Guardian Pharmacy Services, Inc. Class A

Hello, everyone. Thank you for joining us and welcome to Guardian Pharmacy Services first quarter 2026 earnings release conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Ashley Stockton. Please go ahead.

Good afternoon. Thank you for participating in today's conference call. My name is Ashley Stockton, Vice President, Investor Relations for Guardian Pharmacy Services. I'm joined on today's call by Fred Burke, President and Chief Executive Officer, and David Morris, Chief Financial Officer. After the close today, Guardian posted its financial results for the quarter ended March 31st, 2026. A copy of the press release is available on the company's Investor Relations 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 guaranteed of future performance and 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 quarterly report on Form 10-Q as well as the specific risk factors and uncertainties discussed in our annual report on Form 10-K. We do not undertake any duty to update any forward-looking statements which speak only as of the date they are made. On today's call, we will also use certain non-GAAP financial measures when discussing the company's financial performance and conditions. You can find additional information on these non-GAAP measures and reconciliations to their most directly comparable GAAP financial measures and today's press release, which again is available on our investor relations website. And now I will turn it over to Fred for commentary on the first quarter results.

Thank you, Ashley, and good afternoon, everyone. We appreciate your continued interest in Guardian as we report our first quarter results, and importantly, our first full quarter operating under the new IRA framework. I'm pleased to report that we delivered solid results. Before David walks through the financials, I'd like to take a few minutes to discuss our transition under the IRA as it has driven more change in our industry in a single quarter than we've seen in decades. Let me start with the revenue impact. Across the industry, pricing on IRA selected drugs for 2026 declined meaningfully. For our book of business, we experienced an approximately 60% decline in pricing across our branded drug mix that was impacted by the IRA. Despite this, we were able to deliver a 2% increase year over year in reported revenue. Absent the government mandated price declines, we would have grown revenues by low double digits. On gross profit, as we outlined previously, absent our mitigation efforts, the IRA would have represented approximately a $10 million headwind. Throughout the course of last year, we proactively took coordinated firm-wide actions, including direct negotiations with our payor partners to offset this impact. Those efforts were realized in the quarter, allowing us to deliver double-digit gross profit growth, reinforcing the effectiveness of our approach and giving us confidence in our forward momentum. Beyond pricing and reimbursement, the IRA introduced meaningful changes to the operational mechanics of how transactions are processed across the system, as well as the timing and synchronization of cash flows. For instance, post-adjudication, all IRA branded drugs are now further processed through the Medicare Transaction Facilitator, an online platform established by CMS. This has introduced additional steps into the transaction lifecycle and led to a delay in the timing of certain payments. Data submission formats also varied across manufacturers. adding even more complexity to the end-to-end process. Our team navigated these changes very effectively. Lastly, the IRA created a one-time working capital reset as it altered how and when cash moves through the system, resulting in long-term care pharmacies temporarily carrying higher receivables with less offsetting payables as the system rebalanced. This was fully within our capacity to manage given the strength of our balance sheet. We believe dynamics like these may prove far more challenging for smaller operators who lack the necessary systems and access to capital, further highlighting the advantage of scale in our model. Overall, as it pertains to the IRA, I can now say with confidence and clarity that the business performed in line with our expectations. Pricing is flowing through as we forecasted, reimbursement is tracking in line, and the new payment processes, while complex, are functional. We also maintain strong service levels, preserved customer relationships, and delivered on our financial objectives. Just as importantly, we demonstrated our ability to anticipate outcomes and execute on our strategy. Successfully forecasting this complicated and unprecedented environment speaks to the expertise of our teams and the strength of our data and analytics capabilities, which gives us greater confidence in how we manage and predict the business. Across the broader industry, There has been no legislative resolution to the unintended consequences of the IRA. And we expect continued pressure on our peers as they adjust. While there is still discussion around potential legislative relief, including a bipartisan bill proposing a dispensing fee to support long-term care pharmacies, we view the likelihood of any near-term action as uncertain at best. Returning to our quarterly performance, results were driven by strong underlying fundamentals, including solid resident and script volume growth, with a portion attributable to items not reflective of the core operating run rate. Results included approximately $3 million of discrete benefits to our gross profit from favorable payer dynamics and a manufacturer inventory credit associated with the IRA. These flow through at a full incremental margin to adjusted EBITDA. Consistent with our commentary last quarter, items such as these cannot be forecasted as recurring in our underlying quarterly run rate. Looking ahead, one area of uncertainty for both us and the broader market is fuel. Given the current geopolitical backdrop, there is potential for continued volatility. While fuel is not a dominant cost for us, it is meaningful and can represent a headwind of up to a few million dollars annually if prices remain elevated. Additionally, as we continue to scale, we expect to invest further in our organizational infrastructure, particularly at the regional level. to build out our bench to support our growth. Hence, we continue to make targeted hires to support our expansion efforts. As such, labor costs are likely to trend modestly higher over the remainder of the year. While we are very pleased with our performance in the quarter, it remains early in the year, and our underlying outlook for the business remains unchanged. We believe it is appropriate to remain disciplined, particularly in light of potential fuel cost pressures and necessary investment in our leadership. That said, we're updating our full year adjusted EBITDA guidance to include the $3 million benefit recognized in the quarter. Our updated adjusted EBITDA guidance is $123 million to $127 million, up from $120 million to $124 million. Revenue guidance remains at $1.4 to $1.42 billion. Before I close, I want to briefly touch on the ongoing Omnicare process. With another entity now identified as a stalking horse bidder, there is increasing clarity around our potential path forward. While the process may continue to evolve, the current backdrop appears constructive for Guardian. From our perspective, periods like this can create some dislocation and opportunity where the foundation we've built, consistent service, and financial stability matters even more. In summary, this quarter reflects the work we did throughout the last several years to proactively position the business for successful implementation under the IRA. Our ability to navigate this transition underscores the strength of our platform and the advantages of scale, enabling us to effectively advocate for the value we deliver and ensure alignment with our partners, and we will continue to do so. Lastly, I want to recognize the work of our teams across the organization. I couldn't be more proud of the people driving this business forward every day at every level. With that, I'll turn it over to David to review the quarter.