Q3 2024 Earnings Summary
- Strong Q4 Growth Expected in Both Pharmacy and Provider Segments: The company anticipates a 15% to 16% year-over-year growth rate in Q4, with a sequential increase of $10 million to $15 million. This growth is supported by healthy rates in the Pharmacy segment and double-digit EBITDA growth in the Provider segment. Management expresses confidence due to continued operational execution and various growth drivers.
- Successful Onboarding of a Major Customer Driving Significant EBITDA: BTSG successfully onboarded a new customer across over 200 buildings in the home and community pharmacy business, contributing approximately $1 million of monthly EBITDA, which is expected to increase as they finalize long-term labor profiles. This demonstrates the company's ability to execute large-scale integrations and drive growth.
- Margin Improvement and Cost Efficiencies in the Provider Segment: The Provider side significantly contributed to the Q3 EBITDA beat, with margin improvements driven by volume growth and a positive mix shift towards higher-margin businesses like rehab, home health, and hospice. Additionally, the company is on track to deliver over $20 million in cost reductions from procurement, purchasing, and efficiency initiatives, positioning them for continued profitability improvements.
- The company incurred significant nonrecurring expenses of $10 million related to start-up costs for onboarding new customers and a payer settlement dating back six years, which increased nonrecurring expenses this year. This suggests potential future unexpected expenses that could impact profitability.
- Anticipated benefits from acquisitions like Haven Hospice may take several years to fully materialize. The company expects only $1 to $2 million of EBITDA contribution this year, growing to $15 million over the next few years. This indicates that acquisition returns may be delayed, potentially affecting short-term financial performance.
- Early primary care initiatives are still in the nascent stages, contributing only $7 million in EBITDA this year, with meaningful profitability not expected until 2026. This presents execution risk in scaling this business and may limit its impact on near-term financial results.
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Inflation Reduction Act Impact
Q: How will the IRA affect your business?
A: The Inflation Reduction Act's impact is mostly in 2026; we have one drug on the list in specialty oncology, IMBRUVICA, but we see no risk due to constructive conversations with the manufacturer. In infusion, STELARA is isolated and not material to us. For LTC pharmacy, CMS clarified a true-up mechanism that reduces risk significantly. Overall, we feel in a good place with very low risk looking ahead. -
Biosimilars and Pricing Adjustments
Q: What's your exposure to biosimilars and pricing changes?
A: Biosimilars aren't relevant in our specialty oncology and rare disease business. In infusion, only STELARA has biosimilar activity, representing just 0.2% of revenue and less than 0.5% of gross profit, so we see no material impact. We view the STELARA situation as idiosyncratic and isolated , and it won't materially change our outlook for next year. -
2025 Guidance and Growth Drivers
Q: What are key headwinds and tailwinds for 2025?
A: While not giving formal guidance yet, we feel positive about continuing our double-digit revenue and EBITDA growth into next year. Tailwinds include strong momentum in specialty pharmacy, especially in oncology and rare diseases. We expect 15 LDD launches this year, with 4 or 5 exclusives. Infusion investments will start paying off, with double-digit volume growth and margin improvement expected. Home health, hospice, and rehab are also expected to grow at double-digit rates. -
Q4 Margin Improvement
Q: How will margins improve in Q4?
A: Q4 is typically our highest margin quarter. Drivers include the generic launch of SPRYCEL, new hospice rates, and decreased start-up costs from onboarding new customers. We also expect continued volume growth and leveraging of fixed costs. -
Capital Deployment Priorities
Q: What are your capital deployment plans for next year?
A: We'll continue our strategy of focusing on accretive acquisitions in long-term care pharmacy and infusion on the Pharmacy side, and rehab, home health, hospice, and home-based primary care on the Provider side. We target small, high-ROI investments, including CON tuck-ins and de novo expansions. We're focused on reaching a specific leverage target and remain agile for unique opportunities. -
Specialty Pharmacy Growth
Q: What's driving growth in specialty pharmacy?
A: Specialty pharmacy is showing strong momentum, particularly in oncology and rare diseases. The generic launch of SPRYCEL is a tailwind, and another drug is expected to go generic in Q1. We have 15 LDD launches this year, with manufacturers selecting us in ultra-narrow networks. Specialty and infusion revenue grew over 40% in the quarter. -
Impact of Part D Changes on Utilization
Q: Are lower patient costs under Part D increasing utilization?
A: Yes, the Part D changes making drugs more affordable are positive for us. We've seen robust volume growth in oncology and expect another bump in January due to these changes. -
Home-Based Primary Care Efforts
Q: How are your primary care efforts progressing?
A: Our home-based primary care business is growing organically, with patient volumes up 40%-50% this year. We're aiming for $7 million EBITDA this year and targeting over 100,000 patients in 5-7 years. Key milestones include securing ACO contracts and integrating our I-SNP acquisition. -
Medicare Advantage Impact
Q: How does MA plan pressure affect your business?
A: MA's impact is mainly on our home health business, which is about 30% MA. We've had constructive relationships with payers, negotiating sustainable rates. The high demand and low supply in home health means 40% of those needing care don't receive it, highlighting the importance of our services. -
Provider Segment Margin Improvement
Q: What drove Provider segment margin improvement in Q3?
A: Margin improvement was due to volume growth, positive mix shift to higher-margin businesses like home health, hospice, and rehab, and over $20 million in cost reductions from efficiency projects. We also benefited from rate support in hospice and community living. -
Nonrecurring Items and Guidance
Q: Were nonrecurring items included in guidance?
A: Yes, start-up costs and the payer settlement dating back six years were included in guidance. We also had increased nonrecurring expenses from finalizing legal cases and acquisition and integration costs. -
Sequential Growth in Q4 Guidance
Q: How are you thinking about Q4 growth trends?
A: Q4 implies 15%-16% year-over-year growth and a sequential increase of $10-$15 million. We expect strong growth across Pharmacy and Provider segments, similar to Q3. Seasonal factors and initiatives like the full impact of the SPRYCEL generic launch support this growth. -
Haven Hospice Acquisition
Q: What's the contribution from the Haven deal?
A: The Haven Hospice deal is going well; we expect $1-$2 million EBITDA this year and see it as a $15 million opportunity over several years. -
Home and Community Pharmacy Onboarding
Q: Can you update on the new long-term care client?
A: We successfully onboarded a customer across over 200 buildings, generating about $1 million monthly EBITDA. Lingering costs will decrease through Q4 and into Q1. -
Capital Allocation to Noncore Businesses
Q: Are any areas considered noncore for capital allocation?
A: No significant changes; we'll continue focusing on core areas like rehab, home health, hospice, and home-based primary care. We're dedicated to our existing strategy and remain opportunistic.
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