BrightSpring Health Services, Inc.

Good day and thank you for standing by. Welcome to the Bright Spring Health Services second quarter 2024 earnings 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 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 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 Fitts, Chief Accounting Officer at Bright Spring. Please go ahead.

Good morning. Thank you for participating in today's conference call. My name is Jennifer Fitts, Chief Accounting Officer at Bright Spring. I'm joined on today's call by John Rousseau, Chief Executive Officer, and Jim Mattingly, Chief Financial Officer. Earlier today, Bright Spring 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. 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. 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 Rousseau, Chief Executive Officer.

Thank you, Jen. Good morning, and thank you for joining Bright Spring's second quarter 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. and 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. 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 $616 million, growing 8% compared to the second quarter 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. 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 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. 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 has significant and tangible quality and cost benefits. 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 and 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 outside 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. 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 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, a Florida-based company holding a certificate of need for comprehensive hospice care services in 18 counties in the state. Haven operates in a highly desirable geography where we believe our capabilities can be implemented to improve operational metrics, financial performance, and growth. And 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. 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. Revenue momentum continued quarter over quarter, driven by ongoing execution supporting specialty product ramp-ups and launches from 2023 and 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 second quarter, driven by very solid script volume growth. 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. In home and community pharmacy, Scripps 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. 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 Scripps dispensed, delivering 36% volume growth. The continued outperformance in specialty can be attributed to strong execution across our LBB and high-value generics portfolios. 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 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-tech 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. Most recently, we were selected as a pharmacy partner by Day One Biopharmaceuticals for distribution of OGENDA, which is utilized to treat central nervous system tumors in children six 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 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. 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 now expected in Q4 this year. We are also pleased with the volume performance in our home and community pharmacy business. 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 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 healthcare, 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 the second quarter, and rehab billable hours grew in the high single digits. 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. 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, Bright Spring was eligible to receive a last annual Equality Incentive Payment, or QIP, in specialty from one of our PBM partners in the second quarter. As we have 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 NTS that we track and see for all other payer and PBM members. 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. 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. Bright Spring 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 seven 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. 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 and generics and specialty. We continue to drive improved operational performance with a real focus on efficiency initiatives across infusion and home and community pharmacies. 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. Moving forward in the back half of the year and into 2025 and beyond, BrightSpring continues to remain focused on targeting volume growth and 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 second quarter financial results and 2024 guidance in more detail.

Jim?

Thanks, John. Before I provide financial results for the quarter, please note that all growth metrics for growth profit and adjusted EBITDA compared to 2023 exclude a certain $30 million quality incentive payment, or QIP, that Bright Spring received in the second quarter of 2023. Total revenue in the second quarter of 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. 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. Moving down the P&L, the total company gross profit in the second quarter was $389 million, representing growth of 14% compared with the second quarter of last year. Adjusted EBITDA for the total company was $139 million for the second quarter, growing 17% compared to last year. And adjusted EPS for the total company was $0.10 for the second quarter. Turning back to segment performance, pharmacy solutions gross profit was $183 million, growing 16% compared with the second quarter of last year. Adjusted EBITDA for pharmacy solutions was 94 million for the second quarter, growing 19% compared to last year. Provider services growth profit was 206 million, growing 12% versus the second quarter of last year. And adjusted EBITDA for provider services was 86 million for the second quarter, growing 16% versus last year. On a total company basis, cash flow from operations was negative 15 million in the second quarter of 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. 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 three times within three years. As of June 30th, our net debt outstanding is approximately $2.7 billion, with our leverage ratio at 4.51 times, 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 three received variable pay fixed interest rate swap agreements that we have in place set to mature on September 30, 2025. Portally 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. 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 John.

Thank you for your time today to go through Bright Spring's second quarter results and guidance update. We will now open up the line for questions. Operator?

Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. And our first question comes from Brian Tanquilot of Jefferies. Your line is open.

Hey, good morning, guys, and congrats on a really strong quarter. I guess my question first, John, you've seen really good and strong traction and 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 pharma solutions revenue in the back half. Thanks.

Hey, Brian, good morning. Thanks for the question. No, our growth rate that we're seeing in pharmacy remains 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. So we would expect similar growth rates into the second half, 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 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 in corporate, which is flat in the second half as we continue to drive volume. But very consistent volume expectations in terms of growth rates for the second half. and no reason to believe those will slow down or slow down heading into 2025.

Awesome. And then maybe since you mentioned margins, and I think Jim mentioned that there are 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?

Yeah, we see about a 535.4% EBITDA margin for the full year, so 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. 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. And then, 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. And then, you know, as an organization, we continue to focus on operational excellence. And so, 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, you know, and 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. So, 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.

That's awesome. Congrats again. Thanks, John.

Thank you.

Our next question comes from AJ Rice of UBS. Your line is open. Okay.

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? And then comment on the margin trajectories that business grows, maybe looking out a little further. On the one hand, in pharmacy solutions, I guess the mixed shift could pressure margin, but I think as new business improves over time, you'd see margin improvements. So, maybe delve into that a little more if possible.

Yeah, thanks, AJ. 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 it, really almost every single one of our service lines, 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 years and even the five LDD drugs we've launched so far this year. 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 and prescriber offices with clinicians, patients, and families thriving. 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 over the years. So we're seeing broad-based growth in the organization, also within specialty. You know, specialty's margins picked up a little bit in the Q2 period, We expect that to continue into the back half as well, and we expect the same for the trend dynamic for overall pharmacy.

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. I haven't heard people calling out big new business wins in that segment in a while. Is there an increase in RFP? P 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?

Yeah, I mean, you know, the breadth of home and community pharmacy, you know, covers a lot of attractive and 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 and set proprietary service programs for customers that service very well. We have a high-performing sales team, too, and the business 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 40,000 new patients in beds from competitors this year. And we just really focus on the 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. Okay. Thanks a lot. Thank you.

Our next question comes from Whit Mayo of Lyric. Your line is open.

Hey, thanks. Good morning. Just back on the LDD launches, just want to 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. And just remind us, are those accretive at launch or do they require some investments and the earning slope is a little bit more on a lag?

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. So, that cadence of about one 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 and other service offerings to them. So, 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, but at launch, those are accretive from day one at the respective GP margins and EBITDA prescript margins right out of the gate.

Okay. So, kind of one a month. All right. Second question, just on home infusion, just sort of 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. 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. 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. 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. Thanks.

Thank you.

Our next question comes from David Larson of BTIG. Your line is open.

Hey, congratulations on the good quarter. Can you talk a little bit about cross-selling efforts within the provider division? So 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 in-sell potential is? And just with a sort of growth potential is with cross-selling efforts. Thank you.

Hey, David, good morning. Thank you for the question. 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, really high-quality pharmacy services. 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 i.t infrastructure and building out a data lake that that data is is all in one place and available for all of our analytical slicing and dicing to track 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 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 through their transitions and so You know, 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, you know, I believe into next year in 26, we're really going to 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 and home health being delivered to the same patient's 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. You know, we are not talking about that now, but we would plan to be talking about that in Q3 and Q4 as And hopefully that's the first of many to come in the future. But, 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. And hopefully as we get into as early as 2025, you know, we start to see eight figures of EBITDA from those efforts.

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 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.

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. And so 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. You know, 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, 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 – I'm sorry, I do acute hospitals either. 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. So, 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. And then, you know, we are fortunate with this very unique platform to drive referral sources from a very diversified set of partners and relationships.

Thanks very much. Thank you.

Our next question comes from Joanna Gadgett of Bank of America. Your line is open.

Hi, good morning. Thanks for taking that question. So on the provider segment, the margins was pretty good, 14%, so up mostly year over year. So 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, and is that, you know, 14% margin sustainable going forward?

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 if 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 and patient care. and continuing to drive volume growth. And so stability, you know, on the provider side from a margin standpoint is just really underpinned by operational performance and volume growth and seeing some leverage in our fixed costs on that side of the business.

Thank you. And to that end, I guess this Haven Hospital acquisition, I guess it's only second half, but I guess it's going to be also additive to that. segment EBITDA, maybe a percent or so. Is that a way to think about it in the ballpark?

Yeah. 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 in terms of some idiosyncratic characteristics of that particular target, but Florida CONs are are a very, very rare commodity. I mean, you're 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 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. We structured that very uniquely in a way that we think really works for the balance sheets. You know, that's the business that we will lean into from a quality and an operational perspective to try to drive operational and 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. You know, that's the business that we ultimately see as a $15 million plus EBITDA business, but it'll take us a little bit of time to get there going through that not-for-profit conversion. 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. So that's going to be a little bit of a buildup. We lean into situations where we can really apply our operational capabilities to improve the businesses. This is a great example of doing that in a really attractive market.

Right. And I guess on the comment around the home health and hospice businesses growing double digits, how much of that, I guess, is organic? And 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 hospice.

Yeah, that is largely organic. And, you know, I've been particularly pleased on the home health side of our business. You know, in hospice, we are a top 5%. quality provider 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 end of their life, you know, which clearly reduces costs and hospitalization and provides an outstanding quality result for families and patients themselves. So, you know, hospice, very stable, incredible quality platform. and 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. 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. 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. So, 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 date 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

know rates will get back to very appropriate levels of increases here over the next year or two and you know we're really trying to set ourselves up to capitalize on that um you know over the next three to five years joanna one joanna jim addingly one one quick follow-up on your previous question about haven hospice just for clarity um thank you we we have not included haven hospice on our guidance um we've announced the transaction but haven't closed it yet um so we will include 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.

Great. Thanks so much for that. Thank you. Thank you.

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

Yeah, good morning, Erin. Yeah.

we're, you know, we're shifting to 2025 planning mode, but we'll be getting into those details here more intensively in the 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 not only in the second half, but continuing into 2025. As we sit here today, we would envision very similar growth rates into 2025 with potentially some upside in that if we do a little bit more M&A.

Okay. And on that front, on the M&A side, 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? Sure.

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. 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 very accretive here in the last year in particular that are four times pro forma EBITDA or less typically. And that's really where our focus has been. But 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 three times leverage target here in the next two, two and a half years. You know, very pleased with the cash flow in Q2. 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 quarterly That obviously annualizes to about $300 million for the year. So, you know, we continue to see our OCF at an annualized run rate of about 280 as we work towards, you know, that three-times leverage target in the future. And, you know, we believe we can continue to augment our growth rate through very accretive M&A combined with organic growth to achieve our growth objectives while we work towards that leverage target.

Okay, great. Thank you.

Thank you. Sure.

Our next question comes from Anne Hines of Mizuho Securities. Your line is open.

Hi, good morning. In your prepared remarks, you referenced 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 drug is going generic at the end of the year? I think you said it was Q424. Is this earlier than expected? And maybe how we should think from a modeling perspective over the next three to five 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.

Yeah. Hey, Anne. No, oncology is obviously two of the biggest areas of the massive specialty pharmacy market. It's a market that grows, you know, into the double digits at 10% to 15% depending on the quarter. So, You know, we have an extremely strong position as one of the two biggest independents, and especially 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 seven years, $90 billion. The FDA pipeline has never been deeper. A lot of those drugs are going to be trending more towards niche drugs and more specific specialty indications, more narrower indications. That's beneficial for numerous reasons as well. But the pipeline has never been more robust. We have an incredibly strong position in that market, which has been built over the last 10 to 15 years. There's 11 big brand drugs growing generically. over the next six to seven 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. But Sprite Cell is going generic here. Q4, you know, we were able to get as much confirmation as we could here in Q2. And, you know, that'll certainly be a positive event like any brand to generic conversion is. And we expect Sprycell to be the first one of these 11, next 11, meaningful generics to go here in Q4.

Great. Thank you.

Thank you. As a reminder, to ask a question, please press star 11. And our next question comes from Pito Chickering of Deutsche Bank. Your line is open.

Hey, good morning, guys. Going back to that back half of your margin ramp that Brian and Joanne have already asked, you raised the revenue guidance by 125 and EBITDA by 13 million. So that's a lot more EBITDA guidance raised than the revenue would suggest. So if you think about the EBITDA guidance raise of eight, nine million more than the revenue raise, 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? I get that the margin change improves as providers have a better margin, but I just want to bridge what happened from last guidance to today's guidance.

Yeah, thanks, Pito. I mean, as I sort of mentioned before, there's about eight factors more, but principally about eight factors in summary that are driving second half margins. 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. 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. 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 in 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 and the Q4. You know, fifth, a lot of operational initiatives that we've been working on continuously. We have a continuous improvement, you know, lean focus in this organization. But, you know, there is very meaningful benefit that we are driving 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 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. And then home health and hospice and rehab growth continues to be very strong in the back half of the year. You know, really then I just sort of, you know, end with and really, you know, as you said, the provider business is going to 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.

Okay. I'll let you 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.

Yeah, 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. 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. And then we augment all of that third with accretive acquisitions. That's always been our strategy. And, you know, it's really at this point in time, at least working, you know, better than ever before. And we think those are key strategies required to be successful in the future of healthcare. And, you know, again, I mean, you know, we're going to get some leverage on a lot of our op-eds in the back half of the year. So we really focus on gross profit margins, And 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? And we're continuing to drive a lot of these operational initiatives. But, you know, it's drive the core through our service line. It's leverage that core through integrated care in our size and scale and efficiency. And then it's 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. Thank you.

Thank you.

Our next question comes from Steven Baxter of Wells Fargo. Your line is open.

Hey, thanks. I 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 was very similar. But then in the second quarter, we saw the gross profit growth jump up to, I think, 16% excluding QIP payments. I think that was 6% growth in the first quarter. 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 the second quarter in the first quarter for us, profit growth. Thank you.

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. And then you've got some favorability on mix. on both really the product side, primarily the product side, a little bit payer, primarily product side, and Q2 especially, 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.

Thank you.

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

Hey, congrats on the quarter. Thanks for taking my questions. Quickly, just on the provider side, it seems to get some nice volume gains there. Just thinking about sourcing of those market share gains, how much of that is kind of incremental density in existing markets versus expansions into newer markets? Thanks.

Yeah, hey, Jack. The majority of that is probably going to 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, small tuck in M&A. But 90-95% of that is just from execution in our core markets and growth there. Really, each one of our markets that we're in on the provider side, we're growing, I'd say, on community living, kind of at the market growth rate, really everywhere else. you know, growing above market.

Gotcha. That's helpful. And then just another one to kind of double-click on the 2Q margin. You know, were there any kind of material puts and takes there associated with supporting de novos, some of the recent tuck-ins, and then also any impact from diabetes care payments? Thank you.

Yeah, it's, you know, I would say we did have some investments in the quarter to continue to see 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. But 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 dollars of startup costs in the quarter. You know, those would principally be the two. And, you know, we continue to make investments in our people and in IT. You know, we think we've made a lot of those investments here in the last year. And corporate's 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. Thank you.

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

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. 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.

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