Guardian's Q3 2025: Contradictions Emerge on PBM Negotiations, Vaccine Seasonality, and Resident Growth

Date of Call: November 10, 2025

Financials Results

• Revenue: Revenue grew 20% to $377.4 million (Q3 2025)
• EPS: Adjusted EPS of $0.25
• Gross Margin: Gross profit $74.7 million, 19.8% gross margin
• Operating Margin: Adjusted EBITDA margin 7.2%, roughly flat sequentially and down ~10 basis points year-over-year; adjusted EBITDA $27.3 million, up 19% YOY

Guidance:

• Raised 2025 revenue guidance to $1.43B–$1.45B (from $1.39B–$1.41B)
• Raised 2025 adjusted EBITDA guidance to $104M–$106M (from $100M–$102M); midpoint implies ~16% YoY growth
• Q4: SG&A expected to trend slightly lower as a % of sales; stock‑based compensation ~ $1.1M in Q4
• Q4 tax rate expected in the high‑20s; 2026 tax rate expected in the mid‑20s
• Balance sheet: $36M cash, cash conversion >60%, no debt; S‑3 shelf for up to 6M shares with ~93% lockup to June 30, 2026
• Expect reported revenue growth to be relatively flat in 2026 due to IRA impacts but confident in offsetting EBITDA headwind

Business Commentary:

* Revenue and Resident Count Growth: - Guardian Pharmacy Services reported revenue of $377 million for Q3 2025, up 20% year-on-year, with a resident count increase of 13%. - Growth was driven by organic growth, acquisitions, and higher initial resident adoption rates.

• Adjusted EBITDA and Margins:
• The company's adjusted EBITDA grew 19% to $27 million, with margins holding steady at 7.2%.

• Growth was supported by cost management and operational efficiencies, despite dilutive impacts from recent acquisitions and greenfield startups.

• Policy Environment and Payer Initiatives:

• The Inflation Reduction Act's consequences continue to impact the industry, but Guardian is working closely with payers to address these challenges.

• Efforts include proactive measures, such as strategic initiatives and value-based models, to mitigate potential EBITDA headwinds.

• Acquisitions and Expansion:

• Guardian Pharmacy has expanded its footprint through acquisitions, notably in Oregon and Washington, which added $25 million in revenue this quarter.

• Expansion aligns with the company's strategy to enhance geographic presence and meet demands from national customer partners.

• Strong Balance Sheet and Financial Flexibility:

• The company holds $36 million in cash, even after funding acquisitions, with a cash conversion rate above 60%.
• This financial strength supports ongoing strategic growth, including acquisitions funded by internally generated cash flow.

Sentiment Analysis:

Overall Tone: Positive

• Management repeatedly described the quarter as "another strong quarter," raised full‑year revenue and adjusted EBITDA guidance, highlighted 20% revenue growth and 19% adjusted EBITDA growth, and reiterated confidence in offsetting policy headwinds and continuing M&A and organic expansion.

Q&A:

• Question from John Ransom (Raymond James & Associates, Inc., Research Division): How would you compare the contribution of the vaccine program this year to last year? Specifically, what are you seeing with uptake among your population and how does the program overall compare to last year's?
  Response: Vaccine program is steady; stronger September this year pulled some clinic volume into Q3 and we are not seeing reduced uptake despite CDC guidance.

• Question from John Ransom (Raymond James & Associates, Inc., Research Division): As we think about resident count, given you're only missing one month of an acquisition, is this resident count a good placeholder for Q4?
  Response: Q3 resident count includes recent acquisitions; expect Q4 resident counts to be steady with normal seasonal variability (some reluctance to move residents in Nov/Dec).

• Question from John Ransom (Raymond James & Associates, Inc., Research Division): Using the baseball analogy, how close are you to wrapping up negotiations with PBMs around IRA impacts?
  Response: Discussions with PBMs are confidential and NDA‑covered, but they are taking shape and management is increasingly confident in offsetting the IRA‑related EBITDA headwind.

• Question from John Ransom (Raymond James & Associates, Inc., Research Division): Any indication payers might add upside kickers or more fulsome value sharing (beyond dispensing fee and spread)?
  Response: Guardian is open to value‑based models; payers are exploring them too, but adoption is evolving rather than immediate.

• Question from David MacDonald (Truist Securities, Inc., Research Division): From a margin standpoint, given the acquisition activity, where have you done better to maintain flattish margins?
  Response: Mature (4–5 year) cohorts are performing above consolidated margins; recent investments (about 11 locations) are dilutive and typically take ~4 years to ramp to target margins.

• Question from David MacDonald (Truist Securities, Inc., Research Division): Regarding the pipeline, how do you think about pacing on margin impact and any internal operational bottlenecks?
  Response: Pipeline is robust with no material operational bottlenecks; acquisition pace may vary (not always at peak Heartland level) but capability to execute remains.

• Question from Raj Kumar (Stephens Inc., Research Division): The dilutive impact to margins seems slightly accelerating—is that conservatism or is there something to call out?
  Response: Margins were forecast to remain relatively steady; the main driver of dilution is investments over the last 12–18 months, and Q4 should tick up modestly from seasonal vaccine activity.

• Question from Raj Kumar (Stephens Inc., Research Division): What is the theoretical ceiling for margins and how will mature pharmacies expand to support high single‑digit organic growth?
  Response: Optimizing acquisitions and leveraging platform/support infrastructure could recover roughly ~80 basis points over time; management expects continued margin improvement over the next 24–36 months.

• Question from John Ransom (Raymond James & Associates, Inc., Research Division): With turbulence in Part D and more MA‑PD, are you seeing more switching via your plan optimizer or churning among residents?
  Response: Too early to assess—details arrived late this year and the evaluation is underway; expect more clarity in the coming weeks.

• Question from John Ransom (Raymond James & Associates, Inc., Research Division): Do you have a preference for stand‑alone Part D plans versus MA‑PD?
  Response: Relatively agnostic—priority is helping each resident find the best plan for their regimen.

• Question from John Ransom (Raymond James & Associates, Inc., Research Division): Any change in brand versus generic mix or average drug consumption this year versus last year?
  Response: Steady, but we see a gradual increase in acuity driving greater use of certain brands; mix fluctuates with resident turnover.

• Question from John Ransom (Raymond James & Associates, Inc., Research Division): With Part D deductible and out‑of‑pocket changes, are you seeing shifts in plan selection or behavior this year?
  Response: No noticeable shift yet from those Part D changes; management expressed surprise and suggested it may take more than one year to materialize.

Contradiction Point 1

PBM Negotiations and Progress

It involves the progress and expected timeline of PBM negotiations, which can impact financial forecasts and strategic planning.

How close are you to finalizing these negotiations? - John Ransom (Raymond James & Associates, Inc., Research Division)

2025Q3: We have been engaged in these discussions for the last 6 to 12 months and continue to make good progress. We expect to update our guidance as we get into Q4 and toward the end of the year, signaling the outcome of these negotiations for 2026. - David Morris(CFO)

When do you plan to complete PBM negotiations for next year due to the IRA reset? Are these negotiations usually completed by November or December? - John Ransom (Raymond James)

2025Q2: We have been engaged in these discussions for the last 6 to 12 months and continue to make good progress. We expect to update our guidance as we get into Q4 and toward the end of the year, signaling the outcome of these negotiations for 2026. - David Morris(CFO)

Contradiction Point 2

Vaccine Program and Seasonality

It involves the seasonal impact of the vaccine program, which can affect financial performance and operational planning.

Can you compare the vaccine program's contribution this year to last year? - John Ransom (Raymond James & Associates, Inc., Research Division)

2025Q3: The vaccine program is now at a steady state, with general growth of the overall business. Seasonality from the vaccine clinics, which moved to profitability last year, is not a focus this year. - David Morris(CFO)

Is the vaccine program now at a steady state, or is there ongoing learning that could drive higher growth in Q4? - John Ransom (Raymond James)

2025Q2: The vaccine program is now at a steady state, with general growth of the overall business. Seasonality from the vaccine clinics, which moved to profitability last year, is not a focus this year. - David Morris(CFO)

Contradiction Point 3

PBM Negotiations and Impact on Business

It involves the ongoing negotiations with PBM partners and their potential impact on the company's financial performance, which is crucial for investor expectations.

Are there discussions about addressing Part D losses in MA plans by proposing an upside kicker to offset losses, or are they sticking to the standard fee and spread model? - John Ransom (Raymond James & Associates, Inc., Research Division)

2025Q3: We are very willing to think about value-based models because we're very comfortable in the value that we are providing 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. - Fred Burke(CEO)

Have you studied the Trump executive order and what are your initial thoughts on its potential impact on negotiations with your PBM partners? - John Ransom (RJA)

2025Q1: We are optimistic about resolving the IRA issue with our PBM partners. The executive order might provide some traction, but it's uncertain due to the non-interference clause. It could play out over the coming months in the judiciary and Congress. - Fred Burke(CEO)

Contradiction Point 4

Resident Count and Growth Expectations

It involves the company's expectations for resident count growth, which impacts revenue projections and operational planning.

Does the resident count serve as a reasonable estimate for 4Q, considering only one month of the acquisition data is missing? - John Ransom (Raymond James & Associates, Inc., Research Division)

2025Q3: We generally 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 expect to see steady as we go in Q4 on resident count. - Fred Burke(CEO)

Can you separate Resident Count into same-store metrics and the contributions from Heartland and Freedom? - Gracy McAllister (Truist Securities)

2025Q1: Our Resident growth year-on-year organically met the guidance that we've discussed, which is high single-digit organic. The balance would be from the acquisitions that you made. - Fred Burke(CEO)