• Total Revenue: $2.6 billion, 27% growth year-over-year.

• Pharmacy Solutions Revenue: $2 billion, 35% growth year-over-year.

• Provider Services Revenue: $600 million, 7% growth year-over-year.

• Adjusted EBITDA: $130.5 million, 13.2% growth year-over-year.

• Net Debt: Approximately $2.6 billion.

• Leverage Ratio: 4.3 times.

• 2024 Revenue Guidance: Increased to $10.3 billion to $10.8 billion.

• 2024 Adjusted EBITDA Guidance: Increased to $555 million to $570 million.

• Warning! GuruFocus has detected 8 Warning Signs with BTSG.

Release Date: May 02, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• BrightSpring Health Services Inc (NASDAQ:BTSG) reported a strong first quarter with total revenue of $2.6 billion, marking a 27% growth year-over-year.

• Pharmacy Solutions segment experienced significant growth, with revenue reaching $2 billion, a 35% increase from the previous year, driven by both infusion and specialty business.

• Provider Services segment also showed robust performance with $600 million in revenue, up 7% compared to the same period last year.

• Adjusted EBITDA for BrightSpring Health Services Inc (NASDAQ:BTSG) was $130.5 million for the quarter, representing a 13.2% growth versus the prior year's first quarter.

• The company raised both revenue and adjusted EBITDA guidance for the year, reflecting confidence in continued strong performance.

Negative Points

• Despite overall growth, certain segments like Home and Community Pharmacy grew at a slower rate of 15% year-over-year.

• The company noted some impact from the Change Healthcare disruption, although it was managed effectively.

• Operating cash flow was negative $79 million in the first quarter, which is typically lower compared to other quarters.

• The company's leverage ratio stands at 4.3 times, with a goal to reduce it to three times within three years, indicating ongoing challenges with debt management.

• While the company is optimistic about growth, there is an inherent challenge in maintaining such high growth rates, especially in the specialty pharmacy segment which has lower margins compared to other segments.

Q & A Highlights

Q: Could you walk us through where the upside in the pharmacy business came from, specifically in the infusion and specialties segment? A: Jon Rousseau, CEO, explained that the growth in the pharmacy business was broad-based, driven by volume across the board with almost 10% script growth. The specialty pharmacy, in particular, saw explosive growth due to new limited distribution drug contracts and strong execution across targeted therapies. Home and Community Pharmacy also grew by 14% year-over-year.

Q: Can you discuss the EBITDA margin outlook for the rest of the year, especially considering the explosive growth in the lower margin specialty segment? A: Jon Rousseau, CEO, noted that while the specialty pharmacy's growth impacts margins due to its lower margin nature, the company expects overall margins to stabilize and potentially increase throughout the year. This is driven by operational efficiencies, positive rate impacts, and benefits from tax efficiencies.

Q: How sustainable are these elevated levels of growth, particularly in the specialty segment? A: Jon Rousseau, CEO, expressed confidence in sustaining high growth rates, especially in the specialty segment, which is expected to remain well above 30%. This optimism is based on continuous innovation in oncology and strong execution in limited distribution drugs.

Q: Regarding acquisitions, what is the impact of recent deals, and what types of assets are you looking to add this year? A: Jon Rousseau, CEO, mentioned that recent acquisitions had a minimal impact in the quarter and that the company is looking at tuck-in acquisitions in targeted geographies, focusing on home health care, hospice, rehab, and pharmacy assets.

Q: Can you clarify the guidance adjustment related to the quality incentive payment (QIP)? A: Jon Rousseau, CEO, clarified that the updated guidance excludes the QIP, with an increase of about $20 million at the midpoint. If the QIP is received, it would add an additional $30 million to the adjusted EBITDA range.

Q: What differentiates your specialty pharmacy business, particularly in terms of operational capabilities and sales force? A: Jon Rousseau, CEO, highlighted the company's focus on high-growth areas like oncology, exceptional operational execution, and a large sales force that enhances drug distribution and patient satisfaction. These factors contribute to winning significant contracts for limited distribution drugs and maintaining high growth.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.