BrightSpring Health Services, Inc. ($BTSG)

Okay. Well, we're ready to get started with our next panel. I'm Scott Fidel. I'm the health care services analyst with Goldman Sachs. Really delighted to have BrightSpring Health Services with us today. Here from the company, we've got Jennifer Phipps. Jen is the Chief Financial Officer; and then David Deuchler as well is in the audience with Investor Relations. So Jen, first of all, welcome to the conference.

Yes.

It's great to have you, and BrightSpring, here. And also, personally, it's just great timing for us because we actually just initiated research coverage on the company on Sunday night. And that's really exciting to me covering the company. I've been monitoring the company's progress since the IPO and have definitely been quite impressed with the performance the company has delivered against some end markets where it's not necessarily a given that everything is going to be linear. So looking forward to covering the company on the forward.

So I think, Jen, maybe let's just sort of start -- let's sort of start with the growth profile and start with sort of a little bit of a look back over the last couple of years, like I just mentioned. And the company is -- like we had in our note, one of the headlines was the growth profile is hard to ignore, in terms of what you've delivered. And over the last few years, that's meant 20% top line growth, 25% to 30% EBITDA growth, which is well ahead of the mid-teens framework that you have historically referenced. So why don't we sort of take a look back and sort of give us some insight into where those outperformance levers have been driven from when we think about LDD cadence, share gains, operational initiatives, just in terms of giving us sort of insight into what the underlying sort of drivers of performance have been?

Yes, Scott. Thanks for having us. Obviously, we're glad to be here today. BrightSpring has operated traditionally in really attractive markets that are growing at attractive rates, providing higher ROI services to the network. And so as we think about that, we've been leaders in the market across both pharmacy and provider. We've had broad-based growth across all of our businesses. We have had -- we've been able to leverage our scale, leverage our investments in our M&A platform, which has helped deliver on the growth that we've had over the last few years. As we look across all of our businesses, we've seen really good growth across all of our businesses. Our specialty pharmacy business has grown higher than our company average. And as we think about that growth rate, that has been underpinned by our high-quality services and volume that we've been able to drive, largely because we've won new LDDs. We've won 16 to 20 LDDs each of the last several years. As we think about that going forward, there's really strong continued markets in both the oncology and rare and orphan, which is where we traditionally have focused our specialty pharmacy growth. So as we look at that profile -- and a lot of times, those LDDs typically take 2 to 3 years to grow in the market. So our 2026 growth from a revenue standpoint is partly underpinned by LDD wins that we had back in 2024. We have seen, again, that broad-based growth across pharmacy and provider, which I think has really been beneficial. We've been able to leverage our scale, which has allowed us additional operational efficiencies and improvements. That's really at the core of who we are. We've been talking about that since the IPO. But really, if you go back 10 years, you'd see a list of projects that we are going after every single year. In the 12 months, we've really operationalized and formalized our Lean Six Sigma training and processes, embedding that throughout the operations as well as focused teams at our corporate that are helping deliver on some of those growth.

All right. Great. So why don't we sort of take that and we'll just sort of transfer it forward. And timing is good to talk about the forward. You had your investor conference not too long ago at which you laid out a framework for a 15% to 20% growth algorithm from that '26 to '28 time frame. Maybe sort of similarly, maybe talk about sort of as you laid out that model, some of the key variables, the key inputs that you think could -- to push that towards the top end versus the bottom of the range? And particularly a few of the things that I'd love to hear from you about would be those sort of that continuation of the LDD wins, which has been, I think, such a unique competitive differentiator for the company recently, then the infusion ramp and then provider growth as well.

Yes. No. I think underpinning really that entire growth rate is our expectations for continuing really strong volume growth, which is underpinned by our high-quality services. So as we think about each of our different business lines, those markets are highly attractive markets that are growing. And then we've been able to grow in those markets via expansion into new geographies as well as deepening in those markets and market share that we've been able to take. We expect that to continue across our different businesses. As we think about -- you asked specifically about LDDs, we do see -- we provided an outlook. We typically are working with manufacturers what can be 12 to 18 months in advance of launch. So we have oftentimes pretty good visibility pretty far out. And as I mentioned, '27's growth will be underpinned by the 2024 class of launches or the 2025 class of launches, which we've already launched. So continuing on that LDD growth and what we win in '26 will deliver meaningful opportunities in '27. So we have pretty good visibility, again, 12-plus months out from a launch, as well as what we've launched, which helps us give confidence in that framework. We think that these are really strong markets. So as you think about the pipeline of products coming out that are in the Phase III trials, both in oncology and the rare and orphan space, which is where we target those opportunities, we see very strong pipelines. And we continue to see those pipelines execute on these more narrow networks than they traditionally had what might have been 5 or 10 years ago. So we've seen that continuing narrowing. We continue to see that over the next several years as we're working with manufacturers on the potential launch of their products and understand what that market looks like. Again, it's really important to continue to win those, that we deliver on those high-quality services. So we're one of the highest-quality providers in this space with time to first fill, medication possession ratio, which is like an adherence measure, that is allowing us, and a strong sales force that is pulling through scripts volume, and ultimately developing really strong relationships with pharma to have white-glove processes and information and services around the launch of their new drugs, which we think is very beneficial. From operational efficiencies, we continue to see opportunities across especially technology as we leverage into more manual processes like front-end, central intake or revenue cycle. We see opportunities across a few different areas. Home infusion, as you mentioned, is an area we've been investing in over the last couple of years. That is a smaller piece of our pharmacy business, but we really see the value of infusion, and we do think that that is a big opportunity for growth. So we'll be focused on -- we really have about 35 pharmacies across the United States. And there's additional areas that we need a presence in from an acute standpoint. So there's geographical expansion, but also deepening in the markets where we are. And then finally, you asked about the provider side. So we operate in what we call home health care, which is home health, hospice and primary care. We see that as being just a really important opportunity to leverage across our pharmacy network and continue to deepen relationships as well as growing in those markets. And then on the rehab side, that is a strong growth market. Personal care is really more of a steady state, small grower for us, but really important value that it's delivering from an activity of daily living that's supportive care that is very beneficial to patients. So certainly, as we think about the next step of -- and Jon has really talked about, obviously, our growth being core and strategic, and then highly accretive M&A. And as you think about the core growth, each of our businesses, having focused growth strategies and plans and operational teams that are focused on growing in each of their individual end markets. From a strategic growth standpoint, how can we better unlock referral opportunities and integrated care opportunities across our platform? And that is definitely something that we're going to -- that we think is of value and will be able to be valuable to us in the next 2 to 5 years. And then obviously, highly accretive M&A.

Great. Wow, there was a lot in there. One quick question, just on the acute care infusion expansion that you mentioned. And you said you were at 35 sites currently?

Pharmacies? Yes.

Yes. So 35 pharmacies. Do you have any visualizing of like where you think that number can grow to over the next 2 to 3 years?

It's a good question. Obviously, this is an area that we do have some interest potentially in M&A. We're certainly thinking about the buy versus build. As we think -- there's definitely 5 to 10 markets that we laid out -- I don't think we actually laid out the markets, but we talked about 5 to 10 markets that we would be interested in expanding into over the next handful of years, at the Investor Day, in our infusion area. So as we think about some key areas where there's infusion opportunities where we don't deliver into as much, we see that probably in about 10 to 15 markets.

Sounds like a good place to see and find out and do a little research on and maybe sort of get some insights there. Great. Well, you ended with sort of talking about -- we sort of talked about all the different pieces: the pharmacy, the provider model. And let's maybe bring it back up, I know we like went straight to growth and which I always want to do and straight to the numbers, let's sort of bring it back up to the business model itself. And in particular, give us some real insight into when you talk about that adding value by having both the pharmacy and the provider business, what that really sort of translates to, what that really means in terms of whether it's synergies on the revenue side, synergies on the expense side. Because we always hear a lot about that. And then there's like there's having the businesses and then there's having them truly integrated, right, and creating value. And sort of let us know what's new with that sort of integrated value creation.

Yes. So we've talked about sort of our one company model as delivering a number of different value areas. So the first is we're serving very similar patients across both our pharmacy and our provider needs. So if you look at the needs of the patients that we're serving, they often have multi-chronic, they're the most expensive individuals in health care. They have 6 or more -- our patients typically have 6 or more chronic conditions. They all need pharmacy. Most of them at various points in time will need provider services, whether it's rehab, home health or hospice services. And they all have a primary care physician need. And so as we think about how can we provide more of those services to the patient, which just, I guess, would be, as you think about that core growth, how do we just leverage patients that are receiving one area of -- whether it's pharmacy or provider services, how do we better leverage that patient across multiple services, maybe core growth. But then as we think about the connected nature of their needs, and how do you provide even better outcomes? So in late 2023, we had an article published in JAMDA that showed a 72% hospitalization reduction for our patients that receive our home health along with our pharmacy in the home, [ hospice ] and -- versus home health on average, so an average home health hospitalization patient. I mean, 72% reduction, that is very statistically meaningful. And we do think that there is a lot of -- there's improved outcomes when you receive more coordinated care. And so we are very interested in how can we have better payment models across -- in addition to just additional core growth, how can we unlock better payment models potentially for the outcomes that we're producing, whether that's happening in an individual business line. So for example, in home health, we had a couple of new contracts in the last 12 months where, on the MA side, where we're getting enhanced rates for outcomes. So the core -- they wanted us to serve more and so we were producing the outcomes. And so with those outcomes, we're getting enhanced rates. That is a version of sort of a value-based care, I guess, enhancement. Scale is critically important. So whether it's scale on the payer side from a -- on the reimbursement side or scale on the cost side, how can we better leverage our scale to drive value and economics that allow us, whether it's increased EBITDA growth or continued investment into our businesses, into our high-quality and compliance processes, that allow us to just -- or technologies that allow us to get better. Scale, that scale has allowed us to invest in targeted areas that we think are really attractive and to be able to target growth for 3 years from now or 5 years from now. And then best practices deployment is critically important. So as we think about -- we think our home infusion business should be better in how they do nursing because we have home health and we do nursing there every day. And so how can we better connect best practices, whether it's in how do we target nursing from a -- in getting better nursing, or how do we make sure that they've got the right career pathing as an example. That's just one example, or IT, finance, the list could go on. But how do we leverage those best practices across our organization? And then really, finally, it allows us to invest in whether it's de novo or highly accretive M&A, that has allowed us to do -- to continue to grow as well.

Great. Two quick follow-up questions just sticking with this theme. So the first, just on some of those enhanced rate contracts that you said you're getting from payers and a big theme across the home health space in terms of needing essentially to get that, especially with how challenging the CMS reimbursement backdrop has been. Hopefully, maybe we're going to lap finally away from PDGM sort of payment. We'll see in the future. Any type of like insight you can give us in terms of how much of the gap between sort of traditionally discounted MA rates, which were as low as 25% lower historically than fee-for-service, how much of that gap you've been getting to sort of fill through some of these enhanced rate structures?

Yes. So the majority of what we do is episodic Medicare from a payer mix standpoint. But where we do MA, we are obviously looking to make sure that we're getting a fair and appropriate rate for the services that we are providing. And so some of the ways we've done that, as payers have come to us and asked us to take more of their patients, has been to be able to commit to quality because of our high-quality services that allows us to get an enhanced rate. So that's just an example of some things that we've done there. We continue to have strong advocacy across many of our different areas. Home health certainly has become more important to us with the -- it's always been important to us, but it's been even more important with the Amedisys acquisition, Amedisys, LHC branches. And so our government relations team continues to advocate for fair and appropriate rates. We know that over 40% of people that get written for a home health script don't get it because of access. But we also believe, and believe that CMS and Congress understand the value of home health services and how it improves outcomes for the industry.

And then the other thing I'd be curious about is how BrightSpring, how the company has been evaluating what you think is the optimal clinical structure if you're going to look to try to integrate some of those different services into a particular patient in the home. So in terms of the home infusion services on one side, the home health services on the other. I'm just thinking back even to when we had -- Option Care had pursued the acquisition of Amedisys, and a lot of that thesis had been about sort of, I guess, really sort of integrating and elevating the home health nurse too to sort of oversee a lot of those sort of integrated services. And just curious around how you sort of envision that sort of clinical model as it relates to the actual clinician themselves, like how they can optimize the services.

Yes. So I think we think about our set of assets as being a little bit different than obviously that acquisition or that potential acquisition and that thesis. We're really focused on, first and foremost, core growth in each of our different business lines, which we think each of our different service lines have really attractive opportunities in markets where they can drive value individually. And then separately, as we think about how do we better come together, that can come in different ways. So for example, how can our home health and our Part B rehab go to senior living communities and be a better partner and be a one-stop shop for those? And then how can we then potentially bring along our senior living pharmacy leaders in those relationships? Or vice versa, how do we leverage those relationships? As you know, these are largely fee-for-service or episodic type relationships on the individual service line, and we see that being sort of the most important driver for each of those business lines. But how can we leverage the relationships we have to grow better in those core? And then as it relates to more integration of care, I think we see nurse practitioners in our primary care being sort of the quarterback of what is needed in the home for a patient, that potentially allows for additional opportunity.

Yes. That makes sense. That makes sense to me. Okay. Just a quick question on following the Community Living divestiture, maybe just talk about sort of the structural sort of change to that platform in terms of the growth profile and the margin trajectory.

Yes. So starting at the beginning of 2025, right after we announced the transaction, we started reporting the Community Living as discontinued operations. So from a continuing operations standpoint, throughout 2025 and any comparison period you would look at related to '24 and year '25 financials, you actually would not see Community Living in there at all. One of the items though, that we did talk about early in '25 before it was removed, is Community Living was a lower growth profile business for us and it was also a slightly lower margin business. So if you were to look at '24 -- if you would look at it, including discontinued operations, I guess, I should say, because it's been reported outside of that, you would have seen a lower margin as well as a slightly lower growth profile business within provider. But what I'd say is that our financials, as people have read them, would have reflected that, frankly, since early 2025.

Okay. All right. That's helpful, certainly. Okay. So maybe let's talk about M&A, and it sounds like there's going to be at least some healthy optionality as you sort of look out over the next couple of years and sort of conversation has been around potentially up to $2 billion of sort of dry capital available for investor accretive opportunities. And that's exactly, I mean, as we publish our model, we certainly saw that visibility into it and certainly have that reflected in sort of the free cash flow production as well. So the company has generally continued to focus on smaller tuck-ins, but now with leverage in the mid-2s, I mean, in our model, that comes down quite substantially over the next couple of years. So maybe sort of talk about how, I guess, the road map or the grid as we think about the tuck-ins across sort of your target markets and then how the criteria would maybe evolve towards thinking about something larger?

Yes. No, we really are proud of the work that we've done to deleverage and get ourselves to this position. We were at about 4.5x leverage post IPO, at 2.27x at the end of Q1, 2.4x if you pro forma it for the taxes we had to pay in Q2 on that transaction, under our long-term target, as you mentioned. And as we think about M&A, we agree. We think that there's opportunities for us to leverage really the M&A platform that we've built over the years to continue to do acquisitions. I would say I would expect that we will be able to do the small tuck-in M&A that really we almost think of as light CapEx for us. They're highly accretive, really small tuck-in M&A. And I would expect that we'll continue to do that. I think where we have the opportunity to lean in more, as we think about deals that we've not done many of the last couple of years as we've been focusing on deleverage, are deals in like, let's call it, the $3 million to $15 million worth of EBITDA range. I think there's opportunities for us to do maybe a little bit more of that, which is a little bit chunkier of an M&A, give us an opportunity as we think about expansion. The areas most interesting to us are infusion within pharmacy, hospice and rehab within provider. And we will continue to have the same rigor and I would expect us to have the same process. Every deal we do has a strategic reason why we're doing it. We continue to be focused on what our growth rate looks like and the trajectory of our long-term growth rate. And so the deals that we do are going to be obviously important to making sure that we maintain that profile. And so could there be a deal in a $30-ish million range, 1 or 2 of those in the next 5 years? Potentially. I think our capital flexibility definitely gives us that opportunity. But again, I think we're going to continue to have the same rigor and strategic rationale and process, led by our corporate development team, which is a very strong team, as well as our Integration Management Office, on any deals that we would do.

Great. Great. Time is flying by here. So I wanted to ask a couple of questions just on specialty pharmacy, which has really been the core engine for the company. 75% plus of EBITDA, it's continuing to grow at north of [Technical Difficulty] the end market itself, we have it sort of growing sort of that low to mid-teens type rate in the report. Your specialty business has been growing materially faster than that. So why don't we just sort of start with those, the build around the growth? As we think about, clearly, we have the market growth, but then in terms of the market share and some of those particular strategies that we've already touched on, maybe talk about sort of how that layers into the outperformance we've seen and then hopefully continues into the future.

Yes. So I think our targeted strategy around LDDs has been very helpful in that. So you're right, it's been -- it's a market that's growing 10% to 15%. If you look at the -- but if you look at that, where we've been focused are on these limited distribution drugs that are going into narrow networks of 1, 2 or maybe 3 pharmacies, although we've typically seen 1 to 2 over the last few years. This means that we're getting -- if it's a network of 2, it means that we would be aspiring to get more than 50% of the market of that drug. If it's a network of 3, it would be greater than 33%. So by layering on these new drugs where there are these limited networks, we're capturing a larger share of that growth just by nature of our LDD focus.

Great. And then sort of sticking with that, so you've guided to around 16 to 20 LDD launches over the next 12 to 18 months. How does that compare to the cadence that you've seen historically? And then also on the relative size of those launches.

Yes. So every drug is different in terms of the size of the launch and is an n of one. And so obviously, it depends on each drug. We've seen very large drugs, we've seen smaller drugs. But obviously, when it's in that LDD network, we certainly think those are attractive opportunities for us. We have seen a narrowing of -- over the last few years, we've seen a narrowing of the networks where maybe 3, 4 years ago, there were 3 pharmacies, we're seeing a lot of times 2 pharmacies in these new LDDs. But each drug is different in terms of the market opportunity. We continue to see pharma going through these limited distribution channels. We don't see anything changing about that. There's a lot of reasons why we think that's very beneficial to pharma working with a narrow set of pharmacies, and they've become increasingly comfortable. We believe they've become increasingly comfortable that a couple of pharmacies are able to service the entire market of that drug. And so we seek to be a really good partner with pharma, offering whatever white glove or pharma services that they would potentially need, we're able to be very flexible in those needs. And so being a high-quality patient and physician-preferred pharmacy, and then layering on top of that the relationships we have with pharma, has been very beneficial to continuing to win that. As I mentioned, we typically have a pretty good outlook and are oftentimes working with manufacturers 12 months in advance of a launch or a launch. And so again, we have pretty good visibility into what that looks like.

Great. And sort of sticking on sort of the financial model insight. So on the gross profit per script side, the company has reported some upside that's been driven by mix towards specialty. How do you see the gross profit per script? How would you sort of provide some thoughts around sort of the modeling of that moving forward? Do you see that trending relatively stable? Or do you see further room for mix-driven expansion on the forward?

Yes. So as you think about script growth, so what we report externally is obviously just total gross profit per script, because we just have the total pharmacy script. Certainly, depending on how growth rate changes in each of our individual businesses could impact the GP per script, but as -- and that's the mix shift. So if specialty is growing faster than other areas of pharmacy, we've seen that shift up. But what we've seen in each underlying business is expansion in margin, which we think is very healthy. So we're focused on driving healthy growth in terms of dollars and mix across each of the different opportunity sets that we have.

Okay. Great. And for a new analyst or portfolio manager that would come in, there's a few things that are a little bit different, right, about sort of the pricing dynamics and margin dynamics and some -- in this business because you've got a couple of things playing out here. One, around the generic conversions where that could be a revenue headwind, but it translates into an EBITDA tailwind. And then also, we've had in the home and community pharmacy side some of the nuances around the Inflation Reduction Act and some of the regulatory changes that went into effect there that also has sort of pressured revenues and pressured sort of pricing yield, right? But you still were able to deliver gross profit growth there. And so I know that those are sort of 2 different dynamics, but we have 1.5 minutes left, but I think it's really helpful I think to sort of just maybe to understand those dynamics, and really ultimately around those what matters in the modeling moving forward.

Yes. So to your question on generics, we think generics are good for everybody. The price comes down and is a revenue headwind, as you note. But typically, the competition on the manufacturer side and the cost of the drug allows the cost to come down even more. And so that is the dynamic around generics. As it relates to IRA, certainly, that has been a headwind to revenue. We have been able to mitigate the EBITDA impact for the drug and specialty pharmacy. Where we have the impact is, from a profitability standpoint, is in home and community pharmacy. There has not yet been a fix legislatively to the impact to the pharmacies on IRA, and so it was left to the pharmacies to negotiate individually with the PBMs on an enhanced dispensing fee. So we were able to partially mitigate but not fully mitigate the impact associated with the IRA impact to BrightSpring. And we'll look to continue to try to improve on that enhanced dispensing fee. Certainly, our government relations team is actively working, as are the industry experts and advocacy groups, regarding the home and community pharmacy and the impact of IRA to the pharmacies.

You think, and we'll probably wrap it with that, that there should be some momentum? I mean, clearly, I think there's an acknowledgment of D.C. that the intention was not to penalize pharmacies in order to shift profitability to PBMs. That's certainly not a part of what the narrative has been in Washington. But again, like you said, there hasn't been a fix yet and there's a lot of just unproductive sort of areas of focus in Washington right now.

Yes. It is certainly a focus area for us, to make sure that we're advocating for the industry, as the industry groups are doing, to make sure that people understand what we believe is the unintended consequences associated with that.

Yes. All right. Well, we are out of time. Jen, thanks so much for joining us. And again, I hope you have a productive rest of the conference.

Great. Thank you.