Cardinal Health, Inc.

Good day and welcome to the Cardinal Health Inc. Second Quarter Fiscal Year 2019 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Lisa Capeticci. Please go ahead.

Thank you, Bryce. Good morning and welcome to Cardinal Health's Second Quarter Fiscal Year 2019 Earnings Call. I am joined today by our CEO, Mike Kaufman, and Chief Financial Officer, Jorge Gomez. During the call, we will provide details on our second quarter results, full year outlook, and an update on our strategic initiative. You can find today's press release and presentation on the IR section of our website at ir.cardinalhealth.com. During the call, we will be making forward-looking statements. The matters addressed in the statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected or implied. Please refer to our SEC filings and the forward-looking statement slide at the beginning of our presentation for a description of these risks and uncertainties. During the discussion today, our comments will be on a non-GAAP basis unless they are specifically called out as GAAP. Our GAAP to non-GAAP reconciliations for all relevant periods can be found in the schedules attached to our press release. In addition, during the call, we will provide an update to our fiscal 19 outlook on a non-GAAP basis. We do not provide guidance on a GAAP basis due to the difficulty in predicting items that we exclude from our non-GAAP earnings per share and non-GAAP effective tax rate. During the Q&A portion of today's call, we ask that you limit your questions to one with one follow-up so that we may give everyone in the queue a chance to ask a question. As always, the IR team will be available after this call, so feel free to reach out to us with any additional questions. And with that, I will turn the call over to Mike.

Thanks, Lisa, and good morning, everyone. I'm glad you could join us. Let me begin with some comments on our second quarter of fiscal 2019, and then I'll provide a brief update on the progress we're making on our strategic initiatives to drive future growth. With the first half under our belt, I'm very pleased that we are on track with executing our plan. Overall, the second quarter came in ahead of our expectations led by the pharma segment. EPS for the quarter was $1.29 and revenue of $37.7 billion was up 7%. Operating earnings were $637 million and operating cash flow was $372 million. Based on the year-to-date performance, we are raising our guidance range for non-GAAP EPS for the full year to $4.97 to $5.17 from our previous range of $4.90 to $5.15. Jorge will walk you through the details and our current assumptions. Our confidence in raising our guidance for fiscal 19 is based on the tangible results we are beginning to see from the hard work being performed across the enterprise as we execute on our top priorities. Turning now to the pharma segment, a few comments. Overall, this business continues to be powered by our partnerships with strong, growing customers and the critical role we play in supporting their mission day in and day out. Serving more than 26,000 pharmacies on a daily basis and 10,000 specialty physician offices and clinics, we are integral to their businesses and to their success meeting patients' needs. Further, I am proud that our team continues to develop innovative new ways to enhance the value we provide to customers. As to performance, revenue for the segment was up 8% to $33.7 billion. As anticipated, Our generics program remained the most significant profit headwind, and overall generic market dynamics remained consistent with prior quarters. On the positive side, we benefited from improvements in brand volume. Within this environment, driving down our costs and increasing efficiency remains critical, and during the quarter, we saw positive impact from the cost reduction initiatives we have underway. An additional highlight was our specialty business, which continued its strong momentum during the quarter, outperforming our expectations. Specialty once again delivered excellent revenue and profit growth, driven by higher volume as well as mix. In the medical segment, revenue for the quarter of $4 billion was about flat with a year ago, reflecting the China and NAVA Health divestitures. Importantly, we are making good progress on the major strategic initiatives we have underway to drive better results and longer-term growth. Patient recovery continues to achieve integration milestones, including most recently exiting our last major TSA in Asia Pacific in late January. Looking ahead, we remain excited about the longer-term growth potential of this business. At Cordis, our stabilization program is also on track, and the steps we've taken are beginning to have impact. Service levels and fill rates are up, while back orders and inventory expenses are moving down. The team continues to optimize the product mix and streamline our geographic footprint. We remain confident that Cordis will be on a path to profitable growth by the end of the fiscal year. Finally, our services business and Cardinal Health at Home were once again standouts this quarter, reflecting ongoing strong demand for both. Services continues to expand its niche, providing value-added technology and logistics support to our partners, while the at-home business is capitalizing on a number of larger healthcare trends. All in all, the medical segment team is executing and making solid progress. Further, as we look ahead, given our expanded offering of medical products and services, coupled with our strong distribution network, we see opportunities to drive long-term growth, especially in Cardinal Health brand products. Let me now turn briefly to our strategic priorities, beyond my earlier comments on patient recovery and Cordis. Overall, we are making good progress and remain laser focused on how we can deliver the greatest value. With respect to our cost structure, as you know, back in August, we announced a significant cost savings program. And as Jorge will discuss, we are well positioned to exceed both our near term target of $100 million in annualized savings for fiscal year 2019, and our longer term goal of at least $200 million. In addition, the team continues to actively review how we operate and seek further opportunities to reduce costs. We have a significant number of work streams in flight looking at both what we do and how we do it. As it relates to our pharma model, we continue to actively discuss evolving industry dynamics and evaluate new models with both our upstream manufacturer and downstream provider partners. This includes continuing to push for differentiated pricing models with providers and less contingent margins with manufacturers. And finally, regarding capital deployment, Jorge will provide a few updates. I would just note that we continue to execute a very disciplined and thoughtful strategy to fund the future growth of the business, return cash to shareholders, and maintain our healthy balance sheets. Supporting all of this work, of course, are our people, and I'm thrilled that we continue to strengthen and enhance our leadership team. Since our last call, Victor Crawford joined us as CEO of the pharma segment, and he has brought highly relevant skills and insights as we navigate our evolving industry landscape. In addition, just this week, Brian Rice joined us as our Chief Information Officer to lead our global technology and customer service teams. Brian brings deep experience leading global IT and business services, and we look forward to benefiting from his expertise and perspective. In summary, while we still have a lot of work to do, there is much to be excited about. As I look back over the past year, we have made significant progress, improving execution, sharpening our portfolio, getting after cost, and strengthening our leadership team. Going forward, our core distribution businesses will continue to be essential to the healthcare system. We will continue to adjust our pharma distribution business to improve profitability and leverage our medical distribution business with our significant portfolio of Cardinal Health products. At the same time, we will invest in our current growth platforms, such as specialty, at-home, and our services businesses. Let me wrap up by extending my thanks and appreciation to our entire team for their hard work this past quarter and for their dedication in continuing to advance our strategic initiatives. We look forward to building on this solid foundation over the balance of the year with the ultimate objective of delivering the greatest value for our customers, shareholders, employees, and the communities we serve. And with that, let me now turn the call over to Jorge.