Q4 2024 Cencora Inc Earnings Call
Hello everyone and thank you for your patience. Today's Sen Cora Q4, full year 2020, for earnings call will begin shortly. During today's call we will have a Q&A session. If you would like to register a question please press star, follow by one on your telephone keypad and if you wish to withdraw your question then it's star, follow by two. Thank you.
Drew: Hello everyone and welcome to today's Sun Coral Q4 full year 2020 for earnings coup. My name is Drew and I'll be the operated today.
During today's call there will be a Q&A session. If you wish to ask a question, please press star, follow by one on your telephone keypad. And if you wish to withdraw your question then it is star, follow by two.
On our handover to our first speaker, Bennett Murphy, please go ahead when you're ready.
Drew: Thank you for your afternoon. Thank you all for joining us with Combs Colis Cuts. St. Corres fiscal 2024, fourth quarter employee results. I am Bennett Murphy, senior vice president, head of Investorations in Treasury.
Drew: and joining me today our Bob Mauch, President and CEO, and last Concordion, Senior Vice President and Chief Accounting Officer. On today's call we will be discussing non-gap financial measures. Reconciliation is at these measures to get our provided in today's press release, which is available on our website at investor.sinkora.com.
We have also posted a slide presentation to accompany today's press release on our investor website.
Drew: During this conference call we will make forward looking to do this about our business and financial expectations on adjusted non-gap basis.
including without limited to EPS, Auburn and coming in come-to-act.
Drew: For looking at statements, our base on management current expectations are on and are in subject to uncertainty and change. For discussion of key risk in assumptions, we refer you to today's press release and our SEC filings, including our most recent 10K.
Cinquaurus seems no obligation to update any four-looking statements and it's called Cannot be broadcast without the express permission of the company.
Drew: You have an opportunity to ask questions after today's remarks by Management. We ask that you limit your questions to one per participant in order for us to get to as many participants as possible within the hour. With that, I'll turn the call over to Bob.
Bob: Thank you, Bennett. Hi everyone, and thank you for joining St. Chorus, fiscal 2024 for quarter earnings call.
Drew: Before we get started today, I'd like to let everyone know that our CFO Jim Cleary has been under the weather for the past few days after successfully and impressively completing the New York City marathon.
Jim is unable to join the call today, but he was part of preparing today's remarks, which will be presented by our chief accounting officer, Lars Krakorean. We wish Jim a speedy recovery, and I know he's looking forward to engaging with everyone in the coming weeks.
Speaker Change: It's a pleasure to be speaking with you today for the first time since assuming the role a president and CEO of this incredible company. To discuss the strong results, our global enterprises delivered this year, including growing our adjusted earnings by 15%.
Speaker Change: I'm honored to take the helm of a purpose-driven growth-oriented business with an unparalleled portfolio of customers ranging from pharmaceutical companies to healthcare providers across continents.
Drew: I'm focused on continuing to execute our strategy while amplifying the things within our culture that have made us successful.
Drew: In fiscal 2024, St. Kork continued to benefit from the strength of our customer relationships. The capabilities of our business, our international footprint, and the collective expertise of our team members.
Drew: This year we made important progress by investing in our core distribution infrastructure, deepening strategic partnerships, leveraging data and analytics and continuing to build on our strength and specialty.
Drew: Specialty has been a key differentiator for St. Cole Ruffford decades.
Drew: and specialty pharmaceuticals are now everywhere across our business and a important part of almost every customer relationship.
Drew: As we engage with customers, they are focused on specialty products and house and quoric and help them.
Drew: This is true for physicians, health systems, specialty pharmacies, and now also for community pharmacies as patients are accessing GLP1s locally.
Drew: Well, GOP1's represent economic challenges in the pharmaceutical supply chain.
Drew: and they are an important innovation and pharmacist handling these products are helping to drive positive outcomes for patients, particularly those with calmorevitities, which is an important proof point for the industry.
Drew: Pharmaceutical Innovation continues to advance patient care and St. Kora has the capabilities and resources to enable us to partner with our leading customers upstream and downstream.
Drew: In fiscal 2023, we talked about how our investment in one oncology was a natural evolution of our leadership and specialty.
Drew: As the addition of a management services organization for MSO in the oncology space, expanded the solutions we provide and a important community provider customer base.
Drew: This morning, I'm excited to talk about our agreements to acquire retina consultants of America or RCA, a clear leader in the retina MSO space, which broadens our community provider relationships and a high-growth segment.
Drew: In addition to being a proven established MSO, RCA has differentiated clinical research capabilities that we believe will build on St. Corres' value proposition to Pharma.
Drew: Supporting innovative new therapies and furthering our ability to contribute to better outcomes for patients.
Drew: This acquisition fits squarely in St. Cours, Pharmaceutical Centric Strategy.
Drew: and further our ability to execute on our strategic imperatives of leading with market leaders, investing in innovation, contributing to prescription outcomes, and expanding on our leadership and specialty.
Drew: We've developed deep relationships with our CAs leadership over the years as we serve their practices.
Drew: Their clinical excellence and focus on pharmaceutical innovation, aligned closely with St. Corrace Purpose and Strategy.
Community providers face an increasingly complex operating environment. By aligning with Sincora, a partner that supports the voice and leadership of physicians, they are better able to navigate changes, advance their growth, and focus on providing patient care.
Drew: St. Coris Global Distribution Infrastructure is the backbone of our business.
Drew: We continue to invest in our distribution centers to support the logistics needs presented by pharmaceutical innovation and focus on utilizing technology to create actionable data and insights for our partners.
Drew: In the US, we've made investments in our distribution infrastructure to support the increasing amount of temperature control volume we handle and to increase the level of granularity, on traceability and product-specific movement.
Drew: Through our data-driven approach, we're focused on creating actionable insights that allow manufacturers to strengthen their processes
Drew: increase efficiencies and comply with the latest industry regulatory standards.
Drew: This is an example of Sankor's forward-thinking mindset and ability to not only adapt to industry changes but capitalize on and expand the role we play.
Drew: Healthcare is dynamic, which creates opportunities for us to leverage our growing strengths and expertise to advance clinical and business objectives of our customers.
Drew: By aligning ourselves with the right strategic partners,
Drew: and Prioritizing Key Markets.
Drew: were able to grow with our customers and develop innovative solutions.
Drew: Listening and Responding to Customers as Table Stakes
Drew: We will actively learn, understanding deeply the strategies of our partners, allowing us to anticipate their needs, both opportunities and challenges they are facing now and into the future.
Drew: As an example, for our health systems customers, we have enhanced the services we provide to help accelerate pharmacy solutions by developing a unified portfolio to optimize operations.
Drew: improve financial performance, and expand care.
Drew: One example of our enhancements is the increased support we now offer during the procurement process.
Drew: These enhanced services leverage advanced analytics to provide customer transparency, opportunities to drive product and cost efficiency, and evaluate and mitigate risk, all to enhance the customer experience.
Michael Cherny: Michael Cherny, David
Drew: Internationally, we've been strategically investing in the distribution center network of our European wholesale and 3PL businesses to increase the level of automation and enhance our capabilities to improve business continuity.
Drew: Outside of distribution, our global specialty logistics business continues to navigate a challenging market, operating efficiently while we continue to invest in solutions to support clinical innovation across geographies.
Drew: And unfortunately, as you saw in the earnings release this morning, we took a goodwill impairment on our Pharmalex business.
Drew: The business growth is not keeping up with our original expectations as the outsourced pharma services market faces broader demand challenges.
Drew: Pharmalex remains a key long-term strategic asset and our ability to differentiate our commercialization solutions with our pharma and biotech partners and we are confident in our ability to grow the business.
Drew: As the market rebounds, we are positioned as a partner of choice to enhance new product development and commercialization through a compelling suite of services from clinical trial support to regulatory, scientific affairs, and pharmacovigilance.
Drew: Specialty Logistics, Market Access, as well as our 3PL and Distribution Reach across continents.
Drew: I'm confident in SENCOR's ability to drive success across our enterprise because of the strength of our talent.
Drew: I want to take a moment to thank the Global Synth Cora team members who drive our business objectives, capture opportunities with our partners and customers through their close collaboration, and perform their work with a purpose-driven mindset.
Drew: I'm honored to be working alongside and learning from each of our team members whose expertise and excellence in their work drive us forward.
Drew: Our most important investment is in our people, and I've seen how diverse teams with differing perspectives create the best results.
Drew: So, as we think about fiscal 2025 and the future of Sankora, we will prioritize building on our strong team to continue our track record of impressive performance.
Drew: Our Enterprise Leadership Team's responsibility is to equip our team members with resources to perform best-in-class work, and I'm committed to supporting them.
Drew: Having been in this role for a little over a month now, I'm continuously asked, what's next for Sankora?
Speaker Change: Suncor is an incredible purpose-driven company guided by a differentiated strategy, culture, and a portfolio of solutions across geographies which has allowed us to build strategic customer partnerships and consistently deliver strong results.
Speaker Change: Thinking about fiscal 2025 and beyond, we will continue to lead with a customer-centric approach.
Drew: take on an enterprise-powered mindset and focus on innovation, which will ensure our differentiated value proposition remains intact and accelerates our position as a leader in health care.
Drew: On the talent side, we have strong leadership and we've taken steps to evolve the leadership team to help deliver on this focus.
Drew: adding new external hires including a new chief data and information officer as well as a new head of strategy and corporate development.
Drew: We've also elevated existing commercial leaders to ensure that we continue to bring the voice of the customer to the table.
Drew: In closing, Suncor has an incredible foundation built on the strength of our strategy.
Speaker Change: We're well positioned in key services and solutions with our core and pharmaceutical distribution and complementary services for our upstream and downstream customers.
Speaker Change: Our global operations allow us to integrate our solutions across the markets we serve to create differentiated capabilities.
Speaker Change: I'm inspired by our team members' pride in their work and deep dedication to our purpose.
Drew: We are united in our responsibility to create healthier futures.
Drew: With that, I'll now turn the call over to Laz for an in-depth review of fourth quarter and full year Fiscal 24 results, as well as Fiscal 2025 guidance. Laz?
Laz: Thanks Bob. Good morning and good afternoon everyone. It's an honor and a privilege to fill in today as Jim continues to recover. We all know Jim so we all know he is listening to the call right now and I will try my best to do him proud.
Laz: Before I turn to a review of our fourth quarter and full fiscal year results,
Laz: As a reminder, my remarks will focus on our adjusted non-GAAP financial results, unless otherwise stated. For a detailed discussion of our GAAP results, please refer to our earnings press release and presentation.
Drew: Throughout Fiscal 2024, Sankora has demonstrated our ability to capitalize on the opportunities presented to us by our pharmaceutical-centric strategy, long-lasting customer relationships, and robust solutions.
Laz: and the fourth quarter was a continuation of our momentum as we finished the year strong.
Laz: Driven by the strength of our business and execution of our team members, we delivered adjusted diluted EPS of $3.34 in the fourth quarter.
Laz: representing a 17% increase compared to the prior year quarter and full fiscal year 2024 adjusted diluted EPS of $13.76, a 15% increase compared to the prior fiscal year.
Drew: turning now to an in-depth review of our fourth quarter results compared to the prior quarter.
Drew: Consolidated revenue was $79.1 billion, up 15%, driven by growth in both reportable segments.
Drew: as the U.S. Healthcare Solutions Segment continues to see strong SCRIPT utilization and the International Healthcare Solutions Segment benefited from growth at our European and Canadian businesses.
Drew: Now moving to gross profit. Consolidated gross profit was 2.5 billion dollars up 7% due to gross profit growth in the US healthcare solution segment.
Drew: Consolidated gross profit margin was 3.1%, a decrease of 24 basis points compared to the prior year quarter due to higher growth in our U.S. health care solutions segment, which has lower gross profit margin than our international health care solution segment.
Drew: Additionally, our U.S. healthcare solutions gross profit margin experienced continued pressure from increased sales of low margin GLP-1 products
Drew: and a lack of sales in the current year quarter of exclusive COVID-19 therapies which had higher gross profit margins.
Drew: Consolidated operating expenses were 1.6 billion dollars up 7% as a result of higher distribution selling and administrative expenses in the quarter to support our revenue growth.
Drew: Turning now to Operating Income.
Drew: Consolidated operating income was $851 million, up 6% compared to the prior year quarter.
Drew: The increase in operating income was driven by strong growth in the U.S. healthcare solutions segment, partially offset by decline in the international healthcare solutions segment, which I will discuss in more detail when reviewing the segment level results.
Drew: Moving now to our net interest expense for the fourth quarter.
Drew: Net interest expense was $21 million, a decrease of 66%, driven by strong free cash flow, enabling an increase in interest income as a result of higher investment rates and investment cash balances in the quarter.
Drew: and a decrease in interest expense due to lower foreign subsidiary borrowings and the September 2023 divestiture of our less-than-wholly-owned subsidiary in Egypt.
Drew: Thank you.
Drew: Our effective tax rate in the fourth quarter was 20.3% compared to 21.6% in the prior year quarter, bringing our full year 2024 effective tax rate down to 20.8%.
Drew: Finally, our diluted share count was 198.1 million shares, a 3% decrease compared to the prior year fourth quarter.
Drew: driven by approximately $500 million of opportunistic share repurchases in the quarter, including a $250 million share repurchase from Walgreens Boots Alliance in August as they sold all of their remaining unencumbered shares.
Drew: This completes the review of our consolidated results. Now, I will review our segment results for the fourth quarter, beginning with the U.S. Healthcare Solutions segment.
Drew: The U.S. healthcare solution segment revenue was $71.7 billion, up 16% versus the prior year, reflecting strong prescription utilization trends, including sales of GLP-1 products.
Drew: increased sales of specialty products to physician practices and health systems and growth in sales to our largest customers, all of which was partially offset by the January 1st manufacturer price reductions in certain product classes.
Drew: In the quarter, sales of GLP-1 products were up $3.1 billion, representing a 55% increase compared to the prior quarter and a sequential increase of 14% from the June quarter.
Drew: excluding sales of GLP-1 products, fourth quarter revenue growth would have been approximately 10%.
Drew: U.S. healthcare solution segment operating income increased by 10% to $697 million driven by increased volumes across our distribution businesses stemming from strong utilization trends.
Drew: In the quarter, we continue to see strong demand for specialty products from physician practices and health systems, outpacing overall prescription market growth.
Drew: Moving to the international health care solution segment, in the quarter international health care solutions revenue was $7.4 billion, an increase of almost 6% on an as-reported basis, an increase of 8% on a constant currency basis.
Drew: International Healthcare Solutions Segment operating income was $154 million.
Drew: A 9% decrease on an as-reported basis and an 8% decline on a constant currency basis
Drew: due to higher information technology expenses at our European distribution business and lower operating income in our Canadian business, all of which was partially offset by positive operating income results at our global specialty logistics business.
Speaker Change: As Bob mentioned, and as noted in our press release, our GAAP operating income results for the fourth quarter include a $418 million goodwill impairment relating to Formule X.
Drew: as a result of the business not keeping up with our original expectations as the industry experiences broader pressures due to lower demand from pharma and biotech for outsourced services.
Drew: Pharmalex remains a strategic asset for Syncor and we expect the business to continue to be a key component of our commercialization services value proposition for our upstream partners.
Drew: Please note that this one-time item only impacts GAP results and is excluded from our non-GAP adjusted results for the quarter.
Drew: That concludes my discussion of our fiscal fourth quarter financials.
Drew: Now, I will turn to our full year fiscal 2024 results compared to the prior year, beginning with revenue.
Drew: Our consolidated revenue is $294 billion, up 12%, driven by growth of 13% in the U.S. healthcare solutions segment and 4% growth in the international healthcare solutions segment.
Drew: Consolidated operating income was 3.6 billion dollars, an increase of 11% due to growth in both the U.S. healthcare solution segment and the international healthcare solution segment.
Drew: From a segment perspective, U.S. health care solutions had operating income growth of 13% driven by increases in sales of specialty products to physician practices and health systems, increased sales to our largest customers, and commercial COVID-19 vaccines.
Drew: As a reminder, commercial COVID-19 vaccines drove the higher year-over-year operating income growth in the first half of fiscal 2024.
Drew: International Healthcare Solutions had operating income growth of 3% on an as-reported basis, driven by increases at our Canadian business, our global specialty logistics business, and our less-than-wholly-owned Brazil full-line distribution business.
Drew: partially offset by foreign currency pressure and higher information technology operating expenses in our European distribution business.
Drew: On a constant currency basis, the segment delivered 9% operating income growth.
Drew: Rounding out the discussion of our full-year fiscal 2024 results, we generated 3.1 billion dollars of adjusted fee cash flow and ended the year with cash balance of 3.1 billion dollars as we experienced better than expected quarter-end receipts.
Drew: In fiscal 2024, we returned $1.9 billion to shareholders through a combination of dividends and share repurchases.
Drew: including 1.5 billion dollars in opportunistic share repurchases.
Drew: This morning we announced our 20th consecutive annual dividend increase as our Board of Directors approved an 8% increase to our quarterly dividend. This is 3% higher than our previous annual dividend increases of 5%.
Drew: and aligns with our long-term guidance of 8% to 12% adjusted diluted EPS growth.
Drew: This completes the review of our full fiscal year results.
Drew: Turning now to discuss our fiscal 2025 guidance expectations.
Drew: As a reminder, we do not provide forward-looking guidance on a gap basis, so the following metrics are provided on an adjusted, non-gap basis.
Drew: I will also provide certain guidance metrics on a constant currency basis. We have also provided a detailed overview of guidance metrics on slides 11 and 12 of our earnings presentation.
Drew: First, I will start with adjusted diluted EPS and then provide greater detail on the components of our earnings growth and financial expectations for the fiscal year.
Drew: In fiscal 2025, we expect adjusted diluted EPS to be in the range of $14.80 to $15.10.
Drew: representing growth of 8% to 10% at or above our preliminary implied guidance provided in early September due to opportunistic share repurchases in September and October and continuing momentum in the business.
Drew: As stated in our press release this morning, our fiscal 2025 guidance does not include the impact of the RCA acquisition, which will be incorporated into our expectations following the transaction close.
Drew: As a reminder, in fiscal 2025, we continue to expect year-over-year headwinds from
Drew: COVID products, including a headwind from commercial COVID vaccines in the first half of fiscal 2025, a six-cent headwind from exclusive COVID therapies in the first quarter of fiscal 2025,
Drew: and the potential June 2025 loss of an oncology customer due to its previously announced pending acquisition.
Drew: All of these factors remain largely unchanged from our preliminary guidance expectations and are offset by our momentum and business initiatives.
Drew: Moving to revenue, we expect consolidated and segment growth rates to be in the range of 7% to 9%, reflecting continued growth across both segments.
Drew: Turning to operating income, we expect consolidated and segment operating income growth rates to be in the range of 5% to 6.5%.
Drew: At the segment level, we expect U.S. healthcare solution segment operating income to benefit from continued pharmaceutical utilization trends.
Drew: growth in key markets and internal efficiencies, more than offsetting COVID-related headwinds, and a potential loss of an oncology customer in the fourth quarter of fiscal 2025.
Drew: For the international solutions segment, operating income is expected to benefit due to growth from its key businesses and a lower information technology expense growth rate.
Drew: Now moving to interest expense. We expect our interest expense to be between $150 million and $170 million based on our stand-alone operating expectations, which do not include the potential impact from financing the RCA acquisition.
Drew: Turning to income taxes, we expect our effective tax rate to be approximately 21% for fiscal 2025.
Drew: Moving now to share count. We expect that our full year average share count will be approximately 196 million shares in fiscal 2025.
Drew: reflecting the impact of our significant share repurchase activity over the last 12 months including over 600 million dollars in repurchases since mid September.
Drew: regarding our capital expenditure expectations. In fiscal 2025, we expect capital expenditures to be approximately $600 million, a modest increase in comparison to fiscal 2024, as we continue to invest in our business to support growth and to increase the strength of our infrastructure.
Drew: Thank you.
Drew: As it relates to free cash flow, we expect full-year adjusted free cash flow to be in the range of $2 billion to $3 billion, due primarily to timing and mix.
Drew: We continue to generate strong free cash flow to support our growing dividend and continue to execute our capital allocation priorities to contribute to the growth of our business.
Drew: This morning's announcement of RCA is an example of that, as it clearly fits our pharmaceutical-centric strategy, builds on our MSO solutions, and hits on Sancor's strategic imperatives, which are key to our past and future success.
Drew: As was stated in this morning's releases,
Drew: The fiscal 2025 guidance we are presenting this morning does not currently include the impact of the RCA acquisition, which will be incorporated into expectations following the transaction close.
Drew: We plan to fund the transaction through a combination of debt and cash on hand.
Drew: Given the recent use of cash to opportunistically repurchase shares and the use of cash in our second quarter due to the seasonality of our business, we are currently expecting to fund approximately 20% of the acquisition price from cash on hand.
Drew: Upon closing, the acquisition is expected to be approximately 35 cents accreted, net of estimated financing costs for its first 12 months.
Drew: Syncor is committed to maintaining our strong investment grade credit rating and will prioritize deleveraging in the years following the transaction close.
Drew: In closing, the fourth quarter captured a strong year at St. Cora. I am proud of our purpose-driven team members, the strength and diversity of our talent, and our continued execution
Drew: to deliver on our strategic imperatives to advance our position at the center of health care. We are well positioned for continued growth in fiscal 2025 and investing to ensure we are preparing for continued success in the future.
Drew: With that, I will turn the call over to the operator to open the line for questions. Operator?
Drew: Thank you very much.
Speaker Change: Thank you. We will now start today's Q&A session. If you would like to ask a question, please press star followed by one on your telephone keypad. If you wish to withdraw your question, then it is star followed by two.
Speaker Change: Our first question today comes from Lisa Gill from J.P. Morgan. Your line is now open. Please go ahead.
Lisa Gill: Thanks very much. Good morning, Bob. Congratulations. I listened to you talk a little bit about your strategy. You talked about the incredible foundation built on the strategy.
Lisa Gill: most likely be Republican. So any changes there would be kind of my question and really just trying to understand how you're thinking about that. And then just secondly, I really just want to understand if we're seeing any changes from the volume changes in IRA. So you talked about strong results in the quarter around volumes and just curious, you know, if you guys are seeing anything from that perspective.
Speaker Change: Hey Lisa, thank you very much for the question and the kind words.
Speaker Change: Yeah, I'll start with...
Speaker Change: You know, just the first, you know, 30 days or so in this new role have been absolutely amazing. Yeah, I want to start with a just a sincere thank you to the Sincora Board of Directors for having the trust in me to
Speaker Change: to take on this role. And as you mentioned, and as I mentioned in our prepared remarks is.
Speaker Change: We are an incredibly strong enterprise and company. And what we're going to do is continue to execute. And you see in our results through 2024, the execution of both our operational strength as well as our strategic execution. And that leads to the announcement of.
Speaker Change: RCA today. So as I've talked about and I want to you know be clear here today is our strategy does not need to change and we will continue to execute upon that. We're well positioned and we think our focus areas are the right ones. However that doesn't mean
Speaker Change: You know status quo or complacency and there's there's a lot of work to do. It's a dynamic
Speaker Change: market and and so we are doing things in terms of amplifying
Speaker Change: strengths that we've we've already had and you know I mentioned were
Speaker Change: You know, working on our talent all the time and in the enterprise leadership team, we've elevated our commercial leaders to make sure that we have the voice of the customer at the table all the time. We've added new leaders in our technical and IT area as well as
Speaker Change: Strategy, and M&A, and we'll continue to work on enhancing our talent as we continue to execute. I think as it relates to policy in general, I think we have a long history of, you know, working through multiple
Speaker Change: you know, administrations and congresses and different views on health care and pharma.
Speaker Change: always said, and I feel very confident about this now, is
Speaker Change: You know, we'll be at the table, we'll be working with anyone who's in charge of health policy in the United States and on a global basis, and we'll, you know, make sure that we're there to be a supportive...
Speaker Change: partner, and that whatever comes our way will be will be manageable and will will help our customers, pharma customers and provider customers navigate through that. Thank you for the question.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Michael Churney from Lee Rink Partners. Your line is now open, please go ahead.
Michael Churney: Good morning, congrats on the quarter and Bob echoing Lisa's comments. Welcome to your new role and obviously a long timer here, but congrats on the on the transition.
Michael Churney: Maybe if I could just dive in, I guess two part questions come together. First of all, I know you highlighted a number of the headwinds you have this year from a year-to-year basis. As you think about the COVID comp, is the loss of the customer contemplated?
Michael Churney: specifically in guidance whether they leave or not just trying to get to the
Michael Churney: baseline growth, which definitely seems...
Michael Churney: stronger than the 5% to 6.5% on an underlying basis.
Speaker Change: Specialty in particular, given your market leadership there, how do you think about the moving pieces across the market with regards to specially inclusive of expectations for biosimilars?
Speaker Change: the impact we're seeing from changing benefit design with IRA. Curious how that all factors into your expectations across the US healthcare segments relative to the specialty contribution. Thanks so much.
Speaker Change: Sure, Michael. Thanks. This is Bennett. I'll take that. So, as we look at 2025, you know, we're expecting that the U.S. healthcare solutions segment, you know, operating income will continue to benefit from the
Speaker Change: pharmaceutical utilization trends that we've seen.
Speaker Change: Growth in key markets, including specialty, as you call out, which helps to give us a really strong base moving into 2025 and 2024. And more than offsetting COVID-related headwind, as Laz talked about, including the potential loss of an oncology customer, which is factored into our 2025 expectations.
Speaker Change: What I would say, and you didn't necessarily specifically ask it, but what I would say is that, you know, we were guiding, without that headwind from vaccines, the top end of our U.S. healthcare solutions operating income guidance range would be 8%.
Speaker Change: So, as I said, I'll say that again, just to be clear, you know, without the headwind from commercial COVID vaccines, you know, the top end of our U.S. healthcare solution segment operating income range would be 8% instead of that 6.5%.
Speaker Change: Thank you very much.
Speaker Change: Next question please. Our next question comes from Elizabeth Anderson from Evercore ISI. Your line is now open, please proceed.
Elizabeth Anderson: Hi, guys. Thanks so much for the question. Bob, congrats again on your first quarter as an official, fortunately.
Elizabeth Anderson: Maybe could you talk a little bit more about the...
Elizabeth Anderson: RCA and sort of how you think about sort of your MSO capabilities more strongly. It's obviously an area that you've been investing in and maybe gets a little bit less like airtime than some of your other businesses. So maybe talk about that and you know, what is there leverageable from other strategies you currently have and sort of capabilities that would be a little bit helpful to hear more about that. Thank you.
Elizabeth Anderson: Thank you.
Speaker Change: happy to discuss such an important part of our strategy going forward. So yeah, we're very interested in the MSO space and the reason...
Elizabeth Anderson: is
Speaker Change: at least twofold, but I'll give you two. One is, it's clearly in line with our support and interest in being in the forefront of the specialty.
Speaker Change: pharma market, right? So where those products, the innovation of those products are
Speaker Change: are coming to market, we expect to be...
Elizabeth Anderson: Um, um, [inaudible]
Elizabeth Anderson: helpful and involved across our entire business, so across the entire portfolio of customers and geographies. When you bring it to the specialty physicians, the MSOs are really in line with what we have done at Sankora over decades. So if you think about how we operate, we have in many cases built capabilities to support community providers.
Elizabeth Anderson: and MSOs are an excellent way to support community positions.
Elizabeth Anderson: We do it in other segments, you know, and I'll use Good Neighbor Pharmacy as an example. It's not an MSO, but it certainly is a large suite of services that supports
Elizabeth Anderson: community providers. So it's right in line with our strategy in terms of specialty focus, but it's also something that's very consistent with what we've done over a long period of time in terms of investing in solutions.
Elizabeth Anderson: that support those community providers.
Elizabeth Anderson: And as I said in the prepared remarks, you know, it's not getting easier for community providers and specialty providers.
Elizabeth Anderson: at all, so the need for a large, at-scale
Elizabeth Anderson: support system through the MSO and and through CENCOR's ownership of the MSOs.
Elizabeth Anderson: We think is the best chance of making sure that that very cost-effective side of care is there for patients when they need it
Speaker Change: Our next question comes from George Hill from Deutsche Bank. Your line is now open, please go ahead.
George Hill: Yeah good morning guys and Bob welcome to the call. I'm going to get kind of way out like look a little further out thinking about the acquisition today and your guys presence in oncology.
Elizabeth Anderson: And Bobby, do you kind of look forward to like the impact of the IRA changes and the impact it could have?
Elizabeth Anderson: on Part B drug costs and the profitability of practices that dispense a lot of drugs.
Elizabeth Anderson: Is it too early to think about that because there's still the opportunity for legislative change, or kind of how are you guys thinking about how you support those practices given the headwinds that could come from IRA? And again, I recognize I'm talking about something that's two years away, maybe two years plus, but kind of would love any preliminary thoughts on that.
Speaker Change: Yeah, George, thanks. Thanks for the welcome and thank you for the excellent question. So I would, I would say it's it's not too early to think about that, you know, so we have been thinking about IRA and
Elizabeth Anderson: you know, modeling a wide range of scenarios.
Speaker Change: of impact for IRA and Part B. And, you know, I'll jump to the end of that as we feel that in across all those scenarios, that it's something that will be manageable for the providers and therefore manageable for
Speaker Change: Sankora. Again, as you say, we don't really know what the impact will be in part...
Elizabeth Anderson: In part B and in part D, we're seeing that, you know, the impact is really in reimbursement and not in list price. So it remains to be seen, but we do think about it. We have a team.
Elizabeth Anderson: teams of people who are always focused on these things. And as we as we look forward, you know, not only with the RCA acquisition, but also our relationship with One Oncology and other customers, that this is something that, you know, through innovation in the long run, that this will be something that's not necessarily negative for the practices.
Speaker Change: and James Cleary. Thank you. Thank you.
Speaker Change: Our next question comes from Eric Percher from Nephron Research. Please go ahead.
Eric Percher: Thank you. Again, congrats to Bob and I want to get a bit more specific on the specialty trend.
Eric Percher: I think we're hearing from payers that they're seeing a 3Q uptick and some of it is attributed to Part D. We also heard about...
Eric Percher: commercial and seeing inspect pharmacy. My question is, are you seeing an uptick in Q3 versus first half where you're serving specialty pharmacies? We tend to think of that as
Eric Percher: lower margin specialty. And then you called out strength and specialty distribution, a higher margin piece with providers and health systems. You've called that out in Q1 and Q2. Is there an acceleration you saw in Q3 or is that simply a continuation of the trend?
Eric Percher: No, I would say, and once again, this is Bennett, and of course, I appreciate you using calendar quarters in your question, but I'll refer to fiscal quarters in my answer, in that the fourth quarter, we saw similar trends as we saw throughout fiscal 24, and honestly, for the past several years.
Eric Percher: So we've had the specialty market particularly for physicians and health systems has been a key component of a key driver of our growth for a while It's a really important segment. It's a
Eric Percher: part of the market where we play a really important role and add a lot of value. But no, we are not representing this as a deviation, it's a continuation of the good trends that we've seen for a while.
Speaker Change: Our next question comes from Daniel Grosslight from Citi. Your line is now open. Please go ahead.
Eric Percher: Daniel, your line is now open, please go ahead.
Eric Percher: Michael Cherny, Eric Percher, David
Speaker Change: Oh, good.
Eric Percher: We're getting no audio from Daniel, so I'll move on to the next question from Stephanie Davis from Barclays. Please proceed.
Speaker Change: Please see the complete disclaimer at https://sites.google.com or www.sites.google.com
Stephanie Davis: Hey guys, thanks for taking my question and Bob, official congratulations on taking the seat.
Stephanie Davis: I wanted to dig in a little bit more on the RCA transaction as it's a sizable move into other ologies outside of kind of your core ONC focus.
Stephanie Davis: So with that in mind, can you walk us through your specialty road map, any other verticals to watch, or any opportunities in the checklist, such as RCA's clinical trial strength, that you're hoping to shore up?
Speaker Change: Hi Stephanie, thank you for the question and for the for the congratulations.
Speaker Change: Yeah, so when we look at.
Speaker Change: specialty expansion beyond oncology. We're looking for.
Speaker Change: a couple of things. We're looking for continued growth and innovation in that market and also the Part B
Speaker Change: components that are there that we can support. So the obvious one for Sankora is
Speaker Change: is oncology, and that's where we've been for a very long time. And I'll also note we've been a leader in retina for a very long time, but I'll come back to that. But then, you know, you saw that we added, you know, urology as part of one oncology. So we do have
Speaker Change: a view and a strategic approach to where we would look at other specialties that would fit. And certainly, retina is one. And again, we have a long history, a leading role in the retina specialty distribution space. We have a real belief in the continued growth and innovation in that market. RCA is best in class.
Stephanie Davis: They are world-class clinicians, world-class researchers, and we feel really good about the decision to expand our investment in retina.
Speaker Change: and James Cleary. Thank you. Thank you.
Speaker Change: Our next question comes from Kevin Caliendo from UBS. Your line is now open, please go ahead.
Kevin Caliendo: Thanks for taking my question, and Bob, again, congrats. I want to take this a little bit further on the RCA stuff, because
Kevin Caliendo: There's been a lot of oncology deals done recently. It feels like there isn't maybe as much opportunity there. You are already a leader in retina, as you said.
Stephanie Davis: Is this a stepping stone? Is ophthalmology going to be the next sort of roll-up for you? Like, how big is the opportunity here relative to what was the opportunity in oncology?
Stephanie Davis: And is there anything to maybe read through in terms of...
Stephanie Davis: expectations around biosimilars in this space or any other like is there analysis done where you're looking at the growth of the market or the drug opportunity in that market evolving favorably for you is also a reason to get into this.
Speaker Change: Thanks, Kevin, for the excellent, excellent question. Yeah, as it relates to RCA, you know, what we've...
Speaker Change: said in the prepared remarks, and I'll just repeat now, is Arce is the market leader.
Speaker Change: So, you know, we're investing in a platform in retina that we expect to continue to grow. They will grow by adding additional physicians and they will grow through the second part of your question, is we do have a strong thesis.
Speaker Change: on the strength of the pharmaceutical pipeline in retina. And that includes biosimilars coming to market, but also, you know, new innovation that will be coming that will help improve, you know, patient outcomes. And again, this is where the clinical excellence.
Speaker Change: of RCA is really important, and also the clinical research capabilities that they have, because RCA is not only treating the end patient at a very large scale, but they're also a very key player in making sure that the clinical trials are done, and that the patients have access to those trials, and therefore getting those newer products to market.
Speaker Change: Our next question today comes from Eric Caldwell from Bard. Your line is now open, please go ahead.
Eric Caldwell: Thanks very much. Well, I had a bunch of RCA questions too, but I'll try to make those brief. Just quickly on ophthalmology specialty products or maybe the category overall.
Eric Caldwell: You're half of one of the leading manufacturers distribution volume. Is that a similar share across the entire market? Are you half of the specialty market in ophthalmology?
Speaker Change: Yeah, so as Bob said, we are a leader in that space and it's a part of the market that we've been in for a long time.
Speaker Change: and we feel really good about not only our position and the fact that we have really know RCA quite well because they've been a customer for some time. And as Bob said, they're a leader in this space. And just to repeat, it's a market that while, I know that the...
Speaker Change: There's been a lot of focus on oncology, but for Sankora, you know, retina and ophthalmology have been a key driver of growth along the way as well.
Speaker Change: Thank you.
Speaker Change: Michael Cherny, Lisa Gill,
Speaker Change: Our next question comes from Erin Wright from Morgan Stanley. Your line is now open, please go ahead.
Erin Wright: Thanks. Could you speak a little bit to World Courier, just give an update on fundamental demand trends across that business and customer base and then yeah going back to sort of a little bit of an RCA question or related is on
Erin Wright: on how do you balance investments in terms of an MSO type of investment versus a more direct relationship with like biopharma and life sciences partnerships. I know it's all kind of intertwined but curious kind of how you think about that.
Erin Wright: And then just one quick one on just customer relationships. Just your guidance for the year, you address COVID and FCS, but...
Speaker Change: You recently renewed your ExpressGrip Signa contract. How would you characterize the relationship there and any sort of changes as well as your relationship with Walgreens?
Speaker Change: Sure, so you riled off a couple there and I'm going to try and make sure that we hit them all. I'll start with the express groups one note, no change there.
Erin Wright: a continuation of a good relationship with them. You know, World Courier, that market continues to have some softness stemming from clinical trial development, but that being said, still it's a good growing business and you saw that in the quarter.
Erin Wright: I'll stop and hand it over to Bob to talk a little bit about the Walgreens relationship.
Speaker Change: Yeah, happy to.
Speaker Change: Thank you.
Bob Mauch: And Aaron, I'll probably touch on the broader kind of biopharma focus there for a second because it leads on to a world career. I'll emphasize the point that
Bob Mauch: that Bennett made. World Courier is a terrific business, a leading business, and it leads in clinical trial logistics. So to the extent that clinical trial volumes continue to be down, even though they're beginning to grow, they're still down significantly from a peak in 2021, we feel great about the business. And as I said in the prepared remarks, we're very well positioned.
Bob Mauch: as that market comes back, both in WorldCourier and...
Bob Mauch: and Farmel X.
Bob Mauch: Walgreens is a critically important strategic partner to us. We've had a long.
Bob Mauch: productive history together, which continues and
Bob Mauch: We, as we've said for a long time and continues now, we spend a lot of time with the Walgreens team, you know, I would say, continuously and during that time we're talking about what are things that we can do together to
Bob Mauch: to drive our businesses forward. How can we create more efficiency? What are new programs that we can develop together?
Bob Mauch: that are helpful to both.
Bob Mauch: companies so we're very engaged in that you know we're committed to making sure that for Walgreens and for all of our customers you know what one of the things that I tried to be intentional about saying is that
Bob Mauch: our intention is to really understand the strategies of our customers and then align the resources of CENTCORP to support those strategies. And so that's true for Walgreens and our other customers as well.
Bob Mauch: Thank you all. Thank you.
Speaker Change: You know, and you did write off a bunch there, so I want to go back to one you asked about, you know, this versus biopharma services. I think if you go back and look at our past disclosures and past discussions on the strategy and our...
Bob Mauch: strategic focuses we've always talked about.
Bob Mauch: looking for ways to build on our strength and specialty and to, you know, add to our services and solutions for manufacturers.
Bob Mauch: And that was clearly exemplified by our One Oncology investment and also our acquisition of Pharmalex, which remains a key long-term asset for the business.
Bob Mauch: And I would say that RCA really hits on both of those, in that certainly it helps build on our leadership and specialty, but it also helps build on our value proposition to pharma, given the clinical research work that they do.
Speaker Change: Our next question comes from Alan Lutz from Bank of America. Your line is now open, please proceed.
Speaker Change: and David M. I'm here with the students of the University of Waterloo. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.
Alan Lutz: Good morning, and thanks for taking the questions. There was a really nice revenue acceleration quarter over quarter, and Bennett, you mentioned that it didn't seem like that was coming from specialty accelerating. So, I guess the assumption that we have here is that that's mostly driven by GLP-1s, but is there anything outside of that piece that's worth calling out around that sequential acceleration and top line growth in the U.S. healthcare business? Thanks.
Speaker Change: Go to Beadaholique.com for all of your beading supply needs!
Alan Lutz: Yeah, hi Alan. This is Lasker Corian. So we definitely talked about GLP-1s. You know, we continue to see strong growth in the GLP-1 class. Sales of those products in the quarter increased 55% year-over-year and 14% on a sequential basis.
Alan Lutz: With respect to specialty products and distribution, we continue to see strong growth rates there as well, and they certainly continue to drive our top-line growth.
Alan Lutz: and Robert Mauch. Thank you.
Speaker Change: Yeah, thanks for taking the question.
Speaker Change: Senator Warren had written a letter kind of expressing some concerns about distributors owning group practices or owning these MSOs. Can you talk about sort of...
Speaker Change: and all of you for your thoughts on that and your response. And then secondly, what is the real benefit to owning the MSOs for you beyond just the distribution? Is it really just a services business that...
Speaker Change: you know, that you want to provide for physicians. Maybe just expand on sort of, you know, that aspect of it. Thank you.
Speaker Change: Yep.
Speaker Change: Thanks. Yeah, thanks. This is Bob. I'll take
Alan Lutz: I'll take that. Good questions. You know, first of all, I'll start with, we have, you know, utmost respect for
Alan Lutz: The process that any governmental agency will go through to look at this and any senators who want to weigh in, we're happy to participate and be helpful there, as always.
Alan Lutz: you know, that's our orientation to these.
Alan Lutz: To your question, specifically,
Alan Lutz: though, is, you know, we view the MSO model as a way to really support community providers. And as I said earlier, that's...
Alan Lutz: That's core to what we've done over decades.
Alan Lutz: The community providers are generally a cost effective, a more cost effective side of care. They're also, in many cases, more accessible to patients. So we believe our ownership and participation in the MSO space, at the end of the day, enhances patient access, enhances cost effectiveness of health care, and allows Sankora to continue to support these very important providers.
Speaker Change: That concludes our Q&A session for today. I'll now hand back over to Bob Mauch for closing remarks. Thank you.
Bob Mauch: Thank you very much. Thanks all for the excellent questions.
Bob Mauch: and for the kind.
Bob Mauch: Welcome. Again, I'm honored to be in this position. It's an incredibly strong company with an amazing culture, an incredible portfolio of customers, services, and geographies. We're very well positioned and we're going to continue to execute both operationally and strategically. So thank you all very much for your time.
Alan Lutz: Thank you. Thank you.
Speaker Change: Thank you all for your participation on today's call. That concludes the call. You may now disconnect your line.