The operator welcomes listeners to the Second Quarter Financial Year 2024 Cardinal Health Earnings Conference Call and introduces Matt Sims, Vice President of Investor Relations. Matt Sims then introduces Cardinal Health CEO Jason Hollar and CFO Aaron Alt. He reminds listeners that the statements made during the call are subject to risks and uncertainties and that the discussion will be on a non-GAAP basis. Jason Hollar discusses recent announcements, including the acquisition of specialty networks, which will further their specialty growth strategy and create value for various parties.

The company has made progress in becoming a simplified and more focused company through business and portfolio reviews and updated reporting structure. In the second quarter, there was strong profit growth in both segments, with the pharmaceutical segment performing as expected and the medical segment showing improvements. The company has also seen stability in macro trends and strong demand for pharmaceuticals and specialty distribution, including with COVID-19 vaccines. The medical segment has also seen a change in trend in revenue growth, with positive results from the company's five-point plan to grow Cardinal Health brand volumes.

The company has been successful in optimizing its businesses and improving its financial strength, resulting in robust cashflow and increased confidence for the future. As a result, the company has raised its EPS guidance and outlook for adjusted free cashflow. The team remains focused on core operational execution to serve customers and drive the company forward. In the second quarter, the company saw strong results across the enterprise, with a 38% growth in EPS and a 12% increase in total company revenue. Despite investments and higher costs, the company achieved operating leverage and delivered operating earnings of $562 million. Interest and other income also increased due to higher cash balances and rates.

In the second quarter, the company's fixed rate debt and income from deferred compensation plan investments resulted in a net benefit from rising interest rates. The effective tax rate was lower than anticipated due to positive discrete items. Share repurchases led to a 6% decrease in average diluted shares outstanding. The pharma segment saw a 12% increase in revenue and profit, driven by strong demand for brand and specialty pharmaceuticals, including COVID-19 vaccines. The medical segment also saw an increase in revenue and profit, driven by volume growth and consistent market dynamics.

In the second quarter, the company saw a 3% increase in revenue, driven by growth in the medical segment. Segment profit also increased due to improved net inflationary impacts and consistent performance. The company generated $1 billion in adjusted free cash flow and ended the quarter with $4.6 billion in cash. They have been focused on deploying capital according to their disciplined capital allocation framework, including investing in their businesses and returning $1 billion to shareholders. They also made prepayments for an opioid settlement, which is expected to result in a gain of approximately $100 million in the third quarter.

The company has raised their fiscal '24 EPS guidance due to a strong first-half performance and positive outlook. They are also evaluating opportunities to refinance their upcoming debt maturities and have lowered their effective tax rate and shares outlook. The company is transitioning to a new segment structure reporting, but there are no changes to the outlook for the former pharma segment. The former medical segment's outlook has been updated to approximately $380 million in segment profit.

The company has consistent operational expectations for the year, aiming for $400 million in segment profit and $650 million in fiscal year '26. The back half of the year is expected to have growth in Cardinal Health brand volume, inflation mitigation, and business-specific seasonality. The company has strong visibility for cost improvements in the second half of the year, driven by reductions in international freight. The company has a new segment structure in place as of January 1, with pharmaceutical and specialty solutions, GMPD, nuclear at-home, and OptiFreight aggregated in other. The guidance ranges for the pharmaceutical and specialty solutions segment are consistent with the former pharma segment, while GMPD is showing improvements.

The company expects to improve its operating income by $230 million in fiscal year ‘24 through the execution of its medical improvement plan initiatives. They also anticipate 6-8% segment profit growth in fiscal year ‘24, with a long-term CAGR of 8-10% for fiscal years ‘24-‘26. The company has recently announced an acquisition in the specialty market, which they believe will have a positive impact on their financials within 12 months of closing.

The company has made significant progress in the first half of the year and has exciting opportunities for value creation ahead. The team is confident in their plans and grateful for their employees' efforts. The company's first priority is to continue growing their pharma and specialty solutions business. They have a strong foundation in their generics program and are investing in customer-focused solutions. They have also developed an innovative supply chain platform to help providers reduce costs and streamline medication supply.

The company has been investing in developing their offerings, such as a contract optimizer tool and expanding into the specialty market. They recently acquired specialty networks, a technology-enabled group purchasing and practice enhancement organization serving 11,500 providers. This acquisition will allow them to further extend their reach and expertise in key therapeutic areas and provide solutions for physicians to lower costs and improve patient care. It also creates a platform for future expansion into other specialty areas.

The company's PPS analytics solution uses advanced technology to analyze data from medical records and other systems, providing valuable insights for providers. This complements their existing specialty practice management and distribution solutions. The company also sees potential for collaboration with biopharma manufacturers through their specialty networks. The acquisition also enhances their specialty strategy and supports the ongoing development of the Navista network for independent community oncologists. In the GMPD business, the team is making progress in turning around the operational performance and expects the business to return to profitability in fiscal 2024. The top priority is mitigating supply chain inflation, and they are on track to address this by the end of fiscal 2024.

The company has seen lower international freight costs, and is taking steps to offset inflation through sourcing initiatives. They are investing in their supply chain and manufacturing and distribution capacity, including opening new distribution centers with state-of-the-art technology. The company is also investing in new product innovation and portfolio expansion. They are seeing improvements in their leading indicators and strong customer retention and product volume growth. The company is also driving simplification and optimizing their cost structure by exiting non-core product lines and streamlining their international footprint. This new structure will support their medical improvement plan and help them deliver value for customers.

The company is seeing strong demand in its at-Home Solutions and OptiFreight businesses and is investing in and developing these areas for long-term value creation. They are expanding their network and technology in at-Home Solutions and investing in digital tools for OptiFreight Logistics. They are also experiencing above market growth in nuclear and precision health solutions, particularly in Theranostics for prostate cancer.

The company is investing in expanding their Center for Theranostics Advancement and pet manufacturing network to meet the increasing demand for their products. They are also focused on maximizing shareholder value through improved operational performance, cash flow, and responsible allocation of capital. The company is well-positioned to pursue M&A opportunities and potential share repurchases. The company had a strong first-half of the year and is committed to fulfilling their role as healthcare's most trusted partner. The call will now move on to a Q&A session.

The speaker thanks the person for their question and congratulates them on their progress. They discuss the recent acquisition and the higher margin nature of the specialty networks, specifically the GPO and analytics solutions. The speaker is excited about the potential of the PPS analytics technology and how it can be applied to other therapeutic areas. They also mention the value of the leadership team that was acquired in the transaction.

The speaker discusses the quick and thorough diligence process for a potential tie-up with a specialty network, emphasizing the stable and competitive environment for their business. They note that the business is profitable and they plan to invest in it to expand its scope. The speaker also addresses a question about the core medical business, stating their commitment to it and acknowledging a shift in reporting structure and potential changes in the timeline of the turnaround.

Jason Hollar reiterates the company's commitment to turning around their medical business and explains that their plan and targets remain unchanged despite recent updates. He also addresses the interest expense and explains the decrease in the company's financials.

The company is pleased with their cash flow improvement and ended the quarter with $4.6 billion in cash. They have been focused on optimizing their cash flow and have generated strong cash flow in the first half of the year. This has resulted in a higher return on their cash balances due to the current interest rate environment. There was also a positive impact from deferred compensation. The company has upcoming maturities in June and November but has not announced any plans for financing at this time.

The speaker discusses the fluctuations in cash balances and seasonal demand in the back half of the year. They then address a question about the one-time items in the medical business and state that the underlying performance is on track and they are pleased with the operational performance in the quarter. They mention progress in mitigating inflation, revenue growth, and execution of simplification initiatives.

The company has updated its guidance for the year to reflect the impact of non-recurring adjustments. However, this does not affect their back-half focused trajectory for the year, as they are still pleased with their operational performance. The company anticipates a step up in the second half of the year due to inflation mitigation and price adjustments. They have a high level of confidence in these factors and expect them to positively impact their income statement in the next couple of quarters.

The actions taken to mitigate inflation are mostly completed and the company is confident in the progress made. The growth of the Cardinal Health brand volume has also been positive, with the market growing at a similar rate. The GMPD core part of the medical business has operated at near breakeven levels, which is seen as a positive sign. The company remains focused on generics as a key driver, despite deflationary dynamics in the market.

The speaker is asked about the materiality and sustainability of their pharma business, as well as the key drivers and how they are thinking about it for the rest of the year. The speaker mentions that the consistent market dynamics and strong volume in the generic space were factors in the business's success, and that they have balanced the two sides of the equation. They also remind that last quarter, they increased their pharma guidance. A question is then asked about the growth of SG&A in the quarter, and the speaker explains that there were incremental investments in the business and higher selling costs. They achieved operating leverage with gross profit growing faster than SG&A, and the primary increase in cost was due to serving higher volumes.

The speaker discusses the progress of the United contracts and states that there are no updates at this time. They also mention that there were purposeful investments made in SG&A, but the team is focused on optimizing their cost structure. The speaker also addresses the order of magnitude of the Optum contract and clarifies that the customer was over $30 billion last year. They caution against attempting to model out impacts based on this information.

The majority of the company's revenue from their large customer is through their base PD business and mail order volume, which typically have lower margins. The company also has other business with the customer, but their focus is on supporting their volume growth. They are balancing short-term investments with longer-term ones, such as new facilities and IT capabilities, in line with their strategy and growth objectives. They aim to eliminate waste and invest in areas of growth.

Aaron Alt explains that last year, the company saw an increase in demand from large customers and a strong cough, cold, and flu season that contributed to Q2 profitability. He then answers a question about the planned restatement of the other segment, stating that the businesses in this segment (at-Home, Nuclear Precision Health, and OptiFreight) are expected to have a long-term growth rate of 8-10%, but the projected growth for fiscal year 2024 is slightly lower due to non-recurring adjustments in the at-Home business. Each of these businesses contributes to the revenue and profit growth of the other segment.

The company expects to double its profit from nuclear power by fiscal 2026 and has seen significant growth in the pharmaceutical segment due to the COVID-19 vaccine. The contribution from the vaccine peaked in Q2 and is expected to decline in Q3, but the overall performance is consistent with expectations. The company has multiple drivers of growth in the pharma segment in Q2.

The company experienced strength in its generics program within its brand, driven by COVID and investments. The overall health of the business is good and COVID has made a positive contribution. Non-recurring adjustments were made, primarily affecting the at-Home and wave mark businesses. The company expects the vaccine impact to peak in the December quarter, with October being the peak month. The contribution from the vaccine was higher in the second quarter compared to the first quarter, and the company used the higher costs to fund investments.

The speaker discusses the contributions from November and December, stating that they were minimal due to the decline in vaccine distribution. They also mention that there were costs associated with the vaccine rollout, but these were not used as currency to fund other programs. The speaker emphasizes that September and October were the peak months for COVID distribution and the profitability of the medical sector would have been around $90 million without a one-time $20 million item.

During the Q&A session, analysts asked about the impact of shipping rates on the company's performance. The company's executives responded that while shipping rates have spiked, it is not expected to have a significant impact on the business. They also mentioned that the company has improved its capabilities to manage such volatility and will continue to monitor the situation closely.

Jason Hollar thanks everyone for joining the conference and expresses excitement about the company's momentum and both short-term and long-term strategies. He mentions the recent announcement about especially networks and highlights the opportunities ahead. The operator then concludes the conference.

This summary was generated with AI and may contain some inaccuracies.