BrightSpring Health Services, Inc.

Good day and thank you for standby. Welcome to the Bright Spring Health Services Inc. fourth quarter and full year 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, David Deichler, Investor Relations. Please go ahead.

Good morning. Thank you for participating in today's conference call. My name is David Deichler, and I'm responsible for Investor Relations at Bright Springs. I'm joined on today's call by John Rousseau, Chief Executive Officer, and Jen Phipps, Chief Financial Officer. Earlier today, Brightspring released financial results for the quarter and full year ended December 31st, 2024. A copy of the press release and presentation is available on the company's investor relations website. Please note that today's discussion will include forward-looking statements that reflect our current assumptions and expectations, including those related to our future financial performance, 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 our annual report in Form 10-K filed with the FCC, including specific risk factors and uncertainties discussed in our 10-K. Such factors may be updated from time to time in our periodic filings with the FCC, 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 conditions. You can find additional information on these non-GAAP financial measures and reconciliations to their most directly comparable GAAP financial measures to the extent available without unreasonable effort in today's 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'll turn the call over to John Rousseau, Chief Executive Officer.

Good morning. Thank you for joining Bright Spring's fourth quarter and full year 2024 earnings call. I'd like to begin this call by expressing my appreciation and gratitude to and for the Bright Spring team across the country. Our employees and caregivers work very hard with diligence each day to deliver compassionate and attentive care to the people we provide critical services to. I would also like to welcome Jen Phipps as Chief Financial Officer and thank Jim Mattingly for his excellent service over the years as we transition the CFO position. During Jim's tenure, the company has achieved some exceptional results, including the sale and recapitalization to KKR and WBA, 175% revenue and 109% EBITDA growth since that time, implementation of best-in-class financial systems, completing the IPO, and executing multiple successful refinancings underpinned by the company's performance. We appreciate all of Jim's leadership and contributions as he moves to other priorities and next steps. And after appropriate and thorough consideration and evaluation, we are extremely pleased that Jen will assume the role of Chief Financial Officer. With Jen's overall background and eight-year tenure at Bright Spring, she is extremely well-suited for this role. Jen has served as the Chief Accounting Officer at the company since January 2017. and principal accounting officer since the IPO. Jen has also served as the CFO of the home health and hospice business, and she has run numerous other departments within the company, including procurement, real estate, and tax. She has been deeply involved in all financial systems and processes over the years, as well as all acquisitions and divestitures, and many automation and efficiency initiatives. Jen is well prepared, knows the entirety of the company, and is very deserving of this position. Turning to 2024, it was another year of milestones, continued quality improvements in leadership, further growth, and significant ongoing impact for the customers, patients, and communities that Bright Spring serves. And we are proud of how our businesses and people have performed. Throughout 2024, we have also deepened our focus on operational efficiencies across the organization to best support employee effectiveness and high-quality services. In addressing significant needs for individuals across the country, the company has increased its reach to more patients and delivered strong growth across both pharmacy and provider businesses through strategic prioritization, disciplined investments, company scale, and execution. Our results are ultimately a reflection of the reliable, relatively lower cost, and coordinated care that drive high customer and patient satisfaction rates. In the fourth quarter, We are pleased to have realized total revenue growth of 29% year-over-year, leading to total company and segment revenues for full year 2024 at the high end of our guidance range and in line with our preliminary results provided in January. Total revenue of $11.3 billion in 2024 represented 28% growth year-over-year, which included pharmacy solutions revenue of $8.8 billion and provider services revenue of $2.5 billion, representing 34% and 9% growth year-over-year, respectively. Full-year 2024 adjusted EBITDA was $588 million, representing 16% growth year-over-year when excluding a certain $30 million quality incentive payment from 2023. Adjusted EBITDA also came in at the high end of our guidance range and in line with preliminary 2024 results communicated in January. Today, we are increasing total revenue in adjusted EBITDA guidance for 2025, with our adjusted EBITDA guidance for this year increasing by $5 million at each of the low and high ends of the prior range provided in January, and which excludes the community living business. We announced in January that we entered into a definitive agreement to divest the community living business to Civita and expect the transaction to close this year, subject to regulatory approvals and typical closing conditions. Jen will discuss our fourth quarter and full year 2024 financial results, along with our 2025 outlook in more detail shortly. Before I discuss business performance, I would like to further reinforce our commitment to both quality and continuous improvement and efficiencies across the organization, which go hand in hand. For example, in quality, our most recent net promoter scores in specialty pharmacy for Onco360 and CareMed were 98 and 100, respectively, almost a perfect rating for Onco360 and a perfect 10 out of 10 rating for CareMed from all participants. also scores that are the best among specialty pharmacies. After the past year of investments in people and process in our infusion business, we are now seeing best-in-class referral to in-home turnaround times for specialty patients. Our home and community pharmacy on-time delivery metrics approach 97%. Approximately 85% of our home health branches now have a predicted CMS star rating of 4 or 5 out of 5. and we have 97% timely initiation of care, above industry average. In hospice, we have a 9.3 hospice care index score out of 10, significantly above the national average, and we provide 16% more nursing visits to patients and 27% more patient visits in the last week of life, with 90% of our locations above national average on visits provided to patients. In primary care, Our ACO is reporting 13% lower healthcare costs for patients in skilled nursing facilities and 31% lower costs for patients in assisted living through our more attentive, local, and proactive care and quality. And our special needs plan has already improved its star rating by 0.5 in less than a year under our ownership, with a 6% reduction in hospitalizations in the last year, a 99% capture rate for health risk assessments, and 99% of our patients receiving annual wellness visits within 90 days of enrollment. In personal care, we have a likelihood to recommend a 4.54 out of 5. In rehab, we have overall stakeholder satisfaction of over 97% among case managers, discharge planners, physicians, claims managers, et cetera. And we have a patient satisfaction score of over 95%. and community living. Our external audits outperform the national average, and we hold more third-party accreditations than anyone in the industry, while we have deployed innovative and leading technologies to drive client risk stratification and care plans. These are just some select mentions and highlights among many other strong and leading service and quality measures in the company. Across the organization, we continue to invest in and deploy new and or enhanced technologies, EMRs, ERPs, applications, and analytics and reporting, numerous of which now incorporate new automation and AI use cases to the benefit of our people and to drive outcomes for the individuals we serve. We also continue to invest heavily in compliance, with literally thousands of onsite internal compliance visits and audits conducted across our operations last year. On the efficiency front, since the start of last year, the company has over 100 procurement, workflow augmentation, and automation programs completed or ongoing, driving process improvements, cost efficiencies, best practices, and streamlining across all business lines. We are more dedicated than ever to lean into process and technology innovation and leadership in healthcare services and provide all of our stakeholders with the best possible experiences over the years. Now, taking a closer look at fourth quarter results, pharmacy solutions revenue of $2.4 billion represented 34% growth compared with the fourth quarter of last year. Growth for the business was primarily driven by total script volume of $11 million in the fourth quarter, which represented 14% growth compared to the prior year's quarter. The infusion in specialty business has continued to deliver above expectations, growing revenue 42% year-over-year in the quarter, driven by specialty script growth of 35%. Our results in specialty and infusion this quarter and throughout the year have been a function of cross-functional operational execution and continued LDD brand launches and generic drug utilization. Our total LDD portfolio now stands at 125, which includes 12 LDDs launched in 2024 in either an exclusive or ultra-narrow pharmacy network. We continue to see the potential for an additional 16 to 18 limited distribution drug launches over the next 12 to 18 months, while also facilitating the adoption of new generic products. We are honored that we are selected by our pharma manufacturing and biotech partners as a limited distribution drug specialty pharmacy for each of these therapies and are committed to helping and improving the lives of patients who are battling cancer, rare, orphan, neuro, and a number of other diseases through market-leading service levels and satisfaction scores. Within Infusion, in 2023 and through 2024, we initiated and completed operational initiatives and investments to deploy standardizations and process improvements, and we believe that results in the Infusion subsegment will begin to benefit from these investments in 2025. In home and community pharmacy, revenue grew 17% year-over-year in the fourth quarter, driven by script growth and new customer wins. We continue to be pleased with our execution across a variety of home and community pharmacy settings, including behavioral, hospice, assisted living, skilled nursing, hospital, and rehab settings, as well as other locations where patients need at-home pharmacy support. We believe we have an additional market share and growth potential opportunity in all of these markets, and we will also be entering the PACE pharmacy market this year. We remain focused on driving more operational and technology-driven efficiencies in the business, and the continued expansion of our pharmacy services is important to ensuring that as many people as possible receive the highest quality and most comprehensive medication management and care. Turning to provider services, segment revenue grew 11% year-over-year, and segment adjusted EBITDA margin expanded by 70 basis points year-over-year to 15.2% in the fourth quarter, which was primarily driven by strong service and quality-based volume growth and broad-based operational efficiency and execution. In home health care, revenue grew at a rate of 17% year-over-year in the fourth quarter, with average daily census growth of 9% to 46,000. We saw continued growth in the home health and hospice businesses both in the fourth quarter and for the full year 2024. Personal care has been a consistent performer this year as well with steady billable hours and very consistent operational execution. Our primary care business has seen expansion and growth where we leverage proximity and access to patients including through core pharmacy and provider services And we believe home-based primary care represents a significant opportunity in the coming years with ACO and payer strategies continuing to develop. Community and rehab care also performed well again in the quarter with strong revenue growth of 8% year-over-year and consistent growth in rehab persons and hours served. In the rehab business, billable hours grew in the mid-teens year-over-year for the fourth quarter and full year. We continue to add numerous de novos through new home and community neuro rehab programs and new rehab in motion programs and assisted living facilities. And we anticipate attractive growth from rehab in motion over the next five years as we continue to add locations. The community living business has shown solid growth through 2024 through operational continuity, a service focus, and continued investments in technology and employees. As I mentioned earlier, the divestiture of community living remains on track, anticipated to close in the second half of 2025, subject to customary regulatory approvals and closing conditions. We expect that the transaction will create a streamlined organization at Bright Spring and augment both provider services and company revenue and adjusted EBITDA growth rates. our strategic focus in provider will narrow to the remaining home health care, rehab, and personal care businesses, each of which continues to perform in line with our high expectations. Consistent with the announced investiture of community living, our capital allocation priorities remain on both debt pay down and continued tuck-in acquisitions at disciplined valuations, consistent with our prior strategy. To summarize, 2024 was an excellent year for BrightSpring, and I'm pleased with our execution so far in 2025 as we always continue to look for any ways to serve more people and improve their outcomes with mission-driven and meaningful services. We are focused on delivering on our 2025 financial outlook through quality, volume growth, process optimizations and cost efficiencies, accretive acquisitions, and effective portfolio and asset management and deployment. With that, I'll turn the call over to Jen to discuss our 2024 fourth quarter and full year financial results and 2025 guidance in more detail.

Thank you, John. In the fourth quarter of 2024, the total company revenue was $3.1 billion, representing 29% growth from the prior year period. Pharmacy solution segment revenue in the quarter was $2.4 billion, achieving 34% year-over-year growth. Within the pharmacy segment, infusion and specialty revenue was 1.8 billion, representing growth of 42% from prior year, and home and community pharmacy revenue was 601 million, representing growth of 17% year over year. In the provider services segment, we reported revenue of 656 million in the fourth quarter, which represented 11% growth compared to the prior year period. Within the provider services segment, home health care reported $280 million in revenue, growing 17% versus last year, and community and rehab care revenue was $376 million, representing growth of 8% year over year. For the full year of 2024, total company revenue was $11.3 billion, representing 28% growth from 2023. Pharmacy solution segment revenue was $8.8 billion, representing 34% growth from the prior year, and provider services segment revenue was $2.5 billion, also representing very strong 9% growth from the prior year. Moving down the P&L, in Q4, company gross profit was $422 million, representing growth of 14% compared with the fourth quarter of last year. For full year 2024, company gross profit was $1.588 billion, representing growth of 13% compared to 2023, when excluding a $30 million quality incentive payment. Adjusted EBITDA for the total company was $167 million in the fourth quarter, growing 17% compared to the fourth quarter of 2023. For full year 2024, adjusted EBITDA for the company was $588 million, representing 16% growth compared to 2023 when excluding a certain $30 million QIP in 2023. Adjusted EPS for the total company was 22 cents for the fourth quarter. Turning back to segment performance in the fourth quarter, pharmacy solutions gross profit was $205 million, growing 20% compared to the fourth quarter of last year. Adjusted EBITDA for pharmacy solutions was $113 million for the fourth quarter, growing 22% compared to last year, representing an adjusted EBITDA margin of 4.7%, which was in line with our expectations. Provider services gross profit was 217 million, growing 10% versus the fourth quarter of last year. Adjusted EBITDA for provider services was 99 million for the fourth quarter, growing 16% versus last year, representing an adjusted EBITDA margin of 15.2%, up 70 basis points versus last year. On a total company basis, cash flow from operations was 116 million in the fourth quarter, excluding IPO fees paid in Q4, and $90 million of cash flow from operations in the quarter, including these fees. We expect to deliver over $300 million of annual run rate operating cash flows in 2025 as we remain focused on improving our leverage ratio towards our pro forma goal of 3.0 to 3.5 times and our now long-term target of 2 to 2.5 times. As of December 31st, our net debt outstanding is approximately $2.7 billion with a leverage ratio of 4.16 times, which was in line with our internal projections. 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 30th, 2025. Prior to any proceeds from the pending community living divestiture, quarterly interest expense is expected to be approximately $43 million per quarter, including approximately $1.2 million in interest expense related to the TEU instrument. Turning to our guidance for 2025, we are increasing our expectations for revenue and adjusted EBITDA that was provided in January, which excludes the community living business. Total revenue is expected to be in the range of $11.6 billion to $12.1 billion, including pharmacy solutions revenue of $10.15 billion to $10.6 billion and provider services revenue of $1.45 billion to $1.5 billion. This revenue range reflects 15.2% to 20.1% growth over full year 2024, excluding community living in both years. Total adjusted EBITDA is expected to be in the range of $545 million to $560 million for full year 2025. This would reflect 18.4% to 21.7% growth over full year 2024, excluding community living in both years. With that, I will now turn it back to John.

Thank you, Jen. And thank you for your time today to go through Bright Spring's fourth quarter results and 2025 outlook. We will now open it up 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 AJ Rice of UBS. Your line is open.

Hi, everybody. Congratulations, Jen. Best wishes in the new role. When you think about your limited distribution drug business and pipeline, it seems like you guys are seeing more exclusivity, fewer and fewer people are getting the contracts you're getting with less and less competition. I know some of that is obviously the strength of your franchise and what you've done, but I also wonder, is there any changes in the competitive landscape? Obviously, the pipeline of new LBDs continues to look robust, but it seems like you might be capturing more of those or getting more narrow contracts. Can you just comment on that?

Yeah, good morning, AJ. Thank you. No, nothing material has shifted in the market, and we've had about a 10 to 15-year history with our team of really focusing on operational process and service levels for our partners. Here in the most recent quarter, we pulsed the market on net promoter scores, and we actually had 198 net promoter score for CareMed, which is really the non-oncology, and then Onco360. and satisfaction ratings, which we were obviously incredibly pleased with. So the team has just done a nice job of servicing our partners over the years. And there is a general trend to more and more, I would say, more niche micro therapies in the market. And perhaps there's something there in terms of partners being more and more comfortable with you know, fewer and fewer pharmacies serving those niche targeted populations. But we have seen a trend towards, you know, the narrowing of networks. And, you know, we've been pleased that we've been able to continue to be a strong and chosen partner through that process.

Okay. Then a couple times you mentioned the prepared remarks about the investments you've made over the last 18 to 24 months in the infusion business. And you sort of feel like it's positioned to grow from here. I wonder if we could get you to talk a little bit more about the opportunity now, what the growth trajectory might look like for that business, as well as where you're at with respect to margin and what level of upside there might be on margin at this point.

Yes. No, good question. Just tying off the LDD point there as well, in 2025, we've now so far this year in the first two months. So good to see that momentum happening in the first part of the year too. You know, importantly, a handful, three or so of our more recent launches have been in the rare and orphan category, as we continue to not only focus on oncology, but more and more other relevant indications where we can apply our operating model similarly. On infusion, you know, certainly the last two years, as has been mentioned multiple times, there has been a real focus on the business operationally trying to implement more commonality and standardization across the 30 plus infusion pharmacies across the country, really trying to apply best practices and really balance You know, what gets more centralized and what stays more local? You know, that's a critical decision in Infusion, and we've been very thoughtful about that. You know, we generally have a totally new team there at Infusion. Over the last, I would say, six to seven months, that team has been locked in in its entirety for a good, you know, six months or so now. And, you know, we are seeing really good progress, whether it's on the operational front, whether it's on the AR and bad debt front. things are really trending in the right direction. And from here, we need to just focus on now starting to drive more referrals again as we've been more focused operationally over the last 18 months. But a key metric in that industry is turnaround time. How fast can you get a referral and then get the patient through the process and be ready to schedule them in the home on the specialty side, not acute on the specialty side. And for us, we're seeing 10 to 11 day turnaround times in the last three or four months as a result of all of our efforts. which would be generally best in class in that industry. So we're excited about where that can go. And Fusion, we believe, is a market with a ton of opportunity looking ahead. We're hopeful that that business could grow above 20% this year on a growth rate basis. And that's what we're pushing for. And I think longer term, I think staying in that range or even above is our internal goal. But 2025 will be an important year for us to get back to growth mode there.

Okay. All right. Thanks a lot.

Thank you. And our next question comes from Whit Mayo of Learink. Your line is open.

Hey, thanks, guys. I think in the past you've talked about a lot of internal operating, cost-saving, efficiency opportunities, maybe 60 different projects or programs that you've had kind of in flight? I think you recently rebid your wholesaler. Just maybe any sense on the cumulative savings from a lot of these initiatives and the opportunity on the margin side for this year?

Yeah, good morning, Whit. I would say it's really amalgamation across a lot of different areas of our company. Fundamentally, we have for a very long time had a lean and PMO focus in the organization just to We really put that in place going back about eight years ago, and it really cuts across procurement well beyond anything like drug spend. I mean, medical supplies, delivery, just go down the list all across IT. We're very focused in that area. And then we just look at processes across the organization from an RPA, from an automation perspective as well. So you think about something like onboarding. of all of our new employees. That's something that we're leaning into and trying to automate a lot of touch points in that process. You look at something like scheduling, you know, instead of a human being trying to figure out schedules, you know, across 100 nurses and 100 patients in a city and what's the most efficient route, you know, doing that in an automated way. You know, we have a process going on there right now as well. So, you know, it really just cuts across you know, almost everything in our company, rev cycle, you know, where can you eliminate, you know, things that, you know, that can easily be replicated in a more autonomous, in a more automatic way, you know, versus hands touching everything. And we're literally looking at every function in our company. And I would say just the attention and the focus to that while it's been going on for eight years, I would say is really deepened, you know, in the last eight years. You know, we're leaning into AI applications now as well. You know, we'll see about that as a lot of people will. You know, a lot of AI today is just sort of glorified scribing. You know, you have the obvious chat stuff. But, you know, even in new EMRs we're looking at, you know, within some of the provider side, it's, You know, it's the idea that, you know, the EMR can be the doctor and there's recommendations coming out of that and there's chart pre-populating going on that's driving a ton of efficiency. So, you know, these are the things that we have a BPO, a business process optimization team that, you know, that works across, you know, everywhere in our organization. You know, I would say, you know, the cumulative results of, you know, literally it's been now over 100 projects actually as we look back over the last, you know, 15 months cumulative result of all of those you know was a helpful driver to our EBITDA last year but not even necessarily EBITDA you know a lot of the proceeds from those efficiencies were IT, compliance, quality, sales and marketing, hiring great people, et cetera. So you drive a lot of these efficiencies for quality and just running good process in an organization. Some of the benefit of that does drop to EBITDA, but a lot of it goes back into reinvesting for future growth and winning in the future as well. you know certainly you know getting into the eight figures you know that there has been a benefit of that you know to ibida you know last year and and a lot of these things happen you know happen later in the year and even and they'll happen even a lot of these happen later last year and more will happen this year so you know we expect to see um continued contribution from that program in 2025. And, you know, this, you know, we've always tried to and will continue to try to make this a hallmark of the organization.

No, that's helpful. And maybe just wondering how you're feeling about home health and hospice really on the development side. There's maybe some distraction with some of your peers tied up with acquisitions or whatnot and just wondering how you're thinking about the potential development opportunity over the next year or so. Thanks.

Yeah, home health and hospice is a market that we're certainly committed to and have been, you know, for the last four or five years as we've really sought to build that out. I mean, you go back five years ago, you know, we really had nothing. And, you know, in 2024, home health and hospice revenue was $600 million. You know, that's a business, you know, we'd like to double in the next five years and potentially more. But it's an area of focus. I think we see, hopefully, a more conducive reimbursement environment on the home health side going forward. I think we're hearing things from D.C. where a lot of people acknowledge that. You know, there does need to be more support there ultimately. The ROI data for home health in terms of the outcomes it can drive for people, keeping them out of hospitals, lowering mortality rates has never been more positive. You know, interestingly, you know, and it still has to be worked through, you know, we're talking to several, you know, more of the innovative payers leaning in on, you know, enhanced rates. But, you know, there's a quality component to that. And that's fair. And that's the way it should be. And we're leaning into those conversations and we're pleased that we feel like we're at the table on those because of our quality. We got started in home health through some acquisitions. It's been more of an organic push over the last couple of years, but we inherited a lot of branches early on, which didn't have the world's best star ratings. And what's been really pleasing to me is if you look back about three or four years ago, because of that history, We probably had about 15, 20% of the branches with four stars or better out of five. We're now up to about 85%. And so that is just really tremendous performance on the quality side. And so we're trying to have a lot of interesting conversations with MA. That could result in enhanced rates for the outcomes we're delivering, but you have to prove that quality out. So that's exciting. And then on the hospice side, the benefit is just so obvious and the data is so clear. on hospice being obviously an incredible experience for the family with patient satisfaction rates above 99%. But really a lot of data that shows that hospice is ultimately a cost reducer for the system. And we've got a nice platform there. Still today, about two thirds of our business mix between home health and hospice is on the ladder. And for us, really, really strong quality, as I mentioned in some of our comments. on the call earlier, and for us, it's just trying to provide as much access to people as possible through our clinical liaisons in the field every day, you know, driving referrals for that terrific service. Thanks.

Thank you.

And our next question comes from Brian Tanquelat of Jefferies through Linus Open.

Hey, good morning, guys. Congrats on the quarter of the year and then congrats on the promotion. Maybe, John, as I think about your prepared remarks, clearly growth has been really good and seems to be tracking well. So as we think about maybe the sustainability of these growth rates or just these elevated growth levels and with community out of the picture now, how should we be thinking about your view on blended growth going forward?

Yeah, you know, we have, good morning, Brian. We have at this point, you know, going on an eight, it'll be a nine-year track record at this point of demonstrating double-digit top and bottom line growth in the organization. So, nothing about that will certainly change going forward, you know, if the community living divestiture occurs and everything there changes. At present, you know, it's just working through the process, you know, in a very expected and normal way at this point in time. You know, that enhances our growth rate from an adjusted EBITDA standpoint about 5% or 6%. You know, as we see it going forward in 2025, there was a couple percent growth as you perform of that for 2024. But as we look forward, you know, probably more of a 5%, 6%, 7% uptick in our growth rate going forward. As we look out at least to next year, I think we feel very good about this year and the guidance we've put out there, which we obviously raised today. As we think about next year, there would be nothing that would change our view of a similar growth rate as this year for next year. But some of the things in D.C. need to play out. And there's just certain things that we just do not have visibility into yet. It's really just principally IRA and how that plays out. That's not going to have a massive impact one way or another. on our performance in 26, but certainly, you know, there is, you know, a couple points up and down, you know, based on how that ultimately plays out. And, you know, we continue to feel like, you know, the pharmacy industry will be well protected through that process, but it needs to play out over the balance of the year. But, you know, what we can sit here and tell you is that in a fairly steady state, exogenous environment, we don't see a whole lot changing. And our focus in the organization has been drive quality, through very strong operational infrastructure, drive efficiency and lean processes, and leverage all that with great people to reach as many people as you can and continue to drive volume above market growth rates. That's been the playbook for the last five or six years in particular, and we will continue to drive that playbook in the future. So as always, there are some things in the external environment that need to play out, but in terms of what you know what we can control and you know in a in a you know a fairly steady environment as it looks today um you know we're very confident in continuing to drive the level of growth that we see in the business this year it makes a lot of sense and then maybe john just to follow up on aj's question earlier on infusion as we think about your quorum exiting markets uh and then maybe

thinking about the mix of business that you have in terms of being heavy on the acute versus chronic, just trying to think about the dynamics that we are seeing or we should be expecting in that infusion business for this year.

Thanks. Yeah, that is a good point and something we've talked about before. It's a good characterization of our business. I would say we probably are a little bit more tilted towards acute versus chronic and specialty in the infusion space versus what you might see in the broader landscape of some providers out there. Certainly, if anybody were to exit any markets on the acute side, that's helpful. You know, the acute margin is something that, you know, is one that we are fine with. And, you know, we believe that if you have a broader set of services to payers, you know, that is more well-received and welcome with payers. And it ultimately will help us know nurture and cultivate better and in deeper relationships with payers over time so you know acute is a market that that we are committed to there is volume there um there is nothing about acute therapies that is changing anytime soon and and so we like the idea of just growing more market share i think what that ultimately says on the chronic and specialty side is that you know you know we've got a hopefully you know real opportunity there you know versus where some other people are today As I mentioned, really pleasing to see some of these turnaround times on specialty, which is really the linchpin for that business. How quickly can you manage people through the process? That's what referral sources care about. We'll really deepen our focus on the specialty growth side this year. We would be very disappointed if specialty isn't growing well into the 20% range and above going forward.

Thank you. And our next question comes from David Larson of BTIG. Your line is open.

Hey, congratulations on another very good quarter. John, can you maybe talk a little bit about the ACO arrangements that you're involved in? I mean, one of the things I've always liked about your business is that you're in what people call the post-acute space. It's lower cost in the acute care environment. But at the same time, a lot of investors are maybe a little bit wary of anything that says ACO or value-based care, given how some of the stocks in the sector have kind of performed over the past year. So can you maybe just talk about your approach to it, your volumes and your pricing looked great on the provider side? So thanks very much.

Thank you, David. Two quick points on that. For us, building out the home-based primary care was really an augmentation and complementary to our pharmacy and provider services and just allowing us to ultimately better manage outcomes for patients. really secondarily, there is an economic stream there if you can get more appropriately compensated for the great outcomes that you're providing. Otherwise, the incredible quality work you're doing is enduring to everybody else in the system. And so those were really the two driving forces of the logic. I would say for us, anything around You know, ACO is purely upside. You know, there's zero downside there. It is purely upside. And so amongst our patients that we serve across assisted living, skilled nursing facilities, and some people in their own homes with our home-based primary care, you know, the subset of those that would be Medicare, straight Medicare patients, We have a partnership with another organization to get an ACO capability. Last year was the first year of that. And nine months after last year, so October 1st of this year, we will receive ultimately what our performance was from Medicare. But we do have line of sight into our outcomes and what's happening on the cost side, albeit with a little bit of a delay, with about a quarterly delay. But we're pleased with what we're seeing in terms of our ability to drive outcomes and cost reduction versus the benchmark. And so we would expect the shared savings to be realized this year. We are just being conservative until we get through the first actualization of what those results were. But we've got about 15,000, 16,000 patients today. A subset of those are in the ACO. And our focus in home-based primary care is how do we continue to drive that incredibly valuable service to as many patients as we can and get them in the ACO so that we can drive more and more shared savings. We've said before, our five to seven year goal is, how are we serving at least 100,000 or more people? And that's what we're working towards.

Okay, great. And then just one more quick one. In terms of specialty pricing, looks like your specialty revenue growth is very good. Is there anything in your mind that could slow that down? And obviously a tailwind for the overall organization, the pricing increases, right?

Yeah, we've seen overall stability in the market for specialty. Ultimately, your revenue per script and your margin in that business is really a function of about 150 different drugs, some brands, some generics at different parts of their life cycle. But just given the diversity of that portfolio, And the complementary nature of brands and generics, we've just ultimately seen all of that come out of the bottom of the bucket, if you will, in just a very steady way year over year. We do everything we can not only to provide great outcomes to manufacturers, but those great outcomes are really focused on being the best partner we can for the PBMs and the payers and their members as well. So they get the best outcomes possible. And we're as focused on our payer and PBM partners in nurturing great relationships with them as anybody. And those have been really stable over time. And we're very thankful for that. And our team's got a long history of working with stakeholders across the value chain. And that's been very consistent.

Great. I'll hop back in the queue. Nice quarter.

Thank you. And as a reminder, Please limit yourself to one question. Our next question comes from Joanna Gadzak of Bank of America Securities. Your line is open.

Joanna Gadzak Good morning. Thanks so much. So I guess my question will be around the IRA. So just follow up on the answer you gave earlier to the question about long-term outlook for growth after 25. So what do you mean by, you know, there's a downside risk there? What would need to happen for this to be a headwind in the IRA? Because I guess, you know, there's obviously the price reductions, but then there's some Part D redesign under the IRA. And in the past, we spoke about this being, you know, a tailwind to the company as the utilization increases. So just trying to understand, you know, the different dynamics and what would need to happen that you're referring to in terms of the IRA being a swing factor.

Yeah, good morning, Joanna. There's two pieces there. So in IRA, one of it is lowering the out-of-pocket for patients. You know, certainly anything that makes drugs more affordable is helpful for patients. It's helpful, you know, for the utilization, you know, of specialty medications for them and increasing patients on therapy. So that's helpful. You know, the second point, and it's really for us focused on our home and community pharmacy. There's eight drugs there on the IRA list for 2025, and we just have to see that play out. what CMS issued guidance on last October endorsed using a true-up on the MFP to WAC. So as your reimbursement moves to MFP on those eight drugs, getting a true-up on that to WAC, so those drugs certainly would not be negative in margin. And the discussion this year is all around what's going to be the mechanism to ensure those specific eight drugs you know, have an appropriate and current margin to them. And, you know, I think there is a ton of support around the logic for that and needing to do that in D.C. and at CMS. It was literally written into IRA. This is not intended to harm any pharmacies. know pharmacies are the last mile to the home and they have to be um you know they have to be more or less held harmless to to continue to be that last mile and so you know we're optimistic about how how all this will play out but um but it needs to it needs to play out this year and with a lot going on dc in the last two months um you know i i think you know i think we just have to see how this plays out further into the year I think what I've said before is this is a swing factor on the downside of a couple percent of EBITDA, which we would fully expect to grow through, given growth in the other parts of our company. That's really the benefit of our complementary but diversified organization with a lot of different growth drivers. And we would be very confident that something like that, you know, we would just absorb. You know, that said, we are very focused and think what is fair is for there to be a proper resolution for the long-term care pharmacy industry around these drugs and having a fix for that. And that's what the industry is focused on, and we see a lot of support for it. You know, but those mechanisms need to play out through the balance of the year.

Thank you. Thank you so much.

And our next question comes from Erin Wright of Morgan Stanley. Your line is open. Great, thanks.

So following the community divestiture, which made sense to us, but are there other areas that you'd be looking to refine in terms of the business mix? And how do you think about that in contrast with the efforts to better integrate the offering from a provider and pharmacy standpoint? And then I'll just ask my second question up front, too, which is just on the government business as well. You mentioned kind of Part D, but I wanted to ask about Medicaid, just how you're thinking about the exposure there obviously comes down with the divestiture, but can you walk us through some of the potential risk factors as well as how you're just thinking about the outlook for that group given the unknowns in terms of that backdrop right now? Thanks.

Yeah, no, the streamlining of our organization post the community living divestiture, assuming that closes, I think that gives us with a very tight set of pharmacy and provider services and a platform that we think is very unique and advantaged in a lot of ways in healthcare services. We view that as a terrific platform for the future. From a Medicaid standpoint, Trump and the Trump administration has said that they do not see touching Medicaid or Medicare. That's what they've said so far. The House Republicans are certainly talking about other things. You know, notwithstanding that, you know, the populations we serve would not be in the conversations or some of that Medicaid discussion in the House. The folks that we're serving, seniors and people with disabilities, you know, that is very, very different from things being discussed with work requirements for the general population of otherwise healthy people on Medicaid. Our populations are very different and not in the relevancy and the context of those conversations. Thank you.

Thank you. Thank you.

And our next question comes from Jamie Purse of Goldman Sachs. Your line is open.

Hey, thank you. Good morning and congrats to Jen. I guess I wanted to start, can you help us think through OPEX investments needed to sustain growth in both businesses? in 2025? And then just, you know, how much does that level of investment scale up or down based on top line growth, just trying to think through, you know, incremental margins below gross profit?

Yeah, I think we've certainly got some, hey, Jamie, I think we've certainly got some leverage in our business, without a doubt. I mean, I spoke to, you know, a lot of the efficiency projects that are part of our program, you know, we'll continue to get a little bit of a tailwind from those this year. And, And every year, I think, you know, we would fully expect as we continue to grow top line in the future, we are going to realize, you know, more margin opportunity, you know, and, you know, we have seen our OPEX per script on the pharmacy side generally, you know, trend down in key areas. But if you look back historically, you know, the primary impact to any margin, it's just been our mix with outsized growth and specialty, you know, and I've said before that home and community Pharmacy and Infusion Pharmacy have OpEx per script opportunities, and we fully expect to see OpEx per script in those two businesses go down this year as we scale volume. On the provider side, we've continued to leverage fixed costs there. I think as you look at the company over this year and next year, outside of any mixed impacts, we fully expect to get some improvement incrementally on leveraging our cost base in some margin uptick as we move forward.

Okay, and then just thinking about your new pro forma leverage targets for the year, which is obviously quicker deleveraging than we had contemplated before the divestiture. Can you just update us on how you plan to allocate that in terms of pure debt pay down versus M&A and just in any color you can provide on the M&A pipeline or environment?

Yeah, I think the current thinking is either with or without the funds from a community living disclosure, our base case would be some $100 million for M&A spend. And if the community living divestiture happens, it's about 0.3 times deleveraging on a net basis. And, you know, we put out guidance of more long-term two to two and a half at this point in time, because if we do execute through this year and we start to get under three and a half times, you know, our goal would then shift to two and a half times from a longer-term perspective. Great. Thank you.

Thank you. And our next question comes from Peter Chickering of Deutsche Bank. Your line is open.

Hey, good morning, guys. Can you sort of go back to that rare and orphan opportunity that you're talking about with A.J.? You know, I think historically a big part of his strength and specialty has been the deep ties with oncologists, which has made you the partner of choice with new drugs and then obviously as they go generic. So transitioning into the rare and orphan seems, I guess, to me, maybe a pivot away from oncology. So can you talk about why you can be successful in that new area after being so successful in oncology?

Yeah, I would say nothing about our focus on oncology changes whatsoever. It just happens that really everything that's required for you to be very successful in the service know your your payer members and and biotech and pharma partners and all of the patients from an oncology perspective really directly applies to rare and orphan too and and pedo for us that's purely sitting back and saying you know what other therapies can we also pursue that are going to leverage our critical success factors that we have in place today and so we specifically look for those therapy opportunities in the pipeline where we can apply all of our similar best practices to those areas and just continue to expand within the therapeutic space. I would say that takes nothing away from oncology, and it's really what is most closely peripheral and adjacent to oncology that is also opportunities, and our team has clearly demonstrated the ability to continue to execute on as many relevant therapies as possible and drive that growth with the bandwidth that we have. Great. Thanks so much.

Thank you. And our next question comes from Stephen Baxter of Wells Fargo. Your line is open.

Hey, thank you for the question. Just wanted to follow up a little bit on the segment level. It sounds like you might expect a little bit more improvements in provider margins as we move through 2025. But can you speak a little about the pace of margin change in the pharmacy business? You know, you obviously had a pretty big step down and it's all, you know, in the function of mix. Just wondering if we should be thinking about, you know, something similar in terms of the pacing of pharmacy margins in 2025 or whether you'd expect that to moderate potentially maybe as the growth slows a little. Thank you.

Yeah, I would say, you know, outside of mix and continued growth on the specialty side that does have a lower margin, you know, we would expect within each one of the three pharmacy businesses. know stability to upticking margins i would say on infusion and home and community so you know margin historically has been influenced by our mix and then also investments that we've made on the infusion side and even home and community pharmacy you know as mentioned earlier we fully expect our opex per script and those two businesses to improve this year as we continue to grow volume at double digit rates and you know those would be the the two dynamics is you know ultimately what is the mix of all of our services you know between those three businesses and all of our drugs and our ability to hopefully successfully drive OpEx prescript down and home community and infusion this year which ultimately we think will lead to you know a positive EBITDA prescript and margin story got it and just the improvement in the guidance for 2025 at this stage is that you know based on you know trends you've seen near to date or additional limited distribution drugs you may have gotten that you didn't have at the time

in early January. Just wondering, you know, what influence that at this point here. Thank you.

Yeah, I would say it's less to do with any one specific factor and just continued, you know, momentum and breadth of progress across the entirety of the organization. You know, so far, you know, we've obviously been heads down from an execution standpoint in Q1, like always. And, you know, we just continue to work through what we see as a very productive first quarter, you know, across, you know, most all of our service and business lines. And, you know, that was reflected with the update we provided.

Thank you. Our next question comes from Matthew Gilmore of KeyBank. Your line is open.

Hey, thanks for the question. Just had a quick follow-up on the guidance discussion. Any comments you can provide in terms of seasonality of EBITDA and how that may pace throughout the year? Should we just look at prior years for that or anything new to consider as we look at 2025? Yeah, go ahead, Jen.

Yeah, thank you for the question. I think prior years would be a good reflection of how it typically plays out. Q1, we obviously have the reset of payroll taxes, and versus last year, you should keep in mind that last year included a leap year day as we're thinking about the guidance for this year. But also, Q4 tends to be one of our strongest quarters for a variety of different reasons. But, yes, we think, you know, seasonality Q1 and Q4 tend to be the outlier quarters just a little bit when you look historically, and we expect that to continue in 2025.

That's great. Thank you.

Thank you. And as a reminder, if you have a question, please press star 11. And our next question comes from Larry Solo of CJS Securities. Your line is open.

Great. Thanks. Good morning, everybody. And I echo the congrats to Jen. I guess just a couple of follow-up questions just on staffing across your properties, availability and wage inflation. How does that feel as you look at the 25? Yeah.

Hi, Larry. That's something we've just been continuing to manage for years in a very productive way. A ton of focus in the organization and HR around recruiting, onboarding, training, retention. We continue to see all of our retention, stability, and numbers improve over time across every one of our businesses. They're very, very solid. And it's something that we just, you know, we're very focused on managing, trying to make You know, our provider service line is a destination within the industry where people want to work. You know, we've always invested in comp, in wages. We've rolled out 401K everywhere in the last few years. And so that's just been really steady for us. You know, obviously, you could always use more nurses and therapists. But, you know, we've been able to keep up with the volume growth we've driven in the double digits through all of our, you know, people-focused efforts.

Gotcha. And you mentioned the M&A outlook and the expected target spend for this year. Can you just give us an update on de novo, the efforts in 24 and going forward?

Yeah, de novo has been a hallmark for the organization. You know, we'll do about 10 to 15 new locations this year across home health hospice and rehab principally. We'll do a few new hospice pharmacies this year as well. And those have, you know, really nice ROI to them, you know, over a two to four year period of time. But they're principally in those four areas. And, you know, we'll continue to do about 10 to 15 of those a year. And, you know, those are helpful adders to your financial performance as you go out years into the future.

If I could squeeze one more, just the acquisition, the New Haven Hospice acquisition in 24, how's that progressing? I know I think it was going to sort of ramp up as you go out of the next couple of years. Maybe any thoughts on that, Nicole?

Yeah, the team's done a really nice job integrating that, you know, in Q4 and so far this year. And, you know, I think that's been a good example of our track record on M&A, almost never having an acquisition go down from where we acquired it. And that acquisition is ahead of plan.

Great. Thanks so much. Appreciate the call.

Thank you. I'm showing no further questions at this time. I'd like to turn it back to John Rousseau for closing remarks.

Thank you, everybody, for your time today. We really appreciate it, as always, and we look forward to talking to you in another quarter. Have a good day.

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