Happy to have Team Guardian, Fred and David. This is their second trip to our conference. Came public in the fall of 2024. I remember this because, like, two days after it priced, my house got flooded. I think of 2024 as Guardian and picking up, you know, cleaning up from a flood. That was the sublime and the ridiculous. Company is obviously the stock's done well. It's traded up. Company's delivered good results. Stocks are acted well, traded up on valuation. This is the leading company servicing the assisted living market for institutional pharmacy. Have roughly 13% share.
I think effectively no national competition in the assisted living channel, and, just recently got through a difficult, I would say, negotiation to offset an unintended regulatory change from the Inflation Reduction Act, which I think is kind of ironically named. With that, Fred's gonna have some opening remarks, and then we'll have some Q&A.
Sure. Thank you, John. I'll go up here so I can see the screen. Thanks everyone for joining. Appreciate it very much. Nice to see you. I'll take just a minute to give an overview of Guardian, which should set the stage for John to grill us. David will follow with some more detail. Here's the obligatory disclaimer, which I'm not gonna read, and I'm sure you've heard before. I'm Fred Burke, and I have here David Morris. We co-founded the business back in 2004. We started this business then with one pharmacy, and we've built it now to our 54. This is our second entrepreneurial venture together. David and I started working on our previous venture in 1993. We've worked together since then. We finish each other's sentences. Who is Guardian?
We're a leader in a, in a growth market that is geared and engineered to serve a specific problem, which is in assisted living facilities, the need for dedication, dedicated medication care and coordination. This space sees residents with increasing acuity as time has passed. Average age 86, taking 14 prescriptions, impaired in two or more ADLs, and there are significant challenges in managing the med regimen because in assisted living there's not a medical director like there is in skilled nursing. Our pharmacies are coordinating with the physicians in the community to make sure the resident is on the proper drug regimen. Our company has been purpose-built from the very beginning to serve these very specialized needs of assisted living.
It involves technology, a lot of technology, a tech-enabled platform, clinical, and we believe in a local service model. The result is that we get the resident on the proper drug regimen. We provide the tools to make sure they adhere to that drug regimen. Both of those things provide better outcomes and lower the cost curve. We have grown with a multi-pronged strategy that focuses on market share through not only the secular growth tailwind we enjoy, but organic growth and a very disciplined M&A strategy. We have built a scalable platform that uses data analytics as part and parcel in every piece of our business. We bring scale through our purchasing, our reimbursement, and national account leverage. We feel like we have a very defensible moat from our service-led tech-enabled model.
By combining our local service with technology, and the support from the scale, we are able to defend from competitive initiative. Strong financial performance and cash flow, David will go over that. We are, I'm very proud to have an experienced industry-leading management team. You wouldn't conclude that necessarily from us, but trust me, behind David and I, there is a very strong team we're very proud of. Again, we're focusing on ALF. There are about a million residents in ALF in the United States. This is where most, if not all, the growth in long-term care facilities is occurring. We have the silver tsunami hitting as we speak. The first cohort were the babies born in 46, right after the war, and they're turning 80 this year. Each successive year, we see dramatic growth in this silver tsunami.
It's highly fragmented. We compete with about 1,000 + independent pharmacies. As I mentioned earlier, the acuity is rising each and every year. It's important for you to know that these residents are private pay. That's why they choose to live in the nicer assisted living facility versus an older skilled facility that looks and smells and feels like a hospital. 70% of our revenue derives from Part D, the Medicare Part D program. As I mentioned, we are built for the very specific and unique needs of ALF. That involves this medication care coordination that I mentioned, to get the resident on the proper drug formulary, but many other very specific aspects that are different in ALF from other long-term care settings.
An example of what I'm trying to communicate is our clinical interventions. I'll step back for a second. We at Guardian believe very deeply in, I mentioned data analytics several times. We have a very robust data analytics capability. Along the way, we realized the valuable service our pharmacists are rendering sort of behind the curtain of anonymity. We created a tool to measure their interventions, and the numbers are quite compelling. You can see here last year, our pharmacist intervened over 100,000 times on things such as drugs with allergic reactions, duplicate drug therapy, drug-to-drug interactions, et cetera. A key element of assisted living, since these are private pay individuals, each on a different Part D plan, is to make sure that the med that is being prescribed is on the PBM or payors formulary.
That's a key element of the service we render in getting the patient on the proper drug regimen. It's also according to their formulary, we have a tool to track that. You can see here that last year we, by doing this activity, we saved our customers $56 million in savings. We are the market leader in assisted living, serving about 140,000 of those million-plus residents. We estimate our share to be about 13%. The way we think of that is there's 87% left to go. You can see our volume. A key element in assisted living service that we render is to make sure as many people in the facility use the preferred pharmacy as we can, and we're very proud of our 90% adoption rate.
You can see the dots on the map. We're proud to be where we are, having started with one, there's a lot of room to grow. That would be hopefully, your takeaway from looking at this map. Also within these dots on the map, there's a lot of embedded growth opportunity. The chart on the right is our market share in ALF by state. You can see that there are many below our company average, usually because they're newer in our platform, and therefore we have a lot of opportunity to grow. With 87% we don't serve, we feel like we can continue to grow that market share from the current 13%. We do enjoy a favorable competitive landscape.
Our competitors are either institutional pharmacies that are skill-focused or independent pharmacies that do provide the type of service that we render, but they struggle to make a profit, and therefore they can't invest in the value-added services that we're able to render, leading to a more sophisticated level of service. It does take a lot to build out the tools, the processes, the systems, and the support teams in order to leverage scale and bring one of these pharmacies to profitability. We enjoy high barriers to entry. David, talk about how we grow in more detail.
Thanks, Fred. Let's flip to a little more detail about how we grow the business. Something we've been extremely proud of over the last 20 years is our organic growth. It's been what's driven the business historically and moving forward. About two-thirds of our business growth is organic. How do we do that? The first thing we do is work to bring on new facilities in existing markets. Once we bring on an existing facility, we work to increase the adoption. Typically, when we take over a home from another pharmacy, about 50% of the residents in an assisted living are using the preferred pharmacy. We have tools to equip the assisted living, and we work with the family members to encourage and show them the benefits of using the preferred pharmacy. Increasing adoption is the second way.
The third way is we've been very successful in launching contiguous greenfield startups. I'll show you a couple examples, but we're serving businesses, say, in the Nashville, Tennessee market. They're customers in Memphis, and eventually there's enough volume there that our team's able to open there and grow in that market through these greenfield startups. Here's some examples of more recently in the past five years. Cincinnati, we grew and opened a successful pharmacy in Columbus, Tulsa, Oklahoma City, Saint Cloud, outside of Minneapolis, and we actually opened in Minneapolis. Very effective way for us to grow with our existing operators. In addition to our strong organic growth, we couple that with our M&A strategy. You know, as we've been talking to investors this morning, it's more, marriage than M&A. Our partners, once we find the right one, stick with us.
You know, most have been with us 15 or plus years. You know, what we're looking for is someone that's not wanting to sell their business. They're wanting to continue to grow it. They're a good operator. They're collaborative and wanna embrace the Guardian platform to not only grow the top line, but also improve the profitability. The second thing that directs our M&A strategy in addition to finding great operators is geography. We're constantly working with our national account platforms, and they're guiding us toward areas where we're not and where they want our service. Finally, out of the 100 independent pharmacies that are in our pool, Fred mentioned there are over 1,000 independent pharmacies out there. There are about 100 that fit our profile.
You can see that, you know, they're $10 million-$30 million in revenue and serving 2,000, 3,000 or 4,000 residents. Once we close an M&A transaction or a marriage, this is just a picture of what it takes to bring it up on our platform. It typically takes three to four years, some longer depending on the situation, but we do the basics in year one, payroll, payables, et cetera. The four things that really drive the improved top-line growth, and more importantly, bottom-line growth are the national account platform, our reimbursement platform with our PBM contracts, margin management, then finally, our purchasing platform. By year three or four , these are all in place, and these business will be up and performing like our mature pharmacies in the network. Here's a picture that shows you some of our activity coming out of COVID.
You can see 2023, 2024, 2025, things have picked up. In 2025 we did two smaller deals, one in Wichita, Kansas and Missoula, Montana. Then two larger platforms in the Pacific Northwest, we did one contiguous greenfield in Naples, Florida. The key thing to take away, you know, we refer to this as investing. These cohort of pharmacies that we've done in the last 18 months, we have revenue obviously, but the profitability is much lower, it drags down our overall Adjusted EBITDA margin. We're investing in these businesses, growing them, improving profitability, they'll be highly accretive as we move out, you know, 2027, 2028, 2029. We'll continue, obviously, this activity as we move forward. Touch on a couple of things from the financial performance. Just a pictorial with the strong growth.
We've also had, you know, strong Adjusted EBITDA margins. I'll touch on our cash conversion. I don't think we have it in here, but we have no debt as we sit today, and our cash conversion ratio is about 60%, something we're really proud of. I think that's it, John. You probably don't have any questions from here.
This is my favorite part where I get to talk, you know? That was okay, but this will be better. Just kinda start with, you get a hunting license from, say, a Brookdale or a Sunrise assisted living facility, let's say, you know, 60 beds and 50% turnover. You got 30 residents moving in, SEC math. Just talk about those 30 residents. How do you equip the local facility and how do you support them when, you know, it's the older daughter and usually mom, and she's got five, you know, three prescriptions at four drugstores. We're gonna consolidate them. Just how does that work? 'Cause you're obviously very successful at it, but just kind of how does that B2C conversion work over time?
It's an effort. Over time, we moved from our own Nurse Account Managers selling responsible parties and residents to providing the tools for the assisted living operator to do it. In the early days of taking on a facility, we typically find about 50% adoption rate. In those early days, we'll deploy our Nurse Account Managers to work on improving the adoption rate and then equip the assisted living operator with the tools they need. These are videos, brochures, et cetera. As patients transition from the community into the assisted living, the best time to sell them on the benefits of a specialty pharmacy is at transition of care.
Over two years, 100% turnover, you would have 95% of that.
That's right.
So-
There are a few that will never get-
It just kinda tracks with the move-ins and the turnover.
Yeah.
Okay. Gotcha. Second question, I'm sure you're tired of talking about this, but famously, the IRA unintended effect of 10% of revenue, you were able to come out the other end with no effect on EBITDA, which we've been telling people was gonna happen, but I'm glad that finally happened. Just at a high level, talk about that. Then I would flag, you know, you flagged Eliquis being the big one. Yeah, I know that it goes generic in 2028. When a big drug like Eliquis goes from branded to generic, is that a win, a tie, a bad guy for Guardian usually?
All right, let's start.
Is that your parole officer, Fred?
Let's start with the IRA and us not letting you down...
Thank you.
-on being able to mitigate it. It started five plus years ago with our initiatives to move from a PSAO network of pharmacies that are contracted with the PBMs to our own direct contracts. Over the last five years, we've successfully gone direct with all PBMs, including the obviously the big four or five, Humana, Optum, Caremark. With us going direct, we've developed incredibly strong relationships, and also along the continuum have educated them on what we do for the residents, for the homes, what we do for their health plans and the benefit that we bring. When IRA, you know, got passed, and two years ago we started talking about it made for a much more, I won't say easy but smooth, embracing of the problem. It was unintended consequences.
The PBMs acknowledged that, and we were successfully able to work through it. We'll continue to deal with things as we move through, you know, the next five years because as you guys are aware, there's so many things changing in this industry and, drug reimbursement every day, so.
What about like a drug like Eliquis, for example, when it goes generic, how do we think about that?
Typically when a brand goes generic, it'll be single-source generic. The economics for us are similar. Obviously, there is a higher gross profit percent, but there's still favorable gross margin dollars. The effect on our business is typically neutral.
After, when it goes multi-source, does it become a good guy?
Yes.
Okay. Just getting that out there. You know, we did some work. I know you didn't love this, we're very proud of it. We did some work with your publicly available script data and, you know, generics being 90% of your volume, that's very typical. Your revenue per script being about $50. You know, gross profit per script about $10. That all looks very much like retail, you have better margins than retail, and you haven't had the reimbursement pressure. Just with this shift in the Part D, has the percent profit from branded and generic changed in 2026 versus 2025, or is it kind of the same?
We've been working over the past several years and in this past year in particular to better align the margin dollars with the effort. You know, we're seeing change there with several of our large providers. As the brand margin dissipates, we'll see the margin dollars tracking our generic prescription volume because that's where we're doing the work.
So, 90% volume, 70% profit might go to 80% or 85% or something like that?
Yes.
Okay. Got you. The market share that you have, what benefit does that give you in turn when you go back in hammer and tongs with these Part D plans? How important is it to have market share? Is there a threshold where you really notice a difference, where you get better terms? If you compare your highest market share markets to your lowest market share markets, what's the magnitude of difference in those kind of calculations?
Well, the reimbursement is the same across the country in all 50 states, no matter what our market share is. However, with CMS, there's network adequacy that's very important, so they need providers like us. In markets where we have 50+ share, 40+ share, we're very important to them, and they're important to us. I think they acknowledge that, and that helps us, you know, be successful together.
Omnicare is bankrupt, which is one of the strangest things I've ever seen. You know, public company that's got a Triple-B rating bankrupted a subsidiary. I know they're not a huge player in assisted living, but they're a big player. Is that on your radar? Do you think it's a potential good guy, or is it not event?
It's obviously on our radar.
Okay.
Omnicare is predominantly skilled focused but do serve a significant portion of the ALF community. Our 13%, we're the largest ALF provider. Omnicare is ±5%, so they're significant. We're involved, and they're part of the process. We'll just have to see how this plays out.
I mean, I mean, not saying that we can't say, but I would assume that might offer you some asset you know, ability to maybe step in and operate some of their pharmacies.
Potentially.
Yeah.
Potentially.
It could be more like a seven, you know, maybe some kind of seven process versus 11 if that were to happen or some combination.
Mm-hmm.
Okay. All right. I think you're not gonna tell me, but I thought I'd get you to flinch a little bit anyway.
You're welcome.
The, you know, private equity sometimes comes in and makes a segment tougher to operate. Private equity has not really made a run at... I think I know why, but I'd like to hear your perspective on why that hasn't happened.
The 1,000 independents that are out there, you know, it's a tough environment financially to maintain profitability, even with some of the larger platforms that we see. If private equity came in and bought 10 pharmacies or 50, they're probably breaking even at best. Then to make the investment to build the support, things that we have, just the four that I mentioned up here, reimbursement, margin management.
Purchasing and national sales would take many years to pull together, and it's probably outside their investment window and scope. The investment would be much more than just buying the pharmacies.
Right.
I think that detracts them from looking at this.
Right. Why don't you think that Omnicare or PharMerica, now BrightSpring, why didn't they, you know, pivot to ALF? Is it just more that the nursing home business is kind of an institutional?
Mm.
... like business without the personal touch? Why, why did they let this opportunity slide by, do you think?
That is a super question. I think it would make an interesting business school case.
Yeah.
I can't say why, because along the way they did say they were. I do know this, that firstly, they would need to re-engineer their pharmacy platform to serve the specific needs of ALF. They would've needed to, let's call it a pharmacy within the pharmacy-
Mm-hmm.
... that focused on ALF. At the time, the profit margins were significantly better for skilled. You'll recall that Omnicare-
Mm-hmm.
... was a mid-teen-
Yep.
... operating margin business, and therefore they would have been discouraged from diluting their operating margin.
Right.
What happened is exactly what was predicted in 2004 when we started this business. Most, if not all the growth in long-term care facilities occurred in assisted living.
Mm-hmm.
We focused on that segment, built out our pharmacies, such that they were engineered to provide the specific needs of those facilities, and over time improved the profitability by leveraging the scale, and it's worked out well for us.
Obviously. I never asked you this, how long did it take you to turn your first EBITDA positive profit from 2004? Do you remember?
That is a good question.
Yeah.
'Cause it definitely was not profitable in 2004.
Yeah.
It would've been. We did calculate the amount of contributed capital-
Right. Right.
... which was $62 million, I believe, all of which was returned by the time of-
Mm-hmm.
... of the IPO. I would guess that it was several years-
Yeah.
... before we achieved profitability.
Got you. One thing you and I have talked about before, and this will wrap us up, we have a couple minutes. The Part D market, you know, standalone plans were down, I think, 22% this year. CMS had to jam in a demonstration project that's probably illegal to bail out the industry after some of the changes that were made under the Biden administration. What's happening is Part D plans within Medicare Advantage are stable and growing a little bit, but standalone Part D plans are declining. You know, do you have a preference of standalone versus MAPD, and do you have any thoughts about kind of where this is going?
I'll start by saying we do not have a preference. We're reimbursed the same for a Part D plan versus an MA plan. I think a lot, some of the value that we bring to the payers accrue on the MA side, though. We're delivering essentially 100% adherence. Adherence in three therapeutic categories yield stars.
Mm-hmm.
Stars are very valuable. That's one of the value adds that we bring. Anything to offer?
Do you have any have you offered any thoughts about how we can fix standalone Part D, or is that outside your lane that you think about?
Be outside my lane.
Okay. There's an industry association which is kind of interesting.
Mm-hmm.
It's, you know, two of the big three. Well, are there any legislative priorities that we should think about? I know they didn't win the IRA battle. What sort of advocacy are you doing in D.C. these days?
We have pivoted to respond to the PBM Reform Act-
Okay.
... which directs CMS to define what reasonable and relevant reimbursement means.
Mm.
We have a major effort underway to put our two cents' worth in on that very important project. It also empowers CMS.
You think you should get paid less, right?
Well, yeah, right.
Okay. Just kidding.
The act also grants some authority to CMS to enforce.
Mm.
So, it's an important project for us.
Great. Well, 35 seconds to go. I think we'll wrap it and head to breakout. Thank you.
Thank y'all. Appreciate it.