Hello, everybody. Next up in here is BrightSpring Health Services. We are excited to have Jon Rousseau, President and Chief Executive Officer, and Jennifer Phipps, Chief Financial Officer, with us. Thanks for doing the conference this year. We are 10 months into the year. Can you give us an assessment of the company's performance year to date? What has been positive, challenges, any surprises?
Yeah. Good morning, A.J.. Good morning, everybody. It is a pleasure to be here. Yeah, it has been a productive year for the company again. I would say at this point, we have got a 10-year CAGR north of right around 20% on both revenue and EBITDA. That number has been more elevated over the past three or four years. But it has been a continuation of a long-term strategy around volume growth, efficiency, and doing some accretive M&A here and there within markets in home and community healthcare we really like. That has played out again this year. Throughout the course of the year, our performance has been on or a little bit ahead of even our internal plan for numerous reasons. Again, volume growth has been really strong. I think that has been underpinned by our quality data that we have continued to invest in over time.
I would say one thing that has continued to play out very well for us is a lot of things from a process perspective and a lean perspective. We have continued to lean into investments in technology, people, and process, and we are seeing the benefits of that, particularly in one or two of our businesses in the company throughout the year. I would say when we see growth like we have this year, we have continued to invest across the board for future growth as well. I mean, we are continually trying to think about long-term durable growth within the organization. I think all of it ultimately, though, comes back to the fact that we provide services that are really valuable. People generally want to be seen more in the home and community. What we do has really high quality, and it has a dramatically lower cost to it.
We are a leader in U.S. home and community healthcare. We think that is a really good place to be. Within home and community healthcare, we specifically target three pharmacy and three provider end markets that we like the most, and those services have tremendous value. If we can continue to build scale, have leading quality of services, and execute as best we can on the commercial side, that is what we have been working on creating and continue to create over the past decade. And I think the performance this year is a continuation of a lot of the hard work in the prior years.
No, that's great. Infusion specialty revenues have grown roughly 34% in the third quarter. Can you talk about the growth, the different sub-components, areas like oncology, rare and orphan, and infusion, and what you're seeing?
Yeah, certainly a lot of innovation in these therapeutic areas that we provide services in and partner with manufacturers and payers. Oncology continues. The biotechs, the manufacturers are innovating to a great degree, and a lot of just incredible life-saving and life-altering therapies that come to market. With our service offerings, we do our best to partner with those upstream manufacturers and biotechs to deliver the best possible quality and outcomes for their patients. Positioning ourselves within these dynamic therapeutic markets has been positive, and we continue to see very robust long-term trends there. You look at things like net promoter score, medication adherence, a lot of our wraparound services, we've just really invested and tried to do our best to be the best possible provider partner so we can help to bring these therapies to as many people as possible.
These are big end markets that continue to grow with therapies that are critically needed, and again, just continuing to invest in the platform, which really started about 15 years ago in those businesses in particular. So, continuing to see very robust growth there, primarily volume-driven, and continuing to invest in efficiency in these businesses as well. But we see a long-term pathway there to continue to be a partner and scale in these markets.
Great. Can you remind us limited distribution drug pipeline moving forward, how that will benefit that segment's growth trajectory?
Yeah. We have been honored to be selected as an exclusive or an ultra-narrow partner with manufacturing partners when they launch drugs over the past three or four years. Really everything we have done has been in an exclusive or ultra-narrow relationship. We see that continuing. This year, we will be right around 20 new launches into the market, partnering with the brands to commercialize those, and we look at the pipeline in a very similar way. We have got a pretty longstanding history with a lot of the manufacturers out there, and we do our best to work with them well ahead of time to maximize the success of these therapies for prescribers and for patients and their families.
That track record that we have been executing on for about the last three years, that has been very consistent again this year, and we see the same thing next year and in the near future.
Do you have a pretty good visibility on those new drug launches at this point, or say at the beginning of this year, would you have been surprised by how many you have ended up seeing this year?
Yeah. No, I think we have had good visibility, usually about 12 months out. I think we have really good predictability and visibility on that. Obviously, that is just a function of the innovation that is coming to market, and we do our best to position ourselves to maximize the success for everybody when those events do occur. But usually we have pretty good visibility at looking out about a year.
Okay. Infusion has been an area you have invested in. You have upgraded the management team over the last few years. Can you talk about the opportunities there, particularly in Well, you might describe that there is the two business segments, but acute, I know, is something you have highlighted the opportunity. Are you making above average investments in that area today that may moderate over time as you see the results?
Yeah, I would say we have continued to make people and IT investments in the infusion business. It is one that we see great potential with. Again, our strategy is one that I think is a little bit more comparatively broad to some of the other mid-market companies out there. We like acute. It is an area that is more difficult, where there are fewer providers, but it is incredibly necessary and needed. We also like areas of specialty chronic infusion too, which we are focusing on. Historically, we have been more tilted to the acute side, just based on what the company was going back 30 years ago. Again, we think that is a critically important area of infusion. That is very stable, not going anywhere. We will continue to invest on the chronic side as well as best we can.
The volume performance in that business has been very solid all year, well into the double-digit growth. Those are our aspirations for next year too. The infusion market is a $20 billion market. Whether it is on the acute side or the chronic side, in the home or in clinics, we ultimately have that broader vision for acute, to maximize volume potential in our scale. We see that business as continuing to be a growing contributor to our EBITDA breakdown as we go forward into the future. So, good momentum there and very important to the future of the company.
Do you have a sort of a sense, you sized the market, what your market share is today, where it might be over the next three to five years? We had a major transaction in the space that may create some opportunities. Any thoughts about that?
Yeah. Our best estimate is we would probably be somewhere 3%, 4%, 5% of the market. But certainly for any business that we are in, we like to try to have a one or two market share position across any of our markets. So, getting to double-digit market share, that is certainly our internal expectation and what we are working towards. It is a big market. It is still pretty fragmented, A.J.. There are a couple big players out there. But anything that would go on in the M&A world, we would view generally as very neutral, just given the size and the fragmentation in the market still.
Okay. Home and community pharmacy is another sub-segment in that broad division. It seems like it is returning to organic growth despite some IRA pressure, some customer exits. As those headwinds begin to anniversary, what is the reasonable underlying growth rate of that sub-segment?
Yeah, certainly double digit, without question. We have been really pleased with the performance in home and community pharmacy in the last year. The team has done a really good job there. IRA and some of the unintended consequences of IRA on long-term care pharmacies was frustrating. Our team is still working through that, just given the value that home and community pharmacies provide, and they are not the target of any of the IRA legislation. But nevertheless, we have been able to work through that, solid volume growth, but particularly on the operational side in that business. Really two key points of strategy for our home and community pharmacy business. We want to have the maximum scale and operational excellence and efficiency in that business within the industry. Number two, we want to try to continue to target and grow solidly in really attractive end markets.
The team has just done a great job implementing technology and process in that business more than ever over the last year. That is what drove a very solid Q3 performance well into the double digits on year-over-year EBITDA growth. They are positioned for a really strong year next year, even with these IRA headwinds, because we continue to focus on maximum efficiency and cost to fill in that business. Over time, we will even be doing things like evolving to a more of a central fill model, which we see as promising. That will take a few years. There are attractive end markets there, without a doubt. Senior living, behavioral, hospice, PACE, these are all growing end markets of significant need and where we will continue to try to be the leading pharmacy provider. So, excited about that business.
Yeah. Then more broadly on the infusion and specialty and this pharmacy segment, GP per script reached, I think, $28.86 in the most recent quarter, and you attributed the sequential improvement particularly to stronger specialty volumes. This metric has been something that people have focused on. But you said you don't really manage to that. Can you help us think about what drives this metric and what metrics do you target if this isn't one that you target?
Yeah, it's really an output metric, and it's really a function of mix more than anything. But Jen, do you want to go ahead and chime in?
Yeah. We're really focused on growing revenue, gross profit, and EBITDA dollars across all of our different business lines, each of our different and maximizing the opportunity set that we have in each of those different businesses. In maximizing those opportunities, that could influence the output ultimately of the GP per script or EBITDA per script, due to the different nature of the per script metrics in each of those businesses. Again, we're really focused on driving absolute dollar growth and see that really as an output of the work that we're doing.
You've got the specialty, you've got the home and community, and you've got the infusion. Maybe just comment a little, one more layer down about if you got home and community growing, that tends to pressure that gross profit per script. Is that right?
That is correct. That would be lower than the company average. As that business grows and the substantial number of our scripts are in the home and community segment, that can cause some impact to the scripts.
I got you. Okay. Maybe pivoting over to the provider side for a minute. Provider services EBITDA grew rapidly as well, 30% in the most recent quarter. 16% of that was excluding the Amedisys LHC branches that you acquired. How would we think about organic EBITDA growth algorithm once the acquisition comparisons normalize there? Where is the greatest remaining margin opportunity across home health, personal care, rehab, and primary care?
Yeah, incredibly excited about the provider side of our company. It is an excellent complement to our pharmacy business, and I think it what helps make us incredibly unique as a home and community healthcare provider. The business has continued to grow organically in the mid-teens. If that provider business was just a separate public company within our little health services universe, it would be far and away the biggest. It is a formidable and scaled provider business across really attractive end markets in our view. Home health, hospice, rehab, we see those growth rates all being very similar into the future. In our opinion, we try to grow all those growth rates in the mid-teens sort of level. But very strong management teams, exceptional quality, large industries that remain very fragmented, and services that just have an incredibly meaningful result on outcomes and cost reduction.
I think today, we have carved out a place where we are certainly one of the biggest home health hospice providers in the country. There are a lot of integrated care synergies across our pharmacy platform in these businesses, yet we still probably have some mid-single-digit market share in the U.S. There is just a tremendous runway to continue to grow the business. It has been really pleasing to see the support out of CMS this year, after six or seven years of rate cuts on the home health side. Very necessary and very warranted. I think speaks to the quality and ROI of our services. That is what we would expect going forward. You really need the right technology platform and HR capabilities to scale these businesses and to succeed in the future.
As we think about our position in the market and what we're doing from an IT and from a people perspective, we think that really allows us to be able to scale and take best practices to other geographies and other providers in the market as well. Just a tremendous platform that we remain really excited about.
You mentioned your scale provider in the sense that you're one of the biggest, certainly that we have visibility on in the public markets. But in terms of scale and the ability to realize as it continues to grow, is there margin leverage opportunities? Are you suboptimal still in terms of maximizing the G&A and so forth? Is there another leg of opportunity there?
Yeah, I think as we continue to scale the business and try to reach more patients with exceptional and highest quality services, you will see some natural economies of scale on your fixed costs there, and we will continue to invest in more and more tech solutions like we are doing now to try to be as efficient as we can, to try to make clinicians and caregivers' jobs as high rate of satisfaction with as much engagement as we can. That's an area that we're tremendously focused on as well. A lot of innovation going on in that business. Some new discharge programs. We're bringing primary care into the home health episode. We're partnering with primary care ever more across locations. We're selling into assisted living facilities as one company across service lines.
There's just a lot of really interesting things going on from an integrated care perspective, which not only drives quality, it's driving our volume as well. With that, you get more and more efficiency.
Okay. You did have the opportunity at a seemingly quite attractive price to buy the Amedisys LHC branches that were divested in order to allow United to close the Amedisys deal. I think you've said it contributed about $35 million to this year's EBITDA. Where are those branches today relative to the profitability and quality levels of the legacy BrightSpring Home Health footprint, and how much integration upside remains beyond this year?
Yeah, they are behind in terms of margin from where the legacy BrightSpring branches are, in part because of investments we were making through this year in order to get them fully integrated in the best possible and highest quality way. As it relates to going into next year, we really think about run rating at the end of the next 12 months at our legacy BrightSpring margins, which we think obviously will provide a nice uplift for those branches. From a quality perspective, the team has done a really fantastic job. We obviously acquired a really high-quality asset and branches, and the teams are fantastic. They're working through obviously all of the transitions to our processes, but that is going really well.
We are working to get their quality scores, which are very high, to our level of quality scores on the legacy BrightSpring side, and we see a really good path to do that in the next year.
Yeah, we know 95%, A.J., of our home health branches are four-star or better, which is exceptional. We've got like 99.3% timely initiation of care, to name just another metric. So that's patient gets seen day one. That is really difficult to do, and that is at the absolute top of the industry. These were high-quality branches, but I would say this is a very good example of how we can acquire other operations and bring some of our best practices to bear as we extend into these geographies and make the businesses better. The buy-in from the team has been exceptional, and we're excited about where these branches will go in the next year or two.
I think sometimes, as outside observers, it's sort of hard for us to envision exactly what you're doing to bring your processes in. Is there one or two things you can highlight that, oh, this is something we do that we're bringing to these assets that are improving the performance?
Yeah, it's going to be across just your operational model. First, from a clinical liaison, from a business development perspective, how you're overseeing your reps, your liaisons in the field, where you're going, how you're spending your time, how educated they are, how they are telling the quality story, how they're advocating for patients. Just the overall management of that field force would be one. The second would just be how you're managing your operations through your training, through your process itself, the steps in your process, the metrics that you use to manage your business, the level of reviews that you do at the local level in your business, the training you give your local branch managers. That's just sort of the whole operational model. The third one is from a technology perspective. What systems are you on?
Over the last two years, we've been going through and trying to automate a lot of things in intake, for example, and in other parts of the operational process, how you run rev cycle, et cetera. The last one is from a clinical perspective. What are your specific clinical protocols? How are you training your team? What are the tools that they're using on a daily basis? So, it's just kind of applying that operational model that you strive to make best practice to other operations. Everybody's going to have their own model in different ways, and I think there is a better way to do things in life and in business. We strive to do things the best way, and it's trying to bring approaches across sales, ops, clinical, and technology to any acquisitions.
Okay. I think the company said that eventually the provider business could become something like a $250 million earnings business. Can you maybe give us a little bit more flavor or how investors should think about that in terms of a timeframe, required revenue to get to something like that, and the assumptions underpinning that kind of thought?
Yeah. I think it is mostly that growth is going to be underpinned by volume growth with some added efficiency as we continue to deploy technology. It is probably 80/20 volume growth technology efficiency. Something like you mentioned within the next 12-18 months is not out of the question from a run rate perspective. There is a lot more opportunity in that business with how we are trying to drive our models of care. You look at how big and how fragmented these markets are. Our aspirations as we look out five to seven years would be double that in terms of where we think the potential of the market is.
Okay. I would be remiss if I did not ask you about the midterms last week. We got a sea change in Washington, D.C. I do not necessarily jump and say, "Hey, there is a lot of implications for BrightSpring or your decision-making." If I do not ask the question and you tell me there is, I will look bad. What is your guys' reaction in terms of business and how you think about it? Does it change anything?
Yeah. We are fortunate that our services have always received a very significant level of bipartisan support. What we do allows people to be in their home more, stay out of the hospital more, reduce costs, increase quality of life. Our government relations team and all of our employees really tries to educate around those facts and advocate as much as we can for patients and for their families and for prescribers, and really the whole healthcare system. What we do improves quality and reduces costs, full stop. I think that is why we have always had so much healthy and robust bipartisan support. We would fully expect that to continue. Like always, our teams are out there just trying to do the best job they can to educate people coming in and out of roles in D.C. and be the best possible resource we can.
We have been really honored that over the past couple years, increasingly, we are viewed as a resource to call by a lot of people on the Hill and in Washington, D.C., just given our platform, given what we see. I think given the way that we do a lot of things and how we always try to do the right thing. We will continue to educate and advocate. All the populations we serve continue to grow at a healthy amount, whether it is seniors or whether it is people with specialty conditions in their life that they need a lot of help with. Depending on whatever service line you look at, there is 5%-12% industry growth in the markets we serve. There is just a tremendous need, and our solutions are extremely valuable.
We want to continue to be more and more engaged with people in D.C., do the best we can, and be the best possible partner we can. I think we're very optimistic about the future regardless of the environment.
One of the initiatives of this administration's been around fraud and abuse in some of the areas, hospice, personal care service, even home health, you have involvement in. We've heard that some referral sources have maybe been moving volume on the margin to some of the larger providers because they feel like they have compliance programs, et cetera, et cetera. Have you seen any of that benefit or any other impact from the fraud, waste, and abuse initiatives of the administration?
I don't know if we would have the granular impact kind of at that local level, account by account, to be able to comment on that. But I would just say in general, we absolutely 1,000% support any efforts targeted at fraud. Fraud occurs in every industry of the economy. If you can root it out, absolutely, we can't stand that sort of behavior. Everything we've done is to invest in quality and compliance, hundreds and hundreds of millions of dollars to do so. We think there should be a keen focus on it. Our recommendation is to make, if you think about the moratorium on de novos that we're waiting to see what happens, our recommendation is that there just needs to be qualifications on it. If you're an existing and a longstanding provider and you have exceptional quality, you should be in more markets, right?
Just as you said, A.J., you should want the best providers to serve as much of this care as possible, people that you really trust. So, we believe in the focus. We believe on any, quote unquote, "crackdown," where it might be in a handful of markets. It's not as widespread. There are some markets where you hear about it more, but there should be qualifications around it. And look at the best providers out there as a way to help solve the problem. But you're exactly right in terms of technologies you can bring and capabilities you can bring that address that better. We just rolled out a new hospice tool where we are now auditing 100% of our charts. That is unheard of, and it was this technology that enabled us to do that.
These are the kind of things we are doing internally a lot of the time. Other thing too is whether it is payers or hospitals or physician ACO groups, I think you are seeing an increasing accelerating trend of those more sophisticated organizations looking to partner with high-quality providers. We are continuing to partner in a preferred way with more and more scaled partners across the continuum.
That is good. As you have been growing the business, you have also brought down your leverage considerably. You are now below 2x debt to EBITDA, and you have indicated M&A activity could increase, even looking at potentially some larger deals. How should we think about the hierarchy of capital deployment going forward and the types of things you might look at?
Yeah, I will speak to the first piece, and Jen, you can maybe hit sort of capital allocation. From an acquisition standpoint, I would maybe characterize what we look at in three buckets. The first would be what we have done over time very consistently, which is smaller geographical tuck-ins, very accretive, very low multiple, just given the best practices and the synergies that we are able to deploy. We will continue to do those, a healthy flow of those every year, 10- 15 of those smaller deals. By small, I mean small. Sometimes it is a license, they do not even make EBITDA. Most of the time, it is $1 million or less of EBITDA. A second category of deals that we would like to increase our frequency of would be, call it $3 million- $15 million, $20 million EBITDA opportunities. Not as many of those out there.
You got to work harder. We do some pretty in-depth diligence, which frankly kicks out a lot of deals that other people, other buyers might miss. But that is what we do. But increasing the frequency in that second category of deals and the right target markets is something that we are interested in doing. The third category of deals would be what we would just call larger deals, call it $40 million or $50 million of EBITDA or more. We are open to those transactions if it was a real strategic fit and we saw tremendous value there. There is nothing like that we are looking at right now or considering. Those deals would be very, very few and far in between. But steady state with the smaller tuck-ins, I think we would like to do a few more deals that are slightly larger.
That will remain the focus along with some opportunistic debt paydown from a capital perspective, at least over the next year. Jen, anything else on repurchases or the like?
Yeah. We have stated that we would like our dilutive share counts to remain relatively flat, so that will mean some repurchases probably each year. At this point, all of our share repurchases have been concurrent with the KKR sell-down. I think probably until they've fully exited, our view would be that that will probably remain our priority for any share purchases, is to participate in those deals.
Operational and free cash flow generation is big, has been a big focus, just like EBITDA. Jen's done a great job with that, balance sheet, interest rate, et cetera. It puts us in a situation now where we do have a lot more flexibility. I think if you look at our track record, we tend to be pretty disciplined about these things and really focus on value creation from an inorganic perspective.
I think when you tend to look at those smaller deals, you probably don't have as much competition on those. Any comment generally on the markets you're looking at, whether valuations are stable on those properties? What's happening with underlying valuations?
Yeah. We haven't seen valuation multiples move around a whole lot in the last couple years. They remain elevated for any assets of any size in a handful of markets, probably particularly infusion and hospice. Look, there's going to be buyers around all of these markets always. We try to find proprietary situations based on relationships as best we can. I think as a strategic platform, we do have significant advantages versus financial buyers in these situations. We really focus on the people, bringing them in. There are so many examples in our company where people from acquired operations are now in different and bigger roles across the company. Being a public company with a public stock price is very helpful to drive employee engagement as well. We have a wonderful platform from an acquisitions perspective. It is extremely unique.
When applied to extremely large markets that are very fragmented, it's a very unique opportunity that I don't think you see across a whole lot of industries. I think we've demonstrated a capability in acquisitions over the last 10 years, and I think it'll continue to be an asset for us.
Just to put a fine point on the capital structure comments, how much does KKR still own? I know as they've sold down, they've done it in a very orderly fashion. You've tended to look at participating in a lot of those distributions. Is that still something you would consider?
Yeah. They own approximately 26 million shares. They have about 15% of the outstanding shares of the company. Yes, they've done orderly transitions. We oftentimes are not aware of those transactions till right before they would happen. As they look to exit their last 26 million shares, I think we believe that we would participate in those transactions.
Okay. I'm going to just circle back because I got two minutes left here. There's a lot of chatter around the pancreatic cancer drug that got launched, and that's a big, high-profile one. It might talk about how you're involved there and how a drug like that, because people read the headlines about what the potential for that might be, how we should think about the fact that you're involved there plays out over a handful of years.
Yeah. I guess maybe two points there would be, number one, I think that's just a good example of where our team does a good job partnering with the innovator on a new drug like that. Our ability to be a reliable partner, to address 10 different needs upstream and downstream related to servicing and supporting that drug, to be there for patients whenever they need us, just another big compliment to our ability to be selected and chosen in situations like that. I guess the second comment I would make is, while that will be a helpful contributor to the organization, it's one of many. This is a therapy within just a broad set of therapies across the company, whether it's in our specialty pharmacy business in oncology and rare and orphan therapies, whether it's across pharmacy, or whether it's growth in services across our provider business.
We literally would think about that internally as one of 100 things that's going on in the company where we're trying to bring our services to more people and to do it in a really high-quality and highly efficient way. It's interesting that you get questions on it, rightfully so. Hopefully this is just an amazing drug for the patients that get it. If you were to literally see us internally, it's probably something we spend less than 1% of our time talking about because it's one of 100 or one of 500. We just continue to try to expand our depth and reach across each one of our service lines and reach more patients that need our services.
A lot of focus has been on the new drug introductions. There's also the dynamic of the biosimilar conversions. How do we think about your business as it relates to biosimilars? I know we don't have a lot of time left.
Yeah
but I'll ask that question just so you can put a fine point on that.
Yeah. Good question. We really don't have any biosimilar exposure to any degree across the organization. As brands will convert to g eneric, that's always an opportunity for the pharmacy industry. That's a natural part of the life cycle there. I would say our business represents a very natural, very healthy mix of branded therapies and then ultimately generic drugs as those brands go generic in the future. But from a biosimilar perspective, that's probably more of an opportunity than a risk in the future.
Yeah. Okay. All right. Well, thanks so much for BrightSpring participating in the conference this year, and thanks, everybody. Next up in this room, I believe, will be WellDyne.
Thanks. Thank you.