Cardinal Health, Inc.

Good morning. This is Kevin Moran, Vice President of Investor Relations. Today, we will discuss Cardinal Health's first quarter fiscal 2021 results, along with an update to our outlook. You can find today's press release and presentation on our IR section of our website at ir.cardinalhealth.com. Joining me today is Mike Hoffman, Chief Executive Officer, and Jason Holler, Chief Financial Officer. During the call, we will be making forward-looking statements. The matters addressed in the statements are subject to the 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. Please note that during the discussion today, our comments will be on a non-GAAP basis unless they are specifically called out as GAAP. GAAP to non-GAAP reconciliations for all relevant periods can be found in the schedules attached to our press release. During the Q&A portion of today's call, we please ask that you try and limit yourself to one question so that we can try and give everyone an opportunity. With that, I'll now turn the call over to Mike.

Thanks, Kevin, and good morning to everyone joining us. I'll begin with a few high-level thoughts on our first quarter, then have Jason review our results and updated Fiscal 21 outlook. I'll close with an update on strategic actions we are taking to carry our positive momentum forward. Our strong first quarter results were due to great execution on key strategic priorities and additional aggressive cost controls in response to the uncertainties of the pandemic. Regarding COVID-19, we saw continued utilization improvement in the quarter, particularly in elective procedures. These dynamics, along with the discipline execution I mentioned, contributed to better-than-expected performance in our medical segment, which saw significant year-over-year growth. And in pharma, we continue to be encouraged by the resilience of our business, which grew in the first quarter despite volume softness related to the pandemic. As a result of the strong start to our fiscal year, we have increased confidence in the full year, and we are raising both our EPS guidance range and our medical segment outlook. Overall, we remain focused on serving our customers and their patients as we optimize our core businesses and invest for growth to fulfill our critical role in healthcare now and into the future. With that, I'll now turn it over to Jason.

Thanks, Mike, and good morning, everyone. I will review our first quarter performance and updated expectations for fiscal 21. Beginning with consolidated company results, Our first quarter EPS came in at $1.51, growing 19% versus the prior year and exceeding our expectations. Total first quarter revenue increased 5% to $39.1 billion, driven primarily by sales growth from existing customers. Total gross margin grew 2% to $1.7 billion. Despite higher revenue, SG&A was flat at $1.1 billion, demonstrating our enterprise-wide commitment to disciplined expense management. Total operating earnings grew 7% to $618 million, driven primarily by strong medical segment performance. Interest and other expense decreased 52% versus the prior year to $38 million, driven by lower interest expense as a result of our ongoing commitment to reduce debt, as well as multiple other favorable items such as FX and deferred compensation. Our effective tax rate for the quarter was 23%, which includes a few small favorable discrete items. Although discrete adjustments may cause our quarterly tax rate to deviate from our guidance range of 24% to 26%, At this time, we still believe this range is appropriate for the full year. Average diluted shares outstanding were 295 million, about 2 million fewer shares than the prior year, reflecting the repurchases completed last year. We generated operating cash flow of $270 million during the quarter. As a reminder, the day of the week in which the quarter ends affects point-in-time cash flows. We ended the first quarter with a cash balance of $2.7 billion and no outstanding borrowings under our credit facilities. Now, turning to the segments, beginning with medical on slide six. Medical revenue increased 1% in the first quarter to $4 billion, driven by sales growth in our at-home solutions business. Segment profit increased 36% to $230 million, driven by cost savings, including global manufacturing efficiencies. The following factors contributed to first quarter medical performance above our expectations. First, while elective procedure volumes were still below prior year levels, they ramped up more quickly than expected. Given our portfolio's general orientation around the OR, this volume improvement resulted in increased demand for many of our higher margin offerings, including our custom surgical kits and patient recovery products. Second, our lab business, which has grown consistently over the past few years through product portfolio expansion and favorable market trends, experienced a tailwind from increased demand for COVID-19 testing products. And finally, as Mike mentioned, our team delivered strong expense management in response to uncertainties related to COVID-19. These measures position us to operate and invest in the business for continued growth. As we have previously discussed, we higher procurement costs for certain PPE product categories due to global supply challenges during the pandemic. To help mitigate these cost increases, we implemented price increases on select PPE products with the goal of maintaining neutral margin dollars. PPE cost increases and corresponding mitigation efforts did not have a material net impact on our results for the quarter. I will discuss the potential effects of these dynamics from this segment for the full year when I share our updated assumptions. Now, transitioning to the pharma segment on slide five. Revenue increased 5% to $35.1 billion, driven by sales growth from pharmaceutical distribution and specialty solutions customers. Despite expected COVID-19 related volume declines, segment profit increased 1% to $402 million, driven by a higher contribution from brand sales mix. Additionally, the pharma team remained focused on diligent expense management. During the quarter, we saw improving pharmaceutical demand, enabling us to finish generally in line with our COVID-19 expectations for this point in the fiscal year. Our specialty solutions business also demonstrated improvement in the quarter, resulting in strong overall growth. Our nuclear business, as expected, was down year over year, but experienced significant volume recovery in the quarter. We've mentioned nuclear has been particularly affected by the pandemic, due to the mix of higher margin products and the business's higher fixed cost structures. We continue to believe we are well positioned to capture long-term value in the radiopharmaceutical industry. Finally, we're encouraged to see another quarter of consistent market dynamics within our generics program, which, excluding the impact of COVID-19, was a net tailwind in the quarter. Next, on slide 8, I'll move to our updated fiscal 21 outlook. As a result of our strong first quarter performance, we are raising our earnings guidance range to $5.65 to $5.95 per share, which at the midpoint represents 6% EPS growth from the prior year. We are reaffirming the guidance ranges for each of our other corporate assumptions. This increased EPS guidance is driven by an improved outlook for our medical segment depicted on slide 9. Because of our strong execution on cost savings, including increased global manufacturing efficiencies and the lower impact of COVID-19 related volume declines, we now expect low double-digit profit growth in the segment. With one quarter of additional insight, we are updating our segment revenue growth to mid to high single digits for the full year. To be clear, the increase in our revenue guidance relates to better clarity on the impact of PPE pricing, and we expect this increased revenue to be more than offset by the higher cost of procuring PPE products, which will adversely impact our margin rate. Mike will provide more color on our PPE supply assurance efforts for our customers later in his remarks. As it relates to the pharma segments, we are reiterating our assumptions of mid-single-digit revenue growth and low single-digit profit growth. With respect to our enterprise COVID-19 assumptions, we are not assuming that the virus triggers another wave of widespread reductions in elective procedures or physician office visits. However, we are closely monitoring virus trends, patient utilization, and the health of the global economy, including unemployment trends, all of which currently have varying degrees of uncertainty. At this time, we anticipate the total net impact from COVID-19 in the second quarter to be relatively consistent to what we experienced in the first quarter. This is primarily due to the improved utilization environment offset by cost absorption on our self-manufactured products and the previously mentioned higher costs of procuring PPE. We continue to expect a lower total COVID-19 impact in the second half of the year, and we assume utilization will exit the year at or near pre-pandemic levels. Furthermore, we continue to explore opportunities to mitigate these impacts on our business through cost controls and more permanent improvements to our operational cost structure. Now, I want to mention a notable item included in our GAAP results. Recall that in the first quarter of fiscal 20, we accrued $5.6 billion pre-tax related to an agreement in principle amongst a leadership group of state attorneys general to resolve pending and future opioid litigation claims by states, cities, and counties. While the definitive terms for settlement continue to be negotiated, with better visibility into a potential outcome, we accrued an additional $1 billion pre-tax in the quarter. The estimated total cash component for Cardinal Health would be $6.6 billion, with the majority currently expected to be paid over a period of 18 years. Considering this accrual update in the dynamic global environment, let me remind you of our capital allocation approach, which we are prioritizing in the following manner. First, we are investing in key areas of our business to enable our strong pipeline of organic growth opportunities. Second, we are focused on taking appropriate action to maintain our investment-grade balance sheet. And third, we are committed to returning cash to shareholders, primarily through our dividends. We believe this prioritization of capital best positions us to both maintain flexibility and generate significant value over the long term. I'll now turn it back over to Mike.