BrightSpring Health Services Q3 2024 Earnings Report

BrightSpring Health Services EPS Results

• Actual EPS: $0.11
• Consensus EPS: $0.18
• Beat/Miss: Missed by -$0.07
• One Year Ago EPS: N/A

BrightSpring Health Services Revenue Results

• Actual Revenue: $2.91 billion
• Expected Revenue: $2.72 billion
• Beat/Miss: Beat by +$188.51 million
• YoY Revenue Growth: +28.80%

BrightSpring Health Services Announcement Details

• Quarter: Q3 2024
• Date: 11/1/2024
• Time: Before Market Opens
• Conference Call Date: Friday, November 1, 2024
• Conference Call Time: 8:30AM ET

BrightSpring Health Services (NASDAQ:BTSG) operates a home and community-based healthcare services platform in the United States. The company's platform focuses on delivering pharmacy and provider services, including clinical and supportive care in home and community settings to Medicare, Medicaid, and insured populations. It serves patients through clinical providers and pharmacists. The company was formerly known as Phoenix Parent Holdings Inc. and changed its name to BrightSpring Health Services, Inc. in May 2021. BrightSpring Health Services, Inc. was founded in 1974 and is headquartered in Louisville, Kentucky.

BrightSpring Health Services Q3 2024 Earnings Call Transcript

Presentation

[Operator]

Good day, and thank you for standing by. Welcome to BrightSpring Health Services Inc. 3rd Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session.

[Operator]

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jennifer Phipps, Chief Accounting Officer. Please go ahead.

[Jennifer Phipps, Chief Accounting Officer at BrightSpring Health Services]

Good morning. Thank you for participating in today's conference call. My name is Jennifer Phipps, Chief Accounting Officer at BrightSpring. I am joined on today's call by John Russo, Chief Executive Officer and Jim Mattingly, Chief Financial Officer. Earlier today, BrightSpring released financial results for the quarter ended September 30, 2024.

[Jennifer Phipps, Chief Accounting Officer at BrightSpring Health Services]

A copy of the press release and presentation is available on the company's website. Please note that today's discussion will include certain forward looking statements that reflect our current assumptions and expectations, including those related to our future financial performance and industry and market conditions. Such forward looking statements are not guarantees of future performance. These forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations. We encourage you to review the information in today's press release and presentation as well as in our quarterly report on Form 10 Q that will be filed with the SEC.

[Jennifer Phipps, Chief Accounting Officer at BrightSpring Health Services]

Specific risk factors and uncertainties can also be found in our 10 ks previously filed with the SEC. Such factors may be updated from time to time in our periodic filings with the SEC, and we do not undertake any duty to update any forward looking statements except as required by law. During the call, we will use non GAAP financial measures when talking about the company's performance and financial condition. You can find additional information on these non GAAP measures and reconciliations of our non GAAP financial measures to their most directly comparable GAAP financial measures to the extent available without unreasonable effort in today's earnings press release and presentation, which again are available on our Investor Relations website. This webcast is being recorded and will be available for replay on our Investor Relations website.

[Jennifer Phipps, Chief Accounting Officer at BrightSpring Health Services]

And with that, I will turn the call over to John Russo, Chief Executive Officer.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

Good morning, everyone. Thank you for joining BrightSpring's Q3 2024 earnings call. I would like to take a moment and express my gratitude and appreciation to and for our employees and teammates who work very hard to deliver attentive, compassionate and quality care to the individuals and patients we serve across home and community settings every day. We're pleased to have delivered another strong quarter of financial results. 3rd quarter total revenue was $2,900,000,000 representing 29% growth year over year and adjusted EBITDA was $151,000,000 representing 16% growth year over year.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

Based on this performance in the quarter, we are raising the midpoint of our total revenue and adjusted EBITDA guidance for 2024 from $570,000,000 to $580,000,000 to $580,000,000 to $585,000,000 Jim will discuss our financial outlook in more detail shortly. Consistent with prior quarters, we continue to operate and expand in large and growing markets of significant need where we can best serve patients with essential high quality services. Within our pharmacy segment, we drove exceptional volume growth with our operational focus and rigor as well as leading sales and marketing strategies, connecting patients with the services and therapies they need. Total scripts dispensed year to date continue to trend favorably as the operators continue to execute. Our specialty business outpaced forecast with higher script volumes driven by 2023 2024 LDD launches and generic scripts.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

In provider, we saw good growth in Census and Ours and we successfully integrated previously announced acquisition. We continue to deliver quality care to patients while improving margin sequentially driven by leveraging scale and best practices across the organization. M and A and de novo expansion remain a focus at BrightSpring. We continue to have a strong acquisition engine with a healthy pipeline that if converted would augment the organic growth profile of the company. All in all, at BrightSpring, we are proud of the high quality care we deliver to complex patients where they reside and in the community, which support the financial results delivered.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

Looking closer at 3rd quarter performance, pharmacy solutions revenue of $2,300,000,000 represented 35% growth compared with the Q3 of last year, driven primarily by strong script volume. The infusion and specialty business had another very strong revenue quarter, growing 42% year over year, while Home and Community Pharmacy revenue grew 19% year over year. Across the Pharmacy segment, we saw 10,900,000 total scripts dispensed in the 3rd quarter, representing growth of 15% compared with last year, driven by 36% growth in specialty scripts dispensed. Strong growth in specialty and infusion continue to be driven by strategic focus and operational discipline, leading quality and net promoter scores, partner and customer satisfaction, LDD launches, sales force support and integration with providers and generic drug utilization. The LDD portfolio expanded to 123 therapies during the quarter and we continue to expect 18 new LDDs to launch over the next 16 to 20 months.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

We are honored that Onco360 was selected as a limited drug distribution specialty pharmacy partner for each of those therapies and are committed to improving the lives of patients who are battling cancer, rare, orphan and a number of other diseases. SPRICELL used for treatment of adults with newly diagnosed pH positive CML in the chronic phase also converted and launched this generic late in Q3. And we look forward to helping patients navigate the generic opportunity now in the market. Within infusion, the business continued to drive volume growth in acute and chronic therapies in the Q3. Throughout 2024, we have continued to over invest in our infusion business.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

We started with operational leadership changes earlier in the year and we have been investing in people, capabilities and process to drive operational efficiencies, best practices and improving profitability in the future, expecting to see results from these investments in 2025. At Home and Community Pharmacy this quarter, mid teens script growth was driven by new customer wins and strong execution of our service programs across a variety of home and community settings, including assisted living, skilled nursing, medical and rehab facilities, behavioral settings and hospice, as well as other locations where patients need at home pharmacy support. Turning to provider services, segment revenue grew 10% year over year and segment adjusted EBITDA margin expanded by 50 basis points year over year, primarily driven by broad based execution, volume growth and leveraging infrastructure across all service lines. Community and rehab care revenue grew 8%, which is a testament to the quality and customer service the team continues to deliver to patients. In the rehab business, we saw billable hours growth in the mid teens compared with last year.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

A new and future avenue of growth we are excited about is our Rehab in Motion program. This program supports Part B Medicare outpatient rehab patients as we add de novos through partnerships with ALS to provide rehab care to seniors in additional home and community settings, complementary to the commercial and workers' comp neuro rehab that we are known for today and also complementary to our home health, primary care and hospice services we provide to the Medicare population in ALS and in homes today. We anticipate rehab in motion to continue to evolve next year and grow to meaningful size over the next 5 years. Another way we are laying the foundation for long term growth and better and more integrated prescriber and patient solution. Community living performance has remained consistent, driven by quality services delivered to clients by a conscientious and coordinated care team within a robust infrastructure.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

As most recent evidence of this, we received another 3 year CARF accreditation in the state of Indiana, which is very difficult for providers to achieve and another third party stamp of quality. In the 3rd quarter in Home Healthcare, revenue grew 13% year over year and average daily census grew 16% to over 46,000 supported by exceptional clinical quality scores, including 30 day readmission rates that are 60% lower than the national average in our emerging primary care services. Towards the end of the Q3, we announced the closing of the Haven Hospice acquisition and we look forward to expanding our quality care to high need patients in Florida. Our hospice business continues to display a solid growth profile with great patient satisfaction. We currently hold an 84% overall rating of care according to the consumer assessment of healthcare provider and systems.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

Overall in 2024, BrightSpring and our teams continue to execute consistently towards our mission of driving compassionate and comprehensive health solutions to complex populations. We believe we are well positioned to deliver on our updated 2024 outlook. Broad based strength across pharmacy and provider continues to underpin BrightSpring's success. In 2025 and beyond, the company plans to drive operational best practices and volume growth in attractive markets, while further providing patients reliable, coordinated, high quality and lower cost care. Before I turn the call over to Jim to discuss our Q3 results and 2024 guidance in more detail, I would like to highlight that we recently added a 3rd independent Director to our Board, Doctor.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

Steve Miller, who brings to BrightSpring decades of impressive clinical leadership experience. I look forward to working with Steve to grow our company and deliver leading quality of care to patients. With that, I'll turn the call over to Jim to walk through the financials and updated guidance.

[Jim Mattingly, Executive VP & CFO at BrightSpring Health Services]

Thank you, John. Total revenue in the Q3 of 2024 was $2,900,000,000 representing 29% growth from the prior year period. Pharmacy Solutions segment revenue was $2,300,000,000 achieving growth of 35% year over year. Within the pharmacy segment, infusion and specialty revenue was $1,700,000,000 representing growth of 42% from last year and home and community pharmacy revenue was $588,000,000 representing growth of 19% year over year. In the Provider Services segment, we reported revenue of $641,000,000 representing growth of 10% compared to the prior year period.

[Jim Mattingly, Executive VP & CFO at BrightSpring Health Services]

Within the Provider Services segment, Home Health Care reported $265,000,000 in revenue for the 3rd quarter, growth of 13% versus last year and community and rehab care revenue was $376,000,000 representing growth of 8% year over year. Moving down the P and L, total company gross profit in the 3rd quarter was $408,000,000 representing growth of 14% compared with the Q3 of last year. Gross profit was negatively impacted by approximately $10,000,000 related to non recurring items in the quarter, including startup costs related to onboarding a large customer and home community pharmacy, a small impact from the hurricane deal was not material to adjusted EBITDA and a settlement with the payer related to prior periods. Adjusted EBITDA for the total company was $151,000,000 for the Q3, growing 16% compared to last year. Adjusted EPS for the total company was $0.11 for the Q3.

[Jim Mattingly, Executive VP & CFO at BrightSpring Health Services]

Turning back to segment performance, Pharmacy Solutions gross profit was $189,000,000 growing 16% compared with the Q3 of last year. Adjusted EBITDA for Pharmacy Solutions was $99,000,000 for the Q3, growing 15% compared to last year, representing an adjusted EBITDA margin of 4.4 percent, which was in line with our expectations. Provider services gross profit was $219,000,000 growing 13% versus the Q3 of last year. Adjusted EBITDA for provider services was $93,000,000 for the Q3 growing 14% versus last year representing an adjusted EBITDA margin of 14.5%, up 50 basis points versus last year. On a total company basis, cash flow from operations was $27,000,000 in the Q3 of 2024, including $24,000,000 as a final payment on the legacy legal matter previously disclosed.

[Jim Mattingly, Executive VP & CFO at BrightSpring Health Services]

Excluding that legal payment, cash flow from operations was $51,000,000 which was in line with our expectations and included some strategic inventory purchases. We remain on track to deliver approximately $275,000,000 of annual run rate operating cash flow, excluding disclosed legacy litigation expenses and IPO related expenses, as we continue to remain focused on improving our leverage ratio towards our goal of 3 times within 2 to 3 years. As of September 30, our net debt outstanding is approximately $2,700,000,000 with our leverage ratio at 4.39 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 3 received variable pay fixed interest rate swap agreements that we have in place set to mature on September 30, 2025. Quarterly interest expense is still expected to be approximately $50,000,000 per quarter, including approximately $1,400,000 in interest expense related to the TEU instrument.

[Jim Mattingly, Executive VP & CFO at BrightSpring Health Services]

Turning to our guidance for 2024, we are raising expectations for revenue and adjusted EBITDA. Total revenue is now expected to be in the range of $11,000,000,000 to $11,300,000,000 including pharmacy solutions revenue of $8,500,000,000 to $8,750,000,000 and provider services revenue of $2,500,000,000 to 2,550,000,000 dollars We are also raising our total adjusted EBITDA outlook to the range of $580,000,000 to $585,000,000 for full year 2024. This range represents 14.2% to 15.2% growth versus full year 2023 when excluding the QIP received in 2023. Since the start of the year, we have increased the midpoint of our adjusted EBITDA guidance by nearly $42,000,000 At the midpoint of our adjusted EBITDA range, the adjusted EBITDA margin is approximately 5.2 percent and we continue to expect to see margin expansion in Q4. With that, I will now turn it back to John.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

Thank you for your time today to go through BrightSpring's 3rd quarter results and guidance update. We will now open up the call for questions. Operator?

[Operator]

Thank you. Our first question comes from the line of Brian Tanquilut from Jefferies.

[Brian Tanquilut, Equity Research Analyst - Healthcare Services at Jefferies & Company Inc]

Hey, good morning guys and congrats on a solid quarter. Maybe John, my first question just to the point that Jim made about margins, expecting to be expecting that to improve in the Q4. Just curious how we should be thinking about that between between mix and other initiatives that would drive that margin expansion?

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

Hey, Brian, good morning. Q4 is always typically our highest margin quarter of the year for a variety of reasons, including days and other items. But we expect that trend to continue this year as it's been for almost every year. There are some other non structural items that are going to occur or we expect to occur in Q4. We had a launch of a generic drug in specialty Sprycell.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

The hospice, new hospice rate goes into effect in the quarter. We should be through some onboardings of some new customers as well. Those items along with continued volume growth and leveraging our fixed costs are all ultimately as well adders to the margin in the quarter and we're holding our corporate pretty much flat quarter over quarter at this point in time.

[Brian Tanquilut, Equity Research Analyst - Healthcare Services at Jefferies & Company Inc]

Awesome. And then maybe John, just as a follow-up, there's a lot of there are a lot of questions from the investor community on biosimilars and pricing adjustments that are just going to be happening in that space. So just curious what you're seeing or how should we be thinking about your exposure to some of these pricing dynamics in the biosimilar? Thanks.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

Yes. So that's not relevant in our specialty pharmacy oncology business and rare and orphan business. That's more of an oral and injectable business. As you look to infusion, Stellara is really the only drug we're aware of right now where you're seeing biosimilar activity. For us, given our business mix at the company as well as in infusion, we don't see a material impact from that.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

There's still multiple items that have to play out in that specific situation that could be positive as well. And then for us specifically in infusion, there's a whole host of operational initiatives as we've talked about that we've been focused on this year in terms of our service delivery, our nursing, etcetera, etcetera, where we're really building for the future. We've been making investments to try to build a very durable long term platform in the space with leading service levels. So that's where our focus has been. And we believe we have as we've talked about margin upside in that business in the next year from a whole host of other operational and sales related items separate from anything to do with Stelara.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

So for us, as we think about 2025, STELARA and what happens on that next year is not going to have a material impact versus what we otherwise would have said and are planning to say. In that specific case, the drug is 0.2% of our company revenue, less than 0.5% of our GP. So, and again, we're focused on growing volume and driving efficiency in the business to hopefully move past any of these events as they inevitably incur in the market from time to time. These are just things that you have to absorb. Unfortunately, there's a lot of other growth drivers.

[Brian Tanquilut, Equity Research Analyst - Healthcare Services at Jefferies & Company Inc]

Awesome, John. Thank you so much. Very helpful.

[Operator]

Thank you. One moment for our next question. Our next question comes from the line of A. J. Rice from UBS.

[A.J. Rice, Managing Director at UBS Group]

Thanks. Hi, everybody. I know last quarter you talked about being in negotiations with a large long term care operator. It sounds like from your comments about startup costs for onboarding a client that must have come to fruition. Can you give us any color on what that might mean?

[A.J. Rice, Managing Director at UBS Group]

And I think also last quarter you had talked about being in discussion with some managed care a large managed care plan MA about your home health business and wondered if there was any update on what you're seeing in contracting in home health as well.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

Yes. Thanks, A. J. So on the first point in home and community pharmacy, we grew scripts in that business year over year at double digit again. And we continue to focus on sales and marketing tactics in the space across multiple attractive channels.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

And that's all really underpinned by our service programs and our quality as well as we really try to differentiate in the market on those dimensions. But we did onboard one customer in particular, as we've talked about, that was very successful. It was across over 200 buildings. And it was a big effort, but I think speaks to the execution of the team. We're probably the only company in the United States that would have been able to do that.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

It's going well. We still do have some lingering costs you incur over time and some other things as you're on boarding such a massive amount of customers and individuals. We expect that to continue to decrease as we get through Q4 and into Q1. You can think about that as $1,000,000 of monthly EBITDA that we've been able to drive that hopefully should continue to increase as we get into Q1 and ultimately finalize what we see as the long term labor profile for that specific situation. On home based primary care, we do continue to talk to a handful of payers here in the early innings.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

The idea being that we can provide a very high level of primary care directly where payer members are in the home and community for the high risk and dramatically reduce hospitalizations. These discussions can take a while, but they are still continuing to progress and then looking very well in one specific situation. I don't yet have the ability to specifically talk about that other than it's continuing to trend in the right direction.

[A.J. Rice, Managing Director at UBS Group]

Okay. And glad to hear you got the Haven deal completed. I think the original discussion was that, that might contribute another $15,000,000 of EBITDA. Is there any update on how that might flow through? Is that a 2025 potential contribution?

[A.J. Rice, Managing Director at UBS Group]

And any thoughts on how you might expand how quickly you might expand that business and what revenue it contributes?

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

Yes, it was good to see that close and the 1st 30, 60 days have been excellent in terms of onboarding the team and really getting ingrained with everybody over there, just a ton of enthusiasm and coming together. That will be about $1,000,000 or $2,000,000 of EBITDA realized this year. We believe that can be a $15,000,000 opportunity over several years, sort of in a 5, 10, 15 stair step, if you will, over the next couple of years.

[A.J. Rice, Managing Director at UBS Group]

Okay. Thanks a lot. Sure.

[Operator]

Thank you. One moment for our next question. Our next question comes from the line of David Larsen from BTIG.

[David Larsen, Analyst, Managing Director at BTIG]

Hi, congratulations on a good quarter. Can you talk a little bit about the impact of the Inflation Reduction Act? If there's any, I mean, we've seen IQVIA pullback yesterday. We've seen Icon on the CROs come under some pressure. There's kind of a view among some investors that it's sort of a headwind on the overall market.

[David Larsen, Analyst, Managing Director at BTIG]

My view is maybe it's causing pharma to invest more heavily into specialty. Just what impact is brand inflation in the IRA having on your overall business? Thanks a lot.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

Yes. So certainly these are events that you would look out to in the future, primarily in 2026. The Solaris situation could be an example where a manufacturer moved to do certain things in the market ahead of that timeline. Again, that's not a situation for us that's meaningful whatsoever. You got to take it business by business in pharmacy.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

On specialty, we really just have one drug on the list. That's out in 2026, but we are having very constructive conversations with that manufacturing partner already and see no risk on that specific situation in our specialty oncology business. You look at infusion, we talked about the one drug there and how for us in our situation, that's not material. And then you look at the LTC Pharmacy where you've got 6 or 7 drugs on the list for 2026. There was very good news in Q3 around this, which is what we thought.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

But CMS has always said in the IRA, I mean, it was written into it that they the intention is to have no impact on the pharmacies. And so CMS really formalized that in Q3, basically stating that clarifying that there's going to be a true up mechanism to WACC for the LTC pharmacies, which is pretty much exactly what we were seeking. So you've got to take this business by business, drug by drug. But as we look across specialty infusion and LTC Pharmacy, we feel like we're in a really good place. The value of pharmacies and the last mile to the patient's home and what we do from a program and quality perspective is just beyond essential in the pharmacy world.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

You can't get the drug to the home without the pharmacies as willing participants. And so the specific situations of the drug in each business are very low risk to us looking out a couple of years and then CMS's formalization of the mechanism on the LTC side was great to see in the quarter.

[David Larsen, Analyst, Managing Director at BTIG]

Great. And then just any color around MA volumes. The plans have been under pressure because of high volumes. It seems to me like that could be a tailwind to you. Just any color there on how the pressure the plans that have been under, how that's translating to your business?

[David Larsen, Analyst, Managing Director at BTIG]

Thanks.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

Yes. For us, as it relates to MA, that's going to be on the provider side. And really the only relevance there is on home health a little bit. And so we've been constructive in working with home health over the past several years. Just given the imbalance of demand and supply in home health, demand really outstrips supply.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

Today, 40% of the individuals who need home health don't get it, which is really, really a problem, because the benefits of home health are so profound that keeping people out of the hospital and reducing costs. And so really the only relevance there, David, is in our home health business, call it 30% or so of what we do is MA. But we've had very constructive relationships just given quality levels and the broad contracting that we do with payers across all of our service lines that continuing to negotiate what we would consider to be very sustainable rates with them. So from an MA standpoint, that's really it in the company.

[David Larsen, Analyst, Managing Director at BTIG]

Thanks a lot.

[Operator]

Thank you. One moment for our next question. Our next question comes from the line of Joanna Gajuk from Bank of America.

[Joanna Gajuk, Equity Research Analyst at Bank of America]

Hi, good morning. Thanks so much for taking the question. So I guess I have 2 questions related to prior topics, if I may. So the first one on the IRA. So I understand you were commenting on the changes to the drug prices.

[Joanna Gajuk, Equity Research Analyst at Bank of America]

But on the flip side, there's some other changes to Part D, essentially lowering the cost for patients. And some payers have said that they saw higher utilization of specialty gloves because of that. So have you seen that as well? And also in this context, the changes to the patient costs are actually going to be even bigger in 2025. So do you expect even bigger increase in utilization next year under those changes?

[Joanna Gajuk, Equity Research Analyst at Bank of America]

Thank you.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

Hey, Joanna, thank you. Yes, I mean, what you referred to there from a Part D perspective has been and we expect will continue to be positive for us to the extent that drugs are continuing to be made more affordable for patients. That is only a good thing. Oncology in particular is a very dynamic market. It is an extremely innovative and high growth market right now.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

And with our quality, with our relationships with manufacturers and with our sales force, we are continuing to drive very robust volume growth in that business. Specialty and infusion grew their revenue over 40% in the quarter, as example. As the calendar turns into January every year, some of those items that you mentioned go into effect. That was an accelerant this year for us. And given our planning ahead of the changeover year over year this year into January, we expect a bolus of new referrals as well.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

And our sales and marketing team is always months out in front of an event like that, making sure that we take full advantage of it to get these life saving drugs to as many people as we can. So we would expect another bump as we get into January from a volume perspective due to the items that you laid out.

[Joanna Gajuk, Equity Research Analyst at Bank of America]

Great. Thank you. And if I may follow-up on the discussion around Stellaris, thank you for details in terms of your exposure. But your infusion peer said, and I guess you referred to it, that there are some changes that the maker of XELARA plans to introduce, I guess, ahead of other changes happening, so essentially reducing the spread maturity on that drug. So how does this change if that was to happen because it sounds like maybe not finance, but if that was to happen, how does this change your view of the impact of future similar launches?

[Joanna Gajuk, Equity Research Analyst at Bank of America]

Could we see other drug makers kind of follow suit? And does that change how you think about biosimilars benefit to your business going forward? Thank you.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

Yes. Look, it's really impossible to prognosticate around sort of the future of biosimilars in the space. I would just say that at least we view this situation as being very idiosyncratic. This drug is on the IRA list and that's probably at play here in terms of any of the change in pricing from the manufacturer in this one specific instance. So that's our view is that this is isolated.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

When you step back and you look at infusion broadly continues to be an extremely attractive market, where there are real barriers to entry, given the local services and the high demand from prescribers and patients for fast turnaround times. It's a high execution business where I think some of the larger players in the market have done a fantastic job. We like to participate in pharmacy markets that are challenging from a service model perspective and that are local. That really defines everything we do. So we like infusion a lot for those reasons.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

The pipeline is extremely deep. There are many possible growth drivers in this market over the next 1, 3, 5 10 years. And look, drugs coming onto the market, drugs going generic, drugs going biosimilar, that is just constantly a play in any drug market. And with a long term focus on quality service levels and volume and then real efficiency from a margin perspective, you just have to continue to focus on those critical success factors and take advantage of all the opportunities you can over time. And for us, that's been continuing to try to drive volume as much as we can.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

On infusion, as we've talked about, that's a business that was less mature at our company historically. We've made a lot of investments in that business this year that's in our P and L. We expect those to be a benefit as we look into next year. So again, Solara, we view as a very specific situation for a variety of reasons. And as I said before, not one that would materially change our outlook from what we were otherwise planning next year.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

And there's still several items to play out within the Stellaris specific situation that can be very positive as well. So, still more to be seen there.

[Joanna Gajuk, Equity Research Analyst at Bank of America]

Thank you.

[Operator]

Thank you. One moment for our next caller. Our next question comes from the line of Anne Hynes from Mizuho.

[Ann Hynes, Senior Healthcare Services Equity Analyst & Managing Director at Mizuho Financial Group]

Hi, good morning. Thank you for the question. I know you're not giving 2025 guidance, but heading into next year, can you maybe highlight some key headwinds and tailwinds you might be facing? Thanks.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

Yes. Hey, Ann. Yes, we'll be getting to 2025 guidance in time. Obviously, we're well down the path of budgets. So we need to formalize all that work and formalize numbers to be communicated.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

But at this time, as I've said in the past, we're feeling the same way, if not a little bit more positive as we were on the last call in terms of our ability to continue to drive our historical level of growth into next year. Over the last 8 years now, our CAGR has been in the double digits from a revenue and EBITDA growth perspective, and we see no reason why that would change next year. And that's our base plan and how we're thinking about the business right now. In terms of drivers in the business, again, just given our business mix, we are a multi pronged growth company. It's something we really like.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

And you look at specialty 1st and foremost, there's just a ton of momentum, particularly in the oncology and the rare and orphan space. We have a dominant position as an independent pharmacy in that market and in our quality and our trade relationships and our sales force investment and focus, it's continuing to drive the business forward. We certainly expect that to continue. SpriCell launched in Q3, it went generic. It's a tailwind.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

Another drug is going to go generic in hopefully Q1, maybe Q2, hopefully Q1. And we continue to have just really good momentum overall from our LDD launches. We'll launch 15 this year. Of note, of those 15 LDD launches in specialty, I think 4 or 5 are exclusive and the rest are only in ultra narrow networks of 2 pharmacies or less. And so manufacturers really selecting only 1 or 2 pharmacies to fulfill and support these drugs.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

So we'll continue with our LDD momentum and our generics momentum in our existing portfolio next year as well. And then our fee for service business and specialty with highly valued services and data we provide for manufacturers that continues to grow too. So just multiple growth drivers within specialty alone. I mentioned infusion. We expect the investments operationally in that business to start to pay off next year.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

We would expect continued volume growth in that business of double digit. But and importantly, we're expecting to see the margin in that business now start to tick up just given some of the operational projects we've been focusing on. For us, that's an opportunity to grow our market share in a really attractive big market and that's our focus with service levels that hopefully are in the top of the industry and that's what we've been working on there. I should note also on infusion, Quorum announced in the quarter that they were getting out of acute. A lot of the infusion players when you look out there have just started to focus on specialty, particularly the smaller infusion companies.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

Our thesis is that you have to do both. You have to do acute and you have to do chronic infusion therapies. That to us is the most relevant to the payer. Payers would expect you to be able to infuse all therapy types for their members and not just 1 or 2. And so we are focusing on being a broad based infusion company that continues to do acute.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

Acute infusion is a huge market and it has a respectable margin. And so we believe that there's a lot of reasons to continue to do acute. As Quorum is most recently pulled away from that market, that should also be a tailwind as we get into next year. As we've said before, we like home health and hospice a lot. Hospice continues to get great rate support, but we expect both of those businesses to continue to grow volume at double digits and we continue to invest in operational technology and efficiency centralization opportunities in those businesses as well.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

We like rehab clinically as well. We expect that business to grow at double digits as we continue to do de novos in more markets and penetrate current markets. And then we will continue to try to evolve and scale our home based primary care business for upside too. So I didn't mention LTC, our 3rd pharmacy business, but that business is going to be up year over year on EBITDA for us this year for a variety of reasons. And I think both from a volume and customer and a margin perspective next year, given some of the operational initiatives we've been driving hard this year, we expect to see LTC Pharmacy do well next year or 2.

[Ann Hynes, Senior Healthcare Services Equity Analyst & Managing Director at Mizuho Financial Group]

Great. Thank you.

[Operator]

Thank you. One moment for our next question. Our next question comes from the line of Whit Mayo from Leerink.

[Whit Mayo, Senior Managing Director at Leerink Partners]

Hey, thanks. Just curious about the sequential growth implied within the guide for the Q4, certainly points to the stronger seasonality that we see within the business. But how are you sort of thinking about the directional trends within each of the individual segments? Thanks.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

Yes. So Q4 would imply essentially a 15% to 16% growth rate year over year and a step up of $10,000,000 to $15,000,000 sequentially. But we feel good about that number. I think it's a reflection of our continued operational execution and focus on growth at the company. We spoke to a number of the drivers earlier and why we raised our guidance.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

We raised our guidance again as we look at Q4. It's going to be more of the same across the business. Pharmacy is expected to grow at very healthy rates and providers expected to grow at a double digit EBITDA growth rate in Q4 as well. So very, very similar relative contribution, I would say, in the Q4 growth as we saw in the Q3 growth. But Jim or Jed, I don't know if you had anything else.

[Jim Mattingly, Executive VP & CFO at BrightSpring Health Services]

Yes, John, Whit, I would just add a couple of pieces. Q4, as we've talked about, second half of the year is stronger from a seasonality perspective than the first half and Q4 historically is a little bit stronger than Q3. So we

[Jim Mattingly, Executive VP & CFO at BrightSpring Health Services]

have our best seasonality period

[Jim Mattingly, Executive VP & CFO at BrightSpring Health Services]

of the year. The number of different initiatives John mentioned earlier as it relates to the margin question that came up also very much drive the dollar profit. So the Spricel generic launch that went live at the end of Q3 will be full bore in Q4. On the our launch on the home and community pharmacy customer, those startup costs will start to dissipate as we go into and through Q4, which will be net favorable quarter over quarter. On the provider side, we continue to have solid rate support, hospice rates went live tenone.

[Jim Mattingly, Executive VP & CFO at BrightSpring Health Services]

That's net favorable quarter over quarter sequentially. The Haven Hospice acquisition, while not overly meaningful from a total company EBITDA perspective on the full year, sequentially Q3 to Q4 is certainly net positive. And then we just have we have overall volume continuing to grow year over year and sequentially that drives through Q4 and through the end of the year. So all of those pieces really add up to a high degree of confidence, all wrapped around a divisional G and A and a corporate overhead that we continue to scale. Our corporate overhead Q2 to Q3 was flat.

[Jim Mattingly, Executive VP & CFO at BrightSpring Health Services]

Our corporate overhead Q3 to Q4 should be in the same area or slightly favorable as we continue to grow revenue and drive gross profit and business level profitability. So all of those pieces add up to a strong Q4 for

[Jim Mattingly, Executive VP & CFO at BrightSpring Health Services]

us to close out the year.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

Yes, as we continue to scale holding those divisional and corporate costs flat.

[Whit Mayo, Senior Managing Director at Leerink Partners]

So that's super helpful. Maybe I missed this, but just and maybe it's not in your best interest to say this, but like where do you think the capital deployment priorities will be over the next year? You've been active in hospice, maybe a little bit marginally in home health. Are there any areas or businesses you think maybe more non core going forward? So just kind of thinking about the portfolio and how you're maybe allocating capital or taking capital out as you look out over the next year?

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

Yes. I think from an acquisition strategy perspective, Whit, it's just going to be extremely consistent with what we've done over the past couple of years. On the pharmacy side, if there's opportunities for very accretive transactions, sub four times in long term care pharmacy or infusion, those will be things we look at. And then on the provider side, it's been rehab, home health and hospice and then home based primary care as well. So that will continue to be the focus.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

If I had to say a mix, it's probably fifty-fifty as a rule of thumb. In our pipeline right now, we have 3 or 4 just very small little CON tuck ins in home health and hospice. Those are the kind of things that are a couple of $1,000,000 or less of capital, but just really high ROI investments that we could make. Certainly, we might do several acquisitions that are a little bit bigger than that in the $3,000,000 $4,000,000 $5,000,000 EBITDA range. That's sort of our base case right now.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

And then on the de novo side, it's really on provider at this point between home health, hospice and rehab, entrance into adjacent markets and new markets, call it, call it, dollars 10 to $20 of those a year. Those are several $100,000 investments for each and very easy to do from a capital standpoint that typically and historically have had a really good ROI attached to them. So no big plans at this point in time for anything outside of what we've been doing over the last 2 years. But we're always opportunistic. We always have opportunities.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

We're very focused on getting to a specific leverage target. That's at the front and center right now for everything we're doing. And our behavior over the last year or 2 has been to focus on smaller, very accretive transactions. There could be a couple that are a little bit bigger, but sub $10,000,000 of EBITDA. And then we'll always remain agile for situations that are just really unique to us that we can drive value for shareholders, but that's our base plan.

[Whit Mayo, Senior Managing Director at Leerink Partners]

Okay. Thanks.

[Operator]

Thank you. One moment for our next question. Our next question comes from the line of Linda Boulde from Morgan Stanley.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

Hi, Linda.

[Linda Bolduc, Analyst at Morgan Stanley]

Hi, good morning.

[Jim Mattingly, Executive VP & CFO at BrightSpring Health Services]

Good morning.

[Linda Bolduc, Analyst at Morgan Stanley]

Hi. This is Linda Balde on for Erin Wright. Thanks for taking our questions. So going quickly back to the IRA, I believe I heard a mention of the company having one drug on the IRA drug list. Is this SOLARA or is it another drug?

[Linda Bolduc, Analyst at Morgan Stanley]

And if so, what is that drug's exposure?

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

Yes. IMBRUVICA in specialty oncology would be the one drug in specialty oncology. We have a great relationship there with the manufacturer. We've been talking to them for months already, well over a year ahead of any IRA. We feel very good about that situation in terms of how it's all going to play out.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

Don't see any risk there. On the infusion side, it's really Solara, we talked about that. We think that's pretty isolated within the infusion world. And then on LTC, there's 5 or 6 drugs. And I mentioned in the quarter, CMS really clarified and memorialized their language around the true up mechanism that would be in place for the LTC pharmacies, which was great to see that really took any meaningful impact for the industry down significantly.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

It took the risk down significantly. There are still items that we'll be working with CMS and on the Hill throughout all of next year in terms of things that we believe the LTC industry should do and have that would make sense for everybody that we would view as positive for LTC. So we're still going to be working on our long list of items with folks in D. C. As it relates to LTC.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

But that will play out over next year, but it was really good to see at least sort of the baseline feedback from CMS in the quarter. So that really summarizes everything across our service lines as it relates to IRA and really no change from our perspective in terms of how we think about long term growth over 3, 5 years and beyond in the company.

[Linda Bolduc, Analyst at Morgan Stanley]

Thanks. That's helpful. And also within the pharmacy segment, we've seen continued quarter over quarter impressive growth compared to last year and especially when we compare that to a long term growth target of high single digits. So just to parse out this growth a bit further, how much of that impressive growth is related to BrightSpring capturing meaningful share from industry peers and to the market expanding with these new specialty drugs?

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

Yes. I think it's primarily the latter. Oncology is one of the 2 biggest markets within specialty pharmacy. It's growing in the double digits. The innovation pipeline is as big as ever.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

I think there's some 90,000,000,000 dollars of new revenue expected to come onto the market in the next 7 or 8 years. And there's a massive generic pipeline as you look out 7 years after Spricel just went generic in Q3. There's 10 more large brands that are expected to go generic over the next 6 to 7 years. And so, as those events are occurring and as new brands come onto the market in LDDs, our team, just given our service levels and our sales force investments has really been effective at being able to work closely with manufacturers to be a launch partner on these new brands. And that's something we take very seriously and endeavor to provide the best possible service to our manufacturing partners and our patients every day.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

But I would say, us really having done the hard work over the last 15 years to put ourselves in a really good position from a quality and service perspective and sales force perspective to work closely with the innovators in this market as they come to market to be a partner and to be able to capitalize on those new drugs entering the market and really try to provide the best and the most speedy service for patients possible. And generics are good for everybody. And so we've also had a real focus strategically and from a tactical perspective on how we support generics. That's not something that just anybody can do. It's also extremely involved and plays to our business model really well.

[Linda Bolduc, Analyst at Morgan Stanley]

That's very helpful. Thank you.

[Operator]

Thank you. We ask that you please limit yourself to one question due to time constraints. Our next question comes from the line of Jamie Purce from Goldman Sachs.

[Jamie Perse, Equity Research Analyst at Goldman Sachs]

Hey, good morning guys. John, I was hoping you could spend a minute just on your early primary care efforts, what you're looking for there to gauge the level of management focus and capital you'll deploy here? And how should we be measuring your success in that space in 2025 and 2026?

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

Yes. Thanks, Jamie. So that's a business that we continue to really grow and focus on mostly organically. It's been an organic build where we've never really lost any money, which has been a prerogative for us. But the business has continued to drive very good patient growth this year.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

Again, these are doctors and 80% of the time nurse practitioners going into assisted living, going into skilled nursing facilities and sometimes the home to be the primary physician and clinician to really drive 60% reductions in hospitalization rates. So with that value proposition and that benefit, we've continued to grow our volumes at 40%, 50% from a patient perspective this year. The key for us was getting some ACO contracts in place. And with our iSNP acquisition back late in Q2, having our own internal managed care plans. And so those efforts are just continuing on.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

There's a lot of focus around it. We're not talking about it really very much until there's really real EBITDA there to talk about. We'll do $7,000,000 of EBITDA in that space this year. But we're hoping to get to 8 figures of EBITDA quickly, maybe next year, certainly, certainly into 2026 as we have about a 5 to 7 year target to manage over 100,000 patients in that business. So I would say patient count is really sort of the best near term proxy over the next year or 2.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

And then obviously, you would look at profitability in the business and the level of profitability. I think as we get into 2026 in particular and that potentially being pretty meaningful as a growth driver in the company. But things are going well there and we continue to focus on our patient population as it relates to lives where we have ACO shared savings,

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

as it relates to lives

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

under an iSNP model and as it relates to lives in the future hopefully where we're contracted with the payer managing their members.

[Jamie Perse, Equity Research Analyst at Goldman Sachs]

All right. That's really helpful. Thank you.

[Operator]

Thank you. One moment for our next question. Our next question comes from the line of Pito Chickering from Deutsche Bank.

[Pito Chickering, Analyst at Deutsche Bank]

Hey, good morning, guys. Relative to street models, it looks like the provider side of business was a big part of the 3rd quarter EBITDA beat. So how much of that margin improvement sort of seen this quarter, which is spectacular, came from pricing versus community and rehab patients declining year over year, so positive mix coming from home health or just overall SG and A leverage on the 10% revenue growth? Thanks.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

Yes. Thanks, Pito. It was a little bit of both. So certainly, we had good volume growth in the quarter. With that, we were able to leverage fixed costs, which was helpful from a margin perspective.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

Then you look at 4 factors. Number 2, then you look at mix with home health continuing to grow at attractive rates at hospice with their margins relative to the community living business and rehab as well. So rehab, home health and hospice, those are higher margin than the community living business. And as those businesses continue to grow volume at higher rates, that is at play as well. Really 3rd, we continue to drive some nice efficiency projects across the organization, which really get reflected in the P and Ls of the individual segments and businesses.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

But for example, with our corporate BPO team, business process optimization team and with our corporate procurement team, we're on track to deliver over $20,000,000 This is really outside of pharmacy initiatives. We're on track to deliver over $20,000,000 of cost reduction this year, just from a procurement, purchasing and inefficiency perspective. The benefit of that really flows through the businesses and the segments and the P and Ls. And then I would say really 4th, just given the value, the quality of the services and the ROI of all of these services, which dramatically reduce costs versus any other setting, we continue to get good have good rate advocacy and rate support, particularly on the hospice and community living side. The vast majority of that ultimately goes and funds our clinicians and our frontline caregivers, so that we can continue to have a very stable workforce.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

But that is helpful as well.

[Pito Chickering, Analyst at Deutsche Bank]

Great. Thanks so much. Nice quarter.

[Operator]

Thank you. One moment for our next question. Our final question from Matthew Gillmor from KeyBanc.

[Matthew Gillmor, Director & Senior Research Aanalyst at KeyBanc Capital Markets]

Hey, thanks for the question. For the $10,000,000 of non recurring items you called out, I was curious if you could delineate between the startup losses and the payer settlement. And then related to that, was that something that was contemplated in guidance or we should be viewed that as sort of incremental to what you reported on EBITDA?

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

Yes. So I'll turn that over to Jen and Jim.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

I mean as it relates to any of the startup costs associated with onboarding new customers, that would have been in the guidance before and all along. The item as it relates to an old payer situation that dated back to literally 6 years ago, very isolated, but any other comments on that too?

[Jennifer Phipps, Chief Accounting Officer at BrightSpring Health Services]

Yes. So that payer settlement was also included from a guidance perspective as well. We did finalize, as we noted, all of the old other legal cases. So that was an increase this year and from a non recurring expenses standpoint as well as we had a lot of acquisition and integration costs in the quarter as we were working through some of those projects.

[Matthew Gillmor, Director & Senior Research Aanalyst at KeyBanc Capital Markets]

Got it. Thank you.

[Operator]

Thank you. At this time, I would now like to turn the conference back to John Russo for closing remarks.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

Thank you everybody for your time today. We appreciate it. As a company, we continue to focus every day on trying to bring very valuable high quality services to people across homes and communities all around us every day who really can benefit from these services. So I think we continue to do a good job really focusing on operational execution in each one of these service lines. Quality, volume growth and efficiency will remain our areas of focus.

[Jon Rousseau, Chairman, President & CEO at BrightSpring Health Services]

And we're optimistic about closing out 2024 and getting into 2025 in a good position. Again, trying to make the biggest impact we can for people in our communities. Thank you for all your time today and have a good one. Bye.

[Operator]

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

Participants

Executives

• Jennifer Phipps, Chief Accounting Officer
• Jon Rousseau, Chairman, President & CEO
• Jim Mattingly, Executive VP & CFO

Analysts

• Brian Tanquilut, Equity Research Analyst - Healthcare Services at Jefferies & Company Inc
• A.J. Rice, Managing Director at UBS Group
• David Larsen, Analyst, Managing Director at BTIG
• Joanna Gajuk, Equity Research Analyst at Bank of America
• Ann Hynes, Senior Healthcare Services Equity Analyst & Managing Director at Mizuho Financial Group
• Whit Mayo, Senior Managing Director at Leerink Partners
• Linda Bolduc, Analyst at Morgan Stanley
• Jamie Perse, Equity Research Analyst at Goldman Sachs
• Pito Chickering, Analyst at Deutsche Bank
• Matthew Gillmor, Director & Senior Research Aanalyst at KeyBanc Capital Markets