Guardian Pharmacy Services, Inc. (GRDN) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Guardian Pharmacy Services Second Quarter 2025 Earnings Call. [Operator Instructions] This call is being recorded on Monday, August 11, 2025. And I would now like to turn the conference over to Ms. Ashley Stockton. Thank you. Please go ahead.

Good afternoon. Thank you for participating in today's conference call. My name is Ashley Stockton, Senior Director of 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 June 30, 2025. 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 guarantees 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 as well as in our quarterly report on Form 10-Q to be filed with the SEC, including the specific risk factors and uncertainties discussed in our SEC filings. 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 condition. You can find additional information on these non-GAAP measures and reconciliations to their most directly comparable GAAP financial measures in 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 quarter.

Thank you, Ashley. Good afternoon, and thank you all for joining us today to review our second quarter earnings results. I'm pleased to report that the quarter was another strong one for Guardian, marked by continued momentum across our core growth levers. Our performance underscores the consistency of our earnings model, the strength of our local pharmacy leadership and our disciplined execution across the organization. We continue to deploy capital with intention, investing to expand into new markets and strengthening our organization to facilitate long-term durable growth. For the quarter, revenue, resident count and adjusted EBITDA each grew double digits year-over-year. Adjusted EPS came in at $0.23. Importantly, we maintained adjusted EBITDA margins at 7.2%, consistent with the prior year even as we folded in 3 acquisitions, launched several greenfield start-ups and continued integrating Heartland. Collectively, these pharmacies are not contributing to EBITDA. Additionally, we had approximately $1 million in costs associated with being a public company that did not exist in the prior year quarter. In parallel, we continue to strengthen our balance sheet, increasing our cash position by close to $5 million from the previous quarter, even as we invested in growth, namely 2 acquisitions during the period. We remain confident in our ability to fund future growth with internally generated cash and continue to view M&A as an attractive use of capital, especially given the long-term potential earnings accretion embedded in these newly added pharmacies. In light of our strong year-to-date performance, we are raising our guidance for the full year. We now expect revenue in the range of $1.39 billion to $1.41 billion, up from our prior range of $1.33 billion to $1.35 billion. We're also raising our adjusted EBITDA guidance range to $100 million to $102 million compared to our previous forecast of $97 million to $101 million. This updated outlook reflects better-than-expected organic growth in the first half of 2025 and the revenue contribution of new pharmacies added year-to-date, including our most recent acquisition in Oregon announced last week. Now I'd like to dive a little deeper into some of the highlights from the quarter, starting with acquisitions in greenfields. A core component of our growth playbook is disciplined expansion into attractive high-growth markets. This quarter, we advanced that strategy by adding 3 new pharmacies to our platform, 2 via acquisition and 1 greenfield start-up. I'll start with our greenfield. In April, we announced a new greenfield start-up pharmacy in Naples, Florida, which will serve to further strengthen our position in a state where we already hold a leading market share. This addition reflects our commitment to regions where we have a strong foundation and opportunity to scale further. As for acquisitions, both met our sweet spot in terms of size and market dynamics. As we announced on our first quarter earnings call, in April, we welcomed Senior Care Pharmacy in Wichita, Kansas into the Guardian family, expanding our presence in the state and complementing our existing pharmacy in the Kansas City area. In June, we brought Mercury Pharmacy in Seattle into our network, marking our first physical footprint into Washington, a dynamic region with growing demand for our services. Both acquisitions align well with our long-standing commitment to operational excellence and customized service tailored to the communities we serve. While organic growth remains a key focus, M&A will continue to play a meaningful complementary role in accelerating our expansion as evidenced by our recent acquisition in Oregon. These types of investments strengthen our leadership position in the ALF segment and provide attractive opportunities for strong return on investments. Now I want to talk a little bit about our clinical innovation. At the heart of our success is a clear focus on investing in what sets Guardian apart for our facility customers and payer partners. On the clinical front, we deliver meaningful value through high-impact outcome-driven programs powered by GuardianShield, our proprietary suite of clinical and data analytics tools designed to improve resident outcomes and reduce total cost of care. This quarter, I'm proud to share that we entered the second phase of our falls management program, a major initiative in collaboration with our facility partners aimed at proactively reducing one of the leading causes of injury and hospitalization in senior living communities. We are now live testing the program in select Florida markets, and early feedback has been highly encouraging. Community staff report that the platform is intuitive to use and provides a clear actionable insights to help reduce fall risk among residents. This builds on the success of our other clinical initiatives we offer, including our antibiotic stewardship and psychotropic medication monitoring programs, each of which has delivered meaningful improvements in quality of care and cost control. Other key metrics gathered from our data analytics are Guardian's overall clinical interventions, which stand at over 50,000 year-to-date with over half being med reconciliations. Additionally, through our insurance optimizer program, which helps our seniors with insurance complexities, we have saved residents over $24 million year-to-date. These efforts reflect our commitment to being more than a pharmacy. We're a clinical partner, helping reduce overall health care costs while improving resident outcomes. Before I touch on industry and policy developments, I wanted to say a brief word on capital markets. This quarter, we completed a nondilutive secondary offering, a key milestone in Guardian's evolution as a newly public company. The transaction nearly doubled our public float from 9.2 million shares to 17.8 million, resulting in improved trading dynamics, broader institutional participation and increased ownership opportunity for both new and existing investors. Importantly, the offering provided long-time employees and early investors an opportunity to realize some of the value they help create. Even after the transaction, employees continue to hold about 30% of the company, underscoring the deep alignment and long-term commitment across our organization. Going public has given our teams a tangible way to track the company's performance. Combined with our long-term equity incentive program, it's driving enthusiasm and a heightened sense of pride across our pharmacy network. Now turning to the broader policy environment. The Inflation Reduction Act is changing drug pricing across the industry with the most significant impact for Guardian expected in 2026. Guardian, along with other sophisticated long-term care pharmacies, delivers essential value-added services that are critical to the broader health care continuum, particularly as we care for a rapidly growing senior population with increasingly complex health care needs. We believe the impact to our sector is an unintended consequence of recent policy changes, and we think leaders recognize this and support our endeavor to protect high-quality care for the assisted living communities we proudly serve. With that said, we're proactively working to address these changes on 2 fronts: first, through our direct relationships with payer partners; and second, by pursuing a potential legislative or policy solution in collaboration with other industry leaders on Capitol Hill. With the PBMs, we've been deeply engaged in proactive and constructive discussions. Our value add is being recognized, and we continue to make tremendous progress in our negotiations. Moreover, given our market share, we believe we remain in a strong position to resolve this issue. It's important to note, new challenges are new territory for us. We've successfully managed prior pricing challenges, including inhalers this year and insulin in 2024. On the legislative and policy side, we're actively helping to lead the industry's efforts on Capitol Hill and with CNS, working to shape a more sustainable long-term policy solution for long-term care pharmacies. We are confident policymakers will work to ensure patient care isn't compromised. Regarding the One Big Beautiful Bill, we do not expect any material impact to our business. Specifically, our exposure to potential Medicaid cuts is minimal as less than 10% of our scripts are Medicaid and the cuts do not affect our specific patient population. Turning to MFN. There's still a high degree of uncertainty around ALF and how this will ultimately play out. That said, the IRA is already set to lower pricing on about half our branded drug volume over the next 2 years. As with the IRA, we don't believe long-term care pharmacies who provide clinical services and help them the health care cost curve are the intended target. Again, we are confident policymakers and payers would work with us toward a practical solution to ensure patient care is not compromised. In summary, we have had great performance this year, and I'm highly proud of our team's hard work and initiative. Looking ahead, our long-term growth thesis remains firmly intact. We continue to execute across organic growth within our local markets, strategic greenfield opportunities in contiguous markets and a robust acquisition pipeline. Together, we believe these 3 pillars will support sustained growth and ultimately, margin expansion as we bring pharmacies and early integration up to consolidated profitability levels. The strength of our year-to-date performance, combined with ongoing execution across all areas of the business gives us confidence heading into the second half of the year. Now I will turn it over to David to review the quarter in greater detail.

Good afternoon, and thank you all for joining the call today. I'll begin with a review of our second quarter financial results and then provide additional context around our updated full year 2025 guidance. I'll also share some insight into the impact of our recent acquisitions and greenfield start-ups. For the second quarter, revenue grew 15% to $344.3 million, driven by solid low double-digit organic growth plus contributions from recent acquisitions and greenfields. Resident count increased 12% to over 195,000 while gross profit increased to $68.1 million, up 11% year-over-year, posting a 19.8% margin. Adjusted EBITDA was $25 million, up 15% year-over-year with margins holding steady at 7.2%. As Fred mentioned, we maintained margin parity with the prior year despite integrating 3 acquisitions, launching multiple greenfield start-ups and onboarding and integrating the 4 pharmacies related to the Heartland acquisition. Also, we recorded $1.1 million in costs associated with being a public company this year that we didn't have in the year ago quarter. Turning to the balance sheet. We ended the quarter with $18.8 million in cash, an increase of $4.8 million from Q1 even after funding 2 acquisitions and a greenfield start-up. We remain in a solid financial position with no debt under our credit facility and available liquidity under our revolver. This gives us continued flexibility to fund strategic growth, namely M&A with internal cash flow. As Fred noted earlier, we are raising our full year guidance to reflect strong momentum through the first half of the year. Revenue is now expected to be in the range of $1.39 billion to $1.41 billion, up from our prior range of $1.33 billion to $1.35 billion. Adjusted EBITDA is now forecast at $100 million to $102 million versus our previous range of $97 million to $101 million. Just to reiterate, this guidance does include the impact for the remainder of the year from our most recent acquisition in Oregon announced subsequent to quarter end. Looking ahead at the balance of the year, as in prior years, we expect to see typical seasonality in the fourth quarter, driven primarily by COVID and flu vaccine activity, which turned profitable for us last year. We anticipate a similar seasonal impact again this year. Gross margins for the remaining quarter should be in line with the first half. Our EBITDA margin should be in line with the second quarter for the remainder of the year as we continue to absorb acquisitions and greenfield start-ups. Stock-based compensation will hold for the third quarter at a similar level as Q2, but is expected to decline meaningfully in Q4 to approximately $1 million as we sunset the pre-IPO equity program. Our tax rate should remain around 29% for the remainder of the year. In line with our updated outlook, I want to provide additional context around our recent pharmacy additions to help frame their impact of the full year. This was a key topic of our discussion at our June Investor Day, which we were pleased to host at our headquarters. There, we spotlighted acquisitions as a core pillar of our growth strategy and included in our updated investor deck, which is available on our IR website, a slide that shows the recent time line of acquisitions and greenfield expansions. In that slide, we pointed out that as of midyear, 11 of our more than 50 pharmacies remain in the early stages of integration, having been acquired or launched as greenfields within the past year or so. This cohort is expected to account for a high single-digit percentage of our 2025 revenue, but with no EBITDA contribution for the full year. These investments position us well for long-term growth as we scale them over time. But for now, they are a headwind to our consolidated margins. Excluding these pharmacies, our adjusted EBITDA margin will be closer to the 8% mark. This dynamic reinforces that the increase in our EBITDA guidance is entirely driven by the outperformance in our more mature pharmacies. The near-term margin impact from this newer cohort is consistent with the maturation curve we've observed historically, where profitability typically accelerates in years 4 and 5. It's also worth noting that EBITDA ramp varies across pharmacies. Some show a steady upward trajectory, while others experienced a more pronounced inflection point in the later years. Overall, our acquisition pipeline remains robust. We expect to continue integrating the pharmacies we've recently added while actively engaging in discussions with prospective partners that align well with our strategic focus. In closing, I want to echo Fred's comments. We're very pleased with the strength of our first half results and the operational discipline that has enabled this performance. As we look ahead, we continue to stay focused on driving performance through our core operations, growing our footprint in strategic markets and strengthening our foundation by investing in talent and infrastructure. We're proud of the momentum we built and confident in our ability to continue executing against our strategic growth plan. Thank you again to the entire Guardian team for their dedication and excellence and to all of you for your continued support. Operator, let's open the line for questions.

[Operator Instructions] Your first question comes from the line of John Ransom from Raymond James.

A couple for me. Last year, you rolled out your vaccine program. I know you made some comments about seasonality. Is that program kind of at a steady state? Or is there still some learning that could maybe inflected even higher in the fourth quarter?

Last year, we talked about the seasonality from the vaccine clinics and moving to profitability. This year, it's steady state with just general growth of the overall business.

Okay. And then secondly, I just have a couple more. The PBM negotiations next year, obviously, a big event with the IRA reset. When do you target -- I just don't know, but when do these negotiations tend to conclude? Are they -- I know it's an annual thing, but will you kind of know in December, November, earlier than that? But when are you targeting to try to get some of these things wrapped up?

John, as we've talked about the last 6 to 12 months, we've been engaged in these discussions. And as Fred said in his comments, we continue to make really good progress and are ever more confident in our ability to work through this really on the commercial side. As far as when it's over and we signal what '26 is going to look like, I think will come in the form of updating our guidance. So stand by, and we'll be leaning more into that as we get into Q4 and toward the end of the year.

And then like this is a super qualitative question, but you've been public for a while now and seem to be settling into a rhythm. Has the process of being public, like as you reflect on a year ago when you were private, what is the process of being a public company change, if at all, about your prospects, your visibility, maybe your acquisition pipeline, interest in the company, talent? Is there anything you'd point out to say, yes, we've got some intangible benefits here that we didn't think about?

John, it's Fred. You have hit on a really interesting and important point. I believe the increased visibility of being in the public markets is a very, very strong affirmation of the company, the service that we render and our teams. So I view it as a really big positive. Of course, David...

I thought you might mention that the time you got to spend with sell-side analysts was one of your positives. You didn't disappointingly didn't mention that. So I'll just take that into...

John, you'll notice I'm not saying anything.

Well, state school grads are smarter than...

No comment. David and I do have a little bit of a new job. It's been interesting and intellectually stimulating, but we are focused on the business and continuing doing what brought us here in the first place. So generally, good interesting and good question. I would say it's a positive.

Your next question comes from the line of David MacDonald from Truist.

A couple of questions. One, you guys mentioned in the release and also in the commentary, just better organic growth. Can you just talk a little bit about that? I assume that's being driven by share gain, but is there a couple of things that you have seen kind of gain incremental traction in terms of just the organic growth that you're seeing?

We're really pleased with our organic growth on a resonant basis. It comes in at what we've been guiding to high single digit. But we're also seeing the revenue grow at a faster rate due to some factors that relate to patient acuity. Of course, we've always had brand inflation, but we are seeing patients with more prescriptions and more complex drug regimens. And also, finally, we see more patients that are actually assisting with our plan optimization program to help patients move toward Part D whenever possible.

Okay. And then, guys, just one other. I mean, you've obviously been busy, but just any high-level commentary around what the pipeline continues to look like? And just one other quick question. Are there any operational or internal governors that we should think about relative to how many greenfield/M&A opportunities you can kind of take on at the same time?

David, I think from an acquisition pipeline, it remains strong and probably the strongest it's been in the last 5 years. Some of that comes to -- from the visibility that we have now being public. And the main governor, and we talk about this almost in every meeting is human capital. I mean we have the financial capital to do more M&A, do more greenfield start-ups, but it all comes down to people, and we can't get ahead of our skis. So that will probably be our limiting factor, but we're working very hard to improve our ability to do more of these, frankly, I think we've shown that in the last 24 months. So we picked things up. So human capital continues to be what helps us execute and succeed. It's also a limiting factor.

And your next question comes from the line of Raj Kumar from Stephens Inc.

Just wanted to touch on the Managed Healthcare Pharmacy acquisition that you guys disclosed recently. Maybe just any kind of figures around that from a revenue contribution perspective and resident perspective? And then kind of broadly thinking about the Pacific Northwest expansion you've guys encompassed this year. And I think you've called out Mercury being a larger kind of deal that you've guys done. Maybe kind of help us frame what the market share of those operations are and trying to expand that over time, what does that look like to getting to maybe like 25% market share?

Raj, good to hear from you. From the Managed Healthcare Pharmacy, I think we've talked about it is our typical deal from a size standpoint really hits our sweet spot of our typical deal and comes with a strong leadership team that I think will help us really capitalize on the national accounts that are in that market as well as in the other areas in Washington and Seattle. So we're excited about both of these acquisitions and teams coming on board with us.

Got it. And then just as a follow-up, just kind of thinking about just also the kind of regional and large alpha account penetration, clearly a key aspect of the organic growth. So maybe kind of any update around kind of metrics in terms of what the penetration has been as you continue to expand, especially as you called out organic growth being ahead of expectations this year?

I mean, as Fred said, we had strong organic growth in Q2 and really the first half of the year, and we see the latter half of the year being in line organic growth-wise of the guidance that we've been focused on in the high single digits. But we're excited about the 11 new locations and their ability to really grow organically as we expand in the new markets and some of our existing markets that we've opened in the last 24...

Your next question comes from the line of John Ransom from Raymond James.

Just kind of a follow-up model question. As we think about -- I know you have 195,000 residents at the end of the quarter, which is certainly ahead of our model. As we think about the pro forma effects of all the acquisitions you've done, if you don't do anything else, what's a good number to think about by the end of 3Q compared to the 195,000?

I think we're going to continue our organic growth trajectory. And I think that's the way you had it in the model. I think continue that and obviously layer in the Seattle and Eugene acquisition activity, that would sort of be our guidance.

And remind me what the patient count was of those 2 deals?

John, we don't disclose that for obvious competitive reasons, but both were in our sweet spot. We've said before that the type of pharmacy that we are typically attracted to is somewhere in the range of 2,000 to maybe even as high as 3,500 residents, $10 million to $20 million in revenue. Both of these fit right there.

Thank you. There are no further questions at this time. Ladies and gentlemen, this concludes today's call. Thank you for participating. You may all disconnect.