The operator welcomes listeners to the Third Quarter Fiscal Year 2024 Cardinal Health Incorporated Earnings Conference Call and introduces the host, Matt Sims, Vice President of Investor Relations. The CEO, Jason Hollar, and CFO, Aaron Alt, are also present. The earnings press release and investor presentation can be found on the company's website. The speakers will be making forward-looking statements and will be discussing non-GAAP figures. The Q&A portion of the call will be limited to one question per participant. Jason Hollar then greets everyone.

The CEO reflects on the company's strengths and opportunities, including a recent proof-point in navigating a large customer contract change. The company has made progress in positioning itself for sustained success and growth, with Q3 results reinforcing this. They are focused on four strategic priorities and have seen solid profit growth in their Pharmaceutical and Specialty Solutions business.

The pharmaceutical demand has remained stable and the generics program and specialty segment have performed well, leading to an increase in the fiscal '24 profit outlook. The GMPD segment has shown strong performance and is on track with its turnaround plan. The company's new reporting structure has helped focus on performance and investment in growth. The demand for Nuclear, at-Home Solutions, and OptiFreight is strong, and the company is seeing benefits below the operating line. The fiscal '24 EPS outlook has been raised and preliminary guidance for fiscal '25 has been provided. The long-term targets for the businesses and enterprise remain unchanged. The company's strategy and outlook are unchanged and the team is focused on executing the plan. Aaron will now review the Q3 results, fiscal '24 guidance, and early fiscal '25 outlook in more detail.

In the fourth paragraph, the company discusses their recent release of an 8-K and their new segmentation for their businesses. They also report on their strong third quarter results, with double-digit operating earnings growth and 20% EPS growth. The company attributes this growth to their investments in their longer-term strategic plan and reports an increase in revenue and gross margin. They also mention their effective tax rate and lower average diluted shares due to share repurchases.

In the third quarter, the net result was EPS of $2.08, a 20% increase. The Pharmaceutical and Specialty Solutions segment saw a 9% revenue growth, driven by brand and specialty pharmaceutical sales. The demand for GLP-1 medications moderated as expected, but excluding those sales, the segment still saw a 7% revenue growth. Segment profit also increased by 4%, driven by positive generics program performance. The GMPD segment saw a 4% revenue growth and a $66 million year-over-year increase in segment profit, driven by volume growth and improved net inflationary impacts.

GMPD has seen a strong turnaround, achieving its highest level of profitability in two and a half years. The team's efforts against the GMPD Improvement Plan have led to improvements in the business, particularly in inflation mitigation and growth in Cardinal Health brand volumes. The Other businesses have also shown growth in revenue and segment profit. The company has a strong cash position and has deployed capital according to its disciplined allocation framework, including investing in CapEx and acquiring Specialty Networks. Moody's has also recently moved the company's outlook to positive.

During the quarter, we raised $1.15 billion in new notes to refinance upcoming debt maturities and plan to hold the cash proceeds until 2024. We have returned over $1 billion to shareholders this year through dividends and share repurchases. Our fiscal year '24 non-GAAP EPS guidance has been raised and narrowed to a range of $7.30 to $7.40, reflecting a 27% increase from fiscal year '23. Our effective tax rate guidance has improved, and our expectations for adjusted free cash flow, CapEx, diluted shares, and share repurchases remain consistent. With another strong quarter from Pharmaceutical and Specialty Solutions, we have raised and narrowed our segment profit guidance to 8.5% to 9.5% growth for the full year.

The company is reiterating its guidance for GMPD segment profit and Other businesses for fiscal year '24. They expect to address inflation and see growth in Cardinal Health brand volume and cost savings initiatives. They also anticipate a positive impact from seasonality in Q4. The company has raised its guidance for fiscal year '24 and will provide formal guidance for fiscal year '25 in August. They expect at least 1% segment profit growth in fiscal year '25 and have had some attractive wins with new customers. They also anticipate new volume and sustainable margins in the upcoming year.

The company completed the Specialty Networks acquisition quickly and is focused on optimizing its cost structure. They expect continued growth in the GMPD segment and strong demand in their Other businesses. They will be investing in new facilities and expanding their geographic reach. Interest and other expenses are expected to increase due to lower cash balances and the unwinding of negative net working capital.

The company is expecting lower investment rates and higher interest rates in the short-term due to refinancing, which will result in a range of $160 million to $190 million in fiscal year '25. The effective tax rate is expected to be slightly higher due to favorable factors this year. The share count is expected to be lower due to share repurchases. The company is reiterating its targets for fiscal year '24 through '26 and expects to deliver at least $7.50 of non-GAAP EPS in fiscal year '25. The focus remains on executing in the core business and investing in operational efficiency and customer engagement strategies.

Cardinal Health has been making progress in their services for health systems, including their InteLogix Platform which uses AI and machine learning to optimize drug inventories. They have also developed the Atrix Elements offering for hospital reimbursement services and are building a new Consumer Health Logistics Center in Ohio. They are also investing in advanced automation technologies and have recently integrated Specialty Networks, receiving positive feedback from providers and employees.

Specialty Networks, a part of Cardinal Health, aims to create value for independent physicians by reducing costs and improving efficiency in delivering high-quality care. This is achieved through their multi-specialty platform, technology, and clinical expertise. The platform also offers PPS analytics and insight generation capabilities that can be extended to other therapeutic areas such as oncology. Cardinal Health's biopharma solutions business has seen strong performance, with their 3PL supporting numerous launches and pioneering the commercialization of CAR T-cell and gene therapies. They continue to bring innovative services to the market.

Cardinal Health has achieved strong growth in its Advanced Therapy Innovation Center and GMPD business. The company has successfully collaborated with its Advanced Therapy Solutions and Nuclear, Precision Health Solutions businesses to support cell and gene manufacturers. In addition, the company is executing its GMPD Improvement Plan and has offset 90% of gross inflation impact through various initiatives. Cardinal Health has also achieved 4% topline growth and seen positive trends in key leading indicators, such as customer loyalty and product back orders. The company has also invested in the resiliency of its supply chain to better serve its customers.

In Q3, the company received recognition for achieving the highest rating in a resiliency badge program. They are focusing on simplification initiatives to optimize their cost structure and are seeing double-digit growth in Theranostics. They have a large and diverse pipeline of opportunities in oncology, cardiology, and neurology. The at-Home Solutions business is experiencing strong demand and they are investing to expand their network and offerings.

Cardinal Health is excited about their new distribution center in South Carolina and their TotalVue Insights technology platform. They continue to invest in new technology and collaborate with customers to provide tailored solutions. They have affirmed their long-term targets and are focused on value creation and responsible capital allocation. They are also taking proactive actions to optimize their cost structure and are making progress in their review of the GMPD business. Their near-term priority is driving their improvement plan, which is progressing well.

The company has had a strong year so far and is focused on continuing to grow in the future. They credit their success to their dedicated team and are now taking questions from analysts. The first question is about the company's 2025 guidance, specifically regarding their Rx and specialty business. The analyst wants to know about the expected revenue decline due to the OptumRx contract and the underlying growth rate. The company's CFO responds, stating that they expect at least 1% segment performance growth, with a breakdown of volume, mix, and new customers. He also mentions that they are on track to deliver growth beyond 2025.

The speaker begins by acknowledging the strong performance of the PS&S team in fiscal year '24 and their plans for continued growth in '25. They had previously provided guidance for 4-6% profit growth, but are now expecting at least 1% due to the impact of the Optum business. This translates to a net impact of $80 million so far. On the revenue side, they expect fiscal year '24 to land between $35-40 billion, with continued growth in the portfolio. They also mention that cash flow will be lower in '25 due to non-renewed contracts and a days of week impact, but they are still confident in their plans for growth. The other speaker adds that the net delta for '25 is approximately $80 million.

The competitive environment in specialty pharmaceuticals has been stable, but there have been recent contract switches. The company is seeing increased demand for cross-functional services that combine pharmaceutical distribution with other specialty services, particularly in oncology. The company is confident in its ability to compete with its broad range of solutions.

The speaker is responding to a question about the competitive environment and how it affects their company. They mention that while some contracts may change hands, the market overall is behaving rationally and they are disciplined in their participation. They also mention that their main objective is to safely and efficiently deliver products to customers, but they are continuously evolving and adding value to their services. The acquisition of Specialty Networks is an example of this.

The speaker was asked about the company's plans for 2025 and the timing of cost actions and customer migration. They explained that the customer migration will happen at the end of the fiscal year and will have a significant impact on volume. Other business wins will be more second half weighted, but there will be a tailwind from network growth in the fourth quarter. Cost actions will be varied and some will take time to settle with the lower volume from the customer migration. The customer is a large and growing one.

The company is happy with a certain volume of business, but it has some challenges with non-standard processes and volatile demand. They expect to improve efficiency as this volume decreases, but it will take some time to fully optimize operations. They have seen some improvement already and expect to continue improving throughout the year. In terms of generic pricing, they are seeing stability and strength in their portfolio despite comments from others.

The speaker is discussing the factors that will lead to the expected numbers in fiscal year 2025. They mention the impact of the GMPD business and how they are executing their plan to achieve their target of $300 million by fiscal year 2026. The main initiative is to achieve inflation mitigation, which will be a significant tailwind for the company in the first half of the fiscal year. The loss of Optum and a large payer contract has not affected Red Oak, but the speaker's colleague will discuss this further.

Eric Percher from Nephron Research asks about a couple of small details regarding the Pharma division. He notes that the company has mentioned the $80 million headwind as being "so far" and asks if this means there may be more mitigation or if the situation is still evolving.

The speaker responds to a question about potential changes in incentive compensation and the impact of the Specialty Networks acquisition on operating earnings. They clarify that the company is expecting at least 1% growth and that any changes in compensation will depend on additional actions taken. The speaker also reaffirms their previous statement that the Specialty Networks acquisition will be accretive after a year, taking into account the lost interest on the acquisition. They also mention that compensation plans are set annually and there is a long-term element that will continue to motivate the management teams. The next question is then asked by Stephanie Davis from Barclays.

The speaker discusses the company's recent wins and expansions, which have helped offset the impact of Optum. These wins are across various classes of trade and the company is not expecting to need additional wins in the future. The company's progress is attributed to their focus on customer service and meeting their needs. The company plans to continue driving value with new and existing customers.

The company is focused on executing its plans and simplifying operations while investing in the future. They will continue to optimize costs but will not compromise on customer support or future investments. The size of the specialty business will be impacted by various factors, but the company will provide revenue guidance in the next update.

The paragraph discusses the performance of the company's GMPD division, noting that the competitive environment has not had a significant impact. The company's performance has improved dramatically, leading to improved customer loyalty scores and stable win/loss rates. This is attributed to factors such as product availability, great service levels, and an engaged sales force. The company is now growing at a rate consistent with the market.

The company's market utilization has become more normalized, leading to predictable and consistent utilization rates. They are focused on driving growth through their GMPD Improvement Plan and are well-positioned to do so. There will be no direct or indirect impact from the Optum contract loss beyond fiscal 2025. The Other segment has seen strong revenue growth, but profit growth has taken some time to catch up to long-term expectations.

Aaron Alt confirms that the long-term growth for the Pharma business will be 4-6%. The Other business is also showing positive results, with a 6-8% profit growth expected this year and 8-10% for fiscal '24. Jason Hollar adds that the customer transition on July 1 will mostly affect fiscal '25 results and the Other businesses are all growing well.

The company has strong growth in three different areas due to their value proposition to customers and patients. They have a leadership position in each of these areas and are confident in their long-term profitability. They are investing in these areas, which is driving growth. The company has seen an inflection point in their revenue growth, partly due to their Cardinal Health brand. They have stabilized distribution and won new business, allowing them to grow at or above the market rate.

The company's business has stabilized and is expected to continue growing at a consistent rate with the market. The biggest driver of profit performance for the next year is the carryover of inflationary pressure, with other factors such as Cardinal Health brand volume growth and cost reductions also contributing to profit improvement. The primary components driving growth in the following year will be Cardinal Health brand volume, cost reductions, and other supporting costs. The company did not provide specific numbers but stated that these are the biggest pieces driving growth in the coming years. The company is also on track with their plans for Navista and integrating technology from the Specialty Networks acquisition.

The progress made by Navista can be broken down into three key areas: hiring a strong team, listening to customers' needs, and building capabilities around those needs. This approach allows Navista to continuously improve and differentiate itself in the market. The Specialty Networks division utilizes both internal and external expertise to provide the best services to customers.

The company is using both their own resources and third-party partners to meet the needs of their customers and providers. They have not yet made final decisions on how to incorporate Specialty Networks into their network, but their leadership team and capabilities have already proven to be valuable. The company is confident in their strong and resilient business and has a clear plan for the future. They are committed to providing excellent service to their customers and patients.

The speaker thanks the audience for their attendance and instructs them to disconnect. They also wish them a good day and say goodbye.

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