BrightSpring Health Services, Inc. Q2 FY2025 Earnings Call

Good morning. Thank you for participating in today's conference call. My name is David Deuchler with Investor Relations for BrightSpring. I'm joined on today's call by Jon Rousseau, Chief Executive Officer; and Jen Phipps, Chief Financial Officer. Earlier today, BrightSpring released financial results for the quarter ended June 30, 2025. A copy of the press release and presentation is available on the company's Investor Relations website. Please note that today's discussion will include certain forward-looking statements that reflect our current assumptions and expectations, including those related to our future financial performance and industry and market conditions. Such forward-looking statements are not guarantees of future performance. 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, including the specific risk factors and uncertainties discussed in our Form 10-K and Form 10-Q. 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 financial 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.

Good morning, everyone, and thank you for joining BrightSpring second quarter 2025 earnings call. I would like to begin by expressing my gratitude to all of our BrightSpring teammates across the country who work hard to provide high-quality and compassionate care to patients every day. They make a tremendous impact. Through the first half of the year, we have executed on our plans across the organization with a high level of focus and discipline, and we are pleased with the performance of our businesses. Second quarter results exceeded expectations and have us well positioned to continue to deliver on our goals for the balance of the year. We remain committed to disciplined growth across the company by executing in each of our markets, while leveraging our scale and best practices, making smart growth investments and continuing to provide high quality of care to patients. Before discussing BrightSpring second quarter performance, I would like to remind you that the company's financial performance and 2025 guidance principally pertain to the continuing operations and do not include results from the Community Living business. At this time, we expect the Community Living divestiture transaction to close in the fourth quarter of this year, subject to regulatory approvals and typical closing conditions, and we continue to work with the FTC as they complete their second review of the transaction. For the second quarter, BrightSpring's revenue and adjusted EBITDA both grew approximately 30% versus last year's comparable quarter. Total company revenue of $3.1 billion represented 29% growth year-over-year, with Pharmacy Solutions revenue of $2.8 billion increasing 32% year-over-year and Provider Services revenue of $358 million increasing 11% year-over-year. Total company adjusted EBITDA of $143 million in the quarter also grew 29% compared to the same period last year, driven by strong volume and revenue results across the businesses, particularly in our Onco360 and CareMed Specialty Pharmacy business. EBITDA margin for the company was 4.5%, which was flat compared to the second quarter of last year. Every service line in the company experienced solid growth as compared to last year, reflective of broad-based operational performance. Given the results in the quarter and with an updated outlook for the remainder of 2025, we are increasing total revenue and adjusted EBITDA guidance for 2025, with adjusted EBITDA guidance increasing by $20 million at the low and high end of the prior range communicated in May to $590 million to $605 million for the year. As a reminder, this 2025 guidance excludes Community Living, which is reported as discontinued operations in our financial results. The $605 million upper end of the guidance range would compare to $460 million in 2024 and $391 million in 2023, excluding the QIP and Community Living as well, and at the high end of the range would represent 31.5% growth versus 2024. Jen will discuss BrightSpring's second quarter financial results and 2025 outlook in more detail shortly. At BrightSpring, we prioritize quality services, people and continuous improvement in operations across the organization to deliver well-coordinated, comparatively lower cost and timely and highly proximal care to patients in their preferred setting. We remain committed to leveraging our unique level of complementary scale, while investing in areas that will enable further efficiencies, resulting in innovative and enhanced care services for complex patient populations. In the past quarter, we continue to grow volumes and win customers due to high patient and provider satisfaction scores; our reach, education and support of prescriber referral sources; and reliable end-to-end services for patients. We have a very high-quality standard and work hard every day to ensure our standards are met across the company. In home health, 90% of our locations achieved 4 or more stars, and we have a leading 98% timely initiation of care with services that have lower patient hospitalizations and hospital readmission rates. In hospice, with a top 5% ranked hospice program in the U.S., our hospice quality index score is well above national average, and we deliver 30% more visits to patients versus national average. In rehab, our patient satisfaction score remains at 99%, and our 4.54 satisfaction score out of 5 in personal care remains very high. In Infusion, our patient satisfaction score was approximately 95%, and our discharge rate due to completion of therapy was 96%, while in Home & Community Pharmacy, we had a 99.99% dispense accuracy, order completeness of 99% and on-time delivery of 97%. Last, in Specialty Pharmacy, our medication possession ratio was 93%, much higher than the national average. Time to first fill was 3.6 days, and our Net Promoter Score in the most recent quarter remained at a best-in-class level, with CareMed, our growing rare and complex disease pharmacy, receiving a perfect NPS of 100. Overall, BrightSpring continues to exhibit excellent quality and patient and customer satisfaction across our business lines every day. Turning to the company's financial results. Total Pharmacy Solutions revenue grew 32% in the second quarter, and adjusted EBITDA also increased by 32% versus the prior year, with total pharmacy script volume growth of 7% to $10.9 million in the quarter. In the Specialty and Infusion business, revenue grew 39% year-over-year exceeding expectations, and underpinned by strong service levels with payer and manufacturing partners, exceptional patient service, continued LDD wins and launches, generic drug conversion and utilization and fee-for-service and hub growth. Specialty scripts grew 38% in the second quarter, driven by continued performance from both brand LDDs and generic script growth. We ended Q2 with 131 LDDs, including 5 LDD launches in the quarter. Our LDD portfolio has now expanded to 133 therapies, and we expect 16 to 18 additional LDD launches over the next 12 to 18 months. In the second quarter, we were selected as the National Pharmacy Partner for a number of newly approved therapies and the treatment of advanced cancers and rare genetic disorders. We are proud of our ability to support these therapies as a preferred pharmacy partner and are excited about the potential of these groundbreaking therapies to make a positive impact on patient lives. Turning to Infusion. The business performed in line with our expectations in the quarter with solid revenue and EBITDA year-over-year growth and benefiting from improved profitability, operational initiatives and organic volume growth under augmented leadership in place in the quarter. We remain enthusiastic about the opportunity in both acute and chronic therapies, especially as we continue to make operational and technological enhancements in the business. In Home & Community Pharmacy, revenue grew 11% in the quarter, driven by increased script volumes and customer wins with solid EBITDA growth year-over-year. The positive performance in the quarter has been the result of timely and customized delivery of pharmacy services to assisted living, behavioral, skilled nursing and rehab, hospice, taste and at-home facilities and settings, along with cost and process improvement initiatives. We believe that there is an attractive additional growth potential on these markets. Moving to the Provider segment. We are proud of how the business performed, both in the quarter and so far in 2025. Provider revenue grew 11% year-over-year, and segment adjusted EBITDA also grew 11% with a segment adjusted EBITDA margin in the quarter of 15.8%. In home health care, comprised of the home health, hospice and primary care businesses, revenue, which represents 50% of the revenue in the Provider segment, grew 17% compared with the second quarter last year. Average daily census grew 6% year-over-year to over 30,000, with home health and hospice census growth of 10%. Our commitment to leading service quality has resulted in continued high patient satisfaction scores. We remain optimistic about the home-based primary care opportunity and have seen good traction thus far as we continue to leverage proximity and access to patients through our core Pharmacy and Provider Services, building out our value-based care model more broadly. In rehab care, revenue that represented approximately 20% of Provider revenue in the second quarter, grew 9% year-over-year with 6% growth in person served and approximately 10% growth in core rehab hours billed. Results in the business were driven by strong stakeholder satisfaction scores and neuro rehab program and rehab and motion de novo location additions. Both home health care and rehab EBITDA grew well into the double digits year-over-year on a percentage basis. In personal care, which represented approximately 30% of Provider revenue in the second quarter, revenue growth was 4%, driven by steady nominal growth in person served. In the quarter, we continued to provide high-quality patient support services for activities of daily living and saw strong satisfaction scores as a result. While Community Living is not included in our continuing results and current guidance, the business continues to perform very well with stronger-than-ever quality metrics. Community Living adjusted EBITDA has grown well into the double digits year-to-date on a percentage basis. I would also like to discuss a few recent industry topics and help contextualize them as it relates to our business. Across the BrightSpring platform, we provide services for patients who need significant help with disease, illness or accident treatment and recovery. Our businesses are crucial to the support and outcomes of some of the most acute and complex patients in the healthcare system and are provided in preferred and lower-cost settings. As such, these services have tremendous value, as evidenced by extensive studies, including many peer-reviewed articles and leading journals. For example, Home & Community Pharmacy interventions, such as post discharge medication reviews and follow-up calls, have been shown to be 99% effective in keeping recently discharged patients at home. 55% of readmissions after a SNF to home transition are due to medication errors, and a pharmacy transitions program reduces readmissions by 23%. The average cost per day of home care is 90% less than hospital care, and hospice care is 98% less expensive per day than an ICU stay. Post-acute home health care reduces 90-day medical spend by 36% and readmission rates by 28%. 80% of ACOs report that post discharge home visits are critical for cost containment of their most complex patients. Patients that are discharged from the inpatient setting without home health are 43% more likely to die within 90 days compared to patients who do receive home health and 36% more likely to be readmitted and 16% more likely to have an ED visit. Home-based palliative and hospice care is associated with $12,000 lower cost per patient in the final 3 months of life, largely due to a 35% reduction in Medicare spending and a 34% reduction in hospital admissions in the final month. And in our JAMDA published study in 2023, our home health combined with Continue CareRx in-home med management showed a 70% reduction in hospitalization. These are just a few of the ROI data points out there for our services that demonstrate their value. Over the last few months, CMS released several preliminary rates for service lines in which we operate, including hospice and home health. The preliminary hospice rate was as expected and adequate to cover annual expense increases and operational investments to continue to service patients with high-quality care, and hospice care represents about 2/3 of our home health care business. The preliminary home health rate was not adequate to cover annual expense increases and operational needs to support these patient populations. It would be disruptive to patients and is in contrast to the voluminous amount of third-party data that demonstrates the significant patient, health and cost outcome benefits from high-quality home health services. However, we note that in the future, the rate adjustments tied to the implementation of PDGM will fall away, and home health rates are expected to improve. With the final rate update TBD and coming out in the fall, we also note that home health is only approximately 1.5% of total company revenue today. We still have relatively modest size in home health and have been growing into the market in a measured way, and thus are minimally impacted by any rate changes today, while expecting customary rate increases in the future as we further scale in both home health and hospice as well as rehab, primary care and value-based care and the most attractive markets in pharmacy. As it relates to recent pharmacy regulatory topics such as pharma tariffs and the IRA, we do not believe that pharmacies are an intended source of economic change through policy. Pharmacies provide a critical and last-mile service that physicians, manufacturers and patients all recognize as being fundamental to the delivery of care. While policymakers discuss any potential policies, we are confident that they will always be thoughtful so as to not compromise patient care or access to essential medications. We have a very experienced and informed government relations team who is working with state and federal agencies to help educate and inform the discussion on topics related to our services. Regardless of any policy and/or industry dynamics at play, BrightSpring is always committed to operating at the highest level, providing exceptional care to patients and using many different growth levers, as afforded to us by our differentiated platform. Every year, our company has some policy or industry issues that are favorable and some that are unfavorable, and we always work through these to deliver for our patients and stakeholders, as evidenced by our almost decade-long 15% revenue and EBITDA CAGRs, which has been driven by the demand for our high ROI services and the quality and strong volume growth of our services, our scale-enabled efficiencies and a near 100% success rate on accretive acquisitions that expand our geographic coverage. Overall, we are very pleased with our results in the second quarter and the first half of the year, with both periods realizing approximately 30% year-over-year adjusted EBITDA growth, our current full year guidance representing similar to slightly higher growth, and we are enthusiastic about continued momentum and a high level of growth in 2026. At BrightSpring, we strive to achieve consistency and quality, above-market volume growth, operational execution and efficiency and leading performance and accretive acquisitions, all underpinned by our scale platform of complementary services and deep functional capabilities. With that, I'll turn the call over to Jen.

Thank you, Jon. Before I discuss our results for the second quarter of 2025, I'd like to remind you that in the first quarter of this year, we began to record the Community Living business in discontinued operations, as indicated in the press release and 10-Q, to adhere to accounting standards required on an interim basis. As such, all BrightSpring financial results and forecasts that I will discuss are related to continuing operations and exclude Community Living. Management believes the presentation of the non-GAAP financials from continuing operations is a useful reflection of our current business performance. In the second quarter of 2025, total company revenue was $3.1 billion, representing 29% growth from the prior year period. Pharmacy Solutions segment revenue in the quarter was $2.8 billion, achieving 32% year-over-year growth. Within the Pharmacy segment, Infusion and Specialty revenue was $2.2 billion, representing growth of 39% for prior year, and Home & Community Pharmacy revenue was $587 million, representing growth of 11% year-over-year. Recently, we have fielded a few questions about a Home & Community Pharmacy customer that filed for bankruptcy. We plan to continue to service them and will be paid as they undergo the bankruptcy reorganization. Our pharmacy and company results in Q2 reflect any impact from this situation, and we are fully reserved. There will be no go-forward charge, and we do not expect this to have any material impact to our ongoing business. In the Provider Services segment, we reported revenue of $358 million in the second quarter, which represented 11% growth compared to the prior year. Within the Provider Services segment, home healthcare reported $185 million in revenue, growing 17% versus last year. Rehab revenue was $73 million, growing 9% versus last year, and personal care revenue was $100 million, representing growth of 4% year-over-year. Moving down the P&L. Second quarter company gross profit was $375 million, representing growth of 20% compared with the second quarter of last year. Adjusted EBITDA for the total company was $143 million in the second quarter, growing 29% compared to the second quarter of 2024. Adjusted EPS for the total company was $0.22 for the second quarter. In the second quarter, our procurement and efficiency programs across the company helped contribute to growth, and we anticipate continued margin improvement throughout the remainder of 2025 as a result of these ongoing operational initiatives. Turning back to segment performance in the second quarter. Pharmacy Solutions gross profit was $234 million, growing 28% compared with the second quarter of last year. Adjusted EBITDA for Pharmacy Solutions was $125 million for the second quarter, growing 32% compared to last year, representing an adjusted EBITDA margin of 4.5%, which was in line with our expectations. Provider Services gross profit was $141 million, growing 9% versus the second quarter of last year. Adjusted EBITDA for Provider Services was $56 million for the second quarter, growing 11% versus last year, representing an adjusted EBITDA margin of 15.8%, up 20 basis points versus last year. Not included in the company's reported adjusted EBITDA of $143 million, as previously stated, Community Living's adjusted EBITDA was an additional $35 million in the quarter, an increase of 24% over the prior year in this business. On a total company basis, cash flow from operations was $49 million in the second quarter. We continue to expect to deliver over $300 million of annual run rate operating cash flow in 2025 as we remain focused on improving our leverage ratio towards our goal of 3.0x this year, pro forma for the Community Living divestiture and towards our long-term target of 2.0x to 2.5x, which at current trends could be realized by the end of next year and excluding acquisitions. As of June 30, our net debt outstanding was approximately $2.5 billion with a leverage ratio of 3.6x, which was in line with our internal projections. As previously mentioned in January, we expect approximately $715 million of net cash proceeds from the $835 million of gross cash consideration in the pending Community Living sale. 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, as part of our process to monitor and address risk. During the first quarter, we entered into an extension of our interest rate hedge, providing stability to our interest rate risk through September 2026. Prior to any proceeds from the pending Community Living divestiture, quarterly interest expense is still expected to be approximately $43 million per quarter, including approximately $1.2 million of interest expense related to the TEU instrument. Turning to our guidance for 2025. We are increasing our expectations for total revenue and adjusted EBITDA that was provided in March, which excludes the Community Living business. Total revenue is expected to be in the range of $12.2 billion to $12.6 billion, including Pharmacy Solutions revenue of $10.75 billion to $11.1 billion and Provider Services revenue of $1.45 billion to $1.5 billion. This revenue range reflects 21.1% to 25.1% growth over the full year 2024, excluding Community Living in both years. Total adjusted EBITDA is expected to be in the range of $590 million to $605 million for the full year 2025. This would reflect 28.2% to 31.5% growth over the full year 2024, excluding Community Living in both years. Our increased total revenue guidance is primarily driven by an improved pharmacy revenue outlook, including growth in LDDs and generic drug conversion and utilization opportunities and consistent growth on the provider side. Our adjusted EBITDA outlook reflects strong pharmacy growth in the second quarter and through the rest of the year, improved costs across pharmacy and provider from procurement and efficiency initiatives, strong provider performance and improved profitability trends in infusion, which continues to gain traction as we move throughout the course of the year. With that, I will now turn it back to Jon.

Thank you for your time today to go through BrightSpring's second quarter 2025 results. We will now open up the call for questions.

Our first question will be coming from Whit Mayo of Leerink Partners.

Yes. Jon, maybe to start with the infusion performance in the quarter. I think you've referenced some leadership changes in the past. And just any expectations for growth over the next few years and how you're positioning the business for growth within, I guess, specifically within the acute market?

Whit, thank you for the question. Yes, we were pleased with a lot of the developments in the Infusion business in the quarter. I would say, from a progress perspective and from an operations perspective, it's the best quarter we've had in a long time, and we expect more of the same. From a leadership perspective, we do have a new President of that business who started early in the quarter. We have a new operations leader. We have a new sales leader. So we have really focused on not only trying to make the business as efficient as possible to drive optimal patient outcomes and drug turnaround times, but also to do that, hopefully, with the best talent base that we have in the industry as well as ongoing technological and process investments. And so super excited about the business. The business grew a double digit on an EBITDA basis in the quarter, and we expect much more of the same in the future. It certainly is one of our drivers in the back half of the year. And I view it as one of our top, certainly, two or three growth drivers in the company in the future. In particular, we're really excited about acute. I've stated our strategy there before is to not abandon that market. I think like a lot of people have, it's a tough market, but it's also a very, very large market. And it's one that we are trying to make sure we have optimal customized processes, too. So we will certainly continue to address chronic therapies, but we think having a broad-based strategy that also includes acute and focuses on professional services and nursing services and optimal payer relationships by the broad set of services you do have is ultimately a winning strategy, not only across the home, but across clinics as well. So numerous growth levers in Infusion going forward, provide essential services that dramatically reduce costs versus doing these types of procedures in a hospital setting, and we just continue to focus on the team and the process there. Thank you.

Great. And maybe just the follow-up on just the gross profit per script was up a good bit. And just any comments around trying to square that performance to be helpful in the context of maybe what to expect for the rest of the year?

Yes. It was mix. I'll let Jen answer that a little bit more, but the trends we saw in Q2, we see continuing.

Yes. So as Jon mentioned in the script, there was 38% year-over-year growth in our Specialty scripts that has some of the highest gross profit in per script. And so we saw a skewing to that this quarter.

Our next question will be coming from A.J. Rice of UBS.

You beat at least relative to consensus by about $5 million in the second quarter and you're raising the full year guidance by $20 million. So clearly, there's some uplift in the back half numbers. I know you had assumptions about a lot of positives coming into the year, coming into this quarter. What specifically is improved resulting in that raise in the back half of the year that's different than coming into maybe the quarterly release?

Yes. A.J., thank you. We do always have slightly higher margins and EBITDA contribution in the back half of the year just due to structural items like the way Mondays and Fridays and the number of days in the month in the back half versus the first half as well as taxes that burn off into April and May throughout the year, that is part of it. I would say just continued momentum really across the company. Characterizing our performance was not just pharmacy, but continued real strength on the provider side. This is a business that continues to grow nicely into the double digits from an EBITDA perspective, and we've never been more positive about the Provider segment of our company as well. So really broad-based growth across the organization, but as we look at the back half, continued momentum, we do have expectations for continued growth across the company. We see Infusion continuing to grow more. We see home health and hospice from a volume perspective continuing to grow more in the second half. We do have quite a few efficiency, lean and technology initiatives that have been hitting in Q2 and Q3 that we also expect to continue to contribute in the back half. And then there's some favorable rate developments in the back half as well, including the hospice rule. Jen, I don't know if you had anything else.

Yes. I would just highlight, especially within our home infusion and long-term care pharmacy, we've had really focused efforts regarding those efficiency projects, additional procurement initiatives, those are coming online, as Jon mentioned. Again, really strong performance in Provider, continuing to leverage our scale and just seeing an accretion of margin related to those projects.

Okay. Great. And maybe my follow-up, just to drill down a little bit on the development in M&A. Usually, you do about $100 million in annual spend. Obviously, this year, you've got the Amedisys divestiture deal pending. Hopefully, that goes through. And you've got some priority on debt reduction, although most of that is coming from your home divestiture. Any updated thoughts on the pipeline or deals away from the Amedisys transaction that you might be looking at?

I would say it's more of the same. We have been cautious as we wait for the outcome of the Community Living divestiture and the Amedisys divestiture. Hence, we have taken a wait-and-see approach. In terms of our baseline for mergers and acquisitions, we still expect to do about 8 to 10 small tuck-ins a year at very low multiples. We are actively pursuing those opportunities, and currently, there are probably 5 to 10 in our pipeline, primarily focused on CON-type deals at low multiples. Some of these may involve simply buying licenses. This has been our strategy this year as we await the divestiture outcomes and the Amedisys transaction. Our cash flow year is strong, with operating cash flow expected to exceed $300 million, and we are pleased with our leverage situation. This gives us flexibility for future aggressive moves if we choose to take them. For the last 20 months, we have concentrated on improving our balance sheet to reach our target leverage level. Assuming the Community Living divestiture goes as planned, we should be at or below 3x leverage by the year's end. Our long-term goal remains 2x to 2.5x leverage, which we believe we can achieve as soon as next year. We will continue focusing on very accretive small tuck-in mergers and acquisitions as we await the outcomes of other transactions.

Our next question will be coming from David Larsen of BTIG.

Congratulations on the good quarter. Jon, can you talk a little bit about the growth in the home health business? And I don't view the rule as being that material. I mean, it's less than 2% of total revenue, but I have been getting any questions on it. I think I heard you mention in your prepared comments that in 2027, there could be a 500 basis point lift because part of that proposed reduction is actually temporary. Just any color on growth and that rule.

Yes, you're correct, David. The outcome of the home health rule does not have a significant impact on us. For the benefit of the industry, we hope the final rule accurately represents the value home health services offer. The return on investment from home health is undeniable, supported by extensive data over the past 30 years showing improvements in mortality rates, reductions in hospitalizations, and better outcomes at lower costs. We hope home health will receive the recognition it deserves, similar to other segments in healthcare. Regarding 2027, if recoupment occurs as indicated by the final rule, it will eventually phase out, leading to a significant uplift. We are optimistic, especially based on some language in the proposed rule, that home health rates will begin to rise again in the near to medium term. Our strategy for home health has been steady, focusing on measured growth; thus, we are not a large home health provider at this point but rather a modest one. Our primary focus has been hospice services, and we continue to grow into home health over time. We believe this approach will align well with anticipated rate support returning to the home health sector. We think it's an interesting time for a provider expanding in this area, creating numerous future opportunities. Thank you, David; we share your view.

And our next question will be coming from Joanna Gajuk of Bank of America.

So maybe first question on the Specialty Pharmacy, right? Keeps, I guess, surprising to the upside, I'm not complaining. But just a question, how much longer can you grow at this pace? Would you refer to assume 30% growth in Specialty Pharmacy to continue next year?

Joanna, I think what we're seeing today is the benefits of a business in a business model, a value proposition and a track record from a service and quality perspective that's now been put in place for close to 15 years. If you look at our service levels and our quality, which is driving a lot of strong relationships with manufacturers in biopharma, if you look at the infrastructure investments we've made in the business, up and down the patient journey and the patient process, if you look at the investments we've made on the business development side of the organization, making sure that we can properly educate and advocate for these therapies with thousands of prescribers and patients and their families every day to make sure they get the life-saving therapies that they need, that's what we've done. And it's driving a solid amount of growth into the organization. It's a broad-based business, too. We really try to partner closely and be the best partner we can with the payers, with the PBMs and the manufacturers on the brand LDD side. We also try to make sure that we drive generic utilization when the opportunity arises. We have a growing and a thriving fee-for-service and hub business as well. And so growth is really coming from all dimensions of that business. And we're serving markets in the specialty pharmacy industry that are massive, that continue to have huge innovation pipeline. So as we sit here today, we do not see anything that changes that growth trajectory. We will continue to make the investments in the business and try to execute at the high levels that we are every single day.

And if I may, staying on pharmacy. The recent proposal for Medicare for outpatient hospitals includes provision right to equalize rates for some of the drugs provided by doctors at the hospitals to get paid on the fee schedule. So I don't know, is there some opportunity for you guys from changes like that? Would you be willing to comment on that?

Yes. Joanna, at this time, we're not really sure if that would be an additional opportunity or not. I mean, we are serving the Specialty Pharmacy segment of the market, principally, which is outside of the hospital, outside of the physician office. So that would be something that we'd have to further evaluate into the future. But thank you.

And our next question comes from Brian Tanquilut of Jefferies.

Congrats on the quarter. Jon, as I think about LDDs, maybe tying back to Joanna's question, right? I mean, you did 5 introductions in Q2, it sounds like. And so thinking about just the pace and the remaining pipeline for LDD intros, I don't know, you talked about new agreements. So just curious what you can share with us in terms of what that pipeline looks like and the runway.

Brian, look, the biotech companies and manufacturers are doing a terrific job of driving that innovation pipeline, continuing to bring more and more therapies to market. It's as deep as ever. A lot of them are more and more specialized, and I would say more and more niche from a patient population perspective. And that's an area that we have continued to try to be a terrific partner on. What we have continued to say is we expect 16 to 18 new brand LDD launches. Most of these are either exclusives or in ultra-narrow one of two pharmacy networks, 16 to 18 over the next 12 to 18 months. And we've been saying that really for the past 20 months, and that's what we're realizing as well. So we have a strong conviction that we will have another 16 to 20 LDDs, 16 to 18 months from now, and we're really honored that we could bring these groundbreaking and life-changing therapies to patients as a partner with the innovators.

That makes sense. And then maybe, Jon, as I think about gene and rare disease in the Specialty Pharmacy business, I mean, how big of a business is that for you guys right now out of the book? I mean, I know everyone thinks oncology is the area of growth, but obviously, there are emerging areas in the drug world that could drive incremental growth and incremental dollars. So just curious what you can share with us on that front.

Yes. Thank you, Brian. This is a continually developing area. Many people may not realize that a significant portion of our therapies can be categorized as rare and orphan therapies. Some of these are related to oncology, while others are not. We are actively exploring this market. Over the past year, 30% to 40% of our LDD wins have been in segments defined as rare and orphan therapies. We are committed to further engaging in this market internally. The success factors we've applied to our oncology model are also relevant to rare and orphan therapies, although success in those areas does not automatically translate to success in oncology. For instance, our substantial investment in a business development sales force is something you typically wouldn't find in other markets. We are continually searching for opportunities to leverage our core strengths into adjacent markets, which has proven successful for us. A notable example is our recent win for the injectable LEQEMBI about a year ago. We are monitoring how that unfolds, but we were not exclusive in that area. We are always looking to utilize our strong relationships with biopharma companies to expand into more areas.

Our next question will be coming from Charles Rhyee of TD Cowen.

Jon, I wanted to delve into some of your comments. Many have inquired about the LDDs. However, when reviewing the data from IQVIA, we noticed improvements, including in generics. Can you share any insights on this? We observed a rise in generic unit penetration rates for oncology as well. Is there anything specific you would highlight from the quarter? It appears that while script growth and revenue growth may be largely driven by LDD launches, I'm curious about how much generics contributed to the positive results this quarter.

Thank you, Charles. Regarding our value proposition in pharmacy, we aim to improve medication adherence, which is a leading cause of hospitalization, and enhance the use of generics. This approach helps us achieve better outcomes and reduce costs across the value chain. We specifically focus on increasing generic utilization whenever possible. Over the past six to seven years, we have consistently invested in our clinical liaison team, which connects with thousands of doctors and oncology offices daily. This positions us as a primary sales force for generic drugs. As a brand transitions to generic, the promotional efforts for the brand decrease, but we have built a substantial clinical liaison team that has established long-term relationships with prescribers. This facilitates a quicker conversion to generics and enhances our market share. Our business model has been in place for some time, and we strive to refine it further each year. Recently, several significant generic launches occurred, including one in the fourth quarter. With three already this year and more anticipated, such as POMALYST next year, we are dedicated to driving utilization and maximizing our efforts during these launches.

Yes, thank you. As a follow-up, I noticed that the President recently made announcements and sent letters to the pharmaceutical industry regarding discussions on most-favored-nation pricing. While this primarily targets the drug sector, there are concerns about potential indirect effects down the line. I'm interested in your insights on whether this relates to the executive order signed in May or if there are any unintended consequences that might arise from these actions. Could you share your thoughts on how this could impact BrightSpring and the pharmacy sector overall?

It's quite challenging for us to comment on this matter due to the extensive uncertainty involved. We didn’t perceive yesterday’s developments as new information. There are ongoing negotiations between the administration and the pharmacy industry, and yesterday's letter was just the most recent public stance, similar to the executive order issued a couple of months ago. The biopharma industry has made several public commitments during this negotiation process, though we don’t have insights into it. It seems reasonable to think that these discussions will persist, and given our strong value proposition regarding the contributions of pharmacies in improving outcomes, reducing costs, and promoting generic utilization, we don’t believe that pharmacies or other essential service providers for patients are the intended targets of these negotiations. Any outcomes from the government and industry conversations are likely to develop over a long period of time. Additionally, the IRA is already set to take effect, which encompasses much of the current focus, and we have already anticipated its potential impact, which we find very manageable. We are actively collaborating with policymakers to ensure that pharmacies remain unaffected by these changes. From a Medicaid standpoint, drug rates are already quite low, and both states and patients currently benefit from various cost reduction strategies and access programs. Our company is highly diversified, with generics comprising the vast majority of our activities, particularly in terms of profitability. We are committed to advancing generics, and while changes in drug pricing models may occur in the future, we believe that payment models will adapt accordingly. Just like other segments of healthcare, payments will naturally adjust to include cost plus dispensing fees and professional fees. It’s also worth noting that our company is in a strong financial position, and we are optimistic about reaching our long-term leverage goal of 2 to 2.5 times as early as next year. As a large-scale provider, we have numerous M&A opportunities. Regardless of existing policies, our strong value proposition is understood by policymakers, and we are confident in our ability to navigate any environment. We remain proactive in educating all stakeholders on the value and benefits pharmacies bring to the value chain.

Our next question will be coming from Erin Wright of Morgan Stanley.

So in terms of underlying market share gains and competitors getting out of the market, we've known about that for some time. It's been going on for some time, whether it's Quorum or otherwise. But how do you think about that as a driver going forward? Maybe in going to what you were just saying in terms of like M&A opportunities on the back of any sort of regulatory type of disruption, too, across the market, could that bring opportunities for you? And yes, how do you think about kind of organic opportunities as well as we think about others kind of getting out of the market and how long of a tail you have there?

Yes. Erin, certainly, you looked at some of the things that happened on the acute side of the market in infusion in the last couple of years, those have been opportunities for us and others in the market. As I said before, we do believe that the acute market in infusion is an attractive one. I don't know exactly, but it is some $8 billion to $10 billion sort of market size, which creates tremendous opportunity if you can move your market share, say, from 10%, 15% to 30% to 35%. And that's something that we are really focused on. As it relates more broadly to other providers, that is something that we are regularly looking to do. If you look at our M&A track record, our average pro forma multiple over a long period of time is about 4x. And so we really do focus on opportunistic situations where we can bring the best practices and the synergies of our scale platform to bear. I think the statistic now is that we're something like 66 out of 68 on acquisitions where what we have acquired is higher on EBITDA than when we bought it. And so I mean, it is literally almost an unblemished track record of being able to do acquisitions and grow them post close. So our base case for the industry on the pharmacy side is really no significant disruption, but I think our platform positions us extremely well. As I've said before, we just really believe in healthcare moving forward that you do have to be a scale provider that can drive more sophisticated care, innovation, leveraging technology and driving efficiencies. It's just a necessity, and it's beneficial in so many different ways. And I think we continue to realize the benefits of that.

And one quick question regarding your Specialty Pharmacy mix. Have you provided a generic penetration rate?

I do not believe that we have. I would say that we have continued to say that as a pharmacy, a key part of our value proposition is driving generic utilization. We're very proud of that. Generics are good for everybody, and that is the majority of our business on the pharmacy side across our platforms.

And our next question will be coming from Matthew Gillmor of KeyBanc.

I wanted to see if you could provide some details on the procurement efforts that you've mentioned. I appreciate it's probably a normal part of managing the business. Is there anything in particular happening this year that makes procurement more of an opportunity maybe in terms of your scale or in terms of just contracts that are up?

Yes. I would say when we refer to "procurement," it goes across literally almost everything we're buying in this company. It's not just delivery. It's not just drug. It's not just supplies. We have a very robustly sized procurement team. We use ongoing monitoring and tracking with our data systems and technology to literally constantly be looking at everything we are buying and leveraging our scale as much as we can. So it's a team that is working on 20 to 30 projects at all times. And it really spans across every dimension of what we buy in the company, and it continues to drive savings every year. I think that will just continue more into the future. Obviously, if you look at our company, we start with the biggest spend in the company. You can probably think about what that is. And then we go down from there, and we work on all of it. And we try to do that in a very constructive way with our partners. And as we have continued to scale the company in very high volume rates, that has continued to benefit us on the cost side and driving more and more efficiencies. But it really goes beyond just trying to buy better. We are looking at continuous improvement that is embedded in our culture across all of our processes and something that we were close to saying in our prepared remarks, but we did not. I think in the next quarter or two, we might say a little bit more about it. But we really continue to lean into technology and automation and now AI at the company as well. We've continued to make a lot of really terrific hires in the organization through the year. While we're experiencing this growth and continued growth, we want to continue to invest for years out and plant more and more seeds for growth 3 to 5 years from now. And part of that is reflected in the amount of key hires that we just continue to make from the outside in terms of A+ people through and through the organization. We've done that in Infusion. We've done that in Home & Community Pharmacy, and we're doing that in our IT shop as well. I mean, you look at our EMRs, intake, rev cycle, scheduling, operations, patient management, in every one of those areas, we have ongoing automation and AI initiatives right now. And we're really excited about that. We look at something like Home & Community Pharmacy, and we see a couple of hundred million dollars of cost opportunities still ahead of us in the next 3 years. Now we have to go execute against that, but those are the types of things that we are working on every single day here.

Our next question will be coming from Larry Solow of CJS Securities.

Great. To start off, do you have any updates on your efforts to bundle services and your value-based contract initiatives with ACOs?

Larry, yes, I would say that business continues to progress along. We are going to see nice performance year-over-year in that business this year. That is a solidly profitable business between our ACO shared savings that we will realize and our little but growing I-SNP plan in the future. So progressing, directionally positive, positive year-over-year. We are making more and more investments in that business to try to scale that even faster. We've got some new people on that business here in the last 3 to 6 months. I think that's one that really getting into next year and 2027, I think we can start to really talk more about and potentially start to break out some numbers on in terms of it being a more material EBITDA contributor. But that's an area that continues to get a lot of internal attention. It's a slower build, but it's one that we continue to focus on.

And you had thrown out like a $100 million potential target in 5 years for EBITDA. Is that still something that you're comfortable with?

That is still our internal goal, yes.

Great. And then just secondly, just a quick follow-up on your hospice efforts build-out. I have a quick question about Haven Hospice. I think it's been about a year since you acquired it. How is that progressing?

Haven would be a really good example of our M&A prowess and what we're able to do. I mean, that was a business that was essentially losing money a year ago. And now it is performing extremely well, well ahead of expectations. We will probably work ourselves into a 4x multiple there, I would say, run rate probably within the next 6 months. Team has just done an absolutely terrific job. Thank you for joining us, everybody, today. We really appreciate it. Thank you for all the questions, and we hope you have a great day. We look forward to talking with you again after Q3, and we really appreciate your time and attention. Have a good one. Bye.

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