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spk09: Hello and welcome to the Sincora Q2 2024 Earnings Call. My name is Alex and I'll be coordinating the call today. If you'd like to ask a question at the end of the presentation, please press star followed by one on your telephone keypad. And I'll hand it over to your host, Bennett Murphy, to begin. Please go ahead.
spk10: Thank you. Good morning, good afternoon, and thank you all for joining us for this conference call to discuss Sincora's fiscal 2024 second quarter results. I am Bennett Murphy, Senior Vice President, Head of Investor Relations and Treasury. Joining me today are Steve Collis, Chairman, President, and CEO, Jim Cleary, Executive Vice President and CFO, and Bob Motch, Executive Vice President and COO. On today's call, we'll be discussing non-GAAP financial measures. Reconciliations of these measures to GAAP are provided in today's press release, which is available on our website at investor.sancora.com. We've 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. 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 10Q. Sancor assumes no obligation to update any forward-looking statements, and this call cannot be broadcast without the express permission of the company. You'll have an opportunity to ask questions after today's remarks by management. We ask you to limit your questions to one participant in order for us to get to as many participants as possible within the hour. With that, I will turn the call over to Steve.
spk14: Thank you, Bennett. Good morning and good afternoon to everyone on the call. Before turning to discuss our second quarter results, I want to take a moment to introduce Bob Mausch, our current COO, who we announced in March will be succeeding me as CEO on October 1st. For nearly two decades, Bob has been an integral partner in shaping and implementing our strategy. In Bob's time leading operations across our businesses, he has developed a deep relationship with our partners and team members. and his knowledge of our business and considerable expertise will significantly benefit the company as he leads Sencora into our next chapter. I want to extend my sincerest congratulations to Bob and will now turn the call to him to make some brief comments. Bob?
spk13: Thank you, Steve. I'm excited to be joining today's call and look forward to deepening my relationships with our investor and analyst stakeholders in the quarters to come. It's an honor to succeed you to become Sancora's third CEO on October 1st. Sancora's position as a leading healthcare solutions organization is rooted in our purpose, pharmaceutical-centric strategy, and growth mindset. Our purpose, capabilities, and the critical role that pharmaceuticals have in healthcare and patient outcomes motivate me personally and professionally. My parents owned independent community and long-term care pharmacies, So I grew up appreciating firsthand the critical role that pharmaceuticals play in positive patient outcomes. That experience helped shape my 30-plus year career in pharmaceutical care, leading me to found Accenda, a health outcomes consulting firm for pharmaceutical manufacturers, and setting me on the path that eventually brought me to Sancora. Since then, I've had the pleasure of leading businesses across our company. building and fostering our strong relationships with market leading customers and partners and developing strong teams that are differentiated by their unique backgrounds and expertise. Throughout my 17 years at Sankora, I've worked closely with Steve and our teams to help shape our strategy. During that time, I've had the opportunity to benefit from Steve's leadership and mentorship and his fierce devotion to our people and purpose. I'm grateful that I will be able to continue to work closely with Steve throughout this transition over the next several months, and I look forward to benefiting from his continued leadership, partnership, and guidance in his new role of executive chair later this year. Thank you to our board of directors and our team members for the trust and opportunity as I move into this new role. Together, we will continue to drive value for all our stakeholders, both now and in the years to come. I'm pleased to have had the opportunity to join today's call and share how excited I am for my future role. With that said, I'll leave it to Steve and Jim to answer your questions as usual. I'll look forward to speaking with you all more in the weeks and months ahead. I'll now turn the call back to Steve to discuss our fiscal second quarter.
spk14: Thank you, Bob. I also wanted to take a moment to acknowledge Gina Clark, our EVP and Chief Communications and Administration Officer. who we announced this morning will be retiring at the end of our fiscal year. Gina has had a distinguished career and made an enduring impact, leading large-scale initiatives across the organization, including uniting our company and our new globally inclusive identity, Sencora. Congratulations, and thank you, Gina, for your significant contributions. Now, turning to our second quarter, Our ongoing focus on operational excellence and our team members execution on our pharmaceutical centric strategy drove another quarter of strong financial performance with revenue growth of 8% and adjusted EPS growth of 9%. Our role at the center of healthcare is core to our strategy and our positioning allows us to serve as a trusted partner while capturing opportunities presented by innovation. leveraging and investing in our infrastructure and extensive capabilities. We support access and efficiency across healthcare. Our multinational distribution footprint and global platform of commercialization services makes us a natural partner for manufacturers bringing their products to market. With our increasing presence in pharma services, we are able to cultivate relationships with pharma early in the development process and position ourselves as not only a provider of logistics and distribution services, but also as an integrated partner able to support the successful commercialization of their products. Connecting with our manufacturer partners is key to better understanding and anticipating their ever-evolving needs and challenges. In early April, we hosted our first Think Live series of the fiscal year, in which representatives from over 30 manufacturer partners and the Sincora team came together to share their insights on new ways we can collaborate and work to support ongoing innovation in the pharmaceutical space. Over the course of the year, we will host a number of these events focused on the different needs of our manufacturer partners, from biopharmers and cell and gene therapy developers to the largest established manufacturers. The discussions we are having with pharma innovators provides us with a deep understanding of their pipelines for life-altering innovations, giving us a direct line of sight to development opportunities for our commercialization services portfolio. Additionally, for products that have been launched, our role at the center of the supply chain and our global footprint allow us to capitalize on valuable insights and shared commercial opportunities, including for launches in additional geographies. Sencora has always endeavored to be a trusted industry partner, and our integrated approach to commercialization is increasingly sought out and appreciated by our former partners. To this end, we were pleased to win another integrated services and distribution contract with an emerging biotech this quarter. While small in the context of the Sencora enterprise, wins like this are important proof points that demonstrate our integrated model and global capabilities are differentiated and resonating with manufacturers. As we continue to advance our commercialization capabilities, we further strengthen our ability to contribute to pharmaceutical outcomes and support innovation. As the entire healthcare ecosystem continues to advance, we are embracing the latest technology to support our customers' growth and providing actionable insight to our partners leveraging data and analytics. We continue to develop solutions for our provider customers, allowing them to focus on patient care and efficiently run their practices. Recently, we introduced an enhanced application that combines clinical, pharmacy, and financial information in one place for specialty physicians. With this integrated platform, our customers can seamlessly aggregate data about their practices across our solution set to analyze their performance and drive success through customizable, easy-to-use dashboards. Similarly, given investments we have made in our infrastructure to enhance the security of the US pharmaceutical supply chain, we are now able to provide actionable insights to manufacturers leveraging our scale and rich data sets. As we continue to invest in our technology and capabilities, we increasingly see opportunities to create value-added, data-informed solutions that drive innovation and differentiation. A minority investment in One Oncology is another example of our approach to adding solutions that will deepen and expand our relationship with our partners allowing us to support better healthcare outcomes in critical areas. Since completing our investment in One Oncology last June, the platform has continued to grow as oncologists increasingly recognize the value of joining a physician-led network of like-minded, community-based practitioners. To enhance its value proposition to physicians, One Oncology has advanced key IT and practice management technologies while investing in important clinical research and real world evidence solutions to make community provider participation in clinical trials more seamless. We are taking our learnings from our investment in One Oncology to unlock new growth opportunities for all our community oncology customers while allowing them to maintain their independence and treat cancer patients with high quality and cost effective care in their local communities. Our continued partnership with One Oncology leadership team and TPG brings together our collective strength as we work jointly to advance accessible quality cancer care. Our commitment to and investment in community oncology has been well received as we are clearly focused on supporting the long-term vitality of community providers across the U.S. Our extensive capabilities scale platform and deep expertise enable us to collaborate with customers to overcome evolving challenges across the healthcare landscape. During the quarter, the healthcare industry faced an impactful disruption that prevented providers across the U.S. from receiving the claims payments they rely on to run their practices and ultimately care for patients. Our customers, particularly community providers, found themselves in a difficult position, uncertain if they could make payroll for their employees or cover expenses for critical medications needed for patient care. Much like we did during the COVID-19 pandemic, our cross-functional teams were nimble in developing solutions, including offering flexible payment terms to allow our customers to keep their businesses running without jeopardizing care until claims processing was restored. By providing solutions and working to address our customers' needs, we deepened our relationships while supporting continuity and access to care. The work we do would not be possible without our purpose-driven team members who diligently work to support our customers and their patients. At Sencora, we are focused on fostering a globally united culture that promotes the well-being of our 46,000 team members across our footprint. A recent example of the strength of our culture was in Lithuania, where we operate both a distribution business and a Senkora business services center. We were proud to be recognized by the Lithuanian Ministry of Social Security and Labor with the safest emotional environment award for our shared services center. Adding to the accolades the office has received in the past several years. This award is just one example of the strong culture Sankora has built and recognize key elements of our people and culture strategy, including our leading benefits offering. I'm proud our teams have embraced our multinational presence, which better allows us to serve our customers' needs across geographies and time zones while maintaining our purpose-driven culture. As we continue to grow as a globally united enterprise, we prioritize building a culture that celebrates the unique backgrounds and experiences of our team members and will provide diverse, differentiated perspectives, enhancing our business. As a crucial link in the pharmaceutical supply chain, it is imperative that Sencora has robust business resiliency plans to ensure the delivery of crucial pharmaceuticals, including in the face of a changing climate. As we further our business resiliency efforts, we are mindful of the impact our operations have on the environment and work closely with our partners to drive sustainability initiatives, help them understand their mission footprints, and ultimately report on our joint progress. In partnering with stakeholders across the supply chain on these important topics, we amplify our impact across our footprints. While we continue to advance our work in our own operations and in partnership with other stakeholders, we were pleased that our efforts were acknowledged by Newsweek on its inaugural list of America's greenest companies that recognizes the top 300 companies in the United States who are making progress to positively change the sustainability footprint. Running an environmentally responsible business will continue to be an important aspect of our business resiliency planning and aligns closely with our purpose of creating healthier futures. In closing, the ever-changing healthcare environment necessitates that we remain agile and adaptive alongside our partners, both up and downstream. I am incredibly proud of our purpose-driven team members who exemplified their customer-centric approach and intellectual confidence to help providers maintain access to care during a challenging time. As we move into the second half of our fiscal year, we remain focused on creating a best-in-class customer experience, embracing innovation and investing in our infrastructure to drive our pharmaceutical-centric strategy forward, creating value for all our stakeholders. I will now turn the call over to Jim for an in-depth review of our second quarter results and updated guidance. Jim?
spk07: Thanks, Steve. Good morning and good afternoon, everyone. Before I turn to my prepared remarks, I want to extend my congratulations to both Steve and Bob on our recently announced leadership succession plan. Since joining SYNCORA in 2015, I've had the pleasure of working closely with both Steve and Bob as we've executed on our pharmaceutical-centric strategy and focused on creating long-term value. Steve's purpose-driven leadership and strategic vision have shaped Sencora into the company it is today, characterized by our foundation in pharmaceutical distribution, complementary solutions up and downstream, and longstanding leadership and specialty. I look forward to continuing to benefit from Steve's expertise as he steps into the executive chair role in October. Like Steve, Bob has deep knowledge in and passion for supporting positive patient outcomes through pharmaceutical-centric care. Bob's experience leading our commercial operations and building talented, customer-focused teams will benefit our company and all its stakeholders in the years to come. Now, turning to our results, Sencora delivered strong performance in our second quarter, and we are pleased to raise our adjusted operating income guidance for the full fiscal year. Our teams continue to execute and stay focused on providing customer-centric services and solutions as evidenced in the quarter when we leverage the strength of our balance sheet to support our customers during a time of industry-wide need. The important role we play at the center of healthcare, powered by our people and the long-term partnerships we have forged, positions us well to continue to innovate solve problems for customers, and create significant value across the pharmaceutical supply chain. I'll now turn to a review of our consolidated second quarter results. And 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. Starting with revenue, our consolidated revenue was $68.4 billion, up 8%, with solid growth in both segments. In the quarter, we saw continued strong trends in sales of specialty products to physicians and health systems, and growth in sales to some of our larger customers, offsetting the manufacturer price reductions in certain product classes, which were known well in advance. While we've continued to see growth in sales of GLP-1 products, This quarter, the growth rate moderated as we lapped the rapid adoption of the products in the second quarter of our fiscal 2023 and due to GLP-1 supply constraints in the quarter. Consolidated gross profit was $2.5 billion, up 7%. Consolidated gross profit margin was 3.70%, a decrease of one basis point. Consolidated operating expenses were $1.5 billion, up 5% due to higher distribution selling and administrative expenses to support revenue growth, offset in part by the efficiency actions we called out last year on our May earnings call. Consolidated operating income was $1.0 billion, an increase of 11% compared to the prior year quarter with good growth in both segments, which I will discuss in more detail when reviewing the segment level results. Moving now to our net interest expense and effective tax rate for the second quarter, net interest expense was $64 million flat year over year. As you will recall, we called out an expected sequential step-up in interest expense on our first quarter earnings call, given the typical seasonal intra-period short-term borrowings and cash use. Higher interest expense in the second quarter compared to the prior year was offset by higher interest income and the September 2023 divestiture of our less than wholly owned subsidiary in Egypt. During the quarter, we issued $500 million in senior notes due 2034 at a coupon of 5.125%. We intend to use the proceeds from the notes issuance to repay our 2024 notes due this month. Regarding income taxes, our effective income tax rate was 20.9% compared to 19.0% in the prior year quarter. Turning now to diluted share count, our diluted share count was 201.2 million shares, a 2% decrease compared to the prior year second quarter. This was primarily driven by opportunistic share repurchases during the second half of fiscal 2023 and continued share repurchases in fiscal 2024, including $50 million in repurchases in the second quarter in conjunction with Walgreens Boots Alliance block sale in February. Regarding our cash balance and adjusted free cash flow, we ended the quarter with approximately $2.1 billion of cash and year-to-date adjusted free cash flow of approximately half a million dollars. During the quarter, many of our customers were impacted by the change healthcare outage that severely limited customers' cash flows as claims payments were delayed. To help our partners, we provided customers in need with extended payment terms giving them the financial flexibility to maintain their operations and focus on caring for their patients. The support we provided to our customers created a cash flow headwind in the second quarter of approximately $600 million, which we fully expect will reverse in our third fiscal quarter. The strength of our balance sheet and execution by our team members has allowed us to play a pivotal role in supporting our customers during this challenging time. And I am appreciative of our team members who work diligently and collaboratively to understand our customers' needs and be agile in the face of uncertainty while being prudent to ensure we also protect Sencora and its shareholders. This completes the review of our consolidated results. Now I'll turn to our segment results for the second quarter. U.S. healthcare solutions segment revenue with $61.3 billion up 8%. with solid growth in our distribution businesses, including continued growth in sales to specialty physician practices and health systems, and volume growth in GLP-1s. Excluding sales of GLP-1 products, which increased by $1.3 billion, segment revenue growth would have been nearly 6.5%. U.S. healthcare solutions segment operating income increased 11% to $841 million as we continue to benefit from our leadership and specialty, both oncology and non-oncology, and solid utilization trends. In the quarter, we also saw a benefit from our focus on managing operating expense growth as we compared to a period with elevated expenses prior to the efficiency actions we took last spring. As it relates to COVID contributions, in the quarter we saw a decline in demand for commercial COVID-19 vaccines, and contributions related to exclusive COVID treatment distribution were not meaningful as expected. As we no longer expect contribution from exclusive COVID treatment distribution, we no longer plan to provide guidance for ex-COVID growth rates. As a reminder, In the first quarter, we recognized $0.06 of exclusive treatment contribution, which is the only contribution expected in the segment this fiscal year, compared to $0.31 in the U.S. of the total $0.38 consolidated contribution for exclusive treatments in fiscal 2023. I will now turn to our International Healthcare Solutions segment. In the quarter, International Healthcare Solutions revenue was $7.1 billion, up 5% on a reported basis or up 10% on a constant currency basis. International Healthcare Solutions operating income was $193 million, up 10% on a reported basis due primarily to growth for our less than wholly owned distribution business in Brazil and our Canadian business. In the quarter, our European distribution business delivered growth and benefited from manufacturer price adjustments in a developing market country, which offsets the decline in value of local currency. On a constant currency basis, international healthcare solutions segment operating income growth was 22%. That completes the review of our segment level results. I'll now discuss our updated fiscal 2024 guidance expectations. As a reminder, we do not provide forward-looking guidance on a GAAP basis. so the following metrics are provided on an adjusted non-GAAP basis. I will also provide certain guidance metrics on a constant currency basis. I will start with EPS and then provide detail on the income statement items driving our updated EPS guidance. We are raising the lower end of our fiscal 2024 EPS guidance and now expect EPS to be in the range of $13.30 to $13.50 from our previous range of $13.25 to $13.50, representing growth of 11% to 13%. The updated range reflects our expectation for continued growth and execution and the balance of our fiscal year, and also updated expectations on a few items below the operating income line. Moving now to revenue, our guidance for consolidated revenue growth is unchanged at 10% to 12%. In the international healthcare solutions segment, we are narrowing our guidance range for segment level revenue growth and now expect as reported revenue growth of 4% to 7% from the previous range of 4% to 8% and constant currency revenue growth of 7% to 10% from the previous range of 7% to 11%. Turning now to adjusted operating income. We expect consolidated adjusted operating income growth to be in the range of 9% to 11% up from our previous guidance of 8% to 10% due to our updated expectations for the US. In the US healthcare solutions segment, we now expect operating income growth to be in the range of 10% to 12% up from our prior range of 9% to 11%. Our increased guidance reflects our strong performance to date and continued growth in the second half, though at a more moderate rate, primarily due to COVID-19 vaccine seasonality and comparing to the prior year fourth quarter, which was the initial quarter that had a meaningful commercial COVID vaccine contribution. As context, in the first half, we saw segment level operating income growth of 16% well above our initial expectations. When excluding commercial COVID-19 vaccine contributions, our growth was 8% in the first half. Switching now to exclusive COVID therapies, as a reminder, in the third and fourth quarters, we will have headwinds of 5 cents and 8 cents, respectively, as we lap prior year contributions from exclusive COVID therapy distribution. Turning now to our international healthcare solutions segment, our as reported operating income growth guidance remains unchanged and reflects the strengthening of the dollar in recent weeks. On a constant currency basis, we now expect segment level operating income growth to be in the range of 10% to 13% up from our previous range of 9% to 12%. Regarding our adjusted effective tax rate, we now expect our adjusted effective tax rate to be approximately 21% from our previous range of 20% to 21%. Moving now to share count, we now expect our weighted average shares outstanding to be in the range of 201 to 202 million shares from our previous range of 200 to 202 million shares. Finally, turning to adjusted free cash flow, our guidance remains unchanged and we expect to generate approximately $2.5 billion in adjusted free cash flow. In closing, our teams across Sincora have continued to execute, allowing us to deliver strong financial results. As I reflect on the second quarter, I am impressed by the way our talented team members came together to support our customers, exemplifying customer centricity and agility in responding to challenges. As we look to the second half of our fiscal year, our pharmaceutical centric strategy, investments to enhance our infrastructure and drive innovation, and our commitment to our purpose will continue to drive differentiated value creation for all our stakeholders. Now I'll turn the call over to the operator to open the line for questions. Operator?
spk09: Thank you. As a reminder, if you'd like to ask a question, that's star followed by one on the telephone keypad. Please limit yourself to one question only. Thank you. Our first question for today comes from Elizabeth Anderson of Evercore. Elizabeth, your line is now open. Please go ahead.
spk03: Hi, guys. Thanks so much for the question. I think maybe one sort of on a high-level basis. Can you talk about the succession plan and sort of like how that came about? And then as we think about sort of the next few months, sort of the key priorities of that succession plan, and then, you know, Bob, you sort of take the reins fully. Can we talk about sort of like what your initial set of priorities is there? Thanks.
spk14: Yeah. Hi. Hi, Elizabeth. Thanks for the question. I'll take it. So, you know, our board has been obviously a company of our size and, you know, the enterprise that we manage, of course, is very focused on the practice of succession planning. And, you know, two weeks ago I actually had my 30th anniversary with the company and, course 13 years of CEO and Bob has been in the CEO position for two years so we've been focused a lot on making sure that key executives have the right development opportunities for me personal it was personally it was really imperative that we have our internal candidates because of the importance of culture in our relationship the importance of knowledge of our customers and the complex enterprises honestly any new executive that comes in the company After six months, the first thing they say to me is, I'm shocked how complicated everything is. That's because it's a lot. We have a lot of different aspects to our business. It's important that someone that knew the business really well would be my successor. During the last few years, Bob has exemplified the sort of leadership characteristics that we look for, that the board and the management team looks to in leadership. He's also a pharmacist, which I I think it's awesome. I'm not aware of one of the major public wholesalers that has been led by pharmacists. Perhaps I'm wrong. Bennett will research it. So I think that that's a really nice, uh, uh, also, uh, asterisk that on Bob becoming the third CEO in Sincora's history. But, um, you know, Bob and I've worked also very closely together, uh, as well as the, all the executive management team has worked very closely with Bob and Jim and myself, uh, as we have guided the enterprise. And, uh, You know, we have got six months left until the actual transition takes place on October 1. You know, it's business as usual. Of course, Bob is thinking a lot about the future and what he will be like, and he'll be joining us on the next call, and you'll all get to know him better at conferences, et cetera. And, you know, the company is in very, very good hands, and the company is also in very good shape. So I think our investors should feel very good about how Sinkora is positioned. Thanks for the question.
spk09: Thank you. Our next question comes from Lisa Gill of JP Morgan. Your line is now open. Please go ahead.
spk05: Hi. Thanks very much. Good morning, everyone. I wanted to focus on the margin improvement, and as we think about, you know, I think, Jim, you talked about a couple of the key drivers, specialty, non-specialty, expense growth, but it's very impressive of what you've been able to do. So can you give us a little more color? Are you seeing anything, for example, on the biosimilar side? And then just secondly, I wanted to make sure that I understood the below-line impact because I'm coming up with a number that's like 12 cents impact based on the tax rate going up by a little bit and the share count going up by a little bit. So just really want to understand those two elements as we think about them playing out for the rest of the year And Steve, I hope this isn't our last earnings call with you.
spk14: I'll just go quickly. No, it's not. I'll certainly be on next quarter. So thank you, Lisa, and I'll hand over to Jim.
spk07: Okay. Lisa, thanks a lot. Thank you, Lisa, for that question. We did have a very good quarter from the standpoint of both gross profit percentage and operating income percentage during the quarter. So thank you for calling that out. We did have, you know, very nice margins during the quarter. And I'll, you know, talk about a number of things that drove the margins. You know, one is the WAC reductions that I talked about in my prepared remarks, particularly with regard to insulin. That brought down revenue growth, but it caused an improvement in gross profit margin. And as we've talked about in the past, when this sort of thing happens, our team works with manufacturers to make sure that we continue to be fairly compensated, which is what successfully happened in this case. So the WAC reductions brought down revenue growth, but improved gross margin percentage. You know, another thing that impacted GP percentage is kind of the GLP-1 growth was less than we had expected. And I talked about this in my prepared remarks also, GLP-1 growth during the quarter was $1.3 billion of growth versus $2.1 billion of growth in the first quarter. And that again caused revenue growth to be a little bit lower, but caused gross profit percentage to be a little bit higher, and the GLP-1s were a little bit less than we had expected. Another thing that really drove gross profit margin during the quarter and during the first half was contribution from COVID vaccines. The margins are good on COVID vaccines, and our performance was better than we expected, particularly in the second quarter. And so that helped our GP percentage, and we'd expect that to drop off in the third quarter. Also, a GP percentage was higher year over year in the international segment. So all those things helped our margins. And then from an operating margin standpoint, it's not only all those things, but we've done a very good job focusing on managing operating expenses. We had the OpEx efficiency initiatives that we executed a year ago, and we've continued to focus on OpEx. And so we had GP growth of 7%, OpEx growth of 5%. And so that operating leverage helped us, which drove our 11% to OI growth. And so I think that addresses your margin question. And on the below-the-line stuff, you know, we just are seeing incrementally higher tax rate, and that would have to do with mix. And, you know, we're just seeing a little bit more income and growth in the U.S., which has a little bit higher tax rate. And then on share count, You know, our guidance is now 201 to 202 million shares. And after the first six months, we're at 201.5 million. And as we do some repurchases in the back half of the year, you know, it impacts fiscal year 25 more than fiscal year 24. And so, you know, as a result of that, we increased EPS guidance by, you know, increasing in a nickel at the bottom end of the range. So our EPS guidance overall is up by 2.5 cents at the midpoint of the range. And so I think that addresses all of your questions, Lisa. Thanks.
spk09: Thank you. Our next question comes from Daniel Grossleit of Citi. Your line is now open. Please go ahead.
spk02: Hi, guys. Thanks for taking the question and congrats on a great run at SEO, Steve. And congrats, Bob, on your new role here. I want to stick with kind of guidance and really around margins for the remainder of the year. No guidance doesn't play a step down in the second half a year over your growth, even when you kind of back out the impact of of coven so i'm curious if you can just provide a little more detail on the. year over your growth step down in the second half and and perhaps how the efficiency plan that you put in place last year in the second half of 23 is impacting that year over year growth rate thanks.
spk07: Yeah, great. I'd be happy to address all those things. So our updated operating income guidance, you know, reflects our strong first half performance and continued operating income growth in the back half of the year. And the difference in growth rate in the first half versus the back half of FY24 is largely due to COVID vaccine seasonality. And related to that, the COVID vaccine contribution we saw in the first half of FY24 as well. as the contribution we saw in the fourth quarter of FY23. And then also the back half has a headwind due to the five cents and eight cents of contribution from exclusive COVID therapies that we had in the third and fourth quarter of fiscal year 23. And then you referenced the efficiency actions we took a year ago, April. And so in the back half, as you mentioned, we do laugh at the expense efficiency initiatives that we implemented. last year so um in the in the u.s the first half we saw segment level operating income growth of 16 well above our initial expectations as i said in my prepared remarks when you exclude covid vaccine contributions our growth was um eight percent in the first half and and our guidance implies you know very good growth in the back half in the u.s due to expected continued strength of specialty and solid utilization trends that we've talked about for some time. And the growth rate is impacted versus the first half for the specific reasons that I mentioned, which are mostly COVID related. And so I think that addresses your questions. Thanks.
spk09: Thank you. Our next question comes from Eric Percher of Nephron Research. The line is now open. Please go ahead.
spk12: Thank you. I might switch gears to a question on the competitive environment at large. And so for Stephen, Bob, I'd be interested to hear your views, given some volatility at the pharmacies, new leadership, and some consideration at mail-in specialty of insourcing, though they seem to be sticking with the channel. Do you see any significant change? And what do you need to do to compete at the low margin, high volume into the market. And then maybe for Jim, I'd come back to how are the Walgreens synergies you've identified progressing? And I just want to make sure that contract extends through 2029 in its original form.
spk14: Yeah, thanks. Thanks, Eric. So, you know, look, this industry, you know, I've been in it for 30 years with the company now and, you I think that our value proposition remains as intact as ever. In fact, probably even more so with the complexity of regulatory environments, with the sort of data and insights that we're able to do, and also the way that we've built out our businesses. Most of the different nuances that we see are really relying on some form of partnership or adjacency within our industry and and many times are using the established channels. I just came, as you would imagine, back from NACDS, and I remain where we met with many strategic customers. And sure, there are challenges in the industry, particularly on the reimbursement side, which are well documented. The post-pandemic world, there's a lot of things in flux. But I think all the more reason why we stay very close to our customers, You know, we are almost always able to renew our customers and we think that we provide great value to those customers. You know, none more so than Walgreens where we stay very close to them and we have a long-term contract through 2029 on the distribution side and even with foods through 2031. So, you know, I think we really focus on those customers In fact, I think I made the comment to you when I last saw you that one of the things that's really changed is how close we stay to those customers, the larger customers and the small customers, not just in the RFP side, but throughout the contract term and hopefully throughout the long-term strategic relationships that we have with these customers. So, Jim, I'll hand over to you now.
spk07: Yeah, and I think, Steve, you fully addressed it in your answer that we are always working with Walgreens and our other large customers on contracts mutually beneficial opportunities and synergies and our management teams are meeting to pursue those sorts of things. Thanks, Eric.
spk09: Thank you. Our next question comes from Alan Lutz of Bank of America. Your line is now open. Please go ahead.
spk15: Good morning and thanks for taking the question. I guess more of a high-level question here. How should we start to think about the Inflation Reduction Act and how that could impact Sankora? Is there any way to think about any direct impact to revenue and margins? And then, could there be more upstream opportunities to work with manufacturers around some of these benefit design changes? Just wondering if you have any initial thoughts around that. Thanks.
spk14: Yeah. So, the Inflation Reduction Act is certainly something that we're paying close attention to. You know, we always talk, I mean, even going back to Dave Yost's days, he would say, you know, what keeps you up at night? And he'd say, Washington's the answer, you know. And I think that's certainly the case more so than ever. But, you know, of course, the negotiations are underway. And, you know, we're going to go through the steps in the process for the 10 Part D products. But, you know, it's hard for us to see that there would be any direct impact on us at least in the short to medium term. Beginning in 2028, Part B drugs will be subject to negotiation. Of course, we want to be mindful of innovation. It's important that 75% of R&D by some accounts is in the U.S. Our message to regulators is always, let's make sure that this most cherished industry, probably one of the most innovative industries in the United States, continues to be based here. I mean, you know, it's not, it's not many decades ago when a lot of innovation took place in the UK and I'd say that that largely has gone by the wayside. And, you know, as an American based company, we would love to see that, you know, that sort of innovation continue here. And I think that that's also a very important part of the story that should not be lost. Um, you know, uh, also we, we would see that manufacturers could adopt some changes in policies, for example, You know, the different formats have, you know, longer patent glass. And we don't think that that's the way that, you know, product development should be approached. And, you know, and the last thing I'd say is when Sincora thinks about the future and thinks about reimbursement and thinks about our provider customers, you know, benefit design has also been very, in a way, punitive towards pharmacy. And we think that spreading that out more would be of great benefit. to the industry and to patients, ultimately, we all serve, and make it much more understandable. I mean, the notion that pharmacy is expensive, we think often is directly derived from the way that the copays occur at the pharmacy counter. And we think that that form of health care should be more encouraged. It's a much more efficient form of health care, which there's very little disagreement on. So thanks for the question.
spk09: Thank you. Our next question comes from Stephanie Davis of Barclays. Your line is now open. Please go ahead.
spk04: Hey, guys. Thanks for taking my question. Congrats on the quarter. Given some of the GLP-1 accessibility issues that haven't called out as continued for the rest of the year, should we assume that GLP-1 revenue tailwinds are going to be more in this one- to two-point contribution range versus the historical closer to mid-single digits? And just given the lower calorie nature of this revenue stream, how should we think about the benefits to your margin versus what we looked at prior?
spk07: Sure. I'll take that, Stephanie. And thanks a lot for the question. And as we've talked about in the past, the GLP-1 products are a real driver revenue growth, but they are minimally profitable. They are profitable for us, but minimally profitable. And of course, we've said that for quite some time. But we do feel that they'll continue to be a driver of our top line growth. And as I said earlier, what we saw in the second quarter is revenue growth of $1.3 billion from GLP-1s versus revenue growth of $2.1 billion from GLP-1s in the first quarter. And so, but we do think that they will be a driver of top line growth. And of course, you know, we're just, you know, just so pleased to be part of an industry where there's this sort of innovation that benefits patients and, you know, just look forward to being a beneficiary ourselves of this sort of innovation for years to come.
spk09: Thank you. Our next question comes from Charles Rye of TD Cohen. Your line is now open. Please go ahead.
spk08: Yeah, thanks for the questions and congrats, Bob and Steve. Great working with you and look forward to hopefully catching up with you in person before you head off. I wanted to ask a question related maybe more for the world courier side of the business. Obviously, there's talk of the BioSecure Act and and that could cause some restrictions of doing business with companies of concerns, and also for companies that do business with companies of concern. I just wanted to see if there's any potential impact, and if you've sort of analyzed sort of where maybe your customers on the World Courier side are partnered with, and if you thought through sort of that impact and how that might affect you on that side of the business. Thanks.
spk14: You know, I'm not... exactly sure what regulations are, but I can tell you, I feel incredibly good about, you know, Sencora's ability to manage a complex regulatory environment, really in whatever jurisdiction we are. And if we feel that we can't be comfortable with the, you know, the regulations and the jurisdiction, we just don't participate in the business. You know, the enterprise is a sufficient size and scale that nothing ever makes us want to compromise any of the standards we have. In fact, we keep on increasing those standards. We want to be the leader in them. So I think World Courier in particular is one of the most complex but also compliant and thoughtful and planful businesses that I've ever had the privilege of leading while I'm at Sankora. So I think we'll be able to cope. And I think maybe we can follow up directly with you and see if any particular concerns
spk09: Thank you. Our next question comes from Michael Czerny of Lyric. Your line is now open. Please go ahead.
spk11: Great. Good morning, and thanks for taking the question. Congratulations on a nice quarter. Maybe just a follow-up, I guess, to Lisa's question earlier about the guidance. I hate doing math on the fly, but I'm getting rough math. I'll call it 14 cents. operating uptick in terms of your EBIT increase. Is that the case in terms of the breakdown to guidance? And then relative to the core US healthcare business, as you think about your long-term guidance relative to where you're shaking out this year against what's also a tough comp, how do you reconcile those two pieces and how do you think about the future of, I'm not asking for an increase in guidance, but what could drive growth guidance continue to be above where your long-term targets are.
spk07: Okay. All right. Great. Thank you for the question. And there was a lot in that question, so I'll try and address it all. I think Lisa had commented that she thought that the OI increase in, you know, guidance was about 12 cents, and I think you said 14 cents. And I'll just say that's kind of the kind of the increase in guidance implies, yes, it does imply that sort of increase and it's really offset by the higher tax and the higher shares. And so as a result of that, we basically increased EPS guidance by 2.5 cents at the midpoint of the range. And then I think the rest of the kind of questions you asked, we have a lot of confidence in our long-term guidance five to eight percent organic operating income growth and then another three to four percent from capital deployment and so long-term EPS growth guidance of eight to twelve percent and importantly you know that's double digit at the midpoint of the range and you know we have had a lot of success for quite some time and in particular the last couple years and have you know posted some very good growth rates that have been driven from anything from things like our leadership and specialty to solid utilization trends. And in particular, as I called out on this call, some of the numbers, some of the COVID-related earnings we've had have been particularly helpful in our operating income growth. And as I said before, we're a company that's so well positioned to benefit from innovation and That's one of the things that gives us confidence in our long-term guidance. Thank you for the question.
spk09: Thank you. Our next question comes from George Hill of Deutsche Bank. Your line is now open. Please go ahead.
spk06: Hey, guys. Good morning, and thanks for taking the question. I guess the first thing I want to say is congrats to Bob on taking over the CEO role. And Steve, you guys are now the little engine that did, not the little engine that could. But I guess I want to hop in with two quick questions. Number one, I want to follow up on Eric's question about the competitive environment more generally, just because we've seen two sizable pieces of business switch hands in the last six months. So I guess maybe just talk about if there's anything that we should be alerted to in the competitive dynamic. And then Jim or Steve, just one of the things we continue to hear is about the large drug retailers trying to increasingly go direct to the brand drug manufacturers on terms not necessarily on logistics trying to kind of claw back some economics from brand drug manufacturers i guess i can you comment is that anything that you're seeing or anything that you're facilitating and do you expect it to have any impact on your business either positively or negatively
spk14: Yeah, you know, so thank you. Thank you, George. I do remember that article, and so thank you. And I do, you know, we are tremendously proud of the way that Syncora has developed in the last few years and how strong our positioning is. You know, I made a couple of comments in an earlier question about, you know, how well we are communicating on a regular basis with our strategic customers. There's not that many customers that choose to change their wholesaler relationship. And in the US in particular, where the big, big, large contracts are, there's three public companies that I think all do a good job and it's a really stable industry and we all very integrated and stay close to our customers. So it's not that usual that customers do change. We're not seeing a real big trend. Obviously, the mail order is a little bit different because you've got a lot of high-value products going to very few distribution points, so sometimes you do see some direct contracting there, and that's been around for a long time. But by and large, I think that the trend is to work within the industry. Again, the regulations are only getting more complicated. We're going to have the new complex pedigree rules that are being implemented, and it's hard to look at as good as our results have been, it's hard to look at our results and say that we're not really a paragon of efficiency and, you know, working, you know, very, very adaptively in a low margin environment. So it's, and building up around that with the cashflow that we have as Jim gives a long range garden. So, you know, I feel very good about our value proposition and our industry's value proposition. And I think that we'll be very enduring and, you know, I don't think there's too much else to call out. Jim, anything you'd add on the competitive environment that you could? Yeah. Okay. Thanks. And thanks for the engine that did. That's a big compliment.
spk09: Thank you. Our next question comes from Eric. Thank you. Our next question comes from Eric Caldwell of Baird. Your line is now open. Please go ahead.
spk01: Thanks very much, and I'll reiterate all the congratulations across the board. On U.S. pharma revenue growth, you maintain the outlook 11 to 13 percent. I think you guys know that I'm less worried about revenue growth or sensitivity to revenue perhaps than maybe in other industries, but I am curious. Second quarter was below straight. You have lower GLP-1 growth. There are the handful of negative WAC price changes. I think there's potential for lower priced Humira and maybe some other biosimilars to gain traction now that the PBMs are more aggressively pushing those lines. And we also have the known customer loss, which I think the market is, you know, guesstimating is around one and a half billion a quarter. There's a lot of moving pieces there on the negative side on just in terms of top line growth optics, but you're maintaining that guidance. What gives you confidence? What are the drivers of doing 11 to 13% this year? And then maybe if I could just add on, I know that's a ton, but WAC price changes. I'm just curious if you could tell us what you saw for the net WAC price change in March quarter. versus the prior year or recent years, just to put that in comparison. Thank you so much.
spk07: Yeah, so there's a lot there. And, you know, let me say with regard to our revenue guidance, what, you know, gave us the confidence, of course, to maintain that revenue guidance is just, you know, we're continuing to see, you know, solid utilization trends across the market. You know, we're continuing due to our strength and specialty and specialty, you know, growing better than the broader market. That's another thing that's helping us, Eric. And then, you know, of the things that you called out, of course, the WAC reduction for insulin is permanent. Kind of the lower GLP-1 growth during the quarter, perhaps that's, you know, temporary. and um driven more by some supply constraints um during the quarter so we'll have to wait and see on on that and so we have you know and and so we have good confidence in our um revenue guidance but then also you know and i talked about this a lot earlier on the call and in my prepared remarks you know we we we spend a lot of time on gp on gross profit and operating profit And, you know, I commented on a number of things that while, you know, doesn't necessarily, you know, drive revenue growth is additive to our, you know, gross profit percentage and operating margin. And so that's one thing that of course, you know, gives us the confidence to increase our operating income guidance by a full percentage point at the bottom and top of the range, like we did that quarter. And then was there a second part to the question? No, that's good.
spk14: Okay. We can go to Steve for the close. Okay. Thank you, everyone, for joining us on a busy Wednesday. We are really proud of the performance we reported in this quarter, which reflects the dedication, expertise, and teamwork of all of our team members. As you can see, SINCORA is very well positioned for the future Our role in the supply chain is well established, and we will continue to innovate and invest in support of our customers. Thank you very much for your time. Have a good summer. We'll see you in early August.
spk09: Thank you for joining Slay's Call. You may now disconnect your lines.
spk14: Support of our customers.
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