BrightSpring Health Services, Inc. (BTSG)·Q1 2024 Earnings Summary

Executive Summary

• Revenue grew 27% year over year to $2.58B with broad-based strength; Adjusted EBITDA rose 13% to $131M. Management raised full-year 2024 revenue guidance to $10.3–$10.8B and Adjusted EBITDA to $555–$570M, excluding any QIP, citing stronger-than-expected momentum, particularly in Specialty and Infusion Pharmacy .
• Mix headwinds from explosive specialty growth compressed consolidated Adjusted EBITDA margin to 5.1% in Q1 (from 5.7% LY), but management expects margins to tick up through the year; operating cash flow was a seasonal -$79M, and leverage stood at 4.3x with ~$2.6B net debt .
• Guidance methodology was clarified: the initial FY24 EBITDA range included a ~$16M QIP assumption; the updated range now excludes any QIP and implies a like-for-like ~$20M increase at the midpoint, with potential $30M QIP upside if received .
• Key stock catalysts: raised revenue/EBITDA guide, exceptional specialty growth and LDD wins (117 total), clarity on QIP treatment, and anticipated margin expansion as mix stabilizes and provider margins improve .

What Went Well and What Went Wrong

• What Went Well

  • Specialty and Infusion outperformed with “borderline really explosive growth,” winning three new limited distribution oncology drugs; total LDD portfolio reached 117, underpinning sustained volume and revenue momentum .
  • Provider Services delivered 7% revenue growth and 25% Adjusted EBITDA growth with margin expansion, driven by cost efficiencies and scale; Home Health average daily census ~43,000 (+11% y/y) .
  • Raised FY24 revenue and EBITDA guidance, excluding QIP; management emphasized confidence in continued volume-led growth and margin improvement through operational initiatives and rate tailwinds (e.g., hospice in Q4) .

• What Went Wrong

  • Consolidated margin compression (5.1% Adjusted EBITDA margin) due to outsized specialty mix and some Change Healthcare disruption impacts; pharmacy segment margin expected to improve as mix normalizes .
  • Operating cash flow was -$79M in Q1 (seasonally lower), with some modest Change Healthcare impact; interest expense expected at ~+$50M per quarter, highlighting the importance of deleveraging .
  • Guidance communications required clarification around QIP inclusion/exclusion versus initial IPO-era framing; management reset to exclude QIP entirely for transparency (potential upside if received) .

Financial Results

Headline metrics vs prior year and prior quarter:

Segment performance (Q1 2024 vs Q1 2023):

KPIs and operating data:

Balance sheet / cash flow highlights:

• Operating cash flow: -$78.9M (seasonal; modest Change Healthcare impact); net debt ~ $2.6B; leverage 4.3x; quarterly interest expense expected ~+$50M .

Non-GAAP adjustments (Q1):

• Adjustments included non-cash share-based comp, acquisition/integration, restructuring/other, legal, significant projects, and a large management fee add-back related to IPO transition; Adjusted EBITDA reconciles to $130.5M and 5.1% margin .

Guidance Changes

Notes:

• Management clarified that the initial EBITDA guide included ~$16M QIP; the updated range excludes any QIP, adding clarity. If received, a ~$30M QIP would be added to both ends of the range .

Earnings Call Themes & Trends

Management Commentary

• “Specialty Pharmacy, in particular, had borderline really explosive growth… we won 3 more limited distribution drug contracts in the first quarter… total [LDD] pipeline of 18 launching in the next 16 months” .
• “Adjusted EBITDA in Provider Services grew 25% year-over-year with margin expansion driven by cost efficiencies, economies of scale, operational quality and volume and revenue growth” .
• “Our margin as a company is going to continue to remain stable to tick up throughout the year… from about a 5.1% margin… into the 5.3% range… maybe up into the 5.4%, 5.5% range” .
• “Following first quarter results, we are increasing… revenue [to] $10.3B–$10.8B… Adjusted EBITDA… $555M–$570M, and now excludes any contribution from a certain [QIP]” .
• “Quarterly interest expense is expected to be approximately $50 million per quarter… leverage ratio at 4.3x… net debt… approximately $2.6 billion” .

Q&A Highlights

• Drivers of upside: Broad-based volume strength, with outsized Specialty; Home & Community Pharmacy grew ~14%; continued LDD wins and largest oncology sales force cited as competitive edge .
• Margin cadence: Mix effect from Specialty compressed Q1 margins; management expects consolidated margins to increase sequentially through FY24; provider margins improving; Q4 hospice rate a tailwind .
• Sustainability: Management “never felt better” about growth; expects Specialty >30% growth, Infusion and Home & Community in double-digits for the foreseeable future .
• M&A: Strategy focused on smaller tuck-ins at low multiples; pipeline robust; Q1 largely organic due to IPO focus; several small deals under definitive for Q2 .
• QIP: Clarified guide mechanics—updated FY24 EBITDA excludes QIP; if received, add ~$30M to both ends of range .

Estimates Context

• S&P Global consensus for Q1 2024 revenue and EPS was unavailable at request time due to API limits; therefore, a vs-consensus comparison is not included. Values retrieved from S&P Global were unavailable at request time.
• Management stated revenue and Adjusted EBITDA exceeded internal plan, prompting the FY24 guide raise; however, this is not a proxy for a Street beat .

Key Takeaways for Investors

• Specialty and Infusion momentum is the primary growth engine; new LDD wins and a sizable LDD pipeline support sustained double-digit growth, but watch margin mix as Specialty scales .
• Provider Services is quietly compounding value with revenue growth and margin expansion from efficiency, scale, and rate tailwinds (hospice in Q4), helping offset pharmacy mix pressure .
• FY24 guidance reset upward with clearer QIP framing; base case excludes QIP with potential ~$30M upside—this reduces controversy and could serve as a positive catalyst if realized .
• Cash flow seasonality and interest burden (~$50M/quarter) highlight the importance of execution on working capital and deleveraging; management targets ~3x leverage in ~3 years .
• Near-term trading setup: narrative skewed positive on growth and guide raise; monitor margin trajectory, Change Healthcare normalization, and any incremental rate or mix updates .
• Medium-term: integration of tuck-ins at low multiples, operational initiatives (centralization/automation), and continued LDD access are key to margin accretion and cash generation .

Appendix: Additional Data Points

• Total company gross profit: $369.4M (+10.4% y/y) .
• Segment gross profit: Pharmacy $170M (+6% y/y); Provider $199M (+14% y/y) .
• Adjusted EPS reconciliation shows material non-GAAP add-backs including management fee related to IPO transition, restructuring/other, and legal .