Jon Rousseau: Yes. No, sure. I mean, being several years past COVID, I mean, things really settled down, going on two years ago in the labor market, at least for us. And even during COVID, our retention improved, our hiring numbers went up every single year for the last seven years. Our hiring numbers have gone up, and our retention has improved. And so we’ve had a unique ability to do that. Our model assumes sort of that 3% to 4% labor growth increase, which is pretty customary. That’s the world we’re in today. And we just continue to manage it really well. You’re exactly right on the pharmacy side. Just given the ability to scale that model from a labor perspective, we’ve got about a million dollars of revenue per FTE on the pharmacy side.
So, $100 million for the pharmacy, you only need 100 people, it’s a great labor model. And then on the provider side, people want to work at a company that focuses on quality. We’ve continued to invest in our teams repeatedly through comp and benefits and training, career ladder programs. We have partnerships with nursing schools. We started an international sourcing program for nurses two years ago. Those people have, it takes forever. Those people have started to come here now. They will this year. So we just really attack it from multiple angles. We view HR as an area of competitive differentiation, and our numbers have proved that out. So, we also benefit from our settings. On the pharmacy side versus retail, I think people really prefer to work in our sort of closed-door pharmacies.
And then on the provider side, a lot of people really want to be out and about. They don’t want to be in an institution and they love our settings. And so labor has been a massive focus for the company. We have a great, great, great culture. And I love where we’re at. That is not an area of concern whatsoever for us as we look at the year and the next couple of years.
Operator: And our next question will be coming from Stephen Baxter of Wells Fargo.
Stephen Baxter: So your revenue growth in the pharmacy business has been really impressive in recent years. I guess first, can you help us understand the assumptions you’re making in the revenue growth guidance for the pharmacy business for 2024? I guess how should we think about how you’re approaching further LDD launches and generic conversions and the guidance? And what could be potential drivers of upside as the year plays out. And then just to kind of put a pin in the discussion around the quality incentive payments, just confirming that your expectation is still that 2024 is the last year for these payments, regardless of whatever the ultimate amount turns out to be. Thank you.
Jon Rousseau: Yes. Hey, Stephen, thank you. On your latter question, the answer is yes. And then on your prior questions, yes, look, we’ve been able to grow a pharmacy around a 20% CAGR over the last three and six years. It’s actually accelerated to 22% in three years versus a six-year CAGR of 20%. Obviously with our scale, those are very, very big numbers and big numbers comparatively. I would point out that the provider business also has grown its revenue CAGR at 10% historically. It’s a 10% six-year CAGR and an 11% three-year CAGR. And it’s a broad based growth in the organization from what we consider to be best of breed businesses in the company. As we look at 2024, again, I would just reiterate that as the businesses continue to scale, I think there could be some conservatism based into our number in terms of revenue growth for this year.
And I would just add that nothing has changed in our outlook from in terms of going forward versus where we’ve been historically. We’re as focused as ever on driving best practices in our business and driving, unique multiple growth levers that that we have access to. And we’re coming off January and February where we just where we saw the most referrals and volume, we have ever had.
Operator: And our next question will be coming from Ann Hynes of Mizuho Securities.
Ann Hynes: You’re talking about guidance. What are the key assumptions that would get you to the low end, and what are the key assumptions that would get you to the high end? And then, secondly, just on leverage, I know your target leverage is below 3x over the long-term. Can you get more just on an intermediate goal for maybe 2024 and 2025, and what your definition of long-term is when you think you can get below 3x? Thanks.
Jon Rousseau: Yes. Thank you for the question. I mean, look, on the range for this year, the range is really around the midpoint of what we had communicated before. I think if we just stay on plan and on track, we feel very good about that number. If we continue to improve like we would expect, hopefully we can beat it. We talked about some potential quality incentives as is upside in the number as well. As we think about leverage going forward, 3x is our long-term goal. I mean, our long-term goal is below 2x, right? What’s long term? As you look out long-term five years or so, but we want to continue to drive to drive leverage as low as we can for — into the future. I mean, if you look at our cash flow profile now, you’re probably looking at a couple years, 2.5, three years to get to that 3x number. That’s how we think about it.
Operator: Our next question will be coming from Jack Wallace of Guggenheim.
Jack Wallace: I just wanted to double-click into the value-based care strategy and marry that with the capital deployment. It sounds like to me de novos are going to be the — versus M&A, are going to be helping to unlock that capability, thinking about the primary care element there. But the second part of that is how much EBITDAs are you getting from value-based care and it’s just today? And if you could kind of help us wrap our models around how much — you kind of de novos are going to be pointed at primary care to unlock additional diabetes care even on the next couple of years. Thank you.
Jon Rousseau: Yes. Thank you. So as we refer to “de novos”, I mean, that’s really opening, new pharmacies, infusion suites, new home health, hospice, branches, rehab, outpatient clinics. De novos for home-based primary care in the sense that yes. Our first strategy with home-based primary care and value-based care is to grow it out organically and just hiring up our doctors and NNPs. That’s really what our focus is. The patients are there. In the thousands and hundreds of thousands we’re managing, we’ll be managing about 20,000 patients at least by the end of the year. But we hope that number scales dramatically, orders of magnitude larger in the next three to four years. So it’s really ramping up. Our clinician count to be able to do that across, call it our 20 target states over the next five years or so.
There are some very small tuck-in opportunities where you acquire a clinician here or there in a market or a practice of 10 clinicians. But the way that we practice home-based primary care is different. We go to the home, which we feel like gives you the best care outcome and biggest impact on cost reduction. There’s not a lot of comps that do that. There’s really just several regional ones, and then it gets much smaller from there. So we are looking to build out a model on a national scale that really hasn’t been done before, but it is an organic strategy. Again, we are leveraging the service lines in the patients that we have in pharmacy and provider. That’s the whole point. That’s what’s unique about us is we have access to these patients today.
And then with these capabilities, your step change could occur and your acceleration could occur, if you’re able to do this for external payer partners as well in addition to your own internal patients that you’re serving in primary care. So our ability to provide these sort of high quality and very impactful outcomes for payers as well, that is where you could see some step change and some acceleration. Over the next few years and why we have both an internal and an external payer strategy. For 2024, our expectations are to be in the mid-single digits of EBITDA. Again, this is an initiative that really we started building out 12 to 18 months ago. True to our form, we’ve never lost money on this. We don’t go make flyers and bets. We don’t go lose $40 million a year building something out.
That is not what we do. We were able to leverage our platform to slowly start building this out in a very common-sense way. But we hope to accelerate it into the future in our five-to-seven-year plan is that this becomes 20%, 25%, 30% of our EBITDA from the company. But it’s going to be a build out over time and one that’s mostly focused on organic.
Jack Wallace: And then as a follow up to that, is there any material, backend infrastructure investments you need to make in order to — you take on that additional risk and whether that’s market dependent or kind of more, national company platform wide? Thank you.
Jon Rousseau: Yes. No, as we’ve been building this out over the past 12 to 18 months, our focus has been on the operational and infrastructure and data side. That’s actually why we haven’t probably grown as fast in the last 12 to 18 months. We didn’t want to take 20,000, 30,000, 40,000 patients before we had all of the infrastructure and capabilities in place. And so ’23 was the first year where we were in an ACO. And so the data and the analytics and the real time patient monitoring and cost controls and triage and stratification of your patient base, our ability to do that internally and to have that daily level of visibility to manage external contracts as well, that is in place today.
Operator: Our next question will be coming from Pito Chickering of Deutsche Bank.
Pito Chickering: Can I follow up on Stephen’s question? Just on the pharmacy, you drew 30% of the fourth quarter and guidance is about 7.4% at the midpoint. Is there a wave of a limited distribution of drugs between ’22 and ’23 that are slowing? Just trying to bridge the four key results of ’23 guidance. I get the law of large numbers, but is there anything structurally different in ’24 than it was in 23?
Jon Rousseau: No, there’s not. We’re up to 116 limited distribution drugs. Again, we’re winning those [indiscernible], based on our quality results with manufacturers and our other data and hub and value add programs that we’re able to offer them. We expect to win another 12 to 16 of those drugs, depending on what comes out of the pipeline this year. But nothing has changed in terms of our outlook. We’ve got a really strong position just given our quality and our relationship with the trade and nothing’s changed in terms of our outlook and our enthusiasm on this market going forward.
Pito Chickering: All right, great. And the second question is on margins. I guess they’re a guide to compress a little bit. Can you just give us the detail on the interplay between the gross margin pressures from pharmacies or that mixed impact versus any gross margin impacts, head or tailwinds actually on the provider side, and how you offset that with SG&A leverage? Thanks so much.
Jon Rousseau: Yes. I mean, look, I mean, as I said before, our growth and specialty, it’s good growth. It’s EBITDA dollar growth. Our services are really high-value add, our margins tend to be in line with the industry. On the specialty pharmacy side, these are the margins of the industry, where we feel like we’re a best-in-class player, certainly from a growth perspective, in that business, continues to hopefully scale. You will see some level of margin impact on the company as that business just continues to scale. That’s math. Now we feel like that will be offset by growth in the other businesses as well and what we’re able to do by leveraging the platform in our scale. And so, as mentioned really before, it’s a combination of, I would say really five factors, and I’ll wrap it up maybe with this.
Number one, you’ve got that outsized growth in specialty. Number two, though, we expect to see very strong growth across all of our service lines that are higher margin. Number three, we’re able to leverage our platform scale and drive efficiency programs, I mentioned before. We feel like we’ve got $25 million at least sitting out there that we’re going to execute on over the next 12 months. Number four, our ability to do accretive acquisitions. When you look at that multiple and do the math on the margin that we’re we are buying at 4x that’s upside favorable pressure on our margin. And then number four, as we’re able to continue to scale value-based care into the future, that’s going to be significantly higher margin too. And you sort of pull all those together, and that’s what makes us really confident and being able to both grow the revenue of the company and over the next three years, have a very stable EBITDA margin as well, just given the favorable combination of all those factors.
Operator: Thank you. At this time, we’ll be turning the call back to Jon Rousseau for closing remarks. Please go ahead.
Jon Rousseau: Thank you, everybody, for your time this morning. We appreciate you tuning in. We’re incredibly excited moving forward. We look forward to your long-term partnership. And thanks for your time today. We look forward to talking with you in the near future. Have a good day.