Q2 2024 Cardinal Health Inc Earnings Call

February 1, 2024

Unnamed Speaker: Thank you all for joining us today. We continue to make progress with our mitigation initiatives and commercial contracting efforts and are continually taking additional actions to offset elevated inflation, such as through sourcing initiatives. As Aaron indicated, the work we've accomplished to date provides increased confidence in achieving our fiscal year-end target, as overall cost improvements continue to reflect in our second-half results. We're continuing to invest in the resiliency of our supply chain and our manufacturing and distribution capacity. We have opened three new distribution centers in the past year, adding capacity for growth while featuring state-of-the-art automation technology to streamline operations. For example, our new Greater Toronto Area D.C. distribution center expands capacity to serve Cardinal Health Canada customers while leveraging autonomous mobile robots to increase picking and packing accuracy.

Unnamed Speaker: We are also continuing to invest in new product innovation and portfolio expansion in key categories in alignment with our disciplined portfolio management approach. As a result of our team's collective efforts, we're seeing our five-point plan to grow Cardinal Health brand volume result in improvements in our leading indicators, and, most importantly, strong customer retention and product volume growth. Finally, we continue to drive simplification and optimize our cost structure by exiting non-core product lines, rationalizing our network, and streamlining our international footprint.

Unnamed Speaker: We believe our new structure will further enable our medical improvement plan efforts as we continue to execute the plan and deliver value for customers. Now, priority number three, accelerating growth in key areas. We are excited about the strong demand we are seeing for our at-home solutions and Optifreak does, and our recent determination to further invest in and develop these businesses for long-term value creation as part of our portfolio. With At Home Solutions, we continue to focus on enabling and supporting comfortable, home-based care for patients with acute and chronic conditions. To support the growing demand for home health care, we're investing to expand the capacity of our network, the breadth of our offering, and new technology to drive operating efficiency. We recently announced plans for a new distribution center to be built in Texas with increased capacity, advanced automation technology, and robotics within the facility, and our previously announced 350,000 square foot facility being built in South Carolina is on track to open this calendar year, and OptiFreight Logistics.

Unnamed Speaker: We're continuing to invest in digital tools to enable healthcare supply chain leaders to better manage their shipping spend and support the core volume growth in our business. We've launched new offerings to give our customers more supply chain visibility, and we are receiving great feedback. For example, we now have more than 1,000 healthcare providers leveraging our TotalView Insights platform to gain valuable insights on their operations.

Unnamed Speaker: In nuclear and precision health solutions, we're continuing to see above-market growth in both our core business and Theranoscope. As we're a premier partner of choice due to our strong core foundation and differentiation with pharmaceutical manufacturers looking for commercialization success for their future radiopharmaceutical portfolios, for example, and they're not. Prostate cancer radiodiagnostics are important tools for health care providers to assess and properly treat the disease.

Unnamed Speaker: We saw meaningful year-over-year revenue growth in the first half of fiscal 24 from the ramp-up in demand for these diagnoses. From a pipeline perspective, we're investing to expand our Center for Theranostics Advancement, with demand from pharmaceutical manufacturer partners currently oversubscribed. And we're investing to expand the capabilities and resiliency of our pet manufacturing network to enable portfolio diversification and accommodate growth from the increasing demand for pet agents. This is driven by trends such as an aging population, cancer prevalence, emerging Alzheimer's therapy availability and reimbursement, and increasing clinical trial needs.

Unnamed Speaker: Finally, priority number four, maximizing shareholder value creation. We're continuing to maximize shareholder value creation through our improved operational performance, robust cash flow, and responsible allocation of capital. As Aaron noted, our robust cash flow generation is not only driving benefits below the operating line, it is enabling our opportunistic capital deployment with additional share repurchases in the quarter beyond our baseline plan and our ability to pursue value-creating M&A and specialty. We remain well positioned with financial flexibility to continue opportunistically evaluating disciplined M&A, not only in specialty but in our other growth areas and potential additional share

Unnamed Speaker: With our recent conclusions on our business and portfolio review, we do not have further updates to share today, but we plan to keep you apprised of our progress. To close, we had a strong first half of the year and are excited about the many initiatives underway to build upon our momentum. I would like to thank our highly engaged and talented team for driving our progress and prioritizing our customers as we fulfill our critical role as healthcare's most trusted partner. With that, we will take your Thank you very much, sir.

Operator: Ladies and gentlemen, as a reminder, if you have any questions, please press star 1 on your telephone keypad. Our very first question is going to be from Stephanie Davis calling for Barclays. Please go ahead.

Stephanie Davis: Hey guys, thank you for taking my questions and congrats on the continued progress. Jason, you already shared a lot of color around the acquisition, but I was hoping you could dig in just a little bit further on specialty networks with their mix and capabilities, just given the higher margin nature of both GPO and analytics solutions. And then, just following up, given the pipeline that you mentioned, I was hoping you could share some thoughts on hurdle rates for future deals, as that becomes a bigger part of the story. Thank you. Thanks. Good morning, Stephanie.

Jason M. Hollar: Yeah, we're really excited about specialty networks. And I love how you asked the question, Stephanie, because there's a lot that goes into this business, and we love all of it, whether it's the GPO or the analytics and technology behind it. Specifically, PPS Analytics is something we thought was really special, not just in terms of how this team created this capability for their original primary business of urology, but then how they've expanded it into other therapeutic areas. And we felt we could learn from that further and use that technology across potentially other therapeutic areas beyond the three that they're in today. So that was really exciting to us and certainly a key part of the value. So we definitely attributed good value to that technology and where we believe that it can go.

Jason M. Hollar: And not only was that good for our business, but importantly, we see that technology is really solving a lot of customer, both provider and manufacturer, challenges and ultimately giving a much better solution to the end patient. So it's a win-win across the industry and one that plugs in nicely to our strategy and presence throughout the specialty space. So we feel great about that, and I certainly don't want to miss that we're also, through this transaction, acquiring a fantastic leadership team that will plug in very nicely to our own existing team. And so it's cultures that I think will work very well together.

Jason M. Hollar: And We've had a fantastic, very quick process. We've known specialty networks for quite a while, but from the point that we started talking about a possible tie-up, we went from the beginning to the end, of course, doing deep and thorough diligence, but nonetheless, knowing the business well so that we could quickly understand its value for it. As it relates to your second question on hurdle rates, I'm not sure exactly which part of the business you're referring to, but generally speaking, I think no matter what part of our business we're talking about, it's a competitive, stable type of environment. So, I'm not normally going to go deeper into that anyway, but generally speaking, we're not really calling out anything from the overall market perspective today, regardless of whatever business we're talking about.

Jason M. Hollar: Utilization continues to be quite good and predictable, so we're in a nice environment for ongoing growth, both organically as well as being able to look opportunistically at transactions. It is worth noting that it is a profitable business today, and as Jason highlighted, we do intend to invest in the business early on to expand the scope of what they are doing across not only their own initiatives but our initiatives within specialty as well. Thank you very much, sir. Ladies and gentlemen, our next question is going to be from Lisa Gill, a colleague from J.P. Morgan. Please go ahead. Thanks very much for taking my question. And good morning.

Jason M. Hollar: I just really wanted to ask two things, Jason. One, on the strategic side, as we think about your core medical business, and two, do you still feel a commitment to that business going forward? And then secondly, as we think about the shift and the new reporting structure, it does look like you're taking down the margin on the core business. Is there anything that's changing in the timeline of the turnaround? Is there something else that's shifting competitively or adding incremental costs? If you could just help us to understand that, that would be great. Thanks so much.

Jason M. Hollar: Very clear here. No, there's no change in our commitment to this business. We have been there from the very beginning and will continue to be. As I highlighted from the first moment when we talked about medical in the context of the business and portfolio review, our number one priority has always been and continues to be turning the business around. Everything that we are working on has been in service of, first of all, the five-point plan to drive Cardinal health plan volumes to mitigate inflation and drive additional value through simplification and cost reductions. That message and the progress we've made is entirely consistent with that. The core operational performance of the business is exactly as we've laid it out. So, the only update that we've had today is in recognition of some of those non-recurring items, but the plan and the fiscal year, twenty six aggregate targets that we're going after are absolutely unchanged. This re segmentation. We did have to bucket the medical improvement plan into various buckets because we didn't have the growth businesses that were a component of that. But that was just moving the pieces.

Jason M. Hollar: The pieces are absolutely unchanged, and the overall aggregate profitability in that long-term plan is absolutely unchanged. And our commitment to this business is absolutely unchanged. And I'm, I'm really excited about the progress that the team is making in service of all of those. Next question, please. Thank you very much, sir. Thank you very much, sir. And our next question will be coming from Elizabeth Anderson calling from Evercore ISI. Please go ahead. Your line is open.

Unnamed Speaker: Hi guys, thanks so much for the question. I have two sort of maybe more financial questions going forward. Can you talk to us about sort of the interest expense?

Unnamed Speaker: Obviously, you had a pretty big step down and just wanted to understand that in terms of that and your sort of ongoing thoughts on the capital structure. And can you also talk about the free cash flow improvement? It was nice to see that step up in the quarter as well, in terms of the guidance. We're happy to offer some perspective. We're quite pleased with the below-the-line results, of course, for the quarter.

Unnamed Speaker: I'm going to start with the fact that, as we announced, we ended the quarter with $4.6 billion of cash on hand. And, of course, that's driven by the strong cash generation, which was the last part of your question. If you think back to our investor day, we highlighted that further optimization of our cash flow position was something we were focused on doing, and the team has delivered on those efforts internally and generated strong cash flow in the first half for the business. Thus, the balance. Of course, the knock-on consequence of that is when we have more cash on hand, particularly in the higher interest rate environment in which we've been operating, we'll get a higher return. And we have, indeed, benefited from a greater rate of return on the larger cash balances that we have in place. It's also the case that there is some geography within our statement because deferred comp was a positive for us below the line, but that's an offsetting negative above the line in the quarter as well.

Unnamed Speaker: And so it's really the aggregation of those three things, those several things, which led to the results for the quarter. Now, you asked about the financing as well, and I should be clear on a couple of things just as we think about our models going forward. We do have maturities coming in June and November.

Eric Percher: We're assessing what our opportunities are there. Nothing to announce today in that respect, but we will address that at some point as we carry forward. And it is also the case that our cash balances fluctuate seasonally in the back half as well. And so we wouldn't expect the high balance to remain where it is just given the seasonal demands on the business. Next question, please. Yes, sir. Our next question is coming from Mr. Eric Percher of Nephron Research. Please go ahead.

Unnamed Speaker: On the medical side, it's hard to see through the one-time items, so I want to ask what you can give us on the nature of those one-time items, what the trajectory looked like, excluding one-timers in the quarter, and any views on the exit trajectory for the year and going from 140 million first half to 242nd half, how you're pacing relative to that. Thank you.

Unnamed Speaker: We were really encouraged by the underlying performance in Q2 of the medical business. You know, just to restate the results, the Q2 results were consistent with the expectations we communicated several weeks ago at the JPMorgan conference and generally consistent with Q1 despite some of those adjustments that we took that we took in the quarter. I want to emphasize, as you move away from the adjustments that we took, the underlying elements of the medical improvement plan, they're on track, right? You heard some of my prepared remarks relative to our progress in the mitigation of inflation and how our cost structure is building. The benefits of the actions we've taken will benefit our cost structure in the second half of the year.

Unnamed Speaker: You heard us announce that we had revenue growth for the first time in, you know, two years in the quarter as well, and we were pleased with the Cardinal Health brand growth that comes with that, and the team continues to execute against the simplification initiatives that have been a core part of the medical improvement plan all along. So I'm going to go back to where I started, which is that we were quite pleased with the operational performance, you know, in the quarter. I also want to point out that from a guidance perspective, while we updated the guidance for the year to reflect the non-recurring, the relative impact of the non-recurring adjustments, that was the, that was a slight change in the guidance to reflect that which is behind us, not that which is ahead. And if you think through how we have guided medical for the year all along, there's always been a very back half focused trajectory for our guidance here for the Yeah, and if I could just add, you know, when you think about that first half, second half cadence and why we still anticipate the same step up in the second half versus the first half, there are a couple of key points. First of all, inflation mitigation.

Unnamed Speaker: This is one where it's a significant part of that, combined with Cardinal Health brand volume growth, which I'll get to in a moment. But on inflation mitigation, you know, there are, of course, two elements. There's a cost side and then there's a price side.

Unnamed Speaker: In both cases, we have a very good line of sight on the cost side, as we've talked about for quite a while now. It's international freight and while we have a little bit of noise with the Red Sea, it is largely as anticipated. So, that cost is already on our balance sheet and is rolling through as expected, especially given that our volumes have been as expected. So we have a very high line of sight and confidence.

Unnamed Speaker: The cost is going to continue to step down in the second half of the year. And then on the pricing side, as we talked about before, there's always the contract roll through that we then update the pricing on. We do have a little bit more at the beginning of the calendar year of some of those price adjustments. So, with January being behind us, we have a really good line of sight on the pricing side as well. So there's some time now for the next couple of quarters needed to get that to roll through our income statement, but the actions are now largely behind us as it relates to inflation mitigation. We've always had confidence that we would get to this stage, but we're now at this stage and have even more confidence actually seeing it start to come through in the second half of the year.

Unnamed Speaker: Now, the other component is the Cardinal Health brand volume. That's going to be market driven, and the market volume, that utilization continues to be quite good. And what was exciting about the second quarter was seeing that further inflection and actually participating in that market growth for the first time at the extent of what the market is growing. So that gives us much greater confidence that we'll continue to see that growth and that stuff as we go over the course of the year. But there are some variables like the market itself that will always have an impact here, good or bad, that we will continue to monitor and track. So those are the key points I'll give from the first half. Eric is probably worth offering you one.

Unnamed Speaker: It's probably worth offering one additional point of perspective. We're not reporting on the new segment structure this quarter. That that will follow in Q3. But we can offer the observation that the GMPD core part of the medical business has operated at near breakeven levels in the first half of fiscal twenty four. And I offer you that in contrast with where they were from a fiscal twenty-three perspective and where we're going from an overall guidance perspective. And we view that as a key indicator of positive progress. Thank you very much, gentlemen, it's time for Drug Carrier. Our next question is going to be from Aaron White of Morgan Stanley. Please go ahead.

Aaron White: Great, thanks. On the drug pricing front, you do continue to mention generics as a key driver. Are you still seeing the easing deflationary dynamics that others have noted too? And how material is that for you? And also, how sustainable is it?

Unnamed Speaker: You know, what are some of the key drivers that you're looking at there? And how are you thinking about that for the balance of the year as well, as we think about the quarterly cadence here for that U.S. pharma, or for the pharma segment, particularly with the COVID dynamics too? Thanks. Thank you. I appreciate the question. One of the things we called out in commenting on the strong quarters that our pharma business had was that the continued consistent market dynamics within the generic space matched with volume, strong volume, was a reason for, one of the reasons for success in the business. We often talk about the two sides of the equation being in balance, and indeed that's what we continue to see within our generic business, and that is indeed a core component of our guidance for the pharma business as we carry forward. One last reminder, I do want to remind you that last quarter we actually took our pharma guidance up from a profit perspective to seven to nine percent. Thank you. Thank you, sir. We'll now move to Alan Lutz calling from Bank of America. Please go ahead.

Alan Lutz: Good morning and thanks for taking the question. Can you talk about growth in SG&A in the quarter? You flagged incremental investments in the business and higher selling costs. Can you unpack exactly what those expenses are and then how should we think about SG&A growth for the remainder of the year? Please offer some perspective.

Unnamed Speaker: We were pleased in the quarter to actually achieve operating leverage with gross profit growing faster than SG&A. SG&A did grow, however, volume also grew, and so the primary component of our increase in cost was tied to the variable cost of serving higher volumes.

Unnamed Speaker: It is also the case, though, that, as Jason has highlighted in his strategic remarks, we are investing against our business, and some of the SG&A growth was purposeful relative to the investments we're making in places like the Vista and other elements of our growth plans. But I will end with the fact that we are very focused on SG&A as a whole, and the team continues to look for further opportunities, as we have in previous years, to optimize our cost structure. Thank you, Mr. Chair.

Kevin Caliendo: We'll now move to Kevin Caliendo of UBS. Please go ahead. Thanks. Thanks for taking my question. I have two.

Unnamed Speaker: Can you give us an update on the progress of the United contract renewal timing; any updates you have there? And just to follow up on that SG&A question, were there purposeful investments made when you saw sort of upside from interest and other things in SG&A in the quarter? I'm just trying to quantify how much was in the original plan versus maybe how much was incremental, given some of the upside that you saw below the line. Yeah, sure. I'll touch on both points here. There are no updates with the Optum contract that goes through this fiscal year.

Jason M. Hollar: And as I've highlighted before, they are a great customer of ours, a longstanding customer, one that brings a lot of innovation to health care, and one that we've worked very hard over the years to attempt to exceed their expectations. And we think we're doing a great job of that. And we'd love to keep working with them, of course. Now, I do get a lot of questions around the order of magnitude of this, and I'm not going to go into details, but just a couple of points, given the number of questions I've received, is that we have disclosed this in the past, and I think it comes through in every K, just the order of magnitude. So last year, they were over a $30 billion customer of ours, and I see a lot of people attempting to try to model out impacts and things of that nature.

Jason M. Hollar: And just a couple of things that I'm not sure are real clear about the scope of business we have with them today. It is, the majority of the revenue we have with them is through our base PD business, and a lot of that is mail order volume. So, what you have here are the typical markers of a large customer: PD majority and mail order.

Jason M. Hollar: So those are all markers of a lower than average margin type of business. And so we do have other business with them, of course, too, because they are very large and have a lot of breadth into various parts of the industry. But for us, those tend to be a little bit of the weight of how we support them as it relates to the, I, the only thing I would say is, no, it's not. It's not like that.

Jason M. Hollar: What we do is we look at the capabilities and the necessities needed both short term and long term. The short term is going to be on volume and making sure we can support our customers and get that strong buying growth across the enterprise and in place. We are then looking to balance that with longer-term investments, whether it's the network we've called out before as investments, but we also have others that we went through during investor day and have had a number of updates. Even today, within our at home business, we have 3 new facilities that we're bringing online over the course of the next year or 2 within the medical distribution 3 facilities.

Unnamed Speaker: I talked about today we have on the pharma side, the consumer health, new logistics center. So, and I also made some comments around some of the I. T. capabilities within pharma and the eCommerce and interlogic capability. So we are investing where it makes sense efficiently, very well aligned to our strategy, and these are not investments that you can just turn on and off. So, it's something that we're going to invest as appropriate, but only what we have to do as well. We want to take away waste and invest it where there's growth is the key. For those working on their models, it's probably worth pointing out that with respect to the Q2 profitability in the business, it was the case last year that we called out unusual strength in the overall pharma demand, particularly from large customers, as well as a very strong cough, cold, and flu season. So as you're looking at your comparisons, keep that in mind. Thank you, sir. Ladies and gentlemen, if your question has been answered, you may remove yourself from the queue by pressing star 2. We'll now move to Mr. George Hill of Deutsche Bank. Please go ahead.

George Hill: Yeah, good morning, Jason and Aaron, and forgive me if I kind of missed this or if you guys talked through this already, but as it relates to the planned restatement of the other segment, it looks like the growth in the near term is coming in, but it's kind of termed kind of the long-term targets, and I would just kind of wonder if you could address kind of or desegregate in which segments, which subs The businesses that will report through OTHER for us going forward will be our at-home business, our nuclear precision health business, and our OPTI freight business. Those are what we have traditionally called our growth businesses as part of other segments. And indeed, over the long term, we expect the CAGR on their collective growth to be 8% to 10%.

Unnamed Speaker: The disconnect you're referencing, which is the 6% to 8% in fiscal 24, is only driven by the impact of the non-recurring adjustments from Q2 on the at-home business that we referenced a couple of weeks ago as we talked about our expectations for Q2. Each of the businesses contributes to the revenue and profit growth for OTHER as we carry forward. In our earlier disclosures, I think you can get pretty close; we disclosed the revenue of the individual pieces. And indeed, we've talked about nuclear doubling its profit off of its fiscal 21 baseline by fiscal 26, as well. And so you're able to get to that component of OTHER through that. Thanks.

Unnamed Speaker: Next question, please. Yes, sir. We'll now take Stephen Baxter of Wells Fargo. Please go ahead, sir.

Stephen Baxter: Yeah, hi, good morning. Thanks for the questions. A couple of quick ones.

Unnamed Speaker: On COVID vaccines and the commercial channel, I think last quarter you kind of indicated or implied that the contribution was around $25 million. I was hoping you could update us on what the performance was this quarter and whether you've factored anything into the balance of the year. And then just to try one more time on the non-recurring medical adjustment.

Unnamed Speaker: Can you just tell us about the $20 million? What does that actually represent in terms of the underlying accounting or business activity? Thank you. Yeah, so for the vaccines, we just kind of walk through the last couple of quarters and that will give you a flavor of, you know, the benefits and, you know, the trends and such. So, as we talked last quarter, you know, we highlighted in Q1 with the FDA approval at the beginning of September, you know, we were stage 2, you know, hit the ground running, and we had fairly significant volume in that 1st quarter. But as anticipated, we indicated that point that we would expect it to peak within within Q2, and so we expected higher, higher volume, higher contribution in Q2 versus Q1. And that was because we saw October as the largest month within that season.

Unnamed Speaker: And then, as expected, we saw that wind down over the course of November and December, still seeing some level of volume in Q3. But I would expect it to be quite insignificant compared to what we saw in Q1 and then Q2. You know, overall, I think the key message is that this is consistent with our expectations, as Aaron highlighted in his comments already. We had multiple drivers of growth for the pharma segments in the 2nd quarter, and it was strength with the generics program within brands. It was COVID driving that component.

Unnamed Speaker: And then we had these investments and, primarily, the cost to serve a partial offset to those other 2 drivers. So, overall, I feel good about the overall health of the business and the contribution of COVID within it. Aaron, with respect to the non-recurring adjustments.

Aaron E. Alt: We previewed this back at the JPMorgan conference and when we updated our commentary around the medical business. And our comment then is our comment now, which is, as we have continued to dig deep across the portfolio, we've taken a decision to take some non-recurring adjustments, the majority of which hit the at-home business, which now reports or will report as part of other in Q3, as well as a component hitting the wave mark business, which is part of the new GMTD business. So, if you read through the update to our guidance for the year where we moved from approximately 400 to approximately 380 driven by the impact of the non-recurring adjustments, you can reach your own conclusions as to the relative quantification and the distribution given those comments. Thank you very much, sir. Our next question is coming from Charles Rhyee of TD Cowen. Please go ahead.

Charles Rhyee: Yeah, thanks for the question. I just wanted to follow up on Alan's question there on the vaccine impact. I understand you're saying that you expected it to peak in the December quarter. Would you say that the contribution, though, from the vaccine was higher than in the first quarter, given that you had still three months overall? And if we look at that, you know, relative to what you had expected, the higher cost that you incurred, did you use that to fund those kind of investments? Just wanted to get a sense of relative. As I highlighted, October was the peak month, and since we only had a partial September, it is clearly higher in Q2 than in Q1. We did have, you know, November and December contributions as well, but it really tailed off by the time we got to the end of the quarter. And that's why you would expect there to be very few.

Unnamed Speaker: It was just typical for vaccines in general, so there's nothing we're seeing there. And again, the way you asked the question about the funding of investments, I'll just go back to my prior answer to that question. There were costs associated with the vaccine rollout. As you can imagine, that's a lot of volume to ramp up for really two months' worth of support. Our team did a fantastic job working with the manufacturers and our customers to play that role when we were not involved in the vaccine distribution before for COVID. So I feel very good about our role. However, we did have to incur costs associated with the ramp-up and ramp-down in such a short period of time. But that was not necessarily used as currency to fund other programs.

Unnamed Speaker: Those other programs are important strategically and all very consistent with the plans and the actions and the forecast we've laid out here, so there are no changes as it relates to how we're approaching these both short-term requirements as well as long-term. Probably worth emphasizing that Jason's point is that September and October were the high points for COVID for us from a distribution perspective, quickly tailing off thereafter.

Unnamed Speaker: Next question, please. Thank you, gentlemen. Our last question today will be from Mr. Daniel Grossleit of Citi. Please go ahead, sir.

Daniel Grossleit: Hi guys, thanks for taking the question. I want to just go back quickly to the medical profitability question and confirm one thing. That $20 million one-time item was wholly kind of concentrated this quarter. So without that, medical profitability would have been around $90 million. And then on your commentary around shipping rates coming down and benefiting you, and the volatility in the Red Sea, if you look at, you know, the China to West Coast shipping rates, they spiked materially in January. So I'm wondering how, I guess a couple things there.

Unnamed Speaker: One, how that may kind of roll through your contracts. And then, given that you capitalize those costs and then expense them over two to three quarters post those costs being capitalized, how that might impact the cadence of your medical improvement plan in fiscal 25. Thank you. The first half of that question, you are thinking about things correctly.

Unnamed Speaker: I'll go back and emphasize we were really pleased with the operational performance of the business, and given that we've adjusted our yearly guidance just to reflect the impact of the non-recurring adjustments in Q2, your conclusion on the math would be reasonable. Yeah, on the second component, you are correct that shipping rates have spiked. I think the word used was materially, and how I would characterize it is, yes, that's accurate, but substantially less materially than where they were in the past. So, the order of magnitude we're talking about is vastly smaller.

Unnamed Speaker: It is also something that we do not believe that that will be the permanent level. Yes, we have more flexibility in our contracts, and that will continue to be a lever and a component that we'll be evaluating, determining whether how permanent these are or not. I would also say that our maturity, our capability within this space, has substantially improved as we've invested in the underlying processes and procedures to manage through this type of volatility. So, you know, overall, we feel very good about where we stand and generally don't see this as a material item, but we'll continue to watch it closely. Thank you very much, sir. Ladies and gentlemen, that will conclude today's Q&A session.

Unnamed Speaker: I'd like to call back over to Mr. Jason Hollar for his additional closing remarks. Thank you. Yeah, thanks everyone for joining us this morning. We're clearly excited about the momentum that we have in our business, both the shorter term operational elements that we talked a lot about today, but also about the longer term strategy. With the announcement of the specialty networks this week, it just highlights that we're looking and acting both short term and long term and are really excited about the opportunities still in front of us. So thanks again for joining us today, and have a great day. Thank you, sir. Ladies and gentlemen, WC3's conference is now disconnected. Good day and goodbye.

I'll hand, the call over to Nat seems vice President of Investor Relations. Please go ahead Sir.

Welcome to this morning's Cardinal health second quarter fiscal 'twenty four earnings conference call and thank you for joining us.

With me today are Cardinal health, CEO, Jason Hollar, and our CFO Eric <unk>.

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You can find this morning's press release and Investor presentation on the Investor Relations section of our web site at IR Dot Cardinal Health Dot com.

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Before I turn the call over to Jason 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 actual results to differ materially from those projected or implied.

Please refer to our SEC filings and the forward looking statements 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 they are specifically called out as GAAP.

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 kindly 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.

Good day and welcome to today's second quarter financial year 2020 for Cardinal Health Earnings Conference call. This meeting is being recorded at this time I'd like to hand, the call over to Nazis Vice President of Investor Relations. Please go ahead Sir.

Good morning, everyone in the last few weeks, we've made several notable announcements regarding our Companys continued progress, including Yesterdays news on our agreement to acquire specialty networks, which will further our specialty growth strategy and create value for specialty providers manufacturers and patients in exciting new ways.

Nazir: Welcome to this morning's Cardinal health second quarter fiscal 'twenty four earnings conference call and thank you for joining us.

And as we highlighted at a recent industry conference, we're continuing to take actions to become a simplified and more focused company with further progress achieved on our ongoing business and portfolio review and our updated enterprise operating segment reporting structure, which will be reflected in our financial reporting beginning next quarter.

Speaker Change: With me today are Cardinal health.

Speaker Change: Jason Hollar, and our CFO Eric <unk>.

Speaker Change: You can find this morning's press release and Investor presentation on the Investor Relations section of our website at IR Cardinal Health Dot com.

We plan to go further into our recent updates with you today, but first let me begin with a few brief comments on our results and.

Eric: Before I turn the call over to Jason since we will be making forward looking statements today.

In Q2, we delivered strong profit growth in both segments, demonstrating continued operating momentum and execution against our strategic priorities.

Eric: I'll remind you that the matters addressed in these statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected or implied please.

Pharma again delivered strong performance overall, the business is performing consistent with our expectations and we're pleased to reiterate our outlook for 7% to 9% segment profit growth in fiscal 'twenty four.

Eric: Please refer to our SEC filings and the forward looking statements slide at the beginning of our presentation for a description of these risks and uncertainties.

We've seen ongoing stability in macro trends, including in our generics program and continued broad based strength in overall pharmaceutical demand.

Eric: Please note that during our discussion today, our comments will be on a non-GAAP basis, unless they are specifically called out as GAAP.

Our specialty distribution business also continued to see strong demand, including with COVID-19 vaccines and the first part of the quarter.

Eric: non-GAAP reconciliations for all relevant periods can be found in this reporting schedule attached to our press release.

Turning to medical Q.

Q2 segment profit was consistent with Q1, despite the nonrecurring adjustments in the second quarter, which we've reflected in our updated fiscal 'twenty for outlook for the former medical segment.

Eric: For the Q&A portion of today's call. We kindly 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.

Encouraged by the underlying improvements in operating performance, reflecting further progress with our medical improvement plan efforts focused on our global medical products and distribution business.

Jason M. Hollar: Good morning, everyone in the last few weeks, we've made several notable announcements regarding our Companys continued progress, including Yesterdays news on our agreement to acquire specialty networks, which will further our specialty growth strategy and create value for specialty providers manufacturers and patients in exciting new ways.

Notably we saw a change in trend in revenue growth for the medical segment in the second quarter.

Along with continued growth from at home solutions, we're seeing the effects of our five point plan to grow Cardinal health brand volumes yield positive results.

Jason M. Hollar: And as we highlighted at a recent industry conference, we're continuing to take actions to become a simplified and more focused company with further progress achieved on our ongoing business and portfolio review and our updated enterprise operating segment reporting structure, which will be reflected in our financial reporting beginning next quarter.

And as we continue to optimize not only the performance of our businesses, but also the financial strength of the broader enterprise, we're generating robust cash flow and seeing meaningful benefits below the operating line.

As a result of our first half performance and increased confidence as we look ahead. We are pleased to raise our fiscal 'twenty four EPS guidance and our outlook for adjusted free cash flow.

Speaker Change: We plan to go further into our recent updates with you today, but first let me begin with a few brief comments on our results in.

Of course, our customers remain at the center of everything we do and our team continues to prioritize core operational execution, the best serve them and their patients with essential products and services as we drive our company forward.

Speaker Change: In Q2, we delivered strong profit growth in both segments, demonstrating continued operating momentum and execution against our strategic priorities.

Speaker Change: Pharma again delivered strong performance overall, the business is performing consistent with our expectations and we're pleased to reiterate our outlook for 7% to 9% segment profit growth in fiscal 'twenty four.

Now, let me turn it over to Eric to review, our results and updated guidance in more detail.

Thanks, Jason and good morning, before we begin let me remind you that our Q2 segment commentary will be according to our former segment structure pharma and medical let's.

Speaker Change: We've seen ongoing stability in macro trends, including in our generics program and continued broad based strength in overall pharmaceutical demand.

Let's start with total company results for the second quarter.

Q2 delivered another strong quarter across the enterprise with EPS of $1 82 growth of 38%, which included operating earnings growth of 20%.

Speaker Change: Our specialty distribution business also continued to see strong demand, including with COVID-19 vaccines and the first part of the quarter.

Speaker Change: Turning to medical Q.

Speaker Change: Q2 segment profit was consistent with Q1, despite the nonrecurring adjustments in the second quarter, which we've reflected in our updated fiscal 'twenty for outlook for the former medical segment.

We also delivered strong cash flow and ended the quarter with $4 $6 billion of cash even following incremental share repurchase activity in the quarter.

Speaker Change: Encouraged by the underlying improvements in operating performance, reflecting further progress with our medical improvement plan efforts focused on our global medical products and distribution business.

And as seen on slide four total company revenue increased 12% to $57 $4 billion, reflecting growth in both the pharma and medical segments.

Speaker Change: Notably we saw a change in trend in revenue growth for the medical segment in the second quarter.

We drove operating leverage for the enterprise despite incremental investments in the business and higher cost to support sales growth.

Speaker Change: Along with continued growth from at home solutions, we're seeing the effects of our five point plan to grow Cardinal health brand volumes yield positive results.

Gross margin increased 11% to $1 $8 billion, driven by both segments and consolidated SG&A increased 8% to $1 3 billion.

Speaker Change: And as we continue to optimize not only the performance of our businesses, but also the financial strength of the broader enterprise, we're generating robust cash flow and seeing meaningful benefits below the operating line.

With the strong profit growth in both segments, we delivered operating earnings of $562 million.

Speaker Change: As a result of our first half performance and increased confidence as we look ahead. We are pleased to raise our fiscal 'twenty four EPS guidance and our outlook for adjusted free cash flow.

20% higher than a year ago.

Moving below the line interest and other decreased by $26 million.

Speaker Change: Of course, our customers remain at the center of everything we do and our team continues to prioritize core operational execution, the best serve them and their patients with essential products and services as we drive our company forward.

To $8 million in income due to increased interest income on cash and equivalents from higher cash balances and higher rates.

As we've noted our debt is largely fixed rate, resulting in a net benefit from rising interest rates in the near term.

Speaker Change: Now, let me turn it over to Eric to review, our results and updated guidance in more detail.

Eric: Thanks, Jason and good morning, before we begin let me remind you that our Q2 segment commentary will be according to our former segment structure pharma and medical let's.

Additionally, Q2 interest and other benefited from nearly $10 million in income from the quarterly revaluation of our company's deferred compensation plan investments, which as a reminder has a matching offset above the line.

Eric: Let's start with total company results for the second quarter.

Eric: Q2 delivered another strong quarter across the enterprise with EPS of $1 82 growth of 38%, which included operating earnings growth of 20%.

Our second quarter effective tax rate of 21, 3% was one seven percentage points lower than a year ago and better than we anticipated due to positive discrete items in the period.

Eric: We also delivered strong cash flow and ended the quarter with $4 $6 billion of cash even following incremental share repurchase activity in the quarter.

Q2 average diluted shares outstanding were $246 million, 6% lower than a year ago due to share repurchases in each of the last four quarters.

Eric: As seen on slide four total company revenue increased 12% to $57 $4 billion, reflecting growth in both the pharma and medical segments.

And as I mentioned earlier. The net result for Q2 was EPS of $1 82, reflecting growth of 38%.

Eric: We drove operating leverage for the enterprise despite incremental investments in the business and higher costs to support sales growth.

Let's turn to the pharma segment on slide five.

Second quarter revenue increased 12% to $53 5 billion, driven by brand and specialty pharmaceutical sales growth from existing customers.

Gross margin increased 11% to $1 $8 billion, driven by both segments and consolidated SG&A increased 8% to $1 3 billion.

We saw strong pharmaceutical demand across product categories brand specialty consumer health and generics and from our largest customers.

Eric: With the strong profit growth in both segments, we delivered operating earnings of $562 million.

We also continue to see robust demand for <unk> medications, which provided a revenue tailwind in the quarter.

Eric: 20% higher than a year ago.

Eric: Moving below the line interest and other decreased by 26 million to $8 million in income due to increased interest income on cash and equivalents from higher cash balances.

Segment profit increased 12% to $518 million in the second quarter, driven by positive generics program performance and a higher contribution from brand and specialty products, including distribution of COVID-19 vaccines.

Eric: And higher rates.

Eric: As we've noted our debt is largely.

Our positive generics program performance continued to reflect volume growth and consistent market dynamics.

With respect to COVID-19 vaccines, we saw the strength in demand from September for the fall immunization season carried into October before peaking mid months and trending to a much lower run rate as we exited the second quarter.

The Q2 increase in segment profit includes a partial offset from higher costs to support sales growth driven by increased pharmaceutical volumes.

Turning to the medical segment on slide six.

Second quarter revenue increased 3% to $3 9 billion.

Which as Jason alluded to reflect quarterly revenue growth for the medical segment for the first time in over two years.

This increase was driven by growth in both at home solutions and global medical products and distribution with the GNP growth primarily related to higher Cardinal health brand volumes.

Medical delivered segment profit was $71 million or $54 million year over year increase driven by an improvement in net inflationary impacts, including our mitigation initiatives.

Consistent with the expectations communicated a few weeks ago segment profit was generally consistent with Q1, despite some nonrecurring adjustments in the quarter.

We continue to be encouraged by the underlying performance of the business, which through the first two quarters of the year is tracking consistent with our original plans.

Now turning to the balance sheet.

We generated robust adjusted free cash flow of $1 billion in Q2, bringing our year to date adjusted free cash flow to $2 billion.

And as I noted earlier ended the quarter with $4 $6 billion of cash on hand.

We remain focused on doing what we said we would deploy capital according to our disciplined capital allocation framework.

Thus far through the first half of fiscal 'twenty four we've continued to invest against our highest priorities, including investing back into the businesses to drive organic growth with over $200 million and year to date Capex.

In the first half we have returned $1 billion total to shareholders, which includes our quarterly dividend payments and $750 million and year to date share repurchases. These.

These share repurchases are in excess of our committed baseline repurchases of $500 million.

And in January we made certain opioid settlement prepayments of $238 million and a pre negotiated discounts, which is expected to result in a GAAP only gain of approximately $100 million.

In the third quarter.

Now for our updated fiscal 'twenty guidance on slide eight beginning with the enterprise.

With our strong first half performance and positive outlook, we are again, raising our fiscal 'twenty four EPS guidance.

Our new range of $7 20 to $7 35.

Reflects a 45% increase at the bottom end and the 35 increase at the top end from our Q1 guidance range.

At the midpoint, which is 26% above our fiscal 'twenty three EPS results.

We are encouraged by the operating performance of our businesses and our strong cash flow generation, which is certainly contributing to the improvements below the line.

Interest and other is reduced to a range of $50 million to $65 million.

Which primarily reflects increased interest income from higher than anticipated cash balances.

We expect lower average cash balances in the second half of the year due in part to the seasonal timing of anticipated cash flows we are evaluating opportunities to refinance our upcoming 2024 debt maturities in the back half of the year.

We are lowering the top end of our effective tax rate guidance to a new range of 23% to 24% to reflect the positive discrete items, we've seen in the first half of the year.

We also are lowering our shares outlook to approximately $247 million, which reflects the $250 million accelerated share repurchase program, we completed in Q2.

No additional share repurchases are assumed in our updated guidance for fiscal year 'twenty four.

Now turning to the fiscal 'twenty four outlook for our segments.

While we will be transitioning to our new segment structure reporting beginning in Q3, let me start with our former segments as a comparison point for the updated structure.

No changes to the outlook for the former pharma segment, we are reiterating the 10% to 12% revenue growth and 7% to 9% segment profit growth.

For the former medical segment for fiscal 'twenty four outlook is updated to approximately $380 million a segment profit to reflect the net impact of Q2 nonrecurring adjustments.

Outside of these our overall operational expectations are consistent with delivering the prior $400 million in segment profit for the year as well as the corresponding prior expectation of $650 million in segment profit for fiscal year 'twenty six.

We have consistently highlighted the back half weighting of the medical guidance driven by progress within GM PD on Cardinal Health brand volume growth, the accumulative impact of inflation mitigation and some business specific seasonality.

Our expectations there continue.

For example, with inflation mitigation, we have strong visibility to overall cost improvements in the second half of the year driven by reductions we've observed in international freight, which as a reminder, reflecting our income statement on a two to three quarter delay.

And as we exit January the mitigation initiatives necessary to achieve our year end target are now largely in place.

Now as seen on slide 10, let me comment on how this fiscal year 'twenty four guidance translates to our updated segment structure.

To go along with the preliminary recast fiscal 'twenty, three actuals and long term targets, we provided a few weeks back.

Our new structure went into effect January one.

So beginning in Q3, we will report results and provide drivers according to the new segment structure pharmaceutical and specialty solutions and GMP D.

And separate from these two segments nuclear at home and <unk> freight aggregated in other.

At that time, we also plan to provide a recast of the results for fiscal 'twenty two to 24 on the new segmentation.

Beginning with the pharmaceutical and specialty solutions segment. The guidance ranges are consistent with the former pharma segment, even excluding our higher growth nuclear business, we expect 10% to 12% revenue growth and 7% to 9% segment profit outlook for fiscal 'twenty four and.

And a 4% to 6% segment profit growth CAGR over the long term.

Turning to <unk>, where we remain encouraged by the improvements in this business.

Through the execution of the medical improvement plan initiatives, we expect to drive G. NPD from an operating loss of approximately $165 million in fiscal 'twenty three to operating income of approximately $65 million in fiscal 'twenty four.

From the fiscal 'twenty three low point this $230 million a year over year improvement would position us roughly halfway towards our fiscal 'twenty six target of approximately $300 million.

Our segment profit.

Finally, we expect the businesses included in other at home solutions nuclear precision health solutions and not be freight logistics to collectively deliver 6% to 8% segment profit growth in fiscal year 'twenty four.

The difference between this fiscal 'twenty four growth rate and the long term CAGR of 8% to 10% for fiscal 'twenty four to 'twenty six reflects the portion of the Q2 nonrecurring adjustments within at home solutions with the remainder residing in GM PD.

Before I close a couple of comments on our recently announced acquisition.

We've noted that the specialty category has been our highest priority for potential M&A and a primary consideration for our opportunistic capital deployment as part of our disciplined capital allocation framework.

Given our financial flexibility and strong presence in the other 60% of the specialty market and therapeutic areas outside of oncology, we have evaluated a range of potential acquisition candidates to further accelerate our specialty strategy.

We are thrilled to reach an agreement for specialty networks to become a part of the Cardinal Health family, Jason will elaborate on the strategic aspects of the deal, but we plan to include the expected financial impacts of the transaction and our guidance upon closing which of course is subject to the satisfaction of customary closing conditions, including receipt of required regulatory.

<unk>.

For general modeling purposes, we expect the deal to be accretive 12 months following close.

So to wrap up tremendous progress in the first half of the year with exciting value creation opportunities still in front of US we are confident in our plans and grateful for the efforts of our team who continue to drive our ongoing initiatives and prioritize the needs of our customers with that I will turn it back over to Jason.

Thanks, Erin now for some additional perspective on our strategic priorities beginning with priority number one and building upon the growth of pharma and specialty solutions, our largest and most significant business.

So this segment structure has slightly changed our focus on executing in the core remains we're building upon our strong foundation, while investing to accelerate growth in specialty both downstream and upstream.

We believe that this new segment structure further enables those efforts by enhancing management focus leveraging the connectivity between pharmaceutical distribution and specialty and positioning the business for long term growth and investment.

On that front shortly.

The key component of our strong core foundation is our generics program anchored by Red Oak, which continues to do an excellent job fulfilling its dual mandate managing both cost and supply.

Red Oak Leverages proprietary analytical tools and their deep industry expertise to help maximize service delivery for customers.

We're continuing to invest in our business to provide customer focused solutions and evolve our commercial engagement strategies to prioritize addressing the complex challenges our customers face every day for.

For example at Investor Day, we highlighted our first to market clinically integrated supply chain, the Cardinal health into logics platform.

This innovative solution Leverages artificial intelligence and machine learning through the <unk> tier foundry platform to help providers reduce costs optimize drug inventories and generate actionable insights to simplify and streamline medications supply.

We've continued to develop our offerings such as the contract optimizer tool, which drive savings and value through contract compliance cost controls and product alternatives like brands to generics blood plasma and more.

Key health system customers are already benefiting from these capabilities and we see opportunities for further future expansion.

Shifting to specialty where we have also been investing to expand our offering into complementary areas.

The acquisition of specialty networks is exciting to us on a number of fronts. This is a business with which we were already very familiar given the long standing partnership to service their members through our specialty distribution.

Especially networks as a technology enabled multi specialty group purchasing and practice enhancement organization, serving 11500 total providers today, including more than 7000 physicians across 1200 independent urology gastroenterology and rheumatology practices, we see their service capabilities is accelerating our efforts.

In critical ways.

First further extending our reach expertise and offerings in key therapeutic areas to provide increased clinical and economic value for specialty providers.

Specialty networks as a leader in specialty practice management research and technologies that support physicians and lowering cost operating more efficiently and delivering best in class care to their patients for.

For example, the company provide solutions that improve clinical and economic outcomes to over 3000 urologists through its leading euro GPO.

Second <unk>.

Creating a platform for our expansion across specialty therapeutic areas. The company's PPS analytics solution as a subscription based advanced technology platform that utilizes artificial intelligence such as continuous learning algorithms and natural language processing to analyze data from electronic medical Records practice management.

Imaging and dispensing systems and transform it into actionable insights for providers and other stakeholders.

We see this complementing our suite of clinical practice management and distribution solutions to specialty practices nationwide specialty networks experience and capabilities and clinical engagement, our robust, which also accelerates our upstream data and research opportunities with Biopharma manufacturers.

Third enhancing the capabilities of our specialty business, including supporting the ongoing build of the Nabisco network.

Urology, Gastroenterology and rheumatology practices, we see their service capabilities is accelerating our efforts in critical ways.

Specialty networks has a deep understanding of independent physician practices, and we see capabilities and expertise that will accelerate our ongoing development of the <unk> network, which is focused on supporting the clinical and operational needs of independent community oncologists.

First further extending our reach expertise and offerings in key therapeutic areas to provide increased clinical and economic value for specialty providers.

In summary, this transaction enhances our specialty strategy by providing new capabilities that strengthen the link between our downstream and upstream services, enabling us to create further value for customers manufacturer partners and patients.

For example, the company provide solutions that improve clinical and economic outcomes to over 3000 urologists through its leading euro GPO.

Turning to priority number two and the <unk> business, where we're executing the medical improvement plan.

Second <unk>.

Creating a platform for our expansion across specialty therapeutic areas. The company's PPS analytic solution as a subscription based advanced technology platform that utilizes artificial intelligence such as continuous learning algorithms and natural language processing to analyze data from electronic medical Records practice management.

While the business and portfolio review of GM PD continues the team continues to prioritize and make significant progress in turning around the operational performance of this business as Aaron indicated with our expectation that the business returns to profitability in fiscal 'twenty for the.

The number one priority remains mitigating supply chain inflation, where we remain on track to address the impact by the time, we exit fiscal 'twenty four.

Imaging and dispensing systems and transform it into actionable insights for providers and other stakeholders.

As of Q2 were approximately 75% of target.

On the cost side, while overall still elevated we've seen lower international freight costs reflected in our results as anticipated and we have strong line of sight to continued improvement in the second half of the fiscal year.

We've continued to make progress with our mitigation initiatives and commercial contracting efforts and are continually taking additional actions to offset elevated inflation such as through sourcing initiatives.

Third enhancing the capabilities of our specialty business, including supporting the ongoing build of the Nabisco network.

As Aaron indicated the work we've accomplished to date provides increased confidence in achieving our fiscal year end target as overall cost improvements continued to reflect in our second half results.

Specialty networks has a deep understanding of independent physician practices, and we see capabilities and expertise that will accelerate our ongoing development of the Nabisco network, which is focused on supporting the clinical and operational needs of independent community oncologists.

We're continuing to invest in the resiliency of our supply chain and our manufacturing and distribution capacity. We have opened three new distribution centers in the past year, adding capacity for growth, while featuring state of the art automation technology to streamline operations for example, our new greater Toronto area DC expanded capacity to serve.

Cardinal Health, Canada customers, while leveraging autonomous mobile robots to increase picking and packing accuracy and drive efficiencies.

Turning to priority number two and the <unk> business, where we're executing the medical improvement plan.

We're also continuing to invest in new product innovation and portfolio expansion in key categories and alignment with our disciplined portfolio management approach.

As a result of our team's collective efforts, we're seeing our five point plan to grow Cardinal Health brand volume result in improvements in our leading indicators and most importantly, strong customer retention and product volume growth.

Our number one priority remains mitigating supply chain inflation, where we remain on track to address the impact by the time, we exit fiscal 'twenty four.

Finally, we continue to drive simplification and optimize our cost structure by exiting non core product lines rationalizing our network and streamlining our international footprint.

As of Q2 were approximately 75% of target.

On the cost side, while overall still elevated we are.

Seen lower international freight costs reflected in our results as anticipated and we have strong line of sight to continued improvement in the second half of the fiscal year.

We believe our new structure will further enable our medical from a plant efforts as we continue to execute the plan and deliver value for customers.

Now priority number three accelerating growth in key areas. We are excited about the strong demand we are seeing in our at home solutions and <unk> businesses.

And our recent determination to further invest in and develop these businesses for long term value creation as part of our portfolio.

As Aaron indicated the work we've accomplished to date provides increased confidence in achieving our fiscal year end target as overall cost improvements continue to reflect in our second half results.

At home solutions, we continue to focus on enabling and supporting comfortable on based care for patients with acute and chronic conditions to support the growing demand for home health care, we're investing to expand the capacity of our network the breadth of our offering and in new technology to drive operating efficiencies we.

We recently announced plans for a new distribution center to be built in Texas with increased capacity advanced automation technology and robotics within the facility.

Cardinal Health, Canada customers, while leveraging autonomous mobile robots to increase picking and packing accuracy and drive efficiencies.

And our previously announced 350000 square foot facility being built in South Carolina is on track to open this calendar year.

We're also continuing to invest in new product innovation and portfolio expansion in key categories and alignment with our disciplined portfolio management approach.

And not be freight logistics.

<unk> to invest in digital tools to enable healthcare supply chain leaders to better manage their shipping spend and support the core volume growth in our business.

We've launched new offerings to give our customers more supply chain visibility and we are receiving great feedback for.

For example, we now have more than 1000 health care providers, leveraging our total view insights platform.

Nazir: Finally, we continue to drive simplification and optimize our cost structure by exiting non core product lines rationalizing our network and streamlining our international footprint.

To gain valuable insights on their operations.

And nuclear and precision health solutions, we're continuing to see above market growth in both our core business and Theyre Gnostics as we're a premier partner of choice due to our strong core foundation and differentiation with pharmaceutical manufacturers looking for commercialization success.

Speaker Change: We believe our new structure will further enable our medical from a plant efforts as we continue to execute the plan and deliver value for customers.

Speaker Change: Now priority number three accelerating growth in key areas. We are excited about the strong demand we are seeing in our at home solutions and <unk> businesses.

Are there future radiopharmaceutical portfolios for example, and thorough gnostics prostate cancer radio diagnostics are important tools for health care providers to assess and properly treat the disease.

Eric: In a recent determination to further invest in and develop these businesses for long term value creation as part of our portfolio.

We saw meaningful year over year revenue growth in the first half of fiscal 'twenty four from the ramp up in demand of these diagnostics from.

Eric: At home solutions, we continue to focus on enabling and supporting comfortable home based care for patients with acute and chronic conditions to support the growing demand for home health care, we're investing to expand the capacity of our network the breadth of our offering and in new technology to drive operating efficiencies we.

From a pipeline perspective.

We're investing to expand our center for thorough gnostics advancement with demand from pharmaceutical manufacturer partners currently oversubscribed.

And we're investing to expand the capabilities and resiliency of our pet manufacturing network to enable portfolio diversification and accommodate growth from the increasing demand for pet agents.

Eric: We recently announced plans for a new distribution center to be built in Texas with increased capacity advanced automation technology and robotics within the facility.

And our previously announced 350000 square foot facility being built in South Carolina is on track to open this calendar year.

This is driven by trends such as an aging population cancer.

Cancer prevalence emerging Alzheimer's therapy availability and reimbursement and increasing clinical trial needs.

Jason M. Hollar: And not be freight logistics, we're continuing to invest in digital tools to enable healthcare supply chain leaders to better manage their shipping spend and support the core volume growth in our business.

Finally priority number four maximizing shareholder value creation.

We're continuing to maximize shareholder value creation through our improved operational performance robust cash flow and responsible allocation of capital.

Jason M. Hollar: We've launched new offerings to give our customers more supply chain visibility and we're receiving great feedback for.

For example, we now have more than 1000 health care providers, leveraging our total view insights platform to gain valuable insights on their operations.

As Aaron noted our robust cash flow generation is not only driving benefits below the operating line. It is enabling our opportunistic capital deployment with additional share repurchases in the quarter beyond our baseline plan and our ability to pursue value, creating M&A and specialty.

Jason M. Hollar: And nuclear and precision health solutions, we're continuing to see above market growth in both our core business and Theyre Gnostics as we're a premier partner of choice due to our strong core foundation and differentiation with pharmaceutical manufacturers looking for commercialization success.

We remain well positioned with financial flexibility to continue opportunistically evaluating disciplined M&A not only in specialty but in our other growth areas and potential additional share repurchases.

Jason M. Hollar: Are there future radiopharmaceutical portfolios for example, and thorough gnostics prostate cancer radio diagnostics are important tools for health care providers to assess and properly treat the disease.

With our recent conclusions on our business and portfolio review, we do not have further updates to share today, a plan to keep you apprised of our progress.

To close we had a strong first half of the year and are excited about the many initiatives underway to build upon our momentum I would like to thank our highly engaged and talented team for driving our progress in prioritizing our customers as we fulfill our critical role as health Care's, most trusted partner with that we will take your questions.

Speaker Change: We saw meaningful year over year revenue growth in the first half of fiscal 'twenty four from the ramp up in demand of these diagnostics from.

From a pipeline perspective.

We're investing to expand our center for thorough gnostics advancement with demand from pharmaceutical manufacturer partners currently oversubscribed.

Speaker Change: And we're investing to expand the capabilities and resiliency of our pet manufacturing network to enable portfolio diversification and accommodate growth from the increasing demand for pet agents.

Thank you very much Sir ladies and gentlemen, as a reminder, if any questions. Please press star one on your tough with keypads.

First question is coming from Stephanie Davis claims with Barclays. Please go ahead.

Speaker Change: This was driven by trends such as an aging population cancer.

Hey, guys. Thank you for taking my questions and congrats on the continued progress.

Speaker Change: Cancer prevalence emerging alzheimers therapy availability and reimbursement and increasing clinical trial needs.

Jason you already shared a lot of color around the acquisition, but I was hoping you could dig in just a little bit further on especially networks nextgen capabilities, just given the higher margin gained share both GPL analytics solutions.

Speaker Change: Finally priority number four maximizing shareholder value creation.

Speaker Change: We're continuing to maximize shareholder value creation through our improved operational performance robust cash flow and responsible allocation of capital.

Then just following up given the pipeline that you mentioned I was hoping you could share some thoughts on hurdle rates for future deals as that becomes a bigger part of the sorry. Thank you.

Speaker Change: As Aaron noted a robust cash flow generation is not only driving benefits below the operating line. It is enabling our opportunistic capital deployment with additional share repurchases in the quarter beyond our baseline plan and our ability to pursue value, creating M&A and specialty.

Okay, great. Thanks, Good morning, Stephanie Yeah, we're really excited about specialty networks.

I Love, how you asked the question Stephanie.

There's a lot that goes into this business and we love all of it.

Speaker Change: We remain well positioned with the financial flexibility to continue opportunistically evaluating disciplined M&A not only in specialty but in our other growth areas and potential additional share repurchases.

Whether it's the GPO or the analytics and technology behind it specifically PPS analytics is something we thought was really special not just in terms of how this team has.

Speaker Change: With our recent conclusions on our business and portfolio review, we do not have further updates to share today, a plan to keep you apprised of our progress.

And it created this capability for their original primary business of urology, but then how they've extended it into other therapeutic areas and we felt we could learn from that further and use that technology across potentially other therapeutic areas beyond the three that they're in today.

Speaker Change: To close we had a strong first half of the year and are excited about the many initiatives underway to build upon our momentum I would like to thank our highly engaged and talented team for driving our progress in prioritizing our customers as we fulfill our critical role as health Care's, most trusted partner with that we will take your questions.

So that was really exciting to us and.

Certainly a key part of the value. So we definitely attributed a good value to that technology, and where we believe that can go and not only is that good for our business, but importantly, we see that technology is really solving a lot of customer both provider and manufacturer challenges and ultimately, giving a much better.

Eric: Thank you very much Sir ladies and gentlemen, as a reminder, if any questions. Please press star one it's helpful keypad.

Eric: Our first question is coming from Stephanie Davis, calling from Barclays. Please go ahead.

Stephanie Davis: Hey, guys. Thank you for taking my questions and congrats on the continued progress.

Solutions to the end patient so it's a win win across the industry and one that plugs in nicely to our strategy and to be.

Stephanie Davis: Jason you already shared a lot of color around the acquisition, but I was hoping you could dig in just a little bit further on especially networks of nextgen capabilities, just given the higher margin nature, both GPL analytics solutions.

Throughout this specialty space. So we feel good about that and I certainly don't want to Miss that were also through this transaction acquiring fantastic leadership team.

Speaker Change: Then just following up given the pipeline that you mentioned I was hoping you could share some thoughts on hurdle rates for future deals as that becomes a bigger part of the jewelry.

We'll plug in very nicely to our own existing team and so it's a culture that I think will work very well together and we had a fantastic very quick process.

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Speaker Change: Okay, great. Thanks, Good morning, Stephanie Yeah, we're really excited about specialty networks.

Certainly no known specialty networks for quite a while but from the point that we started talking about a possible tie up we went from the beginning to the end of course doing a deep and thorough diligence, but nonetheless, knowing the business well that we could quickly understand the value for us.

Speaker Change: I Love, how you asked the question Stephanie because it's theirs.

Speaker Change: There's a lot that goes into this business and we love all of it.

Speaker Change: It's the GPO or the analytics and technology behind it specifically PPS analytics is something we thought was really special not just in terms of how this team has.

As it relates to your second question on hurdle rates.

Eric: Created this capability for their original primary business of urology, but then how they've extended into other therapeutic areas and we felt we could learn from that further and use that technology across potentially other therapeutic areas beyond the three that they're in today.

Nature, exactly which part of the business you're referring to.

But generally speaking I think no matter, what part of our business, we're talking about it as a competitive stable type of environment. So im not normally going to go deeper into that anyway.

But generally.

Speaking, we're not really calling out anything from an overall market perspective today.

Eric: So that was really exciting to us and.

Eric: Certainly a key part of the value. So we definitely attributed a good value to that technology, and where we believe that can go and not only is that good for our business, but importantly, we see that technology is really solving a lot of customer both provider and manufacturer challenges and ultimately, giving a much better.

Regardless of what our business, we're talking about utilization continues to be quite good predictable. So we're in a nice environment for ongoing growth both organically as well as enable to look opportunistically at transactions like this.

Probably worth noting that it is a profitable business today and as Jason highlighted we do intend to invest in the business early on to expand the scope of what they are doing across not only their own initiatives, but are our initiatives within specialty as well.

Eric: Solutions to the end patient so it's a win win across the industry and one that plugs in nicely to our strategy and to be.

Eric: Throughout the specialty space so.

Eric: So we feel great about that and I certainly don't want to Miss that were also through this transaction acquiring fantastic leadership team.

Thanks, so much sir.

Ladies and gentlemen, our next question is going to be coming from Lisa Gill from Jpmorgan. Please go ahead.

Eric: We'll plug in very nicely to our own existing team and so it's culture that I think will work very well together and we had a fantastic very quick process.

Thanks, very much for taking my question and good morning.

I wanted to ask two things Jason one on the strategic side as we think about your core medical business. One do you still feel the commitment to that business going forward and then secondly, as we think about the SaaS and the new reporting structure. It does look like you're taking down the margin on the core business is there something that either changing and.

Eric: We know no, especially networks for quite a while but from the point that we started talking about a possible tie up we went from the beginning to the end of course doing a deep and thorough diligence, but nonetheless, knowing the business well so that we can quickly understand the value for us.

The timeline of that turnaround.

Is there something else thats shifting competitively or incremental cost if you could just help us to understand that thanks. So much.

Eric: As it relates to your second question on hurdle rates.

Speaker Change: Sure exactly which part of the business you're referring to.

Sure Lisa very clear here no there's no change in our commitment to this business.

Speaker Change: But generally speaking I think no matter, what part of our business, we're talking about it as a competitive stable type of environment.

<unk> been there from the very beginning and continues to be as as I highlighted from the first moment when we talk about medical in the context of the business portfolio review our number one priority has always been and continues to be turning the business around.

Speaker Change: Normally going to go deeper into that anyways.

Speaker Change: But generally.

Speaker Change: Speaking, we're not really calling out anything from overall market perspective today.

Regardless of what our business, we're talking about utilization continues to be quite good at predictable. So we're in a nice environment for ongoing growth both organically as well as enable to look opportunistically at transactions like this.

Everything that we are working on it has been in service of first of all the five point plan to drive Cardinal health brand volumes to mitigate inflation and drive additional value through simplification and cost reductions that that message and the progress. We've made is entirely consistent with that as a core operational performance of the business.

Speaker Change: Probably worth noting that it is a profitable business today and as Jason highlighted we do intend to invest in the business early on to expand the scope of what they are doing across not only their own initiatives, but are our initiatives within specialty as well.

It is exactly how we've laid it out so the only update that we've had today were in recognition of some of those nonrecurring items, but the plan.

Speaker Change: Thank you Sir.

Speaker Change: Ladies and gentlemen, our next question is going to be coming from Lisa Gill from Jpmorgan. Please go ahead.

This fiscal year 'twenty six aggregate.

Targets that we're going after are absolutely unchanged. This re segmentation, we did have to bucket.

Lisa C. Gill: Thanks, very much for taking my question and good morning.

Lisa C. Gill: I wanted to ask two things Jason one on the strategic side as we think about your core medical business. One do you still feel the commitment to that business going forward and then secondly, as we think about the SaaS and the new reporting structure. It does look like you're taking down the margin on the core business is there something that either changing and.

Medical and from a planned into the various buckets because we didn't have the growth businesses that are a component of that but that was just moving the pieces. The pieces are absolutely unchanged and the overall aggregate profitability in that long term plan is absolutely unchanged and our commitment is absolutely unchanged in this business and I'm really excited about the progress that the team is making and.

Lisa C. Gill: The timeline of that turnaround.

Service of all of those goals.

Is there something else thats shifting competitively or incremental cost if you could just help us to understand that thanks. So much.

Next question please.

Jason M. Hollar: Sure Lisa very clear here no. There is no change in our commitment to this business.

And our next question will be coming from Elizabeth Anderson from Evercore ISI. Please go ahead. Your line is open.

Jason M. Hollar: It has been there from the very beginning and continues to be as as I highlighted from the first moment when we talk about medical in the context of the business portfolio review our number one priority has always been and continues to be turning the business around.

Hi, guys. Thanks, so much for that question.

I have two sort of maybe more financial questions.

Can you talk to us.

The interest expense actually had a pretty big step down just wanted to understand that in terms of that and you showed ongoing thoughts on the capital structure and can you also talk about why the free up about the free cash flow improvement that was nice to see that step up in the quarter as well in terms of the guidance.

Jason M. Hollar: Everything that we are working on it has been in service of first of all the five point plan to drive Cardinal health brand volumes to mitigate inflation and drive additional value through simplification and cost reductions that that message and the progress. We've made is entirely consistent with that the core operational performance of the business.

Perhaps happy to offer some perspective, we're quite pleased with the below the line results of course for the quarter.

Im going to start with the fact that as we announced we ended the quarter with $4 $6 billion of cash on hand and of course, that's driven by the strong cash generation, which was.

Jason M. Hollar: It is exactly how we've laid it out so the only update that we've had today were in recognition of some of those nonrecurring items of the plan.

And part of your question. If you think back to our Investor Day, we had highlighted that further optimization of our cash flow position was something we were focused on doing and the team has delivered against those.

Jason M. Hollar: This fiscal year 'twenty six aggregate.

Jason M. Hollar: Targets that we're going after are absolutely unchanged. This re segmentation, we did have to bucket.

Jason M. Hollar: Medical and prevent plant into the various buckets, because we didn't have the growth businesses that are a component of that but that was just moving the pieces. The pieces are absolutely unchanged and the overall aggregate profitability in that long term plan is absolutely unchanged and our commitment is absolutely unchanged in this business and then I'm really excited about the progress that the team is making and.

Efforts internally and generated strong cash flow in the first half for the business.

Our balanced of course by knock on consequence of that is when we have more cash on hand particular on the higher interest rate environment, which we've been operating we will get a higher return and we have indeed.

Benefited from.

Greater rate of return on the larger cash balances that we've had in place. It's also the case that there is some geography within our statement because deferred comp was a positive for us below the line, that's an offsetting negative above the line in the quarter as well and so it's really the aggregation of those three things are those.

Jason M. Hollar: Service of all of those goals.

Speaker Change: Next question please sir thanks.

Speaker Change: Thanks, a lot Sir.

Speaker Change: Our next question will be coming from Elizabeth Anderson from Evercore ISI. Please go ahead. Your line is open.

Elizabeth Anderson: Hi, guys. Thanks, so much for the question.

Elizabeth Anderson: I have two sort of maybe more financial questions. Thanks, Mike can you talk to you soon.

Several things, which led to the results for the quarter and you asked about the financing as well and I should be I should be clear on a couple of things just as we think about our models going forward. We do have maturities coming in June and November we're assessing what our opportunities are there nothing to announce today in that respect that we will address that.

Elizabeth Anderson: Just expense actually had a pretty big step down just wanted to understand that in terms of that and you showed ongoing thoughts on the capital structure and can you also talk about why the free up about the free cash flow improvement that was nice to see that step up in the quarter as well in terms of the guidance.

At some point.

As we carry forward and there is also the case with our cash balances fluctuate seasonally in the back half as well and so we wouldn't expect the high balance to remain where it is just given the seasonal demands on the business.

Speaker Change: Sure happy to offer some perspective, we are quite pleased with the below the line results of course for the quarter.

Speaker Change: I'll start with the fact that as we announced we ended the quarter with $4 $6 billion of cash on hand and of course.

Next question please.

Speaker Change: That's driven by the strong cash generation, which was.

Yes, Sir.

Our next question is coming from Mr. Eric Percher of Nephron Research. Please go ahead.

Speaker Change: And part of your question, if you think back to our Investor Day, we had highlighted that further optimization of our cash.

Thank you on the medical side, it's hard to see through the one time items I wanted to ask what you can give us on the nature of those onetime items what that is.

So our position was something we were focused on doing and the team has delivered against those.

Trajectory looked like excluding one timers in the quarter and.

Speaker Change: Efforts internally and generated strong cash flow in the first half for the business. Thus the balance of course, the knock on consequence of that is when we have more cash on hand in particular and the higher interest rate environment, which we've been operating we will get a higher return rate and we have indeed.

Any views on the exit trajectory for the year and kind of going from $140 million first half to $2 42nd half how you are pacing relative to that.

Yeah.

Thank you.

Speaker Change: Benefited from.

We're really encouraged by the underlying performance in Q2 of the medical business and just to restate. The results here are the Q2 results were consistent with the expectations. We communicated several weeks ago at the Jpmorgan conference and generally consistent with Q1. Despite some of those adjustments that we took.

Speaker Change: Greater rate of return on the larger cash balances that we've had in place. It's also the case that there is some geography within our statement because deferred comp was a positive for us below the line.

Speaker Change: Offsetting negative above the line during the quarter as well and so it's really the aggregation of those three things are those several things, which led to the results for the quarter are you asked about the financing as well and I should be I should be clear on a couple of things just as we think about our models going forward. We do have maturities coming in June and November we're assessing what our.

We took in the quarter I want to emphasize that as you move away from the <unk>.

Adjustments that we took the underlying elements of the medical improvement plan. They're on track right. You heard some of my prepared remarks relative to our progress against the mitigation of inflation and how our cost structure is building the benefits of each actions, we've taken will benefit our cost structure in the back half of the year that you heard us announce that we had.

Speaker Change: <unk> are there nothing to announce today in that respect that we will address that.

Speaker Change: At some point.

Speaker Change: As we carry forward and there is also the case with our cash balances fluctuate seasonally in the back half as well and so we wouldn't expect the high balance to remain where it is just given the seasonal demands on the business.

<unk> growth for the first time in two years in the quarter as well and we were pleased with the Cardinal health brand growth that comes with that and the team continues to execute against the simplification initiatives that has been a core part of the medical improvement plan. All along so let me go back to where I started which is we were quite pleased with the operational performance.

Speaker Change: Next question please.

Speaker Change: Yes, Sir.

Our next question is coming from Mr. Eric Percher of Nephron Research. Please go ahead.

In the quarter.

Eric Percher: Thank you on the medical side, it's hard to see through the onetime items I wanted to ask what you can give us on the nature of those onetime items, what the trajectory looked like excluding one timers in the quarter and.

I also want to point out that from a guidance perspective.

While we updated the guidance for the year to reflect the nonrecurring the relative impact of the nonrecurring adjustments.

That was the that was the some change of the guidance to reflect that which is behind us not that which is ahead and if you think through how we have guided medical for the year. All along there has always been a very back half focused.

Any views on the exit trajectory for the year and kind of going from $140 million first half to $2 42nd half, how you're pacing relative to that.

Trajectory for our guidance here for the year and that remains unchanged along with how pleased we are with the core operational performance, yes, if I could just add when you think about that first half second half.

Eric Percher: Okay.

Speaker Change: Thank you.

Speaker Change: We're really encouraged by the underlying performance in Q2 of the of the medical business again, just to restate. The results here are the Q2 results were consistent with the expectations. We communicated several weeks ago at the Jpmorgan conference and generally consistent with Q1. Despite some of those adjustments that we took.

Cadence and why we still anticipate the same step up in the second half versus the first half there is theres a couple of key points.

Speaker Change: We took out a quarter I want to emphasize that as you move away from the.

First of all inflation mitigation. This is one where it's a significant part of that combined with Cardinal health brand volume growth, which I'll get to in a moment, but on the inflation mitigation.

Speaker Change: The adjustments that we took the underlying elements of the medical improvement plan. They're on track right. You heard some of my prepared remarks relative to our progress against the mitigation of inflation on how our cost structure is building the benefits of the actions we've taken will benefit our cost structure in the back half of the year that you heard us announce that we had.

Two elements, there's a cost side and then there's a price side in both cases, we have very good line of sight on the cost side as we've talked really for quite a while now it's been the international freight.

While we have a little bit of noise with the RNC it as largely as anticipated so and that cost is already on our balance sheet and is rolling through as expected, especially given our volumes have been as expected. So we have a very high line of sight and confidence in the cost is going to continue to step down in the second half of the year and then on the.

Speaker Change: Revenue growth for the first time in two years in the quarter as well and we were pleased with the Cardinal health brand growth that comes with that and the team continues to execute against the simplification initiatives that has been a core part of that medical prudent plan. All along so let me go back to where I started which is we were quite pleased with the operational performance.

Pricing side as we've talked before there is always the contract roll rolling.

Speaker Change: In the quarter.

Speaker Change: I also want to point out that from a guidance perspective.

Speaker Change: While we updated the guidance for the year to reflect the nonrecurring the relative impact of the nonrecurring adjustments.

Roll through that.

We then update the pricing on we do have.

A bit more at the beginning of the calendar year and some of those price adjustments. So January being behind US we have really good line of sight on the pricing side as well. So there is some some time now for the next couple of quarters needed to get that to roll through our income statement, but the actions now are largely behind us as it relates to inflation mitigation, we've always had confidence we would get.

Speaker Change: That was the that was the some change of the guidance to reflect that which is behind us not that which is ahead and if you think through how we have guided medical for the year. All along there has always been a very back half focused.

Speaker Change: Trajectory for our guidance for the year and that remains unchanged.

Speaker Change: Along with how pleased we are with the core operational performance, yes, if I could just add when you think about that first half second half.

To this stage, but we're now at this stage and have even more confidence actually seeing it start to come through in the second half of the year now the other component is the Cardinal health brand volume part of SME market driven in the market volume that utilization continues to be quite good and what was exciting about the second quarter is seeing that further inflection and actually participating.

Speaker Change: And why we still anticipate the same step up in the second half versus the first half there is theres a couple of key points.

Speaker Change: First of all inflation mitigation.

Speaker Change: This is one where it's a significant part of that combined with Cardinal health brand volume growth, which I'll get to in a moment, but on the inflation mitigation. There is of course two elements. There's a cost side and then there's a price side in both cases, we have very good line of sight on the cost side as we've talked really for quite a while now it's been the international freight.

And that and that market growth really for the first time.

The extent of what the market is growing so that gives us much greater confidence that we'll continue to see that growth in that stuff out as we as we get over the course of the year, but there are some variables like the market itself that will always be.

An impact here, good or bad that we'll continue to monitor and track. So those are the key points I would get us from the first half to second half.

Speaker Change: And that while we have a little bit of noise with the Red Sea is largely as anticipated.

Speaker Change: And that cost is already on our balance sheet and is rolling through as expected, especially given our volumes have been as expected. So we have very high line of sight and confidence in the cost is going to continue to step down in the second half of the year and then on the pricing side as we've talked before there is always the contract roll rolling.

Eric it's probably worth offering one.

Worth offering one additional point of perspective, we're not reporting on the <unk>.

New segment structure this quarter that will follow in Q3, but we can offer the observation that the <unk> core part of the medical business has operated at near breakeven levels in the first half of fiscal 'twenty four and I offer you that in contrast, with where they were from a fiscal 'twenty three perspective, and where we're going.

Speaker Change: Roll through that.

Speaker Change: He then update the pricing on we do have.

Speaker Change: Little bit more at the beginning of the calendar year and some of those price adjustments. So January being behind US we have really good line of sight on the pricing side as well. So there is some some time now for the next couple of quarters needed to get that to roll through our income statement, but the actions now are largely behind us as it relates to inflation mitigation, we've always had confidence we will.

From an overall guidance perspective, we view that as a key sign of positive progress.

Thank you gentlemen, safford jokes area. Our next question is going to be coming from Erin whites of Morgan Stanley. Please go ahead.

Great. Thanks on the drug pricing front <unk> continued to maintain generics as the key driver.

Speaker Change: Get to this stage, but we're now at this stage and have even more confidence actually seeing it start to come through in the second half of the year now the other component is the Cardinal health brand volume part of that's going to be market driven in the market volume that utilization continues to be quite good and what was exciting about the second quarter is seeing that further inflection in actually.

<unk> seen that easing deflationary dynamic that others have noted how material is that for you and also how sustainable is it.

What are some of the key drivers that youre looking at Darren and how are you thinking about that for the balance of the year as well as we think about the quarterly cadence here for that.

Speaker Change: <unk> in that market growth really for the first time.

U S pharma.

Speaker Change: At the extent of what the market is growing so that gives us much greater confidence that we'll continue to see that growth in that stuff out as we as we get over the course of the year, but there are some variables like the market itself that will always be in.

Pharma segment.

With the close of Daniel.

Appreciate the question, because we called out and commenting on the strong quarter that our pharma business had was that the continued consistent market dynamics within the generic space matched with volume a strong volume was a reason for one of the reasons for success during the business, we often talk about.

Speaker Change: An impact here, good or bad that we'll continue to monitor and track. So those are the key points I would get us from the first half the second half.

Speaker Change: Eric it's probably worth offering one.

The.

Eric Percher: It's probably worth offering one additional point of perspective, we're not reporting on the.

Two sides of the equation being imbalance and indeed, that's what we continue to see within our generic business and that is indeed, a core component of our guidance for the pharma.

Eric Percher: New segments structure this quarter that will follow in Q3, but we can offer the observation that the GMP deep core part of the medical business has operated at near breakeven levels in the first half of fiscal 'twenty four and I offer you that in contrast, with where they were from a fiscal 'twenty three perspective, and we're going.

As we carry forward one last reminder, I do want to remind that last quarter. We actually took our pharma guidance up from a profit perspective, two 7% to 9%. Thank you.

Thank you Sir.

Eric Percher: Going from an overall guidance perspective, we view that as a key side positive progress.

We'll now move to our <unk>, calling from Bank of America. Please go ahead.

Good morning, and thanks for taking the question can you talk about growth of SG&A in the quarter, you flagged incremental investments in the business and higher selling costs can you unpack exactly what those expenses are that how should we think about SG&A growth for the remainder of the year.

Eric Percher: Thank you very much gentlemen, separate drug carrier. Our next question is going to be coming from Erin whites of Morgan Stanley. Please go ahead.

Erin Wilson Wright: Great. Thanks.

Erin Wilson Wright: Pricing Frank you do continue to maintain generics is a key driver and are you still seeing that easing deflationary dynamic that others have noted queuing how material is that for you and also how sustainable what are some of the key drivers that youre looking at Darren and how are you thinking about that for the balance of the year as well so we think about it.

Happy to offer some perspective, we were pleased in the quarter to actually achieve operating leverage with gross profit growing faster than SG&A SG&A did grow of course volume also grew and so the primary component of our increase in costs was tied to the variable cost of serving higher volumes. It is also the case, though that as Jason has highlighted in.

Erin Wilson Wright: Quarterly cadence here for that.

Erin Wilson Wright: U S pharma.

Erin Wilson Wright: Pharma segment.

Erin Wilson Wright: With the Covid dynamic.

His strategic remarks, we are investing against our business and some of the SG&A growth was purposeful relative.

Darren: Appreciate the question, because we called out and commenting on the strong quarter that our pharma business had was that the continued consistent market dynamics within the generic space matched with volume strong volume was a reason for one of the reasons for success during the business, we often talk about.

Relative to the investments, we're making in places like Avista and other other elements of our growth plans by will end with the fact that we are very focused on SG&A.

As a whole and the team continues to look for further opportunities as we have in prior years to optimize our cost structure.

Darren: The.

Darren: Two sides of the equation being imbalance and indeed, that's what we continue to see within our generic business and that is indeed, a core component of our guidance for pharma.

Thank you Sir.

Well now move to Kevin Caliendo of UBS. Please go ahead.

Speaker Change: As we carry forward one last reminder, I do want to remind that last quarter. We actually took our pharma guidance up from a profit perspective, two 7% to 9%. Thank you.

Thanks, Thanks for taking my question.

<unk> can you give us an update on the progress of the United contract renewal.

Thank you Sir.

Timing any updates you have there and just a follow up on that SG&A question was there a purposeful investments made.

Speaker Change: We'll now move to a little that's calling from Bank of America. Please go ahead.

Speaker Change: Good morning, and thanks for taking the question can you talk about growth of SG&A in the quarter, you flagged incremental investments in the business and higher selling costs can you unpack exactly what those expenses are that how should we think about SG&A growth for the remainder of the year.

When you saw us or upside from interest and other things in SG&A in the quarter I'm, just trying to I'm trying to quantify how much was in the original plan versus maybe how much is incremental given some of the upside that you saw below the line.

Speaker Change: Happy to offer some perspective, we were pleased in the quarter to actually achieve operating leverage with gross profit growing faster than SG&A SG&A did grow of course volume also grew in sort of the primary component of our increase in cost was tied to the variable cost of serving higher volumes. It is also the case, though that as Jason has highlighted in.

Yeah sure I'll touch on both points here, there's no updates with the Optum contract that goes through this fiscal year and as I highlighted before they are a great customer of ours long standing customer and one that brings a lot of innovation to healthcare and one that we've worked very hard over.

The years to.

Speaker Change: His strategic remarks, we are investing against our business and some of the SG&A growth was purposeful relative.

Attempt to exceed their expectations and we think we're doing a great job of that.

And we'd love to keep working with them of course.

Speaker Change: Relative to the investments, we're making in places like Avista and other other elements of our growth plans by will end with the fact that we are very focused on SG&A.

Now I do get a lot of questions around the order of magnitude of this and I'm not going to go into details, but just a couple of points given the number of questions I've received as we have disclosed in the past and I think it comes through in every every changes the order of magnitude. So last year, they were over $30 billion customer of ours.

Speaker Change: As a whole and the team continues to look for further opportunities as we have in prior years to optimize our cost structure.

And I see a lot of people attempting to try to model out impacts and things of that nature.

Speaker Change: Thank you Sir.

Speaker Change: Well now move to Kevin Caliendo of UBS. Please go ahead.

Couple of things that Im not sure its real clear about the scope of business, we have with them today.

Kevin Caliendo: Thanks, Thanks for taking my question I have two can you give us an update on the progress of the United contract renewal.

It is a.

The majority of the revenue we have with them is through our base PD business.

A lot of that is mail order volume. So so what you have here are the typical markers of large customer PD majority and.

Kevin Caliendo: Timing any updates you have there and just a follow up on that SG&A question was there a purposeful investments made.

Kevin Caliendo: When you saw us or upside from interest and other things in SG&A in the quarter I'm, just trying to I'm trying to quantify how much was in the original plan versus maybe how much is incremental given some of the upside that you saw below the line.

No orders. So those are all markers of lower than average margin type of business and so we do have other other business with them of course, Duke's there are very large.

A lot of breadth into various parts.

The industry, but for us those tend to be a little bit of the overweight.

Speaker Change: Yeah sure I'll touch on both points here, there's no updates with the awesome contract that goes through this fiscal year and as I highlighted before they are a great customer of ours longstanding customer and one that brings a lot of innovation to healthcare and one that we've worked very hard over.

We support them.

As it relates to the SG&A I.

The only thing I would say is no.

It's not like that what we do is we look at the capabilities and the necessities needed. Both short term and long term short term is going to be on volume and making sure we can support our customers and.

Speaker Change: The years to.

Speaker Change: Attempt to exceed their expectations and we think we're doing a great job of that.

And getting that strong volume growth across the enterprise and in place.

Speaker Change: And we'd love to keep working with them of course.

Our.

Speaker Change: Now I do get a lot of questions around the order of magnitude of this and I'm not going to go into details, but just a couple of points given the number of questions I've received as we have disclosed in the past and I think it comes through in every.

Then looking to balance that with longer term investments, whether it's the newest of network, we've called out before as.

The investments, but we also have others that we went through during Investor day.

And have had a number of updates even today within our at home business. We have three new facilities that we're bringing online over the course of the next year or two within the medical distribution three facilities I talked about today, we have on the pharma side the consumer health.

Speaker Change: Every change is the order of magnitude so last year, they were over $30 billion customer of ours and I see a lot of people attempting to try to model out impacts and things of that nature.

Speaker Change: Couple of things that I'm not sure is real clear about the scope of business, we have with them today.

New Logistics center.

Speaker Change: It is a.

<unk>.

Also made some comments around some of the.

Speaker Change: The majority of the revenue we have with them is through our base PD business.

Capabilities within pharma and the E Commerce and Intelogic Keith.

Speaker Change: A lot of that is Nell order volume. So so what you have here are the typical markers of large customer PD majority and.

Capability. So we are investing where it makes sense efficiently very well aligned to our strategy and these are not investments that you can just turn on and off.

Speaker Change: No orders. So those are all markers of lower than average margin type of business and so we do have other other business with them of course, Duke's there are very large and have a lot of breadth into various parts of the industry, but for us those tend to be a little bit of the overweight.

So it's something that we're going to invest as appropriate, but only what we have to do as well we want to take away waste and invested where theres growth as the key objectives.

For those working on their models, it's probably worth pointing out that with respect to the Q2 profitability in the business. It was the case that last year, we called out.

Speaker Change: We support them.

Speaker Change: As it relates to the SG&A.

Unusual strength in the overall pharma demand, particularly from large customers as well as a very strong cough cold and flu season, so as youre looking at your comparisons keep that in mind.

Speaker Change: The only thing I would say is no.

Thank you, Sir ladies and gentlemen, if you ask a question has been answered you may remove yourself from the cubic questions start to.

Speaker Change: And getting that strong volume growth across the enterprise and in place.

We'll now move to Mr. George Hill of Deutsche Bank. Please go ahead.

Speaker Change: <unk>.

Speaker Change: Then looking into balance that with longer term investments.

Yes.

Good morning, Jason era, and forgive me if I kind of missed this or if you can just talk through this already but as it relates to the claimed restatement of the other segment. It looks like the growth in the near term is coming in the term that kind of the long term targets, which I kind of wonder if you could address kind of disaggregate, and which segments, which sub segments youre seeing softness relative to the long term expectations for.

Speaker Change: Other its notice of network, we've called out before as.

Speaker Change: Investments, but we also have others that we went through during Investor day.

Speaker Change: And have had a number of updates even today within our at home business. We have three new facilities that we're bringing online over the course of the next year or two within the medical distribution three facilities I talked about today, we have on the pharma side the consumer health.

The balance of the year or this year versus what you think kind of accelerates coming out and kind of closes the gap in the longer term guidance.

Speaker Change: New Logistics center.

Speaker Change: <unk>.

Speaker Change: I also made some comments around some of the IP.

The businesses that report through other for us going forward will be our at home business, our nuclear precision health business and our op team freight business. Those are what we have traditionally called our growth businesses as part of other segments and indeed over the long term, we expect the CAGR on there.

Speaker Change: Abilities within pharma and E Commerce and <unk>.

Speaker Change: Capability. So we are investing where it makes sense efficiently very well aligned to our strategy and these are not investments that you can just turn on and off.

Speaker Change: So it's something that we're going to invest as appropriate, but only what we have to do as well we want to take away waste and invested where theres growth is the key objective.

Collective growth to be 8% to 10%.

The disconnect Youre, referencing which is the 6% to 8% in fiscal 'twenty four is only driven by.

Speaker Change: For those working on their models, it's probably worth pointing out that with respect to the Q2 profitability in the business. It was the case that last year, we called out.

The nonrecurring the impact of the nonrecurring adjustments from Q2 on the at home business that we referenced a couple of weeks ago as we talked about our expectations for Q2 each of the businesses contribute to.

Speaker Change: Unusual strength in the overall pharma demand, particularly from large customers as well as a very strong cough cold and flu season, so as youre looking at your comparisons keep that in mind.

The revenue and profit growth for other for US is a carryforward and our earlier disclosures I think you can get pretty close we disclose the revenue of the individual pieces and indeed, we've talked about nuclear nuclear doubling its profit off of its fiscal 'twenty, one baseline by fiscal 2000, and <unk> as well I believe and so you can hear we're able to.

Speaker Change: Thank you, Sir ladies and gentlemen, if you ask a question has been answered you may remove yourself from the Cuba question can start too.

Speaker Change: We'll now move to Mr. George Hill of Deutsche Bank. Please go ahead.

Speaker Change: Yes.

George Hill: Good morning, Jason era, and forgive me if I kind of missed this or if you can just talk through this already but as it relates to the planned restatement of the other segment it looks like the growth in the near term is coming in but the kind of the long term targets, which I kind of wonder if you could address kind of where just segregate and which segments, which sub segments youre seeing the softness relative to the long term expectations for.

Get to that component of other through that.

Thanks next question please.

Yes, Sir we'll now take Stephen Baxter of Wells Fargo. Please go ahead Sir.

Yes, hi, good morning, Thanks for taking the questions a couple of quick ones.

Boxing commercial channel I think last quarter, you kind of indicated or implied but the contribution was around $25 million I was hoping you could update us on what the performance of this quarter and with the factoring anything in for the balance of the year.

George Hill: The balance of the year or this year versus what you think kind of accelerates coming out and kind of closes the gap in the longer term guidance.

George Hill:

George Hill: The businesses that report through other for us going forward will be our at home business, our nuclear precision health business and our op team freight business. Those are what we have traditionally called our growth businesses as part of other segments and.

And just sorry, one more time on non recurring medical adjustment can you just tell us on the $20 million, what does that actually represent in terms of the underlying economy and our business.

Thank you.

Yes.

For the vaccines, we just kind of walk through the last couple of quarters and that will give you a flavor.

George Hill: Indeed over the long term, we expect the CAGR on there.

George Hill: <unk> growth to be 8% to 10%.

The benefits.

The trends and such so as we when we talked last quarter.

Speaker Change: The disconnect Youre, referencing which is the 6% to 8% in fiscal 'twenty four is only driven by.

We've highlighted in Q1 with the FDA approval at the beginning of September we were stage to hit the ground running and we had fairly significant volume in that first quarter, but as anticipated. We indicated at that point that we would expect it to peak within within Q2, and so we expected higher.

Speaker Change: The nonrecurring the impact of the nonrecurring adjustments from Q2 on the at home business that we referenced a couple of weeks ago as we talked about our expectations for Q2.

Speaker Change: Each of the businesses contribute to the.

Speaker Change: The revenue and profit growth for other for US is a carryforward and our earlier disclosures I think you can get pretty close we disclose the revenue of the individual pieces and indeed, we've talked about nuclear nuclear doubling its profit off of its fiscal 'twenty, one baseline by fiscal 2000, and <unk> as well I believe and so you can hear we're able to.

Higher volume higher contribution in Q2 versus Q1 and that was because we saw October as the largest month within that season, and then as expected we saw that.

Wind down over the course of November and December.

Speaker Change: Get to that component of other through that.

<unk> seen some level of volume in Q3, but I would expect it to be quite insignificant compared to what we saw in Q1 and Q2.

Speaker Change: Thanks next question please.

Speaker Change: Yes, Sir we'll now take Stephen Baxter of Wells Fargo. Please go ahead Sir.

Overall I think the key message is that this is consistent with our expectations as Aaron highlighted.

Stephen Baxter: Yes, hi, good morning, Thanks for the questions a couple of quick ones on Covid vaccine commercial channel I think last quarter, you kind of indicated or implied.

In his comments already we had multiple drivers of growth for the pharma segment in the second quarter.

Stephen Baxter: One was around $25 million I was hoping you could update us on what the performance was in this quarter and with the factoring anything in for the balance of the year and then just sorry, one more time on non recurring medical adjustment can you just tell us on the $20 million, what does that actually represent in terms of the underlying economy.

It was strength with the generics program within brand it was COVID-19 driving that component and then we have these investments in primarily the cost to serve.

Partial offsets to those other two drivers so overall Phil Phil.

Stephen Baxter: Yes.

Stephen Baxter: Yeah.

Stephen Baxter: Yes, so for the vaccine can you just kind of walk through the last couple of quarters and that will give you a flavor of.

Feel good about.

The overall health of the business and the contribution of Covid within it.

And it comes from.

Stephen Baxter: The benefits.

With respect to the nonrecurring adjustments.

Stephen Baxter: The trends and such so as we when we talked last quarter.

We previewed this back at the Jpmorgan conference.

Stephen Baxter: As highlighted in Q1 with the FDA approval.

When we updated our commentary around the <unk>.

Stephen Baxter: Beginning of September we were stage to hit the ground running and we had fairly significant volume in that first quarter, but as anticipated. We indicated at that point, we would expect it to peak within within Q2, and so we expected higher higher volume higher contribution in Q2 versus Q1 and that was because.

Medical business and our comment that as our coming out which is as we have continued to dig deep across the portfolio.

Taken a decision to take some nonrecurring adjustments, which the majority of which hit the <unk>.

At home business, which now reports or will report as part of other in Q3 as well as <unk>.

Hitting the wave market business, which is part of <unk>, which is part of the new GM PD business. So.

Stephen Baxter: We saw October as the largest month within that season, and then as expected we saw that.

If you read through the update to our guidance for the year, where we moved from approximately 400 to approximately $3 80, driven by the impact of the nonrecurring adjustments you can reach your own conclusions as to the relative quantification and the distribution given those comments. Thanks.

Stephen Baxter: Wind down over the course of November and December still seeing some level of volume in Q3, but I would expect it to be quite insignificant compared to what we saw in Q1, and then Q2.

Stephen Baxter: Overall I think the key message is that this is this is consistent with our expectations and as Aaron highlighted.

Thank you Sir.

Our next question is coming from Charles ROI array of TD Cowen. Please go ahead.

Stephen Baxter: In his comments already we had multiple drivers of growth for the pharma segment in the second quarter.

Yes, thanks for taking the question just wanted to follow up.

On a constant there on the vaccine impact.

Stephen Baxter: It was strength with the generics program within brand it was COVID-19 driving that component and then we have these investments in primarily the cost to serve.

And Youre, saying that you expected to peak in the December quarter would you say that the contribution from vaccine was higher than in the first quarter given that you had still still three months of overall and.

Stephen Baxter: Partial offsets to those other two drivers so overall Phil Phil.

Stephen Baxter: Still good about.

And if we look at that.

The overall health of the business and the contribution of Covid within it.

Yes.

Relative to what you had expected.

Stephen Baxter: And it comes from that with respect to the nonrecurring adjustments.

The higher cost that you incurred.

Did you use that to.

Stephen Baxter: We previewed this back at the Jpmorgan conference and when we updated our commentary around the.

<unk> those kind of investments just wanted to get a sense on relative contribution.

Yes, as I highlighted in October was the peak month and since we only had a partial September is clearly higher in Q2 and in Q1. We did have November December contributions as well, but it really tailed off by the time, we got to the end of the quarter and Thats why you would expect it to be very little let's just typical for vaccines in general.

Stephen Baxter: The medical business and our comment that are coming out which is as we have continued to dig deep across the portfolio.

Stephen Baxter: Taken a decision to take some nonrecurring adjustments, which the majority of which hit the.

Stephen Baxter: At home business, which now reports or will report as part of other in Q3 as well as <unk>.

Stephen Baxter: Ponant hitting the wave market business, which was part of <unk>, which is part of the new GMP D business. So.

So theres nothing were seeing there and again I think the way you asked the question around the funding of investments I'll just go back to my prior answer to that question.

Stephen Baxter: If you read through the update to our guidance for the year, where we moved from an approximately 400 to approximately $3 80, driven by the impact of the.

There were.

Costs associated.

With the vaccine rollout as you could imagine that a lot of volume to ramp up for really two months worth of support our team did a fantastic job working with the manufacturers and our customers to play that role when we were not involved in that.

Stephen Baxter: The nonrecurring adjustments you can reach your own conclusions as to the relative quantification.

Stephen Baxter: The distribution given those comments.

Speaker Change: Thank you Sir.

Speaker Change: Our next question from Charles ROI array of TD Cowen. Please go ahead.

Vaccine distribution before for Covid, So I feel very good about our role and we did have to incur costs associated with the ramp up and ramp down in such a short period of time, but that was not necessarily used as currency to fund other programs with other programs are important strategically and all very consistent with.

Charles: Yes, thanks for taking the question just wanted to follow up.

Charles: This comes from there on the vaccine impact.

Charles: I understand youre, saying that you expected to peak in the December quarter.

Charles Rhyee: Would you say that the contribution though from vaccine was higher than in the first quarter given that you had still still three months of overall and.

The plans and the actions and the forecast we've laid out here so theres no.

Speaker Change: And if we look at that.

No changes as it relates to how we're approaching these both short term requirements as well as long term investments probably worth emphasizing Jason's point is that September and October were the high points for corporate for us from a distribution perspective quickly tailing off thereafter.

Speaker Change: Yeah.

Speaker Change: Relative to what you had expected the.

Speaker Change: The higher cost that you incurred.

Speaker Change: Did you use that to.

Those kind of investments just wanted to get a sense on relative contribution.

Speaker Change: As I highlighted in October was the peak month and since we only had a partial September is clearly higher in Q2 than in Q1. We did have November December contributions as well, but it really tailed off by the time, we got to the end of the quarter and that's why you would expect it to be very little let's just typical for vaccines in general so.

Thanks next question please.

Thank you gentlemen, and our last question today will be coming from Mr. Daniel gross slate of Citi. Please go ahead Sir.

Hi, guys. Thanks for taking the question just go back quickly to the medical profitability question and confirm one thing that.

Speaker Change: There's nothing we're seeing there and again I think the way you asked the question around the funding of investments I'll just go back to my prior answer to that question.

That $20 million, one time item that was wholly kind of concentrated this quarter. So without that the medical profitability would have been around $90 million and then on your commentary around shipping rates coming down and benefiting you and the volatility in the Red Sea. If you look.

Speaker Change: There were.

Speaker Change: Costs associated.

Speaker Change: With the vaccine rollout as you could imagine that a lot of volume to ramp up for really two months worth of support our team did a fantastic job working with the manufacturers and our customers to play that role when we were not involved in.

The China to West coast shipping rates, they have spiked materially in January so I'm wondering how I guess a couple of things there one how that may kind of roll through your contracts.

Speaker Change: The vaccine distribution before Covid, so I feel very good about our role and we did have to incur costs associated with the ramp up and ramp down in such a short period of time, but that was not necessarily used as currency to fund other other programs with both programs are important strategically and all very consistent with.

And then given that you capitalize those costs and expense it over two to three quarters post those those costs being capitalized how that might impact the cadence of your medical improvement plan in fiscal 'twenty five.

Speaker Change: With the plans and the actions and the forecast we've laid out here. So theres no no changes as it relates to how we're approaching these both short term requirements as well as long term investments probably worth emphasizing that Jason's point is that September and October were the high points for corporate for us from a.

So in the first half of the question you are thinking about things correctly I'll go back and emphasize we were really pleased with the operational performance of the business and given that we've adjusted our yearly guidance just to reflect the impact of the nonrecurring adjustments in Q2 your conclusion on the math would be reasonable.

Speaker Change: <unk> perspective quickly tailing off thereafter.

The second component you're correct shipping rates have spiked I think the word you used was materially and Hollywood.

Speaker Change: Thanks next question please.

Daniel Gross: Thank you gentlemen, our last question today will be coming from Mr. Daniel gross slate of Citi. Please go ahead Sir.

How I would characterize it as yes, that's accurate, but substantially less materially than where they were in the past. So the the order of magnitude. We're talking about is vastly smaller is is also something that we do not believe that that will be the permanent level.

Daniel Gross: Hi, guys. Thanks for taking the question.

Daniel Gross: Just go back quickly to the medical profitability question and confirm one thing that.

Speaker Change: That $20 million, one time item that was wholly concentrated this quarter so without that the medical profitability would have been around $90 million and then on your commentary around shipping rates coming down and benefiting you and the volatility in the Red Sea. If you look.

Yes, we have more flexibility in our contracts and that will continue to be a lever in a component that we will be evaluating determining on whether how permanent. These are not I would also say that our.

Maturity our capability within this space has substantially improved as well as we've invested in the underlying processes and procedures to manage through these types of.

Speaker Change: The China to West coast shipping rates, they have spiked materially in January so I'm wondering how.

And the type of volatility.

So.

Speaker Change: Yes, a couple of things there one how that may kind of roll through your contracts.

Overall, we feel very good about where we stand.

And.

Speaker Change: And then given that you capitalize those costs and expense it over two to three quarters post those costs being capitalized how that might impact the cadence of your medical improvement plan in fiscal 'twenty five thank you.

Generally don't see this being as a material item, but we'll continue to watch it closely.

Thank you and what's your ladies and gentlemen that will conclude today's Q&A session I turn call back over to Mr. Jason Hollar for any additional or closing remarks. Thank you.

Speaker Change: So the first half of that question you are thinking about things correctly I'll go back and emphasize we were really pleased with the operational performance of the business and given that we've adjusted our yearly guidance just to reflect the impact of the nonrecurring adjustments in Q2 your conclusion on the math would be reasonable.

Yes, thanks, everyone for joining us. This morning, we're clearly excited about the momentum that we have in our business. Both the shorter term operational elements that we've talked a lot about today, but also about the longer term strategy with the announcement of specialty networks. This week. It just highlights that we're looking and acting both short term and long term and are really excited about the opportunity still in front of us.

Speaker Change: The second component you are correct that shipping rates have spiked I think the word you used was materially and Hollywood.

So thanks again for joining us today and have a great day.

Speaker Change: How I would characterize it as yes, that's accurate, but substantially less materially than where they were in the past. So the the order of magnitude. We're talking about is vastly smaller it is.

Thank you Sir.

Ladies and gentlemen.

Accomplished thank for your attendance you may disconnect good day and goodbye.

Speaker Change: Also something that we do not believe that that will be the permanent level.

Speaker Change: Yes, we have more flexibility in our contracts and that will continue to be a lever in our component that we will be evaluating determining on whether how permanent is ahronot I would also say that our.

Speaker Change: Maturity our capability within this space has substantially improved as well as we've invested in the underlying processes and procedures to manage through these types of.

Speaker Change: And the type of volatility.

Speaker Change: So.

Speaker Change: We're all we feel very good about where we stand.

Speaker Change: And.

Speaker Change: Generally don't see this being as a material item, but we'll continue to watch it closely.

Speaker Change: Thank you and what's Sir ladies and gentlemen that will conclude today's Q&A session I can call back over to Mr. Jason Hollar for any additional or closing remarks. Thank you.

Jason M. Hollar: Yes, thanks, everyone for joining us. This morning, we're clearly excited about the momentum that we have in our business. Both the shorter term operational elements that we've talked a lot about today, but also about the longer term strategy with the announcement of specialty networks. This week. It just highlights that we're looking and acting both short term and long term and are really excited about the opportunity stone.

Speaker Change: So thanks again for joining us today and have a great day.

Thank you Sir.

Speaker Change: Ladies and gentlemen.

Accomplish it. Thank you for your attendance you may disconnect good day and goodbye.

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