BrightSpring Health Services, Inc. (BTSG) September 2026 Conference Transcript

Hi. Good afternoon, everyone. I'm Erin Wright, Healthcare Services Analyst at Morgan Stanley, and welcome to the Morgan Stanley Global Healthcare Conference. For more important disclosures, please see the Morgan Stanley Research Disclosure website at morganstanley.com slash research disclosures. And with us today, this afternoon, we have Bright Spring Health Services. With them, we have CFO Jennifer Phipps. Thank you so much for coming. We look forward kind of to a great conversation here in terms of the fireside chat, but thank you. Yeah, thanks for having us. So we'll get right into it. You recently raised your 2026 guidance again in July with Adjusted EVA.D. now expected to be in that sort of 820 to 845 range. Can you bridge us to the latest increase and discuss what is now embedded in terms of your second half expectations? where do you have the most visibility and which assumptions might, you know, I guess contain the greatest variability?

Yeah, no, thanks for the question. We obviously had really strong performance, first half, 44% EBITDA growth year over year. We expect continued strong growth embedded in our guidance throughout the rest of the year. Some of that outperformance has been in volume and was broad-based across all of our different business lines. So, you know, as we think about both the pharmacy and provider businesses, both have performed, you know, really well from a volume perspective. We had new LDD wins, many in the first half. We've had some new ones that we've launched since we last spoke at quarter end. And then, you know, we've had some updates on the pull through associated with those. We've had EBITDA performance, again, fraud-based across both segments and performance. We've had, you know, generics have performed ahead of expectations, you know, and are expected throughout growth throughout the rest of the year. And then we've had lean and automation efficiency, you know, initiatives that have come online. And, you know, as those have been implemented, we've been, we felt comfortable to put that into our guidance as well. As we think about our philosophy, we continue to put out guidance that we have a high confidence in our ability to deliver under a number of various different scenarios. And we're always working to exceed those expectations. Again, with volume growth underpinned by our high quality services and maximizing leverage of our lean and automation and across, you know, our cost structure.

Okay, that's great. So I don't want to get too much into the modeling details here, but given that there were a lot of investor questions on that quarterly progression in the first half, I do have to ask for the second quarter gross profit per script, about 20, I think it was 27.50. It was down sequentially from the first quarter, though it was up 28% year over year. You noted that the first quarter did include about a dollar per script or so of normal seasonality uplift, what is the seasonality attributable to how much uplift was from early conversion of Pomalist or Revlimid, and how should we think about the sustainable baseline for gross profit per script into 2027? What would create some of that upside-downside?

So I'd just like to mention that we manage our company ultimately for long-term sustainable and durable GP dollar and EBITDA dollar growth. GP per script ultimately is an output of 75 different factors across all of our different business lines and performance there. But as it relates, and we do expect sequential growth throughout the rest of the year in terms of GP dollars, we did mention that we expect stability to maybe slight benefit in GP per script throughout the rest of the year. So those are some things that we have, you know, that we've mentioned during the call after the quarter. you know the season of the seasonality really relates to something that happens every first quarter and it relates to price appreciation that occurs on branded drugs so to the extent that we have any inventory on hand at the end of the year in advance of our price appreciation we get the benefit associated with that and that typically happens in q1 you know that tends to be at least the last couple of years has been a very similar dollar impact. And so, you know, we did provide the dollar impact per script as it related to the seasonality throughout the rest of the year.

And what about the conversion impact of some of these, you know, biosimilar kind of opportunities? Is that flowing through meaningfully for you? How do we think about that?

So from a generic standpoint, so we don't have a lot of biosimilars, that's more related to infusion, but from a generic standpoint, you know, we have a number of different drivers, you know, that are impacting ultimately our profitability. You know, those items from a pharmacy perspective are, you know, certainly volume growth, new LDD wins, the ramp of LDD wins that we've had, generic conversions, and then the growth of those generics as they ramp throughout the incremental component. We think of those generics as being, you know, a net tailwind ultimately across, you know, each of the next several quarters. Then ultimately, you know, infusion, you have volume growth across those from a driver perspective and then improved profitability and margin expansion. And then in the home and community pharmacy, as we think about those drivers and leverage, leverage our cost per script is really kind of the primary focus in addition to volume growth that we're focused on.

So, you know, bigger picture, sort of, you know, gross profit prescriptive, as I was mentioning before, up 28% in the second quarter, up 50% in the first quarter, year over year, up 21% throughout, you know, your fiscal 2025. Before the years before 2025, it was roughly flat. So can you give us a little bit more context on what really has driven that inflection and some of what's durable as we head into next year.

Yeah, so one of the things to remember, and this is why I mentioned early on that we're focused on the dollar growth, in addition to obviously managing each of the components of script growth for each different business that we have. Mix definitely has an impact as each of those different pharmacy businesses has varying different GP and EBITDA profile. And we're focused on driving maximum growth across each individual business line, which can then play out from a script standpoint. So if you were to go to 24, you're right. There were periods where we had a negative GP per script, but really significant GP dollar growth, or even in some cases, margin expansion. And that was really a mixed related dynamic. So again, we think the right metric to focus on is the dollar growth, but ultimately from a sustainability standpoint, how, you know, we've continued to drive outsized volume in certain areas like specialty pharmacy, which has a higher script growth as well.

Okay, great. And then at your investor day in March, you outlined long-term guidance of 15 to 20% organic EBITDA CAGR through 2028. That's nicely ahead of kind of prior targets that were alluded to kind of during the IPO process of, you know, high single-digit EVA dog growth. So, you know, you know, how do we think about, you know, the continuation of sort of the momentum that we're seeing? Can you walk us through some of those key growth drivers, what they've been for BrightSpring over the past two years, but what they, what we should see in terms of kind of growth over the next couple of years here?

Yeah, so over the last couple of years and what we see playing out into the next couple of years, there's been a handful of drivers of that growth. Number one is, you know, ultimately volume underpinned by our high quality services. That was broad based across many different businesses, but specialty pharmacy has had an outsized growth over that time period. Again, I would say the second being the specialty pharmacy and the attractive market and our leading market position that we have across the pharmacy business. And then, you know, number three would be we've had, you know, really strong provider growth, which has contributed to the bottom line in the second quarter. From an organic standpoint, the provider business grew almost 20% on an organic basis, significantly more if you include the Emeticis acquisition. Leveraging our scale and efficiency. So we think that that has provided a lot of meaningful value. Our ability to contract from a payer standpoint, our ability to contract on the cost side, and then certainly drive lean and automation. You know, fifth would be infusion and the work that we've been doing there. We've invested a lot of money over the last couple of years, a lot of money and time, you know, as we're working to really build out, you know, a platform for growth there. And I think, you know, as we look forward, we see that being a meaningful contributor over the next couple of years has been a contributor over the last year, year and a half, after a couple of years, you know, of really being stable. And then, you know, on the home and community side, I would point out, we believe that there's a lot of opportunity for automation and efficiency and driving pretty significant dollar per script growth. So as we look across all of those different areas, we just really see the ability to continue, you know, to leverage and perform, you know, well across our platform.

Okay. And anything to call out as we think about the second half in terms of pharmacy services, I mean, or the pharmacy solution segment, I should say, you know, how do we think about, you know, more near-term dynamics that we should keep in mind from a modeling perspective?

Yeah, we, you know, continue to expect sequential growth, and we think the primary drivers of that are going to be the things that we talked a little bit earlier about new ldd wins that we you know have launched either earlier this year some that we've recently announced post the q2 earnings the ramp of those historical ldd wins that are going to provide growth in terms of revenue gp and ebitda dollars the generic conversions you know continued growth in those and opportunity on the cost side fee for service that grows with those LDDs you know certainly is important volume growth and infusion and leveraging our home and

community lean and automation work that we're doing all of which are contributing to you know EBITDA growth that we expect in the second half okay and you mentioned some LDD wins so let's go So as of the second quarter, the company had 155 LDDs and had launched, I guess, about 12 products, I think, year-to-date for exclusive, I think, what you call ultra-narrow. I guess, how does this compare to kind of your original expectations and what's kind of remaining in terms of launch pipeline? How does that LDD pipeline kind of look for you? And were these a couple of new wins even since, you know, the most recent quarter?

Yes. So we did recently launch two new, we've actually announced a few on our Onco and CareMed website. We usually announce the bigger ones, but we've announced a couple of new launches in both rare and orphan space and also in the oncology space. The pipeline remains robust. And so we typically are working with manufacturers about, we typically know if we're going to participate in a launch, you know, oftentimes 12 months before a launch. So we have pretty good insight into what we were expecting 2026 and how we would expect that to play out. We're starting to work with manufacturers, obviously, on 27 launches and what that will look like. So we usually have pretty good insight into what that looks like a little bit further out. We can't announce that or talk about that until the drugs actually launch. You know, it's been a good year in terms of, you know, the pipeline of drugs, it remains robust. And we, you know, as we continue to work with manufacturers on upcoming drugs, you know, we believe that, you know, the leading and high-quality services of our specialty platform, the high-touch services and white-glove services that we're able to provide on behalf of the manufacturers to service their drugs, our time-to-first fill and medication-possession ratio, and our patient satisfaction and physician satisfaction scores have led to, you know, our ability to continue to serve these populations and these drugs and new drugs coming to market.

Can you comment a little bit on the recent FDA cancer drug approvals, you know, the opportunities with the recent pancreatic cancer drug? Can you discuss kind of, I guess, some of those more recent LDD ones?

Yeah, so there was a new drug that was launched earlier this month, I think it was the beginning of September, you know, where there was a new pancreatic cancer drug that was launched, Razon Q from Revolution Medicine. And, you know, we're excited to participate in that drug as a partner on that drug and, you know, what that drug is doing and the novel nature, you know, in service of patients with pancreatic cancer. You know, we're just really proud to partner with the manufacturers on that. We also had a notable rare drug win. That was not a new LVD, but ultimately a switch from a different, and that was an exclusive drug, Orlodeo. So that's just another example of a drug that we're excited to partner with manufacturers in the service of their drug and their market.

And for the pancreatic cancer drug approval, for something like that, it's not necessarily like the super ultra narrow probably in terms of or how exclusive would the nature of that relationship be?

So it's a network of two. So, you know, from a specialty, so, you know, the drugs that go through the hospital channel are not, you know, we would not necessarily participate in that, but we would service and be one of two pharmacies servicing that drug in the specialty pharmacy market. Okay.

And then oncology remains kind of, I think, the Onco360 business a gem within kind of the Bright Spring ecosystem. 93% of your specialty pharmacy business is tied to oncology, which I think is, you know, you view as sort of a nice, durable kind of market. You know, what else is kind of from a pipeline perspective? Are you encouraged with what you're seeing from an innovation standpoint? Presumably you are. And how do we think about the mix of oncology versus other complex therapies over time?

Yeah, no, we just continue to see a lot of unique drugs in the oncology and rare and orphan space and the specialty pharmacy space. We continue to see the need for high quality specialty pharmacies to help service narrow or exclusive networks. And so you know, we're excited to be able to be a partner to manufacturers in support of that drug. As we look out from a pipeline perspective, there are a number of drugs that continue to be in phase three for FDA approval, and the pipeline remains robust. Our team is constantly thinking about how can we utilize our unique specialty pharmacy network services across different disease states. And, you know, Rare and Orphan, you know, is an area that, you know, we are very interested in continuing to participate. We've had some notable wins in this space over the last couple of years, and we're excited to continue to partner with manufacturers in this area. But we're constantly looking out in terms of additional areas of specialty pharmacy where we think our unique, high-touch pharmacy network that works in exclusive and ultra-narrow areas might be additional opportunities in the future over the coming years.

Okay. And then hub services, you've highlighted hub services and other fee-for-service programs as a growing contributor to specialty pharmacy and as a way to deepen those manufacturer relationships that you have. Can you describe a little bit about the breadth of your hub capabilities today, how the economics compare with kind of the core dispensing business, how meaningful of a contributor is the hub services business?

Yeah, so, you know, in support of a drug, we're able to really design programs that, you know, really will do whatever is necessary, typically to support a patient or a manufacturer for patients on that drug. So, you know, that sometimes looks like just data back to the manufacturers, helping them understand, you know, the patient journey. A lot of times it involves other things, like it could involve, you know, designing hub, you know, services where, you know, patients, you know, can, we have a lot of communication with those patients where they're directly communicating with us about any needs they have on the drug, and then we're able to provide that information, you know, back to manufacturers. It really can be, you know, whatever the manufacturer feels would help benefit the outcomes. Ultimately, these services are used to produce, you know, better outcomes for the patient and more effective treatment in the care of the patients on these drugs. Okay.

A little bit on infusion. I believe kind of you gave some, or you indicated that infusion was approximately, I think, 70% acute. second quarter kind of showed solid growth, both acute and chronic. I guess you're beginning to integrate some of the payer contracting and purchasing more closely with the broader For America platform. Can you talk a little bit about the opportunities you're seeing across infusion and where ultimately that mix shakes out in terms of acute versus chronic and geographic areas of focus? Which ones are the highest priority for you?

Yeah, we are putting resources to both because we think there's interesting opportunities across both. So from an acute standpoint, we think density in our current markets is very important, certainly important as we are trying to leverage our scale across our provider and payer negotiations. We also, there's some markets that we're not in today that are very interesting to us that we think that we could provide our high-quality infusion services at. From a chronic standpoint, we're really focused on very specific drugs and markets for drugs that we think are very interesting. So how do we build out the right sales force, the right infrastructure to be able to deliver really high-quality care? So John's talked a little bit the last couple of quarters, for example, about a program that we created called IG Connect. So individuals that are on IVIG medications, for example, how can we help them through their life cycle of IVIG, you know, medication in a white glove way, similar to, you know, some of the services that we do in like specialty pharmacy, you know, how can we bring those to help, you know, ensure better adherence, you know, better outcomes ultimately for patients that are on that. So those are things that we're doing that we think are differentiated and, you know, ultimately will be helpful for growth in those areas.

Okay. Home and community pharmacy revenue declined in the most recent quarter. That reflects IRA and some, you know, customer kind of exits, I believe. So yet the EBITDA, I guess, increased because of some of the internal, you know, efficiency initiatives that you have and technology investments that you've made. I guess, how do you think about full year, how do you think of the long-term kind of dynamics around IRA and drug pricing dynamics across that business? And then, you know, what's the long-term profile of that home and community pharmacy business?

Yeah, really great question. From a revenue standpoint, we do expect continued decline in revenue throughout the rest of this year from IRA. So we've seen, you know, about half of the impact through the first half of what we had talked about. Well, we, you know, as we look forward to the 2027 drugs, you know, certainly the largest drugs were impacted first. And so, you know, what we've said is we expect the impact in 27 to be about half of the impact that we're seeing in 2026. Despite that, you know, as you mentioned, we have grown. Certainly for 27, we're working to continue to further mitigate any IRA impacts that we have. That would include, you know, what could be additional impacts or additional mitigations for drugs that were even on the 2026 list. And then in addition to that, we certainly have a number of lean and efficiency and then volume growth that we would expect, you know, that would ultimately produce, you know, meaningful EBITDA growth in that business as well.

Okay. So since we're kind of talking about some regulatory dynamics, I guess, can you separate direct 340B economics from indirect exposure for you through referral sources, hospital customers or manufacturer contracting under, you know, what sort of 340B reform might you face risk versus potential share opportunity?

Yeah, so from a 340B perspective, you know, where we have, you know, some 340B support is in our specialty pharmacy and related to LDD drugs. What I would say is that we have a very transparent model with our hospital partners, and we work to be a true partner to them in providing some of the drugs where they might not have the ability to provide that drug to their patients. So as we look at the economics, it's not significantly differentiated compared to a normal, you know, our normal economics on the dispense of a drug, you know. But as we, you know, 340B is certainly a really important program, you know, for hospitals. It's been very meaningful to drive, you know, support of their patients. And so certainly we just look to be a partner to those hospitals and to the extent that there is reform, although we don't necessarily, you know, have a view on where that would happen. We see it more as an opportunity, you know, or continuation of what we're servicing because these patients are in need of these drugs. So if it were to go through the specialty pharmacy channel, there would not be a meaningful shift from our standpoint.

And then maybe a bigger picture question on just PBM and PBM economics as they move towards this greater fee transparency or delinking from traditional rebate models. How do you expect that would affect kind of an independent specialty pharmacy like BrightSpring?

Yeah, I think what you're referring to are some of the rebates and delinking of rebates. We don't have rebates on our side, but, you know, again, we are focused on, you know, across our specialty platform, largely from a brand standpoint on the LDDs that are exclusive or ultra narrow and being able to provide, you know, these drugs to the patients. And, you know, we've been able to work productively with payers on, you know, on these LDD drugs that are very important to patients. So, you know, we don't really see, you know, we don't necessarily, you know, expect that to impact us. We would expect, you know, to continue to have, you know, similar opportunity sets, you know, across our platform. Okay.

And then staying on the topic of regulatory, but CMS also has proposed a 2027 home health rule that would increase aggregate HHA, I guess, payments by 2.4% versus 2026. What's your thoughts on that? Any sort of high-level feedback?

Yeah, we were very encouraged to see the rate increase. They essentially kept the temporary rate flat and then provided the normal cost of living adjustment, you know, from a rate perspective. And that was consistent with a lot of the conversations that we've had. We have a really strong government relations team. We actually have a couple, we have a really strong federal team that has experience both at, you know, payers, at CMS, you know, across a number of different areas. And oftentimes we are leading, we are one of the leading voices for the industries that we're in, you know, across, you know, across CMS and legislatively. And so, you know, we continue to advocate for the really important work that is being done by home health providers and, you know, ensuring that there's appropriate compensation, you know, and rate support for those services that are producing, you know, meaningful outcomes for patients.

And you recently reaffirmed kind of your commitment to kind of the home health category and business that you have. You closed the acquisition of Emeticis, LHC. Can you talk a little bit about, you know, your expectations across that business? I think you've been running ahead of plan in terms of the EBITDA contribution. How is integration progressing? You know, what's driven the improved outlook? What integration milestones remain from here?

Yeah, really great question. You know, we were obviously really excited, you know, for the opportunity to acquire those branches. That acquisition is performing really well and is performing ahead of plan, you know, both in terms of volume as well as some of the margin expansion opportunities. You know, it's been a lot of work to say we've effectively doubled the size of our home health business and the number of branches that we have. You know, certainly a lot of IT and other integration work to make sure they're on our processes, our policies. But those were really high quality branches and high quality teams and processes. So it really has been a pretty smooth transition, you know, into our processes and, you know, what we're doing from a work standpoint. You know, we think that there's, you know, obviously continued growth that we'll expect out of that acquisition, including really, you know, we would expect to be run rating at our home health margins probably six to nine months from now, fully run rating at those margins. And so, you know, we're continuing to see, you know, that margin increase and, you know, it's performing really well.

And then how is your acquisition pipeline shaping up relative to your expectations? And are you seeing some greater opportunities across pharmacy versus provider? How do you think about weighing those opportunities? Is it still like $100 million a year, the right annual deal spend? And, I mean, if you back into kind of what's implied in the long-term guidance, it could be vastly bigger than that. So I'm just curious, is there, you know, what's your capacity and appetite for deals at the moment?

Yeah, really great question. We have, we're really proud of the position we, you know, we are now in from a leverage position. At the end of Q2, we are at 2.15 times levered with a path to be well under two times. by the end of the year, outside of M&A or other use of capital, which is below our long-term target of what we've said is two and a half times or below, giving us a lot of opportunity for M&A. You know, it is our belief that, you know, our ability to do highly accretive M&A is still one of the best uses of our capital dollars, and our corporate development team, is fantastic and has done a really good job executing really well over the last nine years across many different deals and with an almost flawless record in terms of EBITDA being higher than where we acquired it. So that team, we have a robust pipeline across all of our different businesses. you know it's it's we have a lot of we're able to really look across a lot of different areas and a lot of different businesses and say what's the most attractive opportunities for us now you know so each business we have targets target target geographies target you know density as we try to build out more services across different areas what are the areas we want to look at and we can the most attractive opportunities for us, which we think, you know, is a differentiation for Bright Spring. We remain interested. I would say, you know, the areas we remain most interested would be home infusion and our ability to, you know, target pharmacies in some key market areas. I would say, you know, hospice, rehab, those are also very interesting to us. But again, And we're able to look across all of our different businesses, you know, as we think about this. I would say, you know, from a target size perspective, we'll continue to be very focused on, you know, every deal, you know, being the right strategic fit, you know, at a reasonable multiple that we think is accretive over time. And then, you know, as we think about, you know, that use of capital, you know, We'll probably continue to do the really highly accretive tuck in M&A, under $3 million deal sizes. I'd say we'll still continue to do a number of those deals. I think our cash position has put us to a place where maybe we can do more of the $5 to $15 million deals. We haven't done very many of those over the course of the last couple of years as we've been really focusing on deleveraging. and then you know mightn't we do you know one or two 15 to 30 million dollar deals over the next uh you know couple of years um i think you know that's sort of how we're thinking about m&a okay one of the biggest i'll end with this huge question one of the biggest questions we get from investors too is like can you keep the momentum growing going in pharmacy and pharmacy solutions and can you still continue to win LDDs?

And, like, I think it's whether it's, you know, being unencumbered or just your expertise or data or solution or help services, like, which one of those, how would you rank those in terms of when you're kind of competing for sort of that LDD win, what's the most important for them?

I think, you know, really having high-quality services. and for us you know some of the evidence of that are our time to first fill being you know significantly better than many of the market players medication possession ratio which is an adherence measure um you know being um really high and and much better than than you know a number of the players and then really high patient and physician satisfaction scores um which has been very helpful. And then certainly, you know, I would say the team has done, the operational team has done an excellent job of just, you know, performing on the drugs that we have access to. And so that has then, you know, continued to provide, you know, I think the excitement around our specialty pharmacy business and what they're able to execute on with new opportunities. Great. Thanks so much. Appreciate the time. Yeah, thank you.