Hello, and welcome to the First Quarter Fiscal Year 2026 Cardinal Health, Inc. Earnings Conference Call. My name is Serge, and I will be your coordinator for today's event. [Operator Instructions] And now I'd like to hand the call over to Matt Sims, Vice President of Investor Relations. Please go ahead, sir.

Good morning, and welcome to Cardinal Health's First Quarter Fiscal '26 Earnings Conference Call, and thank you for joining us. With me today are Cardinal Health's CEO, Jason Hollar; and our CFO, Aaron Alt. You can find this morning's earnings press release and investor presentation on the Investor Relations section of our website at ir.cardinalhealth.com. Since we will be making forward-looking statements today, let me remind you that the matters addressed in these statements are subject to risks and uncertainties that could cause our actual results to differ materially from those projected or implied. Please refer to our SEC filings and the forward-looking statement slide at the beginning of our presentation for a description of these risks and uncertainties. Please note that during our discussion today, the comments will be on a non-GAAP basis unless specifically called out as GAAP. GAAP to non-GAAP reconciliations for all relevant periods can be found in the supporting schedules attached to our press release. For the Q&A portion of today's call, we ask that you limit questions to one per participant so that we can try and give everyone an opportunity. With that, I will now turn the call over to Jason.

Thanks, Matt, and good morning, everyone. We are pleased to report a strong start to fiscal '26 with continued operating momentum and broad-based performance. With strong double-digit profit growth across each of our 5 operating segments, these results underscore our team's disciplined execution of our strategic priorities and the strength of our resilient business model. Our performance was again led by our Pharmaceutical and Specialty Solutions segment, where we continue to benefit from a robust demand environment, along with our ongoing efforts to prioritize our core operations and deliver exceptional service for customers. We have made notable progress with our expansion in specialty, evidenced by meaningful contributions from our MSO platforms this quarter and the expansion of our BioPharma Solutions business. This progress will be further accelerated by the acquisition of Solaris Health, the country's largest urology MSO with over 750 providers, which we anticipate closing shortly. We're eager to add the Solaris team's capabilities to the Specialty Alliance, our industry-leading multi-specialty platform to deliver even greater value for providers and patients. With GMPD, we continue to make steady progress against the improvement plan initiatives, and we're pleased to deliver a strong quarter. And our other growth businesses, at-Home Solutions, Nuclear and Precision Health Solutions and OptiFreight Logistics also continued to accelerate. This performance reflects their alignment with key secular trends, leading market positions and our focused investments. We are seeing strength in demand across each business and are successfully executing our integration of ADS, which is creating a powerful business serving patients in their homes. Overall, the momentum across our business gives us confidence, as we progress further into fiscal '26, and Aaron will walk you through the increases to our outlook. Our results are driven by the dedication and focus of the Cardinal Health team and is a testament to our unique breadth of capabilities. We are the crucial link across the entire health care spectrum from pharmacies to health systems, to physician offices and surgery centers all the way to the home, delivering daily to tens of thousands of locations with products sourced from several thousand different organizations. We are constantly innovating to expand our suite of services, both downstream and upstream and are deeply committed to creating value for providers, manufacturer partners and patients, while fulfilling our critical role as health care's most trusted partner. With that, I'll turn it over to Aaron to go through the financials.

Thanks, Jason, and good morning. We are really pleased with our first quarter performance, which exceeded our expectations across the board. Overall, we grew operating earnings by 37% and EPS by 36%, while continuing to make strategic progress by integrating last year's acquisitions and making additional organic investments for growth across the enterprise. As Jason signaled, we expect our acquisition of Solaris Health to close shortly. This is a significant step in accelerating our specialty growth strategy and will create long-term value for patients, providers and shareholders as Solaris benefits from the broader strength of the Specialty Alliance's leading multi-specialty platform. With strong results across the board and the anticipated closing of Solaris, I'm pleased to highlight that we are raising our full year EPS guidance to a range of $9.65 to $9.85. Let's review the results, starting with Slide 4. Total company revenue increased 22% to $64 billion, primarily driven by continued strong demand in pharma and reflecting growth from all 5 operating segments. Gross profit grew 22% to $2.3 billion, while also outpacing SG&A growth, which increased 14% to $1.5 billion. Excluding the inclusion of the ION, GIA and ADS acquisitions in our results, SG&A growth was more modest. This reflects our constant focus on cost management even as we annualize fiscal '25's customer wins and investments for growth. This led to operating earnings growth of 37% versus the prior year. Moving below the line, interest and other increased by $43 million to $70 million in the quarter due to financing costs related to our announced acquisitions. Our first quarter effective tax rate was 21.9%, about 100 basis points better than a year ago due to the timing of discrete items. Q1 average diluted shares outstanding were 239 million shares, 2% lower than last year due to share…

Thanks, Aaron. In Pharmaceutical and Specialty Solutions, our disciplined execution of our strategy has enabled us to deliver meaningful progress across the business and ensure we're well positioned to take advantage of future growth in what continues to be a robust demand environment. We continue to prioritize our core, making strategic investments to further expand and modernize our national pharmaceutical distribution network, driving greater operational execution and delivering even greater efficiency and service levels. We recently announced the opening of our state-of-the-art consumer health logistics center, which serves as a vital link in our supply chain, efficiently distributing over-the-counter medications, treatments and diagnostic solutions to our network and serving customers nationwide. This investment creates an additional 20% in overall network capacity, which will support the strong double-digit growth we're seeing and allow us to move products faster, more accurately and more reliably for our customers. We also unveiled plans for a new 230,000 square foot flagship forward distribution center in Indianapolis, outfitted with advanced automation and the latest technological advancements in addition to modernizing and optimizing several other DCs to add capacity and storage for specialty drugs. Going deeper into specialty, our expansion across our MSO platforms, our BioPharma Solutions business and Specialty Distribution, including with biosimilars, has helped lay the groundwork for sustainable growth. With respect to our MSO platforms, we are well positioned to broaden our impact across our 3 high priority areas: autoimmune, urology and oncology. The addition of Solaris Health further enhances our progress in building the Specialty Alliance's multi-specialty MSO platform, adding significant scale and reach to better meet the comprehensive needs of community urologists across an even wider network of communities. Upon closing, our MSO platforms will serve approximately 3,000 specialty providers across 32 states. Our teams have prioritized integration efforts with a clear…

[Operator Instructions] Our first question is from Erin Wright from Morgan Stanley.

So at your June Investor Day, you raised that long-term Pharma and Specialty Solutions profit growth, but you obviously continue to track well ahead of that. I guess how should we be thinking about just the broader momentum going forward? And what's embedded in your assumptions? You gave some quarterly cadence in there. But has anything surprised you like on an intra-quarter basis that really drove the upside maybe relative to your internal expectations in the quarter? And then maybe you could unpack a little bit of the M&A contribution. I think you gave overall M&A contribution, but if you could unpack Solaris embedded in the guidance for the balance of the year, that would be great.

Thanks, Erin. There's a lot there. So I think it's going to require both Aaron and I to contribute to that answer. So let me start connected to some of the Investor Day commentary then that certainly still holds true now. As I step back and think at the highest level, specific to our Pharma business, I think it's largely true across the enterprise. What we've been doing and executing is there's broad-based industry utilization trends that continue to be positive, but we're translating that through very specific Cardinal Health performance into a great financial results. So both have been true. Let me just start with kind of the utilization picture. The not so satisfying answer is that we're seeing strength really across the board, but I do think that's consistent with our Investor Day messages. When you think about those key trends and themes that we walked through, demographics are clearly in our favor for the aging of America, more and more pharmaceutical products, coupled with the innovation that we continue to see in our industry, innovation, not just in new branded and specialty products, but that innovation that goes into, of course, the loss of exclusivity eventually when those branded products go to generics or, of course, even or more biosimilars. So that overall utilization remains strong. We translated that well. It's a testament to the team's performance. And even then when you double-click into some of those broader industry trends and strength, we positioned the business appropriately to take advantage of the secular trends, more investments into that home business to be able to support those patients in the home or the trends with more and more innovation in precision health like the nuclear radiotheranostics businesses that we have. So these are all ways in which we positioned the business to take advantage of where the industry is going. But now let me turn it over to Aaron to actually go through the more specific questions and answers.

Great. Thanks, Jason. Look, as Jason said, we're really pleased with the results in Q1, and they're a continuation of the momentum we've seen across the business. Jason highlighted the strong demand. We were seeing stronger-than-expected demand certainly in the first quarter. Some of the key drivers in the quarter carry into our drivers from a guidance perspective. So let me highlight those. The specialty business in Q1 was trending above historical levers and was a strong performer for us, particularly in our areas of strength, autoimmune, urology, oncology. And we're also seeing good progress in biopharma solutions. I'm really pleased with the MSO platforms. As Jason was referencing as well, they contributed as expected, and they added about 8% of the growth in Q1. Generics was a positive performance story for us with volume above our expectations. And there's no substitute for good execution. The team certainly delivered on that in the quarter. So now as we think about the guide for the year, and Aaron, to your point of the raise to our guide, we are guiding profit up 17% to 19% for the year all in, inclusive of our M&A. Key assumptions underlying that strong demand. We are not assuming outsized demand, as you've heard me say before, but we are assuming continued strong demand. We are assuming continued generics performance. We're assuming double-digit growth from specialty. That's going to come both upstream in our BioPharma Solutions business, including our Sonexus Access business and downstream in the MSOs as we carry forward. And the M&A is going to add 8 percentage points to the year. In my prepared remarks, I think I commented that Solaris will be 3% of that 8%. Of course, we also have the benefit of the strong customer wins that we're adding in, particularly in the first half of the year, most of the $7 billion of incremental customer wins come in the first half. So as we think about the cadence as well, H1, we do expect to be stronger than H2 from a growth perspective, driven by those new customers. We, of course, are annualizing our acquisitions in the second half. But overall, we're expecting a good year carrying forward.

And I think you might have said 17%, 19%. Our guidance is 16% to 19%.

Next question is from Elizabeth Anderson from Evercore.

Congrats on the really nice quarter. Maybe just a slight follow-on to Aaron's question, I have 2 parts. One, does the assumptions now include Rite Aid from CVS closing that? Obviously, you've aligned with a high-growth customer there, and that's amazing. So one, I just want to make sure that's in the expectations. And then two, you alluded to some of the policy changes in DC. And I was wondering if you could just sort of maybe more specifically help us think through where are some of the opportunities within some of these political changes and regulatory changes, given your diverse business mix.

Sure. Yes. Rite Aid is a tough one to see through where that volume is going. Certainly, you've heard a big customer of ours talk about their same-store sales growth, which is certainly in part of that. And of course, we support that customer and other customers. So that -- we did not support Rite Aid. So that volume has gone somewhere, and we're likely picking up a greater share of that because we started with 0%, and we're now getting a portion of that. So that's a component of it. Given the broad-based strength that we're seeing across different customers and different classes of trade, I don't think it's the primary driver by any sense, but it's one of a number of different items. As it relates to policy changes, broadly speaking, I would step back and say that we're very much aligned with the administration's intent to ensure that Americans have access to affordable, innovative health care. And those policy changes, which are still in the works in some cases, being more defined than others. As long as it's achieving those objectives, that is neutral to positive for the patient and for the industry and for us because it drives utilization -- the right type of utilization to solve and serve those patients and their needs. And so that's how we look at it. And it's hard to define exactly what utilization does at the other end of whatever policy changes occur. And of course, if price points come down and access and affordability that improve, then that may be good for us. But I think largely speaking, we're seeing a fairly solid utilization environment, and there's nothing we see at this moment that says that these policy changes will materially change that, but hopefully continue on in serving those patient needs as we go forward.

Michael Cherny from Leerink Partners.

Congrats on a nice quarter. Sorry, just to keep harping on this, but as you think about what's embedded in your new growth outlook for the year for the Pharmaceutical and Specialty Solutions segment in particular? How do you feel about the, call it, build between what you can control, i.e., driving better penetration to your customers versus what you can't, i.e., just the market being incredibly strong. The growth has been so significant. Obviously, you put a lot of operational improvements in place in order to get you there. Just trying to further bifurcate out some of the dynamics that's leading to this significant outperformance. Appreciate it.

Yes. Let me start and see if I leave anything else, then Aaron can pile on. I think you asked the question the right way, Michael. We stay focused on what we can control, no doubt about it. We believe strongly that utilization is going to continue to be positive. To what degree? We're not assuming that outsized level of growth that Aaron had referenced, but we expect it to be strong, stronger than what it has historically been, but not quite as strong as what it's been more recently. So we are anticipating it's going to be strong. But our objective is to ensure that whatever that volume is, which we anticipate it still to be very growthy type of volume that we translate that into fantastic service for customers, fantastic service ultimately to the patient and growing the business financially. So we are focused. To your point, when you see a lot of what we talked about in our prepared comments this morning and more recent press releases, we're investing heavily into our business organically and inorganically to ensure that we're satisfying and fulfilling those needs, to ensure that we have the capacity, the service levels, the quality, the safety for our team of best-in-class in how we operate. And with that, we think that's attractive to customers. We think customers want to work with us because we really focus on the core of the business that is their core of their business. And when they see that, I think that's an opportunity for us to continue to maintain and grow share. So we are going to continue to stay focused on that and what we can control, and we think that will ultimately result in a positive outcome. To what degree? That's where we need to see exactly what happens with the underlying utilization.

The next question is from George Hill from Deutsche Bank.

Aaron, I'm going to take sources of the beat for 300. So the implied growth rate in the core for the quarter looked like it was about 15% or 16% -- I'm sorry, that's for the year. I guess my question is, it seems like you're actually assuming a deceleration in the balance of the year. And I guess there's the M&A component of that. But I guess I'd like you to talk about the sustainability of the beat. And Jason, as kind of a sub-question to that, I'd love you to talk about what we call Part B growth versus Part D growth. And if you can spend any time on the differences between kind of like that provider-facing specialty business versus the regular [ YRx ] business.

I appreciate the question. Look, what I can observe is we have a lot going on as a business. And Jason just highlighted the fact that we're very focused on executing in specific plans, what gets measured, gets done. We're very careful to tell you what we're going to do and then to go do it. Within the portfolio as well, we have the demand strength that we've called out that we're going to be very careful to not get ahead of ourselves on, and we've been consistent in our approach there. But we also have the acquisitions coming as well. We'll be closing on Solaris shortly. We'll be lapping GIA and ION, as we move into the back half. And so all I can really tell you from a cadence perspective is that we are comfortable and confident in the momentum we've seen, comfortable and confident in the guidance that we've provided, and we're going to do what we have to, to deliver against that effort. Jason?

Yes. We've already provided a lot of insight into the drivers, George. And I think it's safe to say, broadly speaking [Technical Difficulty] so we're not prepared to break it out even further. But nonetheless, it's safe to say we've seen strength in all aspects there.

Next question is from Eric Percher from Nephron Research.

Let's shift to the other segment. And if I'm reading you right, we're hearing here that there's both strength across all 3 businesses and then some earlier synergy realization as well as what you expected from ADS. So similar to what you walked through on the other businesses, help us understand maybe some of the cadence you saw in Q1, that pull-through and then expectation for the remainder of the year.

Look, there's -- it's hard not to be proud of what the other businesses have done during Q1 with 60% profit growth, really driven across -- with the strong double-digit profit growth across the businesses. You'll see in our Q that revenue was up dramatically across all 3 of the businesses. At-Home was up 51%, inclusive of the acquisition of ADSG. Nuclear is up 17%, Opti is up 21%. And what -- that really goes to the fact that the businesses are both positioned well and performing well. And to your point, the at-Home acquisition of ADSG has certainly -- they have leaned into the integration, and we're very pleased with the synergies they are achieving quickly. I think Jason talked on our last earnings call about the fact that we are quickly moving volume from their third-party provider into our network. Our revenues will go up 33%, but only using 2% of our capacity. And we've commented that we have a detailed integration plan that is reasonable to achieve with potential upside, and we're starting to see the benefit in that across other. I also should point out that within the at-Home business, we're seeing strength in areas that are core to who we are, urology, CGM, the enteral categories, those are parts of the business that Cardinal is very focused on overall. And Nuclear Precision Health certainly is seeing strong growth in the theranostics part of its portfolio, which Jason referenced in his prepared remarks. Jason, anything you want to add?

Yes. That's well said. And at a high level, I think, answers the question. I guess when you think about the 38% revenue growth in the quarter and the 60% segment profit growth in the quarter, while we're not breaking out specifically ADS, what we are saying is that both the core as well as the acquisition are significant contributors to both of those numbers. So it's not just the acquisition driving either one of those metrics, they're both very strong because of the acquisition as well as our core performance. And as Aaron highlighted, within the other segment, each of the 3 businesses is performing strongly, growing strongly. So overall, what I think is just so fantastic about this quarter for the other segment is that broad strength that we're seeing across those businesses, executing to the plans, the strategies, actions that we laid out at Investor Day.

Yes. And I did fail to mention the OptiFreight business, which continues to fire on all cylinders.

Allen Lutz from Bank of America.

One for Aaron. Cardinal Health brand growth in the quarter was over 6%. That's really nice growth. Can you talk a little bit about the types of products where demand is high and the runway to drive outsized growth within that growing part of the business?

Sure. We're really pleased with the continued strength in the Cardinal Health brand business. The GMPD management team has invested significant efforts in that area. And the strength we're seeing is in our clinically differentiated products, which, of course, is part of the 5-point plan that Steve Mason walked through at our Investor Day. And we're looking to continue to invest in those areas as we carry forward. So I'm talking about compression, electrocardiography, surgical kitting, syringes, et cetera. That's really where we're seeing the growth with our existing customers.

Next question from Kevin Caliendo from UBS.

I want to dive a little bit more into what was driving the same-store generic unit growth. Is there a particular category that moved more? Is there prescribing habits that are changing? Or is this -- are you getting better spreads for some reason? I'm just trying to understand a little bit what made it incrementally better for you, if this was purely generics oral into pharmacies or were there some biosimilar part of this as well?

The perspective I would start with is that we saw consistent market dynamics within our generic portfolio. As you often hear us talk about, we're managing the buy-sell spread in that way and always seeking to achieve that consistent market dynamics. The generic success here is really driven by volume, right? And so consistent with the demand, we saw strong volume in the generic portfolio, and that certainly contributed to the portfolio.

Yes. And I'd add, we walked through at Investor Day that the next 3 years, we see somewhat higher new -- loss of exclusivity on branded products, new item launch. So that's something that we anticipate being a component of this. And as a component of the $7 billion of carryover new customer revenue that we are projecting for this year, a component of that -- a small component of the revenue, more [Technical Difficulty] would be the side of that. So it's really a combination of those.

Eric Coldwell from Baird.

Well, the timing there is perfect. I think every one of my questions have been asked right before now. I guess we'll come back to the biosimilar topic because yesterday, there was a Washington pressure on getting the regulatory environment and the industry more in line with investing in biosimilars, I think of well over 100 biologics coming off patent in the next handful of years. There's only a small percentage of those that actually have biosimilars in development. Are you thinking at all about the potential for many more of these biologics to actually start to see R&D and advancement of biosimilars based on some of the things happening in D.C.? Is that at all factored into your long-term vision? I know this is some more recent news from Washington, but I think it's been part of the policy chatter now for the better part of the year. So I'm just -- I'm curious how exciting that might be for you.

Well, that's a pretty good question, Eric, for how deep the lineup you had to pull and get behind some of those other good questions. So yes, biosimilars is definitely something that we have highlighted and stressed before, as a contributor to our long-term plans and actions. We see -- kind of irrespective of yesterday's announcement, we certainly see that biosimilars will be a continued tailwind for the industry and for us, as we go forward. It's important to the access and affordability point that I made in my opening comments there. So it's, I guess, not too much of a surprise the administration is working on some additional actions to further facilitate that, to further improve that access and affordability. And just like any other type of improvements there, anything that they can do to improve that could be an opportunity for us, but it is just way too early to tell. I would like more than 24 hours to really understand better exactly what that means. Conceptually, it's definitely not bad. Conceptually, it could be an opportunity. But to what degree we need to understand not only the details behind what exactly this is, but more importantly, how will the industry react because it does require companies to make continued investments, and that is something that this should improve some of those barriers and all things being equal, should be more positive. But let me come back at the appropriate time as we understand some of the details better.

Daniel Grosslight from Citi.

Congrats on the quarter here. I wanted to focus back on the onboarding of the distribution businesses of your MSO acquisitions. First, just a clarifying question here. When you talk about the accretion from ION and GIA, are you also including the accretion from onboarding the distribution businesses? Or do you view that as separately? And my real question is, you previously mentioned that you're onboarding the distribution business of ION this quarter, starting in October, I think you mentioned, and then GIA onboards in April 2026. I assume that's all baked into the guidance here. Can you just talk about how that's going versus your expectations? And then as we think about Solaris' distribution, when do you think that could potentially come on board?

A couple of great questions. Let me seek to provide some clarity. In previous calls, we did provide an update on us gaining the distribution over the course of this fiscal year with respect to the ION and GIA portfolio. That is going well. There is no one date per se. But the -- us taking on that distribution for ION and GIA in particular, is included in the guidance updates that we've provided today. The contrast is in connection with the Solaris transaction, which we've not quite yet closed and the update to guidance we provided today, we're not yet complete in that process. And while we expect the opportunity to be available to us later this fiscal year, we are not in a position yet to provide an update to guidance inclusive of Cardinal Health gaining the distribution on the Solaris drug spend.

Steven Valiquette from Mizuho Securities.

Congrats on the results as well. I think all the questions on the Pharma side have been pretty thoroughly addressed at this point. I guess just on GMPD, one of your competitors kind of divested their business recently. I'm wondering if that creates any opportunity for you if that changes the competitive landscape one way or the other. Just curious to get any quick thoughts on that, if that has any impact from your perspective?

Well, it certainly doesn't hurt because we've been very consistent with our customers and with the marketplace that we're going to put service level and performance above and beyond anything else, and we continue to invest in this business appropriately so, but also recognizing that it's still a turnaround. So we're investing in areas that are good for customers, but also good for us. And just like my commentary earlier on the Pharma business, I think what we continue to do is to focus on what we can influence the most, that level of performance, that level of quality such that we are the supplier of choice, the partner of choice for each and every one of those customers.

And our last question today is from Brian Tanquilut from Jefferies.

Congrats on the quarter. It's Jack Slevin on for Brian. Maybe a quick one just to dive deeper given all the talk on Pharma. So just thinking about the MSO assets, is there any color you can give on where Pharma spending within the MSO or drug spending with the MSO and trending? Or any thinking in terms of growth rates and color on how that might have moved recently, understanding that sort of deeper penetration on those in sort of the other ologies or non-oncology specialties is sort of core to the thesis.

Yes. Well, as Aaron highlighted, we're seeing broad specialty growth across many different therapeutic areas, specifically to your question around MSOs. What we've indicated before is that there's very diverse revenue streams. And so while the drug spend is a relevant point, it's still only 1/3 of the MSO revenue combined with then [Technical Difficulty] visits. Our priorities on the MSO continue to be autoimmune, urology and oncology. Those are all areas that are fairly strong underlying volume and revenue growth. And -- but they're not quite unique to the industry either because the specialty strength is broad. We're very pleased with the team and the progress that we're making to provide the capabilities and the services necessary for our physician partners to be successful. And we're really pleased with the specialty lines, in particular, and the investments that we're making there, but we're just going to keep at it.

It appears there are currently no further questions. With this, I'll hand the call back over to Jason Hollar for closing remarks.

Great. Yes. Thanks, everyone, for all the questions this morning and for your continued interest in Cardinal Health. Obviously, we're really pleased with the quarter. But as I highlighted before, really pleased with the breadth of the strength that we saw this quarter by the -- each and every one of our 5 operating segments. Great start to the year, and we're going to keep focused on the continued execution of our strategy. So look forward to keeping you updated on our progress. Thanks again, and have a great day.

Thank you. This concludes today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.