Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- BrightSpring Health Services Inc (BTSG, Financial) reported strong second quarter performance with total revenue of $2.7 billion, representing 26% growth year over year.
- Adjusted EBITDA for the quarter was $139.1 million, showing a 17% growth year over year and exceeding internal plans.
- Pharmacy Solutions revenue grew by 32% to $2.1 billion, with a notable 40% year-over-year growth in the infusion and specialty business.
- Provider Services revenue increased by 8% to $616 million, driven by strength in home health care and rehab business.
- The company raised its adjusted EBITDA guidance for 2024 to a range of $570 million to $580 million, reflecting 12% to 14% growth.
Negative Points
- BrightSpring Health Services Inc (BTSG) experienced a negative cash flow from operations of $15 million in the second quarter, primarily due to a $90 million cash payment related to a legacy pharmacy legal matter.
- The company did not receive a $30 million quality incentive payment (QIP) in the second quarter, which had been received in the previous three years.
- Despite strong performance, the adjusted EBITDA margin for Pharmacy Solutions was 4.5%, which is relatively low.
- The company faces risks and uncertainties that could cause actual results to differ materially from expectations, as noted in their forward-looking statements.
- There were significant start-up costs associated with onboarding a large customer contract, impacting the quarter's profitability.
Q & A Highlights
Q: Jon, you've seen strong traction in specialty and the guidance implies sequential growth in Pharmacy Solutions revenues into the back half of the year. Is it conservatism or is there anything specific to consider regarding the ramp in Pharma Solutions revenue in the back half?
A: Our growth rate in pharmacy remains strong with more momentum on the volume side than ever before. We expect similar growth rates into the second half and feel positive about those growth rates. Typically, we get about 53% of our EBITDA in the second half due to days and taxes. We expect margins to increase in the second half as well, leveraging fixed costs and corporate, which is flat in the second half as we continue to drive volume.
Q: Can you walk us through the dynamics driving sequential margin improvement in the back half of the year?
A: We see about a 5.3% to 5.4% EBITDA margin for the full year, higher than the 5.1% in the second half. Factors include favorable calendar days, lower taxes, strong volume growth, flat corporate costs, ramp-up costs for new large customers, and operational excellence initiatives. Additionally, the hospice final rule came in better than estimated, going live in Q4.
Q: Can you comment on the areas of growth in Specialty and the margin trajectory as the business grows?
A: Specialty growth is broad-based, driven by brand growth through LDD drugs, high-value generics, and a large sales force executing in the field. We continue to win hub business and see double-digit increases in fee-for-service and data business. Specialty's margin ticked up in Q2, and we expect it to continue improving in the back half.
Q: Can you discuss the new service agreement with a large long-term care provider and the competitive landscape in institutional pharmacy?
A: The breadth of home and community pharmacy covers many attractive end markets. We have a high-performing sales team and technology-enabled operations driving productive customer relationships. We've won 35,000 to 40,000 new patients from competitors this year, including a large customer onboarded in Q2, beneficial in the second half and into 2025.
Q: Can you provide more details on the LDD launches and their impact on earnings?
A: We have 118 limited distribution drugs and expect to add 18 more in the next 15 months. These are accretive from day one, with some investments required for launch. The momentum continues based on our quality service to patients and strong manufacturing relationships.
Q: Can you talk about cross-selling efforts within the provider division and the growth potential?
A: Historically, integrated care synergies have been driven through pharmacy services provided to our provider patients. We continue to invest in resources to drive integrated care opportunities, building out a clinical nursing hub and an integrated care team. We see significant opportunities for home-based primary care and expect meaningful EBITDA from these efforts as early as 2025.
Q: Can you discuss the broader acute care environment and demand for post-acute services?
A: Our platform benefits from complementary diversification, with referrals across various sources. We focus on quality and commercial capabilities in each service line to drive volume and market share. We see double-digit growth rates in home health and hospice, driven by quality and operational performance.
Q: On the Provider segment, margins were up nicely year over year. Are these margins sustainable going forward?
A: Yes, we see sustainability in these margins, driven by operational performance and volume growth. We focus on quality and patient care, leveraging fixed costs and achieving operational efficiencies.
Q: Can you provide more details on the Haven Hospice acquisition and its impact on segment EBITDA?
A: Haven Hospice is expected to close this quarter and will expand our services in Florida. We expect it to be a $15 million-plus EBITDA business over time, with operational improvements and volume growth. However, it is not included in our current guidance.
Q: Can you discuss the oncology pipeline and the impact of generic conversions on growth?
A: Oncology is a significant area of growth, with $90 billion of new brand oncology drug launches expected in the next seven years. We have a strong position in this market, with 11 big brand drugs going generic over the next six to seven years. Sprycel is expected to go generic in Q4, which will be a positive event.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
