BrightSpring Health Services - Earnings Call - Q4 2024

Executive Summary

• BrightSpring delivered strong Q4 2024 growth: net revenue $3.053B (+28.6% YoY) and Adjusted EBITDA $167M (+17.4% YoY), with diluted EPS $0.08 and Adjusted EPS $0.22; full-year 2024 revenue reached $11.266B (+27.6% YoY) and Adjusted EBITDA $588M.
• Management increased FY 2025 guidance (ex-Community Living): revenue $11.6–$12.1B and Adjusted EBITDA $545–$560M, citing broad-based operational momentum and efficiency programs; divestiture of Community Living to Sevita for $835M expected to close in H2 2025.
• Pharmacy Solutions grew 34% YoY to $2.397B, led by Specialty and Infusion (+42% YoY) and Home & Community Pharmacy (+17% YoY); Provider Services revenue rose 11% to $656M, with segment margin expansion to 15.2% (+70 bps YoY).
• Q4 cash flow from operations was $90M including IPO fees ($116M excluding); net debt ~$2.7B with leverage ratio 4.16x; company targets 2025 run-rate operating cash flows >$300M and deleveraging toward 3.0x–3.5x (LT: 2.0x–2.5x).
• Wall Street consensus estimates via S&P Global were unavailable due to request limits; results vs estimates cannot be assessed (S&P Global data unavailable).

What Went Well and What Went Wrong

What Went Well

• Specialty and Infusion outperformed: “Infusion and Specialty revenue was $1.8B, representing growth of 42%” in Q4, with specialty script growth +35% and turnaround times 10–11 days (“best-in-class”).
• Customer satisfaction and quality: Net Promoter Scores of 98 (Onco360) and 100 (CareMed); Home & Community pharmacy on-time delivery ~97%; 85% of Home Health branches predicted 4–5 stars; Hospice care index 9.3/10.
• Provider margin expansion: Provider Services Adjusted EBITDA margin reached 15.2% in Q4 (+70 bps YoY), driven by quality-based volume growth and efficiency execution.

What Went Wrong

• Mix pressure in Pharmacy margins: company noted lower margins tied to outsized Specialty growth; Pharmacy segment Adjusted EBITDA margin was 4.7% in Q4, “in line with expectations,” with focus on reducing OpEx per script in Home & Community and Infusion.
• Ongoing exposure to regulatory dynamics: IRA remains a swing factor; management cited the need for CMS true-up mechanics (MFP to WACC) on eight drugs to avoid margin harm in long-term care pharmacy; potential downside of “a couple percent of EBITDA” if unresolved, which they expect to grow through.
• Leverage remains elevated: net debt ~$2.7B and leverage ratio 4.16x at YE; near-term deleveraging depends on execution, operating cash flows, and Community Living sale proceeds.

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to the BrightSpring Health Services Inc. Fourth Quarter and Full Year 2024 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, David Deuchler, Investor Relations. Please go ahead.

David Deuchler (Head of Investor Relations)

Good morning. Thank you for participating in today's conference call. My name is David Deuchler, and I'm responsible for investor relations at 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 and full year ended December 31st, 2024. 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 forward-looking statements that reflect our current assumptions and expectations, including those related to our future financial performance, 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 our annual report, Form 10-K, filed with the SEC, including specific risk factors and uncertainties discussed in our 10-K. 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 performance and financial condition. You can find additional information on these non-GAAP financial measures and reconciliations to their most directly comparable GAAP financial measures to the extent available without unreasonable effort in today's 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.

With that, I'll turn the call over to Jon Rousseau, Chief Executive Officer.

Jon Rousseau (CEO)

Good morning. Thank you for joining BrightSpring's Fourth Quarter and Full Year 2024 earnings call. I'd like to begin this call by expressing my appreciation and gratitude to and for the BrightSpring team across the country. Our employees and caregivers work very hard with diligence each day to deliver compassionate and attentive care to the people we provide critical services to. I would also like to welcome Jen Phipps as Chief Financial Officer and thank Jim Mattingly for his excellent service over the years as we transitioned the CFO position. During Jim's tenure, the company has achieved some exceptional results, including the sale and recapitalization to KKR and WBA, 175% revenue, and 109% EBITDA growth since that time, implementation of best-in-class financial systems, completing the IPO, and executing multiple successful refinancings underpinned by the company's performance.

We appreciate all of Jim's leadership and contributions as he moves to other priorities and next steps. After appropriate and thorough consideration and evaluation, we are extremely pleased that Jen will assume the role of Chief Financial Officer. With Jen's overall background and eight-year tenure at BrightSpring, she is extremely well-suited for this role. Jen has served as the Chief Accounting Officer at the company since January 2017 and Principal Accounting Officer since the IPO. Jen has also served as the CFO of the home health and hospice business, and she has run numerous other departments within the company, including procurement, real estate, and tax. She has been deeply involved in all financial systems and processes over the years, as well as all acquisitions and divestitures and many automation and efficiency initiatives. Jen is well-prepared, knows the entirety of the company, and is very deserving of this position.

Turning to 2024, it was another year of milestones, continued quality improvements in leadership, further growth, and significant ongoing impact for the customers, patients, and communities that BrightSpring serves, and we are proud of how our businesses and people have performed. Throughout 2024, we have also deepened our focus on operational efficiencies across the organization to best support employee effectiveness and high-quality services. In addressing significant needs for individuals across the country, the company has increased its reach to more patients and delivered strong growth across both pharmacy and provider businesses through strategic prioritization, disciplined investments, company scale, and execution. Our results are ultimately a reflection of the reliable, relatively lower cost, and coordinated care that drive high customer and patient satisfaction rates.

In the fourth quarter, we are pleased to have realized total revenue growth of 29% year-over-year, leading to total company and segment revenues for full year 2024 at the high end of our guidance range and in line with our preliminary results provided in January. Total revenue of $11.3 billion in 2024 represented 28% growth year-over-year, which included Pharmacy Solutions revenue of $8.8 billion and provider services revenue of $2.5 billion, representing 34% and 9% growth year-over-year, respectively. Full year 2024 Adjusted EBITDA was $588 million, representing 16% growth year-over-year when excluding a certain $30 million Quality Incentive Payment from 2023. Adjusted EBITDA also came in at the high end of our guidance range and in line with preliminary 2024 results communicated in January.

Today, we are increasing total revenue and Adjusted EBITDA guidance for 2025, with our Adjusted EBITDA guidance for this year increasing by $5 million at each of the low and high ends of the prior range provided in January, and which excludes the community living business. We announced in January that we entered into a definitive agreement to divest the community living business to Sevita and expect the transaction to close this year, subject to regulatory approvals and typical closing conditions. Jen will discuss our fourth quarter and full year 2024 financial results, along with our 2025 outlook in more detail shortly. Before I discuss business performance, I would like to further reinforce our commitment to both quality and continuous improvement and efficiencies across the organization, which go hand in hand.

For example, in quality, our most recent net promoter scores in specialty pharmacy for Onco360 and CareMed were 98 and 100, respectively, almost a perfect rating for Onco360 and a perfect 10 out of 10 rating for CareMed from all participants. Also scores that are the best among specialty pharmacies. After the past year of investments in people and process in our infusion business, we are now seeing best-in-class referral to in-home turnaround times for specialty patients. Our home and community pharmacy on-time delivery metrics approach 97%. Approximately 85% of our home health branches now have a predicted CMS star rating of four or five out of five, and we have 97% timely initiation of care above industry average.

In hospice, we have a 9.3 Hospice Care Index score out of 10, significantly above the national average, and we provide 16% more nursing visits to patients and 27% more patient visits in the last week of life, with 90% of our locations above national average on visits provided to patients. In primary care, our ACO is reporting 13% lower healthcare costs for patients in skilled nursing facilities and 31% lower costs for patients in assisted living through our more attentive, local, and proactive care and quality, and our special needs plan has already improved its star rating by 0.5 in less than a year under our ownership, with a 6% reduction in hospitalizations in the last year, a 99% capture rate for health risk assessments, and 99% of our patients receiving annual wellness visits within 90 days of enrollment.

In personal care, we have a likelihood to recommend of 4.54 out of 5. In rehab, we have overall stakeholder satisfaction of over 97% among case managers, discharge planners, physicians, claims managers, etc., and we have a patient satisfaction score of over 95%. In community living, our external audits outperform the national average, and we hold more third-party accreditations than anyone in the industry, while we have deployed innovative and leading technologies to drive client risk stratification and care plans. These are just some select mentions and highlights among many other strong and leading service and quality measures in the company. Across the organization, we continue to invest in and deploy new and/or enhanced technologies, EMRs, ERPs, applications, and analytics and reporting, numerous of which now incorporate new automation and AI use cases to the benefit of our people and to drive outcomes for the individuals we serve.

We also continue to invest heavily in compliance, with literally thousands of on-site internal compliance visits and audits conducted across our operations last year. On the efficiency front, since the start of last year, the company has over 100 procurement, workflow augmentation, and automation programs completed or ongoing, driving process improvements, cost efficiencies, best practices, and streamlining across all business lines. We are more dedicated than ever to lean into process and technology innovation and leadership in healthcare services and provide all of our stakeholders with the best possible experiences over the years. Now, taking a closer look at fourth quarter results, Pharmacy Solutions revenue of $2.4 billion represented 34% growth compared with the fourth quarter of last year. Growth for the business was primarily driven by total script volume of 11 million in the fourth quarter, which represented 14% growth compared to the prior year's quarter.

The infusion and specialty business has continued to deliver above expectations, growing revenue 42% year-over-year in the quarter, driven by specialty script growth of 35%. Our results in specialty and infusion this quarter and throughout the year have been a function of cross-functional operational execution and continued LDD brand launches and generic drug utilization. Our total LDD portfolio now stands at 125, which includes 12 LDDs launched in 2024 in either an exclusive or ultra-narrow pharmacy network. We continue to see the potential for an additional 16-18 limited distribution drug launches over the next 12-18 months, while also facilitating the adoption of new generic products.

We are honored that we are selected by our pharma manufacturing and biotech partners as a limited distribution drug specialty pharmacy for each of these therapies and are committed to helping and improving the lives of patients who are battling cancer, rare, orphan, neuro, and a number of other diseases through market-leading service levels and satisfaction scores. Within infusion, in 2023 and through 2024, we initiated and completed operational initiatives and investments to deploy standardizations and process improvements, and we believe that results in the infusion subsegment will begin to benefit from these investments in 2025. In home and community pharmacy, revenue grew 17% year-over-year in the fourth quarter, driven by script growth and new customer wins.

We continue to be pleased with our execution across a variety of home and community pharmacy settings, including behavioral, hospice, assisted living, skilled nursing, hospital, and rehab settings, as well as other locations where patients need at-home pharmacy support. We believe we have an additional market share and growth potential opportunity in all of these markets, and we will also be entering the PACE pharmacy market this year. We remain focused on driving more operational and technology-driven efficiencies in the business, and the continued expansion of our pharmacy services is important to ensuring that as many people as possible receive the highest quality and most comprehensive medication management and care.

Turning to provider services, segment revenue grew 11% year-over-year, and segment Adjusted EBITDA margin expanded by 70 basis points year-over-year to 15.2% in the fourth quarter, which was primarily driven by strong service and quality-based volume growth and broad-based operational efficiency and execution. In home healthcare, revenue grew at a rate of 17% year-over-year in the fourth quarter, with Average Daily Census growth of 9% to 46,000. We saw continued growth in the home health and hospice businesses, both in the fourth quarter and for the full year 2024. Personal care has been a consistent performer this year as well, with steady billable hours and very consistent operational execution.

Our primary care business has seen expansion and growth, where we leverage proximity and access to patients, including through core pharmacy and provider services, and we believe home-based primary care represents a significant opportunity in the coming years, with ACO and payer strategies continuing to develop. Community and rehab care also performed well again in the quarter, with strong revenue growth of 8% year-over-year and consistent growth in rehab persons and hours served. In the rehab business, billable hours grew in the mid-teens year-over-year for the fourth quarter and full year. We continue to add numerous de novos through new home and community neuro rehab programs and new Rehab in Motion programs in assisted living facilities, and we anticipate attractive growth from Rehab in Motion over the next five years as we continue to add locations.

The community living business has shown solid growth through 2024 through operational continuity, a service focus, and continued investments in technology and employees. As I mentioned earlier, the divestiture of community living remains on track, anticipated to close in the second half of 2025, subject to customary regulatory approvals and closing conditions. We expect that the transaction will create a streamlined organization of BrightSpring and augment both provider services and company revenue and Adjusted EBITDA growth rates. Our strategic focus in provider will narrow to the remaining home healthcare, rehab, and personal care businesses, each of which continues to perform in line with our high expectations. Consistent with the announced divestiture of community living, our capital allocation priorities remain on both debt paydown and continued tuck-in acquisitions at disciplined valuations, consistent with our prior strategy.

To summarize, 2024 was an excellent year for BrightSpring, and I'm pleased with our execution so far in 2025, as we always continue to look for any ways to serve more people and improve their outcomes with mission-driven and meaningful services. We are focused on delivering on our 2025 financial outlook through quality, volume growth, process optimizations and cost efficiencies, accretive acquisitions, and effective portfolio and asset management and deployment. With that, I'll turn the call over to Jen to discuss our 2024 fourth quarter and full year financial results and 2025 guidance in more detail.

Jen Phipps (CFO)

Thank you, Jon. In the fourth quarter of 2024, the total company revenue was $3.1 billion, representing 29% growth from the prior year period. Pharmacy Solution segment revenue in the quarter was $2.4 billion, achieving 34% year-over-year growth.

Within the pharmacy segment, infusion and specialty revenue was $1.8 billion, representing growth of 42% from prior year, and home and community pharmacy revenue was $601 million, representing growth of 17% year-over-year. In the provider services segment, we reported revenue of $656 million in the fourth quarter, which represented 11% growth compared to the prior year period. Within the provider services segment, home healthcare reported $280 million in revenue, growing 17% versus last year, and community and rehab care revenue was $376 million, representing growth of 8% year-over-year. For the full year 2024, total company revenue was $11.3 billion, representing 28% growth from 2023. Pharmacy Solution segment revenue was $8.8 billion, representing 34% growth from the prior year, and provider services segment revenue was $2.5 billion, also representing very strong 9% growth from the prior year.

Moving down the P&L, in Q4, company gross profit was $422 million, representing growth of 14% compared with the fourth quarter of last year. For full year 2024, company gross profit was $1.588 billion, representing growth of 13% compared to 2023 when excluding a $30 million quality incentive payment. Adjusted EBITDA for total company was $167 million in the fourth quarter, growing 17% compared to the fourth quarter of 2023. For full year 2024, adjusted EBITDA for the company was $588 million, representing 16% growth compared to 2023 when excluding a certain $30 million QIP in 2023. Adjusted EPS for the total company was $0.22 for the fourth quarter. Turning back to segment performance in the fourth quarter, Pharmacy Solutions gross profit was $205 million, growing 20% compared to the fourth quarter of last year.

Adjusted EBITDA for Pharmacy Solutions was $113 million for the fourth quarter, growing 22% compared to last year, representing an adjusted EBITDA margin of 4.7%, which was in line with our expectations. Provider services gross profit was $217 million, growing 10% versus the fourth quarter of last year. Adjusted EBITDA for provider services was $99 million for the fourth quarter, growing 16% versus last year, representing an adjusted EBITDA margin of 15.2%, up 70 basis points versus last year. On a total company basis, cash flow from operations was $116 million in the fourth quarter, excluding IPO fees paid in Q4, and $90 million of cash flow from operations in the quarter, including these fees.

We expect to deliver over $300 million of annual run rate operating cash flows in 2025, as we remain focused on improving our leverage ratio towards our pro forma goal of 3.0-3.5 times and our now long-term target of 2-2.5 times. As of December 31st, our net debt outstanding is approximately $2.7 billion with a leverage ratio of 4.16 times, which was in line with our internal projections. As a reminder, net interest expense includes interest income related to cash flow hedges due to our three receive-variable, pay-fixed interest rate swap agreements that we have in place, set to mature on September 30th, 2025. Prior to any proceeds from the pending community living divestiture, quarterly interest expense is expected to be approximately $43 million per quarter, including approximately $1.2 million in interest expense related to the TEU instrument.

Turning to our guidance for 2025, we are increasing our expectations for revenue and Adjusted EBITDA that was provided in January, which excludes the community living business. Total revenue is expected to be in the range of $11.6 billion-$12.1 billion, including Pharmacy Solutions revenue of $10.15 billion-$10.6 billion, and provider services revenue of $1.45 billion-$1.5 billion. This revenue range reflects 15.2%-20.1% growth over full year 2024, excluding community living in both years. Total Adjusted EBITDA is expected to be in the range of $545 million-$560 million for full year 2025. This would reflect 18.4%-21.7% growth over full year 2024, excluding community living in both years. With that, I will now turn it back to Jon.

Jon Rousseau (CEO)

Thank you, Jen, and thank you for your time today to go through BrightSpring's fourth quarter results and 2025 outlook. We will now open it up for questions. Operator?

Operator (participant)

Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. And our first question comes from A.J. Rice of UBS. Your line is open.

A.J. Rice (Managing Director)

Hi, everybody. Congratulations, Jen, best wishes in the new role. When you think about your limited distribution drug business and pipeline, it seems like you guys are seeing more exclusivity, fewer and fewer people are getting the contracts you're getting with less and less competition. I know some of that is obviously the strength of your franchise and what you've done, but I also wonder, is there any changes in the competitive landscape? Obviously, the pipeline of new LDDs continues to look robust, but it seems like you might be capturing more of those or getting more narrow contracts. Can you just comment on that?

Jon Rousseau (CEO)

Yeah. Good morning, A.J. Thank you. No, nothing material has shifted in the market, and we've had about a 10 to 15-year history with our team of really focusing on operational process and service levels for our partners. Here in the most recent quarter, we pulsed the market on net promoter scores, and we actually had 100 and a 98 net promoter score for CareMed, which is really the non-oncology, and then Onco360 in satisfaction ratings, which we were obviously incredibly pleased with.

So the team has just done a nice job of servicing our partners over the years, and there is a general trend to more and more, I would say, more niche micro therapies in the market, and perhaps there's something there in terms of partners being more and more comfortable with fewer and fewer pharmacies serving those niche targeted populations. But we have seen a trend towards the narrowing of networks, and we've been pleased that we've been able to continue to be a strong and chosen partner through that process.

A.J. Rice (Managing Director)

Okay. Then a couple of times you mentioned the prepared remarks about the investments you've made over the last 18-24 months in the infusion business, and you sort of feel like it's positioned to grow from here. I wonder if we could get you to talk a little bit more about the opportunity now, what the growth trajectory might look like for that business, as well as where you're at with respect to margin and what level of upside there might be on margin at this point.

Jon Rousseau (CEO)

Yeah. No, good question. Just tying off the LDD point there as well. In 2025, we've now launched two LDDs so far this year in the first two months, so good to see that momentum happening in the first part of the year too, and importantly, a handful, three or so of our more recent launches have been in the rare and orphan category, as we continue to not only focus on oncology, but more and more other relevant indications where we can apply our operating model similarly.

On infusion, certainly the last two years, as has been mentioned multiple times, there has been a real focus on the business operationally, trying to implement more commonality and standardization across the 30-plus infusion pharmacies across the country, really trying to apply best practices and really balance what gets more centralized and what stays more local. That's a critical decision in infusion, and we've been very thoughtful about that. We generally have a totally new team there at infusion. Over the last, I would say, six to seven months, that team has been locked in in its entirety for a good six months or so now, and we are seeing really good progress, whether it's on the operational front, whether it's on the AR and bad debt front.

Things are really trending in the right direction, and from here, we need to just focus on now starting to drive more referrals again as we've been more focused operationally over the last 18 months. But a key metric in that industry is turnaround time. How fast can you get a referral and then get the patient through the process and be ready to schedule them in the home on the specialty side, not acute on the specialty side? And for us, we're seeing 10-11-day turnaround times in the last three or four months as a result of all of our efforts, which would be generally best in class in that industry. So we're excited about where that can go. Infusion, we believe, is a market with a ton of opportunity looking ahead.

We're hopeful that that business could grow above 20% this year on a growth rate basis, and that's what we're pushing for. I think longer term, I think staying in that range or even above is our internal goal. But 2025 will be an important year for us to get back to growth mode there.

A.J. Rice (Managing Director)

Okay. All right. Thanks a lot.

Operator (participant)

Thank you. Our next question comes from Whit Mayo of Leerink. Your line is open.

Whit Mayo (Senior Managing Director and Senior Research Analyst)

Hey, thanks, guys. I think in the past, you've talked about a lot of internal operating cost-saving and efficiency opportunities, maybe 60 different projects or programs that you've had kind of in flight. I think you recently rebid your wholesalers. Just maybe any sense on the cumulative savings from a lot of these initiatives and the opportunity on the margin side for this year?

Jon Rousseau (CEO)

Yeah. Good morning, Whit. I would say it's really amalgamation across a lot of different areas of our company. Fundamentally, we have for a very long time had a lean and PMO focus in the organization, just driving process and cost opportunities. We really put that in place going back about eight years ago, and it really cuts across procurement well beyond anything like drug spend. I mean, medical supplies, delivery, just go down the list, all across IT. We're very focused in that area and then we just look at processes across the organization from an RPA, from an automation perspective as well, so you think about something like onboarding of all of our new employees. That's something that we're leaning into and trying to automate a lot of touchpoints in that process.

You look at something like scheduling instead of a human being trying to figure out schedules across 100 nurses and 100 patients in a city and what's the most efficient route, doing that in an automated way. We have a process going on there right now as well. So it really just cuts across almost everything in our company: rev cycle. Where can you eliminate things that can easily be replicated in a more automatic way versus hands touching everything? We're literally looking at every function in our company. And I would say just the attention and the focus to that, while it's been going on for eight years, I would say, has really deepened in the last eight years. We're leaning into AI applications now as well. We'll see about that, as a lot of people will. A lot of AI today is just sort of glorified scribing.

You have the obvious chat stuff, but even in new EMRs, we're looking at within some of the provider side. It's the idea that the EMR can be the doctor, and there's recommendations coming out of that, and there's chart prepopulating going on that's driving a ton of efficiency. These are the things that we have a BPO, a business process optimization team, that works across everywhere in our organization. I would say the cumulative result of literally, it's been now over 100 projects, actually, as we look back over the last 15 months. The cumulative result of all of those was a helpful driver to our EBITDA last year, but not even necessarily EBITDA. A lot of the proceeds from those efficiencies we're driving just go right back into the business, whether it's IT, compliance, quality, sales, and marketing, hiring great people, etc.

So you drive a lot of these efficiencies for quality, and just running good process in an organization. Some of the benefit of that does drop to EBITDA, but a lot of it goes back into reinvesting for future growth and winning in the future as well. But certainly, getting into the eight figures, there has been a benefit of that to EBITDA last year, and a lot of these things happen later in the year, and they'll happen even a lot of these happened later last year, and more will happen this year. So we expect to see continued contribution from that program in 2025. And this we've always tried to, and we'll continue to try to make this a hallmark of the organization.

Whit Mayo (Senior Managing Director and Senior Research Analyst)

No, that's helpful. And maybe just wondering how you're feeling about home health and hospice, really on the development side. There's maybe some distraction with some of your peers tied up with acquisitions or whatnot, and just wondering how you're thinking about the potential development opportunity over the next year or so. Thanks.

Jon Rousseau (CEO)

Yeah. Home health and hospice is a market that we're certainly committed to and have been for the last four or five years as we've really sought to build that out. I mean, you go back five years ago, we really had nothing. And in 2024, home health and hospice revenue was $600 million. That's a business we'd like to double in the next five years and potentially more. But it's an area of focus. I think we see, hopefully, a more conducive reimbursement environment on the home health side going forward. I think we're hearing things from DC where a lot of people acknowledge that there does need to be more support there.

Ultimately, the ROI data for home health in terms of the outcomes it can drive for people, keeping them out of hospitals, lowering mortality rates, has never been more positive. Interestingly, and it still has to be worked through, we're talking to several more of the innovative payers leaning in on enhanced rates, but there's a quality component to that, and that's fair, and that's the way it should be, and we're leaning into those conversations, and we're pleased that we feel like we're at the table on those because of our quality. We got started in home health through some acquisitions. It's been more of an organic push over the last couple of years, but we inherited a lot of branches early on, which didn't have the world's best star ratings.

And what's been really pleasing to me is, if you look back about three or four years ago, because of that history, we probably had about 15-20% of the branches with four stars or better out of five. We're now up to about 85%. And so that is just really tremendous performance on the quality side. And so we're trying to have a lot of interesting conversations with MA that could result in enhanced rates for the outcomes we're delivering, but you have to prove that quality out. So that's exciting. And then on the hospice side, the benefit is just so obvious, and the data is so clear on hospice being obviously an incredible experience for the family with patient satisfaction rates above 99%, but really a lot of data that shows that hospice is ultimately a cost reducer for the system.

We've got a nice platform there. Still today, about two-thirds of our business mix between home health and hospice is on the latter. For us, really, really strong quality, as I mentioned in some of our comments on the call earlier. For us, it's just trying to provide as much access to people as possible through our clinical liaisons in the field every day, driving referrals for that terrific service.

Whit Mayo (Senior Managing Director and Senior Research Analyst)

Thanks.

Operator (participant)

Thank you. Our next question comes from Brian Tanquilut of Jefferies. Your line is open.

Brian Tanquilut (Equity Analyst)

Hey, good morning, guys. Congrats on the quarter and the year, and congrats on the promotion. Maybe, Jon, as I think about your prepared remarks, clearly growth has been really good and seems to be tracking well. So as we think about maybe the sustainability of these growth rates or just these elevated growth levels, and with community out of the picture now, how should we be thinking about your view on blended growth going forward?

Jon Rousseau (CEO)

Yeah. Good morning, Brian. We have at this point going on in eight, it'll be a nine-year track record at this point of demonstrating double-digit top and bottom line growth in the organization. So nothing about that will certainly change going forward if the community living divestiture occurs and everything there at present is just working through the process in a very expected and normal way at this point in time. That enhances our growth rate from an Adjusted EBITDA standpoint, about 5% or 6% as we see it going forward.

In 2025, there was a couple % growth as you pro forma that for 2024, but as we look forward, probably more of a 5, 6, 7% uptick in our growth rate going forward. As we look out at least to next year, I think we feel very good about this year and the guidance we've put out there, which we obviously raised today. As we think about next year, there would be nothing that would change our view of a similar growth rate as this year for next year. But some of the things in D.C. need to play out, and there's just certain things that we just do not have visibility into yet. It's really just principally IRA and how that plays out.

That's not going to have a massive impact one way or another on our performance in 2026, but certainly, there is a couple points up and down based on how that ultimately plays out. And we continue to feel like the pharmacy industry will be well protected through that process, but it needs to play out over the balance of the year. But what we can sit here and tell you is that in a fairly steady-state exogenous environment, we don't see a whole lot changing. And our focus in the organization has been to drive quality through very strong operational infrastructure, drive efficiency and lean processes, and leverage all that with great people, reach as many people as you can, and continue to drive volume above market growth rates.

That's been the playbook for the last five or six years in particular, and we will continue to drive that playbook in the future. So, as always, there are some things in the external environment that need to play out. But in terms of what we can control and in a fairly steady environment as it looks today, we're very confident in continuing to drive the level of growth that we see in the business this year.

Brian Tanquilut (Equity Analyst)

That makes a lot of sense. And then maybe, Jon, just to follow up on A.J.'s question earlier on infusion, as we think about your current existing markets and then maybe thinking about the mix of business that you have in terms of being heavy on the acute versus chronic, just trying to think about the dynamics that we are seeing or we should be expecting in that infusion business for the year? Thanks.

Jon Rousseau (CEO)

Yeah. That is a good point and something we've talked about before. It's a good characterization of our business. I would say we probably are a little bit more tilted towards acute versus chronic, and especially in the infusion space versus what you might see in the broader landscape of some providers out there. Certainly, if anybody were to exit any markets on the acute side, that's helpful. The acute margin is something that is one that we are fine with. And we believe that if you have a broader set of services to payers, that is more well-received and welcome with payers, and it ultimately will help us nurture and cultivate better and deeper relationships with payers over time. So acute is a market that we are committed to. There is volume there. There is nothing about acute therapies that is changing anytime soon.

And so we like the idea of just growing more market share. I think what that ultimately says on the chronic and specialty side is that we've got, hopefully, real opportunity there versus where some other people are today. And as I mentioned, really pleasing to see some of these turnaround times on specialty, which is really the linchpin for that business. How quickly can you manage people through the process? That's what referral sources care about. And we'll really deepen our focus on the specialty growth side this year. We would be very disappointed if specialty isn't growing well into the 20% range and above going forward.

Operator (participant)

Thank you. And our next question comes from David Larsen of BTIG. Your line is open.

David Larsen (Healthcare IT and Digital Health Analyst)

Hey, congratulations on another very good quarter. Jon, can you maybe talk a little bit about the ACO arrangements that you're involved in? I mean, one of the things I've always liked about your business is that you're in what people call the post-acute space. It's lower cost in the acute care environment. But at the same time, a lot of investors are maybe a little bit wary of anything that says ACO or value-based care, given how some of the stocks in the sector have kind of performed over the past year. So can you maybe just talk about your approach to it? Your volumes and your pricing looked great on the provider side. So thanks very much.

Jon Rousseau (CEO)

Yeah. Thank you, David. Two quick points on that. For us, building out the home-based primary care was really an augmentation and complementary to our pharmacy and provider services and just allowing us to ultimately better manage outcomes for patients.

Really, secondarily, there is an economic stream there if you can get more appropriately compensated for the great outcomes that you're providing. Otherwise, the incredible quality work you're doing is endearing to everybody else in the system. And so those were really the two driving forces of the logic. I would say for us, anything around ACO is purely upside. There is zero downside there. It is purely upside. And so amongst our patients that we serve across assisted living, skilled nursing facilities, and some people in their own homes with our home-based primary care, the subset of those that would be straight Medicare patients, we have a partnership with another organization to get an ACO capability. Last year was the first year of that. And nine months after last year, so October 1st of this year, we will receive ultimately what our performance was from Medicare.

But we do have line of sight into our outcomes and what's happening on the cost side, albeit with a little bit of a delay, with about a quarterly delay. But we're pleased with what we're seeing in terms of our ability to drive outcomes and cost reduction versus the benchmark. And so we would expect the shared savings to be realized this year. We are just being conservative until we get through the first actualization of what those results were. But we've got about 15-16 thousand patients today. A subset of those are in the ACO. And our focus in home-based primary care is how do we continue to drive that incredibly valuable service to as many patients as we can and get them in the ACO so that we can drive more and more shared savings.

We've said before our five- to seven-year goal is how are we serving at least 100,000 or more people? That's what we're working towards.

David Larsen (Healthcare IT and Digital Health Analyst)

Okay. Great. And then just one more quick one. In terms of specialty pricing, looks like your specialty revenue growth is very good. Is there anything in your mind that could slow that down? And obviously, a tailwind for the overall organization, the pricing increases, right?

Jon Rousseau (CEO)

Yeah. We've seen overall stability in the market for specialty. Ultimately, your revenue per script and your margin in that business is really a function of about 150 different drugs, some brands, some generics at different parts of their life cycle.

And so, but just given the diversity of that portfolio and the complementary nature of brands and generics, we've just ultimately seen all of that come out of the bottom of the bucket, if you will, in just a very steady way year-over-year. We do everything we can, not only to provide great outcomes to manufacturers, but those great outcomes are really focused on being the best partner we can for the PBMs and the payers and their members as well. So they get the best outcomes possible. And we're as focused on our payer and PBM partners and nurturing great relationships with them as anybody. And those have been really stable over time. And we're very thankful for that. And our team's got a long history of working with stakeholders across the value chain, and that's been very consistent.

David Larsen (Healthcare IT and Digital Health Analyst)

Great. I'll hop back in the queue next quarter.

Operator (participant)

Thank you. And as a reminder, please limit yourself to one question. Our next question comes from Joanna Gajuk of Bank of America Securities. Your line is open.

Joanna Gajuk (Equity Research Analyst)

Hey, good morning. Thanks so much. So I guess my question will be around the IRA. So just following up on the answer you gave earlier to the question about long-term outlook for growth after '25. So what do you mean by there's a downside risk there? What would need to happen for this to be a headwind in the IRA? Because I guess there's obviously the price reductions, but then there's some Part D redesign under the IRA. And in the past, we spoke about this being a tailwind to the company as utilization increases. So just trying to understand the different dynamics and what would need to happen that you're referring to in terms of the IRA being a swing factor.

Jon Rousseau (CEO)

Yeah. Good morning, Joanna. There's two pieces there. So in IRA, one of it is lowering the out-of-pocket for patients. Certainly, anything that makes drugs more affordable is helpful for patients. It's helpful for the utilization of specialty medications for them and increasing patients on therapy. So that's helpful. The second point, and it's really for us focused on our home and community pharmacy, there's eight drugs there on the IRA list for 2025. And we just have to see that play out. What CMS issued guidance on last October endorsed using a true-up on the MFP to WAC. So as your reimbursement moves to MFP on those eight drugs, getting a true-up on that to WAC.

So those drugs certainly would not be negative in margin. And the discussion this year is all around what's going to be the mechanism to ensure those specific eight drugs have an appropriate and current margin to them. And I think there is a ton of support around the logic for that and needing to do that in DC and at CMS. It was literally written into IRA. This is not intended to harm any pharmacies. Pharmacies are the last mile to the home, and they have to be more or less held harmless to continue to be that last mile. And so we're optimistic about how all this will play out. But it needs to play out this year.

And with a lot going on in D.C. in the last two months, I think we just have to see how this plays out further into the year. I think what I've said before is this is a swing factor on the downside of a couple% of EBITDA, which we would fully expect to grow through given growth in the other parts of our company. That's really the benefit of our complementary but diversified organization with a lot of different growth drivers. And we would be very confident that something like that, we would just absorb. That said, we are very focused and think what is fair is for there to be a proper resolution for the long-term care pharmacy industry around these drugs and having a fix for that. And that's what the industry is focused on. And we see a lot of support for it.

But those mechanisms need to play out through the balance of the year.

Operator (participant)

Thank you.

Joanna Gajuk (Equity Research Analyst)

Thank you so much.

Operator (participant)

And our next question comes from Erin Wright of Morgan Stanley. Your line is open.

Erin Wright (Research Analyst)

Great. Thanks. So following the community divestiture, which made sense to us, but are there other areas that you would be looking to refine in terms of the business mix? And how do you think about that in contrast with the efforts to better integrate the offering from a provider and pharmacy standpoint? And then I'll just ask my second question upfront too, which is just on the government business as well. You mentioned kind of part D, but I wanted to ask about Medicaid, just how you're thinking about the exposure there. Obviously, it comes down with the divestiture. But can you walk us through some of the potential risk factors as well as how you're just thinking about the outlook for that group given the unknowns in terms of that backdrop right now? Thanks.

Jon Rousseau (CEO)

Yeah. No, the streamlining of our organization post the community living divestiture, assuming that closes, I think that gives us with a very tight set of pharmacy and provider services and a platform that we think is very unique and advantaged in a lot of ways in healthcare services. We view that as a terrific platform for the future. From a Medicaid standpoint, Trump and the Trump administration have said that they do not see touching Medicaid or Medicare. That's what they've said so far. The House Republicans are certainly talking about other things.

Notwithstanding that the populations we serve would not be in the conversations for some of that Medicaid discussion in the House. The folks that we're serving, seniors and people with disabilities, that is very, very different from things being discussed with work requirements for the general population of otherwise healthy people on Medicaid. Our populations are very different and not in the relevancy and the context of those conversations. Thank you.

Erin Wright (Research Analyst)

Okay. Thank you.

Operator (participant)

Thank you. And our next question comes from Jamie Perse of Goldman Sachs. Your line is open.

Jamie Perse (Research Associate of Medical Technology)

Hey, thank you. Good morning and congrats to Jen. I guess I wanted to start. Can you help us think through OpEx investments needed to sustain growth in both businesses in 2025? And then just how much does that level of investment scale up or down based on top-line growth? Just trying to think through incremental margins below gross profit.

Jon Rousseau (CEO)

Yeah. I think we've certainly got some, hey, Jamie, I think we've certainly got some leverage in our business without a doubt. I mean, I spoke to a lot of the efficiency projects that are a part of our program. We'll continue to get a little bit of a tailwind from those this year. And every year, I think we would fully expect as we continue to grow top-line in the future, we are going to realize more margin opportunity. And we have seen our OpEx per script on the pharmacy side generally trend down in key areas. But if you look back historically, the primary impact to any margin has just been our mix with outsized growth in specialty. And I've said before that home and community pharmacy and infusion pharmacy have OpEx per script opportunities.

And we fully expect to see OpEx per script in those two businesses go down this year as we scale volume. On the provider side, we've continued to leverage fixed costs there. I think as you look at the company over this year and next year, outside of any mixed impacts, we fully expect to get some improvement incrementally on leveraging our cost base and some margin uptick as we move forward.

Jamie Perse (Research Associate of Medical Technology)

Okay. And then just thinking about your new pro forma leverage targets for the year, which is obviously quicker deleveraging than we had contemplated before the divestiture. Can you just update us on how you plan to allocate that in terms of pure debt pay down versus M&A and just any color you can provide on the M&A pipeline or environment?

Jon Rousseau (CEO)

Yeah. I think the current thinking is either with or without the funds from a community living divestiture, our base case would be some $100 million for M&A spend. And if the community living divestiture happens, it's about 0.3 times deleveraging on a net basis. And we put out guidance of more long-term two to two and a half at this point in time because if we do execute through this year and we start to get under three and a half times, our goal would then shift to two and a half times from a longer-term perspective.

Jamie Perse (Research Associate of Medical Technology)

Great. Thank you.

Operator (participant)

Thank you. And our next question comes from Pito Chickering of Deutsche Bank. Your line is open.

Pito Chickering (Research Analyst)

Hey, good morning, guys. Can you circle back to that rare and orphan opportunity that you're talking about with A.J.?I think historically, a big part of his strength, the specialty, has been the deep ties with oncologists, which has made you the partner of choice with new drugs and then obviously as they go generic. So transitioning into rare and orphan seems, I guess, to me, maybe a pivot away from oncology. So can you talk about why you can be successful in that new area after being so successful in oncology?

Jon Rousseau (CEO)

Yeah. I would say nothing about our focus on oncology changes whatsoever. It just happens that really everything that's required for you to be very successful and to service your payer members and biotech and pharma partners and all of the patients from an oncology perspective really directly applies to rare and orphan too.

And Pito, for us, that's purely sitting back and saying, "What other therapies can we also pursue that are going to leverage our critical success factors that we have in place today?" And so we specifically look for those therapy opportunities in the pipeline where we can apply all of our similar best practices to those areas and just continue to expand within the therapeutic space. I would say that takes nothing away from oncology. And it's really what is most closely peripheral and adjacent to oncology that is also opportunities. And our team has clearly demonstrated the ability to continue to execute on as many relevant therapies as possible and drive that growth with the bandwidth that we have.

Pito Chickering (Research Analyst)

Great. Thanks so much.

Operator (participant)

Thank you. And our next question comes from Stephen Baxter of Wells Fargo. Your line is open.

Stephen Baxter (Executive Director and Senior Equity Analyst)

Hey, thank you for the question. I just wanted to follow up a little bit on the margin side of things. The segment level, it sounds like you might expect a little bit more improvement in provider margins as we move through 2025. But can you speak a little about the pace of margin change in the pharmacy business? You obviously had a pretty big step down, and it's all in a function of mix. Just wondering if we should be thinking about something similar in terms of the pace in pharmacy margins in 2025 or whether you'd expect that to moderate potentially maybe as the growth slows a little. Thank you.

Jon Rousseau (CEO)

Yeah. I would say outside of mix and continued growth on the specialty side that does have a lower margin, we would expect within each one of the three pharmacy businesses stability to upticking margins, I would say, on infusion and home and community.

So margin historically has been influenced by our mix and then also investments that we've made on the infusion side and even home and community pharmacy. As mentioned earlier, we fully expect our OpEx per script in those two businesses to improve this year as we continue to grow volume at double-digit rates. And those would be the two dynamics is ultimately what is the mix of all of our services between those three businesses and all of our drugs and our ability to hopefully successfully drive OpEx per script down and home and community and infusion this year, which ultimately we think will lead to a positive EBITDA per script and margin story.

Stephen Baxter (Executive Director and Senior Equity Analyst)

Got it. And just the improvement in the guidance for 2025 at this stage, is that based on trends that you've seen year to date or additional limited distribution drugs that you may have gotten that you didn't have at the time in early January? Just wondering what influenced that at this point in the year. Thank you.

Jon Rousseau (CEO)

Yeah. I would say it's less to do with any one specific factor and just continued momentum and breadth of progress across the entirety of the organization. So far, we've obviously been heads down from an execution standpoint in Q1 like always. And we just continue to work through what we see as a very productive first quarter across most all of our service and business lines. And that was reflected with the update we provided.

Operator (participant)

Thank you. Our next question comes from Matthew Gillmor of KeyBanc Capital Markets. Your line is open.

Matthew Gillmor (Director and Equity Research Analyst)

Hey, thanks for the question. Just had a quick follow-up on the guidance discussion. Any comments you can provide in terms of seasonality of EBITDA and how that may pace throughout the year? Should we just look at prior years for that or anything new to consider as we look at 2025?

Jon Rousseau (CEO)

Yeah. Go ahead, Jen.

Jen Phipps (CFO)

Yeah. Thank you for the question. I think prior years would be a good reflection of how it typically plays out. Q1, we obviously have the reset of payroll taxes versus last year. You should keep in mind that last year included a leap year day as we're thinking about the guidance for this year. But also Q4 tends to be one of our strongest quarters for a variety of different reasons. But yes, we think seasonality, Q1 and Q4, tend to be the outlier quarters just a little bit when you look historically. We expect that to continue in 2025.

Matthew Gillmor (Director and Equity Research Analyst)

That's great. Thank you.

Operator (participant)

Thank you. As a reminder, if you have a question, please press star one one. Our next question comes from Larry Solow of CJS Securities. Your line is open.

Larry Solow (Managing Director)

Great. Thanks. Good morning, everybody. And echo the congrats to Jen. I guess just a couple of follow-up questions just on staffing across your properties, availability, and wage inflation. What sort of how does that feel as you look into 2025?

Jon Rousseau (CEO)

Yeah. Hi, Larry. That's something we've just been continuing to manage for years in a very productive way. Ton of focus in the organization and HR around recruiting, onboarding, training, retention. We continue to see all of our retention, stability, and numbers improve over time across every one of our businesses. They're very, very solid. It's something that we just are very focused on managing, trying to make our provider service lines a destination within the industry where people want to work. We've always invested in comp and wages.

We've rolled out 401(k) everywhere in the last few years. So that's just been really steady for us. Obviously, you could always use more nurses and therapists, but we've been able to keep up with the volume growth we've driven in the double digits through all of our people-focused efforts.

Larry Solow (Managing Director)

Gotcha. You mentioned the M&A outlook and the expected targeted spend for this year. How about just can you just give us an update on de novos, the efforts in 2024 and going forward?

Jon Rousseau (CEO)

Yeah. De novos have been a hallmark for the organization. We'll do about 10-15 new locations this year across home health, hospice, and rehab principally. We'll do a few new hospice pharmacies this year as well, and those have really nice ROI to them over a two- to four-year period of time, but they're principally in those four areas, and we'll continue to do about 10-15 of those a year, and those are helpful adders to your financial performance as you go out years into the future.

Larry Solow (Managing Director)

I guess, please, one more. Just the acquisition, the new Haven Hospice acquisition in 2024, how's that progressing? I know I think it was going to sort of ramp up as you go out of the next couple of years. Maybe any thoughts on that? Any callbacks?

Jon Rousseau (CEO)

Yeah. The team's done a really nice job integrating that in Q4 and so far this year. And I think that's been a good example of our track record on M&A, almost never having an acquisition go down from where we acquired it. And that acquisition is ahead of plan.

Larry Solow (Managing Director)

Great. Thanks so much. Appreciate the call.

Operator (participant)

Thank you. I'm showing no further questions at this time. I'd like to turn it back to Jon Rousseau for closing remarks.

Jon Rousseau (CEO)

Thank you, everybody, for your time today. We really appreciate it as always. And we look forward to talking to you in another quarter. Have a good day.

Operator (participant)

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