Guardian Pharmacyrvices Inc Cla Stock

Hello, everyone. Thank you for joining us, and welcome to Guardian Pharmacy's Second Quarter 2026 Earnings Call. [Operator Instructions] I will now hand the call over to Ashley Stockton, Investor Relations. Please go ahead.

Good afternoon. Thank you for participating in today's conference call. This is Ashley Stockton, Vice President, Investor Relations for Guardian Pharmacy Services. I'm joined on today's call by Fred Burke, President and Chief Executive Officer; David Morris, Chief Operating Officer; and Will Mudd, Chief Financial Officer. After the close today, Guardian posted its financial results for the quarter ended June 30, 2026. A copy of the press release is available on the company's Investor Relations website.

Please note that today's discussion will include certain forward-looking statements that reflect our current assumptions and expectations, including those related to our future financial performance and industry and market conditions. Such forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from our expectations. We encourage you to review the information in today's press release and quarterly report on Form 10-Q as well as the specific risk factors and uncertainties discussed in our annual report on Form 10-K.

We do not undertake any duty to update any forward-looking statements, which speak only as of the date they are made. On today's call, we also will use certain non-GAAP financial measures when discussing the company's financial performance and condition. You can find additional information on these non-GAAP measures and reconciliations to their most directly comparable GAAP financial measures in today's press release, which again is available on our Investor Relations website. And now I will turn it over to Fred for high-level commentary.

Thank you, Ashley, and good afternoon, everyone. We appreciate you joining us today to review Guardian's second quarter results. But before David and Will review the second quarter in detail, I would like to begin with some perspective on our performance through the first half of 2026 and our outlook for the remainder of the year. Guardian continues to execute well, supported by solid fundamentals across our local markets and meaningful progress against our strategic priorities, including continued geographic expansion.

Through the first half of 2026, reported revenue grew 2%. Absent the IRA pricing reductions, revenue would have increased low double digits, a clearer indication of the underlying growth of the business. Importantly, we have successfully mitigated the profitability impact of the changing reimbursement environment under the IRA through disciplined execution across the business, enabling us to generate adjusted EBITDA growth of 23% during the first half of 2026 compared with the first half of 2025.

Based on our year-to-date performance and current expectations for the balance of the year, we are raising our full year 2026 outlook. We now expect revenue of $1.43 billion to $1.45 billion and adjusted EBITDA of $129 million to $131 million. As we move through the remainder of the year, our priorities remain consistent, delivering outstanding service to the residents and communities we support, expanding our platform in attractive markets, investing in the clinical and operational capabilities that strengthen our value proposition and maintaining the financial discipline that has long been a hallmark of our model.

Supporting those priorities requires an organizational structure and leadership team capable of managing the scale of the business today while positioning for growth ahead. At the broader corporate level, in June, we took an important step in the evolution of our company with the appointment of David Morris as Chief Operating Officer. David assumed this role after serving as Guardian's Chief Financial Officer since inception. He has played a central role in building this company and has helped shape our strategy, financial discipline and operating model.

He knows our business, our pharmacy leaders and our local markets extremely well. Moving into the broader COO role gives David the opportunity to apply his experience more directly to our operations and sales organizations. The new field operations leadership team we put in place earlier this year to help advance operational excellence now reports to David. He will discuss this new structure in greater detail.

With David moving into the COO role, we are pleased to have appointed Will Mudd as Chief Financial Officer. Will joined Guardian in 2012 and has worked closely with David for more than a decade. During that time, he has taken on increasing responsibility across the organization and has played an important role in building and scaling the financial infrastructure that supported Guardian's growth and our transition to becoming a public company. His appointment is a natural progression and reflects our confidence in his ability to lead the finance organization through Guardian's next phase of growth.

These transitions demonstrate the depth of talent we have developed within Guardian, the strength of our succession planning process and our commitment to creating opportunities for leaders to grow within the organization. Alongside these changes, Kendall Forbes, a co-founder and long-term business partner who played an important role in Guardian's development, has retired. We are grateful for his many contributions to Guardian over the years and wish him all the best in his next chapter.

Lastly, I want to briefly address the upcoming conversion of the final tranche of our Class B common stock into Class A common stock, which will occur in late September and represents approximately 13.5 million shares. Following that conversion, we expect between 35 million to 37 million shares of Class A common stock will be held collectively by employees, members of management and directors, including shares they hold today.

Nearly all those shares are subject to a closed window trading restriction until the next open trading window following our third quarter earnings release, which is currently expected in early to mid-November. The management and directors who hold the substantial majority of shares remain committed to taking a measured and prudent approach to liquidity over time to ensure a structured and orderly process with minimal market disruption.

With that, I will turn the call over to David, who will provide additional perspective on our operations.

Thanks, Fred. I'm pleased to report that we delivered another solid quarter. Will plans to review our financial results in greater detail, but I would like to provide some operating context and discuss the progress we are making to strengthen Guardian's infrastructure as we scale. Our clinical capabilities remain an important part of our value proposition and support our ability to drive top line growth. Through the first half of the year, our clinicians have served over 300,000 residents. Across this population, our pharmacy teams have completed more than 50,000 clinical interventions affecting over 45,000 residents.

As an example, we identified approximately 4,000 allergy risks and 5,000 instances of potentially duplicate drug therapies. These interventions help reduce medication-related risk for our facility partners and more importantly, help prevent adverse health outcomes across the resident population. We're also advancing several new clinical initiatives and are highly encouraged by the progress we are seeing. One example is our falls risk program, which we are expanding to additional facilities for further evaluation. Early data has shown meaningful improvement in outcomes, and we are encouraged by the opportunity to assess the program across a broader resident population and data set.

Turning to profitability. We continue to translate strong top line performance into bottom line growth. As we scale, we are benefiting from increased purchasing leverage, improved labor productivity and greater efficiency across our support infrastructure. While we expect these benefits to continue, we also recognize the importance of investing in the leadership, systems and infrastructure necessary to support our future growth and we'll do so as necessary. The strength of our operating performance is also supporting solid cash generation.

Beyond our capital expenditure needs, we continue to view M&A and greenfield start-ups as a highly attractive use of capital and an important driver of incremental growth. Consistent with that strategy, subsequent to quarter end, we announced the acquisition of Wellness Concepts, a long-term care pharmacy based in the Shenandoah Valley of Virginia. This pharmacy adds a service-oriented team with a strong reputation for quality in the communities it serves. While it was smaller in size, it was very much in line with the type of pharmacy we look to add to our platform.

Additionally, we launched a new greenfield pharmacy in Lexington, Kentucky, marking our first location in that state. Lexington is the fourth greenfield pharmacy developed by the team that joined Guardian through our Middle Tennessee acquisition in 2009. The launch is a collaborative effort between our Tennessee and Cincinnati pharmacies and demonstrates how acquired talent and local market expertise can come together to support continued growth. This effort is being led by David Brown, one of our newly appointed Senior Vice President, Regional leaders. That brings me to one of our most important organizational initiatives in recent years, the implementation of our new regional leadership structure.

To enhance our organization, we have appointed 8 regional Senior Vice Presidents from within the company to provide leadership across our national footprint. These are some of our strongest and most experienced operators who have a proven track record. They understand our pharmacy teams, our customers and the markets in which we operate. The objective is to bring greater consistency, accountability and support to our local pharmacies while preserving the entrepreneurial culture and local decision-making that have always distinguished Guardian. Our regional leaders will help pharmacies share best practices, develop and mentor local management teams and identify opportunities to operate more efficiently and effectively.

They will also play a central role in strengthening 2-way communication between our pharmacies and support organization. This includes translating company-wide priorities into action at the local level while ensuring that the experience and perspective of our local operators help inform broader strategic decisions. While the COO role is new for me, I have worked closely with our pharmacies and these regional leaders since Guardian's earliest days. I look forward to deepening those relationships and working alongside them to strengthen execution throughout the organization. I'll now turn it over to Will for a review of the quarter.

Thank you, David, and good afternoon, everyone. I'm pleased to be speaking with you today in my first earnings call as Chief Financial Officer. I've had the privilege of working closely with David, Fred and the finance organization for many years, and I'm excited to continue supporting the company's growth with the same financial discipline and operational focus that have helped define Guardian's success.

I'll now walk through our second quarter results in more detail and provide additional context around our outlook for the remainder of this year. Residents served at quarter end were over 210,000, up high single digit year-over-year, reflecting continued growth across our facility base, increased adoption rates and continued contributions from M&A. Script volumes also increased high single digits year-over-year. Reported revenue for the quarter was $351.2 million, up 2% year-over-year. Absent IRA-related pricing reductions, revenue would have been up low double digits year-over-year in the quarter.

Revenue growth benefited from organic growth, M&A, higher resident acuity and our continued plan optimization efforts. We also saw favorable product and payer mix, both of which we expect to remain supportive through the end of the year. These factors benefited gross profit, which increased to $80 million in the quarter, up 18% year-over-year with a gross margin of 22.8%. We delivered this improvement despite continued pressure from higher fuel costs.

SG&A was $56.5 million and represented 16.9% of revenues in the quarter, in line with our expectation. As we highlighted last quarter, we reached a settlement in a payer dispute that resulted in an $8.5 million cash payment, which was recognized as other income in the second quarter. Because the settlement payment is not reflective of our ongoing operating performance, it has been excluded from adjusted EBITDA. Importantly, the resolution also helped establish a stronger, mutually beneficial relationship with the payer, which was our objective from the onset.

Stock-based compensation was $2.9 million in the quarter and should remain near this level on a quarterly basis for the balance of the year. Adjusted EBITDA was $29.7 million, representing 19% year-over-year growth and an adjusted EBITDA margin of 8.4%. We achieved this margin while continuing to absorb dilution from the acquisitions and greenfield startups completed in 2024 and 2025. These locations remain below our corporate margin and reduced consolidated margin by approximately 60 basis points during the quarter compared with 80 basis points in the first quarter, demonstrating continued progress in bringing the group closer to our consolidated margin.

The effective tax rate for the quarter was 26%, in line with our expectations. Net income is $22.1 million, inclusive of the previously mentioned $8.5 million settlement compared to $8.8 million in the year ago quarter. Turning to the balance sheet. We ended the quarter with cash of close to $90 million, up from approximately $65 million in the prior quarter. Importantly, cash conversion returned to a more normalized level following a onetime working capital reset associated with the implementation of the IRA in the first quarter.

As Fred noted, based on our first half performance and current expectations for the remainder of the year, we are raising our full year 2026 guidance. We now expect revenue in the range of $1.43 billion to $1.45 billion, up from $1.4 billion to $1.42 billion. Our adjusted EBITDA range goes to $129 million to $131 million, up from $123 million to $127 million. As we have historically stated, our outlook does not include any contribution from future acquisitions. However, we will continue to actively pursue business development opportunities consistent with our approach in prior years.

With the larger acquisitions completed in the prior year now fully lapped, second half forecasted revenue growth will be driven primarily by organic performance with a modest contribution from the two smaller acquisitions thus far in 2026. As such, absent the IRA pricing reductions, we expect underlying revenue growth to remain in the high single digits. Reported revenue, however, in the second half of the year is expected to decline year-over-year by a low single-digit percentage, reflecting the continued impact of the IRA-related pricing reductions. We expect our adjusted EBITDA margin to remain relatively stable in the third quarter, followed by a typical seasonal increase in the fourth quarter associated with vaccine activity.

With that, I'll turn it back over to Fred for closing comments.

Thank you, Will. Again, we are very pleased with our performance through the first half of 2026 and with the continued execution across the organization, particularly in managing the impact of the IRA-related pricing environment. We will continue to focus on driving profitable growth across our existing markets, expanding through greenfield development and pursuing disciplined M&A. We have a strong and experienced leadership team in place to execute against these priorities with continuity, accountability and operating focus as we continue to scale the business.

Combined with our strong balance sheet and meaningful financial flexibility, these capabilities position Guardian to build on the momentum we have established. As always, I want to thank our teams throughout Guardian. Their commitment to our residents, our facility partners and one another is what makes Guardian such a special organization. Operator, we'll now open the line for questions.

[Operator Instructions] Your first question comes from the line of Brian Tanquilut with Jefferies.

Congrats on the first strong quarter. Maybe before I forgot, David, Will, congrats also on the promotion. Maybe, Fred, when I think about the M&A and the greenfields that were announced in the press release here, just thinking about how you're thinking of the ramp process or ramp phase and how long that will take for those specific assets to get to company averages? And then if you can share with us your thoughts or some visibility into the pipeline for both greenfields and M&A for the rest of the year and into next year.

Thank you very much, Brian. I appreciate you joining and in answer to your question. We have a very robust pipeline, as David mentioned, both for greenfields and for new M&A activity. We've always said that it takes us roughly 4 years to bring these new locations up to the corporate average profitability, some quicker, some may be a little longer depending on what has to be done. So in terms of these two particular, I would forecast that it will be about normal.

Got you. Okay. And then maybe shifting gears, just as I think about the IRA, there are obviously a new set of drugs coming under the IRA pricing changes in 2028. I think Trulicity and Rexulti are a couple of drugs in mind. But how do we think about what that does to you guys? Or have the PBM arrangements been addressed to where future changes from the IRA are already covered?

We will suffer the revenue decline associated with the price reduction, but this next tranche represents about 40%. Am I right, David, about 40% of the 2026 tranche? So the impact -- revenue impact is going to be less in '27 than it was in '26. On the EBITDA side, yes, we are comfortable that we've mitigated the margin impact.

Your next question from the line of Raj Kumar with Stephens.

David, Will, congrats on the new roles. Maybe I want to follow up on. So I think you called out it's now a 40% relative to the 2026 impact for IRA. I think last quarter, you had called out it being 50%. So there's a 10-point improvement there. So curious on what's driving that differential and what underlying operational improvements or PBM payer contracting improvements have taken place since then to kind of drive that conviction?

Raj, the revenue impact is yet to be definitively analyzed because we don't yet have the specific drug. So we're just guesstimating at this point based on the relative volume of the '27 tranche relative to the '26 tranche. So somewhere in that range that is what it will be, but we'll know here pretty soon.

Okay. Got it. And then kind of thinking, David, maybe more specifically to you on some of the kind of initiatives you called out. I guess kind of as you think about maybe kind of mobilizing it and kind of putting it into more of an illustrative manner for the payers and the PBM partners, kind of, what are some of the milestones and kind of ways do you kind of foresee kind of playing into the longer-term outcome for kind of all of these clinical capabilities that you called out?

Raj, that's something that we've talked about in the past few years. It's been ongoing, and we set out probably 5 years ago with a very intensive education process with all of our payers to make sure they understood the value that we bring to the equation for these frail residents and for the ultimate health plans themselves. But more near term, we've talked about our falls risk program, and it continues to make great progress. Our sample size is relatively small, but we've seen meaningful reductions in the fall-related risk metrics. And we'll be providing more detail as we continue to roll out this plan and we have more representative data to talk about.

Your next question from the line of Parker Snure with Raymond James.

Just wanted to ask on the regional leadership structure changes. Just is this going to create any changes just in how you operate on a day-to-day basis? And what capabilities or strengths do you think that this will add to the overall enterprise?

There will be gradual changes. But as we talked about in the opening comments, these are leaders that have been with us probably 15-plus years on average. They've run very strong businesses, grown regions prior to the reorg. And yes, they will be able to provide more guidance and assistance and insight into some of our local presidents, some that have been with us for a while, some that are new through our M&A activity, and I think we will heavily strengthen the organization as we prepare it for continued growth. So we think it will be a very positive impact. And it's early on, but are already starting to see some impact.

Okay. Great. And if I can just get one follow-up. Just on capital deployment. You have $90 million of cash on your balance sheet, no debt, strong free cash flow, relatively low CapEx. Just outside of M&A, how are you thinking about potential capital deployment, maybe potential shareholder returns? Or do you want to remain flexible?

Thank you for that. It's a very positive problem to deal with. And yes, our main focus is to deploy cash on acquisitions and greenfield start-ups because it leverages our business so well. Also, at this point, we want to maintain dry powder until we know for certain what happens with the Omnicare assets in case there's any opportunity there. Well, of course, as we move through, we'll reassess but are exploring all options.

[Operator Instructions] Our next question from the line of Allen Lutz of Bank of America.

Fred, I want to follow up on that last comment you made around Omnicare and keeping some dry powder available. I know it's a difficult subject to opine on, but what are the range of outcomes for you that we should be thinking about related to that process as we think about the remainder of the year? And can you just remind us, is any impact from Omnicare and sort of the fallout there reflected in the 2026 guide?

Good question. I wish I could answer it definitively, but I cannot. The deal has not closed, at least not that we're aware of. And until it does, I don't know that we can really engage in any further conversations. There may or may not be interest on their part, but we're prudently standing by in case that they may seek to divest some of their assets. Certainly, we view it as an organic growth opportunity. But at the moment, since we're in somewhat of a standstill mode, we have not incorporated any of that into our guidance.

Your next question from the line of Grayson McAlister with Truist.

This is Grayson on for Dave. I just wanted to extend my congratulations to Will and David as well. I wanted to go back to the Lexington greenfield. Obviously, it fits in pretty nicely between your Tennessee and Cincinnati pharmacies. And I'd imagine you're already serving some clients in the state. So could you just talk a little bit about the thought process that goes behind that greenfield? And then any benefit that you get in the state just from serving some of the same clients or leveraging capabilities through some of your more legacy pharmacies?

Grayson, great question. If you look at the map, you can see that obviously, we're not in Kentucky. I mentioned this marks our first location there, but we have locations in proximity. We're currently serving business in Kentucky from some of our other facilities. And I think this is a perfect example of a contiguous expansion with existing team. So this is what we seek to do as there's enough business in an area to launch a bricks-and-mortar site. And yes, there will be assistance from existing Guardian pharmacies, be it Columbus, Ohio or other surrounding pharmacies to help launch this business and support it as it comes up to scale.

There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

Good morning. My name is Allen Lutz, health care tech and distribution analyst here at Bank of America. We are incredibly excited to have Guardian Pharmacy Services here. We have President and CEO, Fred Burke. Fred, thank you so much for joining us.

Thank you. We're very excited to be here, too.

Great. So Guardian just reported earnings last week. I would love to get a sense, do you have any prepared remarks or initial comments that you'd like to make?

I think we covered it pretty well in our call. We had a really good quarter that was better than the consensus, which was roughly our own internal plan as well and flowed through some of the outsized performance into increasing our annual guidance. So everything seems to be rolling well.

We dealt with the IRA, which was a complete sea change for our industry, probably the biggest change that we've experienced in a decade. Decade. And it was -- I'm very, very proud of the team. Our data analytics capabilities and skill sets really shone through as we were able to work and understand and see that the predictions we have made, the forecast came were on track. So we were -- had a busy first quarter, off to a good start.

That's great. And I think Guardian has been a public company for less than 2 years, so relatively new still to the public markets. I think a lot of investors are still new to the Guardian story. Can you provide maybe a quick intro to Guardian, what the company does and what differentiates you in the industry?

Allen, we're an institutional pharmacy that's focused on a particular segment of long-term care, assisted living facilities. And assisted living is where all, if not most of the growth has occurred in long-term care, but they need a different type of service.

So from the outset 20 years ago, when we founded the company, it was done so on the basis of providing that very specialized service needed by assisted living. And it has served us very well as we have now grown to be the nationwide leader in assisted living. I'll hasten to add with a whopping 13% market share, which, to us, means there's 87% left to go. But that's from a standing start and our pharmacy map does not yet cover the entire geography of the United States. So the special service is working well. We feel like we have a great opportunity to continue and grow the business.

Yes, I'd love to, kind of, follow up to that. The ALF market is growing about mid-single digits, but the industry, unlike the retail pharmacy industry, unlike the PBM industry or the drug distribution industry, the long-term care pharmacy market is incredibly fragmented. Can you talk a little bit about the competitive landscape in the ALF market? Talk about the health of competitors and the outlook for M&A.

We consider our main competitor, the single-unit independent pharmacy owner who, by and large, does a really good job of serving assisted living. They too have engineered their pharmacy for the special needs. But they also have lacked the benefits of scale, such that the profitability is nowhere near what Guardian is. And that then doesn't allow them the resources they may need to provide some of the extra services. And there, unfortunately, and we are very upset or distressed about this -- the effect of the IRA on our industry colleagues. They are already operating on thin margins, and we're worried that it will be untoward for them. But we expect it to hopefully bring some of the excellent operators that we respect and admire to want to join the Guardian family.

So as you think about the competitive landscape, a lot of the independent pharmacies are doing a good job satisfying customers. But in many cases, their profitability even before the IRA was breakeven or very, very low. Can you talk about what the Inflation Reduction Act did in your business? How you were able to offset the dynamics from IRA? And then we can go into maybe how that could have impacted your peers.

Sure. For the first 10 drugs in '26, essentially the law took away our sell-side margin, the spread that we made on the sell-side. We still maintain the dispense fee in our buy-side margin. But we, Guardian, set about the task 2 years ago of educating our payer partners of what the effect would be and very happy to report that we were able to mitigate that entire headwind. The negotiating entities on behalf of the independents, the PSAO networks also set about that task. And we don't know exactly how much of the headwind was mitigated, but some, but I'm afraid not all.

And as we think about your business versus an independent pharmacy that competes in the market, maybe a single operator, can you talk about where does Guardian -- where does their size and scale allow them to drive the EBITDA margins that you have today that are much higher than the peer average. Where are those competitive advantages? I would love to go through those.

Generally falls in 4 buckets. First, on the buy side, the purchasing. We have substantial purchasing advantages leveraging our scale. It's on the reimbursement side, as we have decided 5 years ago as a company to invest in all that's necessary to negotiate and contract directly with our PBM partners. And we have set about the task of demonstrating the value add that we bring. And as a result, enjoy reimbursement from that.

The third bucket would be national accounts and regional accounts. With our geographic coverage, we've been able to establish relationships with the larger assisted living groups which allows us to bring that relationship to an acquired entity.

And then finally, this is a very complex business under the covers. Takes a lot of systems and processes, procedures, controls to manage the business such that you can exact the kind of profitability that you deserve. So, we bring that to the party as well. And that generally takes 2, 3, 4 years to implement, but is very impactful. So those 4 buckets combined to take a new member of the Guardian family from breakeven or making 1, 2 or 3 percentage points of EBITDA margin up to our corporate average.

And as you think about the fragmented nature of the competitive landscape or just the competitive landscape in general, primarily support the ALF market. They support other populations. Why do you think that there hasn't been more of a consolidation? What are some of the reasons that it's hard to grow, it's hard to earn constant profitability in your space as you think about the competitive landscape?

You're speaking now of the competitive pharmacies, the independent pharmacies?

Just in general. It could be large competitors, could be independents, but -- why have others not had success scaling in this market?

I think there has been some success in scaling on the SNF side, the skilled nursing, pharmacies that serves the skilled nursing facility. But there hasn't been on assisted living because it's such a specialized service model, and it does require scale to achieve the profitability. So you've got that virtuous cycle, if you will, that you need the scale to get the profitability. But without the scale, you don't have the profitability to aggregate players.

And so if we kind of take everything you've talked about today, I would love to get a sense of what you think the long-term growth algorithm of the business is. The ALF market is growing 5%. You talked about some of the challenges in the competitive landscape. I would love to think about how at 13% market share, how do you think about whether it's top line, EBITDA, EPS, how do you think about the long-term growth algo of this business?

Well, absent the anomaly of the IRA, which we can circle back to, which is a one-time revenue hit, we've guided to high single-digit organic growth, supplemented and augmented by the M&A program, so low double digit with leverage at the EBITDA line. The one-time hit for '26 means that our revenue is going to be relatively flattish is what we've guided to for this 1 year.

In the past, I'm looking in the rearview mirror, we've been able to exceed that. I think cumulatively, over the life of our company, it's been mid -- mid-double-digit teens growth cumulatively for CAGR on the revenue line. But we're more conservative in our guidance. We feel very comfortable that we can continue what we've been doing to achieve this growth.

And as you think about the targets for M&A, can you talk about when you acquire a pharmacy, what type of margin profile does that pharmacy have? And then how long does it take to get to the consolidated margin profile of the rest of your business?

As you mentioned earlier, most of our targets are operating at breakeven or near breakeven low single-digit EBITDA margins. And we generally say it takes 3 or 4 years to bring a pharmacy up to the Guardian corporate average, because we can implement some things quicker than others. We can implement our reimbursement soon, and that starts us on the journey. Our purchasing may take longer. And certainly, we want to make sure that the services are adequate and up to par before we launch our national account programs.

And then those systems and processes, generally this pouring concrete over a 2-, 3-, 4-year period of time. So we'll get an initial jump from the purchasing and reimbursement and then over time, feed in the national accounts and the systems such that it takes 3 to 4 years.

Can you talk about the balance sheet a little bit in cash flow? Do you have any debt? And talk about the cash flow profile of the business as we think about how you're funding these transactions?

No debt, $64 million of cash on March 31. And we generally say that we have a 60% cash conversion ratio. And that was interrupted slightly in the Q1 as we did take a slight working capital hit associated with the IRA, but we'll expect to see that resume as we move through the year. And obviously, the kinds of deals that we're talking about, we can fund out of our combination of cash. And of course, we do have additionally credit facility of $75 million, which we're not tapping at the moment.

Great. That's great color and perspective. Can you level set how many pharmacies do you own today? And in a typical year, how many do you acquire? How many do you acquire?

I believe it's 62 in total with 54 being full service. And in the past, we've generally added 3 -- 2, 3, 4 new pins on the map. And we do that not only by acquisitions but also with what we refer to as contiguous greenfield startups. And the way that works is one of our pharmacies may establish service of some key accounts in an adjacent metro area. And once there's enough critical mass, then they can expand there with bricks and mortar. And then that allows them to properly serve that entire market area. We've been very successful with that. It's a great way to grow. And so we'll do that as well. And we should be adding 2, 3, 4 new market service areas per annum.

Great. And then last question. As we think about the remainder of 2026, what are you most excited about this year as you think about the trajectory of the business and the opportunities in front of you?

Well, it's been really, really gratifying to be a public company. We're very much employee-owned. We have over 200 employee owners of Guardian. And that's been a very rewarding for them. And I think it's been highly motivating as well. And we just have so much opportunity. We feel like we're running in the open field, and I'm really excited as we move forward to capitalize on that opportunity.

That's great. It looks like we are out of time here. Fred, thank you so much for the time. Really appreciate it. And thank you to everyone in the audience for joining us.

Thank you, Allen. Thanks, everyone. Appreciate it.

Hello, everyone. Thank you for joining us, and welcome to Guardian Pharmacy Services First Quarter 2026 Earnings Release Conference Call. [Operator Instructions]

I will now hand the conference over to Ashley Stockton. Please go ahead.

Good afternoon. Thank you for participating in today's conference call. My name is Ashley Stockton, Vice President, Investor Relations for Guardian Pharmacy Services. I'm joined on today's call by Fred Burke, President and Chief Executive Officer; and David Morris, Chief Financial Officer. After the close today, Guardian posted its financial results for the quarter ended March 31, 2026. A copy of the press release is available on the company's Investor Relations website.

Please note that today's discussion will include certain forward-looking statements that reflect our current assumptions and expectations, including those related to our future financial performance and industry and market conditions. Such forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from our expectations. We encourage you to review the information in today's press release and quarterly report on Form 10-Q as well as the specific risk factors and uncertainties discussed in our annual report on Form 10-K. We do not undertake any duty to update any forward-looking statements, which speak only as of the date they are made.

On today's call, we will also use certain non-GAAP financial measures when discussing the company's financial performance and condition. You can find additional information on these non-GAAP measures and reconciliations to their most directly comparable GAAP financial measures in today's press release, which again is available on our Investor Relations website.

And now I will turn it over to Fred for commentary on the first quarter results.

Thank you, Ashley, and good afternoon, everyone. We appreciate your continued interest in Guardian as we report our first quarter results; and importantly, our first full quarter operating under the new IRA framework. I'm pleased to report that we delivered solid results. Before David walks through the financials, I'd like to take a few minutes to discuss our transition under the IRA as it has driven more change in our industry in a single quarter than we've seen in decades.

Let me start with the revenue impact. Across the industry, pricing on IRA selected drugs for 2026 declined meaningfully. For our book of business, we experienced an approximately 60% decline in pricing across our branded drug mix that was impacted by the IRA. Despite this, we were able to deliver a 2% increase year-over-year in reported revenue. Absent the government-mandated price declines, we would have grown revenues by low double digits.

On gross profit, as we outlined previously, absent our mitigation efforts, the IRA would have represented approximately a $10 million headwind. Throughout the course of last year, we proactively took coordinated firm-wide actions, including direct negotiations with our payor partners to offset this impact. Those efforts were realized in the quarter, allowing us to deliver double-digit gross profit growth, reinforcing the effectiveness of our approach and giving us confidence in our forward momentum.

Beyond pricing and reimbursement, the IRA introduced meaningful changes to the operational mechanics of how transactions are processed across the system as well as the timing and synchronization of cash flows. For instance, post adjudication, all IRA branded drugs are now further processed through the Medicare Transaction Facilitator, an online platform established by CMS. This has introduced additional steps into the transaction life cycle and led to a delay in the timing of certain payments.

Data submission formats also varied across manufacturers, adding even more complexity to the end-to-end process. Our team navigated these changes very effectively.

Lastly, the IRA created a onetime working capital reset as it altered how and when cash moves through the system, resulting in long-term care pharmacies temporarily carrying higher receivables with less offsetting payables as the system rebalanced. This was fully within our capacity to manage given the strength of our balance sheet. We believe dynamics like these may prove far more challenging for smaller operators who lack the necessary systems and access to capital, further highlighting the advantage of scale in our model.

Overall, as it pertains to the IRA, I can now say with confidence and clarity that the business performed in line with our expectations. Pricing is flowing through as we forecasted, reimbursement is tracking in line and the new payment processes, while complex, are functional. We also maintained strong service levels, preserved customer relationships and delivered on our financial objectives.

Just as importantly, we demonstrated our ability to anticipate outcomes and execute on our strategy. Successfully forecasting this complicated and unprecedented environment speaks to the expertise of our teams and the strength of our data and analytics capabilities, which gives us greater confidence in how we manage and predict the business.

Across the broader industry, there has been no legislative resolution to the unintended consequences of the IRA, and we expect continued pressure on our peers as they adjust. While there is still discussion around potential legislative relief, including a bipartisan bill proposing a dispensing fee to support long-term care pharmacies, we view the likelihood of any near-term action as uncertain at best.

Returning to our quarterly performance, results were driven by strong underlying fundamentals, including solid resident and script volume growth with a portion attributable to items not reflective of the core operating run rate. Results included approximately $3 million of discrete benefits to our gross profit from favorable payer dynamics and a manufacturer inventory credit associated with the IRA. These flow through at a full incremental margin to adjusted EBITDA. Consistent with our commentary last quarter, items such as these cannot be forecasted as recurring in our underlying quarterly run rate.

Looking ahead, one area of uncertainty for both us and the broader market is fuel. Given the current geopolitical backdrop, there is potential for continued volatility. While fuel is not a dominant cost for us, it is meaningful and can represent a headwind of up to a few million dollars annually if prices remain elevated. Additionally, as we continue to scale, we expect to invest further in our organizational infrastructure, particularly at the regional level to build out our bench to support our growth. Hence, we continue to make targeted hires to support our expansion efforts. As such, labor costs are likely to trend modestly higher over the remainder of the year.

While we are very pleased with our performance in the quarter, it remains early in the year, and our underlying outlook for the business remains unchanged. We believe it is appropriate to remain disciplined, particularly in light of potential fuel cost pressures and necessary investment in our leadership. That said, we're updating our full year adjusted EBITDA guidance to include the $3 million benefit recognized in the quarter. Our updated adjusted EBITDA guidance is $123 million to $127 million, up from $120 million to $124 million. Revenue guidance remains at $1.4 billion (sic) [ $1.40 billion ] to $1.42 billion.

Before I close, I want to briefly touch on the ongoing Omnicare process. With another entity now identified as a stalking horse bidder, there is increasing clarity around our potential path forward. While the process may continue to evolve, the current backdrop appears constructive for Guardian. From our perspective, periods like this can create some dislocation and opportunity where the foundation we've built, consistent service and financial stability matters even more.

In summary, this quarter reflects the work we did throughout the last several years to proactively position the business for successful implementation under the IRA. Our ability to navigate this transition underscores the strength of our platform and the advantages of scale, enabling us to effectively advocate for the value we deliver and ensure alignment with our partners, and we will continue to do so. Lastly, I want to recognize the work of our teams across the organization. I couldn't be more proud of the people driving this business forward every day at every level.

With that, I'll turn it over to David to review the quarter.

Thank you, Fred, and good afternoon, everyone. I'll now walk through our first quarter results in more detail. The underlying drivers of our business continued to perform well during the quarter. Total residents increased 10% year-over-year to approximately 207,000 at the quarter end with assisted living residents continuing to represent roughly 70% of our mix. Script volumes were also strong, increasing 10% year-over-year.

Revenue for the quarter was $336.6 million, reflecting contributions from organic growth, acquisitions and continued plan optimization efforts. In addition, resident reenrollment drove a modest mix shift toward more favorable payors. Reported revenue was up 2%. Absent the government-mandated price declines from the IRA, revenues would have been up low double digits year-over-year. Gross profit was $76 million, up 19% year-over-year and up 14%, excluding the previously mentioned $3 million benefit. Reported gross margin was 22.7%. Excluding the $3 million benefit, gross margin was 22%.

As we turn to SG&A, I wanted to highlight several items. This quarter includes a $3.2 million legal expense related to efforts that ensure appropriate reimbursement across our payor relationships. We actively advocate for fair payment for services we provide, which at times includes pursuing resolution through legal channels. Subsequent to quarter end, we reached a settlement related to this matter, resulting in an $8.5 million cash payment that will be recognized as other income in the second quarter and will not be included in our adjusted EBITDA.

SG&A also included legal and financing costs associated with our secondary offering, a little under $1 million. Stock-based compensation was $1.9 million in the quarter. As a reminder, we expect SBC to run at approximately $3 million per quarter for the remainder of the year. Adjusted EBITDA for the quarter was $29.8 million, representing 27% year-over-year growth and an 8.8% margin. Excluding the $3 million benefit, adjusted EBITDA grew 14% with an adjusted EBITDA margin of 8%.

Acquisitions completed over the past 2 years are collectively contributing modest profitability in the quarter, but remaining well below our consolidated margin profile, dampening margins by approximately 80 basis points. The effective tax rate for the quarter was 26%, in line with our expectations and adjusted EPS was $0.29 per share.

Turning to the balance sheet. Cash ended the quarter at $65 million, essentially flat with year-end. Strong operating cash flow funded normal course business activities typically associated with the first quarter, including annual bonus payouts and higher private pay AR balances. We also absorbed a onetime working capital impact associated with the IRA transition. Approximately half of the working capital used in the quarter was attributable to the IRA.

Importantly, this reflects a temporary timing shift rather than a structural change and does not impact the underlying cash generation of the business. We expect working capital and cash conversion to normalize over the balance of the year. With a strong cash balance and minimal debt, our capital allocation priorities remain unchanged and on track with acquisitions and greenfield investments at the forefront. We're in active discussions with acquisition candidates we believe are a strong strategic fit and expect to continue our historical pace of acquisitions in 2026.

Looking ahead, as Fred mentioned, our revenue guidance remains unchanged at $1.4 billion (sic) [ $1.40 billion ] to $1.42. We are updating our adjusted EBITDA guidance to reflect the pass-through of approximately $3 million of discrete benefits recognized in the quarter, bringing our updated range to $123 million to $127 million compared to the prior range of $120 million to $124 million. We remain confident in our underlying growth drivers and our visibility into the impact of the IRA. As the year progresses and we gain additional visibility, we will continue to assess our outlook.

Lastly, I want to acknowledge our nondilutive secondary offering priced in the quarter. The offering was for 6.9 million Class A shares, including the full exercise of the underwriters' overallotment option and was priced at $31 a share. This transaction enhanced the liquidity of our stock and broadened our investor base. It also fully utilized the capacity under our prior Form S-3. As normal course of business, today, we filed a new shelf registration statement to maintain flexibility to undertake additional offerings in the future. At this time, we do not have any plans to utilize the shelf.

In closing, we delivered a solid start to the year, successfully transitioned into the new framework under the IRA and continue to execute against our long-term strategy. As always, I want to thank our teams across the organization for their continued execution and commitment and to our investors for their continued support of Guardian.

Operator, we'll now open the line for questions.

[Operator Instructions] Your first question comes from the line of Brian Tanquilut with Jefferies.

Congrats on a solid quarter. Maybe, Fred, I'll start with you. When I look at your balance sheet and you obviously have a good bit of cash still on the balance sheet there. You're generating pretty good free cash flow here. How do I think about capital allocation between M&A now and other priorities given how accretive these transactions are? And how should we be thinking about the pipeline that's in front of you for deals, both tuck-in and scaled?

Brian, thank you very much. Appreciate it. Good to have you on the call. Yes, we do have a strong balance sheet. Our plan is to continue steady as we go. As Dave has mentioned, we have a very robust M&A pipeline. We intend to maintain the pace that you've seen recently, even in the balance of this year. And we will continue to evaluate other ideas and alternatives with respect to that cash.

Understood. And then maybe, Fred, as I think about -- obviously, you guys beat on the revenue line here, so good revenue performance. But when we think about the dynamics that we're seeing in senior housing, which underpins your business, obviously, for example, the largest player has seen occupancy declines 3 straight months now, kind of bottoming out in April. Just curious how -- what you're seeing in the market and then how that's translating into -- or how you're translating that into this upside or your relative strength versus what we're seeing occupancy-wise in terms of your revenue line?

Brian, as you know, Q1 is generally for the industry, a challenge, and it can be exacerbated by weather, which we had a lot of in Q1. So yes, I think occupancy did not increase dramatically in Q1, but the underlying drivers remain absolutely intact. I mean we've got the "silver tsunami" occurring before our very eyes. And we are very, very positive and constructive on continuing the organic growth that we've always forecasted.

Your next question comes from the line of John Ransom with Raymond James.

I'm going to dazzle you with some SEC math, so David buckle up, big fella. So if I look at the quarter, you got the $3 million good guy, but then you also called out a $3 million legal fee. So I assume that was included in adjusted EBITDA. So the 2 of those things would have been a push. Is that right? Or am I missing something? Or did you add the $3 million of legal back to adjusted? I'm sorry. If you said that, I must have missed it.

The $3.2 million of legal is added back.

Okay.

And the $3 million good guy is included.

Okay. All right. Well, then thanks for clarifying that. And just secondly, Fred, just kind of stepping back, I know you talked about some of the second order impacts of the IRA on the competitive climate. But did this end up being a win, a tie or a loss in terms of your relationship with your PBMs? And I know I ask this all the time, but are we even -- having at least starting conversations around getting paid for some of the good value-based care work that you do with interdicting script problems. Did that -- did any of those conversations come? Are they in development? Or is it still as far as the eye can see, a dispensing fee and a reimbursement-driven model?

John, I would characterize the discussions that we've had with our payors is very, very positive and constructive. As it turned out, the IRA offered an opportunity for us to have very open and frank conversations that led to a deeper understanding of the value add that we're bringing and also an ability to start talking about the very things that you asked about. So while in general, the reimbursement at the moment continues in the old model, we do have several things underway with respect to value-based reimbursement. And I'm very pleased and optimistic that as we move forward, we'll have more and more of that.

And just one other one. I know you've mentioned -- and we've tried to triangulate some work here, as you know. But I know you've mentioned that one of the changes is the migration of profit under the new arrangements is closer to your 90/10 split between generics or 92/8 split between generics and branded. Are there any -- just having the volumes and the gross profits more aligned, how do we think about that in terms of derisking the business model and aligning your efforts to support relatively low-cost scripts?

Well, you've honed in on one of the objectives, I'll call it ancillary objectives that we had in this process and it's something we've been working on now for years, and it came to fruition in this round, whereby we would like to see the margin align more closely with the activity, i.e., the 90/10 that you mentioned. It's actually 92/8 for us. And we think that's important because the point that you made, it does mitigate risk associated with future initiatives to lower branded price such as MFP and of course, the most [ MFN ] as well.

So -- and more importantly, it makes it a lot more straightforward to run a business when you align margin with activity and costs. So we're pleased with the progress we're making on that.

Your next question comes from the line of Allen Lutz with Bank of America.

For either Fred or David, it's great to see the strong performance in the quarter despite all the IRA headwinds that you talked about, Fred. As we think about the competitive landscape and some of the smaller players that weren't able to go back to the PBMs and renegotiate the way that you were, I'm curious, I know it's very early. We're talking about 4 or 5 months in some of these IRA changes have gone in. But have any of the conversations you're having with prospects changed? Has there been more of an urgency from some of these competitors that might be looking to be acquired? I'm curious if any of that has changed at this point if it hasn't yet, would love to get a sense of your expectations on how this evolves over the rest of the year.

Allen, it's David, and welcome. It's great to have you on here. Our pipeline, as Fred and I mentioned, continues to remain robust. I think it's early into the IRA process. And obviously, there are legislative activities that are going on, have been going on, and we're advocating for the industry at large. So I would say no dramatic shift, and it's sort of early. We're 1 quarter into the IRA implications and the pharmacies that may not have some of the analytic capabilities that we have are probably still analyzing the results and impact on their business. So we'll continue to monitor this as we go through this year.

Great. And then you raised EBITDA by $3 million. I think you called out that, that is really a reflection of the discrete benefits that you received in the quarter. Fred, you talked a little bit about some of the risk from higher fuel costs and some more employee costs.

As we think about what's embedded in the current EBITDA guide, is it fair to assume that those assumptions are contemplated in the guide? Or is it something that if we get to the back half of the year and fuel costs remain high, that's something that could be a headwind? Just trying to get a sense of -- as we think about this updated guidance, what's included, what's not included?

I think we can represent that our guidance includes our -- what we believe will be our ability to overcome the fuel headwind, but we'll have to be watching that carefully as we go. So we feel very comfortable with our guidance.

Your next question comes from the line of Grayson McAlister with Truist.

This is Grayson on for Dave. I just wanted to follow up on the conversation around branded versus generic back to Ransom's question. When we think about your efforts in the back half of '25 to help get over some of the IRA impact and tie more of your economics to generics versus branded, can you just give us a sense of kind of where you are on that front? And how much more runway you think there is for that to help offset the IRA impact through the rest of '26?

Grayson, it's a great question. We're partially the way there. We have more work to do, but we're currently involved in doing exactly that with other of our payor partners.

Okay. And then just following up on kind of the M&A pipeline. When we think about the pipeline, could you just give like a -- maybe a ballpark percentage of -- what percent of the pipeline is driven by [ ALF ] partners in certain markets that might be asking for your capabilities or asking you to expand into that market? And just to kind of follow on there, would it be safe to assume that, that has moved higher over the last year or 2 as the value prop has really kind of played out?

Grayson, obviously, our national accounts and their footprint and where they are asking for Guardian services plays a key role in our M&A activity and targeting markets. And that's what's driven in large part, our focus in the last couple of years and we will continue to do so -- and then we line that up with our pipeline of like-minded partners and target that and move from there. So that continues there. As we say, we've got 13% or 14% of the U.S. health market. So there continues to be a very large opportunity for us to continue to grow the business like we have historically.

Your next question comes from the line of Raj Kumar with Stephens.

Maybe just kind of one on guidance and kind of appreciate the commentary on the kind of the M&A-related drag. And so as we kind of think about that cohort, maybe can you talk about what's embedded into guidance in terms of that 80 bps drag kind of being consistent throughout the year? Or kind of any expectation of that kind of improving as those operations continue to ramp?

Raj, it's David. Good to have you on the call. Keep in mind that this quarter, it's dampening our EBITDA margins by about 80 basis points. But as the existing businesses and cohorts improve, we're going to be making additional investments and expanding contiguously. So while the existing platform is getting better, we're bringing on new operators who will depress. So whether it's 80 basis points, 90, 70, (sic) [ 90 basis points, 70 basis points, ] we see that trending on into '26 and '27, sort of a similar rate.

Got it. And then as I kind of think about the organic growth and seeing the kind of opportunity ahead, I guess, any callouts from a quarter perspective in terms of new senior housing facilities additions or kind of operational expansion in terms of growing the capacity at existing facilities? Just maybe kind of any color on that as some of these mature operations might kind of be reaching a kind of a threshold for operational expansion?

I think it's steady as we go, continuing the initiatives that we've spoken about previously continue to bear fruit, and will continue to do that. There's, as David said, a lot of opportunity. We might be the leader in assisted living, but gee whiz at 14% market share, there's a lot of opportunity out there for us.

[Operator Instructions] We have no further questions in the queue. This concludes today's call. Thank you for attending. You may now disconnect.

Good afternoon, ladies and gentlemen, and welcome to the Guardian Pharmacy Services Fourth Quarter Earnings Release Conference Call. [Operator Instructions] This call is being recorded on Wednesday, March 11, 2026.

And I would now like to turn the conference over to Ashley Stockton. Please go ahead.

Good afternoon. Thank you for participating in today's conference call. My name is Ashley Stockton, Vice President, Investor Relations for Guardian Pharmacy Services. I'm joined on today's call by Fred Burke, President and Chief Executive Officer; and David Morris, Chief Financial Officer. After the close today, Guardian posted its financial results for the quarter ended December 31, 2025. A copy of the press release is available on the company's Investor Relations website.

Please note that today's discussion will include certain forward-looking statements that reflect our current assumptions and expectations, including those related to our future financial performance and industry and market conditions. Such forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from our expectations. We encourage you to review the information in today's press release, as well as in our annual report on Form 10-K to be filed with the SEC, including the specific risk factors and uncertainties discussed therein. We do not undertake any duty to update any forward-looking statements, which speak only as of the date they are made.

On today's call, we also will use certain non-GAAP financial measures when discussing the company's financial performance and condition. You can find additional information on these non-GAAP measures and reconciliations to their most directly comparable GAAP financial measures in today's press release, which again is available on our Investor Relations website.

And now I will turn it over to Fred for commentary.

Thank you, Ashley, and good afternoon, everyone. We appreciate your continued interest as we review another very strong quarter and year for Guardian.

Turning briefly to the fourth quarter. We delivered results that exceeded our expectations across the board, reflecting solid execution throughout the organization. David will walk through the quarterly details in more depth. What I would like to focus on today is our full year 2025 performance, including our key financial results and major accomplishments.

Looking back, 2025 was one of broad-based execution and disciplined investment with results that were ahead of plan. Our annual performance was anchored by organic revenue growth of 13%, driven by new resident additions, script growth and higher acuity. Acquisitions, 3 of which were completed midyear, complemented our organic results and brought full year reported revenue growth to 18%. Adjusted EBITDA grew 27% year-over-year, with margins expanding 50 basis points to 7.9%. This increase occurred even as we integrated acquisitions that remain early in their path to profitability, navigated a branded inhaler category headwind, which was an unintended consequence of the American Rescue Plan, and absorbed new public company costs. That performance reflects disciplined execution, operating leverage and the scalability of our model.

Importantly, this earnings strength translated directly into cash generation and balance sheet flexibility, allowing us to invest for continued growth while further strengthening our financial position. We continue to deploy capital toward acquisitions and greenfield start-ups in attractive markets while also investing in new data analytics capabilities. Even with these investments in growth, technology and infrastructure, we increased our cash balance by approximately $60 million, reflecting the strong cash-generating nature of our model. Lastly, we delivered a full year return on equity of 27%. This performance underscores our disciplined approach to capital allocation.

Our financial results ultimately reflect the operational and clinical value we deliver every day. From that perspective, 2025 was a strong year clinically and reinforce the value Guardian brings to the broader health care network. Our pharmacists continue to play a critical role in medication management and care coordination. Through comprehensive medication reviews this year, our pharmacists performed more than 100,000 clinical interventions, benefiting approximately 74,000 residents. These interventions address serious risks such as duplicate therapies and drug allergies, helping prevent adverse events.

Through our proactive insurance optimization program, we helped residents achieve an estimated $56 million in cost savings, illustrating the tangible economic value our teams deliver every day. Our vaccine clinics administered over 120,000 vaccines during the third and fourth quarters, a 9% increase in script volumes for the full vaccine season with a material improvement in profitability year-over-year.

In addition, we continue to invest in our customer service efforts. By way of example, we completed the rollout of our HIPAA-compliant secure messaging systems branded GuardianHub and GuardianNote. This investment helps improve real-time visibility for facility partners in prescription order status from intake to fulfillment to delivery, enhancing service reliability and workflow efficiency. Importantly, our impact is not anecdotal. These outcomes are measured and tracked through our data and analytics platform, clearly demonstrating our ability to deliver differentiated clinical outcomes, reduce adverse events and drive meaningful cost savings. In doing so, we deepen our partnerships across the care continuum and reinforce our clear and durable competitive advantage.

Now with 2025 in the rearview, I want to turn my focus to the future. And I'll start with the IRA since that is one of the most significant shifts our industry has experienced in over a decade, impacting pricing, reimbursement dynamics, processes and payments.

In January, we announced that we expect to offset the anticipated EBITDA impact in 2026 from this policy change, an important milestone as we navigated the unintended consequences of the legislation. In addition to the pricing and reimbursement changes, the IRA also introduced a new operational complexity with the launch of the Medicare transaction facilitator, a government-run payment clearinghouse. We are closely monitoring operations in the early days of this new environment, which involves various third parties to make sure the systems, processes and pricing adjustments are functioning as intended. Our objective is to avoid disruption to customers, service levels, partner relationships and importantly, cash flow.

At the industry level, the IRA has created pressure across the long-term care pharmacy ecosystem. Within that context, we believe Guardian's scale, operating discipline and local service model position us well to provide stability and consistent service as the industry works through this transition. These attributes are also becoming increasingly important in light of other changes in the industry.

Stepping back, the long-term care pharmacy environment continues to evolve with ongoing consolidation at the facility level and increasing operational complexity. At the same time, demographic tailwinds are expected to accelerate. As the calendar turned to 2026, the first cohort of the Silver Tsunami entered their 80s. And with each successive year, the number of people in that cohort increases dramatically, which we anticipate will create an incremental tailwind. As occupancy rates rise, we believe operators will need to place greater emphasis on stability, consistency and efficient clinical and operational processes. We believe both these dynamics favor pharmacy partners like Guardian who can help reduce the labor burden on facilities and reliably deliver increasingly sophisticated capabilities.

We have also seen recent industry developments, including a bankruptcy filing by an institutional long-term care pharmacy. We are monitoring developments. And as always, we are evaluating market opportunities through a disciplined strategic lens, with a focus on aligning our current geographical presence, operating model, culture and long-term objectives. With these changes in mind, we believe the need for dependable, high-quality pharmacy service is becoming increasingly important to facility operators. Our priority remains to continue supporting our partners with consistent, reliable execution.

With that backdrop, let me turn to our outlook. When we provided guidance in mid-January, we did so earlier than usual to signal that our adjusted EBITDA growth trajectory remained intact despite the IRA. At that time, we did not yet have full visibility into our final 2025 results. With the year now complete, we are updating our outlook to reflect what we now can see with greater clarity. As always, we frame guidance on an annual basis grounded in what we can forecast with confidence, especially in a period of industry change. We also distinguish carefully between structural improvements in our business and favorable dynamics that can vary quarter-to-quarter.

Reflecting the durable portion of our recent outperformance and applying our low double-digit growth framework, we are raising our 2026 adjusted EBITDA guidance to $120 million to $124. This outlook reflects the ongoing drivers of our business and reinforces our confidence in the company's continued growth momentum. We are maintaining our current revenue forecast of $1.4 billion to $1.42 billion as new pricing flows through from the IRA.

In summary, we delivered consistent out-performance this year and exited with solid momentum that we expect to continue into 2026 as we focus on driving durable growth, expanding margins as we scale and investing to support long-term value creation for our shareholders. Most importantly, I want to recognize the people at Guardian, the pulse behind our organization and the reason we continue to deliver. Thank you for your continued focus and efforts.

With that, I'll turn the call over to David to walk through the financial details.

Thank you, Fred, and good afternoon, everyone. I'm pleased to review another strong quarter in which we delivered results ahead of our expectations. We ended the quarter serving over 205,000 residents, an increase of 10% year-over-year. Script volume grew 14% year-over-year, while revenue increased 17% year-over-year to $397.6 million, a top 12% organic growth. Gross profit rose 27% to $85.5 million with gross margins expanding to 21.5%, from 19.8% a year ago. Performance in the quarter reflects structural improvements, including stronger vaccine economics, improved contribution from acquisitions and greenfield start-ups as well as continued success with our plant optimization initiatives.

Let me start with vaccines. Vaccine script volumes were up 3% year-over-year, in line with our expectations as some volume was pulled into the third quarter. More importantly, we saw an increase in profitability due to better vaccine purchasing and reimbursement. We also benefited from contributions from greenfield locations, which are ramping efficiently and performing ahead of our initial expectations. Acquisitions also contributed to the out-performance as we implemented purchasing and reimbursement programs sooner than anticipated in our Pacific Northwest additions. Both locations also began on-boarding national accounts earlier than is typical.

Our greenfield start-up and acquisitions made over the last 2 years as a group continue to dampen our overall margin by approximately 90 basis points. We also continue to see success from our plan optimization initiatives, which helped to increase our Medicare Part D mix within the portfolio, supporting better coverage and lower out-of-pocket costs for residents, plus improved reimbursement for us. In addition to the structural improvements, a portion of our upside in our gross margin was due to favorable payer dynamics and other quarter-to-quarter variability. While incorporated in our results, we do not forecast this continuing in our outlook.

Moving down the income statement. Adjusted SG&A was 13% of revenue versus 13.7% in the year ago period. This reflects increasing scale efficiencies and improved labor leverage. D&A was consistent with the third quarter at $5.7 million. Stock-based compensation declined to approximately $1 million as we sunset the pre-IPO equity program. Adjusted EBITDA increased 53% year-over-year to $39.5 million with margins expanding to 9.9%, reflecting the operational drivers I've just outlined, along with the favorable variability noted earlier. Adjusted EPS came in at $0.37 a share.

Turning to the balance sheet. The business continues to generate strong cash flow. During the quarter, we increased our cash balance to $66 million, up from $36 million at the end of the third quarter, and $5 million at the end of 2024, highlighting our strong cash conversion rate of approximately 60%. We achieved this annual performance while continuing to invest for future growth, funding 4 new acquisitions and ongoing investments in several de novo greenfield start-ups from operating cash flow.

To recap, our Wichita acquisition earlier this year and our Montana purchase later in the year expanded our operational footprint in key growth markets. We also added locations in Washington and Oregon midyear, establishing a platform in the Pacific Northwest to better serve our national accounts. Building on that momentum, we are actively engaged in discussions with several pharmacies that we believe would be strong additions to our platform and an excellent cultural fit. Importantly, we remain in a very strong financial position with ample liquidity and internally generated cash flow to support these investments.

Now let me walk you through how we're approaching our outlook for 2026. For the full year 2025, we delivered adjusted EBITDA of $115 million, ahead of our most recent guidance range of $104 million to $106 million, and well above our original outlook of $99 million at the midpoint issued a year ago. As noted, fourth quarter results included favorable variability, which we do not forecast continuing in our 2026 outlook. We also forecast acuity remaining at current levels. We view the adjusted EBITDA run rate of our business as we exit 2025 to be approximately $110 million.

Building on that foundation and reflecting low double-digit growth from the durable drivers of our business, we're raising our 2026 adjusted EBITDA guidance to a range of $120 million to $124 million. We're maintaining our current revenue forecast of $1.4 billion to $1.42 billion as the new pricing impact flows through from the IRA. As always, our outlook does not include the impact of future acquisitions.

On a more granular basis, we expect the quarterly distribution of revenue and adjusted EBITDA as a percentage of the full year to be very similar to what we experienced in 2025. We will continue to see seasonality from vaccine contributions weighted toward the fourth quarter. D&A should be roughly $21 million for the year. Following the additional annual LTIP grants we issued in March 1 this year, we expect our stock-based compensation expense to step up to a quarterly run rate of approximately $3 million. Our effective tax rate is expected to normalize to approximately 26% in 2026.

Looking beyond 2026, additional branded drug negotiations under the IRA will take effect in 2027 and 2028. We expect these impacts to be much smaller than the 2026 revenue impact, approximately a $65 million revenue headwind in 2027. As a result, we view these incremental impacts as manageable within our existing growth framework.

In closing, we're pleased with how we finished the year. The fourth quarter capped a period of consistent execution and reinforce the durability of our operating model, positioning us well as we move into 2026. I also want to echo Fred's recognition of our employees whose dedication drives our performance every day.

Operator, we'll now open the line for questions.

[Operator Instructions] And your first question comes from the line of John Ransom from Raymond James.

Can you hear me?

Loud and clear.

Great. We're having some tech issues, David. So just still trying to process the 4Q beat. I know there were some nonrecurring things in there. But could you help us understand like what's durable, what was nonrecurring in the quarter?

John, you're breaking up just a little bit. But we're guiding to our run rate we talked about as we ended the year of approximately $110 million of EBITDA. And the variability with all the change going on in the industry that we had in the fourth quarter, we're not projecting that into our base. And we mentioned the things that, that related to. There are always puts and takes with our PBM payors. Typically, they net out in Q4, we had a net positive. So that's one thing that's not in our base that we're continuing. Also increasing acuity is not in our base. So those are the main drivers that are not in there.

So did the vaccine program contribute more this year than last year? I know it was a big success for you last year.

It continued to be significant, both revenue and profit-wise in Q4. But we had some improvement on the reimbursement side and the buy side. So it continued to grow with our business, but the margins did expand slightly.

Okay. And then just kind of taking a step back, I know you're probably tired of talking about the IRA negotiations. But I think one thing you mentioned before was you wanted to take this opportunity to try to balance the profit contribution between generics and branded to better reflect the fact that 90% of your script volume is generics.

So maybe just kind of talk about at a high level, knowing you've got contract confidentially, but just at a high level, what were you able to get done from a contracting standpoint to kind of better balance the two profit streams?

John, that's something we've been working on even before IRA, and we made progress with several payors in 2025. You mentioned that 92% of our prescriptions that we dispense are generic. And I can say we're moving forward in a positive manner from aligning the gross margin dollars with that activity.

Okay. And then just finally, you had mentioned a stat a couple of calls ago that if you were to run everything at your mature margin, you've got a number of pharmacies now that are not at mature margin. Is that gap between potential margin and realized margin still what it was a couple of quarters ago?

It's a little bit more. We said 80 basis points last quarter. It was closer to 90 basis points in Q4, and then that's the investment we're making for future locations and future accretive profitability.

And your next question comes from the line of David MacDonald from Truist.

Just a couple. I wanted to follow up on John's first question a little bit. Guys, just on the vaccine program, you highlighted a couple of things that improved profitability. I think you used the word materially. It didn't sound like any of those wouldn't be durable. A, are we thinking about that correctly? And then B, if we look at the better assumed margins in the 2026 guidance, is there one or two things that kind of stands out in terms of what is incrementally driving those margins better than your prior expectations?

Yes. Let me start with the vaccine clinic. The profitability, and it was slightly improved in '25 versus '24, that's durable and will continue into 2026. And I think the midpoint of our new guidance is 8.6%, is our adjusted EBITDA margin. And David, that's really a factor of us continuing our year-on-year adjusted EBITDA growth rate in the low double digits, while the revenues remain flattish, and the function of that will take us to midpoint adjusted EBITDA of about 8.6%. So we will see it go up.

And I'll pipe in Dave to add to what David's comments that, yes, the vaccine clinics have contributed materially to our full Q4, and we would expect to see that in next year. It is part of our...

And then, guys, just you mentioned some of the competitive dynamics in terms of a competitor out there. Can you just spend a minute on the opportunity around either share gain with some struggling competitors potentially more aggressive on the M&A side, or pace of greenfields around some of the areas where you see maybe some outsized opportunities? Just some of the disruption that some of the competitors are seeing or certainly at least one, just some of the opportunities that, that potentially raises for you guys?

Very difficult topic to expand on because we are participating in the bankruptcy process. But all the things you mentioned could potentially represent opportunities for us as we move forward and that process is complete.

Okay. And then, guys, just one last one. You mentioned labor as a benefit on the margin side. Obviously, as you scale, you get increased efficiencies. But on the labor side, are you seeing both efficiencies and some improvement. Is it just labor inflation, or is that more just, as you get bigger, you're able to better leverage the labor force that you've got in place?

It's more of the latter. The scale, we're able to scale the existing platform, that scale is labor, and that's more of what's driving the efficiencies.

[Operator Instructions] And your next question comes from the line of Raj Kumar from Stephens.

Maybe just kind of, maybe, touching on the prepared remarks around the faster ramp-up in the recently acquired facilities. As we kind of think about the large and regional accounts and kind of what that constitute as part of the current resident base, maybe just kind of any framing on the remaining opportunity on that front?

And then also, I guess, since ALF is your core end market, there's been a lot of activity around divestitures or kind of disposition of operations from certain large regional accounts of yours. And maybe if there's kind of any impact that you see on that front? Or maybe any color on how you ensure continuity of service and continue to cover the residents while these operational changes going in the background?

I'll take the latter question and then hand it to David. Yes, as the industry undergoes consolidation, I'm speaking now of the assisted [indiscernible] operators, our core market segment. We believe that it provides us with opportunity. And in fact, one example that you -- I'm assuming that you're citing was -- ended up being exactly that. We have maintained service at all the facilities that we were serving, and it's given us an opportunity to meet new operating groups and show to them what we can do. So on balance, those types of dislocations represent, in our opinion, an opportunity for us.

And then, Raj, on your first question, we mentioned that we were able to integrate and achieve scale earlier with the platforms, particularly that we closed in Pacific Northwest, and they vary. We talk a lot about on average, it takes 4 years, plus or minus, to bring acquisitions up and achieve the synergies. Things like operating systems, purchasing platforms, national accounts that can come on sooner, not later. They impact these businesses. And in the Pacific Northwest, we were able to execute on some of these things earlier.

Got it. And then maybe kind of thinking about the M&A pipeline. I think there's been estimates where 60% of long-term care pharmacies are at risk of shutting down given cash flow constraints and IRA pricing. And so as we kind of think about your strategy and what's available out there from an M&A standpoint in terms of your typical tuck-ins, are you seeing a kind of a buyer's market per se on that front?

And then relative to the kind of inherent opportunity post acquisition, does that still remain the same? Or do you see kind of more upside based on the assets that are coming into the market?

Good question, Raj. I want to start by emphasizing that we believe very strongly in being supportive of our industry. And the last thing we want to see are our industry colleagues under duress. And that's why we've worked so hard and diligently with our trade group, the SCPC to mitigate the effects of the various changes that are occurring on the policy front from D.C.

That said, it's early days. We're going through the first implementation of this IRA, which, as I mentioned in my remarks, introduces new processes, reimbursements, procedures, cash flow, et cetera, et cetera. And I'm hopeful that our industry colleagues can manage their way through it. Potentially could impact our opportunity on the M&A front, and we certainly would welcome that opportunity with like-minded operators. But too early to call on that for sure right now at the minute, but something we'll be watching as we move forward.

Raj, as it relates to our pipeline, we have a robust pipeline in '25. It continues to be robust in '26. And as Fred said, as we're navigating all these industry changes, we're going to continue to take a disciplined approach. We seek like-minded operators in territories that we want to expand into. So I think we're adopting a very consistent approach as to what we've had the last couple of years.

Thank you. And there are no further questions at this time. Ladies and gentlemen, this concludes today's call. Thank you for participating. You may all disconnect.

All right. Hello, and thank you for coming this afternoon. My name is Harry Pearson. I'm an associate with the health care investment banking team here at JPMorgan. It's my pleasure to introduce the Guardian Pharma Services team. We have Fred Burke, President and CEO; David Morris, Chief Financial Officer; and Ashley Stockton, Senior Director of Investor Relations.

We're going to have a presentation then with a little moderated Q&A. If you guys want to take it away.

Sure. Thank you. Good afternoon. I'm Ashley Stockton, Senior Director of Investor Relations for Guardian Pharmacy Services. Before I start, I just need to make a quick disclaimer here. Please note that today's discussion will include forward-looking statements, including those related to our expected results from 2025 and our outlook for future financial performance and industry and market conditions.

These forward-looking statements are subject to important risks and uncertainties, and we encourage you to review the cautionary note on forward-looking statements included in today's slide deck, which has been furnished on a Form 8-K filed with the SEC and is available on our Investor Relations website as is the slides that we'll be using today.

So thank you for joining. I have with me today, Fred Burke, President and CEO; as well as David Morris, CFO, both co-founders, along with Kendall Forbes. The team founded the company in 2004 and bring decades of experience building and scaling health care services businesses, including a prior nuclear pharmacy platform that was sold to Cardinal Health.

To give you a brief overview, Guardian is a long-term care pharmacy services company, primarily focused on serving the assisted living facility market, which we'll refer to as ALF throughout this presentation. We are the leader in this market, which is the fastest-growing segment of the long-term care industry and is supported by strong demographic tailwinds. However, assisted living has a unique challenge.

Unlike other care settings, ALFs typically do not have a medical director or nursing staff responsible for overseeing medication administration and management, even though resident acuity has continued to rise and drug regimens have become increasingly complex. Guardian's pharmacies are purpose-built to address this gap, which again doesn't really exist in other settings like [ SNF ] where there are dedicated health care professionals.

We combine technology, clinical oversight and strong local service to do more than simply dispense medications. We help manage the entire medication coordination function from start to finish, improving visibility and accuracy, supporting adherence and helping facilities to streamline operations.

The result is better clinical outcomes for residents and meaningfully lower costs across the health care system from the residents to the facilities and the payers. It really is a win-win for all.

Our business model is built on five core pillars. First, a multipronged growth strategy. We benefit from strong secular growth in assisted living, but we also drive incremental share gains through organic growth and a disciplined M&A strategy.

Second, our national scale, aided by our data analytics, helps to drive better profitability, allowing us to optimize purchasing and reimbursement. Scale also enables us to serve national partners. These are structural advantages that will continue to support underlying margin expansion over time.

Third, a higher level of profitability gives us the ability to reinvest in services and technology, affording us competitive advantages. We invest in our leaders and teams at the local level, who are continually building deep relationships in the community. We also invest in technology to support them to help deliver accuracy, reliability and consistency across states and facilities.

Fourth, we enjoy strong and durable financial performance with a history of consistent growth and profitability and durable margins. We also have a healthy balance sheet with virtually zero debt and are able to fund our acquisitions with existing cash.

And finally, as I mentioned before, we have a highly experienced co-founder-led management team with meaningful ownership, ensuring strong alignment with shareholders. Together, these five elements form a proven model that we believe is positioned to continue compounding value over time.

With that, I'll turn it over to Fred to talk more about the assisted living market and how Guardian is positioned within it.

Thank you, Ashley. The assisted living market is highly attractive. It's large, roughly $7 billion in drug spend with 1 million residents to serve with a strong secular tailwind. The competitive situation is highly fragmented, with many independent pharmacies being our key competitor.

The important thing is to remember that these residents are private pay, they've chosen to live there, they have rising acuity, and medication management is the top reason for even entering assisted living. We're talking about 12 to 14 prescriptions per day with frequent drug changes. As a private pay, our payer is largely Medicare Part D.

We built our pharmacies for the unique needs of assisted living. And it's more than just dispensing drugs. It's truly a medication care coordination partner for the residents in A to include comprehensive drug regimen review, most likely the first time that's ever occurred for a patient when they transition care from the community into assisted living, which involves getting the resident on the proper formulary to mean both therapeutically and in accordance with their payers formulary, the organizational elements and systems needed to secure refill authorizations, compliance packaging, a tech-enabled platform to ensure efficient and effective administration of the drugs, which leads to 100% adherence; and then training from our account management staff of nurses who help the assisted living facilities with their compliance.

It's led to us being the market leader in ALF. We serve roughly 140,000 ALF residents of the 1 million. That's a 13% market share nationally, I'll say, even though we don't cover the entire country from a geographical footprint standpoint, the way we view 13% market share is there's 87% left to go. We have 54 locations around the country with a lot of space left for us to plant flags.

But very importantly, if you look to the chart on the right, you'll see our market share by state and where we can take this relative to the average. We have many pharmacies still coming up to scale with a lot of room for organic growth.

Our competitive landscape involves high barriers to entry and competitors where we have significant advantages. We have institutional pharmacies. These are typically skilled nursing facility focused that we're able to successfully compete with and independent pharmacies who deliver excellent, strong local service but do not have the financial wherewithal to bring the value-add services that Guardian is able to do.

I'll turn to David, who can talk about our growth levers.

Thanks, Fred. Over the past 20 years, we've built the business driven primarily by very strong organic growth, and we intend to continue that as we move through the next several years.

How do we do that? It's threefold. First, we bring on new assisted living facilities in existing markets. Once we bring on a new facility, we work with the facility and the residents to increase the adoption rate of people who are using the preferred pharmacy in the assisted living community.

And then thirdly, we grow organically by launching with existing teams into contiguous markets, where we have a strong market in a city. And then we will be serving customers in an adjacent market and eventually open a pharmacy there. And we've done that in 9 such markets over the past 4 years.

In addition to our strong organic growth, we accompany that with our M&A strategy, and it's a little different than most. There are around 100 independent pharmacy long-term care operators, who we are targeting. And we first look to a leader who is established in a market, who's grown their business effectively and who seeks the assistance that the Guardian platform has and wants to continue to grow the business in a collaborative manner as we move forward.

Secondly, we're looking for geography that's rich with national account out demand. And these two factors drive our M&A strategy from a size, the typical pharmacy that we target is $10 million to $30 million in revenue, serving around 3,000 residents.

A little bit about our M&A integration. Once we close the deal, we work with that team to not only grow the business but bring it up to scale from an operations standpoint. And we do that by focusing really on four areas. Number one is the reimbursement from a payer standpoint. Number two are our margin management tools, which help with adjudication and revenue recognition in this very complex business. Number three is our purchasing platform, and then four is implementing our national accounts.

And over, on average, 4-year period by implementing these four areas plus many more, we work to grow the business at the top line and achieve the operating scale and margin at the bottom line.

Just a picture of sort of how our cohorts are folded in. You'll see in '24 and '25, our M&A acquisitions that have come onboard plus our contiguous greenfield start-ups are roughly it's 11 locations. And we view this as an investment. We're investing in these businesses who have not achieved the profitability of our overall business and scale. And over a period of 4 years, we work to grow that business and bring it up to scale.

I'll touch a little bit on some of our competitive advantages with service and technology. One area that's been especially critical to Guardian's success is our continued investment in data analytics. Internally, we built Guardian Compass. This is our proprietary analytics platform that allows us to monitor and improve pharmacy-level KPIs, everything from purchasing optimization and reimbursement performance to operational efficiencies.

We then extended those capabilities externally through GuardianShield, our client-facing analytics platform, and we can then use our analytics there to show our facility partners and payers with clear data-driven proof points how we are improving outcomes, lowering costs and reducing operational burden.

Fred had mentioned we do a drug regimen review. You can see here that in 2024, there were 100 and -- over 112,000 interventions that our pharmacists had through those drug review processes, and we can show this to our partners. We also saved our residents over $41 million last year by getting them on the proper formulary. So these are just two examples of some of the data-driven work that we can show to our partners.

Finally, we continue to invest in automation and robotics. We are now on our third-generation state-of-the-art robotics as well as we provide our facility partners eMAR systems to help them accurately track medication administration and enhance safety, efficiency and compliance.

Flipping back to our financial performance, you can see that we've had a consistent record of not only growing our top line, 2012, 2025 CAGR is around 16%. We've had strong leverage at the adjusted EBITDA line as well. And this is driven by activity. It's resident count growth along with prescription growth. So we're growing the core business organically, folding in the M&A, increasing resident count along with the prescription volume growing, as you see on the right.

We've been able to achieve a very consistent margin profile over the years, not only at the gross margin line, but also at the adjusted EBITDA line. I mentioned the investment that we're making in the 11 pharmacies that locations we've grown and expanded into the last 2 years.

Just to note that if we were not making that investment, it would increase our adjusted EBITDA margin by roughly 80 basis points. We're working and we'll achieve leverage as we move forward, and we'll continue to make such investment to continue the growth profile as we move through the coming years.

Ashley mentioned our strong EBITDA as well as our cash flow. On average, our cash conversion is approximately 60%. This is after our CapEx investment and income tax payments. And you can see from what we disclosed this year, our cash balance is growing nicely net of our M&A activity that we've done in 2025.

Moving to our outlook. We talked a little bit about the Inflation Reduction Act. Fred is going to touch on that, and then I'll come back to our guidance.

When we first began the process of our public offering, we went over and above to make sure that we educated people on this potential headwind that was coming our way. It's caused by the fact that the legislation in the IRA requires us to sell these branded drugs at the MFP or manufacturer's fair price, which served to eliminate one piece of margin that we earn on these branded drugs. One of the three margin sources was eliminated by this legislation.

We also hastened to add that our intention was to overcome that headwind. And the reason we felt comfortable we could do that is that we deal with this all the time in our business. For example, in '24, we had the insulin issues. In '25, we dealt with inhalers. And then this impact on the IRA with the branded drugs for '26 and '27 is a bit larger than what we normally have to deal with.

And so we said that over and above our business initiatives, efficiency improvements, purchasing, plan optimization, et cetera, that we would need to coordinate with the payers on the reimbursement side to fully offset this negative, which we have been doing.

And with the guidance that we issued end of day yesterday, we reaffirmed our 2025 guidance and issued new guidance for 2026 with revenue in the range of $1.4 billion to $1.42 billion and adjusted EBITDA of $115 million to $118 million. And you'll note, and I'm going to talk a little bit about the impact on revenue, it will push our adjusted EBITDA margins in '26 above the 8% mark because of the reduction in revenue.

If you look to the right first on adjusted EBITDA, we are continuing our historical low double-digit growth, $105 million is our midpoint for '25 going to $116.5 million for '26. So adjusted EBITDA growth has not been impacted. We've overcome it, as Fred mentioned, for 2026.

Conversely, on the revenue side, it did have an impact. Our revenue forecast for 2026 is relatively flat compared to 2025. And just so you can calibrate the impact, we have taken our 2025 revenue, adjusted it for the pro forma IRA impact if it had been there in '25. And you can see the growth trajectory is still in our high single-digit growth rate. So I just wanted to make sure that was clear as everybody is looking to our 2026 performance and growth.

Great. Thank you all so much. I wanted to open up a couple of questions. I think first would just be you're relatively new as a public company. How has going public changed the company at all? What have you learned?

It's been a really interesting process, and I think positive on balance. The first thing is that our employee shareholders now understand the value of what they've built, and that is very motivational. It's allowed us to achieve, I'll call it, a good housekeeping stamp of approval with our various partners in the industry, such as the generic manufacturers that we purchase from our wholesale distributors, the PBMs that we partner with for reimbursement. So that's been a very positive thing.

It's been helpful in our M&A program because before, we were representing that we could improve these businesses. But now it's very clear to the target that in point of fact, it can be done. So they have more belief. So as we move forward, it's allowed us to sort of reinstitute a major element of our secret sauce of what we think got us here, and that is employee ownership.

So we are able to implement a new LTIP program for employees that is very, very powerful and very motivating. So on balance, I think it's been good. And we've enjoyed our interaction with investors. It's helped us push our thinking about our business.

It's taken us to a higher level.

It really has, for sure.

That's great. You had a chart in there that I think was really helpful to going through the steady cash build that you all have aggregated while continuing to do strategic M&A.

How are you thinking about capital deployment, both in terms of the size of the acquisitions and how you're measuring returns on invested capital? Are there opportunities in assisted living that you think might be meaningfully larger or different than what you've historically done? How has that thinking evolved?

Stepping back, even before the IPO, we haven't really been constricted by capital. The business has had strong cash flow. We've always had a very low debt profile. But post IPO, I think one thing that we talk to investors about and is important to understand is there's not a large assisted living platform where we could deploy a big chunk of capital.

We talked about the 100 independents, sort of the steady as we go smaller businesses. Those are what we're attracted to. So there's not a huge opportunity for a large deployment of capital. But we're looking. There are some strategic things out there that could manifest itself where we could deploy $50 million or $100 million, but that's not the case.

And what we said when we went public, we wanted to sort of get our legs under us. We're 18 months into this, and the business is generating cash, and we're going to be looking at this and talking to our Board and investors about the best way to deploy capital. It won't be a share buyback because we're trying to increase our liquidity.

It's a high-class problem.

Yes. Good problems to have. I think it was also Slide 31 was very helpful. I think when you had released the 8-K talking about excluding the impact of the mandatory drug pricing reductions from the IRA and the WACC adjustments, the company would have projected 2026 revenue growing at the high single digits.

Can you just share a little bit about what's driving that organic growth? How investors should be thinking about it? I think you showed both growth in members at the site level and then also number of prescriptions. It would be helpful to hear a little bit more about that.

Well, I think our assisted living space is growing. We've got a small tailwind with the silver tsunami. We've seen occupancy at our customers go from post-COVID in the 70s approaching back to 85%. So there's a small tailwind with our customers and our growth.

And then we're taking market share in existing markets. There's a small piece, maybe 100 basis points, that has been related to acuity, more prescriptions. We're not forecasting that and our forward-looking organic growth, but that's another factor. We don't know if it will continue, but has driven some of the growth in 2025.

And then adoption and contiguous greenfield start-ups really play a tremendous role in growth. Take the contiguous greenfield start-ups, as David mentioned, a pharmacy would begin serving assisted living facilities out at the periphery of that distance whereby we can deliver great service, let's call it, 2 or 3 hours, establish a critical mass there and realize there's a larger market that if we build out brick-and-mortar, we'll be able to now expand into that market.

That's really helpful. One other question I had is just would you talk about the upside opportunities that you see in the business going forward over the next few years? What's getting you excited?

Well, I'll start. I mean, what's exciting to me is that we're the market leader. We have competitive advantage, and we have a whopping 13% share. That means there's 87% left to go. So the idea of doubling or tripling the business by keeping on, keeping on excites me a lot.

We've got some market dislocation with the Omnicare situation, and who knows where that would go. And I think the upside we have -- Fred talked about the LTIP plan, but we've got a very engaged and motivated team growing the existing business, and that's key to us to continue our success.

Then finally, I think it's going to be very important for us to continue to build out the geographic footprint. There's a lot of open space you saw in that map. So we've got to keep going with that. And that will be through M&A and through greenfield start-ups.

That's great. And maybe one last question for me is, given that the market is still getting to know you all, what do you think is underappreciated about Guardian that you're hoping to keep educating investors about?

I'll start, and I know they'll add and help. This data analytics capability that Ashley brought -- mentioned is really, really important. Our pharmacists work very hard doing extremely powerful work clinically. But it's sort of been behind the curtain. They just do this.

It's in their DNA to build -- and I'm just giving you an example, to build a data analytics platform that tracks their therapeutic interventions is very powerful. It allows us to demonstrate the value add to all of our and importantly, to the [ payers ]. So that's an example of things that are very, very sort of under the covers with Guardian that are nevertheless extremely important.

And we're working every day to educate. I mean, just to bring to life to investors our service offering, what we do for assisted living communities and the residents, I mean people are just beginning to understand that and how we're able to do it with the tools and the platform we bring, we're able to allow these clinical operators to focus on what really matters, taking care of the residents and removing all of the operational tedious things to make the business profitable. We've got teams of people to help with that so they can focus on the residents. I think that's starting to come to life.

Wonderful. Well, I think that's all the questions I have. I wanted to thank you all for coming today and presenting here and sharing your story with us. We look forward to seeing you back at JPM in 45th, and thank you again.

Great. Thank you, guys.

Thank you very much.

Good day, everyone, and welcome to Guardian Pharmacy's Third Quarter Earnings Call. [Operator Instructions]

I will now hand the call over to Ashley Stockton.

Good afternoon. Thank you for participating in today's conference call. This is Ashley Stockton, Senior Director of Investor Relations for Guardian Pharmacy Services. I'm joined on today's call by Fred Burke, President and Chief Executive Officer; and David Morris, Chief Financial Officer.

After the close today, Guardian posted its financial results for the quarter ended September 30, 2025. A copy of the press release is available on the company's Investor Relations website. Please note that today's discussion will include certain forward-looking statements that reflect our current assumptions and expectations, including those related to our future financial performance and industry and market conditions. Such forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from our expectations.

We encourage you to review the information in today's press release as well as in our quarterly report on Form 10-Q to be filed with the SEC, including the specific risk factors and uncertainties discussed in our SEC filings. We do not undertake any duty to update any forward-looking statements, which speak only as of the date they are made.

On today's call, we will also use certain non-GAAP financial measures when discussing the company's financial performance and condition. You can find additional information on these non-GAAP measures and reconciliations to their most directly comparable GAAP financial measures in today's press release, which again is available on our Investor Relations website.

And now I will turn it over to Fred for commentary on the quarter.

Thank you, Ashley, and good afternoon, everyone. Thank you for joining us as we review another strong quarter for Guardian. Before diving into the details, I want to take a brief moment to reflect on how far we come.

This quarter marks an important milestone, our first full year as a publicly traded company. A little over a year ago, we stood on the floor of the New York Stock Exchange to ring the bell, not as the culmination of a journey but as the beginning of a new chapter in the 20-plus year life of our company.

When we went public, we made a commitment to continue to execute with discipline, grow with purpose and carry forward the entrepreneurial spirit that has always defined Guardian, all while earning the trust of our new shareholders along the way. I believe that thus far, we've delivered on that promise, and I'm very proud of what our team has achieved. As I look ahead, I'm even more energized by the opportunities in front of us to continue building a company that provides exceptional service to our communities and the residents they serve, creates value for our partners and deliver sustainable long-term growth for our shareholders.

With that foundation in mind, let's turn to our third quarter performance, which marked another period of strong double-digit growth across revenue, resin count and adjusted EBITDA, which yielded adjusted EPS of $0.25. Revenue grew 20% to $377 million, a top 13% resident growth driven both organically and through acquisitions. Adjusted EBITDA grew 19% to $27 million, with margins holding steady at 7.2%, including the continued dilutive impact from recent greenfields and acquired pharmacies. Given the strength of the quarter, we are raising full year revenue and adjusted EBITDA guidance, which David will go over in detail later in the call.

Now turning to the policy environment. The unintended consequences of an Inflation Reduction Act remain an issue for our industry as a whole. Consistent with our long-standing approach, we're working closely with our peers and trade group to advocate for legislative and policy solutions that address these impacts and support the long-term stability of our sector. But at the same time, we've continued to take proactive steps with our payers. Those initiatives are taking shape and combined with other strategic actions across the business, we are growing ever more confident in our ability to offset the anticipated EBITDA headwind, even as reported revenue growth is expected to remain relatively flat in 2026.

Our philosophy on addressing policy issues remain simple, control what we can and navigate thoughtfully around what we cannot. It's becoming increasingly clear how important the right people and scale are to executing successfully through these challenges, and that same mindset, disciplined, proactive and grounded in leadership extends across our organization.

To that end, our pharmacy entrepreneurs fuel our growth with ingenuity and commitment to the clients we serve and the specialized teams supporting them strengthen our platform every day from purchasing the PBM contracting to data analytics, to name a few.

Most of our pharmacy leaders have been with Guardian for more than a decade, some going on 2. Prior to joining, they were highly skilled clinicians who built successful independent pharmacies from the ground up entrepreneurs in their own right. They recognize the opportunity to combine their local expertise and community relationships with the strength of Guardian's national platform and scale, unlocking new levels of performance and profitability within their pharmacies. Many have since built on that success launching greenfield locations in adjacent markets.

Guardian has continued to invest in these professionals, helping them deepen their business acumen. Today, they are exceptional operators who embody a rare combination of clinical expertise, entrepreneurial drive and business-minded execution. That blend is central to our model and underscores why selecting the right local leadership teams is so critical, and why we remain highly selective and targeted in our acquisitions.

Collectively, our operators have helped propel us to be the clear leader in serving assisted living facilities. While our national market share is 13%, we have a much stronger presence in the markets where we operate. In fact, 37 of our pharmacies have 20%-plus market share with 12 pharmacies operating at over 40%. Additionally, we now serve nearly 204,000 residents, the vast majority in

Looking ahead, we expect to benefit from powerful demographic tailwinds as the aging population grows, while continuing to gain share through new facility partnerships, higher resident adoption and greenfield expansion with the help of our existing operators. At the same time, at the corporate level, we'll continue to pursue targeted acquisitions such as the recent additions in Oregon and Washington, which put us on the map in the Pacific Northwest and answered demand from our national customer partners.

Integration with both pharmacies is tracking as expected with both teams already onboarding facilities operated by our national customer partners. Over time, we expect this geographic area to become an important growth contributor.

On the heels of these acquisitions, our pipeline continues to be very attractive and active. Furthermore, as the assisted living facility market continues to consolidate, we believe Guardian scale, sophistication and partnership-driven model positions us as the provider of choice.

Looking back, we've accomplished a lot in the last year. We've expanded our pharmacy footprint, delivered consistent financial performance, strengthened our balance sheet and deepened relationships with a broader investor base. Internally, we've enhanced our infrastructure and continue to navigate policy-related headwinds. Together, these accomplishments give us confidence as we enter our second year as a public company, stronger and better positioned for the opportunities ahead.

Our priorities remain clear: drive organic growth through new customer facility wins, higher adoption and greenfield expansions, expand our network through disciplined acquisitions aligned with our culture and vision, enhance profitability by integrating new pharmacies, implementing our technology advantages and leveraging procurement, reimbursement and logistics efficiencies and lastly, navigate policy changes thoughtfully with confidence and discipline, advocating for fair outcomes while managing risks proactively. These are the same levers that have propelled Guardian's growth for over 2 decades, but today, enhanced by greater scale, visibility and financial flexibility.

So on that note, happy birthday Guardian. We're still early in our journey as a public company, but our foundation is strong, our strategy is clear and our momentum is real.

With that, I'll turn the call over to David Morris, our CFO, who will take you through the quarter's financial results and outlook in more detail.

Thank you, Fred, and good afternoon. Before I begin with a review of our 3Q results, I wanted to quickly mention the recent Shell S3 filing and lockup agreement we announced in mid-October.

Having been a public company for a year now, we recently became eligible to file an S3 registration statement. As such, we filed an S3 shelf registration for up to an aggregate 6 million shares, which has since become effective to provide flexibility to efficiently access the public markets if and when needed and subject to market conditions.

In conjunction with that filing, we also announced that we worked with our pre-IPO shareholders to lock up approximately 93% of the shares until June 30, 2026. There are no immediate or specific plans to offer securities pursuant to the shelf registration. We view the shelf as a tool for financial flexibility rather than a near-term catalyst, and we will continue to take a disciplined, long-term approach to capital markets activity.

Turning to the financial results. I'm pleased to announce another strong quarter for Guardian with adjusted EPS of $0.25. Revenue grew 20% to $377.4 million, reflecting mid-double-digit organic revenue growth.

Total resident count ended the quarter at 203,766, up 13% versus a year ago. Upside in revenue this quarter came from several areas. First, a higher percentage of new residents joined early in the period, providing a full quarter benefit. Second, plant optimization efforts continue to perform well, improving coverage for residents while reducing co-pays. Third, vaccine activity was strong as many communities launched their clinics earlier in the season. And finally, acquisitions contributed meaningfully with a full quarter of revenue from Washington and 2 months of contribution from Oregon.

This pharmacy is a great strategic fit for Guardian, bringing on board an experienced leadership team with a strong reputation for service excellence. Alongside our operations in Washington, this expansion gives us a solid foothold in a new growth region, the Pacific Northwest.

Gross profit increased to $74.7 million, posting a 19.8% margin. Adjusted SG&A was 13.7% as a percentage of revenue. Adjusted EBITDA rose 19% to $27.3 million, which included PubCo costs of $1.3 million that we didn't have in the prior year.

Adjusted EBITDA margins held steady with the second quarter at 7.2% and was down roughly 10 basis points year-over-year, reflecting the dilutive impact of recent acquisitions and greenfield startups along with PubCo costs that weren't included in last year's results.

Underlying core margins continue to expand as we see stronger profitability from pharmacies that are now maturing within our network. Our 4- to 5-year locations are performing at or above our consolidated adjusted EBITDA margin and our 2- to 3-year locations are tracking steadily toward that same level.

As I've mentioned before, our most recent acquisitions, those made in the last 2 years are still dilutive. Without them, margins will be closer to 8%. Given the upside in the quarter, acquisitions year-to-date and the overall momentum of the business, we are raising our 2025 guidance.

Revenue is now expected to be in the range of $1.43 billion to $1.45 billion, up from our prior range of $1.39 billion to $1.41 billion. We are also raising our adjusted EBITDA guidance to $104 million to $106 million, up from the previous $100 million to $102 million range. The midpoint of this range represents solid 16% growth year-over-year.

A couple of reminders for Q4. Starting with SG&A, we expect it to trend slightly lower percent of sales in the fourth quarter consistent, but the seasonal revenue lift we typically see from vaccine activity this time of year. Stock-based compensation is expected to decline meaningfully in Q4 to approximately $1.1 million as we sunset the pre-IPO equity program related expense.

Finally, reported income tax expense was elevated at 42% this quarter, which is higher than the previous quarter, primarily due to nonrecurring income tax expense associated with the corporate reorganization and related to the IPO from 2024. We expect the fourth quarter tax rate to be in the high 20s and step down to the mid-20s in 2026.

Turning to the balance sheet. We ended the quarter with $36 million in cash, an increase of $18 million, even after funding our Oregon acquisition. This performance highlights the strength of our cash generation, with the cash conversion continue to track above 60%.

We remain in a very strong financial position with no debt outstanding under our credit facility and ample liquidity to fund ongoing strategic growth, including M&A with internally generated cash flow.

Our acquisition pipeline remains very active, and we continue to take a disciplined approach, prioritizing the right local operator in markets that enhance our regional density and national scale.

In closing, on our first anniversary as a public company, I want to echo Fred's thanks to all of our employees and shareholders. We're proud of the momentum we've built, and we are confident in our ability to continue executing on our strategic growth plan. Guardian was built pharmacy by pharmacy, relationship by relationship and that's exactly how we'll continue to grow, anchored in local leadership powered by our national scale and with an unwavering commitment to service.

Operator, we'll now open the line for questions.

[Operator Instructions] Your first question comes from the line of John Ransom from Raymond James.

So just a question about the fourth quarter. How would you compare the contribution of the vaccine program this year to last year? I think this is what the third year you've done it and I'm sure you learn a little something every year. But the backdrop is interesting because there's a little less vaccine uptake among the greater world, especially COVID. But I'm just curious kind of what you're seeing with your population, how the uptake looks and just how the program overall compares to what you did last year, which was also very successful?

John, Fred here. Did I hear you say, third quarter or fourth quarter?

Fourth quarter. So in your implied guidance, what's going on with your vaccine program this year compared to last year?

Steady as we go. You did mention an interesting anomaly that we wondered about, which is the CDC guidance potentially could have caused fewer people to walk -- to be vaccinated, particularly COVID. We are not seeing that as steady as we go. However, I will comment that we started the clinic season with a stronger September this year than last. So some of the total perhaps has been pulled forward into Q3.

Okay. And as we think about resident count, it looks like you're only missing one month of an acquisition. So this resident count is a pretty good placeholder for 4Q with a little bit of one month of that one acquisition.

That's correct. Generally, we measure residents served as of the end of the quarter. So the acquisitions that were completed recently are included in the Q3 number. And so recognize that we do see fluctuations quarter-to-quarter, particularly in Q4 as some loved ones are reluctant to move their mother or father into assisted living in certainly the November, December period. So I would I would expect to see steady as we go in Q4 on resident count.

And just last for me. I know you hit on the IRA issue and the conversations with the PBMs, using the baseball analogy, how close are you to wrapping up these negotiations and kind of putting a bow on this issue?

John, as you know, these are very sensitive discussions, literally covered by NDAs. So I don't want to comment on specifics with respect to the PBM negotiations other than to reiterate what I said before, which is they're taking shape, and we're growing ever more confident in our ability to offset the headwind.

And Fred, we've talked about this before, but is there any more -- it's always interesting to me like some industries, the payers are more willing to give providers some bogeys that would result in upside to their -- and as we know, you're paying a dispensing fee and you paid a spread. But is there any more indication that they might be -- especially with all the issues going on with Part D and more Part D plans embedded in MA and sensitivity around Part D losses. Is there any more shopping of wood -- it's a bad expression, but is there any more kind of fulsome discussion around, "Hey, look, why don't we throw in an upside kicker for X or Y?" Is it still just kind of mechanically the same in terms of just dispensing fee and spread?

Well, we, at Guardian, as everyone mentioned before, are very willing to think about value-based models because we're very comfortable in in the value that we provided to their insured lives. But it's evolving, there's not a major shift, but each is interested in exploring this idea as are we. So we're working our way towards that, but it's an evolution.

So the normal glacial pace of health care for the thinking about it next year.

On Georgia, boy to another, we'll keep chopping that wood.

Your next question comes from the line of David MacDonald from Truist.

Just a couple of additional ones. One, can you guys spend just a quick minute on some of the areas where, from a margin standpoint, if I just look at the amount of acquisition activity that you've had and just kind of the impact in terms of margins as those come on, any couple of key areas that you would flag in terms of where you've done better to continue to maintain those flattish margins despite the meaningful M&A activity?

David, it's David. We've talked about the various cohorts that I mentioned in the comments 4- or 5-year cohorts are performing well ahead of our overall margins and the 2- or 3-year cohorts are coming along as well. And we have a substantial investment we've made in the last 18 to 24 months of 11 locations, probably greater than 10% of our overall revenue that are a drag on our overall EBITDA margin. So it takes on average 4 years to get these businesses up to performing where they need to be and some are performing quicker and better and some take longer. So I think it's pretty much steady as she goes. And we're pleased with all the various businesses and where they are in the various cohorts. So it's pretty much steady as she goes.

Okay. And then just one other quick follow-up in that same vein, when you think about the pipeline, it sounds like there's still a fair number of opportunities sitting in front of you. How do you think about pacing, I guess, on 2 fronts. One, just the margin impact as they come on, but also, number two, just are there any kind of operational bottlenecks internally in terms of how many of these things you want to take on at the same time?

Yes. I think we've talked about in the last 24 months, things have been accelerated specifically with the large Heartland acquisition at 4 locations. So I'm not sure we can set expectations to continue at that level. But the pipeline is robust. And as I said, very active, and we see '26, '27 us continuing our similar type approach, we have many contiguous startups that we're looking at as well as an active pipeline. So no real bottlenecks that would impact us being able to continue to execute much as we have this past year.

Your next question comes from the line of Raj Kumar from Stephens.

Maybe just kind of touching on the implied 4Q here. It seems like the dilutive impact to margins is slightly accelerating. So maybe just kind of want to get your thoughts on if that's conservatism or kind of anything to call out on that front?

Raj, it's David. I think our adjusted EBITDA margins were forecast to remain relatively steady. And the biggest impact there would be the investment that we've made over the last 12 to 18 months, depressing overall margins. I think the Q4 will tick up slightly because of the seasonality with the vaccine clinics.

Got it. And then maybe just as a follow-up. I appreciate the commentary on the mature pharmacy kind of margin. Maybe just kind of thinking about what the ceiling or the kind of theoretical ceiling is there from a margin perspective? And kind of also thinking about one of your mature pharmacies, what kind of the available expansion capacities to those pharmacies as we think about that helping out in this overall high single-digit organic revenue growth framework, they kind of laid out long term?

We've talked about the impact that our investment in the continued start-ups and acquisitions has on overall margin, it's plus or minus 80 basis points. And where can the business be, say, in 24, 36 months or even longer? We hope to continue to optimize these acquisitions, that's going to enhance our overall margin. We're going to leverage the platform that we've built, not only in each pharmacy where we're not to full market share but also leverage our support infrastructure. So 8% higher. We're going to be working on that every day, every quarter. But hopefully, we'll see things continue to improve.

[Operator Instructions] Your next question is a follow-up from John Ransom from Raymond James.

Just going back to the fun topic of Medicare Part D, as you no doubt know, there's a lot of turmoil in the market. There's fewer stand-alone Part D plans. There's more MA PD plans. And I just wonder how does Guardian look at that? And your plan optimizer tool, are you seeing more switching within your residents? Is it creating more kind of churning behind the scenes? Or is it not something that's risen to the level of something that you've noticed?

I'll start on John. It's very early in the process because the details were late in coming this year. So the big effort is underway as we speak, and we'll know more as we move through the next few weeks.

Okay. And do you -- I'm sorry, do you have a general preference for stand-alone versus MAPD or do you care?

We're relatively agnostic. We want to help the residents the best plan for their particular situation in their drug regimen.

Okay. And if you all noticed anything kind of different. I was just looking at some numbers that suggest some small moves. But has there been any change to point out in terms of the mix of brand versus generics or the mix within brand? And I know you're not real levered to expensive biosimilars. But is there anything to call out in the average drug consumption this year versus last year? And does that -- is that bigger than a red box for you?

We've mentioned in previous communications that we see increasing levels of acuity, which manifests itself with greater utilization of some of these brands, and that has continued. It's -- I would call it just steadily -- a steady growth in acuity. Obviously, that is also greatly impacted by resident mix this being a market where our residents are turning over. So it can fluctuate quarter-to-quarter, year-to-year, depending on that. But in general, these residents that we serve have a high acuity level.

And the fact that the whole Part D deductible and out-of-pocket max has changed, are you noticing that in a shift to the plans being more in the hook in the fourth quarter? Are you seeing any kind of change versus last year when that was the case?

We have not, and I'm surprised at that. For that, it may take more than 1 year.

There are no further questions at this time. This concludes today's conference call. Thank you very much for your participation. You may now disconnect.

Good afternoon, and we're here for our last presentation of the day, but saving the best for last, right? So we have a Guardian Pharmacy Services as our next presenter. I've got Fred Burke, the company's CEO. Fred, maybe let's start with an introduction into what is Guardian and then a little bit of the state of the union.

Super. Thank you, Brian. We're really pleased to be here. Thank you all for coming and for your interest. Look forward to answering questions, et cetera. But just by way of background, a 30,000 feet, Guardian is an institutional pharmacy serving long-term care but a very specific segment of long-term care, which is assisted living. And as you probably know, that's where most of the growth has been and will be in long-term care facilities.

These facilities have a very acute resident population. It's counterintuitive and most people think of assisted living as your mom is going to play mix doubles this morning, lunch by the pool, and it's starkly different. We've got 85 years of age, 14 prescriptions on average, impairment in activities of daily living by 3 or more over 2/3. So highly acute population.

These facilities require a different type of pharmacy service. So we've engineered our pharmacies from the ground up to serve assisted living. And we've been very successful. We are the market leader, even though we don't cover the entire geography of the United States, we nevertheless, are the national leader with a whopping 13% market share. And the way we look at that is there's 87% left to go. We feel like we're running in the open field with competitive advantage with very, very strong growth, and that puts us in a really nice position to grow.

The thing I'd call out about Guardian is that it's a great place to be in health care, serving frail and elderly residents that need to us and doing really a lot of things that all are geared to accomplish 2 goals. One is to get the resident on the proper drug regimen. That's both therapeutically, clinically and per their PBM formulary. And then to provide the tech-enabled platform to the facility to ensure that they adhere to that drug regimen. It's a great place to be when in health care, you can say we improve outcomes, and we've been in the cost curve, which both of those things do.

That's a great intro. So maybe, Fred, just as I think about the industry, right? So like you said, you have a 13% share. I think the audience is familiar with names like Omnicare, PharMerica, which is now owned by BrightSpring, not everyone -- I mean, Omnicare has struggled, right? So are you seeing any market share opportunities emerging right now as some of your competitors struggle with whatever operational issues you're having?

Well, our competitive landscape really bifurcates into 2 different segments. One is that -- are the legacy players that you mentioned. And in that scenario, their pharmacy platform has been engineered to serve skills, nursing homes. And essentially, think of it as the pharmacy is operating health care professional to health care professional. There's a medical director in a nursing home, a doctor who's managing the drug regimen. There are RNs that's managing the wings and the caregivers are mostly nurses or nursing credentials. So the pharmacy's job is to receive the order and get it back at the right time and the nurses can take it from there.

Alternatively, in assisted living, there are very few, if any, health care professionals. There's certainly no medical director. So it falls on our pharmacy to be the coordinator of care with the community physicians for the residents. And the caregivers also are technically medical technicians that are certified by the state after a training class that our pharmacy provides. So it's very important to provide a different type of service. And we are very successful and are competing against those 2 legacy players.

The other competitor are the independents. And here, these pharmacies have been able to be engineered to services and do a great job. Their problem is lack of scale and profitability.

Yes. That makes a lot of sense. Fred, maybe as I take a step back, I mean, you're a fairly recent IPO. I mean, recent enough.

We had a birthday last Friday, 1 year. Thank you.

There you go. Happy birthday. That's awesome. So I think not a lot of investors fully appreciate the growth algorithm or the growth story that you have. So as you think about the Guardian story, what's the right growth rate or growth trajectory that investors need to be thinking about?

Okay. We are guiding in a medium to long-term sense. We think that we can grow low double digit as we have done. Historically, it's been about mid-double digit. And the way we compose that is, first, we enjoy a secular tailwind because assisted living is growing residents in the low double-digit range. I mean, low single-digit rate, sorry. And additive to that is market share gains with us selling new facilities to receive service from Guardian. So we're guiding to high single-digit organic growth.

And then supplementing that is our M&A program, which takes us to low double digit. As I mentioned, we historically have grown revenue since inception, 15%, but we think in a long-term sense that we very, very conservatively can guide to the low double digits.

That's awesome. So you mentioned something that is interesting to me. I mean we had Brookdale present here this morning. I know they're one of your bigger clients.

I sure wish I could have been here to hear them. You had me at a one-on-one.

We kept you busy today, which is a good thing. But as we think about the dynamics of the senior housing industry, I mean, should investors just be looking at the growth rate in assisted living occupancy as a proxy for what drives the fundamentals of your business today?

Absolutely. We've seen this industry develop and change greatly over the 20 years that we've been at work. And essentially, what we see is what originally was a real estate play, transform into a health care platform. And we see a fragmented industry consolidating. The consolidators are attracted to our more sophisticated level of service. And that growth, I think, will continue. We see demographic cohorts coming that should spark another building boom as occupancy gets up near 90%. I believe cap rates come down. I think we'll see more capacity to satisfy these demographic cohorts coming.

So maybe taking a different tack here. As we think about sort of volume growth we feel good about, as we think about pricing, right? I mean, obviously, the price inflation branded and a little bit on generics are kind of flattish. How are you thinking about the price component of your business, revenue algorithm?

Well, there's a lot of leverage in our business that is derived from our scale because there's a fixed cost that we can lever. But the reimbursement algorithm has massive leverage. And one of the things that we're embarked on, so 5, 6 years ago was to move away from our PSAO network negotiating on our behalf, to going direct, which we've accomplished. And that's allowed us to educate our payers on the value add that we bring, which they appreciate. It's been very interesting. And so one of our quest, and we're not guiding to it, but we're -- you can better believe that one of the things that we're working very hard to do is improve our reimbursement.

So Fred, maybe the other question I would ask, the IRA is viewed as a headwind for your business I think there's a bill that was proposed a couple of weeks or 3 weeks ago. If you can walk us through just how you're thinking about the IRA, what you're doing to prepare for it? And what are you hearing from D.C.?

Sure. Well, let's start with -- we mentioned our birthday a year ago. We wanted to be sure and advise investors that this was a potential headwind for us. And the reason it is, is the one sector in pharmacy that derives some product margin on brand is long-term care. We do so in 3 different ways, on the buy side dispense fee, and then there was a small ingredient cost spread that goes away in that we now are mandated by the bill to sell at MFP. We think we were an unintended consequence bill but nevertheless, it's a potential headwind.

Just to give an order of magnitude, it will be about $100 million plus of revenue in '26 but most of the analysts have modeled in about a $5 million EBITDA headwind, which is about 5%. We said from the get-go our mission was to mitigate that. And we said about the task of doing so in 2 ways, one was on the policy and the legislative front in D.C., which I'll come back to.

But secondly, in our opinion, it's a commercial negotiation. We have the ability, given the way our contracts are written that we can negotiate with every one of our payers on this particular issue, even if the contract doesn't renew, and we are, and have adopted an increasingly optimistic tone as time has passed. In the last quarterly call, you may have heard that we are very confident that we're going to be able to mitigate this with our commercial negotiations.

The Washington effort derives through our trade group that we founded or we're one of the founders and have supported greatly. We want to be a good citizen for our industry. And as I mentioned, we were not comfortable with these PSAO networks representing us. Well, similarly, our industry colleagues, the smaller independents are very fearful that their PSAO network will not be able to negotiate and mitigate effort. So they're looking to a legislative solution. We've been supportive of that, but we also view the polity drumbeat from Washington to be helpful for us as we work with our PBM payors and negotiations.

That's awesome. Fred, maybe just a quick question. Today, there was an announcement from some of the drug companies about kind of like an agreement of source or an offer to the government on drug pricing. Curious if you have any thoughts on that.

I have heard -- you've had me pretty busy today. But I did get just a snippet related to your speaking about the direct to consumer. That's going to be very interesting because in Medicare, they're already benefiting about IRA. And is this would this claim be adjudicated through IRA through their Part D plan? I'm not sure. So it seems to me that this initiative is more geared toward commercial plans and people who are paying large out-of-pockets through their commercial plans.

So it shouldn't have an impact on your business?

No.

That makes sense. Shifting gears. I mean, in your discussion of the growth algorithm, acquisitions kind of factor into that, right? So just curious what's the filter when you're looking for deals? And how do you kind of like look at them strategically?

Well, we're not constrained by financial capital. We have the firepower to do what we need to do. We're constrained by human capital. And we're looking for an operator who wants to carry out. We're not in the business of acquiring 100% of a pharmacy and saying goodbye to the operator. We're looking for great operators and we are really proud of our team. As part of the absolute secret sauce of Guardian is the outstanding entrepreneurs that run these pharmacies out in the field. They're fabulous clinicians. We provide them a lot of support from our Atlanta corporate support group with respect to business issues. And that combination is extremely powerful.

So what we're looking for is an operator who's collaborative, who wants to carry on generally, they're constrained by their lack of profitability to grow, but they have the service platform to do so if they can avail themselves of all the things we bring, our purchasing program, our reimbursement contracts, the technology that we have, the margin management data stack. So that's who we look for. We want them to grow. It takes now 2, 3, 4 years to get them up on our full platform, integrated fully and up to our corporate profitability average. But that's kind of the what we're looking for.

So if I'm looking at your entry into Oregon and Washington as kind of like key studies. Anything you can share with us in terms of those market entries? And how are you going to expand in those markets that you've entered recently?

Excellent example. It is a case study. We have been "instructed" by our national accounts that they want us to be in the Pacific Northwest. And so obviously, the first step would be an acquisition screen, an M&A screen. There's not an alternative, we'd have to think about a greenfield start-up. But fortunate for us, in both of those markets, were outstanding operators. I'll take the Seattle team, as an example. They've been in business 20 years, built that business from scratch outstanding service, wonderful platform. But unfortunately, they didn't have access to the national account.

And like I mentioned, even though this is a very well-run pharmacy without scale, they just couldn't generate the profitability they need to grow. So we're really excited about this one. We were able to go ahead and allow them to take on some of the national accounts sooner than we otherwise would because there's such excellent operators. And we'll see that pharmacy grow. We'll see them improve their profitability as they implement our purchasing scale platform, our reimbursement contracts, some of the margin management tools.

And I would hope, not saying they will, but I would hope that maybe in 2, 3, 4 years, they might even consider a contiguous lentil start-up of their own in that they serve Eastern Washington. And gee, wouldn't some bricks and mortar be nice out there. So that's our model. That's how we think about it.

That's awesome. Maybe I'll ask the audience if there's anyone who wants to ask questions here. Otherwise, I'll keep going.

You're doing a good job thus far.

I mean we talk a lot. So I think of your business as one that generates a decent amount of cash flows. So how are you thinking about just the free cash power of the business and capital deployment strategies from where you sit today?

It's a good question, which I don't have an answer to, but I can discuss. Let's go back in time. Our business was built with $50 million of contributed capital, all of which was returned prior to the public offering. That is indicative of the stewards of capital that we are. Now as we turn into this adapter, a new chapter of PUBCO, it remained to be seen, was this really going to where investors really going to see this cash conversion ratio play out. And I think you have this far. We have about a roughly 60% conversion ratio after paying taxes and CapEx. That can more than fund our M&A program.

So what will we do with the cash? It certainly gives us the flexibility to take advantage of whatever opportunity notes. And we love that. That, coupled with our credit facility, which is unused at the moment with no debt, but we have it ready and willing and available. So we'll take it a step at the time. We have been public now for a year. We're seeing what we projected manifest itself, and we'll need to figure out whether this can be used for purchasing a bigger and more important assets or it might need to be returned to shareholders. All of that is open and up in the air.

So maybe just to that point, right? I mean we talked about the new market entry strategy that you did, for example, in Washington and Oregon. But are there adjacencies to the business that could be interesting or would be good strategic fits as you think about M&A strategy?

Yes. We have several experiments underway for adjacent market segments. I'll call out 2. One is the PACE program. It turns out that our local bricks-and-mortar service model is very attractive and advantageous to these PACE programs. So I think we're serving 6 or 8 of those now as we speak. We also built out the data analytics platform to provide the CMS reporting, et cetera. So that is not nearly as large a TAM as our assisted living market, but it's very, very attractive at the pharmacy level because the service models are similar, and that certainly leverages our platform.

Another is hospice pharmacy, which is right at the moment, a broken model. And so we have some experiments underway to see if we can help with that at, and it's sorely needed. So that is a larger TAM, approximately 50% of the size of assisted living.

That's amazing. In that space, I think the key players are what? Optum is in that business, Cardinal Health?

What you have is hospice PBMs that then need local pharmacy service. And they're willingness to provide adequate reimbursement has been -- has caused them or their lack of willingness has caused them, I'm afraid, to be in a spot of bother now with the lack of 24/7 coverage, driven by a lot of 24/7 retail has gone away in most areas. And so we're trying to think about different strategies to properly address this marketplace.

Makes a lot of sense. Last question for me, Fred. What do you think is underappreciated by investors at this point about the Guardian story?

Well, one thing certainly is the virtuous circle of scale we have been able to achieve scale. That's improved our profitability, which allows us to invest in people and technology and better improve our services, which in turn drives more market share, which in turn drives more scale, and it's a virtuous cycle. We've already talked about another, which is the cash conversion ratio and the financial profile.

And I would call out, again, we mentioned it very briefly. The thing that's very difficult for investors to understand is to not view us through the lens of the legacy long-term care pharmacies. Because we're focused on a different segment and literally from our very first pharmacy, we're engineered to serve this different segment, which requires a different type of service. And we could spend all afternoon going into the details of that but it's quite significant and therefore, you need to think of us differently from those legacy players.

That's amazing. Well, thank you so much for being here, and I really appreciate you sharing all those thoughts.

Thank you. Really appreciate it.

All right, Fred. Nice to see you as always.

Thanks.