Good morning. Welcome to Oppenheimer's 36th Annual Healthcare Conference. I'm Michael Wiederhorn, the Healthcare Services Analyst. It's our pleasure to introduce Guardian Pharmacy Services. We have the President and CEO, Fred Burke, and Chief Financial Officer, David Morris. Thank you guys for participating and we'll jump right in here to the fireside. You obviously just came out, you just reported recently. You know, maybe just starting out, can you just provide us an update on the business exiting Q4?
Hey, Michael. Yeah, thanks for having us. We're really pleased to be here. We did exit fourth quarter with a lot of strong momentum, driven by a couple of factors. I think the vaccine clinics being the most predominant one. You know, stepping back, you know, this is a program, you know, coming out, you know, post-COVID that our customers and their residents sort of leaned into us to, you know, take over and manage this. We spent the last two or three years working to better hone this program, and things really seem to be hitting all cylinders in Q4 of 2025, not only from purchasing or reimbursement, but also the optimization of leverage and labor. It worked well.
The second thing, you know, driving a strong year-end results for our acquisition platform, you know, we're pleased with two acquisitions we did in the Pacific Northwest. They're coming on strong and are able to, you know, step in and take advantage of many of our synergies. One being national accounts, our purchasing platform, two, and then our revenue cycle management and PBM reimbursement being three. Those really came on strong. We continue, you know, which we have all year working plan optimization, seeing benefits there. Probably the final thing that contributed to a strong year-end is we continue to see acuity increasing slightly. Pleased all -in -all with how we ended the year and are headed into 2026.
That's perfect. You know, you've kinda surprised us all when you guys, you know, discussed, you know, when you put out your numbers and you raised your guidance so early in the new year. Can you discuss that, and how should we think about the contribution of vaccines? Is there anything else that's driving this, the guidance?
You know, stepping back, you know, prior to a JPMorgan conference in early January, we wanted to get guidance out, just to signal to the investment community that we were ever more confident in being able to overcome the headwinds from IRA. You know, six weeks, you know, post that conference, we were able to wrap up year-end, and we saw the strong quarter. The majority of the increase in our guidance is driven by the strong vaccine clinic performance we saw in Q4, and we anticipate that seasonality and same kind of performance trending in Q4 of 2026.
When we think about the guidance, you know, how much conservatism is baked into the numbers? What are some of the factors you think that could bring you to the top and bottom end of the range?
I mean, Michael, when we're issuing guidance, we want to stay focused on the things that we're comfortable with. We feel like we can forecast it and underwrite. Those are the things that are in our guidance that we, you know, gave last week. You know, some upside could be, you know, acuity. We don't forecast increased acuity. Other upside could be that our investment in, you know, M&A and contiguous startups, that activity performs better than we saw. You know, those are two things that come to mind that could be some upside.
That's, you know, one of the things obviously the market was focused on for a while was IRA, and it seems like you guys have done a very good job there in, you know, kind of, you know, alleviating some of the concerns and fears in the marketplace from investors. You know, can you talk about the impact? How should we think about IRA in 2027? Do you expect to offset the, you know, the entire impact in terms of profits or, you know, just to get a maybe early read? Then just, you know, even to start thinking about 2028 from the impact of that.
Well, for 2027, the next tranche of drugs have materially less impact on this patient population than the first wave did in 2026. To quantify the revenue impact, $150 roughly for 2026, dropping down to about $60 or $65 in 2027. In 2028, it's dramatically less still. Pretty much after the first couple of years of the drugs that are most prescribed in our patient population have already been impacted. Yes, we do intend to mitigate the EBITDA impact as well. We should see much the business returning more to its normal set of metrics as we move forward.
We can continue on the IRA. You know, how should we think about, you know, you've talked about how the competitors are struggling with IRA and related changes. How do you think this plays out? You can talk more about how you're positioning for this dynamic.
Well, it is very difficult on our industry. As we discussed in the past, a single unit operator has a hard time absorbing this blow from an EBITDA and cash flow perspective. That's why we've been very supportive of our industry efforts with the legislation on Capitol Hill. We'll continue to do so because it's critically important for these pharmacies to be there to serve the seniors who need us so much.
Yeah. To continue on kind of the legislation, you know, the regulatory environment, you have any thoughts about the, you know, potential, you know, movement on the Preserving Patient Access to Long-Term Care Pharmacies Act, and how should we be thinking about that? How should investors be, you know, thoughts around that?
Well, the bill is very strongly supported. I believe there are 39 co-sponsors, bipartisan. I think any Congress person would say, "Sure, we wanna protect our seniors." Where it goes in terms of passing, anyone knows. We've been very supportive of that through our trade group. The Senior Care Pharmacy Coalition will continue to do so.
Okay. You know, let's go back to, you know, we talked about your guidance and your growth. Can you talk about the components of your high single-digit revenue growth ex IRA that's embedded in your guidance? You know, how much is from new facilities? How much is from growth at the facility level? And, you know, any more, you know, specifics and color around that would be helpful.
Yeah. We've got the multiple growth drivers as we've discussed before. Certainly, we have the secular tailwind with growth in the assisted living industry itself. Of course, our organic sales growth is an important element. Once we bring on a new assisted living facility onto our pharmacy service platform, we then work very hard to increase the pharmacy adoption. Another growth engine for us are the contiguous greenfield startups. This is where a pharmacy begins serving some facilities in a market nearby, let's say two, three, four hours away, builds up enough scale to allow us to launch brick-and-mortar into that new territory. A great base for organic growth. Then, of course, we have our M&A program, where we're looking for the right type of operator to join our network.
I guess we can go down on the M&A pipeline. You know, how is the pipeline looking today? You know, what type of deals are you seeing? You know, what are the multiples, how are the multiples trending? I guess additionally, you know, what type of markets are you looking at? Any type of new markets? Kinda what's , when you put this, you know, what do you, what's all the factors you put into consideration?
I mean, our M&A approach is similar to the way it's been the past 10+ years. We're looking for, you know, attractive geography with attractive operators who wanna embrace the Guardian platform and work collaboratively to grow the business. I think , and there's a lot of opportunity. I mean, we talk about we've got 13% of the assisted living market, so a very small piece. There are geographies that we're not in, and is a great opportunity for us. You know, from a multiple standpoint, I think things are similar to what they have been.
We're not seeing a whole lot of change, but continue to see a lot of opportunity, frankly, because it's a way with our platform for a local operator, much like some of the acquisitions we did last year, where they can embrace, we can work together, Guardian and the local operator, to strengthen the business, not only from a human capital, but financial capital standpoint, and really solidify it to grow in a market. That's what attracts, I think, people to our model and vice versa for us. The M&A side continues to be very attractive for us, Michael.
How, you know, kind of, you know, we step back, how should we think about M&A versus de novos?
I think they're both very attractive. It's something that we've done concurrently the last 15 years. Think about, you know, our de novos are typically, as Fred mentioned, contiguous startups. We're in a market, good example is Cincinnati, Ohio. Strong team in that market. We're serving business in Columbus. Customers are asking us to do more and more there, and it makes sense for us to expand with bricks and mortar, and we've done such. That's an example of something we've done 20 times. That's the contiguous startup with existing operators. You know, with our left hand, we're doing M&A. You saw the activity that we did last year.
We had four acquisitions. Two were larger, two were smaller. Then we also had our contiguous startup platform. We see us continuing that and doing both concurrently as we continue to scale the business over the next few years.
Yeah, some of the recent deals, if you can give us some color and talk about, you know, Seattle and Oregon, how are the integration of those deals going? And what, you know, these deals have seemed to be contributing a little faster or on a faster ramp than the previous deals. Kinda, you know, what's driving that? Then we can move on to, I guess, the Heartland and give us some color on that one as well.
Yeah. All the M&A activity that we worked up, kind of they're all different, but it comes back to really the capability of the team because as we embark on these partnerships, they're ongoing. It's not one and done, and our teams leave. We're just getting started to continue to grow the business. You know, in Seattle and our Oregon market, these teams were strong. We're able to embrace some of the changes, both from a purchasing standpoint or revenue. Probably most importantly, we had national accounts that were asking and wanted to come on board sooner than we typically see. Those are the three things that really drove those being slightly ahead of our typical timeline.
Heartland, is that one still tracking with more traditional timeline, the four years, to mature margins?
It is. I mean, there were probably more changes there than we saw in Pacific Northwest. But you know, a strong team. It was four different locations, one deal. I would say it's tracking closer to our, you know, plus or minus four-year integration, but things are moving there, and we're making progress.
Okay. Are you seeing any change in the landscape, in the competitiveness of M&A market? You know, what's going on there? Is there anything worth noting from that perspective?
I think our pipeline's been robust the past few years, and we see it, you know, the same or even accelerating. It's, you know, the bigger players are more skilled, focused. There's some adjacent spaces we see buyers in, but the assisted living focus which we have, it's tough because these businesses are break-even typically at best. It takes the tools that we've put together over the last 15 or 20 years to work over the four-year period to achieve profitability. We view it as a nice moat.
I mean, it's hard for, you know, private equity or investors like that to come in with businesses that are not making money, and try to invest and grow it. It's also not leverageable. You couldn't put debt on something like this. You know, it's an attractive market for us and our platform.
Yes. You know, on the health industry, there's obviously been a lot of, you know, seems like more wind at their back. It seems like there's a lot of discussion of the, you know, silver tsunami, aging the population. You know, can you talk about this from, you know, from a higher level about, you know, about the opportunity to assisted living industry growth, and what are some of the unique competitive dynamics that are occurring?
Sure. You mentioned that the demographic trends are really increasing as we now move into the next few years. The first cohort of the baby boomers turned 80 this year. Looking at the chart, the bar graph of people older than 80 years, it goes up at a very sharp rate. In fact, I think the numbers are projected to increase from about 15 million today to 25+ million in less than a decade. The silver tsunami is here. It is going to be a very strong secular tailwind, you know, for our industry.
What are your thoughts on the capacity for the industry and the pace of new building? You know, kind of what's your expectations over the next three to five years?
I would say that we're nearing occupancy rates that should precipitate another state of new buildings. There's room to go, you know, and we're in the 80s, generally. The next couple of years, I think we're fine to accommodate the demand. But thereafter, we need to see new buildings coming out of the ground. With this demographic cohort coming forward, I think we'll see that starting to happen.
Perfect. I know you guys have been, you know, investing a lot into different programs and things that affect stars, things that, you know, help to differentiate you versus your competitors. You know, can you talk a little bit about, you know, the falls risk prevention program, you know, what and any specific feedback you're getting in the program, your thoughts about it, how it's going, and, you know, any color would be appreciated.
Sure. We're just in the early stages of piloting this program, but the early results have been very encouraging. Essentially, the goal is to use our clinical expertise and data analytics expertise to identify residents who may be at a higher risk of fall, and then proactively intervene through our medication management reviews and care coordination. Again, working on it in several locations, early results are very dramatic and exciting.
You know, I know. I think you have other program. What other programs have you been looking into that can drive value for partners and the beneficiaries, you know, and other things that you've invested in?
Yes. We call this element of our data analytics expertise, Guardian Shield, and we provide programs to help our residents and the operators in the assisted living facility. You know, some of those are, for example, we track the clinical interventions that our pharmacists make. As patients transition from the community into assisted living, oftentimes our clinical pharmacists are conducting the first-ever comprehensive medication regimen review. The things we find are alarming, quite honestly, but also very value add, the interventions that our pharmacists make by working with their community physicians to make therapeutic interchanges, et cetera. We developed the analytics to track that. Of course, we're able to use that in a multitude of ways.
Another area that's been quite interesting to see is one of the characteristics of our pharmacy service is that we work very hard to ensure that the resident's drug regimen is consistent with their payors formulary. This requires a lot of work, again, coordinating with the physicians who've actually written the scripts in the community, but it results in tremendous savings for the resident through lower co-pays, and we have a program to track that. Other things would be antibiotic stewardship, making, tracking the use of psych drugs. All these things are very important to providing the proper level of care to the residents of assisted living, and we want to use our data analytics expertise coupled with our clinical pharmacists to assist with of those areas.
On an AI front, obviously, that's something that keeps coming up, you know, from investors. How should we be thinking about AI playing a role in your business? Is there something from a standpoint, can you leverage that? Is there an opportunity?
We already use AI, and we see tremendous potential and are working on several projects as we speak. If there is leverage through making our teams more efficient through the technology.
Another area people always generic versus branding. You know, what are you seeing on the contracting front around generic or branding in this new environment and kinda your thoughts there, and how should the investors be looking at the you know, the comparison between the two areas?
You know, the brand generic mix is consistent with historical trends. You know, if you look in the long-term care space, the majority of what we dispense from a prescription standpoint are generics. I think our model is well-positioned to drive scale and efficiencies on both brand and generic. Not a lot of change and consistent with historical trends.
Okay. Cash conversion, capital deployment. You know, can you talk about, you know, the cash conversion expectations? Then, you know, what is your intended capital deployment strategy going forward?
You know, Michael, we just wrapped up our first year, obviously, of being public, and we've been talking with investors about our strong cash conversion. We mentioned earlier that we have no debt on the balance sheet, and we did execute this year with strong cash flow. The business produced a lot of cash and ended up very close to our 60% cash conversion ratio. We see that continuing as we move into 2026 and 2027. You know, how do we deploy capital? We're going to continue our M&A strategy, so we have capital to do that. The cash produced will be in excess of what we need for that.
We'll also be looking at any strategic opportunities, larger platforms that may make sense, but I'll note that we're gonna be very cautious and conservative there. Thirdly, as we get further into this year, I think, you know, options from share buyback to, you know, other areas are on the table. We're gonna continue to take it slowly, watch the business, and outside of M&A, you know, we'll continue to look at as we go through this year.
You know, obviously, like you said, you've only been public for a short period of time. Is there anything that you would wanna point out to the investor community that you believe is misunderstood or underappreciated by the marketplace at this point in time?
We’re getting the story out. David just mentioned one that I think at first or early on, perhaps investors didn't quite appreciate, but as it's materialized over time, I think they do now. I don't really have any further thing that I feel like , you know, we're not being able to communicate properly about our business.
Okay. You know, one area, obviously, you know, in healthcare, always, you know, we've talked about a little earlier. Anything else on the regulatory front that we should be concerned about or keep an eye on, that's something that keeps you up at night? Because, you know, that's, you know, Washington definitely creates a lot of volatility in the marketplace in healthcare. You know, any thoughts around that we should be focused on?
The one thing that it continues to be a focus is driving the price of these branded drugs down, and that's a really good thing for our residents and a really good thing for the healthcare system at large, subject of course to making sure there's enough there for R&D for the future. That ties into David's answer to your earlier question about generics and branded drugs. We are working hard to align our reimbursement algorithm with our dispensing rates. That is a very important initiative that we're proud to have achieved success with thus far. That would be the most important thing is , navigating these waters created by Washington around drug pricing, and us not being the unintended consequence like we think we were with the IRA.
Perfect. I guess one more question. I'm not sure if I'll get any, you know, just figure I'd throw it out there. Omnicare, you know, can you provide us any idea, you know, any thoughts on the opportunity there, kind of what's going on there, an update, from a marketplace perspective?
Well, Michael, as you know or as you probably suspect, we are participating in that bankruptcy process. We're not really in a position to provide much commentary. No matter how it goes, we can say that disruption in any marketplace yields opportunity. Whichever way this goes, we think that there will be an opportunity for Guardian coming out of it.
Well, that's great. I think, you know, it's been a great first year. I appreciate your time today. We're just hitting the clock here, but just wanna say thank you, and it's really great hearing the story.
Thank you. We really appreciate the opportunity, and enjoyed the conversation.
Appreciate your support.
Yes.
Well, thank you very much.