and or where the final product is manufactured. as well as how many generic manufacturers produce the drug. But that said, the generic marketplace is highly competitive, such that manufacturers will have a hard time raising prices on multi-source products. And if they do, most of these products are very low in cost, so we should see a relatively low impact.

Fred Burke: Oh generic drugs, it's a more complicated picture impacted by where the a P iser sourced and or where the final product is manufactured as well as how many generic manufacturers produce the drug but that said the generic marketplace is highly competitive.

Fred Burke: Such that manufacturers will have a hard time raising prices on multi source products and if they do most of these products are very low and cost. So we should see a relatively low impact.

Fred Burke: Finally, I'd like to provide a brief update on the important topic of a potential impact stemming from the Inflation Reduction Act. on our performance in 2026 and beyond. We are continuing to have constructive conversations with key policy makers and our PBM partners. There are no significant developments to report since our last earnings call a little over a month ago. Hence, we continue to remain confident in our ability to navigate the potential margin impact related to the IRA and hope to have more visibility over the next several months.

Fred Burke: Finally, I'd like to provide a brief update on the important topic of a potential impact stemming from the inflation reduction at an.

Fred Burke: Our performance in 2026 and beyond.

Fred Burke: We are continuing to have constructive conversations with key policymakers and R. P M partners.

Fred Burke: There are no significant developments to report since our last earnings call a little over a month ago.

Fred Burke: Yes, we continue to remain confident in our ability to navigate the potential margin impact related to the IRI and hope to have more visibility over the next several months.

David Morris: Now I'll turn the call over to David to review the quarter in greater detail. Good afternoon and thank you all for joining the call today. I'll share a review of our first quarter performance and then provide some additional color on our expectations for the balance of 2025.

David: Now I'll turn the call over to David to review the quarter in greater detail.

David: Is it.

Speaker Change: Good afternoon, and thank you all for joining the call today.

Speaker Change: I'll share a review of our first quarter performance and then provide some additional color on our expectations for the balance of 2025.

David Morris: I'll then close our comments today with some details on our integration playbook and what to expect from our new pharmacy expansion. For the first quarter of 2025, revenue increased 20% to $329.3 million, driven by organic growth and the acquisitions of Heartland and Freedom Pharmacies, the former of which will anniversary this quarter. Resident count grew 15% to $189,000, gross profit of $64.4 million, increased 17%, and adjusted EBITDA grew to $23.4 million compared to $20.3 million a year ago, representing growth of 16% and an EBITDA margin of 7.1%. Excluding PubCo, adjusted EBITDA growth is 20% year over year.

Speaker Change: I'll then close our comments today with some details on our integration playbook and what to expect from our new pharmacy expansions.

Speaker Change: For the first quarter of 2025 revenue increased 20% to $329 3 million driven by organic growth and the acquisitions of Heartland and freedom pharmacies, the former which will anniversary this quarter.

Speaker Change: Didn't count grew 15% to 189000 gross profit of 64 4 million increased 17% and adjusted EBITDA grew to $23 4 million compared to $20 3 million a year ago, representing growth of 16% and an EBITDA margin.

Speaker Change: Seven 1% <unk>.

Speaker Change: Excluding pepco adjusted EBITDA growth is 20% year over year, one important thing to note as it relates to our EBITDA is that we decided to begin the transition of Heartlands operating infrastructure over to our primary platform beginning in the first quarter.

David Morris: One important thing to note as it relates to our EBITDA is that we decided to begin the transition of Heartland's IT operating infrastructure over to our primary platform beginning in the first quarter. As with all acquisitions, we closely monitored the integration efforts and made the decision that expediting the operating system conversion was the right thing to do for the long-term success of the business. This will accelerate the local team's access to proprietary tools only available on our primary operating system. We began the operating system conversions in the two Idaho locations and plan to complete both in the first half of 2025.

Speaker Change: As with all acquisitions, we closely monitor the integration efforts and made the decision that expediting. The operating system conversion was the right thing to do for the long term success of the business.

Speaker Change: This will accelerate the locals teams access to proprietary tools only available on our primary operating system.

Speaker Change: We began the operating system conversions and the two Idaho locations and plan to complete both in the first half of 2025.

David Morris: The remaining two locations in Denver and Salt Lake City are on track to be completed in the latter half of this The accelerated operating system conversions will add several benefits, allowing for full access to Guardian data analytics platform, the operating workflow enhancement and efficiencies, as well it will allow us to improve the customer experience. We continue to be on track with our three to four year integration process, which includes continuing to strengthen the teams, implementing Guardian's purchasing platform, and relocating and expanding the two pharmacies in the high growth markets of Denver and Salt Lake City throughout the remainder of 2025.

Speaker Change: The remaining two locations in Denver, and Salt Lake City are on track to be completed in the latter half of this year.

Speaker Change: The accelerated operating system conversions will add several benefits, allowing for full access to guarding data analytics platform, the operating workflow enhancements and efficiencies as well it will allow us to improve the customer experience, we continue to be on track with our 3% to.

Speaker Change: <unk> four year integration process, which includes continuing to strengthen the teams implementing gardy is purchasing platform and relocating and expanding the two pharmacies in the high growth markets of Denver, and Salt Lake City throughout the remainder of 2025.

David Morris: Expediting the operating system transition also accelerated cost, putting pressure on Q1 profitability. However, we believe it was important for the overall pharmacy integration. Further, this is a good reminder that these acquisitions and our de novo startups are diluted to operating profits the first two to three years as they transition to the Guardian systems infrastructure and our overall business model. In fact, 10 of our 52 pharmacies currently, or roughly 20% of our network, have tenure of about one year or less. These newer pharmacies represent embedded earnings power as they are still ramping up to the Guardian's margins profile.

Speaker Change: Expediting the operating system transition also accelerating cost putting pressure on Q1 profitability. However, we believe it was important for the overall pharmacy integration. Further. This is a good reminder, that these acquisitions on our de Novo startups are dilutive to operating <unk>.

Speaker Change: Profits the first two to three years as they transition to the Guardian systems infrastructure at our overall business model. In fact 10 of our 52 pharmacies currently are roughly 20% of our network have tenure of about one year or less these newer pharmacies rep.

Speaker Change: Present embedded earnings power as they are still ramping up to the Guardian's margins profile.

David Morris: Turning to the balance sheet, we ended the first quarter with $14 million in cash, and we remain in a strong financial position with zero debt and plenty of dry powder on our existing revolve. As Fred mentioned, we believe that revenue will come in at the higher end of our $1.33 billion to $1.35 billion range as a result of the upside in the first quarter. For Adjusted EBITDA, we are reiterating our EBITDA range of 97 to 101 million. At this early point in the fiscal year, we want to remain conservative in our forecast, given the quarter-to-quarter variability associated with integration-related expenses.

Speaker Change: Turning to the balance sheet. We ended the first quarter were $14 million in cash and we remain in a strong financial position with zero debt and plenty of dry powder on our existing revolver.

Speaker Change: As Fred mentioned, we believe that revenue will come in at the higher end of our 1.33 billion to 135 billion range as a result of the upside in the first quarter.

Speaker Change: For adjusted EBITDA, we are reiterating our EBITDA range of 97% to $101 million.

Speaker Change: At this early point in the fiscal year, we want to remain conservative in our forecast given the quarter to quarter variability associated with integration related expenses.

David Morris: Historically, our quarterly cadence of revenue and adjusted EBITDA has been evenly distributed across the quarters. But we want to remind you of the new seasonality factor we experienced in 2024 as you think about the full year 2025. As referenced in our March 26 earnings call, changes in the profitability profile of our COVID and flu vaccine clinics created a notable seasonality increase in Q4 of 24, which we expect will be repeated this year. As we think about the second quarter 25, we expect it to be consistent with Q1 of 25 in terms of revenue and adjusted EBITDA.

Speaker Change: Historically, our quarterly cadence of revenue and adjusted EBITDA has been evenly distributed across the quarters, but we want to remind you of the new seasonality factor we experienced in 2024 as you think about the full year 2025.

Speaker Change: As referenced in our March 26 earnings call changes in the profitability profile of our Covid and flu vaccine clinics created a notable seasonality increase in Q4 of 24, which we expect will be repeated this year.

Speaker Change: Yes.

Speaker Change: As we think about the second quarter 2005, we expect it to be consistent with Q1 'twenty five in terms of revenue and adjusted EBITDA.

David Morris: Driving the assumption for revenue is the upside in resident count we experienced in Q1, which was a result of pulling forward residents that we expected to onboard in Q2. In terms of adjusted EBITDA, accelerating the timing of Heartland's IT conversion will likely result in it being a flat quarter-to-quarter.

Speaker Change: Driving the assumption for revenue is the upside in resident count we experienced in Q1, which were as a result of pulling forward residents that we expected to onboard in Q2.

Speaker Change: In terms of adjusted EBITDA accelerating the timing of Heartlands IP conversion will likely result in it being a flat quarter to quarter.

David Morris: Finally, as I mentioned on our fourth quarter call, I want to remind you today that 2025 will include a full year of Pubco cost of around $4 million compared to just one quarter and approximately $1 million of those related expenses in 2024.

Speaker Change: Finally, as I mentioned on our fourth quarter call, but want to remind you today that 2025. We will include a full year of pubco cost of around $4 million compared to just one quarter and approximately $1 million, but those related expenses in 2020 for.

David Morris: To close out my comments today, I'll share some details about our integration playbook that we've honed through the years of executing our pharmacy acquisition strategy. We typically execute two small acquisitions of new locations each year. We take a very thoughtful and strategic approach when considering acquisitions and aim only for targets that meet our rigorous criteria, including strong collaborative operators. rich territory for national accounts and the ability to continue to grow and improve the business. And I remind you again that these acquisitions are not baked into our initial annual guidance that we provide. Utilizing our playbook, it typically takes three to four years to complete the integration and have the pharmacies achieving our overall operating method.

Speaker Change: To close out my comments today I will share some details about our integration playbook that we combed through the years of executing our pharmacy acquisition strategy.

Speaker Change: We typically execute two small acquisitions of new locations each year, we take a very thoughtful and strategic approach when considering acquisitions and aim only for targets that meet our rigorous criteria, including strong collaborative operators.

Speaker Change: Rich territory for National accounts, and the ability to continue to grow and improve the business.

Speaker Change: And I'll remind you again that these acquisitions are not baked into our initial annual guidance that we provided you.

Speaker Change: Utilizing our playbook. It typically takes three to four years to complete the integration and have the pharmacies, achieving our overall operating metrics.

David Morris: Recall that many of these independent pharmacies don't have the scale or efficiencies that we're able to achieve and are also struggling to break even at the time of acquisition. In our first year, we focus on launching a collaborative integration process onboarding such things as payroll, benefits, accounting, licensing, credentialing, and vendor management. In addition, in year one, we're transitioning to Guardian's reimbursement model. We're strengthening and training the local leadership teams, including supervisory skills development, and we begin implementing Guardian's IT structure. Turning to year two, we focus on solidifying the foundation, including the continuing development of the local leadership team and positioning the business for continued growth.

Speaker Change: Recall that many of these independent pharmacies don't have the scale of our efficiencies there we're able to achieve an awful struggling to breakeven at the time of acquisition.

Speaker Change: And our first year, we focus on launching a collaborative integration process on boarding such things as payroll benefits accounting licensing credentialing and vendor management.

Speaker Change: In addition in year, one we're transitioning to Guardians reimbursement model, we're strengthening and training the local leadership teams, including supervisory skills development, and we began implementing guardians Iot structure.

Speaker Change: Turning to year, two we focus on solidifying the foundation, including.

Speaker Change: The continuing development of the local leadership team and positioning the business for continued growth from.

David Morris: From an operational standpoint, we bring them on to the Guardian purchasing model and margin management tools. We ramp up the sales and marketing effort, providing access to our national accounts. We're focused on efficiency initiatives that include automation and reconfiguring and or moving the pharmacy. We'll continue to work to improve the revenue cycle and margin management. And as we move into years three and four, that's when we really start seeing the improvements in profitability and begin achieving leverage. Once we are fully integrated, typically in year three or four, is when we see the growth and profitability start to mirror Guardian's overall profitability profile.

Speaker Change: From an operational standpoint, we bring them onto the Guardian purchasing model and margin management tools.

Speaker Change: We ramp up the sales and marketing effort, providing access to our national accounts. We're focused on efficiency initiatives that include automation and Reconfiguring and are moving the pharmacy, we will continue to work to improve the revenue cycle and margin management and as we move in.

Speaker Change: The years, three and four that's when we really start seeing the improvements in profitability and begin achieving leverage.

Once we are fully integrated typically in year three or four is when we see the growth and profit really start to mirror Guardians overall profitability profile. We currently have seven sites that are somewhere along this path and look forward to continuing to add to the pipeline as we execute our.

David Morris: We currently have seven sites that are somewhere along this path and look forward to continuing to add to the pipeline as we execute our acquisition strategy.

Speaker Change: Acquisition strategy.

David Morris: I'll close today by echoing Fred's remarks that we're pleased with our strong start to 2025. This year we will remain focused on leveraging the core operations. expanding our operating reach and continuing to invest in our team. I also want to thank the entire Guardian team for their continued effort and dedication. in making this an incredible place to work every day and ensuring we're able to provide the highest level of service to all of our customers. I look forward to keeping you updated as we continue to progress through the year.

Speaker Change: I'll close today by echoing Fred's remarks, there we're pleased with our strong start to 2025.

Speaker Change: This year, we will remain focused on leveraging the core operations, expanding our operating reach and continuing to invest in our teams.

Speaker Change: I also want to thank the entire Guardian team for their continued effort and dedication to.

Speaker Change: Making this an incredible place to work everyday and ensuring we're able to provide the highest level of service to all of our customers.

Speaker Change: Look forward to keeping you updated as we continue to progress through the year.

Operator: Operator, let's open the call to questions. Thank you.

Speaker Change: Operator, let's open the call to questions.

Speaker Change: Thank you.

Operator: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number 1 on your touch tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the number 2. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question.

Speaker Change: Ladies and gentlemen, we will now begin the question and answer session.

Speaker Change: Should you have a question. Please press the star followed by the number one on your Touchtone phone.

Speaker Change: You'll hear a prompt that you haven't been raised.

Speaker Change: Should you wish to decline from the polling process. Please press the star followed by the number too.

Speaker Change: If you are using a speaker phone please lift the handset before pressing any keys.

Speaker Change: One moment. Please for your first question.

Speaker Change: Your first question is from John Ransom from March <unk>. Please go ahead.

David MacDonald: and Ransom from RGF, please go ahead. Hey, good evening, everybody. David, could you maybe size the Heartland drag in the first quarter and for the four-year versus what you contemplated initially? And I guess specifically the integration costs that run through the P&L.

John Ransom: Hey, good evening everybody.

Speaker Change: David could you maybe size the heartworm drag in the first quarter and for the full year versus what you contemplated that.

Speaker Change: And I guess, specifically the integration costs that run through the P&L.

David Morris: Hey, John. How are you? I'm out. Good, good.

John Ransom: Hey, John.

John Ransom: How are you.

John Ransom: Our mall.

Speaker Change: Good good just a couple of things one the comments around the Heartland integration the first being that the cost associated with that.

David Morris: Just a couple of things on the comments around the Heartland integration. The first being that the cost associated that is in our guidance and in our numbers, and with us making the decision to, you know, expedite. The conversion to the operating system, it did pull a little bit of cost from Q2-3 into Q1 and, you know, it plus or minus, I would say, 500,000. Okay, perfect.

In our guidance.

Speaker Change: Our numbers and with us, making the decision to expedite.

The.

Speaker Change: Conversion to the operating system.

Speaker Change: Paul a little bit of cost from Q2, three and a Q1 then.

Speaker Change: Plus or minus I would say 500000.

Speaker Change: Okay, Perfect and then Brad.

Fred Burke: And then, Fred, this is, I get to ask you an unfair question, but just the Trump executive order, a lot of opinions about that, but I don't know if you had a chance to study that. And do you have any initial thoughts about how that order would not complicate further negotiations with your payer partners? Well, what an interesting thing to happen today. I have been trying to read about it, and it's unknown at this point, John. It's so unclear what effect it would have. It's frustrating in some measures because, as I reported earlier, we're really very positive in the discussions we're having with our payors to resolve the IRA issue, and now this comes along.

Brad: Brad This is I get to ask unfair question, but.

Speaker Change: Yes.

Speaker Change: But the top executive order there are a lot of opinions about that but I don't know yet.

Speaker Change: And do you have any initial thoughts about how that would or would not complicate further.

Jason: Hey, guys, Jason with your prior partner.

Speaker Change: Well, what an interesting thing to happen today.

Jason: I have been trying to think about it.

Speaker Change: And.

Speaker Change: It's unknown at this point, John it's so unclear what affair.

Speaker Change: Effect that would have us.

Speaker Change: Frustrating and some measures because.

As I reported earlier, we are really very positive.

Speaker Change: And the discussions we're having with our payers to resolve the IR array issue and now this comes along we will just have to monitor it very closely and see where we go from here but.

Fred Burke: We'll just have to monitor it very closely and see where we go from here. But strikes me that were this negative order to gain some traction, I believe our payor partners will be similarly interested in resolving that. Based on my own personal knowledge and understanding of the MMA, this strikes me as very difficult given the non-interference clause, but I suspect that that will play out over the coming months in the judiciary and potentially the lead Congress would have to make some changes to allow this. So that's all I can say at this point. Wish I knew more.

Speaker Change: It strikes me that.

Speaker Change: This executive order to gain some traction.

I believe our pay or partners will be similarly interested in and resolving that.

Speaker Change: Based on my own.

Speaker Change: Personal.

Speaker Change: Knowledge and understanding of the MMA.

Speaker Change: This strikes me as very difficult given the non interference clause, but.

Suspect that that will play out over the coming months.

Speaker Change: In the judiciary and potentially.

Speaker Change: Let Congress would have made some changes to allow this so that's all I can say at this point.

Speaker Change: Wish I knew more well, let's stay closed.

Fred Burke: We'll let's stay closed and assess it as we get more information.

Speaker Change: Assess it as we can.

Fred Burke: So last one for me, so just sort of a mechanics question, so the PBM, you know, they have to set their Part D pricing annually, they set the network. So the next available opportunity would be, I assume, you know, when you renegotiate 2026. And of course, that's the IRA as well, but I assume you'd get an opportunity, that would be the first opportunity, there's no like force majeure clause in your contracts that would reset this year. It's just a, it's a, it's an association opportunity for 2026, do we have that right?

Speaker Change: The last one from me just sort of a mechanic question.

Speaker Change: So the <unk>, yes, they have to set their part D pricing annually that set the network. So the next available.

Speaker Change: <unk> opportunity would be.

Yes, when you renegotiate 40 46.

Speaker Change: And of course, that's the IRA as well, but I assume you would get an opportunity that would be the first opportunity. There's no like fourth or is your clause in your contract that would reset this year.

Speaker Change: Okay.

Speaker Change: Opportunity for 2020 segment that we have that right.

Fred Burke: Thank you. Bye. I would think so. I think you're right. I don't envision this taking effect in the immediate term. Right, right. Okay. Well, nobody's told me I've been right all day, Fred, so that you just made my day.

Speaker Change: I would think so I think youre right.

Speaker Change: Envision this taking effect in the immediate term.

Speaker Change: Okay.

Speaker Change: Right right.

Speaker Change: Okay.

Speaker Change: Nobody has called me up and write all bankruptcy.

David Morris: So, um, I'm just gonna leave on top and let you get back in the queue. Hey! Good talking to you. Thank you. Yes, sir.

Speaker Change: So I'm just going to leave on top.

Speaker Change: But to get back in the queue.

Speaker Change: Okay.

Speaker Change: Target. Thank you.

Speaker Change: Yeah.

Speaker Change: Okay.

David MacDonald: Your next question is from David MacDonald from Tourist Securities. Please go ahead.

Speaker Change: Your next question is from David Mcdonald from tourist Securities. Please go ahead.

Gracie McAllister: Hey guys, this is actually Gracie McAllister on for Dave. But I guess just one kind of follow-up for you. Obviously, resident talent was really strong in the quarter. Was hoping you could break that out, kind of, I guess, between a same store metric and the contribution from Heartland and Freedom would be helpful. um Our resident growth, year-on-year, organically met the guidance that we've discussed, which is high single-digit organic. and the balance would be from the acquisitions that you named. Got it. Okay. That's helpful.

David McDonald: Hey, guys. This is actually a great thing Macao strong today.

But I guess, just one kind of follow up for you. Obviously resident count was really strong in the quarter was hoping you could break that out kind of I guess between a same store metric and the contribution from Heartland and freedom would be helpful.

Yes.

David McDonald: Our resident growth year on year organically.

David McDonald: Met the guidance that we've discussed which is high single digit organic.

David McDonald: And the balance would be from the acquisitions that you named.

David McDonald: Okay.

David McDonald: Got it Okay. That's helpful. And then I think just my follow up.

David Morris: And then I think just my follow-up, just wanted to see how the pipeline is shaping up and see if any of the uncertainty that we're seeing around tariffs, kind of around economic environments, having any impact on opportunities that you guys are seeing come through. Thanks. You know, from a pipeline standpoint, Fred mentioned that it's robust and as strong as it's ever been, and there's pressure out there on some of these smaller business in addition to the tariffs and IRA things that we discussed. So I would say it's consistent to even more robust is what we're seeing.

David McDonald: I just wanted to see how the pipeline is shaping up and see if any of the uncertainty that we're seeing around tariffs.

David McDonald: Kind of on the economic environment is having any impact on opportunities that you guys are seeing it come through.

Fred Burke: From a pipeline standpoint, Fred mentioned that it's robust.

Fred Burke: As strong as it's ever been.

Speaker Change: There is pressure out there on some of the smaller business. In addition to the tear ups and.

Speaker Change: Things that we discussed so I would say, it's consistent to even more robust as what we're seeing.

David Morris: and I mentioned that we have several active projects underway.

Speaker Change: And.

Speaker Change: I mentioned that we have several active projects underway.

Gracie McAllister: Awesome. That's all I've got for it. Thanks, guys. Thank you.

Speaker Change: Awesome, that's all I've got for it thanks guys.

Speaker Change: Thank you.

Operator: Ladies and gentlemen, as a reminder, should you have any questions, please press the star key followed by the number. pause a moment for further questions. There are no further questions at this time.

Ladies and gentlemen, as a reminder, should you have any questions. Please press the star key followed by the number one.

Speaker Change: We will pause a moment for further questions.

Speaker Change: There are no further questions at this time. Please proceed with closing remarks.

Fred Burke: Please proceed with closing remarks.

Fred Burke: Just let me take a minute and thank everyone from our teams to our investors for your support and trust in us. We look forward to continuing to move out through the year and achieve the guidance that we've set forward.

Speaker Change: Just let me take a minute and.

Speaker Change: Everyone from our teams to our investors.

Speaker Change: And for your support and trust in Us.

Speaker Change: We look forward to continuing to.

Speaker Change: Move out through the year and achieve the guidance that we've set forward. Thanks for joining the call and look forward to seeing you soon thanks.

Operator: Thanks for joining the call and I look forward to seeing you soon. Thanks.

Speaker Change: Okay.

Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you do please disconnect your lines.

Speaker Change: Ladies and gentlemen, this concludes your conference call for today.

Speaker Change: Thank you for participating and ask that you. Please disconnect your lines. Thank you.