Q1 2025 Cencora Inc Earnings Call
Thank you for your patience today. The conference call will start in approximately two minutes.
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Speaker Change: Hello and welcome everyone to the Sencora Q1 Fiscal Year 2025 Earnings Call.
Becky: My name is Becky and I'll be your operator today. During the presentation, you can register a question by pressing star followed by 1 on your keypad. If you change your mind, please press star followed by 2. Should you have any issues, please press star followed by 0 for operator support.
Speaker Change: I'll now hand over to your host, Head of Investor Relations, Bennett Murphy, to begin. Please go ahead.
Speaker Change: Thank you. Good morning, good afternoon, and thank you all for joining us for this conference call to discuss SYNCOR's Fiscal 2025 First Quarter Results. I am Bennett Murphy, Senior Vice President, Head of Investor Relations and Treasury. Joining me today are Bob Mauch, President and CEO, and Jim Cleary, Executive Vice President and CFO. On today's call, we will be discussing non-GAAP financial measures.
Speaker Change: We have also posted a slide presentation to accompany today's press release on our investor website. During this conference call, we will make forward-looking statements about our business and financial expectations on an adjusted, non-GAAP basis, including, but not limited to, EPS, operating income, and income taxes.
Speaker Change: Forward-looking statements are based on management's current expectations and are subject to uncertainty and change. For a discussion of key risks and assumptions, we refer you to today's press release and our SEC filings, including our most recent 10-K.
Speaker Change: SEDCOR assumes no obligation to update any forward-looking statements and this call cannot be rebroadcast without the express permission of the company.
Speaker Change: 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.
Speaker Change: Thank you, Bennett. Hi, everyone, and thank you for joining Sancora's Fiscal 2025 First Quarter Earnings Call.
Speaker Change: Before we begin, I want to thank the 40-plus thousand Global Sync Corps team members.
Speaker Change: It's because of their purpose-driven approach, expertise, and dedication to meeting the needs of customers and patients worldwide that Jim and I have the pleasure of reporting strong Q1 results and updated guidance today.
Speaker Change: SenCorp delivered a strong start to our fiscal year with revenue growth of 13% and adjusted EPS growth of 14%.
Speaker Change: We are also excited to share that due to the strength in execution in our U.S. business, we are raising guidance for the fiscal year.
Speaker Change: We benefit from our position as a leading healthcare solutions provider with a pharmaceutical-centric strategy and a purpose-driven culture, which enables us to capitalize on positive industry trends and innovation.
Speaker Change: Today, I will emphasize three areas of progress in executing our strategy and driving performance in the quarter.
Speaker Change: First, advancing our leadership and specialty, where we took important steps forward.
Speaker Change: Second, driving efficiency and productivity through advanced technology and expert teams across the enterprise. And third, executing with a customer-centric mindset as we continue to collaborate and innovate with our customers throughout the supply chain.
I'll begin with advancing our leadership and specialty.
Speaker Change: Our leadership supporting specialty providers is a key differentiator and growth driver for Sankora and we have evolved our service offerings over time.
Speaker Change: Over decades, we've deepened our relationships with our specialty provider customers with the expansion of specialty GPOs and other capabilities.
The logical next step is through managed service organizations.
Speaker Change: This is in line with our long-term commitment to support community providers and extension of that work.
Speaker Change: After expending significant time understanding the MSO business through our investment in One Oncology, we announced the acquisition of RCA, Retina Consultants of America, and we are incredibly happy to have completed that acquisition on January 2nd.
Speaker Change: RCA is a leading retina MSO differentiated by its leadership team, clinical excellence, premier physician partner practices, and positioning at the forefront of retina innovation through its clinical research capabilities.
Speaker Change: This acquisition, like our investment in One Oncology, fits squarely into our strategy and growth by expanding our leadership and specialty in a high growth pharmaceutical centric segment
Speaker Change: building on our services for our customers and positioning us well in a medical specialty that has seen significant innovation.
Speaker Change: While it's early days, we're excited about what we believe our combined organizations will accomplish together.
Speaker Change: Next is driving efficiency and productivity through advanced technology and expert teams.
Speaker Change: We are focused on continuously enhancing our capabilities and increasing efficiency through advanced technology and collaboration across our global teams.
Speaker Change: Across the organization, we are working to streamline operations, optimize business processes, and unlock enterprise-wide value.
Speaker Change: In the quarter, we work throughout our business to upgrade systems.
Speaker Change: to safeguard the resiliency of our infrastructure and ensure we maintain best-in-class standards.
Speaker Change: This allows us to streamline our operations for enhanced customer satisfaction.
All of this aligned with our digital transformation strategy.
Speaker Change: focuses on enhancing customer experience and accelerating decision-making as we leverage global talent and capabilities to enhance efficiency, scalability, and innovation.
Speaker Change: all while meeting the needs of our partners both now and in the future.
Speaker Change: And finally, executing with a customer-centric mindset and innovating with our customers.
Speaker Change: At Sencora, we lead with market leaders. Our portfolio of customers is second to none.
Speaker Change: driving innovation through drug development, elevating patient care and access through their patient-first approaches.
Speaker Change: Sankora team members with world-class expertise are working in cross-functional teams collaborating with customers to meet their evolving needs.
Speaker Change: In the quarter, we were able to display solutions created as a result of working closely with our customers at our inaugural product showcase.
Speaker Change: Our product showcase enabled us to demonstrate advanced solutions in areas like inventory planning and management, specialty GPO, as well as cell therapy and gene therapy solutions.
Speaker Change: Another example is our enterprise leadership team just returned from the United Kingdom.
visiting elements of our international operations.
Speaker Change: spending time on the ground with our leaders and engaging with several top biopharma customers.
Speaker Change: Our global footprint and expertise set us apart and gives us the unique ability to combine local expertise with global infrastructure, best meeting the needs of biopharma companies.
Speaker Change: We are focusing on building on our strengths and value proposition to pharma with our services like market access, regulatory, pharmacovigilance, and our unparalleled 3PL and specialty logistics networks.
Speaker Change: which has a different structure than in the U.S. but is similar in that our foundation in pharmaceutical distribution and portfolio of services enables us to support pharmaceutical innovation while growing our higher growth higher margin services.
In closing, and before I hand it over to Jim.
Speaker Change: Sencora's performance is powered by an amazing global workforce who are advancing our leadership and specialty, driving efficiency and productivity through advanced technology and expert teams,
Speaker Change: in executing with a customer-centric mindset as we continue to collaborate and innovate with our customers.
Looking ahead, we will maintain focus.
Speaker Change: executing against our strategy and amplifying the areas that are fundamental to our success.
driving increased value for all our stakeholders.
Speaker Change: Thank you once again to all Sankora team members, and with that, I'll turn the call over to Jim for an in-depth review of our first quarter results and our updated fiscal 2025 guidance.
Jim Cleary: Thanks, Bob. Good morning and good afternoon, everyone. As a reminder, before I turn to my prepared remarks, unless otherwise stated, my remarks today will focus on our adjusted non-GAAP financial results.
Jim Cleary: For a detailed discussion of our GAAP results, please refer to our earnings press release and presentation.
Jim Cleary: Sancora delivered strong results in the first quarter of fiscal 2025 as our U.S. healthcare solutions segment outperformed expectations due to strong prescription utilization trends
Jim Cleary: and we capitalized on the growth of our industry, the continued momentum of our business, and the expertise of our teams.
Speaker Change: As Bob mentioned, Adjusted Diluted EPS increased 14% to $3.73 in the first quarter, and for the second time in fiscal 2025, we are raising our Adjusted Diluted EPS guidance for the full year.
Speaker Change: I'll now turn to a review of our consolidated first quarter results, starting with revenue.
Our consolidated revenue was $81.5 billion, up 13%.
Speaker Change: primarily due to strong revenue growth in the U.S. healthcare solutions segment as we continue to benefit from overall market and volume growth, including increased sales of GLP-1 products.
Speaker Change: Excluding sales of GLP-1s, our consolidated revenue growth would have been 9%.
Speaker Change: Turning now to gross profit. Consolidated gross profit was $2.5 billion, up 6%, with growth in both the U.S. and international healthcare solutions segments.
Speaker Change: Consolidated gross profit margin was 3.11 percent, a decrease of 20 basis points driven by the continued increase in sales of low margin GLP-1 products.
Speaker Change: combined with lower sales of commercial COVID-19 vaccines and a lack of sales of exclusive COVID-19 therapies, all of which negatively impacted our gross profit margin versus the prior year quarter. Moving now to operating expenses.
Speaker Change: In the quarter, consolidated operating expenses were $1.6 billion, up approximately 6% due to higher distribution, selling, and administrative expenses to support revenue growth.
Speaker Change: Consolidated operating income was $949 million, an increase of 7% compared to the prior year quarter, primarily due to 10% growth in the U.S. healthcare solutions segment, which I will discuss in more detail in the segment level results.
Speaker Change: Moving now to our net interest expense and effective tax rate for the first quarter.
Speaker Change: Net interest expense was $28 million, down 31% due to higher interest income resulting from higher average investment cash balances and interest rates, partially offset by an increase in interest expense.
Speaker Change: Turning now to income taxes, our effective income tax rate was 20% compared to 21% in the prior year quarter.
Speaker Change: a 3% decline compared to the prior year first quarter driven by approximately $1.5 billion of opportunistic share repurchases during the period of February through October of 2024.
Speaker Change: As a reminder, as it relates to capital allocation, in the near term we will prioritize deleveraging given the recent RCA acquisition.
regarding our cash balance and adjusted free cash flow.
Speaker Change: We used $2.7 billion of cash in our operations during the quarter, resulting in negative adjusted free cash flow of $2.8 billion due to the timing of flows at the end of the calendar year.
Speaker Change: We continue to expect full-year adjusted free cash flow to be in the range of $2 billion to $3 billion. This completes the review of our consolidated results. Now I'll turn to our segment results for the first quarter.
Speaker Change: U.S. Healthcare Solutions segment revenue was $74 billion, up 14%, as we continue to see broad-based strong utilization trends, including continued volume growth in GLP-1s and growth in sales to specialty physician practices and health systems.
Speaker Change: In the quarter, sales of GLP-1 products were up $3.2 billion, representing a 53% increase year-over-year. Excluding sales of GLP-1 products, U.S. segment revenue growth would have been 10% for the quarter.
U.S. healthcare solution segment operating income increased 10%
Speaker Change: to 767 million dollars driven by growth at our human health distribution businesses including specialty products.
Speaker Change: and across commercial segments, including animal health, more than offsetting the significant headwind from lower sales of COVID-19 vaccines and lack of sales of exclusive COVID-19 therapies in the current year quarter.
to provide a little more detail on the headwinds.
Speaker Change: In the first quarter of fiscal 2025, the contribution from COVID-19 vaccines was about half that of the prior year quarter.
Speaker Change: and we expect a similar-sized operating income headwind in the second quarter of fiscal 2025, meaning no significant expected contribution from COVID vaccines in our second quarter of fiscal 2025.
Speaker Change: And, as it relates to exclusive therapies, as a reminder, the first quarter of fiscal 2024 was the final quarter of contribution from exclusive COVID-19 therapies, which contributed six cents to our first quarter of fiscal 2024.
I will now turn to our International Healthcare Solutions segment.
Speaker Change: In the quarter, International Healthcare Solutions revenue was $7.5 billion, up approximately 6% on an as-reported basis, and up almost 9% on a constant currency basis due to increased sales at our European distribution business.
Speaker Change: International Healthcare Solutions operating income was 182 million dollars down 3% on an as-reported basis and up 3% on a constant currency basis.
Speaker Change: In the quarter, lower operating income at our global specialty logistics business was partially offset by better results at our European distribution business.
Speaker Change: Our global specialty logistics business had a strong quarter in the prior year period and this quarter was more challenging as clinical trial activity remained subdued.
Speaker Change: The business remains focused on its pipeline and targeted in its regional prioritization of new volume growth. We expect to see business performance improve later in fiscal 2025 as demand for our premium service capabilities increases from its current levels.
Speaker Change: That completes the review of our segment level results. I will now discuss our updated fiscal 2025 guidance expectations.
Speaker Change: As a reminder, we do not provide forward-looking guidance for certain metrics on a gap basis, so the following information is provided on an adjusted non-gap basis except with respect to revenue. I will also provide certain guidance metrics on a constant currency basis.
Speaker Change: I will start with adjusted diluted EPS guidance and then provide detail on the income statement items contributing to the increase.
Speaker Change: On January 2nd, we announced the closing of the RCA acquisition and raised our Adjusted Diluted EPS Guidance to the range of $15.15 to $15.45
Speaker Change: to reflect the nine-month contribution from RCA in addition to continued momentum in the U.S. healthcare solutions segment.
Speaker Change: Today, we are pleased to again raise our full year diluted EPS guidance to a range of $15.25 to $15.55, a 10 cent increase to both the top and bottom end of our adjusted diluted EPS guidance range.
Speaker Change: to better reflect the strength and momentum exhibited by the U.S. healthcare solutions segment.
Speaker Change: The updated guidance range primarily reflects an increase in our U.S. healthcare solution segment revenue growth, where we now expect growth of 9 to 11 percent, up from our previous expectations of 7 to 9 percent growth.
Speaker Change: due primarily to continued strong organic revenue growth and to a lesser extent RCA, which was already a distribution customer.
Speaker Change: In the International Healthcare Solutions segment, we now expect revenue growth in the range of 4 to 5 percent, down from the previous range of 7 to 9 percent, to reflect updated foreign currency translation rates.
Speaker Change: On a constant currency basis, International Healthcare Solutions Segment revenue guidance remains unchanged at 7-9% growth.
Speaker Change: Moving to operating income, we expect consolidated operating income growth to be in the range of 11.5 to 13.5 percent, up from our previous guidance of 5 to 6.5 percent.
Speaker Change: In the U.S. healthcare solutions segment, we now expect operating income growth to be in the range of 14.5 to 16.5 percent, up from our prior range of 5 to 6.5 percent.
Speaker Change: Once again, segment-level guidance reflects expected contributions from our acquisition of RCA and continued strong broad-based growth in the segment more than upsetting previously discussed COVID-related headwinds.
Speaker Change: Turning now to the International Healthcare Solutions segment, on an as-reported basis, we now expect operating income growth to be flat year-over-year due to the strengthening of the U.S. dollar against other currencies and lowering the top end of our expectations for the segment.
Speaker Change: On a constant currency basis, we now expect segment operating income growth to be approximately 5%, narrowed from the previous range of 5 to 6.5%, as a result of the slower start for the international segment in the first half of fiscal year 2025.
Speaker Change: Moving to interest expense, we now expect interest expense to be in the range of $290 million.
to $310 million.
Speaker Change: up from our previous range of $150 million to $170 million.
Speaker Change: due to the financing of our acquisition of RCA offset in part by lower net interest expense associated with foreign subsidiaries.
Speaker Change: From a quarterly cadence perspective, we would expect interest expense to step up meaningfully in the second quarter, similar to the prior year quarter, given typical seasonality and cash use as well.
Speaker Change: Finally, we expect that our full-year average share count will be under 196 million shares in fiscal 2025, given where our share count sits today.
That concludes our updated full year guidance assumptions.
Speaker Change: As it relates to quarterly cadence, I would point out that we expect the second quarter to be the lowest growth quarter in fiscal 2025 with adjusted diluted EPS growth in the mid-single digits.
Speaker Change: This is driven by a few factors. First, as I mentioned earlier, the second quarter is expected to have the highest net interest expense for the fiscal year due to typical seasonality of cash use in addition to the financing costs associated with the RCA acquisition.
Speaker Change: Second, in the U.S. Healthcare Solutions segment, we have the COVID-19 vaccine headwind in the second quarter, which I referenced earlier, and as it relates to RCA, accretion is expected to ramp over the course of the fiscal year.
Speaker Change: And finally, the slower start for the international segment in the first half of the fiscal year and the income translation impact from the strength of the U.S. dollar.
Speaker Change: In closing, SENCORA has achieved another strong quarter, demonstrating the efforts of our purpose-driven team members as we continue to execute on our purpose of creating healthier futures.
Speaker Change: Their dedication and drive to the advancement of our enterprise has a proven track record of success, which we see continuing in fiscal 2025 and creating value for all our customers, partners, and stakeholders in the quarters to come.
Speaker Change: Now I will turn the call over to the operator to open the line for questions. Operator?
Speaker Change: Thank you. If you wish to ask a question please press star followed by 1 on your telephone keypad now. If for any reason you want to remove your question from the key please press star followed by 2.
Speaker Change: When preparing to ask your question, please ensure your device is unmuted locally.
Speaker Change: Our first question is from Michael Janney from Lee Rink Partners. Your line is now open, please go ahead.
Good morning and congrats on another great quarter and guidance.
Speaker Change: Maybe just, Bob, this is your second quarter as CEO. I'll start on the strategic question. I'll save some of the other modeling ones down the road. But, you know, as you think now about your specialty business as a whole, it clearly is a driver of some of the outperformance.
Speaker Change: As you think about the mix of market growth versus your assets, especially off the back of the one on college investment and now RCA, where do you think the company's best positioned to outgrow the market on specialty? How much within the...
Speaker Change: guidance do you think is market oriented growth and where do you think going forward the different dynamics of your specialty growth versus your peers could lie in terms of continuing to drive this potential sources of upside?
Speaker Change: Hi, Michael. Thank you very much for the question and also hello to everyone on the call. Thank you for joining today It's a it's a terrific question, and I'll just I'll start with You know the strategy where we are and begin with
Speaker Change: a pharmaceutical centered strategy so we're we're going to stay focused.
Speaker Change: on the pharmaceutical sector and, as you know, and as we all know, the innovation.
Speaker Change: is significant there. Secondly, as we continue to build on our portfolio of services.
Speaker Change: to be sure that we're well-positioned both inside the United States and outside the United States to make sure that we are able to support manufacturers and providers as that specialty product growth
continues over the long term.
And lastly, it really begins with having the best.
Customer Portfolio.
in the business. And we think that's really where.
Speaker Change: You know, we're differentiated. We spend a lot of time talking about our customer portfolio, not just in specialty, but broadly, and believe that's a big driver of growth. If you're with the market-leading providers, with the market-leading manufacturers, then that's going to position us.
Speaker Change: Well, for growth and, you know, kind of pulling back, you know, more specifically in the expansion of services, you know, we've spent decades building a suite of services.
Speaker Change: that support community providers from GPO to analytics and many other services that we provide. And we're confident that the MSO services are the right logical next step.
for our strategy. It's important to providers.
and it's also very much in line with where we've...
Speaker Change: positioned ourselves over a long period of time I'd you know just
you know, reinforce the fact that
Speaker Change: that we have not only just in the specialty space, but across our portfolio.
Speaker Change: invested in services that support community providers. And this is another example of that in the part of the market where we expect to continue to lead. So again, Michael, thank you very much for the question.
Speaker Change: Thank you. Our next question is from Lisa Gill from J.P. Morgan. The line is now open, please go ahead.
Lisa Gill: Thanks very much and good morning. Thanks for taking my question. I thought I asked a numbers question.
and the quarters going forward.
Lisa Gill: Lisa, thanks, thanks a lot for the question. That's an excellent question. And of course, we had, you know, terrific revenue growth.
Lisa Gill: in the first quarter and you're asking about the US, you know, 14% revenue growth, 10% revenue growth x GLP-1s.
Lisa Gill: And as you noted, in the U.S., we increased our revenue growth guidance by two percentage points at the bottom end and the top end of the range. And our guidance is 9% to 11% revenue growth for the fiscal year. But as you noted, that's, you know, lower than the revenue growth.
during the
Lisa Gill: first quarter. And of course, we, you know, increased our adjusted operating income guidance in the US by a lot more than we increased our revenue growth guidance. And I would say there are, you know, a few call outs for those sorts of things. One is our assumption in our guidance on GLP-1s is that, you know, growth is higher in the first quarter than in the balance of the fiscal year. And we'll see if that assumption is correct. Of course, you know, we had
Lisa Gill: Fantastic growth on GLP-1s in the first quarter, it was 53.
growth.
Lisa Gill: and we assume that that growth in Q1, it's higher than it is in the balance of the year. I think the key call out here is that that particular assumption has a big impact on revenue growth, but it has a minimal impact on OI. We've always indicated that GLP-1s are profitable for us, but minimally profitable for us. So really the revenue growth assumption there
Lisa Gill: impact on OI growth. And then, you know, a second thing is our assumption is that, you know, we see Humira conversion to biosimilar.
And again, that's a revenue driver.
Lisa Gill: but it has a minor impact on operating income. As we've always said, the main channel there is the lower margin mail order channel. So again, this has a meaningful impact to revenue growth rates, but a minor impact to operating income growth rates.
Lisa Gill: And then probably a third thing I would call out is the acquisition of RCA, which we feel great about and has a meaningful pickup for us in operating income.
Lisa Gill: but it's not a large revenue pickup from RCA. Again, it's a meaningful pickup in operating income, but not a large pickup on the...
Lisa Gill: revenue side, and compared to the balance of Sencora, RCAS, you know, a higher margin but lower revenue business, and they've already been a distribution customer.
Lisa Gill: And then one kind of detailed thing I'd call out there is we don't double count the product revenue. We eliminate the sale of products from our specialty business to RCA so that we don't double count the revenue.
revenue with regard to
And so overall, I'd say, you know, we feel
Thank you very much.
Speaker Change: Thank you. Our next question is from Elizabeth Anderson from Evercore ISI. Your line is now open, please go ahead.
been recognized.
Speaker Change: Great. I will start out with the answer. And of course, when you're asking about World Courier in our prepared remarks, that's our global specialty.
Speaker Change: subdued. And I, you know, will call out that this is a, you know, very good business that's had, you know, strong performance for the last
10 years, I'm going to say.
Speaker Change: But, you know, in the near term, it's been, you know, challenging due to the pullback in the market.
and we do expect in this business...
Speaker Change: to see performance improve later in fiscal year 25 as demand for our premium service picks up. And we were with the management team of this business last week, and they're very focused on
Speaker Change: Commercialization Services and I would just you know say that the market is you know somewhat subdued as you know I commented on our global specialty logistics
Speaker Change: business, Elizabeth. And I see Bob wants to add some things. Yeah, thanks, Jim. Elizabeth, thank you very much for the question. You know, I think just to take a step back strategically, and Jim certainly handled the part of your question, you know, related to
you know, the overall pharma services.
Speaker Change: But I do want to just reinforce how important our global footprint is to the future growth of Sankora. It really is a differentiated,
component of our business. We hear loud and clear.
Speaker Change: from customers how important not only the specialty logistic services from WorldCourier are but also our consulting services that you mentioned.
as well as 3PL Services, and when we think about
the future of specialty.
Gross,
Speaker Change: These are services that are required and valued by the pharmaceutical manufacturers and as you think about specialty
Speaker Change: launches in Europe in particular, the suite of services that we have built are very well positioned to support manufacturers in that process and we hear, you know, continually that our approach to having a very local approach
Speaker Change: or very local expertise in the markets we serve, as well as a global infrastructure to support that is valued and is important.
Speaker Change: contribution to efficiency as we think about that market. So we're bullish on the strategy over the long term. We believe the market will continue to improve and we're very well positioned to participate in that improvement.
Speaker Change: Thank you. Our next question is from Steven Faliquette from Mizuho Securities. Your line is now open, please go ahead.
Speaker Change: Oh, great. Thanks. Good morning. So, you know, just a quick question in relation to Walgreens. You know, I think no one was really surprised by this last month, but when they kind of more officially disclosed on their earnings call that they're in active discussions with you guys in relation to the current contract.
Speaker Change: I'm just curious, I know you're probably limited on what you can say on this topic, but just open ended, is there any update or additional comments that you have on this topic from your side given their disclosures last month? And also just to confirm, your guidance presumably reflects any potential changes in that contract.
Speaker Change: at least as it pertains to your fiscal 25. Just want to confirm that one way or the other as well. Thanks.
Speaker Change: Thanks, Steven. I'll start and then hand it over to Jim for the guidance portion.
Speaker Change: You know, I hope you're hearing loud and clear through our prepared remarks and other answers that, you know, partnering closely with our customers to unlock value, to innovate, is a core part of what we do, and you should certainly expect that we're doing that with Walgreens.
Speaker Change: on a continuous basis. So we're very engaged with them. We're looking for opportunities to create value, win-win value as we go forward. You know, we're obviously a very important
Speaker Change: They're a very important customer, a strategic customer of a long-term, not just in the U.S., but in the U.K., as well as our sourcing relationship with.
Speaker Change: WBAD. So very high priority for us, but again as we would with with all of our most important customers, our teams are engaged, we're bringing the best experts that we can, world-class experts, in terms of trying to innovate together and create new value.
Speaker Change: And then just to quickly answer the last part of your question, yes, our, you know, guidance that we announced today, you know, includes our assumptions on all aspects of our business, Walgreens and every other aspect of our business, Steven. Thank you.
Speaker Change: Thank you. Our next question is from Eric Purcher from Nephron Research. Your line is now open, please go ahead.
Eric Purcher: Thank you. Bob, you mentioned that you studied the MSO business with one oncology in real time and I'd be interested in your perspectives on the challenges we've seen in practice management 20 years ago and physician enablement.
more recently and what's key to
Eric Purcher: motivating and growing practices. And then Jim on the financial mechanics of RCA, I want to make sure we understand how much of a retention element is paid out and we're seeing the accretion in US health care but I assume that's flowing through minority interest.
Thanks for the question, Eric.
Eric Purcher: Yeah, we're spending a lot of time learning, you know, you remember, you know in our
Eric Purcher: investment in wellness and oncology, we did that with TPG. We're very happy with that decision and it helps us continue.
to learn, but there are a few things that
Eric Purcher: I would take away that are, I think, connected to your question.
Eric Purcher: is that the physician leadership of these MSOs is very important.
Eric Purcher: And that's not in the absence of other managers and other leaders, but, you know, keeping the entire physician base engaged and motivated, you know, we're confident that, you know, strong physician leadership.
Eric Purcher: is important. Second is that the real beauty of the MSO model is its
Eric Purcher: it's intent, it's value creation. So it could be through new services like clinical trial support, which RCA is particularly good at. It can be through
Eric Purcher: you know analytics and and other solutions that help the physicians practice better or more efficiently within their you know for their patients and really trying to drive the best possible outcomes
Eric Purcher: And I think third is a long-term pathway for physicians who are coming into the model. So there certainly are these practices that can have...
Eric Purcher: you know, long-tenured physicians in them and they're also, it's very important that we're able to attract
Eric Purcher: either smaller practices or new physicians into the MSO. And I'll say that both One Oncology and RCA are particularly good at that, attracting the smaller practices as well as physicians right out of fellowship.
Eric Purcher: Yeah, and then I'll answer the last part of your question, Eric. As you know, we acquired RCA on January 2nd at the beginning of
are Q2 and our updated guidance reflects
Eric Purcher: operating income growth rate in the US. And you'll see that all presented and the details of that when we begin reporting quarters with them and our results starting in Q2. Thanks.
Speaker Change: Thank you. Our next question is from Daniel Groslight from City. The line is now open, please go ahead.
Thank you for watching!
Daniel Groslight: Hi, thanks for taking the question and congrats on a strong quarter here. I'll stick with the MSO topic. I'm sure you saw this, but one of your competitors made an acquisition in the ophthalmology focused MSO space. I was wondering if you could talk a little bit about the competitive environment within the MSO space.
Daniel Groslight: specifically ophthalmology and retina both from a competition from from MSO assets as you seek to to acquire those and for the the physicians affiliated physicians as you try to attract more of those to your MSOs. Thanks.
Daniel Groslight: Thanks, Daniel. Yeah, you know, I, I can only speak to, you know, where, you know, we're work focused, and we
are, you know, very confident in that, in
Retina Consultants of America, we have the leading...
Retina, MSO, and
Daniel Groslight: not just leading in terms of size, but, you know, leading in terms of their management team, leading in terms of the clinical excellence, the the prominence of the practices that are within that, and you know, as I mentioned in the previous question, also a robust
Daniel Groslight: clinical research network. So those are the those are the reasons that that we're confident that in that case, we'll be able to continue to attract positions and
and practices to that platform.
Daniel Groslight: And the very same things are true with One Oncology. We believe we have the leading platform.
It's the right model. They're successfully growing.
Daniel Groslight: And again, it's because of the model that they've built and the services that they're providing.
Daniel Groslight: that they continue to add practices. So, you know, look, we've talked a lot about why this is the right strategy for Sankora. So it's not surprising to us that we would, you know, see others in our space.
you know, executing.
Daniel Groslight: in a similar manner. But again, we're really happy and confident in the partners that we've chosen, and we'll continue to execute upon that.
Speaker Change: Thank you. Our next question comes from Steven Baxter from Wells Fargo. If the line is not open, please go ahead.
Speaker Change: Hi, thanks for the question. I was hoping you might be willing to give us an update on what the guidance revision for
Speaker Change: The U.S. business would have been, on an organic basis, to try and compare that on an apples-to-apples basis.
Speaker Change: And similarly, when we think about the accretion from RCA that you're going to get in this fiscal year, it sounds like it's not quite as simple as just taking the 35 cents and scaling it based on the nine months, but maybe just gives a better sense of kind of the ramping in the second quarter when we're going to get closer to that full rate. Thank you.
Yeah, and so great questions. The first one was on
and other businesses also, you know, overcoming the COVID.
Speaker Change: that we talked about. And I guess specifically what I'll say is that
Speaker Change: strength in the U.S. segment. So, you know, it's quite safe to say that it's, you know, above the performance that we're seeing there. XRCA is, you know, above the, you know, the five to six and a half percent range, above that range that we initially did in our
guidance. And the second question you had was
regarding RCA accretion, and as we've stated, we expect...
Speaker Change: 35 cents of accretion during the first 12 months of ownership, you know, and nine months of that as a course and fiscal year 25. And I referred to the fact that we do expect it to ramp up
Speaker Change: over the course of fiscal year 25 and really the, you know, the reason for that ramp up over the course of the year is just, you know, growth in the business and then also, you know, execution of business and strategic initiatives at RCA.
Speaker Change: Thank you. Our next question is from Charles Rhee from TD Cowan. The line is now open, please go ahead.
Charles Rhee: Thanks for taking the question. I wanted to ask about going back to the specialty business and related to RCA.
Speaker Change: You know, if I'm not mistaken, right, I think you guys are the largest distributor for Regeneron on ILEA.
Speaker Change: You know, Amgen just launched, I think they announced last quarter, the launch of their version, Path Blue, into the market. And I think there's another one supposed to be coming maybe this summer.
Speaker Change: Just curious, you know, those scripts are kind of hard to track, you know, through, you know, sources like IQVIA, just wanted to understand how that launch is going for you, and what kind of opportunity do you see Biosimilar ILEA being, and how does
Speaker Change: Your ownership of RCA, does that allow you to drive better adoption of biosimilars? I guess that's a more general question across all your MS practices. Thanks.
Hi, Charles. Thanks for the question.
Speaker Change: We've had a long history of partnering with retina physicians, you know, over decades and so we do understand the space very well. Two, we have...
you know, studied the...
Speaker Change: the pipelines pretty extensively or very extensively, you know, in terms of, you know, new innovation as well.
Speaker Change: as biosimilars, and we're confident that that will be a healthy process. So we'll have
We'll have continuous new innovation. We'll also have biosimilars.
Speaker Change: that come to the market. And, you know, that's, that's a healthy, that's a healthy market that'll be good for, for patients, it'll be good for the MSO and good for Sankora. And I think, you know, lastly, you know, what we've seen
Speaker Change: over, you know, both in oncology and in coming and retina is that, you know, biosimilar adoption is is good. It's in the Part B space, it's
Speaker Change: you know, our experience has been it's faster than you see in the Part D space.
and, you know, we expect that will continue.
Speaker Change: But I think the most important part of this is just a healthy market, continuous innovation, as well as, you know, appropriate biosimilars coming to the market and then, you know, physicians will obviously make the best clinical decision for the patients that they're caring for.
Thank you for watching!
Speaker Change: Thank you. Our next question is from Alan Lutz from Bank of America. The line is now open, please go ahead.
Good morning and thanks for taking the questions.
Speaker Change: As we kind of look back to 2024, utilization was really strong in U.S. healthcare. I think, you know, we've seen that broad across the different distributors, and some of that I think was due to just sort of this post-COVID re-acceleration of Scripps as patients are going back to the physician. There were a few things you called out, GLP-1s, then Humira.
Speaker Change: If we back those things out, how should we think about new script growth more broadly?
Speaker Change: in 2025 versus 2024. Is what's embedded in the current guidance a normalization of utilization? Is there anything that you're seeing from the benefit design changes that were put forth on January 1st? Just curious if there's anything embedded within the guide outside of the things you called out that's a little bit different in 2025 versus 2024. Thanks.
All right. Thank you. Thank you.
Speaker Change: Yeah, that's a great question. And, you know, as we commented throughout fiscal year 24, we saw strong utilization trends.
Speaker Change: And as we, you know, called out during this first quarter, we also saw a strong...
Speaker Change: Utilization trends and you know I would just have to say you know kind of as we look at the balance of fiscal year 25 this is why we have a range and you know kind of probably that you know kind of the key driver in our range and our range is of course two full percentage points
Speaker Change: for both Consolidated and the U.S. top-line growth and probably, you know, by far the biggest driver of that range is, you know, various assumptions on utilization trends for the balance of the year. But, you know, I just want to say
overall that, you know, kind of we view our...
Speaker Change: Both our company performance and leading with market leaders and the strength of our market is quite good and quite resilient, which is one thing that gives us a high degree of confidence in our guidance for fiscal year 25. Thank you for the question.
Speaker Change: Thank you. Our next question is from George Hill from Deutsche Bank. Your line is now open, please go ahead.
George Hill: Good morning guys and thanks for taking the question. I'm going to come back to the MSO businesses for a second. And you talked about the clinical trial component, but what I was going to ask is could you rank order the value drivers?
George Hill: that allow, whether it's Sankora or RCA or One Oncology, to add value to its physician partners in these practices. Like we know GPO is a piece, clinical trials is a piece, rep cycle is a piece. Just like if you could kind of rank out the three or four main drivers of value creation, I think that'd be very helpful for investors.
George Hill: Hey George, it's Bob. I'll take this. I don't think we...
can rank them necessarily.
Speaker Change: and within the different physician practices, within the different specialties, I think there's a different mix of things that are valuable to those physicians and those are gonna be the value drivers and probably the second point of that is
It's continually changing, right? So it's a very dynamic.
marketplace the needs of
Speaker Change: And that's one of the great things about having the robust suite of MSO services is you have you have the infrastructure then
Speaker Change: to make sure that we're doing our best to keep up with and stay a step ahead of what they need. And kind of that same approach that we've been emphasizing, which is working really closely with our customers to bring solutions and innovation to the market. Again, we do that across all of our business, but the MSO platform gives us an opportunity, obviously even a step closer to the provider to do that on a continuous basis, which will be our intent.
Speaker Change: Thank you. Our next question is from Erin Wright from Morgan Stanley. The line is now open, please go ahead.
Erin Wright: Great, thanks. I think you mentioned specialty strength was broad-based but any key therapeutic categories to call out there and it's
Speaker Change: If I can ask a two-parter here, I'm switching species, but I'm just curious what you're seeing in animal health. There seems to be just a lot of commotion in this space.
Speaker Change: and competition at both the manufacturer and the distributor level to some extent and just bigger picture. It's been, you know, roughly 10 years since the MWI deal closed and...
Speaker Change: How would you characterize how you see MWI fitting in the enterprise now? Your commitment to the business? Does it detract at all from some of the broader efforts and long-term vision across like specialty or your MSO strategy? And just curious on your bigger picture thoughts there. Thanks.
Speaker Change: Yeah, thank you for those questions. First of all, your question was on.
Speaker Change: specialty in our, you know, specialty business has always, you know, kind of the biggest driver has always been the oncology part of the business.
Speaker Change: and you know obviously a very strong part of that. First Sencora is in Part B and our sales to specialty physician practices and health systems so that's really kind of been the
Speaker Change: MSOs, first in oncology and then in the retina market, which is, you know, Bob commented on is really kind of a natural evolution and next step of our highly successful specialty business. And then, thank you for your question on animal health. Our animal health business
Speaker Change: had a very good quarter. You'll see in our queue that'll be published later today the animal health business had
Speaker Change: You know, the growth was, and while we don't break it out, the growth was actually good in the quarter in both the companion animal market, which is about two-thirds of our business, and the production animal market, which is about a third of our business. You know, both had very nice growth.
Speaker Change: and not only was it good top line growth, but good bottom line growth in the business also. And, you know, part of that is probably the market, but I think we're probably.
Aaron: continuing to incrementally gain some market share there and also I just say you know we feel you know very good about the the animal health business and feel that the management team there is doing a particularly good good job so thank you for the questions Aaron
Speaker Change: Thank you. Our next question is from Kevin Calendio from UBS. Your line is now open.
Thank you. Thanks for taking my question.
Kevin Calendio: Does your fiscal 25 guidance embed any incremental customer loss beyond FCF? I know you detailed that back in November.
Kevin Calendio: That was the first part. And just specifically on the PaxLavid or the COVID headwind, was it better or worse than expectations in fiscal 1Q?
Kevin Calendio: You say that we missed the last part of your question. Can you repeat that?
Kevin Calendio: Oh, I'm sorry. Yeah, sure. No, just on the COVID headwind, was it better or worse than expectations in fiscal 1Q versus what you originally thought when you originally guided?
Yeah.
Kevin Calendio: So, the first was, I think, you know, our guidance, does it impact, does it expect any customer losses other than the one that you...
Kevin Calendio: mentioned and I would say you know generally the answer is yes it you know assumes some you know some customer losses and gains but really there's there's but there's there's none other than the one you called out that's you know a meaningful amount of plan you know profit or loss that would be you know worth
Kevin Calendio: calling out and so we don't call it out. And then the second question had to do with COVID and...
with regard to exclusive COVID therapies.
Kevin Calendio: Which is I think what you're asking about is it was a six cent headwind
during the first quarter.
Kevin Calendio: But the first quarter of fiscal year 24 was the last quarter.
Kevin Calendio: that we had exclusive COVID therapy contributions. So it's not a headwind for the balance of the year. And, you know, with regard to COVID vaccines, you know, we really called this out.
Please use the chat room.
Kevin Calendio: in our prepared remarks that in the, you know, first quarter of fiscal 2025, the contribution from COVID-19 vaccines was about half that of the prior year quarter.
Kevin Calendio: And we expect a similar-sized operating income headwind in the second quarter of fiscal 2025, meaning no significant expected contribution from COVID vaccines in our second quarter of fiscal 2025. And so, you know, the strong guidance raise and increase that we did this quarter is in spite of that COVID vaccine headwind. Thank you for the questions.
Speaker Change: Thank you. Our next question is from Eric Caldwell from Baird. The line is now open, please go ahead.
Eric Caldwell: Thanks very much. I didn't think World Courier could get this much attention on a call, but I do have some World Courier questions.
Eric Caldwell: First, I wouldn't disagree that there are some market challenges, subdued clinical trial activity, that all makes sense for the softness you cited.
Eric Caldwell: You also do cell and gene therapy and other specialty shipments unrelated to clinical trials, so I'm wondering how those are faring. Part B, what is the basis for saying clinical trial activity will pick up later this year?
Eric Caldwell: and Part C on WorldCourier, any additional commentary on competition in the market. We've seen some noise from UPS Healthcare and others. I just want to make sure that the weakness in WorldCourier is more temporary and in-market related as opposed to...
Speaker Change: you know something going on on the competitive front. Thanks very much.
Speaker Change: Yeah, let me let me start out here. First of all, you know, we, we, we feel very good about the opportunities in the cell and gene therapy market. And it's a result of our world courier strength, Eric, and then, you know, the strength and our other commercial estate,
Speaker Change: commercialization services businesses. So as we look at the long term and we feel great about that market opportunity and we feel very good about how well
Speaker Change: positioned we are to be the leader in the market. But I would say that it's not of a size yet that it has a material contribution to the bottom line. Second, yes, you know, what, why do we think that there's
opportunity to see improvement in global specialty logistics.
Speaker Change: later in the fiscal year, you know, in meeting with the teams and looking at market data and looking at the pipeline, our teams are really heavily focused on the pipeline, which we, you know, feel has the opportunity to pay off.
Speaker Change: later in the fiscal year given, you know, both the market and given the, you know, the work that our teams are doing. And then
that's
Speaker Change: The third part of the question was on competition. And yeah, that market, you know, it certainly is a competitive market. We have a premium service and have been a market leader for many years and are very focused on the market, but we will acknowledge that it certainly is a competitive market where we have been and plan to continue to be a market leader.
Speaker Change: Yeah, and Eric, I would only add, and again, this is thematic today, but...
You know, the...
Speaker Change: Being a premium provider, you know, indicates that we're continually innovating with within that space. So, you know, the, the things that we've talked about in terms of, you know, temperature monitoring and and tracking of.
Speaker Change: of products throughout the supply chain, a very specialized supply chain for these products. It's something that we'll continue to do. That's just an example. But while there is competition, we intend to continue to innovate to make sure that we're ahead of the pack.
Speaker Change: Thank you. We currently have no further questions, so I'll hand back to Bob for closing remarks.
Bob Mauch: Great. Thank you, Becky. Again, I want to thank everyone for joining today. I also want to thank again our
SYNCOR team members.
Bob Mauch: You know, this performance is due to your purpose-driven approach, your expertise.
Bob Mauch: and your dedication to meeting the needs of our customers and patients worldwide. And I know you will continue to advance our leadership and specialty, drive efficiency and productivity, and execute with a customer-centric mindset. Thanks, everyone.
Bob Mauch: This concludes today's call. Thank you for joining. You may now disconnect your lines.