Guardian Pharmacy Services, Inc. (GRDN) September 2026 Conference Transcript

All right, good afternoon, and hopefully everyone's still awake and we're all drinking coffee, right? So our next fireside chat is Guardian Pharmacy Services. With us today is Fred Burke, the company's CEO. Fred, thank you for doing this.

Brian, thank you.

Always nice to see you here in Nashville.

Well, this is a great conference that you've put together. It's been really productive for us.

I appreciate that.

Thank you for including us.

All right, so what about we do a State of the Union? How are things going at Guardian?

Well, we had a very momentous first half in that we implemented the IRA and the fixes that we had negotiated for that and proud to say that the forecasting that we had done with our data analytics platform panned out to be the case. A lot of changes, a lot of moving parts, but I'm very, very proud of our company and its skill set to be able to predict something like that.

Fred, someone was signaling to me, by the way, that maybe we should start with an intro into Guardian for those who are not very familiar with your story. So what is Guardian?

Sure. We are a specialty institutional pharmacy that focuses our service on assisted living facilities who require a completely different type of service than what most long-term care pharmacies are geared to serve, which is skilled nursing facilities. We've been at this for 22 years. We were founded 22 years ago with this in mind, and we've grown step-by-step over this past two decades, planting flags and now serving 38 states. We grow in both organically, which is very important in our DNA. We do that by selling new assisted living facilities to use our pharmacy service. And then marginally, we've benefited from industry tailwinds, such as the occupancy rebound from COVID. And we focus on an important service to assisted living, which is to have a high adoption rate of residents using the pharmacy service. And then we have benefited greatly from growth through contiguous greenfield startups, and we do M&A. So we've grown from the one initial pharmacy to 60 or so today.

That's amazing. Maybe a few things to unpack there. So when we think of the growth algorithm or your growth outlook for your business, how should investors think about that? And what are those drivers? I mean, you mentioned Silver Tsunami as part of the senior housing space, penetration. Yeah, if you can just unpack all that for us.

It's complicated by the IRA, okay? So let's pretend the IRA didn't exist, okay? Our growth algorithm is we feel like we can grow organically in the highest single digits, and we've done that since inception. And we do that through the things I mentioned before, selling new facilities to use our pharmacy service and the contiguous Greenfield startups, increasing the adoption rate from when we take on the facility up to our corporate average of 90 percent, and at the margin, a little bit of benefit from the occupancy rebound. We augment that growth with M&A and have been able to deliver since inception mid-double-digit, mid-teens growth, but we're looking and guiding to low-team revenue growth. All of that is assuming the IRA didn't exist, okay? So we have this one-time anomaly, really three-time anomaly with the three tranches that is arresting reported revenue growth. So in the first half of the year, we grew 2% revenue, but if you were to adjust it for the effect of the IRA, it would be the low double-digit that I just mentioned. Down on the EBITDA, it's a different story. Here, it's driven almost exclusively by organic because most of the acquisitions come on board with a very low profitability level.

So maybe a few things there. So let's start with the IRA, right? So like you said, it's been a growth limiter on the top line. But you've done a very good job offsetting that with contractual adjustments with your PBM partners. As we think of the remaining IRA adjustments over the next few years, how should investors think about the earnings impact of future cuts to drug pricing?

We have covered those as well, the future tranches. In terms of revenue, the tranche 2, the 27 drugs, will be about 50% of the effect of tranche 1, and 28 tranche will be 50% of 27. That's on the revenue line. Margin is intact. Margin profile is intact.

Maybe, Fred, one of the things that we've talked a lot about is the durability of your revenue base, the durability of demand, and the predictability of it. Because once a patient is in your service, that patient's with you for, really, until they have to pass, all right? So if you can just walk us through that, like, how do you think about the life cycle of your revenue and the patient base that you serve?

Well, it's an interesting point. The average length of stay in assisted living is 22 months. So if you were to translate that into what other companies might call churn, we have 50 percent or so, 40 percent of our residents transitioning each year. And that's a major driver of the business. It's an opportunity for us to make a major impact on the drug regimen because when patients transition from care from the community into assisted living, one of the first things we do, it adds tremendous value, is comprehensive drug regimen review, usually the first time anyone's ever looked at a patient holistically. And in that experience, we find and correct a lot of problems. Our data analytics team has developed the program to track that, and we report that. And it's quite amazing, the value add that we bring.

Fred, one of the things that we appreciate, we love about your business is the diversity of your client base. I think some investors have been asking us, you know, do you have client concentration among the big or partner concentration among the big senior housing facilities? Number one, do you mind addressing that topic? And then the second is, what are you seeing in terms of the occupancy growth of the industry and how that's translating into revenue growth for your business?

Sure. We have a very diverse customer base. In fact, I saw Nick at lunch in Brookdale, and he reminded me, be sure and tell people that Brookdale represents 5% or less of our customer base. And they, of course, are far and away the largest operator in the assisted living space. So we have a very, very diverse customer base. In terms of occupancy, we're seeing the rebound from COVID, where we had a sharp decline in occupancy rates, and it's come back to now pre-COVID levels. And it's different operators have slightly different occupancy rates, but that represents a, I'll call it marginal tailwind for us. I mean, if you run the numbers, basis points of occupancy translates into a little bit of revenue growth, but it's not the main driver. The selling activity is the main driver. What we are hopeful is that the market forces will come into play as this occupancy rate increases up to that friction point that it'll bring capital and growth needed for this silver tsunami, as you called it. These cohorts, the post-WW2 births, are now hitting 80 years of age, and we're going to need some more assisted living capacity.

Now that makes a lot of sense. Maybe one of the things you touched on is another driver of growth is resident adoption rates, right? So you partner with an assisted living facility, you're one of their preferred providers, or you are the preferred provider, but not every single resident uses you guys in those situations. How do you drive that?

Well, it's a very important service that we render to assisted living because a high adoption rate improves the effectiveness of the MedPass and reduces the risk. As you can imagine, what one of these MedCarts would look like if you've got polypharmacy in there. So it's an important service that we render, and our customers in this case, assisted living facilities, are our partner, And we provide them with the tools that they need to make the sale of the pharmacy at the best time, which is upon transition of care. It's videos, it's brochures, it's explanations of why it's in your mother's best interest to use this specialty pharmacy that has engineered a special platform for us to properly administer the meds to your mom.

No, that's great. So maybe shifting gears a little bit, given the strength of your balance sheet, how do we think about capital allocation priorities and how are you thinking about balancing capital between acquisitions, greenfield, and maybe other uses of capital going forward?

We're in a very fortunate position. We have no debt, and we've built since our IPO two years ago when cash was very low, $5 million, I think, up to the nearing $100 million in our last report. So we have the financial wherewithal to pursue our growth plans, either acquisition and or contiguous greenfield startups. And we're fortunate to be in that position.

Maybe let's double click on the greenfield startups for a minute here. What exactly is the strategy? How do you do that? And what are the economics around these greenfields? Because the way we look at it is these are very compelling high ROIC openings. So, yeah, if you can walk us through that.

The way this happens is pharmacy is generally serving a two- to three-hour radius, all the facilities in that radius. And they might begin to serve some facilities that are a little further out. A good example would be Cincinnati and Columbus, Ohio, which is one of our recent contiguous greenfield startups. And at a certain point, there's enough scale to warrant bricks and mortar in Columbus. And that, in turn, gives us a foothold to properly serve that market, other customers as well. There are benefits to growing this way in that we can implement our processes and our systems and our culture from the get-go. But what we have to do is sell to achieve the scale such that we can achieve our corporate profitability. But it's a very, very efficient way to grow. It's capital light, and it allows us to maintain that service level.

And then the other side of your growth is acquisitions. As you said, you've done some acquisitions over the years. You announced one recently here in Nashville. Actually, so if you don't mind just talking about that deal and what that looks like and what it what does it do for Guardian?

Okay, maybe let's start with our typical acquisition because Nautilus is not it's different. So our typical acquisition is a operator who is doing a great job serving their market. But unfortunately, it's very difficult to achieve a significant level of profitability as a single unit operator. We want someone who wants to continue with the business, to grow it, very collegial and open to our, the value adds that we can bring. In that situation, it takes us three, four years to implement the various buckets of improvement that we offer. In short, they fall into the camps of purchasing, where we can help them lower the cost of their drugs, reimbursement where we enjoy better reimbursement tools and data analytics that help them run their pharmacy better and improve their margins and then finally access to national accounts through our national account program that's the typical acquisition target that we're looking for and we've just been so pleased with the operators that we found to join the Guardian family. Most recent couple in the Pacific Northwest are coming along beautifully, and we love to grow that way. Now turning to this most recent announcement, which is Nautilus Pharmacy here in Nashville, In fact, what we're, this is a little different in that we do, this was a pharmacy serving assisted living by mail. And that's very difficult to do. The patients have a high acuity level, a lot of changes, DCs, change of strength, new drugs added. It's very complicated and difficult to serve that way. So what we're going to do is put those facilities that they serve into 18 of our pharmacies around the country. And we're very pleased with the team. We'll be very, very happy to keep much of their team that we're extremely competent. So that's a welcome addition as well. But the actual pharmacy facility itself will discontinue operations.

So, Fred, in something like that, it's pretty synergistic, I'm guessing, right? I mean, basically it's almost like what we call in the retail pharmacy side a patient list acquisition. File buy. Yeah, file buy. Very much so. So is that the right way to think about that?

It is. Now, there was some customer concentration that will require some hiring in a couple of our pharmacies, northern Virginia and here in Tennessee. see, but by and large, we're talking about one, two, or three additional assisted living facilities in these 18 or 16 of the 18 pharmacies, and so the economics of that are very attractive. It's asset light, very accretive quicker than the ... When we intake a new facility, there are costs, upfront costs associated with it, so we have that with this as well, but it'll accrete very quickly.

Sounds good. Maybe I'll move on to the next M&A question. You've been very public about an interest in Omnicare in the past. Obviously, that stocking horse bid ended up winning during the court process.

When we think of the opportunities that that is opening up for you, whether it's winning new business or potentially maybe some acquisition opportunities down the road how are you strategizing around that as you mentioned we were a bitter as well but not for the entire entity and the court for good reasons would pick the stalking horse better that um but we are assuming and i'm to be totally up front and transparent we have had no conversations with the winner the stalking horse winner because the deal hasn't even closed yet uh but we're assuming that they'll be privy to our bid and that some of these assets are non-strategic to them and they may be interested in divesting those. So we're keeping our powder dry and standing by for that possibility. If that doesn't, and or, even if that doesn't manifest itself, once the deal closes, we'll be able to sell. You know, our sales teams can be unleashed to to sell in the pharmacies.

Sounds good. Maybe back to the greenfield discussion as we think about growth. You've made a push into the West Coast recently. How do we think about your goals in terms of geographic expansion?

Well, you can see the areas where we have the need to plant flags. And, yes, the Pacific Northwest was one that we had our very important customers asking us to go there. So that's a major driver of it. And then, of course, a key element of it is having the people and the human capital to either make an acquisition of an existing pharmacy or launch a Greenfield startup. But we're going to continue to do that. Our mission is to build out our footprint across the United States, and there are several remaining pockets of opportunity.

That makes sense. Maybe just since you mentioned that, the manpower or the human capital aspect of your business, you hosted us and a few investors at your Jacksonville facility a month or so ago. And it was very evident to us that localized approach to the relationship building and running the operations if you can walk us through that strategy and why Guardian likes that that approach versus a more centralized or a nationalized approach to operations.

I believe that that's one of our keys to success is the local decision-making close to the customer. We call it our local autonomy model where we vest the general manager or president of our pharmacy along with the functional leaders a great latitude to serve their customers the way their customers want to be served. And that's a core cultural component of Guardian that we value very greatly and will continue. We have to work on that. It requires great people running our pharmacies, which we have. I think people walk away from those pharmacy visits. In Jacksonville, we did another one in Cincinnati, really blown away by the caliber of the teams. And it's such an embedded secret sauce and key component of Guardian's success. I can't tell you how proud I am of the local teams that run these pharmacies. And how important that is to our success.

Yeah, I'll share this with you, Fred. I mean, I think to me the surprise or the, yeah, I'd say the surprise was how close they are with the executive directors at the assisted living facilities, right? So maybe as we think about that, how do you build those relationships? I know you have a sales force, but walk us through the sales process because you call that out as a growth driver.

One of the hardest things for an assisted living ED to do is change pharmacies because it's historically been very difficult. We believe that we have the process and approach that makes it a lot less painful. But the way that the selling process works is to establish a standard of service to be the world class leader in a market and then establish relationships with all the various facilities and wait for that moment when they finally decide that they'd like to change pharmacies and they'll pick us for that. Once we now have a working relationship with an assisted living facility, we also have a team of account managers who I think you'll remember you met. And these people are in these facilities day to day and do establish very close relationships, not only with the caregivers in the facility, but the residents themselves.

Makes a lot of sense. Maybe I'll shift gears here really quickly. Last week, I saw that you filed an 8K about the share lockup. So maybe if you can walk us through that and how should investors be interpreting the lockup that you guys announced?

In short, investors should know that we have been and will continue to be very prudent and measured in liquidity. Our company has a large amount of inside ownership. We have 250 employee owners. Very proud of that. It's a key element of our success. And heretofore, I think you would agree we've been very measured and responsible in the way that we have increased the flow. And we intend to continue to do that. So this particular lockup is an extension of the previous one. It involves the founders. that would be the outside investors and myself and the co-founders of the company, the EOs and the principal employee shareholders. And it really is just a continuation of what we've done since becoming public.

That makes a lot of sense. So we've got a few minutes here left, Fred. I guess I'll pass it to you and leave the floor for you to share any parting thoughts for the audience as they think about the Guardian investment story. And if there's anything you think is underappreciated by the investment community.

I will say that I believe it's very hard for us to communicate and brag about our local teams, but I covered that already. And I think you saw that on the visit. It is really an amazing foundational element of our success. I think the financial profile is interesting with our cash conversion and the fact that we do have a very clean balance sheet with the ability to take advantage of growth opportunities. Those are important things. And the other is that our success is being driven by the value add that we're bringing. I mentioned one element of the value add is getting residents on the proper drug regimen. This accrues greatly to their benefit in terms of better care, better outcomes, and it also helps them financially if we can get them on their pay-yours formulary, lowering their co-pays, et cetera. The other part of the equation is then to make sure they adhere to it, and that's where our tech-enabled platform to help pass the meds safely and effectively and efficiently comes into play. These are very high-value-add services, not only to the facilities and their residents, but also to the payors. So they're deriving great benefit from what we do. And I think over time, as we have been able to establish direct contracts with the payors, we're now in a better position to articulate the value add that we're bringing. And that's accruing to the company's benefit as well.

Well, that's amazing. Fred, thank you so much. Really appreciate your time. You learned a lot from me today. Appreciate it.

Thank you all.