Guardian's Q3 2025: Contradictions Emerge on Vaccine Program, PBM Negotiations, and Margin Impact

Date of Call: September 30, 2025

Financials Results

• Revenue: $377.4M, up 20% YOY
• EPS: $0.25 adjusted EPS
• Gross Margin: 19.8%
• Operating Margin: 7.2% adjusted EBITDA margin, flat sequentially, down ~10 bps YOY

Guidance:

• Raised 2025 revenue guidance to $1.43B–$1.45B (prior range $1.39B–$1.41B)
• Raised 2025 adjusted EBITDA guidance to $104M–$106M (prior $100M–$102M); midpoint implies ~16% YOY growth
• Q4 SG&A expected to trend slightly lower as a percent of sales; stock-based compensation ~ $1.1M in Q4
• Q4 tax rate expected in the high-20s, stepping down to mid-20s in 2026
• Strong cash generation: ended quarter with $36M cash, cash conversion >60%, no debt on credit facility

Business Commentary:

* Revenue Growth and Resident Expansion: - Guardian Pharmacy Services reported revenue growth of 20% to $377 million for Q3 2025, driven by a 13% increase in resident count, both organically and through acquisitions. - The growth was attributed to a higher percentage of new residents joining early in the period, plant optimization efforts, strong vaccine activity, and strategic acquisitions.

• Earnings and Margin Stability:
• Adjusted EBITDA grew 19% to $27 million, with margins holding steady at 7.2%, despite the dilutive impact from recent acquisitions and greenfields.

• The stability in margins was supported by stronger profitability from maturing pharmacies within the network and ongoing operational efficiency.

• Acquisition Strategy and Market Consolidation:

• The company's acquisition pipeline remains active, with a disciplined approach focusing on acquiring pharmacies with experienced leadership teams in markets that enhance regional density and national scale.

• This strategy enables Guardian to expand its footprint and position itself as the provider of choice in the assisted living facility market, capitalizing on demographic tailwinds and market consolidation.

• Policy Environment and Strategic Initiatives:

• The unintended consequences of the Inflation Reduction Act are an ongoing issue, but Guardian is working closely with peers and trade groups to advocate for legislative and policy solutions.

• The company is also taking proactive steps with payers, focusing on strategic actions and initiatives to offset anticipated EBITDA headwinds while maintaining reported revenue growth.

• Financial Flexibility and Cash Generation:

• Guardian filed an S-3 shelf registration for up to an aggregate of 6 million shares and announced a lock-up agreement for 93% of shares until June 2026.
• The company ended the quarter with $36 million in cash, reflecting strong cash generation and financial flexibility for future growth, including M&A activities using internally generated cash flow.

Sentiment Analysis:

Overall Tone: Positive

• Management called it "another strong quarter," reported revenue up 20% to $377.4M, raised full-year revenue and adjusted EBITDA guidance, and highlighted steady adjusted EBITDA margins (7.2%) despite M&A and greenfield dilution.

Q&A:

• Question from John Ransom (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? ... in your implied guidance, what's going on with your vaccine program this year compared to last year?
  Response: Vaccine program is "steady as we go"; clinics started stronger in September so some activity was pulled into Q3.

• Question from John Ransom (Raymond James): 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.
  Response: Resident count is measured at quarter-end and includes recent acquisitions; expect Q4 to be steady though seasonality can cause some quarter-to-quarter fluctuation.

• Question from John Ransom (Raymond James): Using the baseball analogy, how close are you to wrapping up these PBM negotiations and kind of putting a bow on this issue?
  Response: Negotiations are confidential and covered by NDAs; they are taking shape and management is increasingly confident they can offset the anticipated EBITDA headwind, but no specifics.

• Question from John Ransom (Raymond James): Is there any more fulsome discussion around payers including upside kickers/value-based models versus just dispensing fee and spread?
  Response: Guardian is open to exploring value-based models with payers; it's evolving and being discussed but no major shift yet.

• Question from David MacDonald (Truist): Can you spend a quick minute on some of the areas where, from a margin standpoint, you've done better to maintain flattish margins despite meaningful M&A activity?
  Response: Mature cohorts (4–5 years) perform above consolidated margins; recent investments and ~11 newer locations (over 10% of revenue) are dilutive and typically take ~4 years to ramp.

• Question from David MacDonald (Truist): On the pipeline, how do you think about pacing on margin impact and any operational bottlenecks internally for how many deals you can take on?
  Response: Pipeline is robust and active with no material internal bottlenecks; pace may not stay at the very accelerated recent level but they expect to continue executing in 2026–27.

• Question from Raj Kumar (Stephens): It seems like the dilutive impact to margins is slightly accelerating—any thoughts on whether that's conservatism or anything to call out?
  Response: Adjusted EBITDA margins are expected to remain relatively steady; recent 12–18 month investments depress margins, and Q4 should tick up seasonally due to vaccines.

• Question from Raj Kumar (Stephens): What's the theoretical ceiling for mature pharmacy margins and expansion capacity to help reach the long-term high single-digit organic growth?
  Response: Start-ups and acquisitions depress margins by roughly 80 bps; management expects to optimize acquisitions and leverage platform/support to drive improvement toward higher margins (aiming toward ~8%).

• Question from John Ransom (Raymond James): With Medicare Part D market changes and more MA‑PD plans, are you seeing more switching/churn within residents or impacts via your plan optimizer?
  Response: It's early due to late details this year; a major effort is underway and they expect more clarity in the next few weeks.

• Question from John Ransom (Raymond James): Do you have a general preference for stand‑alone Part D versus MAPD or do you care?
  Response: Guardian is agnostic; they prioritize helping residents choose the best plan for their specific drug regimens.

• Question from John Ransom (Raymond James): Any change in mix of brand versus generics or average drug consumption this year versus last year?
  Response: There is a steady increase in acuity leading to greater brand utilization; mix can fluctuate with resident turnover but trend is toward higher acuity.

• Question from John Ransom (Raymond James): With Part D deductible and out‑of‑pocket changes, are you noticing shifts versus last year?
  Response: They have not yet observed a material shift and believe it may take more than one year to surface.

Contradiction Point 1

Vaccine Program Contribution

It involves differing descriptions of the vaccine program's performance and impact on the company's financials, which are crucial for investor expectations.

How does the vaccine program's contribution this year compare to last year? - John Ransom(Raymond James)

20251111-2025 Q3: The vaccine program this year is steady as compared to last year. We started the clinic season with a stronger September this year than last. Some of the total vaccine activity might have been pulled forward into Q3. - Fred Burke(CEO)

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

2025Q3: The vaccine program is steady as we go, with a stronger September this year compared to last year. Some of the activity might have been pulled forward into Q3. - Fred Burke(CEO)

Contradiction Point 2

PBM Negotiations and Value-Based Models

It addresses the company's approach to negotiations with PBMs and the possibility of adopting value-based models, which could significantly impact future business strategy and financial performance.

What is the status of negotiations with PBMs on the IRA issue, and are there any plans to include upside kickers in contracts? - John Ransom(Raymond James)

20251111-2025 Q3: Discussions with PBMs are covered by NDAs, so specifics cannot be shared. Guardian is open to exploring value-based models, but it's an evolving process, and no major shifts have occurred. - Fred Burke(CEO)

Is there any discussion about implementing an upside kicker for providers? - John Ransom(Raymond James & Associates, Inc., Research Division)

2025Q3: We are open to value-based models as we're comfortable with the value we provide. Discussions are ongoing, but it's an evolving area. - Fred Burke(CEO)

Contradiction Point 3

Margin Impact of Acquisitions

It involves the expected impact of acquisitions on the company's margins, which is a critical factor for financial planning and investor expectations.

How has Guardian maintained flat margins amid acquisitions, and how do you assess the pipeline for margin impact and operational bottlenecks? - David MacDonald(Truist)

20251111-2025 Q3: Our 4- to 5-year locations are performing at or above our consolidated adjusted EBITDA margin, and 2- to 3-year locations are tracking steadily towards that level. - David Morris(CFO)

Can you elaborate on areas where you maintained stable margins despite M&A activity? - David MacDonald(Truist Securities, Inc., Research Division)

2025Q3: Our 4- to 5-year cohorts are performing well, and 2- to 3-year cohorts are coming along. We have investments in 11 locations that are dilutive on margin, but they're improving. - David Morris(CFO)

Contradiction Point 4

PBM Discussions and IRA Issue

It highlights the evolving nature of discussions with PBMs regarding the IRA issue, which could impact contract terms and financial outcomes.

What is the negotiation status with PBMs regarding IRA, and is there any sign of upside kickers in contracts? - John Ransom(Raymond James)

20251111-2025 Q3: Discussions with PBMs are covered by NDAs, so specifics cannot be shared. Guardian is open to exploring value-based models, but it's an evolving process, and no major shifts have occurred. - Fred Burke(CEO)

How will the Trump executive order affect negotiations with your PBM partners? - John Ransom(RJA)

2025Q1: The Trump executive order's impact is unclear at this point. Guardian is focused on resolving the IRA issue through ongoing discussions. The order may complicate the process due to noninterference clauses, potentially requiring changes in Congress or judicial action. - Fred Burke(CEO)

Contradiction Point 5

Theoretical Ceiling for Mature Pharmacy Margins

It pertains to the company's expectations for the potential margin improvements in its mature pharmacies, which are essential for financial forecasting and strategic planning.

Is the implied Q4 margin dilutive impact increasing, and what is the theoretical ceiling for mature pharmacy margins? - Raj Kumar(Stephens)

20251111-2025 Q3: The platform's optimization efforts will continue to enhance overall margins over the next few years. - David Morris(CFO)

What is the theoretical limit for margins and the expansion potential for mature pharmacies? - Raj Kumar(Stephens Inc., Research Division)

2025Q3: Our goal is to optimize these acquisitions to enhance overall margins. - David Morris(CFO)