Guardian Pharmacy Services, Inc.

1. Organization and Background

Business

Guardian Pharmacy Services, Inc. (the “Company”) is a leading, highly differentiated pharmacy services company that provides an extensive suite of technology-enabled services designed to help residents of long-term health care facilities (“LTCFs”) adhere to their appropriate drug regimen, which in turn helps reduce the cost of care and improve clinical outcomes. We emphasize high-touch, individualized clinical, drug dispensing and administration capabilities that are tailored to serve the needs of residents in historically lower acuity LTCFs, such as assisted living facilities, and behavioral health facilities and group homes. Additionally, our robust suite of capabilities enables us to serve residents in all types of LTCFs. We are a trusted partner to residents, LTCFs and health plan payors because we help reduce errors in drug administration, manage and ensure adherence to drug regimens, and lower overall healthcare costs.

All long-lived assets were held in the United States as of December 31, 2023 and 2024. All revenues were generated in the United States during the years ended December 31, 2023 and 2024.

Organization

The Company was incorporated in the state of Delaware on November 16, 2021. The Company was formed for the purpose of completing an initial public offering (“IPO”) of its common stock and related corporate reorganization transactions in order to carry on, as a publicly traded entity, the business of Guardian Pharmacy, LLC, which was formed on July 21, 2003 as an Indiana limited liability company, as a publicly-traded entity.

Corporate Reorganization

Prior to the IPO, we conducted our business through Guardian Pharmacy, LLC, and its majority-owned and wholly-owned limited liability company subsidiaries, which were treated for income tax purposes as partnerships and disregarded entities, respectively. Immediately prior to the IPO, we completed a series of corporate reorganization transactions (the “Corporate Reorganization”), pursuant to which:

common stock converting into shares of Class A common stock on each of the following dates: (i) March 28, 2025; (ii) September 27, 2025; (iii) March 28, 2026; and (iv) September 27, 2026. The Merger Consideration was $55,176 and was paid using the proceeds from the IPO.

As a result of the Corporate Reorganization, the Company became a holding company with no material assets other than its 100% interest in Guardian Pharmacy, LLC, and the Converted Subsidiaries became wholly-owned subsidiaries of Guardian Pharmacy, LLC. In addition, Guardian Pharmacy, LLC remained the majority owner of each of the

Subsidiaries.

The

Subsidiaries collectively own ten pharmacies that are (i) greenfield

start-up

pharmacies in various stages of development and integration with Guardian and do not currently have material operations or (ii) pharmacies that we recently acquired. After a period of time that would typically be sufficient to allow such pharmacies to adopt our operating practices and experience meaningful growth in residents served and earnings, we expect to acquire the minority membership interests of such

Subsidiaries.

As a result of the Corporate Reorganization, the Company recorded deferred tax assets and liabilities attributable to the business of Guardian Pharmacy, LLC. In addition, the Company received tax basis for the $55,176 in cash payments related to the Merger Consideration, which are amortizable for tax purposes. To reflect this new taxability at the corporate level and the tax

step-up,

the Company recorded an incremental net deferred tax asset through additional

paid-in

capital of $5,973. See Note 14

for further discussion.

Initial Public Offering

On September 27, 2024, the Company consummated its IPO of 8,000,000 shares of its Class A common stock, as described in the Company’s final prospectus dated September 25, 2024, filed with the Securities and Exchange Commission (“SEC”) on September 26, 2024, pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the “Prospectus”). Also on September 27, 2024, the underwriters for the IPO exercised in full their option to purchase an additional 1,200,000 shares of Class A common stock. The 9,200,000 shares were issued at a public offering price of $14.00 per share, resulting in net proceeds to the Company of $119,784, after deducting underwriting discounts of $9,016. In addition to the underwriting discounts, the Company incurred $13,023 of offering costs, which were recorded to additional

paid-in

capital.

2. Summary of Significant Accounting Policies

Principles of consolidation

The accompanying consolidated financial statements include the accounts of the Company and all controlled subsidiaries (collectively, the “Company”). All intercompany transactions and accounts have been eliminated. Results of operations of the Company’s controlled subsidiaries have been included from the date of acquisition.

Basis of Presentation

The Consolidated Financial Statements are prepared in conformity with the generally accepted accounting principles in the United States of America (“U.S. GAAP”).

The Corporate Reorganization was accounted for as a combination of entities under common control. As a result, the financial reports filed with the SEC by the Company subsequent to the Corporate Reorganization are prepared “as if” Guardian Pharmacy, LLC is the accounting predecessor of the Company. The historical operations of Guardian Pharmacy, LLC are deemed to be those of the Company. Thus, the financial statements included in this report reflect (i) the historical operating results of Guardian Pharmacy, LLC prior to the Corporate Reorganization; (ii) the consolidated results of the Company and Guardian Pharmacy, LLC following the Corporate Reorganization; (iii) the assets and liabilities of the Company and Guardian Pharmacy, LLC at their historical cost; and (iv) the Company’s equity structure for all periods presented. No

step-up

basis of intangible assets or goodwill was recorded.

Guardian Pharmacy, LLC has been determined to be our predecessor for accounting purposes and, accordingly, the consolidated financial statements for periods prior to the Corporate Reorganization have been adjusted to combine the previously separate entities for presentation purposes. The Company’s financial position, results of operations and cash flows effectively represent those of Guardian Pharmacy, LLC as of and for all periods presented.

Segment Reporting

During 2023, the Company modified its internal management reporting including the information regularly used by the chief operating decision maker (“CODM”) to assess performance and allocate resources. As a result, the Company

re-evaluated

its operating segment conclusions and determined that it has a single operating segment. Changes to the Company’s operating segment conclusions have no impact on historical consolidated results of operations, financial position, or cash flows. The Company will not be required to provide recast financial information as the Company previously aggregated operating segments into one reportable segment. See Note 12

Segments

for further information.

Use of Estimates

The preparation of Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect amounts reported in the Consolidated Financial Statements and accompanying notes. Actual results could differ from those estimates.

Fair Value

The Company utilizes the three-level valuation hierarchy for the recognition and disclosure of fair value measurements. The categorization of assets and liabilities within this hierarchy is based upon the lowest level of input that is significant to the measurement of fair value. The three levels of the hierarchy consist of the following:

Financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, line of credit and notes payable. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value due to the short maturity of these instruments. The Company estimates that the carrying amount of the line of credit and notes payable approximates fair value due to the fluctuation of their variable interest rates with market movement.

The following table summarizes the valuation of liabilities measured at

fa

ir value on a recurring basis on the Company’s Consolidated Balance Sheets:

The following table provides a reconciliation of the activity for the Level 3 contingent consideration fair value measurements during the years ended December 31, 2023 and 2024:

Cash and Cash Equivalents

Cash consists primarily of demand deposits held with financial institutions. The Company considers all highly liquid investments purchased with an original maturity of three months or less when purchased to be cash equivalents for financial statement presentation.

Accounts Receivable

Accounts receivable consists primarily of amounts due from third

parti

es (e.g., pharmacy benefit managers, insurance companies, governmental agencies, and long-term care facilities) and private pay customers. Accounts receivable are stated at cost less an allowance for credit losses, the net of which approximates fair value.

Allowance for Credit Losses

Collection of accounts receivable from customers is the Company’s primary source of operating cash flow and is critical to the operating performance and the financial condition of the Company. The primary collection risk relates to amounts due from long-term care facilities and private pay customers, as billings to these customers can be complex and may lead to payment disputes or delays. The Company establishes an allowance for accounts receivable considered to be at increased risk of becoming uncollectible to reduce the carrying value of such receivables to their estimated net realizable value.

When establishing this allowance for credit losses, the Company considers such factors as historical collection experience (i.e., payment history and credit losses) and creditworthiness, specifically identified credit risks, aging of accounts receivable, current and expected economic conditions, and other relevant factors. The allowance for credit losses is regularly reviewed for appropriateness. Judgment is used to assess the collectability of account balances and the economic ability of customers to pay. At the time a balance is definitively deemed to be uncollectible, the balance is written off against the allowance for credit losses. The charges recorded for credit losses is reported within Selling, general and administrative expenses on the Consolidated Statements of Operations. As of December 31, 2023 and 2024, the allowance for credit losses was $6,171 and $8,868,

respectively.

The

table below outlines the activity for the allowance for credit losses for the years ended December 31, 2023 and 2024:

Rebates

The Company receives rebates, discounts, and other price concessions relating to purchases from its suppliers and vendors. The Company estimates rebates earned and the associated receivable from pharmaceutical wholesalers and manufacturers, group purchasing organizations (“GPOs”) and vendors, based on estimates of the qualifying prescriptions dispensed or the key products purchased and sold. The receivables are recognized at the end of the period in the Consolidated Financial Statements within Accounts receivable and as a reduction to Cost of goods sold and Inventories as appropriate.

Inventories

Inventories consist primarily of purchased pharmaceuticals held for sale to customers. Inventories are recorded at the lower of cost

(first-in,

first-out

method) or net realizable value.

Physical inventory counts are taken quarterly and used to record the inventory balances on hand to ensure the amounts reflected in the accompanying Consolidated Financial Statements are properly stated. Costs include the purchase price of pharmaceuticals, which is reduced for rebates earned associated with inventory remaining at the end of each period, and overhead. There is no significant obsolescence reserve recorded since the Company has not experienced (nor does it expect to experience) significant levels of inventory obsolescence write-offs due to the ability to return unused drugs to its suppliers and vendors for credit.

Property and Equipment

Property and equipment are recorded at cost, net of accumulated depreciation. See Note 4

Property and Equipment

Leases

In accordance with Financial Accounting Standards Board (“FASB”), Accounting Standard Codification (“ASC”), 842 - Leases (“ASC 842”), the Company has applied the practical expedient to account for the lease and

non-lease

components as a single lease component for all leases. The Company also made an accounting policy election to not recognize

right-of-use

(“ROU”) assets and liabilities for leases with a term of 12 months or less unless the lease includes an option to renew or purchase the underlying asset that are reasonably certain to be exercised.

For leases with terms greater than 12 months, the Company records the related asset and obligation at the present value of fixed lease payments over the term. Many of the Company’s leases include rental escalation clauses, renewal options and/or termination options that are factored into the Company’s determination of lease payments when appropriate. Variable lease payments are recognized as incurred.

As the implicit rate is not readily determinable for the Company’s leases, the Company uses an estimated incremental borrowing rate to determine the initial present value of lease payments over the lease terms on a collateralized basis over a similar term, which is based on market and company specific information. The Company applied a portfolio approach using an estimated incremental borrowing rate upon adoption of ASC 842.

Leases

that transfer substantially all the benefits and risks of ownership of property to the Company or otherwise meet the criteria for capitalization are accounted for as finance leases. To reflect their purchase and financing, assets acquired under finance leases are recorded on the Consolidated Balance Sheets as Property and equipment, and amounts due under finance leases are recorded as Other Liabilities, Current and Long-Term. Depreciation of assets recorded under finance leases is provided on a straight-line basis over the period of their estimated useful lives (or lease term if shorter) and is reported on the Consolidated Statements of Operations within either Cost of goods sold or Selling, general and administrative expense as determined by the nature of the

asset

. See Note 7

Lease Obligations

Impairment of Long-Lived Assets

The Company’s long-lived assets consist of property and equipment, as well as intangible assets with definite lives. Intangible assets with definite lives primarily include customer lists and trademarks that are recognized as a result of acquisitions. Long-lived assets are reviewed for indicators of impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable.

The Company groups and evaluates long-lived assets for impairment at the lowest level at which individual cash flows can be identified whenever events or changes in circumstances indicate that the carrying value of an asset ma

y

not be recoverable. If indicators of impairment are present, the Company first compares the carrying amount of the asset group to the estimated future cash flows associated with the asset group (undiscounted and without interest charges). If the estimated undiscounted future cash flows used in this analysis are less than the carrying amount of the asset group, an impairment loss calculation is prepared. The impairment loss calculation compares the carrying amount of the asset group to the asset group’s fair value. If required, an impairment loss is recorded for the portion of the asset group’s carrying value that exceeds the asset group’s fair value. The Company concluded there was no impairment of long-lived assets during the years ended December 31, 2023 or 2024.

Goodwill

Goodwill is the excess of the consideration transferred over the fair value of identifiable net assets acquired in business combinations accounted for under the acquisition method of accounting. The Company does not amortize goodwill. The Company tests its goodwill annually during the fourth quarter of its fiscal year or when events and circumstances indicate that impairment may have occurred and requires impairment charges to be recognized based on the difference between the carrying amount of the reporting unit and its fair value. Impairment testing of goodwill is required at the reporting unit level (operating segment or one level below operating segment). Prior to performing the impairment test, the Company may make a qualitative assessment of the likelihood of goodwill impairment in order to determine whether a detailed quantitative analysis is required. The Company’s annual impairment testing date is October 1.

No impairment of goodwill resulted from the Company’s annual impairment testing in 2023 or 2024. See Note 5

Goodwill and Intangible Assets

Intangible Assets

The Company’s intangible assets with definite lives primarily include customer lists and trademarks. Intangible assets are stated at their acquired fair value less accumulated amortization. These assets are amortized over periods ranging from five to twenty years using a straight-line method. The Company considers the period of expected cash flows and underlying data to be the best estimate in measuring fair value when determining their useful lives.

Contingent Consideration

When an acquisition involves a contingent consideration arrangement, the Company recognizes a liability as of the acquisition date equal to the fair value of expected contingent payments. This liability is remeasured each reporting period and changes in the fair value are reported within Selling, general and administrative expenses on the Consolidated Statements of Operations. Increases or decreases in the fair value of the contingent consideration liability can result from changes in discount periods and rates, as well as changes in the timing or likelihood of achieving certain revenue or other targets. Payments made greater than three months after the acquisition date up to the fair value of the contingent consideration established at the acquisition date are reported as financing activities on the Consolidated Statements of Cash Flows while payments in excess of such amounts are reported as operating activities on the Consolidated Statements of Cash Flows.

The terms of the contingent consideration arrangement may include certain provisions that the Company contribute additional capital to its subsidiaries to fund payment of the contingent payment when earned. These provisions may also require the Company to issue additional equity in its subsidiaries to

interest members to avoid dilution of their ownership upon payment of contingent obligations.

Loss Contingencies

The Company may become involved in legal proceedings and other matters that may result in loss contingencies. A liability is established for such matters when it is probable that a loss has been incurred and the amount of loss can be reasonably estimated. Liabilities for loss contingencies are recorded within Other current liabilities and Other liabilities on the Company’s Consolidated Balance Sheets. See Note 9

Commitments and Contingencies

Revenue Recognition

Revenue is recognized when control of the promised goods are transferred or services are provided to customers in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods or services. Each prescription represents a separate performance obligation of the Company, separate and distinct from other prescriptions under customer arrangements.

A significant portion of the Company’s revenues from sales of pharmaceutical and medical products is subject to reimbursement by federal Medicare (i.e., Part A, B, D) programs and state Medicaid programs. The total net sales and receivables reported on the Company’s Consolidated Financial Statements are recorded at the amount expected to be ultimately received from these payors. Billing functions for a portion of the Company’s revenue systems are largely computerized, submitting claims for online adjudication electronically, with simultaneous feedback of the amount expected to be received at the time of sale to determine and record net revenues.

Patient

co-payments

are billed to the patient as part of the Company’s normal billing procedures. Additionally, the Company bills certain long-term care facilities for the sale of pharmaceuticals. These billings are subject to the Company’s normal accounts receivable collections procedures. No disaggregation of revenue is necessary as the impact of economic factors is comparable due to the similarity in the types of services provided for the long-term care facilities or residents served.

Concentrations of Credit Risk

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and accounts receivable.

At times, cash balances at financial institutions are in excess of Federal Deposit Insurance Corporation (“FDIC”) insurance coverage. FDIC insurance covers all deposit accounts, including checking and savings accounts, money market deposit accounts, and certificates of deposit, up to $250 per depositor, per insured bank, for each account ownership category. The Company believes it mitigates any risks by depositing cash with major financial institutions.

Credit

risk on accounts receivable is generally diversified due to the number of entities comprising the customer base. The Company generally does not require collateral from its customers in connection with the extension of credit in the form of accounts receivable balances. Management regularly reviews the allowances for credit losses for appropriateness.

Fo

r the years ended December 31, 2023 and 2024, no single customer accounted for 10% or more of the Company’s revenues.

Delivery Expenses

The Company incurred expenses totaling $35,538 and $40,716 for the ye

ar

s ended December 31, 2023 and 2024, respectively, to deliver products sold to its customers. Delivery expenses are reported within Cost of goods sold on the Consolidated Statements of Operations.

Advertising and Marketing Expenses

The Company incurred advertising and marketing expenses totaling $3,384 and $3,502 for the years ended December 31, 2023 and 2024, respectively. Advertising and marketing expenses are expensed as incurred and are reported within Selling, general, and administrative expenses on the Consolidated Statements of Operations.

Share-based Compensation

The Company records compensation costs related to the vesting of equity-based and liability-based awards on its Consolidated Statements of Operations. See Note 11

Share-based Compensation

Stockholders’ Equity

Common Stock

We have two classes of common stock: Class A common stock, which has one vote per share, and Class B common stock, which has one vote per share. The Class A common stock and Class B common stock vote together as a single class on all matters submitted to a vote of stockholders (including the election of directors), except as otherwise required by applicable law and except in connection with amendments to our certificate of incorporation that increase or decrease the par value of the shares of such class, or alter or change the powers, preferences or special rights of the shares of either class so as to affect the holders of such shares adversely. There are no shares of preferred stock outstanding.

Voting

Holders of shares of our Class A common stock and Class B common stock are entitled to one vote for each share held of record on all matters on which stockholders are entitled to vote generally, including the election or removal of directors elected by our stockholders. The holders of our Class A common stock and Class B common stock do not have cumulative voting rights in the election of directors.

Dividends

Holders of shares of our Class A common stock and Class B common stock are entitled to receive dividends when, as and if declared by our board of directors out of funds legally available therefor, subject to any statutory or contractual restrictions on the payment of dividends and to any restrictions on the payment of dividends imposed by the terms of any outstanding preferred stock.

Liquidation

Upon our liquidation, dissolution or winding up and after payment in full of all amounts required to be paid to creditors and to the holders of preferred stock having liquidation preferences, if any, the holders of shares of our Class A common stock and Class B common stock will be entitled to receive ratably our remaining assets available for distribution, unless different treatment of the shares of each such class is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class A common stock and Class B common stock, each voting separately as a class.

Fully Paid and

Non-Assessable

All shares of our Class A common stock and Class B common stock outstanding are fully paid and

non-assessable.

The Class A common stock and Class B common stock will not be subject to further calls or assessments by us.

Guardian Phar

ma

cy Services, Inc. and Subsidiaries

Rights and Preferences

Holders of shares of our Class A common stock do not have preemptive, conversion, subscription or redemption rights. Holders of shares of our Class B common stock do not have preemptive, subscription or redemption rights. Shares of our Class B common stock are convertible into shares of our Class A common stock as described below under “—Transfer Restrictions and Conversion of Class B Common Stock.” There are no redemption or sinking fund provisions applicable to the Class A common stock or Class B common stock. The rights powers, preferences and privileges of our Class A common stock and Class B common stock are subject to those of the holders of any shares of our preferred stock or any other series or class of stock we may authorize and issue in the future.

Transfer Restrictions and Conversion of Class B Common Stock

Shares of Class B common stock may not be transferred by the holder thereof, unless such transfer is a “Permitted Transfer.” We refer to a transferee of shares of Class B common stock received in a Permitted Transfer as a “Permitted Transferee.” In accordance with our certificate of incorporation, a “Permitted Transfer” generally will include any transfer of Class B common stock (i) approved in advance by our board of directors; (ii) to a family member of the holder; (iii) to certain entities owned by the holder or certain trusts (each, a “Permitted Entity”); (iv) upon a holder’s death by will, intestate succession or operation of law; or (v) by a Permitted Entity to a family member of the holder or any other Permitted Entity of the holder.

As provided in our certificate of incorporation, with respect to each holder of Class B common stock (and any subsequent Permitted Transferee) (a “Qualified Stockholder”), such holder’s shares of Class B common stock will automatically convert into shares of Class A common stock on a

one-for-one

basis pursuant to the

two-year

conversion schedule set forth in our certificate of incorporation. We refer to the date of issuance of the relevant shares of Class B common stock as the “Class B Issuance Date.” With respect to each holder being issued shares of Class B common stock on the Class B Issuance Date,25% of such holder’s shares of Class B common stock will convert into shares of Class A common stock on each of the following dates: (i) March 28, 2025; (ii) September 27, 2025; (iii) March 28, 2026; and (iv) September 27, 2026.

If the conversion of any shares of Class B common stock would result in the conversion of any fractional share, the number of shares so converted will be rounded down to the nearest whole number. Notwithstanding the foregoing conversion terms, our board of directors may accelerate the conversion of all or any portion of Class B common stock to earlier times, including to permit participation of holders of Class B common stock in

underwritten secondary public offerings or for any other reason.

Members’ Equity (all numbers presented as whole numbers)

Prior to the Corporate Reorganization, Guardian Pharmacy, LLC had two classes of members: preferred and common. Generally,1.0 preferred unit was issued for each $1,000 of capital contributed prior to March 1, 2007, and 0.8338 preferred units were issued for each $1,000 of capital contributed from March 1, 2007 to February 28, 2011. Subsequent to February 28, 2011,0.5087 preferred units were issued for each $1,000 contributed. In addition, preferred unit holders were entitled to a preferred return of 6% annually on their unrecovered capital balance. As of December 31, 2023 and 2024, there was no unrecovered capital or unpaid preferred return

outstanding.

Prior

to the Corporate Reorganization, net income and distributions were allocated to the preferred and common unit holders in accordance with the Guardian Pharmacy, LLC Operating Agreement. In the case of certain events, the preferred units could have been converted into common units on a

one-to-one

basis. Additionally, common units in the Company could have been issued in exchange for minority interests owned in a

subsidiary.

As

of December 31, 2023, there were 27,407 (issued in the amount of $31,645,099) Series A Preferred Units issued and Outstanding. As of December 31, 2023, there were 5,048 (issued in the amount of $9,000,000) Series B Preferred Units issues and outstanding. All Preferred Units were converted as part of the Corporate Reorganization and none were outstanding as of December 31, 2024. In general, Series B Preferred had distribution priority over Series A Preferred.

The Company is a taxable entity. As discussed in Note 1, prior to the Corporate Reorganization, Guardian Pharmacy, LLC was comprised of entities treated as partnerships for income tax purposes, and the federal income taxes on taxable income or losses realized by Guardian Pharmacy, LLC were the obligation of the individual members or partners. As a result of the Corporate Reorganization, the Company is subject to federal and state corporate income taxes. The accompanying financial statements include a provision for income taxes based on the period when the Company’s operations are taxable.

The Company accounts for income taxes pursuant to the asset and liability method of ASC 740, Income Taxes, which requires it to recognize current tax liabilities or receivables for the amount of taxes it estimates are payable or refundable for the current year and deferred tax assets or liabilities for the expected future tax consequences of events that have been included in the financial statements. Deferred tax assets or liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities as measured by the enacted tax rates as well as net operating losses and credit carryforwards, which will be in effect when these differences reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period enacted. A valuation allowance is provided when, based upon the available evidence, it is more likely than not that a portion or all of a deferred tax asset will not be realized.

In determining the Company’s tax expense for financial reporting purposes, the Company establishes a reserve when there are transactions, calculations and tax filing positions for which the tax determination is uncertain and it is more likely than not that such positions would not be sustained upon examination. The Company’s policy is to recognize potential interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2023 and 2024, no liability for uncertain tax positions was required. See Note 14

for additional disclosures regarding income taxes.

The Company prepares and files tax returns based on interpretations of tax laws and regulations. The Company’s tax returns are subject to examination by various taxing authorities in the normal course of business. Such examinations may result in future tax, interest and penalty assessments by these taxing authorities. Prior to the Corporate Reorganization, Guardian Pharmacy, LLC was subject to minimal state income taxes, including the Texas margin tax.

Debt Issuance Costs

Debt issuance costs are amortized to interest expense, using the effective interest method, based on forecasted principal payments, over the estimated life of the related debt instrument. The Company presents debt issuance costs related to notes payable as a direct reduction of Notes payable on the Consolidated Balance Sheets. Debt issuance costs related to the line of credit are presented as Other current assets.

New Accounting Pronouncements

The following table provides a description of recent accounting pronouncements that are applicable to the Company’s Consolidated Financial Statements:

3. Acquisitions

The Company’s growth strategy involves periodically acquiring institutional pharmacies servicing LTCFs and their residents as well as residents in other care settings. The Company’s strategy includes the acquisition of freestanding institutional pharmacy businesses as well as other assets, generally less significant in size, which are combined with existing pharmacy operations to augment internal organic growth.

During the year ended December 31, 2024, the Company completed acquisitions of various pharmacy operations (the “Acquisitions”). Total consideration for the Acquisitions included cash of $14,710, and contingent earnout payments of up to $2,700 if certain revenue and earnings targets are achieved by certain acquired entities during the

two-year

period subsequent to the respective acquisition dates. The fair value of the contingent consideration arrangement at the acquisition dates and at December 31, 2024 was $2,700. The total preliminary purchase consideration for the Acquisitions was $17,410.

The Acquisitions included

interests, for which the fair value was estimated to be $5,371 at the time of the Acquisitions. The fair value of the

interests was estimated by utilizing the implied fair value of the

interests, determined based on the acquisition price, and considering discounts necessary due to the lack of marketability and lack of control associated with the

interests. During 2024, we incurred an immaterial amount of acquisition costs in connection with the Acquisitions.

The Acquisitions were treated as a purchase in accordance with ASC 805, Business Combinations, which requires recognition of the estimated fair values of assets acquired and liabilities assumed in a transaction. Our recognition of the assets acquired and liabilities assumed was based on management’s judgement after evaluating several factors, including a valuation assessment. There were no material measurement period adjustments recognized in periods subsequent to the Acquisitions.

The recognition of the assets and liabilities of the Acquisitions as of December 31, 2024 is as follows:

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the estimated fair value of the identifiable net assets acquired in the Acquisitions. Goodwill represents future economic benefits expected to arise from the Company’s expanded presence in the long-term care pharmacy industry, the assembled workforce acquired, expected revenue synergies, as well as operating efficiencies and cost savings. Of the $13,250 of goodwill recorded related to the Acquisitions, $9,957 is expected to be deductible for tax purposes.

Intangible assets are comprised of customer lists and trademarks. The fair values for the customer lists and trademarks were $5,686 and $550, respectively. The weighted average useful lives for the customer lists and trademarks were 10 years and 5 years, respectively.

Consolidated Results of Operations

The results of operations for the Acquisitions have been included in the consolidated financial statements since the dates of acquisition. During the year ended December 31, 2024, the Company’s consolidated statements of operations included $55,115 of revenue associated with the Acquisitions. Net income associated with the Acquisitions is not material to the consolidated financial statements.

The comparable prior period results of operations associated with the Acquisitions are not material to the consolidated financial statements, and as such, supplemental pro forma financial information is not presented.

4. Property and Equipment

Property and equipment are depreciated on a straight-line basis over the period of their estimated useful lives. As of December 31, 2024, the estimated useful lives of the Company’s assets are as follows:

Property and equipment as of December 31,

consisted

of the following:

Depreciation expense for the years ended December 31, 2023 and 2024 was $15,166 and $16,470 respectively. Depreciation of assets is reported on the Consolidated Statements of Operations as either Cost of goods sold or Selling, general and administrative expense, as determined by the nature of the asset. Depreciation expense reported in Cost of goods sold for the years ended December 31, 2023 and 2024 was $6,507 and $7,060, respectively. Depreciation expense reported in Selling, general and administrative expense for the years ended December 31, 2023 and 2024 was $8,659 and $9,410, respectively.

5. Goodwill and Intangible Assets

The Company assesses the value of its goodwill at the reporting unit level under either a qualitative or quantitative approach. When applying a qualitative approach, the Company assesses the likelihood of goodwill impairment to assess whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. On October 1, 2024, the Company performed its annual impairment assessment, under a qualitative approach, and as a result no impairment was recognized in the current period as a result of the Company’s assessment. Further, no significant events or conditions occurred during the quarter ended December 31, 2024 that would have affected the conclusions of the Company’s annual assessment.

A summary of the change in the carrying amount of goodwill for the year ended December 31, 2024 is as follows:

Intangible assets consist primarily of customer lists and trademarks related to

the

businesses acquired. Customer lists, trademarks and other intangible assets are amortized on a straight-line basis over the period of their estimated useful lives as follows:

The carrying amount and accumulated amortization of the customer lists, trademarks and other intangible assets as of December 31 are as follows:

Amortization expense related to finite-lived intangible assets for the years ended December 31, 2023 and 2024 was $3,068 and $3,302, respectively.

The

estimated amortization expense for the next five years ending December 31 and thereafter is as follows:

6. Debt Arrangements

Line of credit

On May 13, 2024, the Company entered into the Sixth Amendment to Third Amended and Restated Loan and Security Agreement (the “Amendment”) to the existing credit facility (“Credit Facility”). The amendment extended the line of credit termination date from April 23, 2025 to April 23, 2027. The line of credit now bears an interest rate equal to the

one-month

Secured Overnight Financing Rate (“SOFR”) plus an additional rate of 1.80% to 2.80% based on certain financial ratios maintained by the Company. The total amount available under the line of credit as of December 31, 2024 is $40,000. The amounts outstanding under the line of credit as of December 31, 2023 and 2024 were $9,000 and $0, respectively.

Notes Payable

Notes payable consists of the following:

Additionally

, the Amendment added a new term loan of $15,000 to the Credit Facility and extended the maturity date of the existing and new term loan (collectively referred to as the “Term Loan”) to April 23, 2027. The interest rate of the Term Loan bears an interest rate equal to the

one-month

SOFR plus an additional rate of 1.80% to 2.80% based on certain financial ratios maintained by the Company. Prior to the payoff discuss

e

d below, the Term Loan was payable in quarterly installments of $1,375 through March 31, 2027, with the remaining balance of the term loan due in a final lump sum payment at maturity on April 23, 2027.

On December 9, 2024, the Term Loan was paid off in full, with no future payment obligations.

The Company was in compliance with all debt covenants at December 31, 2024.

7. Lease Obligations

Lease Population

The Company leases various real estate, including certain operating facilities. warehouses, and office space, all of which are operating leases. The Company also leases pharmacy equipment and vehicles, all of which are finance leases. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

Lease Position

The following table summarized the lease-related assets and liabilities recorded on the Company’s Consolidated Balance Sheets as of December 31:

Lease Costs

The following tables summarize the lease-related costs for finance and operating leases for the years ended December 31:

Other Information

Changes in the balance of the operating lease ROU asset and operating lease liability are recorded on a net basis within Other, as adjustments to net income on the operating activities section of the Consolidated Statements of Cash Flows.

Undiscounted Cash Flows

The table below reconciles the undiscounted cash flows for each of the first five years and the total of the remaining years to the operating lease liabilities and finance lease liabilities recorded on the December 31, 2024 Consolidated Balance Sheet.

8. Retirement Plan

The Company sponsors a 401(k) plan for eligible employees. All full-time employees of the Company are eligible to participate in the plan after thirty days of employment with employer contributions vesting after two years of employment. The maximum matching percentage for the years ended December 31, 2023 and 2024, was 3.5% of participant contributions. The Company made matching contributions for the years ended December 31, 2023 and 2024 in the amount of $4,556 and $5,075, respectively. These contributions are recorded to selling, general, and administrative expenses or cost of goods sold on the consolidated statements of operations, dependent on the nature of each employee’s responsibilities.

9. Commitments and Contingencies

The Company is subject to legal proceedings and claims that arise in the ordinary course of business. The Company may have exposure to loss contingencies arising from pending or threatened litigation for which assessing and estimating the outcomes of these matters involve substantial uncertainties. The Company evaluates contingencies on an ongoing basis and establishes loss provisions for matters in which losses are probable and the amount of loss can be reasonably estimated.

Legal expenses include attorneys’ fees, litigation expenses and settlements. For the years ended December 31, 2023, and 2024, the Company recorded legal expenses totaling $24,234 and $5,084, respectively.

10. Basic and Diluted Loss Per Share

Basic earnings per share of Class A and Class B common stock is computed by dividing net income attributable to Guardian Pharmacy Services, Inc. by the weighted-average number of shares of Class A and Class B common stock outstanding during the period. The Class A and Class B common stock are identical in their rights and privileges, except that shares of Class B common stock are subject to transfer restrictions prior to their conversion into shares of Class A common stock. Therefore, the basic earnings per share for Class A and Class B common stock will be equal. Diluted earnings per share of Class A and Class B common stock is computed by dividing net income attributable to Guardian Pharmacy Services, Inc. by the weighted-average number of shares of Class A and Class B common stock outstanding, adjusted to give effect to potentially dilutive elements. As the Company recorded a net loss during the year ended December 31, 2024, the potential adjustments to basic earnings per share were anti-dilutive, and thus, basis earnings per share and diluted earnings per share are equal. The $55,176 Merger Consideration payment made to Class B common stock stockholders in connection with the Corporate Reorganization and IPO did not have an impact on income available to common stockholders.

The Company analyzed the calculation of earnings per unit, related to units of Guardian Pharmacy, LLC, for periods prior to the IPO and determined that it resulted in values that would not be meaningful to the users of these consolidated financial statements. Further, the Company had no operations prior to the Corporate Reorganization and the number of shares issued prior to the Corporate Reorganization was 100, which we have determined is not meaningful. Therefore, earnings per share information has not been presented for the year ended December 31, 2023, and the basic and diluted earnings per share calculations for the year ended December 31, 2024 represent the post

IPO

period from September 27, 2024 to December 31, 2024 only.

(In thousands, except for share an

d

per share amounts)

The following table sets forth (in thousands) the computation of net income (loss) attributable to the Company used to compute basic net income (loss) per share of Class A and Class B common stock for the year ended December 31, 2024.

The

following table sets forth the computation of basic

and

diluted net income per share of Class A and Class B common stock (in thousands, except share amounts, and per share amounts):

The following potentially dilutive shares were not included in the calculation of diluted shares outstanding as the effect would have been anti-dilutive:

11. Share-based Compensation

Prior to the Corporate Reorganization and IPO, share-based compensation expense (income) primarily related to awards in the form of Restricted Interest Units. These cash-settled awards were recorded as liabilities until payout was made or the award was forfeited. These units vested in their entirety on the third anniversary of their grant date. Vesting is subject to continued service. Compensation costs are recognized ratably over the vesting period based upon the value of the awards as of period end.

The value of these awards was remeasured and reported as Share-based compensation liability on the accompanying Consolidated Balance Sheets at the end of each reporting period based on the change in calculated value of the shares pursuant to the prescribed calculation contained in the Restricted Interest Purchase Agreements. The primary inputs used to value the awards are the volume and accumulated vesting status of the issued awards and the historical adjusted earnings of the Company (inclusive of share-based compensation expense (income), outstanding capital and debt obligations of the Company as of the measurement date). The liability and corresponding expense were adjusted accordingly until the awards are settled. Vested Restricted Interest Units are typically repurchased by the Company upon termination of employment at the calculated value.

The Company recorded $15,210 and $0 of share-based compensation liability within Other liabilities on its Consolidated Balance Sheets as of December 31, 2023 and December 31, 2024, respectively.

Prior to the Corporate Reorganization, for the years ended December 31, 2023, and 2024, the Company recorded ($6,090) and $5,673 of share-based compensation income and expense, respectively, related to the Restricted Interest Units.

Restricted Interest Units Conversion

In connection with the Corporate Reorganization and IPO, Restricted Interest Unit awards associated with the Converted Subsidiaries and Guardian Pharmacy, LLC were converted to Common Units of Guardian Pharmacy, LLC, with the Common Units in Guardian Pharmacy, LLC then being converted into 12,321,282 shares of Class B common stock of the Company, some of which are subject to additional service vesting requirements (see Note 1 Organization and Background above for further discussion of the Corporate Reorganization and IPO). This conversion of Restricted Interest Units was treated as a modification, and as a result, the Company recognized $125,741 of share-based compensation expense during the year ended December 31, 2024, attributable to the increased fair value of the vested units. This is considered an expense of the Company, as it was incurred in connection with the Corporate Reorganization and IPO, and as such, it is included in net income (loss) attributable to Guardian Pharmacy Services, Inc. on the consolidated statements of operations for year ended December 31, 2024.

As

the modified Restricted Interest Units were ultimately converted into Class B common stock of the Company, the fair value of the awards was calculated based on the fair value of Class A common stock issued in the IPO, discounted for a lack of registration, as the Class B common stock is unregistered. The discount was determined using the Finnerty Model using the following assumptions:

We estimated the future stock price volatility based on the volatility of a set of publicly traded comparable companies with a look back period consistent with the expected life. The estimated life was based on the assumed period of time required should the Company choose to register the Class B common stock. The risk-free rate is based on the rate for a U.S. government security with the same estimated life. The Class B common stock issued in connection with the Corporate Reorganization and IPO will convert to Class A common stock over a period of two years following the date of issuance, which was the closing date of the IPO, and as such, the fair value per unit is based on the IPO price of Class A common stock of $14.00.

Class B common stock, issued as incentive awards, activity is as follows during the

per

iods indicated:

In

addition to the Class B common stock issued in connection with the Corporate

Reo

rganization and IPO, the Company has share-based compensation awards in the form of Restricted Stock Units for Class A common stock of the Company (discussed further below), and Restricted Interest Unit awards (related to the

Subsidiaries) of Guardian Pharmacy, LLC. The Restricted Interest Unit awards outstanding subsequent to the IPO are immaterial to the financial statements.

2024 Equity and Incentive Compensation Plan

In connection with the IPO and the Corporate Reorganization, the Company adopted the Guardian Pharmacy Services, Inc. 2024 Equity and Incentive Compensation Plan (the “2024 Plan”). The 2024 Plan became effective on September 27, 2024 upon consummation of the IPO, in accordance with its terms. The number of shares of our Class A common stock available for awards under the 2024 Plan shall be, in the aggregate,2,000,000 shares (the “Overall Share Limit”). The Overall Share Limit will be automatically increased on the first day of each fiscal year, beginning in 2025 and ending in 2034, by an amount equal to the lesser of (a)1% of the shares of our common stock (including both Class A common stock and Class B common stock) outstanding on the last day of the immediately preceding fiscal year and (b) su

ch

smaller number of shares as determined by our board of directors. Such shares may be shares of original issuance or treasury shares or a combination of the two.

Restricted Stock Units (“RSU”) Awards

In connection with the IPO, the Company granted RSU awards to the independent

non-employee

directors of 10,713 shares in the aggregate. The stock price used to determine the award value was the IPO price of $14.00 per share. These awards vest into shares of Class A common stock 6 months after the IPO date. Share-based compensation expense recorded for the RSU awards during the year ended December 31, 2024 was not material.

Restricted Stock Unit activity was as follows during the periods indicated:

Share-based Compensation Expense (Income)

Share-based compensation expense (income) is recorded to selling, general, and administrative expenses in the consolidated statement of operations. For the years ended December 31, 2023, and 2024, the Company recorded ($6,090) and $131,490 of share-based compensation income and

expense, respectively.

As

of December 31, 2024, unamortized share-based compensation costs related to each share-based incentive award described above is as follows (in thousands, except for the remaining service period):

The Company accounts for forfeitures as they occur for each share-based incentive award above.

12. Segments

General Information

As described in Note 2 —

Summary of Significant Accounting Policies —

in 2023 the Company modified its internal management reporting including the information regularly provided to and used by the chief operating decision maker (“CODM”) to assess performance and allocate resources. As a result, the Company

re-evaluated

its operating segment conclusions and determined it has a single operating segment. This determination was primarily based on the CODM, which is our Chief Executive Officer, assessing performance and allocating resources on a consolidated basis.

The operating segment derives its revenues primarily through sales of pharmaceutical and medical products, and all revenues are derived solely in the United States.

Measure of segment profit or loss and assets

The CODM assesses performance of the operating segment and decides how to allocate resources based on net income (loss), which also is reported on the consolidated statements of operations as net income (loss). In addition to comparing net income (loss) against forecasted net income (loss), the CODM uses net income (loss) to evaluate income generated from segment assets (return on assets) in deciding whether to reinvest profits into the operating segment or expansion of the operating segment through acquisitions.

The measure of operating segment assets is reported on the Consolidated Balance Sheets as total assets.

The accounting policies of the operating segment are the same as those described in the summary of significant accounting policies in Note 2.

Reportable segment reconciliation

The following reconciliation presents operating segment revenue, net income (loss), and significant segment expenses:

13. Related Party Transactions

The Company provides pharmaceutical related services to facilities owned or managed by certain Class B Common Stock stockholders and

interest holders, which are considered to be related parties. Revenues attributed to these facilities was $23,450 and $23,256 for the years ended December 31, 2023 and 2024, respectively.

14. Income Taxes

Guardian Pharmacy Services, Inc. is taxed as a corporation and is subject to paying corporate federal, state and local taxes on the income attributable to it from its

100%

ownership of Guardian Pharmacy, LLC, its economic interest held in the

subsidiaries, as well as any stand-alone income or loss it generates.

The entities are treated as a partnership for U.S. federal and most applicable state and local income tax purposes. Prior to the Corporate Reorganization, Guardian Pharmacy, LLC was comprised of entities treated as partnerships for income tax purposes. As a partnership it was not subject to U.S. federal and certain state and local income taxes. As a result of the Corporate Reorganization, the Company is subject to federal and state corporate income taxes beginning on September 27, 2024.

The expense (benefit) for income taxes consists (in thousands):

Reconciliation

between the Company’s income tax expense and taxes computed at the federal statutory tax rate of

.0%

for calendar years ended December 31, 2024 and 2023 were as follows (in thousands):

The Company’s effective tax rate for the year ended December 31, 2024, was

(6.85)%

percent. The comparison of the Company’s effective tax rate to the U.S. statutory rate of

% was primarily due to the $

125,741

incremental share-based compensation charge in connection with the Corporate Reorganization and IPO (see Note 11 - Share-based Compensation for further detail on the share-based compensation charge). These compensation costs are not deductible for federal and state income taxes

due to prior Section 83(b) elections

. Furthermore, before the Corporate Reorganization, the partnership income from Guardian Pharmacy, LLC and subsidiaries’

interest amounted to $39,115, which is not taxable to

the Company.

The results for the prior period do not reflect income tax expense because, prior to the Corporate Reorganization, the Company was treated as a partnership for U.S. federal and most applicable state and local income tax purposes and was not subject to corporate tax.

Deferred Income Taxes

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of December 31, 2024 and 2023 were as follows (in thousands):

As of December 31, 2024 and 2023, the Company had net deferred tax assets of $5,272 and $0, respectively. The increase is largely attributable to the Corporate Reorganization. As a result of the Corporate Reorganization, the Company

recognized

tax basis for the $55,176

in cash payments (the “tax

step-up”)

related to the Merger Consideration. To reflect this new taxability at the corporate level and the tax

step-up,

the Company recorded an incremental net deferred tax asset through additional

paid-in

capital of $5,973.

At the Corporate Reorganization and as of December 31, 2024, the Company concluded, based on all positive and negative evidence that it is more likely than not that all deferred tax assets will be utilized.

At December 31, 2024, the Company did not have any federal or state net operating loss carryforwards.

Unrecognized Tax Benefits

The Company recognizes income tax benefits for those income tax positions determined more likely than not to be sustained upon examination, based on the technical merits of the positions. No uncertain tax positions existed as of December 31, 2024.

Guardian Pharmacy, LLC and its subsidiaries’ federal tax returns for tax years ended December 31, 2023, 2022 and 2021 have not been examined by the Internal Revenue Service (“IRS”) and remain open as of December 31, 2024. Guardian Pharmacy, LLC and its subsidiaries’ are subject to ongoing state and local examinations for various periods. Activity related to these examinations for various periods. Activity related to these examinations did not have a material impact on the Company’s financial position or results of operations.