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ROC

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-41938

 

BrightSpring Health Services, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

82-2956404

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

805 N. Whittington Parkway

Louisville, Kentucky

40222

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (502) 394-2100

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.01 per share

6.75% Tangible Equity Units

 

BTSG

BTSGU

 

The Nasdaq Stock Market LLC

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

The number of shares of Registrant’s Common Stock outstanding as of May 1, 2024 was 171,320,174.

 

 

 


 

Table of Contents

 

 

 

Page

 

 

 

PART I.

FINANCIAL INFORMATION

2

 

 

 

Item 1.

Financial Statements (Unaudited)

2

 

Condensed Consolidated Balance Sheets

2

 

Condensed Consolidated Statements of Operations

3

 

Condensed Consolidated Statements of Comprehensive Loss

4

 

Condensed Consolidated Statements of Shareholders' Equity

5

 

Condensed Consolidated Statements of Cash Flows

6

 

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

37

Item 4.

Controls and Procedures

38

 

 

 

PART II.

OTHER INFORMATION

39

 

 

 

Item 1.

Legal Proceedings

39

Item 1A.

Risk Factors

39

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

39

Item 3.

Defaults Upon Senior Securities

39

Item 4.

Mine Safety Disclosures

39

Item 5.

Other Information

39

Item 6.

Exhibits

40

Signatures

41

 

i


 

Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q (this “Form 10-Q”) to “BrightSpring,” the “Company,” “we,” “us,” and “our” refer to BrightSpring Health Services, Inc. and its consolidated subsidiaries.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes forward-looking statements that reflect our current views with respect to, among other things, our operations, and financial performance. We have used the words “anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “future,” “will,” “seek,” “foreseeable,” the negative version of these words, or similar terms and phrases to identify forward-looking statements.

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our industries, business strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. If any of these risks materialize, or if any of our assumptions underlying forward-looking statements prove incorrect, actual results and developments may differ materially from those made in or suggested by the forward-looking statements contained in this Form 10-Q. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, those set forth in Item 1A, “Risk Factors,” of Part I of our Annual Report on Form 10-K for the year ended December 31, 2023 (our “Form 10-K”) filed with the U.S. Securities and Exchange Commission (the “SEC”). Although we have attempted to identify important risk factors, there may be other risk factors not presently known to us or that we presently believe are not material that could cause actual results and developments to differ materially from those made in or suggested by the forward-looking statements contained in this Form 10-Q. We caution you against relying on any forward-looking statements, which should also be read in conjunction with the other cautionary statements that are included elsewhere in this Form 10-Q. Any forward-looking statement made by us in this Form 10-Q speaks only as of the date hereof. We undertake no obligation to publicly update or to revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

1


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

BrightSpring Health Services, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

(Unaudited)

 

 

March 31, 2024

 

 

December 31, 2023

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

58,037

 

 

$

13,071

 

Accounts receivable, net of allowance for credit losses

 

 

990,581

 

 

 

881,627

 

Inventories

 

 

373,740

 

 

 

402,776

 

Prepaid expenses and other current assets

 

 

150,451

 

 

 

159,167

 

Total current assets

 

 

1,572,809

 

 

 

1,456,641

 

Property and equipment, net of accumulated depreciation of $386,619 and $368,089 at
    March 31, 2024 and December 31, 2023, respectively

 

 

245,686

 

 

 

245,908

 

Goodwill

 

 

2,609,228

 

 

 

2,608,412

 

Intangible assets, net of accumulated amortization

 

 

856,016

 

 

 

881,476

 

Operating lease right-of-use assets, net

 

 

276,075

 

 

 

267,446

 

Deferred income taxes, net

 

 

11,156

 

 

 

 

Other assets

 

 

84,585

 

 

 

72,838

 

Total assets

 

$

5,655,555

 

 

$

5,532,721

 

Liabilities, Redeemable Noncontrolling Interests, and Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Trade accounts payable

 

$

655,776

 

 

$

641,607

 

Accrued expenses

 

 

451,785

 

 

 

492,363

 

Current portion of obligations under operating leases

 

 

77,078

 

 

 

71,053

 

Current portion of obligations under financing leases

 

 

11,690

 

 

 

11,141

 

Current portion of long-term debt

 

 

48,670

 

 

 

32,273

 

Total current liabilities

 

 

1,244,999

 

 

 

1,248,437

 

Obligations under operating leases, net of current portion

 

 

208,238

 

 

 

201,655

 

Obligations under financing leases, net of current portion

 

 

24,419

 

 

 

22,528

 

Long-term debt, net of current portion

 

 

2,515,139

 

 

 

3,331,941

 

Deferred income taxes, net

 

 

 

 

 

23,668

 

Long-term liabilities

 

 

88,481

 

 

 

91,943

 

Total liabilities

 

 

4,081,276

 

 

 

4,920,172

 

Redeemable noncontrolling interests

 

 

6,275

 

 

 

27,139

 

Shareholders' equity:

 

 

 

 

 

 

Common stock, $0.01 par value, 1,500,000,000 and 137,398,625 shares authorized,
   
171,190,389 and 117,857,055 shares issued and outstanding at March 31, 2024 and
   December 31, 2023, respectively

 

 

1,712

 

 

 

1,179

 

Preferred stock, $0.01 par value, 250,000,000 authorized, no shares issued and
   outstanding at March 31, 2024;
no shares authorized, issued or outstanding at
   December 31, 2023

 

 

 

 

 

 

Additional paid-in capital

 

 

1,788,728

 

 

 

771,336

 

Accumulated deficit

 

 

(246,069

)

 

 

(200,319

)

Accumulated other comprehensive income

 

 

23,115

 

 

 

12,544

 

Total shareholders' equity

 

 

1,567,486

 

 

 

584,740

 

Noncontrolling interest

 

 

518

 

 

 

670

 

Total equity

 

 

1,568,004

 

 

 

585,410

 

Total liabilities, redeemable noncontrolling interests, and equity

 

$

5,655,555

 

 

$

5,532,721

 

See accompanying notes to the condensed consolidated financial statements.

2


 

BrightSpring Health Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

 

 

For the Three Months Ended March 31,

 

 

2024

 

 

2023

 

Revenues:

 

 

 

 

 

 

Products

 

$

1,977,035

 

 

$

1,467,002

 

Services

 

 

599,603

 

 

 

561,376

 

Total revenues

 

 

2,576,638

 

 

 

2,028,378

 

Cost of goods

 

 

1,807,100

 

 

 

1,306,981

 

Cost of services

 

 

400,147

 

 

 

386,684

 

Gross profit

 

 

369,391

 

 

 

334,713

 

Selling, general, and administrative expenses

 

 

361,324

 

 

 

283,158

 

Operating income

 

 

8,067

 

 

 

51,555

 

Loss on extinguishment of debt

 

 

12,726

 

 

 

 

Interest expense, net

 

 

65,020

 

 

 

78,177

 

Loss before income taxes

 

 

(69,679

)

 

 

(26,622

)

Income tax benefit

 

 

(23,294

)

 

 

(4,346

)

Net loss

 

 

(46,385

)

 

 

(22,276

)

Net loss attributable to noncontrolling interests

 

 

(635

)

 

 

(894

)

Net loss attributable to BrightSpring Health Services, Inc. and subsidiaries

 

$

(45,750

)

 

$

(21,382

)

 

 

 

 

 

 

 

Net loss per common share (Note 12):

 

 

 

 

 

 

Loss per share - basic:

 

$

(0.26

)

 

$

(0.18

)

Loss per share - diluted:

 

$

(0.26

)

 

$

(0.18

)

Weighted average shares outstanding:

 

 

 

 

 

 

Basic

 

 

175,531

 

 

 

117,866

 

Diluted

 

 

175,531

 

 

 

117,866

 

See accompanying notes to the condensed consolidated financial statements.

3


 

BrightSpring Health Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(Unaudited)

 

 

For the Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Net loss

 

$

(46,385

)

 

$

(22,276

)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(146

)

 

 

3

 

Cash flow hedges:

 

 

 

 

 

 

Net change in fair value, net of tax (1)

 

 

17,959

 

 

 

(6,352

)

Amounts reclassified to earnings, net of tax (2)

 

 

(7,242

)

 

 

(3,862

)

Total other comprehensive income (loss), net of tax

 

 

10,571

 

 

 

(10,211

)

Total comprehensive loss

 

 

(35,814

)

 

 

(32,487

)

Comprehensive loss attributable to redeemable noncontrolling interests

 

 

(483

)

 

 

(894

)

Comprehensive loss attributable to noncontrolling interest

 

 

(152

)

 

 

 

Comprehensive loss attributable to BrightSpring Health Services, Inc. and subsidiaries

 

$

(35,179

)

 

$

(31,593

)

 

(1)
The income tax effects of the net change in fair value were $(5,815) and $2,114 for the three months ended March 31, 2024 and 2023, respectively.
(2)
The income tax effects of amounts reclassified to earnings were $2,345 and $1,285 for the three months ended March 31, 2024 and 2023, respectively.

See accompanying notes to the condensed consolidated financial statements.

4


 

BrightSpring Health Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Shareholders’ Equity

(In thousands, except share data or otherwise indicated)

(Unaudited)

 

 

 

For the Three Months Ended March 31, 2024

 

 

Common Stock

 

 

Additional
Paid-In Capital

 

 

Accumulated Deficit

 

 

Accumulated Other Comprehensive Income

 

 

Noncontrolling
Interest

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2023

 

 

117,857,055

 

 

$

1,179

 

 

$

771,336

 

 

$

(200,319

)

 

$

12,544

 

 

$

670

 

 

$

585,410

 

Net loss (1)

 

 

 

 

 

 

 

 

 

 

 

(45,750

)

 

 

 

 

 

(152

)

 

 

(45,902

)

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,571

 

 

 

 

 

 

10,571

 

Share-based compensation

 

 

 

 

 

 

 

 

24,848

 

 

 

 

 

 

 

 

 

 

 

 

24,848

 

Extinguishment of redeemable
     noncontrolling interest

 

 

 

 

 

 

 

 

14,981

 

 

 

 

 

 

 

 

 

 

 

 

14,981

 

Issuance of common stock on initial public
     offering, net of underwriting discounts
     and commissions, and offering-related
     expenses of $
36.8 million

 

 

53,333,334

 

 

 

533

 

 

 

655,952

 

 

 

 

 

 

 

 

 

 

 

 

656,485

 

Proceeds from stock purchase contract
     issued under tangible equity units,
     net of underwriting discounts and
     commissions of $
9.1 million

 

 

 

 

 

 

 

 

321,611

 

 

 

 

 

 

 

 

 

 

 

 

321,611

 

Balances at March 31, 2024

 

 

171,190,389

 

 

$

1,712

 

 

$

1,788,728

 

 

$

(246,069

)

 

$

23,115

 

 

$

518

 

 

$

1,568,004

 

 

 

 

For the Three Months Ended March 31, 2023

 

 

Common Stock

 

 

Additional
Paid-In Capital

 

 

Accumulated Deficit

 

 

Accumulated Other Comprehensive Income

 

 

Noncontrolling
Interest

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2022

 

 

117,860,839

 

 

$

1,179

 

 

$

778,121

 

 

$

(45,716

)

 

$

21,192

 

 

$

 

 

$

754,776

 

Net loss (1)

 

 

 

 

 

 

 

 

 

 

 

(21,382

)

 

 

 

 

 

 

 

 

(21,382

)

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,211

)

 

 

 

 

 

(10,211

)

Share-based compensation

 

 

 

 

 

 

 

 

450

 

 

 

 

 

 

 

 

 

 

 

 

450

 

Shares issued under share-based
   compensation plan, including tax effects

 

 

22,392

 

 

 

 

 

 

145

 

 

 

 

 

 

 

 

 

 

 

 

145

 

Balances at March 31, 2023

 

 

117,883,231

 

 

$

1,179

 

 

$

778,716

 

 

$

(67,098

)

 

$

10,981

 

 

$

 

 

$

723,778

 

(1) Net loss to the Company for the three months ended March 31, 2024 and 2023 excludes $(483) and $(894), respectively, allocable to the redeemable noncontrolling interests for our joint venture arrangements.

See accompanying notes to the condensed consolidated financial statements.

5


 

BrightSpring Health Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

For the Three Months Ended March 31,

 

 

2024

 

 

2023

 

Operating activities:

 

 

 

 

 

 

Net loss

 

$

(46,385

)

 

$

(22,276

)

Adjustments to reconcile net loss to cash (used in) provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

48,922

 

 

 

50,345

 

Impairment of long-lived assets

 

 

1,769

 

 

 

2,209

 

Provision for credit losses

 

 

6,622

 

 

 

6,216

 

Amortization of deferred debt issuance costs

 

 

4,447

 

 

 

5,197

 

Share-based compensation

 

 

24,848

 

 

 

450

 

Deferred income taxes, net

 

 

(31,732

)

 

 

(13,321

)

Loss on extinguishment of debt

 

 

12,726

 

 

 

 

Loss on disposition of fixed assets

 

 

122

 

 

 

538

 

Other

 

 

(312

)

 

 

607

 

Change in operating assets and liabilities, net of acquisitions and dispositions:

 

 

 

 

 

 

Accounts receivable

 

 

(115,576

)

 

 

(54,035

)

Prepaid expenses and other current assets

 

 

8,916

 

 

 

31,076

 

Inventories

 

 

30,485

 

 

 

69,213

 

Trade accounts payable

 

 

21,605

 

 

 

(66,966

)

Accrued expenses

 

 

(43,430

)

 

 

33,971

 

Other assets and liabilities

 

 

(1,886

)

 

 

(3,328

)

Net cash (used in) provided by operating activities

 

$

(78,859

)

 

$

39,896

 

Investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

$

(21,816

)

 

$

(17,846

)

Acquisitions of businesses, net of cash acquired

 

 

(9,394

)

 

 

 

Other

 

 

272

 

 

 

383

 

Net cash used in investing activities

 

$

(30,938

)

 

$

(17,463

)

Financing activities:

 

 

 

 

 

 

Long-term debt repayments

 

$

(793,353

)

 

$

(7,785

)

Proceeds from issuance of common stock on initial public offering, net

 

 

656,485

 

 

 

 

Proceeds from issuance of tangible equity units, net

 

 

389,000

 

 

 

 

Repayments of the Revolving Credit Facility, net

 

 

(50,700

)

 

 

(14,300

)

Payment of debt issuance costs

 

 

(42,963

)

 

 

 

Repurchase of shares of common stock

 

 

(325

)

 

 

 

Shares issued under share-based compensation plan, including tax effects

 

 

 

 

 

89

 

Purchase of redeemable noncontrolling interest

 

 

(300

)

 

 

 

Payment of financing lease obligations

 

 

(3,081

)

 

 

(2,885

)

Net cash provided by (used in) financing activities

 

$

154,763

 

 

$

(24,881

)

Net increase (decrease) in cash and cash equivalents

 

 

44,966

 

 

 

(2,448

)

Cash and cash equivalents at beginning of year

 

 

13,071

 

 

 

13,628

 

Cash and cash equivalents at end of year

 

$

58,037

 

 

$

11,180

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

Interest, net

 

$

60,282

 

 

$

72,998

 

Income taxes, net of refunds

 

$

11,186

 

 

$

3,730

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

 

Financing lease obligations

 

$

3,004

 

 

$

2,883

 

Repurchases of common stock in accounts payable

 

$

325

 

 

$

 

Purchases of property and equipment in accounts payable

 

$

937

 

 

$

3,066

 

Consideration for purchase of redeemable noncontrolling interest in accounts payable

 

$

5,100

 

 

$

 

See accompanying notes to the condensed consolidated financial statements.

6


 

BrightSpring Health Services, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Significant Accounting Policies

Description of Business

BrightSpring Health Services, Inc. is a leading home and community-based healthcare services platform, focused on delivering complementary pharmacy and provider services to complex patients. Our platform delivers clinical services and pharmacy solutions across Medicare, Medicaid, and commercially-insured populations.

On December 7, 2017, affiliates of Kohlberg Kravis Roberts & Co. L.P. (“KKR”) and Walgreens Boots Alliance, Inc. (“WBA”) purchased PharMerica Corporation (“PharMerica”) and on March 5, 2019, expanded with the acquisition of BrightSpring Health Holdings Corp. The surviving entity has been renamed as BrightSpring Health Services, Inc.

BrightSpring Health Services, Inc. completed its initial public offering (“IPO”) of 53,333,334 shares of its common stock at a price of $13.00 per share and its concurrent offering of 8,000,000 6.75% tangible equity units (“TEUs”) with a stated amount of $50.00 per unit in January 2024 (collectively, “the IPO Offerings”). The net proceeds from the IPO Offerings amounted to $656.5 million and $389.0 million for the common stock and TEUs, respectively, after deducting underwriting discounts and commissions, and offering-related expenses. The shares and TEUs began trading on the Nasdaq Global Select Market on January 26, 2024 under the ticker symbols “BTSG” and “BTSGU,” respectively. BrightSpring Health Services, Inc. used a portion of the net proceeds received from the IPO Offerings to repay certain indebtedness (see Note 5). Additionally, a portion of the net proceeds will be used to pay termination fees in connection with the termination of our monitoring agreement with our controlling stockholders, KKR and WBA (the “Monitoring Agreement”) (see Note 13). The remaining proceeds were retained for general corporate purposes. In connection with the IPO Offerings, the Company also granted equity awards to management and certain other full-time employees (see Note 15).

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of BrightSpring Health Services, Inc. and its subsidiaries (“BrightSpring,” the “Company,” “we,” “us,” or “our”). The Company consolidates its majority-owned and controlled entities, including variable interest entities (“VIEs”) for which the Company is the primary beneficiary. All intercompany balances and transactions have been eliminated.

We record a noncontrolling interest for the allocable portion of income or loss and comprehensive income or loss to which the noncontrolling interest holders are entitled based upon their ownership share of the affiliate. The Company determined noncontrolling interests for certain of these VIEs to be redeemable noncontrolling interests, which are presented in the unaudited condensed consolidated balance sheets as redeemable noncontrolling interests. See Note 11.

Basis of Presentation

In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly our financial position, our results of operations, and our cash flows in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial reporting. Our results of operations for the interim periods presented are not necessarily indicative of the results of our operations for the entire year.

This report should be read in conjunction with our consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023, which include information and disclosures not included herein. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from the interim financial information presented, as allowed by the rules and regulations of the Securities and Exchange Commission.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts and related disclosures. We rely on historical experience and on various other assumptions that we believe to be reasonable under the circumstances to make judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Significant estimates are involved in the valuation of accounts receivable, inventory, long-lived assets, definite and indefinite-lived intangibles, derivatives, insurance reserves, stock-based compensation, and goodwill. Actual amounts may differ from these estimates.

7


 

Transition Services Agreement

In conjunction with the divestiture of Workforce Solutions on November 1, 2022, BrightSpring entered into a transition services agreement (“TSA”) with the buyer to provide certain transition services in exchange for service fees totaling $15.0 million over the 36 months following the close of the transaction. Services provided primarily include business development, finance and accounting, human resources, IT, facilities management, and compliance. For the three months ended March 31, 2024 and 2023, the Company recognized $1.4 million and $1.9 million, respectively, of other income within selling, general, and administrative expenses in our unaudited condensed consolidated statements of operations related to services rendered under the TSA.

Fair Value of Financial Instruments

At March 31, 2024 and December 31, 2023, the fair value of cash and cash equivalents, accounts receivable, trade accounts payable, and accrued expenses approximated their carrying values because of the short-term nature of these instruments. The carrying amounts of the Company’s long-term debt approximated fair value as interest rates and negotiated terms and conditions are consistent with current market rates due to the close proximity of recent refinancing transactions to the dates of these unaudited condensed consolidated financial statements. All debt classifications and interest rate swaps represent Level 2 fair value measurements. Contingent consideration, which represents future earn-outs associated with acquisitions, represents a Level 3 fair value measurement as there is little or no market data available. Refer to Note 9.

Debt Issuance Costs

The Company capitalizes financing fees related to acquiring or issuing new debt instruments. These expenditures include bank fees and premiums, legal costs, and filing fees. Debt issuance costs are capitalized and amortized as interest expense over the terms of the related debt using the effective interest rate method. Debt issuance costs related to term loans and specified maturity borrowings are presented as a direct reduction of the carrying value of the debt. Debt issuance costs related to revolving credit facilities and lines of credit are presented as other assets in our unaudited condensed consolidated balance sheets.

Deferred Offering Costs

Deferred offering costs of $5.6 million, which consist of legal, accounting, filing, and other fees and costs directly attributable to the Company’s IPO, were capitalized, and upon completion of the IPO in January 2024, were subsequently recorded in shareholders’ equity as a reduction of proceeds. There were $3.9 million of deferred offering costs included in other assets in the accompanying unaudited condensed consolidated balance sheet as of December 31, 2023.

Government Actions to Mitigate COVID-19’s Impact

On May 11, 2023, the Department of Health and Human Services declared the COVID-19 pandemic is no longer a public health emergency. Through the Coronavirus Aid, Relief, and Economic Security Act, the Paycheck Protection Program and Health Care Enhancement Act, and the Consolidated Appropriations Act, $178 billion of funding was authorized to be distributed to health care providers through the Provider Relief Fund (“PRF”) in response to COVID-19.

The Company received and recognized the following amounts from the PRF (in thousands):

 

 

For the Three Months Ended March 31,

 

 

2024

 

 

2023

 

Amounts received from the Provider Relief Fund

 

$

 

 

$

18,804

 

Amounts recognized into income

 

$

 

 

$

18,804

 

The income recognized in the three months ended March 31, 2023 was offset directly by the expenses incurred within selling, general, and administrative expenses on our unaudited condensed consolidated statements of operations, which resulted in no net financial impact to the Company.

Recently Adopted Accounting Standards

There were no new accounting standards adopted during the three months ended March 31, 2024.

Recently Issued Accounting Standards

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting. This ASU requires the following disclosures on an annual and interim basis:

Significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included with each reported measure of segment profit/loss;

8


 

Other segment items by reportable segment, consisting of differences between segment revenue and segment profit/loss not already disclosed above;
Other information by reportable segment, including total assets, depreciation and amortization, and capital expenditures; and
The title of the CODM and an explanation of how the CODM uses the reported measures of segment profit/loss in assessing segment performance and deciding how to allocate resources.

The amendments in this ASU are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted, and should be applied on a retrospective basis. This ASU will have no impact on the Company’s consolidated financial condition or results of operations. The Company is evaluating the impact to the related segment reporting disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU requires the following disclosures on an annual basis:

A tabular rate reconciliation using both percentages and amounts, broken out into specific categories with certain reconciling items at or above 5% of the statutory tax further broken out by nature and/or jurisdiction;
Qualitative disclosure of the nature and effect of significant reconciling items by specific categories and individual jurisdictions; and
Income taxes paid (net of refunds received), broken out between federal, state/local and foreign, and amounts paid to an individual jurisdiction when 5% or more of the total income taxes paid.

The amendments in this ASU are effective for annual periods beginning after December 15, 2024, with early adoption permitted, and should be applied on a prospective basis. This ASU will have no impact on the Company’s consolidated financial condition or results of operations. The Company is currently evaluating the impact to the income tax disclosures.

2. Revenue

The Company is substantially dependent on revenues received under contracts with federal, state, and local government agencies. Operating funding sources are generally earned from Medicaid, Medicare, commercial insurance reimbursement, and from private and other payors. There is no single customer whose revenue was 10% or more of our consolidated revenue. The following tables set forth revenue by payor type (in millions):

 

 

Pharmacy Solutions

 

 

For the Three Months Ended March 31,

 

 

2024

 

 

2023

 

 

Revenue

 

 

% of Revenue

 

 

Revenue

 

 

% of Revenue

 

Commercial insurance

 

$

504.4

 

 

 

19.6

%

 

$

356.3

 

 

 

17.6

%

Medicaid

 

 

187.3

 

 

 

7.3

%

 

 

144.4

 

 

 

7.1

%

Medicare A

 

 

129.4

 

 

 

5.0

%

 

 

139.4

 

 

 

6.9

%

Medicare B

 

 

16.9

 

 

 

0.7

%

 

 

13.1

 

 

 

0.6

%

Medicare C

 

 

336.9

 

 

 

13.1

%

 

 

195.5

 

 

 

9.6

%

Medicare D

 

 

756.3

 

 

 

29.4

%

 

 

571.1

 

 

 

28.2

%

Private & other

 

 

45.8

 

 

 

1.6

%

 

 

47.2

 

 

 

2.3

%

 

$

1,977.0

 

 

 

76.7

%

 

$

1,467.0

 

 

 

72.3

%

 

 

Provider Services

 

 

For the Three Months Ended March 31,

 

 

2024

 

 

2023

 

 

Revenue

 

 

% of Revenue

 

 

Revenue

 

 

% of Revenue

 

Commercial insurance

 

$

47.4

 

 

 

1.8

%

 

$

35.2

 

 

 

1.7

%

Medicaid

 

 

334.5

 

 

 

13.0

%

 

 

319.8

 

 

 

15.8

%

Medicare A

 

 

105.3

 

 

 

4.1

%

 

 

100.8

 

 

 

5.0

%

Medicare B

 

 

6.9

 

 

 

0.3

%

 

 

5.4

 

 

 

0.3

%

Medicare C

 

 

20.2

 

 

 

0.8

%

 

 

14.1

 

 

 

0.7

%

Private & other

 

 

85.3

 

 

 

3.3

%

 

 

86.1

 

 

 

4.2

%

 

 

$

599.6

 

 

 

23.3

%

 

$

561.4

 

 

 

27.7

%

 

9


 

 

Consolidated

 

 

For the Three Months Ended March 31,

 

 

2024

 

 

2023

 

 

Revenue

 

 

% of Revenue

 

 

Revenue

 

 

% of Revenue

 

Commercial insurance

 

$

551.8

 

 

 

21.4

%

 

$

391.5

 

 

 

19.3

%

Medicaid

 

 

521.8

 

 

 

20.3

%

 

 

464.2

 

 

 

22.9

%

Medicare A

 

 

234.7

 

 

 

9.1

%

 

 

240.2

 

 

 

11.9

%

Medicare B

 

 

23.8

 

 

 

1.0

%

 

 

18.5

 

 

 

0.9

%

Medicare C

 

 

357.1

 

 

 

13.9

%

 

 

209.6

 

 

 

10.3

%

Medicare D

 

 

756.3

 

 

 

29.4

%

 

 

571.1

 

 

 

28.2

%

Private & other

 

 

131.1

 

 

 

4.9

%

 

 

133.3

 

 

 

6.5

%

 

$

2,576.6

 

 

 

100.0

%

 

$

2,028.4

 

 

 

100.0

%

Refer to Note 14 for the disaggregation of revenue by reportable segment.

3. Acquisitions

2024 Acquisition

During the period ended March 31, 2024, we completed one acquisition within the Pharmacy Solutions segment. We entered into the transaction on March 19, 2024, in order to expand our services and geographic offerings. Aggregate consideration for the acquisition was approximately $7.1 million. No cash was acquired as a part of the transaction. The operating results of the acquisition are included in our unaudited condensed consolidated financial statements from the date of the acquisition.

The following table summarizes the consideration paid (in thousands) for the 2024 acquisition and the estimated fair value of the assets acquired at the acquisition date, which are adjusted for measurement-period adjustments through March 31, 2024.

 

Inventories

 

$

1,449

 

Goodwill

 

 

1,123

 

Intangible assets

 

 

4,572

 

Aggregate purchase price

 

$

7,144

 

The Company is in the process of reviewing the fair value of the assets acquired. We have estimated the fair value of acquired customer relationships, trade names, and non-compete agreements based on the values assigned in prior acquisitions. Based on the Company’s preliminary valuations, the total estimated consideration of $7.1 million has been allocated to assets acquired as of the acquisition date.

The estimated intangible assets consist primarily of $3.9 million in customer relationships, $0.4 million in trade names, and $0.3 million in covenants not to compete. Definite-lived intangible assets have an estimated weighted average useful life of 7.3 years. We expect all of the goodwill will be deductible for tax purposes. The Company believes the resulting amount of goodwill reflects its expectation of synergistic benefits of the acquisition.

The above acquisition contributed approximately $0.8 million in revenue and $0.1 million in operating income during the three months ended March 31, 2024. Pro forma financial data for the 2024 acquisition has not been included as the results of the operations are not material to our unaudited condensed consolidated financial statements.

During the three months ended March 31, 2024, the Company incurred approximately $0.2 million in transaction costs related to the completed 2024 acquisition. These costs are included in selling, general, and administrative expenses in our unaudited condensed consolidated statements of operations.

The Company also purchased the remaining 30% noncontrolling interest in Gateway Pediatric Therapy LLC during the first fiscal quarter of 2024. This transaction did not meet the definition of a business combination in accordance with Accounting Standards Codification 805, Business Combinations. For further discussion, refer to Note 11.

2023 Acquisitions

During the year ended December 31, 2023, we completed five acquisitions within the Pharmacy Solutions and Provider Services segments. We entered into these transactions in order to expand our services and geographic offerings. Aggregate consideration for these acquisitions was approximately $73.1 million. No cash was acquired as a part of these transactions. The operating results of these acquisitions are included in our unaudited condensed consolidated financial statements from the date of each acquisition.

10


 

The following table summarizes the consideration paid (in thousands) for these 2023 acquisitions and the estimated fair value of the assets acquired and the liabilities assumed at the acquisition dates, which are adjusted for immaterial measurement-period adjustments through March 31, 2024. Consideration paid for acquisitions by the Pharmacy Solutions and Provider Services segments was $29.8 million and $43.3 million, respectively.

 

Accounts receivable

 

$

2,500

 

Inventories

 

 

919

 

Property and equipment

 

 

450

 

Goodwill

 

 

31,494

 

Intangible assets

 

 

37,914

 

Operating lease right-of-use assets

 

 

530

 

Accrued expenses

 

 

200

 

Current portion of obligations under operating leases

 

 

207

 

Obligations under operating leases, net of current portion

 

 

323

 

Aggregate purchase price

 

$

73,077

 

The intangible assets consist primarily of $18.9 million in licenses, $14.0 million in customer relationships, $3.9 million in trade names, and $1.1 million in covenants not to compete. Definite-lived intangible assets have an estimated weighted average useful life of 11.2 years, and the licenses were assigned an indefinite life. We expect all of the goodwill will be deductible for tax purposes. The Company believes the resulting amount of goodwill reflects its expectation of synergistic benefits of the acquisitions.

Measurement period adjustments for 2023 acquisitions recorded in the three months ended March 31, 2024 were not material to the unaudited condensed consolidated financial statements. The Company expects to finalize the purchase price allocation for the 2023 acquisitions prior to the one-year anniversary date of each acquisition.

The above acquisitions contributed approximately $26.8 million in revenue and $0.9 million of operating income during the three months ended March 31, 2024. No 2023 acquisitions were completed during the first fiscal quarter of 2023, as such the acquisitions did not contribute any revenue or operating income during the three months ended March 31, 2023. Pro forma financial data for 2023 acquisitions has not been included as the results of the operations are not material to our unaudited condensed consolidated financial statements.

During the three months ended March 31, 2023, the Company incurred approximately $0.1 million in transaction costs related to 2023 acquisitions that were completed in subsequent quarters of 2023. These costs are included in selling, general, and administrative expenses in our unaudited condensed consolidated statements of operations.

4. Goodwill and Intangible Assets

A summary of changes to goodwill, by segment, is as follows (in thousands):

 

 

Goodwill

 

 

Pharmacy Solutions

 

 

Provider Services

 

 

Total

 

Goodwill at January 1, 2024*

 

$

833,989

 

 

$

1,774,423

 

 

$

2,608,412

 

Goodwill added through acquisitions

 

 

1,123

 

 

 

 

 

 

1,123

 

Measurement period adjustments

 

 

 

 

 

(200

)

 

 

(200

)

Foreign currency adjustments

 

 

 

 

 

(107

)

 

 

(107

)

Goodwill at March 31, 2024*

 

$

835,112

 

 

$

1,774,116

 

 

$

2,609,228