Hello, everyone, and thank you for joining the Cencora Fiscal 2025 Second Quarter Results Conference Call. My name is Lucy, and I will be coordinating your call today. [Operator Instructions] I will now hand over to your host, Bennett Murphy, Senior Vice President, Head of Investor Relations and Treasury to begin. Please go ahead.

Thank you. Good morning, good afternoon, and thank you all for joining us for this conference call to discuss Cencora's fiscal 2025 second quarter results. I am Bennett Murphy, Senior Vice President, Head of Investor Relations and Treasury. Joining me today are Bob Mauch, President and CEO; and Jim Cleary, Executive Vice President and CFO. On today's call, we will be discussing non-GAAP financial measures. Reconciliations of these measures to GAAP are provided in today's press release, which is available on our website at investor.cencora.com. We've also posted a slide presentation to accompany today's press release on our investor website. During this conference call, we will discuss forward-looking statements about our business and financial expectations on an adjusted non-GAAP basis, including, but not limited to, EPS, operating income, and income taxes. Forward-looking statements are based on management's current expectations and are subject to uncertainty and change. For a discussion of key risks and assumptions, we refer you to today's press release and our SEC filings, including our most recent 10-Q. Cencora assumes no obligation to update any forward-looking statements, and this call cannot be broadcast without the expressed permission of the company. You will have the opportunity to ask questions after today's remarks by management. We ask that you limit your questions to one per participant in order for us to get to as many participants as possible within the hour. With that, I'll turn the call over to Bob.

Thank you, Bennett. Hi, everyone, and thank you for joining Cencora's fiscal 2025 second quarter earnings call. To begin, I want to thank our global Cencora team members. It is due to their purpose-driven execution that I have the privilege of reporting our second quarter performance. In our second quarter, Cencora delivered strong results with revenue growth of 10% and adjusted diluted EPS growth of 16%. We are, once again, raising our guidance for the fiscal year to reflect our first-half results and expectations for continued execution in the second half. Rooted in our pharmaceutical-centric strategy, enabled by active learning and powered by the collective strength of our enterprise, Cencora is building on our position as a leading end-to-end healthcare solutions provider. We continue to expand our capabilities in key markets, supporting pharmaceutical innovation and access. Today, I will highlight three areas advancing our business to power growth. First, we are creating value by leveraging our expertise and insights to enhance patient care. Second, we are successfully deepening our customer partnerships by actively learning and anticipating their needs. And third, we are strengthening our global leadership in specialty medications by deepening our offering across geographies and customer channels. I'll begin with how we are creating value by leveraging our leading expertise and insights from our end-to-end solutions to support our customers, partners and patients. Cencora is uniquely and intentionally positioned to support pharmaceutical commercialization and access across the healthcare ecosystem; from leading pharmaceutical and biopharma innovators to healthcare providers. The breadth and scale of our services give us access to extensive data that our teams transform into actionable insights, enabling increased efficiency and innovation. There are two examples I'd like to mention that demonstrate our progress to engage with industry stakeholders and strengthen our partnerships. First is how we're working…

Thanks, Bob. Good morning and good afternoon, everyone. As a reminder, before I turn to my prepared remarks, my remarks today will focus on our adjusted non-GAAP financial results. For a detailed discussion of our GAAP results, please refer to our earnings press release and presentation. In our second fiscal quarter, Cencora delivered strong financial performance as our teams capitalized on our pharmaceutical-centric strategy. We benefited from our positioning and continued investment in attractive growing areas of the market like specialty, driving adjusted diluted EPS growth of 16%. To reflect our strong U.S. Healthcare Solutions earnings performance to date and expectations for continued growth in the second half of the year, we are raising our full year guidance for adjusted operating income and adjusted diluted EPS. Before reviewing the revised guidance details, I'll first turn to a review of our consolidated second quarter results, starting with revenue. Our consolidated revenue was $75.5 billion, up 10%, primarily driven by revenue growth in the U.S. Healthcare Solutions segment as we continue to benefit from volume growth, including continued growth in GLP-1 products. Excluding sales of GLP-1s, our consolidated revenue growth would have been 8%. Turning now to gross profit. Consolidated gross profit was $2.9 billion, up 15% due to growth in the U.S. Healthcare Solutions segment. Consolidated gross profit margin was 3.86%, an increase of 16 basis points, primarily driven by the gross profit contribution from our acquisition of Retina Consultants of America. Moving now to operating expenses. In the quarter, consolidated operating expenses were $1.7 billion, up 15%, driven primarily by the RCA acquisition. Excluding RCA, operating expense growth was modest as we continue to focus on identifying and implementing productivity initiatives while also investing in our business and operations to support our customers' growth. Consolidated operating income was $1.2 billion,…

Thank you. [Operator Instructions] Our first comes from Elizabeth Anderson of Evercore ISI. Your line is now open. Please go ahead.

Hi, guys. Thanks so much for the question, and congrats on the quarter. Maybe I just wanted to dig into the strength in the AOI of the U.S. Healthcare business. Given that strength that we saw in the quarter, how do you kind of see that playing out for the rest of the year? And then, if we talk about some of the drivers on a longer-term basis, how do we see the sort of continuation of those over the longer period? Thanks.

Hi, Elizabeth. Thanks for the question. This is Bob. I'll take that one. I think, where you got in your question in terms of the drivers are how I'll answer because, when you think about Cencora, I think there are three things to think about when you're looking at kind of long-term performance, and we do believe our strong performance will continue. One is how well we're positioned in the growing parts of the pharmaceutical market. So, obviously, we talk a lot about how well we're positioned in the specialty market. That is where most of the innovation in the pharmaceutical industry is happening. And we're very well positioned there with the biopharma manufacturers and we certainly expect our position to continue and the innovation to continue. The second piece is how well we're positioned with providers. And we spend a lot of time, again, talking about our strength in the independent community specialty practices, which is excellent and we expect that to continue. But we're also very well positioned across the continuum of sites of care, from the largest pharmacies to the smallest community pharmacies to specialty pharmacy. I highlighted health systems today in the prepared remarks. So, we look at the market growth in terms of product innovation in specialty, we're well positioned there. When you think about the provider base, we're very well positioned there. And the third and important piece is just the excellent purpose-driven team members that we have here at Cencora who are spending a lot of time thinking about not just how do we execute in the short term, but how are we going to continue to innovate, build services and build partnerships for the long term. And also, referencing back to my prepared remarks, made a specific point of the amount of time that Cencora leaders are spending out with industry stakeholders, whether that's in Washington, D.C. or our provider customers once again, and the intention there is to make sure that we're listening carefully, we're learning, we bring that back to the organization that allows us to be meeting the needs and exceeding the needs of those provider customers. So, I think when you think about the market growth, how well we're positioned and then the -- honestly the growth mindset that we have at Cencora and our commitment to actively learning and continue to innovate, it's what gives us the belief that the performance will continue over the long term.

Our next question comes from Michael Cherny of Leerink Capital. Your line is now open. Please go ahead.

Thanks for taking the question. And again, congrats on another strong beat and raise. Maybe, Bob, to parse through Elizabeth's question a little bit more and particularly dive in more on specialty, Cencora has a long history of being a market leader on all things specialty-oriented. As you think about the contributors of specialty to growth, how much can you unpack in terms of what you see as market growth versus share gains versus additional value-add services and add-ons you've able to build out? You're very much -- we'd agree with the fact that you're in the right place on a go-forward basis relative to the market is growing, but curious as the market continues to grow in various different pacing, where you see the best opportunities for outperformance beyond that?

Yeah, so thanks a lot for the question, Michael. I'll take a shot at it. And so, we saw terrific results, really extraordinary results in the first half in our U.S. business. In fact, if we kind of look at our Q2 beat, really all of the U.S. Q2 beat versus our internal expectations is due to organic growth from our core U.S. distribution business. And of course, we've talked about some time that that's driven by utilization trends, it's driven by broad-based performance, and in particular, it's driven by sales of specialty products to physician practices and health systems. And so, I would say, as we look at specialty, it's really been -- it's been broad-based performance and it's been very good results both with regard to physician practices and health systems. And then, of course, our recent acquisition of RCA and our investment in 2023 of OneOncology, we look at that as really the natural evolution of our specialty business, because, of course, we're very strong in distribution, we're very strong in wraparound services like GPO. And so, we view the MSO space as adding additional value-added services to the same customer base that we've had terrific success with for quite some time. And so, thanks a lot for the question, and I think Bob has something he'd like to add.

Yeah. Thanks, Jim. And Michael, I would just add our commitment to continuing to invest in the strengths that we have. You've seen over a period of time, we're investing in services. The MSO expansion is a good example of that. And we're going to continue to make those investments as we move forward to make sure that we're positioned well to support the biopharma manufacturers as well as the providers. So, we think that intention to do that, the commitment that we have to do that, will allow us to continue to perform well.

Our next question is from Lisa Gill from JPMorgan. Your line is now open. Please go ahead.

Great. Thanks very much, and good morning. Congrats on the quarter. I wanted to focus on D.C. and the thoughts around tariffs. It's believed that the Trump administration will come out with something in the next week or so. Can you just remind us on each side of your business? My understanding would be on the branded side, kind of similar to what we saw on the flip side with insulin. When prices go down, your economics kind of stay the same. Is there any variability if we were to think that prices go up? And then, there's been a lot of questions on the generic side, if we think back to when there was generic price inflation, and again, a tariff could add some kind of inflationary component to this. How do we think about each of those components and how it impacts your business and how you're thinking about it for your customer?

Yeah, sure. I'll take a stab at that. Lisa, thanks a lot for the question. And of course, we continue to monitor the evolutions around tariffs in the pharmaceutical market. We have teams in place that are analyzing the impact of tariffs on our business and very importantly on the supply chain. And to answer your question, what I'll say is, as it relates to our business, we have not called out any material impacts as a result of tariffs. As a reminder, we're pharmaceutical-centric, and the manufacturers are the importer of record for pharmaceuticals. Now, to get to part of your question, our main focus is ensuring patients have access to life-saving medications and we're supporting our upstream and downstream partners as they navigate the uncertainty. And additionally, we'll continue to advocate on behalf of our customers to ensure that they receive adequate reimbursement for the valuable healthcare services that they provide. But just to reiterate, as it relates to our business, we haven't called out any material impacts as a result of tariffs. Thank you for the question.

Next question comes from George Hill of Deutsche Bank. George, your line is now open. Please go ahead.

Yeah, good morning, guys. Thanks for taking the questions. And I've kind of got a two-parter. Number one, James, if you could kind of quickly walk through the RCA impact on gross margin expansion in the quarter, I think that would be helpful, because there's some moving pieces there relating to the way the equity stub -- the non-owned equity stub is being treated and the eliminations from the sales into the practices. And then, my second part would be just kind of the growth where you guys have set yourselves up in specialty is amazing. I was just hoping you might give us any quantitative color on how much of the U.S. drug business is now like the Part B business versus the Part D business and maybe kind of the growth characteristics you're seeing in each of those. Kind of trying to think of the business and kind of the two big segments from a distribution perspective. Thanks.

Okay. I'll take the first half of that, and that is on RCA. You asked initially about gross profit. And yeah, as we look at our consolidated results, RCA does add meaningfully to gross profit margin and operating margin. And one reason why is that, it is a higher-margin business than our core distribution business. And then, of course, the other reason why is that, now that it is a subsidiary of Cencora, we eliminate the sales from our specialty physician services business to RCA so that we don't double-count those sales. And so, as a result of that, it adds meaningfully to our gross profit margin and our operating margin. And then, I think the second part of the business kind of got to the accounting. And so, let me just kind of address that for you also. Our prior guidance when we talked in February incorporated 100% of the operating income for RCA and contemplated a reduction in EPS due to an expected non-controlling interest reduction. But as I said in my prepared remarks, after closing and consolidating the RCA business, we made the accounting determination that the approximately 15% of equity that's owned by RCA physicians and management represents a contingent liability to Cencora as opposed to a non-controlling interest. The results of that is that there is a higher-than-expected EPS contribution for the fiscal year, but it has no impact on our operating income results or guidance. And so, just to give you a little bit more detail there, for EPS, the approximately $0.14 of the increase in EPS guidance is a result of the RCA accounting determination. And then, the rest is from our core U.S. distribution business. And so, if you look at our increase in EPS guidance, the significant majority of the increase in EPS guidance comes from our core U.S. distribution business, which more than offsets a decrease in guidance for international. And just one final thing is that the $0.14 increase in EPS from the RCA accounting determination may be higher than some of you are initially modeling. And the reason for that is that the 85% of operating income covers all of the interest expense. So, the incremental 15% of operating income falls right to pre-tax income. So, I think that fully answers your question. And one other thing I will add is that as it relates to the guidance update, I know kind of everything from the standpoint of revenue, GP, and OI for RCA is the same as previously guided.

The next question comes from...

Thank you for the question.

...Charles Rhyee of TD Cowen. Charles, your line is now open. Please go ahead.

Yeah. Thanks for taking the questions, and congrats on the quarter, guys. I actually want to ask about international real quickly here. Obviously, the guidance has taken down a little bit here. And just wanted to maybe dive a little bit into more about the comments about softness in the specialty logistics business. You mentioned that trial activity is subdued. Can you talk a little bit more about what you're seeing here? Obviously, there's a lot going on in the pharma market, particularly with potential tariffs and a lot of things that the administration is undertaking here currently. Maybe you can give us a sense for what you're hearing from clients from pharma companies in terms of sort of what they're seeing currently and how they're approaching sort of business development here and clinical trial starts in particular. And when you're saying it's subdued, does that mean you're just seeing a lot of delays? Maybe you could just kind of give us a little bit more details on that, that'd be great. Thank you.

Yeah, thanks a lot for the question. So, as we and other players in the market have been calling out, clinical trial activity has been subdued, which has been pressuring some of our businesses in the International Healthcare Solutions segment, particularly demand for global specialty logistics and earlier-stage pharma consulting projects. And the rebound has been slower than we would have expected, resulting in segment performance for our global specialty logistics business to be below the expectations we outlined in February. And we really haven't seen demand begin to ramp materially for our consulting business. And so, as a result of the performance to date and to incorporate a wider range of recovery paths for demand in global specialty logistics, we reduced our International Healthcare Solutions segment operating income guidance. But I will say that our end-to-end service offering is resonating with manufacturers, and we feel confident in our ability to capitalize on a rebound in demand when it occurs given our unique positioning in the market.

The next question comes from Eric Percher of Nephron Research. Eric, your line is now open. Please go ahead.

Thank you. Appreciate the detail on RCA. I'd like to ask a question kind of about the MSO operations more broadly. I know that each of them looks quite different and the share of income can be quite different, but can you help us with your view of the profit stream? And we've talked a lot about the opportunity. When we think about how much of that opportunity is tied to drug versus medical or government versus commercial, can you provide a general framework for that, both to think about the opportunity and the risk of some of what is occurring in the market?

Eric, it's Bob. Thanks for the question. I would begin with, we're excited and confident about the income streams within the MSO space. As you said, they're different, and the services that an MSO -- what oncology would provide to an oncology practice are similar and different than RCA would provide to a retina specialist. But when you put that together, we believe it's a really good fit for our expansion of services in both of those spaces. So, as we discussed and as you know well, Eric, the strength that we have in both distribution and the GPO was there, and by adding the MSO services, we're able to build on our capabilities in supporting those physicians. One thing that to reinforce is something else that we're excited about in terms of a future growth proposition is the clinical trial services that are provided now at RCA, and that will -- we believe we can expand into OneOncology. And that's another example of how we'll be well-positioned with both the biopharma partners as well as the providers.

The next question comes from Steven Valiquette of Mizuho Securities. Steven, your line is now open. Please go ahead.

Yeah, thanks. Good morning. Congrats on these results. I had a question that was kind of similar to Charles just on the International Solutions and your comments about the clinical trial activity remaining subdued. Really, the only kind of follow-up questions there were just, I can't recall at the top of my head just how fragmented versus how concentrated your customer base is in that business. So, were there maybe just some customers where activity on clinical trials was subdued or was it definitely widespread phenomenon across the majority of your book? And then, is there any chance you're able to put a number just on the approximate percent decline in clinical trial activity you're seeing across your book? I mean, we're talking single-digit decline, double-digit? Just want to get just some rough sense for that. Thanks.

Yeah, thanks for the question. It's market-based. So, what we're seeing are the very same things that you're seeing across the market from other players. So, our customer base is broad, and as we're seeing, there has been a decline in clinical trial starts over the past few years that we all in the space are eagerly awaiting a bit of a rebound there. And within our specialty logistics business, it's part of our end-to-end service. So, when we are talking to biopharma companies about commercialization and them bringing services to market, we're talking to them about lots of different services from consulting to 3PL services to the specialty logistics services that we're talking about here. So, we wouldn't call it anything different than what is being observed across the market. I think there was a peak in trial activity during the COVID pandemic that has been reduced. And so, we're all -- we're working through that. But as Jim said earlier, as I said in my prepared remarks, we're well-positioned with our services, with our partners and customers and expect to be a partner of choice as that market rebounds.

The next question comes from Allen Lutz of Bank of America. Your line is now open. Please go ahead.

Good morning, and thanks for taking the question. Congrats on the really strong results here. Bob, you called out really good growth in the specialty provider channel. Can you talk a little bit about growth in your different verticals there? Was there any standout as we think about growth in oncology versus retina? Are there any other specific areas to call out? And then, as you think about the utilization rate from 2024 into the first quarter of 2025, was there any deceleration, any acceleration either at the top level or within any of the specific verticals you operate in? Thanks.

Yeah, thanks for the question, Allen. So, we don't break out the specific commercial components of the business. But I will say, and Jim mentioned this earlier, the performance is broad-based. So, we often talk about the community specialty space for very good reason, but I made a specific point in prepared remarks to talk about the health system space and others, because we're well-positioned for specialty growth across all sites of care. So -- and we're seeing them all grow. So, it's something that we're, again, happy to be well-positioned there. We're working hard to make sure that we're adding value to our biopharma partners as well as the providers, but wouldn't comment specifically on any differences in growth across those segments. I would go back to the reason that we're often focused on specialty physicians and oncology as the oncology space continues to be the area of largest growth and largest opportunity.

Bob, and just the only thing I'll add, and this goes, of course, back to our results in our press release and in my prepared remarks is, I mean, we did have -- just have had very strong performance in the first half and we're just so pleased to be able to increase our operating income guidance for the year by 3 percentage points at the bottom end of the range and the top end of the range in the U.S., 17.5% growth to 19.5% growth. And really driven by the things you were asking about, utilization and our broad-based strength in specialty.

The next question comes from Daniel Grosslight of Citi. Daniel, your line is now open. Please go ahead.

Thanks for taking the question, and congrats on the quarter here. I had a similar question to Allen's, but maybe I'll ask it in a bit of a different way. Health systems seem to be getting a lot more airtime this quarter than in previous quarters. So, I'm just curious why that is. Are you seeing anything particularly strong in health systems this quarter on the provider side? And as we think about the investments that you need to make to support health systems, is there anything that you would call out as kind of a near-term investment in that channel? Thank you.

Thanks for the question. From my perspective, the reason that we're focusing a bit on health systems here is for the simple reason that we want the investor base to understand how well-positioned we are for specialty growth across sites of care. And again for very good reason, we focus on the community practices and we're making investments there, but we're also working very closely with our health systems customers and other customers to make sure that we have capabilities and a solution set that help them continue to capture the specialty growth that is happening within their site of care. So, no, it's not anything in particular, it's not anything that's changed, but it is something that we're trying to explain which is the broad-based positioning that we have for specialty growth. And again, that's what gives us confidence in the continuing growth that we will have.

Our next question comes from Kevin Caliendo of UBS. Kevin, your line is now open. Please go ahead.

Thanks. Thanks for taking my question. I just had a quick first one, which is, just trying to understand the math on the EPS guide increase. So, $0.14 came from HCA. And can you just -- or RCA, excuse me. And can you remind us when you said that there was a better than -- sort of the loss of COVID was half, what was the expectation like, what did that actually mean in terms of EPS? And I apologize, I couldn't find it in my notes. And then, the actual -- the real question is, of the remaining sort of upside to guidance, I know you keep saying better specialty and, like, are you actually getting better economics anywhere through the portfolio than you had been before? Is it a reflection of your fixed cost and the fact that you've kept your operating expenses ex-RCA flat? I'm just trying to understand -- or is it simply mix? I'm just trying to understand where the upside is coming from. If it's specific to, "hey, you know what, we're actually generating better economics on similar drugs," or if it's, "our cost base is lower and utilization is higher and we're able to run that through," or "our overall mix is better such that the margin is better?"

Okay, great. Thank you for the question. Let me try to address those things. And you're asking about what's impacting the increase in guidance. And of course, our increase in EPS guidance was $0.40 at the bottom end of the range and $0.35 at the top end of the range. You asked about COVID, and the COVID headwind in the most recent quarter was about half of what we had previously expected. And we had expected a headwind in the $30 million range and it was a headwind more like in the $15 million range. And so, about half of our expectation. And then, you asked a number of questions with regard to things that are benefiting us, and I would say, mix is one of the things that I see us benefiting from is -- we see just the specialty part of our business growing faster and that's really benefiting us from a mix standpoint. We see biosimilar growth and that's benefiting us from a mix standpoint. And so, one of the things that you see in our guidance is -- and there are a couple different reasons for it, one of which we called out earlier on the call, but is that we see operating income growth that's exceeding revenue growth, and some of those mixed things and higher-margin businesses are benefiting us there. So, we are, of course, very pleased with the increase in guidance that we've put out today. And so, thank you very much for asking about it.

The last question comes from Erin Wright of Morgan Stanley. Erin, your line is now open. Please go ahead.

Great, thanks. I understand you don't have future share buybacks in the guide, and the focus on -- is on deleveraging near-term, but just as you think about the rationale behind RCA and other potential MSO-type deals, I guess, will the RCA deal help to explain your future focus from an M&A standpoint as we think about your learning so far there? And then, a second part of my question, maybe this is somewhat related to Kevin's too, but like in terms of the economics, is there any sort of change from a GLP-1 perspective? I mean, you mentioned the dynamic into the second half, which should be just more of a revenue dynamic from my understanding, but any sort of potential in terms of improved economics or like presumably oral solids could be more favorable for you as well, but how are you thinking about that segment too? Thanks.

Yeah. And so, let me start off with both of those things, MSOs and capital deployment, and GLP-1s. We've been very pleased with our entrance into MSOs, both with regard to the investment in OneOncology and the acquisition of RCA. And as you know, we own 35% of OneOncology, but there is a put/call structure with our partners there, which makes it likely that from a capital deployment standpoint, we would own all of that business at some point in time, which speaks to a good deal of our capital deployment over the next few years. And of course, we've been, as I said, very pleased with our experiences thus far. And then, on GLP-1s, there's really no change from an economic standpoint. It's clearly been a driver of our revenue. And as we've indicated in the past, it is profitable for us. They are profitable for us, but they are minimally profitable for us. And I think that addresses your questions, Erin. Thank you.

We currently have no further questions. So, I will hand back to Bob Mauch, CEO, for closing remarks.

Thank you very much. Thanks all for joining the call today. We're very proud of the strong performance and guidance raise that we've been able to announce today. And you can count us -- count on us to continue focusing on building on our strengths, learning and leading for market leaders, driving efficiency through productivity, investing in our talent, data capabilities, and all of that will further differentiate Cencora to biopharma partners and providers. Thank you very much all.

This concludes today's call. Thank you for joining. You may now disconnect your lines.