BrightSpring Health Services, Inc. Common Stock (NASDAQ:BTSG) Q1 2024 Earnings Call Transcript May 4, 2024
BrightSpring Health Services, Inc. Common Stock isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and thank you for standing by. Welcome to the BrightSpring Health Services First Quarter 2024 Earnings Call. At this time all participants are in a listen-only mode. After the speaker’s presentation there will be a question-and-answer session. [Operator Instructions]. Please be advised that today’s conference is being recorded. I would now like to turn the conference over to Jennifer Phipps, Chief Accounting Officer. Please go ahead.
Jennifer Phipps: Good morning. Thank you for participating in today’s conference call. My name is Jennifer Phipps, Chief Accounting Officer of BrightSpring. I am joined on today’s call by John Rousseau, Chief Executive Officer, and Jim Mattingly, Chief Financial Officer. Earlier today, BrightSpring released financial results for the quarter ended March 31, 2024. 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. Specific risk factors and uncertainties can also be found in our 10-K 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. And with that, I will turn the call over to Jon Rousseau, Chief Executive Officer.
Jon Rousseau: Thank you, Jen. Good morning, everyone, and thank you for joining BrightSpring’s first quarter 2024 earnings call. I would like to begin by extending a heartfelt thank you to all of the people with BrightSpring. At BrightSpring, we are working vigorously to deliver high-quality home and community-based pharmacy and provider health solutions to complex patient populations. This could not be accomplished without our dedicated employees and the support of our investors. Consistent with both our long-term and recent track records, we are pleased to start the year with strong first quarter performance across the portfolio of home and community health service lines at BrightSpring. Our comprehensive care platform continues to deliver timely, preventative, and coordinated care solutions centered around patients.
Some highlights here up front include the following: extremely strong volume growth in Q1, revenue and adjusted EBITDA in the first quarter that exceeded plan, and significantly raised guidance for the full year while continuing to invest in our infrastructure and future growth. These results are driven by our provision of services in large and growing markets, the delivery of valuable services that reduce costs and improve outcomes, our demonstration of strong quality and service levels, strong operational capabilities within a scaled platform, and our ongoing pursuit of attractive near-term and long-term growth opportunities through a sales and marketing focus and commitment to strategic growth. For the first quarter, the company’s revenue was $2.6 billion, which represented 27% growth year-over-year and exceeded expectations.
A doctor holding a laptop with a digital health platform application open in front of a medical image.
Pharmacy Solutions generated $2 billion in revenue, representing 35% growth compared with the first quarter last year. And the Provider Services segment generated $600 million in revenue, representing 7% growth compared to the same period last year. We are very pleased with the robust growth and performance in the Pharmacy Solutions segment, which was well ahead of plan as well as with the Provider Services segment, which delivered impressive growth in line with our expectations and is comprised of several underlying higher-growth service lines. Very strong and broad-based revenue performance across the company led to better-than-expected adjusted EBITDA growth for BrightSpring with adjusted EBITDA of $130.5 million for the first quarter, representing 13.2% growth versus the prior year’s first quarter.
In Pharmacy Solutions, our 35% revenue growth was driven by strength in both the infusion and specialty business, and the Home and Community Pharmacy business, with the specialty business performing exceptionally well. The infusion and specialty business grew 44% year-over-year, well ahead of our expectations, with specialty delivery growth above the sub segment’s growth rate. Home and Community Pharmacy revenue grew 15% year-over-year in the quarter. Across Pharmacy Solutions, total scripts dispensed and delivered were approximately $9.9 million in the quarter, which increased 9% versus the prior year, with excellent volume growth of over 35% in specialty pharmacy. Already this year, we have been selected as a preferred pharmacy partner for three new highly specialized limited distribution oncology drugs, a key driver of specialty growth bringing our total limited distribution drugs portfolio to 117.
Scripts dispensed in Home and Community Pharmacy grew in the high single digits year-over-year, and we are currently on track this year to realize the largest increase in the number of new customers and patients ever in this business. We believe our performance in pharmacy is reflective of our operational efficiency, clinical and dispensing accuracy, high-quality services, and customer and patient support programs and satisfaction levels. And we expect the revenue momentum in this business to continue. Adjusted EBITDA in Pharmacy Solutions grew 7% year-over-year, driven by strong volume growth across the segment. Adjusted EBITDA margin was influenced by the outsized revenue growth in specialty, above expectations and corresponding mix shift, in addition to some impact from the changed health care disruption.
We believe the pharmacy segment margins will expand over the balance of the year while continuing to make growth investments in the business. In Provider Services, 7% revenue growth was driven by strong home health care performance as well as continued strength in our rehab business. Our community living business delivered above-market growth in the quarter as well. Daily patients served remain healthy across our care platform. With home health care average daily census of approximately 43,000 growing 11% year-over-year, with double-digit census growth in our home health and hospice business. Community living and rehab person served was 16,600 in the first quarter, relatively flat compared to last year and in line with expectations. In rehab, we are internally focused on core billable hours for monitoring the growth of this business, which we believe is a better indicator of performance.
And in the first quarter, core billable hours and rehab grew at a high-teens rate year-over-year, consistent with our plan. Adjusted EBITDA in Provider Services grew 25% year-over-year with margin expansion driven by cost efficiencies, economies of scale, operational quality, and volume and revenue growth. We saw adjusted EBITDA strength across the provider portfolio with margin expansion in both home health care and community and rehab care. Overall, as a company, EBITDA margin grew year-over-year when excluding the extremely high growth and higher share of business mix that the specialty pharmacy business delivered and represented in the first quarter. We were pleased with the total company growth and revenue and adjusted EBITDA in the quarter, which puts us ahead of our plan for 2024.
As a result, we have raised both revenue and adjusted EBITDA guidance for the year, which we will discuss in more detail in just a few minutes. All in all, the company’s first quarter financial results reflect impressive growth and profitability driven by consistency of performance in our complementary and comprehensive services platform. In addition to the growth metrics and financials, I would like to take a moment to discuss how and why BrightSpring is among the leading health care services companies in the country today. At Bright spring, we deliver pharmacy and provider health services to complex patients in home and community settings. We operate in large and growing markets where we provide essential services with clear and strong ROI.
Across our organization, our team works hard to deliver high-quality care to patients and we believe our operational prowess and culture of continuous improvement are competitive differentiators. We work to ensure that patients receive appropriate and accurate care in the most efficient and desired setting. As part of our attentive and compassionate care, we work to identify potential medical and medication problems and reduce adverse events due to our highly proximate position to patients where they reside. We provide important health services for approximately 400,000 patients each day on average, enabled by the timely and high-quality care provided by well-trained personnel and BrightSpring’s overarching focus on delivering patient-centric care.
Our integrated platform of service capabilities also helps specific patients to receive the right care of management at the right time and in the right setting. We will continue to improve the coordination of integrated and patient-centric care for all people who require multiple health services at the same time or over time. This results in many benefits for patients including efficiency of care and additional growth of the BrightSpring platform. In Pharmacy Solutions, we have 99.9% generic efficiency and order accuracy rates in our home and community pharmacy settings. We start cancer patients on therapy twice as fast compared to the industry average. We have Net Promoter scores greater than 90 in infusion and specialty, with patient satisfaction scores of 95% in our infusion business.
Our medication adherence programs have delivered over $2,000 in average annual savings. And our medication management program for individuals in their own homes called Continue CareRx, has demonstrated a 73% reduction in hospitalizations when utilized together with our home health, as highlighted in the [indiscernible] article of November 2023. This high level of performance, to cite only a few examples, and is measured by patients and third parties is well above industry average. Our proactive best practices and operational capabilities were also recently evidenced when BrightSpring was able to mitigate any significant impact to revenue or EBITDA related to the changed healthcare, cybersecurity incident in the first quarter. In our Provider Services segment, our patients often have complex health conditions, which require dynamic care plans incorporating expertise across multiple disciplines.
We are proactive in coordinating care delivered through customized programs and plans. As care takes place in the home or community clinics, we have demonstrated an ability to deliver high-quality outcomes with lower costs. Our home-based primary care team has demonstrated an 84% reduction in readmission for IDD patients and our seniors and duals patients experienced approximately 50% less hospitalization compared to the national average for similar patients. In our community living business, we have delivered 99.9% of incident-free service hours to an often acute population. We’ve received a very high customer satisfaction scores of 99% in our rehab business, 4.4 out of 5 in our Personal Care business, and an 84% overall rating of care in our hospice business.
Our hospice business is rated in the top 5% of all hospice providers in the country and deliver significantly more clinician time and care to patients as compared to the national average. We deliver the highest level of skill and compassionate care to patients at some of the most important times in their lives. Importantly, these quality and operational results not only reflect the commitment to high levels of service and care in our organization but also contribute to our above-industry average growth profile. Our focus on service levels and quality creates a positive cycle of patient success, efficiency, and increased partnerships and referrals, which all contribute to the growth of the company. Secular growth drivers underpinning performance across the company include continued robust market growth driven by demographics, the continued shift of services delivered closer to the patient in home and community settings, and specific customer setting growth factors.
Within pharmacy, there is also secular innovation in the delivery of complex drugs and limited distribution drugs in infusion and Onco360 and the continuing evolution of generic alternative availability in this specialty business. Against this positive industry backdrop, BrightSpring scale, comprehensive offerings, and focused quality and service have been drivers of market share gains and above industry average historical growth. With this foundation in place, we remain strategic with our spend and are further investing in targeted resources and operational enhancements to improve customer and patient access and workflows, while continuing to drive best practices across the enterprise. Ongoing operational focus, efficiency, and quality of services leads to superior sales and marketing results, improved revenue cycle management, and optimize recruiting and training systems for our employees.
We leverage our operational capabilities to underpin our volume and revenue growth rates. And our ongoing strategic planning is aimed at meeting the needs of more patients as we continue to dive deeper into our existing and adjacent markets and focus on growing at above market rates. We do this through the expansion of current operations, de novo projects, and acquisitions. And looking ahead, we will increasingly integrate additional offerings to patients through care management resources and the transitions of care to our lower cost and patient preferred settings. By further incorporating leading payment models from both government and private payers, we are beginning to drive true value-based care through clinical and operational integration that we are uniquely capable of delivering.
As we have demonstrated in the past, we are well positioned to capitalize on external opportunities to augment our organic growth plan, and we will look to acquire operations in the right geographies where we see increased value under the BrightSpring platform. We have been a successful acquirer of businesses and we can improve service levels and profitability through the deployment of technology, good operational process, enterprise best practices, synergies and strong leadership. As you may have seen, there have been a number of updates from CMS on proposed reimbursement rules in health care as well as final rulings on dynamics that could impact our industry. Numerous of these updates have been favorable and net, we believe there is no material change to our near-term or long-term forecast or outlook.
We operate in healthy markets with high demand, markets characterized by lower cost services that have proven value, and markets where we have significant opportunity to outperform due to our operational prowess, strategic discipline, and scale advantages. As a reminder, over the course of a given year, we have in excess of 4,900 payer contracts, and this breadth and balance of business and operations provide benefits, comparatively muting rate changes and enabling service lines to leverage the enterprise’s infrastructure and scale in contracting and best practices. Our comprehensive portfolio has helped support both consistent stability and growth in the past and lays the foundation for continued opportunity in the future. To summarize, we are pleased by our strong performance this quarter and are optimistic about the year ahead, as evidenced by our increased revenue and adjusted EBITDA guidance.
We have recently added two independent directors to our Board, Olivia Kirtley and Tim Wicks. Both Olivia and Tim bring incredible operational and Board experience to BrightSpring and I look forward to working with them as we grow the company. The timely, high-quality, compassionate, and coordinated care that we provide across our platform is unparalleled amongst our peer group. And we continue to cultivate and build upon a patient-centric culture characterized by continuous improvement and execution. I will now turn the call over to Jim to walk through the first quarter’s financial results in more detail.
Jim Mattingly: Thanks, Jon. Total revenue in the first quarter of 2024 was $2.6 billion, representing 27% growth from the prior year period. Pharmacy Solutions segment revenue was $2.0 billion, achieving growth of 35% year-over-year. Within the Pharmacy segment, infusion and specialty revenue was $1.5 billion, representing growth of 44% from last year and Home and Community pharmacy revenue was $511 million, representing growth of 15% year-over-year. In the Provider Services segment, we reported revenue of $600 million, representing growth of 7% compared to the prior year period. Within the Provider Services segment, Home Healthcare reported $242 million in revenue in the first quarter, growth of 9% versus last year, and community and Rehab Care revenue was $358 million representing growth of 6% year-over-year.
Moving down to P&L, total company gross profit in the third quarter was $369 million, representing growth of 10% compared with the third quarter of last year. SG&A expenses for the total company were $361 million compared to $283 million in the prior year period. Adjusted EBITDA for the total company was $131 million for the first quarter growing 13% compared to last year. And adjusted EPS for the total company was $0.12 for the first quarter compared to negative $0.10 in the prior year period. Turning back to segment performance, Pharmacy Solutions gross profit was $170 million, growing 6% compared with the first quarter of last year. SG&A expenses for Pharmacy Solutions were $109 million compared to $106 million in the prior year period. Adjusted EBITDA for Pharmacy Solutions was $88 million for the first quarter, growing 7% compared to last year.
Provider Services gross profit was $199 million, growing 14% versus the first quarter of last year. SG&A expenses for provider services were $134 million compared to $127 million in the prior year period. Adjusted EBITDA for Provider Services was $82 million for the first quarter, growing 25% versus last year. On a total company basis, cash flow from operations was negative $79 million in the first quarter of 2024. The first quarter is typically a lower operating cash flow quarter when compared to the rest of the year. Operating cash flow was in line with our expectations for the first quarter, excluding some modest impact from the changed health care disruption. We remain on track to deliver approximately $275 million of annual run rate operating cash flow.
This excludes legacy litigation expenses and IPO-related expenses in the first half of 2024. We continue to focus on improving the company’s leverage ratio towards our goal of three times within three years. As of March 31st, our net debt outstanding is approximately $2.6 billion with our leverage ratio at 4.3 times. The company has three received variable pay fixed intricate swap agreements in place with a combined notional value of $2.0 billion and a maturity date of September 30, 2025. And as a result, net interest expense includes interest income related to cash flow hedges. Quarterly interest expense is expected to be approximately $50 million per quarter moving forward, including approximately $1.6 million in interest expense related to the TEU instrument.
Turning to our guidance for 2024 following the first quarter results, we are increasing our initial expectations for revenue and adjusted EBITDA. Total revenue is expected to be in the range of $10.3 billion to $10.8 billion, including Pharmacy Solutions revenue of $7.85 billion to $8.3 billion, and Provider Services revenue of $2.45 billion to $2.5 billion. As you will recall, we provided initial full year adjusted EBITDA guidance of $550 million to $564 million. This range previously included a $16 million contribution from a certain quality incentive payment or QIP. Based on our year-to-date performance and momentum as we evaluate the remainder of the year, total company adjusted EBITDA is now expected to be in the range of $555 million to $570 million and now excludes any contribution from a certain quality incentive payment.
To be very clear, this updated range represents a like-for-like increase in company adjusted EBITDA of approximately $20 million at the midpoint. It also represents 9.3% to 12.3% growth in 2024 versus 2023, excluding the impact from quality incentive payments in both years. Our visibility and confidence level regarding the quality incentive payment has not changed. However, we feel this revised EBITDA guidance, excluding the QIP, provides incremental clarity for investors. Should we receive a QIP next quarter, we would expect a $30 million increase to the low end and high end of our updated $555 million to $570 million adjusted EBITDA range. At the midpoint of the $555 million to $570 million range, the adjusted EBITDA margin is approximately 5.3%, excluding QIP, and we expect to see margin expansion throughout the rest of the year with company margin, excluding specialty, higher in 2024 as compared to 2023.
You can refer to the first quarter report investor presentation for additional details on the increase to our adjusted EBITDA guidance. With that, I will turn it back over to Jon.
Jon Rousseau: Thank you for your time today to go through BrightSpring’s platform, first quarter results and guidance update. We will now open up the line for questions. Operator?
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