Participants

Fred Burke; President, Chief Executive Officer, Director; Guardian Pharmacy Services Inc

David Morris; Chief Financial Officer, Executive Vice President, Director; Guardian Pharmacy Services Inc

Parker Snure; Analyst; Raymond James & Associates, Inc

David Macdonald; Analyst; Truist Securities

Unidentified Participant

Presentation

Operator

Good day, everyone, and welcome to Guardian Pharmacy's Fourth Quarter and Full Year 2024 Earnings Call. (Operator Instructions) Today's speakers will be Fred Burke, President and CEO of Guardian Pharmacy; and David Morris, EVP and CFO of Guardian Pharmacy. Before we begin, I'd like to remind everyone that statements included in this conference call and in the press release issued today may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These statements include, but are not limited to, comments regarding our plans, objectives, business outlook and our financial results for 2024 and beyond. Actual results could differ materially from those expressed or implied in forward-looking statements because of a number of risk factors and uncertainties, which are discussed in the company's quarterly report on Form 10-Q and earnings release issued today.
Guardian Pharmacy undertakes no obligations to update any forward-looking statements. Additionally, on today's call, the company will reference certain non-GAAP financial measures, such as EBITDA, adjusted EBITDA and free cash flow, included in our earnings release as well as on our website and reconciliations of non-GAAP financial measures to the GAAP financial measures reported on our financial statements. This afternoon's call is being recorded, and a replay of the call will be available later today. I'm now pleased to introduce the President and CEO of Guardian Pharmacy, Fred Burke.

Fred Burke

Welcome to Guardian Pharmacy's Fourth Quarter and Full Year 2024 Earnings Call. On today's call, I'll share financial highlights, review some of the accomplishments we achieved in 2024 and share some commentary on what to expect for '25. Starting with the fourth quarter highlights. I'm pleased to share strong results today, which include revenue of $339 million, an increase of 20% year on year. Resident Count at the end of the quarter of approximately 186,000, a 14% increase from the fourth quarter last year, and adjusted EBITDA of $26 million, representing an increase of 30% compared to last year's quarter.
And for the full year 2024, we generated revenue of $1.228 billion, an increase of 17% over last year. And adjusted EBITDA of $91 million, up 19% year over year. In terms of 2024 milestones, Guardian Pharmacy achieved several significant milestones. We expanded our footprint by adding nine new pharmacy locations through a combination of M&A and greenfield startups, and began the process of bringing them up on the Guardian platform. David will update you on progress on these new markets.
We continue to operationally streamline our COVID, flu vaccination clinics that our facility operators expect us to provide for the residents and staff. Historically, the process was a huge operational challenge for our organization and a significant profitability headwind. After the 2023 vaccine season, we formed a cross-functional task force to address the issue, David will elaborate, but I am very proud of that team, and I'm pleased to report we turned a profit headwind into a slight profit tailwind -- a significant improvement for the recently completed 2024 vaccine season. And I'd be remiss not to mention that six months ago to the day, we began our new life as a public company with the successful launch of our IPO. The organization has responded nicely and is enjoying this new challenge.
The core business remains strong as we saw high single-digit organic growth augmented by significant M&A, stable gross margins and operating leverage. These accomplishments demonstrate a strong start to our time in the public markets, and we feel confident that this success will only continue to grow over time. Looking ahead to the rest of 2025, David will speak to our guidance momentarily. However, we're very optimistic about 2025 and beyond. We're excited to be the leading long-term care pharmacy in the nation for our assisted living and memory care and further believe we are positioned well.
We have a 12% market share which to us means 88% to go. One important topic for '25 is the potential impact of the Inflation Reduction Act on 2026 and beyond. We're working diligently on navigating this possible headwind to 2026, taking a multipronged approach to finding a solution including working closely with federal policymakers and our PBM partners. All parties seem amenable to working with us to find a viable solution. And we remain confident that we can successfully mitigate any headwinds.
We'll continue to update you on our progress. Let me take a moment to recap Guardian's secret sauce. Our solutions' focus on the specific and differentiated needs of residents in assisted living and behavioral health facilities, both attractive and high-growth end markets. These types of facilities will require a completely different array of services than skilled nursing, which is what most long-term care pharmacies are set up to serve. In contrast, Guardian is purpose-built to serve the very different needs of assisted living.
We provide an extensive suite of tech-enabled services designed to help ensure the residents adhere to their appropriate drug regimen, which helps to reduce the cost of care and improve clinical outcomes. We execute on a successful multipronged organic, greenfield and acquisition growth strategy to increase our market share. Our management team is highly experienced with a legacy of industry thought leadership and operational excellence. Our company is 35% employee-owned which we feel drives our teams to provide outstanding service to our customers and excellent financial performance. We believe very deeply in the power of human capital to drive growth.
One unique and I think underappreciated aspect of Guardian is the emphasis we place on developing the talent of our operators and the focus on alignment of their goals with the company's overarching mission. I was just in Phoenix last week for our national management meeting and got to spend time with our pharmacy management team. It was incredibly uplifting to be with such a dedicated group who care so much for the residents we serve and who are dedicated to making sure Guardian is an ongoing, sustainable business which, in turn, will allow us to continue these important services we render to our frail and elderly residents. I am impressed with the experience and ability of our team members. Each pharmacy is run by a core group made up of a president and three functional directors.
This team is responsible for sales, marketing, staffing, operations logistics, billing, collections, et cetera. Essentially, they are general managers running their own business with its own P&L. I truly believe that this decentralized entrepreneurial approach is unique in the pharmacy industry. We seriously consider culture and fit when bringing on new team members and also in making an acquisition. The average tenure of our pharmacy leadership is north of a decade, and we have experienced virtually no voluntary turnover.
We invest in training of our teams each of our operators are fantastic clinical professionals in their own right when they come aboard. We then focus on building business skills, creating top-notch general managers. And in terms of the alignment of goals, we recently rolled out our new long-term incentive plan. Remember that our employees own roughly 35% of the company. This structure ensures alignment in striving to grow the business.
As an example, over the past two years, we've launched greenfield start-ups in six contiguous markets. And those opportunities were both identified and driven by our local operators who saw the need and organically opened up a greenfield start-up pharmacy in a contiguous market. In fact, over a dozen of our key management teams have launched expansions into 20 contiguous markets in the history of the company. As a result of this deep bench and close alignment, we're confident in our ability to execute on our growth strategy. Our team is enthused and aligned leaving us well positioned with a team that's ready to take on the exciting opportunities of the future.
In conclusion, all in all, I'm pleased to have another positive report for you all. We're proud of the results we delivered and are very excited for the year ahead with lots of runway to execute on our plans. Now I'll turn the call over to David to review the quarter in greater detail. David?

David Morris

Good afternoon, and thank you for joining the call today. I'll share the highlights for the full year 2024, the fourth quarter and then provide additional color on our 2025 guidance. For the fourth quarter of 2024, revenue increased 20.5% to $338.6 million driven by organic growth, the Heartland and Freedom acquisitions, and the vaccine clinic seasonality that Fred had mentioned earlier.
Residents Count grew 14% to 186,000, adjusted EBITDA grew 30.3% year over year to $25.9 million, representing a margin of 7.6%, including over $1 million in public company costs versus none in the course of 2023. Turning to the balance sheet.
We ended the fourth quarter with $4.7 million in cash. The outstanding balance on our credit facility ended the year at zero as the term note and line of credit were paid off with IPO proceeds. Looking forward, we have $40 million available under our line of credit with the ability to increase the overall credit facility up to $75 million. Now turning to a look at our full year financial highlights. Revenue reached $1.228 billion, a 17.4% increase driven by organic growth, acquisitions of Heartland and Freedom pharmacies and seasonal vaccine clinics.
Our gross margin remained stable at 19.9%, adjusted EBITDA grew 19.2% year over year to $90.1 million, representing a margin of 7.4%. And as I mentioned before, this includes over $1 million of public company costs versus none in 2023. Let me remind you, we added nine locations in 2024. These locations are various points of scale and are contributing very little to the bottom line. And as I mentioned before, we successfully paid off our term loan.
In addition to the strong financial results, I'd like to expand on a few of the key initiatives that Fred mentioned. We expanded our footprint by adding nine new pharmacy locations through a combination of M&A and greenfield startups. We completed two traditional M&A transactions, adding five new locations. The first Heartland Pharmacy added four operating locations in the Intermountain West, Idaho, Utah and Colorado, and the other a single location in the New Jersey market. Additionally, we added four new locations via greenfield bolt-on transactions in contiguous markets.
We are pleased with the progress of the new pharmacy locations, we're on track and slightly ahead of our typical 3- to 4-year time line for new pharmacies reaching mature Guardian profitability levels. We created a COVID, flu cross-functional task force that transformed an expected operationally complex unprofitable vaccine process into less on or a slightly profitable venture that greatly benefits the communities and residents we serve.
Post-COVID LTC pharmacies were expected to administer flu and COVID vaccines which added an extremely complex operational challenge for our pharmacies and historically a profitability headwind. In 2024, Guardian launched a vaccine taskforce focused on improving supply chain, logistical and reimbursement challenges. We're proud of that team's work and glad to report they were successful.
The $12 million of revenue from the operating clinics in Q4 of '24 was a slight increase year-on-year, but the more meaningful financial impact relates to profitability and the year-on-year swing from a profitability headwind to one of being marginally profitable in 2024. We expect vaccine dispensing to grow and remain profitable However, as the business grows, we do not expect comparable year on year improvement in profitability.
Finally, I'll touch on guidance before opening the call to questions. We will be reiterating the guidance outlook that we provided in our preliminary release on March 3. For the full year 2025, we expect revenue of $1.33 billion to $1.35 billion and adjusted EBITDA of $97 million to $101 million.
To add some additional color, these guidance ranges take into consideration the following: the midpoint of this range suggests a growth rate of 9%, and this guidance only includes current pins on the map. It doesn't include future acquisitions or contiguous start-ups which both are an essential part of our growth strategy. Our pipeline remains strong. Historically, we've completed about two acquisitions a year, which results in new pins on the map and territory expansion. Keep in mind, this broader market landscape consists of approximately 1,000 independent pharmacies in the US.
But given our strict M&A criteria, only a couple of hundred meet our standards to be considered actual targets. We remain highly selective, focusing on human capital, regional sales alignment and operating metrics when evaluating potential opportunities. We are confident high single-digit organic growth, coupled with M&A, will yield a long-term growth rate in the mid- to low teens. Gross margins remained fairly steady, approximately 20% on an annual basis. Additionally, we plan to continue to achieve leverage in 2025, even though the year will include a full year of public company cost of around $4 million compared to just one quarter of those related expenses in 2024.
In concluding, I'd like to reiterate Fred's sentiment that we are proud of the strong 2024 results and are looking forward to the remainder of '25. The business continues to scale in many ways. Acquisitions continue to be integrated into Guardian operations, contiguous startups continue to mature, and we continue to leverage the core business platform. We have the people and operations in place to ensure sustainable organic growth in the years ahead and plan to execute on the plans we've laid out for you. With that, I'll open the call to questions.
Operator?

Question and Answer Session

Operator

Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions)
Parker Snure, Raymond James.

Parker Snure

Hey, how's it going guys? Yes, this is Parker on for John Ransom.
This is Parker on for John Ransom. Just as we think about the earnings bridge from '24 to '25, what are some of the puts and takes that we should consider? Obviously, as you mentioned, the annualization of the public company costs, is there anything else that we should consider in there? The Heartland acquisition? I know you did another deal in the fourth quarter that you mentioned.
Anything else that you would call out in that bridge?

David Morris

Hey, Parker. How are you doing?

Parker Snure

Doing good.

David Morris

I think we've laid out strong organic growth in the high single digits, coupled with our M&A activity yields something in the low double digits. We're comfortable with that. It's pretty much steady as we go, looking from '24 to '25 and continue to push to achieve additional leverage.

Parker Snure

Okay. And then maybe if you can just expand on some of your conversations you're having with your PBM partners related to some of the IRA issues and just some of the other things looking out? I mean maybe just speak a little more broadly, how you're feeling about the progress there and anything else that you would note?

David Morris

As it relates to the IRA, obviously, we've been talking about this for some time beginning in summer of '24. And as Fred laid out, we continue to be comfortable with the process. We're engaged discussing it. The issue has been acknowledged, and we're comfortable that we're going to be able to mitigate and work our way through it.

Parker Snure

Okay. And if I can just get one last one. From all data points that we can track, it seems like the flu season persisted much longer than normal well into kind of mid- to late February. Is there anything that we should consider there in terms of first quarter modeling or seasonality or how that might impact your business?

David Morris

I don't think so. If you look at how our population works with the flu vaccine, we inoculate almost every resident that we serve in our communities Therefore, the severity of the season, whether it's more severe or less doesn't really impact how many people actually that we administer the vaccines too. So I don't think there's anything material related to severity of the season.

Fred Burke

This is Fred. Parker, I'll add one other comment, which is certainly someone could receive prescription for [Tamiflu] or in the case of an infection and antibiotic, but it's at the margin.

Parker Snure

Okay, great. Appreciate it.

Operator

David McDonald, Truist.

David Macdonald

Good afternoon, guys. A couple of quick questions. wanted to come back to the IRA just for a second and kind of a different angle. I'm just curious if some of the changes there has in any way impacted your pipeline of potential M&A opportunities? Or any other impacts that you'd call out just on the pipeline, whether it's seeing more opportunities potentially seeing pricing move around a little bit? Just anything that you'd call out there?

David Morris

David, this is David. I think as we talked about our M&A pipeline continues to be robust with the select operators out there that fit the criteria that we're looking for. And I would say the -- hasn't affected it greatly. I know it's on people's mind as we're talking to them about it. So I would say it hasn't hurt, but it could have helped slightly, but our pipeline remains very robust.

David Macdonald

Okay. And then just a follow-up on Parker's question just with regards to your PBM partners. I don't know if you guys want to get into this level of detail, but just curious, has there been any tweaks to how you guys are contracting? Any conversations around that? Any kind of movement more towards generics? Just any high-level comments that you would make with regards to that.

Fred Burke

I'll jump in, David. Obviously, it would be inappropriate for us to comment on details related to our negotiations with the PBMs. But yes, all those things are on the table that we're considering and discussing with them. The takeaway for you, I think, is very importantly that the PBMs are acknowledging the issue and are engaged with us in solving it. So we're heartened by that. We'll keep you posted as we move forward.

David Macdonald

Okay. And then guys, just one other quick year-over-year question. With regards to the improvement, some of the vaccine stuff. I'm just curious, did that ramp over the course of the year? Or was that improvement in 2024?
Basically, what I'm asking is, is there some annualization of that year-over-year improvement that creates a modest incremental tailwind in 2025 relative to '24? Heard your commentary about not same rate of change, but is there a little bit of a tailwind benefit from just the annualization of that?

David Morris

The benefit of the flu, COVID vaccine was majority in Q4. So -- and as it ramps into '25, we'll see the flu. We talked about the $12 million of revenue that will grow at the same rate of the overall business. And the profitability is slightly less than our core business. So there's not a huge tailwind that would need to be factored in.

David Macdonald

Okay, thanks very much, guys.

Fred Burke

We're calling it out to help you understand the performance in Q4. Moving from a negative to a positive, it was an influence on our Q4 EBITDA growth.

David Macdonald

Okay, thanks very much.

Operator

Scott Fidel, Stevens.

Unidentified Participant

This is Raj on for Scott. Just had a quick one on kind of observed drug mix trends in the quarter? Maybe anything to call out there? And kind of what's embedded from a pricing perspective in the 2025 guidance?

David Morris

Hey Raj, it's good to hear your voice and thanks for joining here. As we look to '25, nothing substantial is changing on the horizon, the drug mix, the reimbursement, everything is relatively steady as we look to '25.

Unidentified Participant

Great. And then just as a follow-up. I know the company had some kind of more pilot initiatives around more kind of clinical intervention types of services and some like fall risk management and disease state management. Maybe kind of update on that playbook so far? And what kind of progress do you guys expect to make there on that front in 2025?

Fred Burke

I'll speak to that, Raj. We are so proud of our data analytics team working closely with our clinical team to bring these value-added services and products to our customers. And it is so exciting. They're continuing to move forward with that, making great progress. And I think our customers are enthused about it as well. So we're excited about that.

Unidentified Participant

All right, great, thank you. That's all from me.

Operator

There are no further questions at this time. I'd like to turn the call over to Fred Burke for closing comments. Sir, please go ahead.

Fred Burke

Just a quick word of thanks to everyone who's joined. We really appreciate your interest in our company and for you joining the call today. Thanks very much. And with that, we'll say goodbye.

Operator

This concludes today's conference call. Thank you very much for your participation. You may now disconnect.