Cencora, Inc.

Hello everyone and thank you for your patience. Today's SENCORA Q4 full year 2024 earnings call will begin shortly. During today's call we will have a Q&A session. If you would like to register a question please press star followed by one on your telephone keypad and if you wish to withdraw your question then it is star followed by two. Thank you. Hello everyone and welcome to today's Suncora Q4 full year 2024 earnings call. My name is Drew and I'll be the operator today. During today's call there will be a Q&A session. If you wish to ask a question please press star followed by one on your telephone keypad and if you wish to withdraw your question then it is star followed by two. I'll now hand over to our first speaker Bennett Murphy. Please go ahead when you're ready.

Thank you, good morning, good afternoon, and thank you all for joining us for this conference call to discuss Sancora's fiscal 2024 fourth quarter and full year results. I am Bennett Murphy, Senior Vice President, Head of Investor Relations and Treasury. Joining me today are Bob Motch, President and CEO, and Laz Krikorian, Senior Vice President and Chief Accounting Officer. On today's call, we will 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 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 tax. Forward-looking statements are based on management's current expectations and are subject to uncertainty and change. For discussion of key risk and assumptions, we refer you to today's press release and our SEC filings, including our most recent 10-K. Sancora assumes no obligation to update any forward-looking statements, and this call cannot be broadcast without the express permission of the company. You will 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 will turn the call over to Bob.

Thank you, Bennett. Hi, everyone, and thank you for joining Sancora's fiscal 2024 fourth quarter earnings call. Before we get started today, I'd like to let everyone know that our CFO, Jim Cleary, has been under the weather for the past few days after successfully and impressively completing the New York City Marathon. Jim is unable to join the call today, but he was part of preparing today's remarks, which will be presented by our Chief Accounting Officer, Laz Krikorian. We wish Jim a speedy recovery, and I know he is looking forward to engaging with everyone in the coming weeks. It's a pleasure to be speaking with you today for the first time since assuming the role of president and CEO of this incredible company. To discuss the strong results our global enterprise has delivered this year, including growing our adjusted earnings by 15%. I'm honored to take the helm of a purpose-driven, growth-oriented business with an unparalleled portfolio of customers ranging from pharmaceutical companies to healthcare providers across continents. I'm focused on continuing to execute our strategy while amplifying the things within our culture that have made us successful. In fiscal 2024, Sencor continued to benefit from the strength of our customer relationships, the capabilities of our business, our international footprint, and the collective expertise of our team members. This year, we made important progress by investing in our core distribution infrastructure, deepening strategic partnerships, leveraging data and analytics, and continuing to build on our strength and specialty. Specialty has been a key differentiator for Sancora for decades, and specialty pharmaceuticals are now everywhere across our business, an important part of almost every customer relationship. As we engage with customers, they're focused on specialty products and how Sancora can help them. This is true for physicians, health systems, specialty pharmacies, and now also for community pharmacy as patients are accessing GLP-1s locally. While GLP-1s represent economic challenges in the pharmaceutical supply chain, they're an important innovation, and pharmacists handling these products are helping to drive positive outcomes for patients, particularly those with comorbidities, which is an important proof point for the industry. Pharmaceutical innovation continues to advance patient care, and Sankora has the capabilities and resources to enable us to partner with our leading customers upstream and downstream. In fiscal 2023, we talked about how our investment in One Oncology was a natural evolution of our leadership and specialty. As the addition of a management services organization, or MSO, in the oncology space expanded the solutions we provide an important community provider customer base. This morning, I'm excited to talk about our agreement to acquire Retina Consultants of America, or RCA, a clear leader in the retina MSO space. which broadens our community provider relationships in a high-growth segment. In addition to being a proven, established MSO, RCA has differentiated clinical research capabilities that we believe will build on CENCOR's value proposition to pharma, supporting innovative new therapies and furthering our ability to contribute to better outcomes for patients. This acquisition fits squarely in CENCOR's pharmaceutical-centric strategy and furthers our ability to execute on our strategic imperatives of leading with market leaders, investing in innovation, contributing to prescription outcomes, and expanding on our leadership and specialty. We've developed deep relationships with RCA's leadership over the years as we've served their practices. Their clinical excellence and focus on pharmaceutical innovation align closely with Sencor's purpose and strategy. Community providers face an increasingly complex operating environment. By aligning with Sancora, a partner that supports the voice and leadership of physicians, they are better able to navigate changes, advance their growth, and focus on providing patient care. Sancora's global distribution infrastructure is the backbone of our business. We continue to invest in our distribution centers to support the logistics needs presented by pharmaceutical innovation and focus on utilizing technology to create actionable data and insights for our partners. In the US we've made investments in our distribution infrastructure to support the increasing amount of temperature control volume we handle and to increase the level of granularity on traceability and product specific movement. Through our data driven approach we're focused on creating actionable insights that allow manufacturers to strengthen their processes increase efficiencies and comply with the latest industry regulatory standards. This is an example of Sancora's forward-thinking mindset and ability to not only adapt to industry changes, but capitalize on and expand the role we play. Healthcare is dynamic, which creates opportunities for us to leverage our growing strengths and expertise to advance clinical and business objectives of our customers. By aligning ourselves with the right strategic partners and prioritizing key markets, we're able to grow with our customers and develop innovative solutions. Listening and responding to customers is table stakes. We will actively learn, understanding deeply the strategies of our partners, allowing us to anticipate their needs, both opportunities and challenges they are facing now and into the future. As an example, for our health systems customers, we have enhanced the services we provide to help accelerate pharmacy solutions by developing a unified portfolio to optimize operations, improve financial performance, and expand care. One example of our enhancements is the increased support we now offer during the procurement process. These enhanced services leverage advanced analytics to provide customer transparency, opportunities to drive product and cost efficiency, and evaluate and mitigate risk, all to enhance the customer experience. Internationally, we've been strategically investing in the distribution center network of our European wholesale and 3PL businesses to increase the level of automation and enhance our capabilities to improve business continuity. Outside of distribution, our global specialty logistics business continues to navigate a challenging market, operating efficiently while we continue to invest in solutions to support clinical innovation across geographies. And unfortunately, As you saw in the earnings release this morning, we took a goodwill impairment on our PharmaLex business. The business growth is not keeping up with our original expectations as the outsourced pharma services market faces broader demand challenges. PharmaLex remains a key long-term strategic asset and our ability to differentiate our commercialization solutions with our pharma and biotech partners, and we are confident in our ability to grow the business. As the market rebounds, we are positioned as a partner of choice to enhance new product development and commercialization through a compelling suite of services from clinical trial support to regulatory, scientific affairs, and pharmacovigilance, specialty logistics, market access, as well as our 3PL and distribution reach across continents. I'm confident in Sencor's ability to drive success across our enterprise because of the strength of our talent. I want to take a moment to thank the global core team members who drive our business objectives, capture opportunities with our partners and customers through their close collaboration, and perform their work with a purpose-driven mindset. I'm honored to be working alongside and learning from each of our team members whose expertise and excellence in their work drive us forward. Our most important investment is in our people. and I've seen how diverse teams with differing perspectives create the best results. So as we think about fiscal 2025 and the future of Sankora, we will prioritize building on our strong team to continue our track record of impressive performance. Our enterprise leadership team's responsibility is to equip our team members with resources to perform best-in-class work, and I'm committed to supporting them. Having been in this role for a little over a month now, I'm continuously asked, what's next for Sancora? Sancora is an incredible purpose-driven company guided by a differentiated strategy, culture, and a portfolio of solutions across geographies, which has allowed us to build strategic customer partnerships and consistently deliver strong results. Thinking about fiscal 2025 and beyond, we will continue to lead with a customer-centric approach Take on an enterprise powered mindset and focus on innovation, which will ensure our differentiated value proposition remains intact and accelerates our position as a leader in healthcare. On the talent side, we have strong leadership and we've taken steps to evolve the leadership team to help deliver on this focus. Adding new external hires, including a new chief data and information officer, as well as a new head of strategy and corporate development. We've also elevated existing commercial leaders to ensure that we continue to bring the voice of the customer to the table. In closing, CENCOR has an incredible foundation built on the strength of our strategy. We're well positioned in key services and solutions with our core and pharmaceutical distribution and complimentary services for our upstream and downstream customers. Our global operations allow us to integrate our solutions across the markets we serve to create differentiated capabilities. I'm inspired by our team members' pride in their work and deep dedication to our purpose. We are united in our responsibility to create healthier futures. With that, I'll now turn the call over to Laz for an in-depth review of fourth quarter and full year Fiscal 24 results, as well as Fiscal 2025 guidance. Laz?

Thanks, Bob. Good morning and good afternoon, everyone. It's an honor and a privilege to fill in today as Jim continues to recover. We all know Jim, so we all know he is listening to the call right now and I will try my best to do him proud. Before I turn to a review of our fourth quarter and full fiscal year results, 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. Throughout fiscal 2024, Sancora has demonstrated our ability to capitalize on the opportunities presented to us by our pharmaceutical centric strategy, long lasting customer relationships, and robust solutions. And the fourth quarter was a continuation of our momentum as we finished the year strong. Driven by the strength of our business, and execution of our team members, we delivered adjusted diluted EPS of $3.34 in the fourth quarter, representing a 17% increase compared to the prior year quarter. And full fiscal year 2024 adjusted diluted EPS of $13.76, a 15% increase compared to the prior fiscal year. Turning now to an in-depth review of our fourth quarter results compared to the prior year quarter. Consolidated revenue was $79.1 billion, up 15%, driven by growth in both reportable segments, as the US healthcare solution segment continued to see strong script utilization and the international healthcare solution segment benefited from growth at our European and Canadian businesses. Now moving to gross profit. Consolidated gross profit was $2.5 billion, up 7%, due to gross profit growth in the U.S. healthcare solution segment. Consolidated gross profit margin was 3.1%, a decrease of 24 basis points compared to the prior year quarter due to higher growth in our U.S. healthcare solutions segment, which has lower gross profit margin than our international healthcare solution segment. Additionally, our U.S. healthcare solutions gross profit margin experienced continued pressure from increased sales of low margin GLP-1 products and a lack of sales in the current year quarter of exclusive COVID-19 therapies, which had higher gross profit margins. Consolidated operating expenses were $1.6 billion, up 7% as a result of higher distribution selling and administrative expenses in the quarter to support our revenue growth. Turning now to operating income. consolidated operating income was $851 million, up 6% compared to the prior year quarter. The increase in operating income was driven by strong growth in the U.S. healthcare solution segment, partially offset by decline in the international healthcare solution segment, which I will discuss in more detail when reviewing the segment level results. Moving now to our net interest expense for the fourth quarter. net interest expense was 21 million dollars a decrease of 66 driven by strong free cash flow enabling an increase in interest income as a result of higher investment rates and investment cash balances in the quarter and a decrease in interest expense due to lower foreign subsidiary borrowings and the september 2023 divestiture of our less than wholly owned subsidiary in egypt Our effective tax rate in the fourth quarter was 20.3% compared to 21.6% in the prior year quarter, bringing our full year 2024 effective tax rate down to 20.8%. Finally, our diluted share count was 198.1 million shares, a 3% decrease compared to the prior year fourth quarter, driven by approximately $500 million of opportunistic share repurchases in the quarter including a $250 million share we purchased from Walgreens Boots Alliance in August as they sold all of their remaining unencumbered shares. This completes the review of our consolidated results. Now I will review our segment results for the fourth quarter, beginning with the U.S. Healthcare Solutions segment. The U.S. Healthcare Solutions segment revenue was $71.7 billion, up 16% versus the prior year, reflecting strong prescription utilization trends, including sales of GLP-1 products, increased sales of specialty products to physician practices and health systems, and growth in sales to our largest customers, all of which was partially offset by the January 1st manufacturer price reductions in certain product classes. In the quarter, sales of GLP-1 products were up $3.1 billion, representing a 55% increase compared to the prior quarter and a sequential increase of 14% from the June quarter. Excluding sales of GLP-1 products, fourth quarter revenue growth would have been approximately 10%. U.S. healthcare solution segment operating income increased by 10% to $697 million, driven by increased volumes across our distribution businesses stemming from strong utilization trends. In the quarter, we continue to see strong demand for specialty products from physician practices and health systems, outpacing overall prescription market growth. Moving to the international healthcare solution segment, in the quarter, international healthcare solutions revenue was $7.4 billion, an increase of almost 6% on an as-reported basis, an increase of 8% on a constant currency basis. James Heitinger, International healthcare solution segment operating income was $154 million a 9% decrease on an as reported basis and an 8% decline on a constant currency basis. James Heitinger, Due to higher information technology expenses at our European distribution business and lower operating income in our Canadian business, all of which was partially offset by positive operating income results at our global specialty logistics business. As Bob mentioned and as noted in our press release, our GAAP operating income results for the fourth quarter include a $418 million goodwill impairment relating to Formalex as a result of the business not keeping up with our original expectations as the industry experiences broader pressures due to lower demand from pharma and biotech for outsourced services. Farmolex remains a strategic asset for Sancora, and we expect the business to continue to be a key component of our commercialization services value proposition for our upstream partners. Please note that this one-time item only impacts GAAP results and is excluded from our non-GAAP adjusted results for the quarter. That concludes my discussion of our fiscal fourth quarter financials. Now I will turn to our full year fiscal 2024 results compared to the prior year, beginning with revenue. Our consolidated revenue was $294 billion, up 12%, driven by growth of 13% in the U.S. healthcare solution segment and 4% growth in the international healthcare solution segment. Consolidated operating income was $3.6 billion, an increase of 11% due to growth in both the US healthcare solution segment and the international healthcare solution segment. From a segment perspective, US healthcare solutions had operating income growth of 13% driven by increases in sales of specialty products to physician practices and health systems, increased sales to our largest customers, and commercial COVID-19 vaccines. As a reminder, commercial COVID-19 vaccines drove the higher year-over-year operating income growth in the first half of fiscal 2024. International healthcare solutions had operating income growth of 3% on an as-reported basis, driven by increases at our Canadian business, our global specialty logistics business, and our less-than-wholly-owned Brazil full-line distribution business, partially offset by foreign currency pressure and higher information technology operating expenses in our European distribution business. On a constant currency basis, the segment delivered 9% operating income growth. Rounding out the discussion of our full year fiscal 2024 results, we generated $3.1 billion of adjusted free cash flow and ended the year with cash balance of $3.1 billion as we experienced better than expected quarter end receipts. In fiscal 2024, we returned $1.9 billion to shareholders through a combination of dividends and share repurchases, including $1.5 billion in opportunistic share repurchases. This morning, we announced our 20th consecutive annual dividend increase as our board of directors approved an 8% increase to our quarterly dividend. This is 3% higher than our previous annual dividend increases of 5%. and aligns with our long-term guidance of 8% to 12% adjusted diluted EPS growth. This completes the review of our full fiscal year results. Turning now to discuss our fiscal 2025 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. We have also provided a detailed overview of guidance metrics on slides 11 and 12 of our earnings presentation. First, I will start with adjusted diluted EPS and then provide greater detail on the components of our earnings growth and financial expectations for the fiscal year. In fiscal 2025, we expect adjusted diluted EPS to be in the range of $14.80 to $15.10, representing growth of 8% to 10% at or above our preliminary implied guidance provided in early September due to opportunistic share repurchases in September and October and continued momentum in the business. As stated in our press release this morning, our fiscal 2025 guidance does not include the impact of the RCA acquisition which will be incorporated into our expectations following the transaction close. As a reminder, in fiscal 2025, we continue to expect year-over-year headwinds from COVID products, including a headwind from commercial COVID vaccines in the first half of fiscal 2025, a six-cent headwind from exclusive COVID therapies in the first quarter of fiscal 2025, and the potential June 2025 loss of an oncology customer due to its previously announced pending acquisition. All of these factors remain largely unchanged from our preliminary guidance expectations and are offset by our momentum and business initiatives. Moving to revenue, we expect consolidated and segment growth rates to be in the range of 7% to 9%, reflecting continued growth across both segments. Turning to operating income, we expect consolidated and segment operating income growth rates to be in the range of 5% to 6.5%. At the segment level, we expect U.S. healthcare solution segment operating income to benefit from continued pharmaceutical utilization trends, growth in key markets, and internal efficiencies, more than offsetting COVID-related headwinds and a potential loss of an oncology customer in the fourth quarter of fiscal 2025. For the international solutions segment, operating income is expected to benefit due to growth from its key businesses and a lower information technology expense growth rate. Now moving to interest expense. We expect our interest expense to be between $150 million and $170 million based on our standalone operating expectations. which do not include the potential impact from financing the RCA acquisition. Turning to income taxes, we expect our effective tax rate to be approximately 21% for fiscal 2025. Moving now to share count, we expect that our full year average share count will be approximately 196 million shares in fiscal 2025, reflecting the impact of our significant share repurchase activity over the last 12 months, including over $600 million in repurchases since mid-September. Regarding our capital expenditure expectations, in fiscal 2025, we expect capital expenditures to be approximately $600 million, a modest increase in comparison to fiscal 2024 as we continue to invest in our business to support growth, and to increase the strength of our infrastructure. As it relates to free cash flow, we expect full year adjusted free cash flow to be in the range of $2 billion to $3 billion, due primarily to timing and mix. We continue to generate strong free cash flow to support our growing dividend and continue to execute our capital allocation priorities to contribute to growth of our business. This morning's announcement of RCA is an example of that, as it clearly fits our pharmaceutical-centric strategy, builds on our MSO solutions, and hits on Sancora's strategic imperatives, which are key to our past and future success. As was stated in this morning's releases, the fiscal 2025 guidance we are presenting this morning does not currently include the impact of the RCA acquisition. which will be incorporated into expectations following the transaction close. We plan to fund the transaction through a combination of debt and cash on hand. Given the recent use of cash to opportunistically repurchase shares and the use of cash in our second quarter due to the seasonality of our business, we are currently expecting to fund approximately 20% of the acquisition price from cash on hand. Upon closing, The acquisition is expected to be approximately $0.35 accretive net of estimated financing costs for its first 12 months. Sankora is committed to maintaining our strong investment grade credit rating and will prioritize deleveraging in the years following the transaction close. In closing, the fourth quarter captured a strong year at Sankora. I am proud of our purpose-driven team members, the strength and diversity of our talent, and our continued execution to deliver on our strategic imperatives to advance our position at the center of healthcare. We are well positioned for continued growth in fiscal 2025 and investing to ensure we are preparing for continued success in the future. With that, I will turn the call over to the operator to open the line for questions. Operator?

Thank you. We will now start today's Q&A session. If you would like to ask a question, please press star followed by one on your telephone keypad. If you wish to withdraw your question, then it is star followed by two. Our first question today comes from Lisa Gill from JP Morgan. Your line is now open. Please go ahead.

Thanks very much. Good morning, Bob. Congratulations. I listened to you talk a little bit about your strategy. You talked about the incredible foundation built on the strategy. the strength of the strategy of the company. Obviously, we're waking up today. We have a new president going into 2025. Maybe just spend a couple of minutes talking about how you think about maybe the first year as CEO of the company. Anything changing from your perspective now that we do have a new president and it looks like it'll be a Congress that will most likely be Republican. So any changes there would be kind of my question and really just trying to understand how you're thinking about that. And then just secondly, I really just want to understand if we're seeing any changes from the volume changes in IRA. So you talked about strong results in the quarter around volumes and just curious, you know, if you guys are seeing anything from that perspective.

Hey, Lisa, thank you very much for the question and the kind words. I'll start with just the first 30 days or so in this new role have been absolutely amazing. I want to start with just a sincere thank you to the CINCORA Board of Directors for having the trust in me to take on this role. As you mentioned and as I mentioned in our prepared remarks is we are an incredibly strong enterprise and company. what we're going to do is continue to execute. And you see in our results through 2024, the execution of both our operational strength as well as our strategic execution. And that leads to the announcement of RCA today. So as I've talked about and I want to be clear here today is our strategy does not need to change and we will continue to execute upon that. We're well positioned and we think our focus areas are the right ones. However, that doesn't mean status quo or complacency. And there's a lot of work to do. It's a dynamic market. And so we are doing things in terms of amplifying strengths that we've already had. And I mentioned we're working on our talent all the time. And in the enterprise leadership team, we've elevated our commercial leaders to make sure that we have the voice of the customer at the table all the time. We've added new leaders in our technical and IT area, as well as strategy and M&A. And we'll continue to work on enhancing our talent as we continue to execute. I think as it relates to policy in general, I think we have a long history of working through multiple administrations and congresses and different views on healthcare and pharma. And as we've always said, and I feel very confident about this now as You know, we'll be at the table. We'll be working with anyone who's in charge of health policy in the United States and on a global basis, and we'll, you know, make sure that we're there to be a supportive partner and that whatever comes our way will be manageable and we'll help our customers, pharma customers and provider customers navigate through that. Thank you for the question.

Our next question comes from Michael Cherney from LeeRank Partners. Your line is now open. Please go ahead.

Good morning. Congrats on the quarter. And Bob, echoing Lisa's comments, welcome to your new role. I know you're obviously a long-timer here, but congrats on the transition. Maybe if I could just dive in, I guess, two-part question come together. First of all, I know you highlighted a number of the headwinds you have this year from a year-on-year basis. As you think about the COVID comp, is the loss of the customer contemplated specifically in guidance, whether they leave or not, just trying to get to the baseline growth, which definitely seems stronger than the 5% to 6.5% on underlying basis? And along those lines, When thinking about specialty in particular, given your market leadership there, how do you think about the moving pieces across the market with regards to specialty, inclusive of expectations for biosimilars, the impact we're seeing from changing benefit design with IRA? Curious how that all factors into your expectations across U.S. healthcare segments relative to the specialty contribution. Thanks so much.

Sure, Michael. Thanks. This is Ben, and I'll take that. So as we look at 2025, you know, we're expecting that the U.S. healthcare solutions segment, you know, operating income will continue to benefit from the pharmaceutical utilization trends that we've seen, you know, growth in key markets, including specialty, as you call out, which helps to give us a really strong base moving into 2025 and 2024. And more than offsetting COVID-related headwind, as Laz talked about, including the potential loss of a of an oncology customer, which is factored into our 2025 expectations. What I would say, and you didn't necessarily specifically ask it, but I would say is that, you know, we were guiding without that headwind from vaccines, the top end of our U.S. healthcare solutions operating income guidance range would be 8%. So, as I said, I'll say that again, just to be clear, you know, without the headwind from commercial COVID vaccines, The top end of our US health care solution segment operating income range would be 8% instead of that 6 and 1 half. Next question, please.

Our next question comes from Elizabeth Anderson from Evercore ISI. Your line is now open. Please proceed.

Hi, guys. Thanks so much for the question. And Bob, congrats again on your first quarter as an official, especially. Maybe could you talk a little bit more RCA and sort of how you think about sort of your MSO capabilities more strongly. It's obviously an area that you've been investing in and maybe gets a little bit less like airtime than some of your other businesses. So maybe talk about that and, you know, what is there leverageable from other strategies you currently have and sort of capabilities. That would be a little bit helpful to hear more about that. Thank you.

Yeah. Thanks, Elizabeth. Thank you for the warm welcome and happy to discuss such an important part of our strategy going forward. So yeah, we're very interested in the MSO space, and the reason is at least twofold, but I'll give you two. One is it's clearly in line with our support and interested in being in the forefront of the specialty pharma market, right? So where those products, the innovation of those products are coming to market, we expect to be helpful uh, and involved across our entire business. So across the entire portfolio of, of customers and geographies, when you bring it to the, to specialty physicians, the MSOs are really in line with what we have done at CENCORA over decades. So if you think about how we, how we operate, we have in many cases built capabilities to support community providers. Um, and MSOs are an excellent way to support community physicians. We do it in other segments, you know, and I'll use Good Neighbor Pharmacy as an example. It's not an MSO, but it certainly is a large suite of services that supports a community provider. So it's right in line with our strategy in terms of specialty focus, but it's also something that's very consistent with what we've done over a long period of time in terms of investing in solutions that support those community providers. And as I said in the prepared remarks, You know, it's not getting easier for community providers and specialty providers at all. So the need for a large at-scale support system through the MSO and through Sincora's ownership of the MSOs, we think is the best chance of making sure that that very cost-effective site of care is there for patients when they need it.

Our next question comes from George Hill from Deutsche Bank. Your line is now open. Please go ahead.

Yeah, good morning, guys, and Bob, welcome to the call. I'm going to get kind of way out, like look a little further out, thinking about the acquisition today and your guys' presence in oncology. And Bob, as you kind of look forward to like the impact of the IRA changes and the impact it could have on Part B drug costs and the profitability of practices that dispense a lot of drugs, I guess, Is it too early to think about that because there's still the opportunity for legislative change? Or kind of how are you guys thinking about how you support those practices given the headwinds that could come from IRA? And again, I recognize I'm talking about something that's two years away, maybe two years plus, but kind of would love any preliminary thoughts on that.

Yeah, George, thanks for the welcome and thank you for the excellent question. So I would say it's not too early to think about that. You know, so we have been thinking about IRA you know, modeling a wide range of scenarios of impact for IRA and Part B. And, you know, I'll jump to the end of that as we feel that across all those scenarios that it's something that will be manageable for the providers and therefore manageable for CENCORA. Again, as you say, we don't really know what the impact will be in Part B. In Part D, we're seeing that, you know, impact is really in reimbursement and not in list price so it remains to be seen but we do think about it we have a team teams of people who are always focused on these things and as we as we look forward um you know not only with the rca acquisition but also our relationship with one oncology and other customers that this is something that you know through innovation in the long run that this will be something that's not necessarily negative for the practices

Our next question comes from Eric Percher from Nephron Research. Please go ahead.

Thank you. Again, congrats to Bob. And I want to get a bit more specific on the specialty trend. I think we're hearing from payers that they're seeing a 3Q uptick, and some of it is attributed to Part D. We also heard about commercial and seeing in-spec pharmacy. My question is, are you seeing an uptick in Q3 versus first half where you're serving especially pharmacies. We tend to think of that as lower margin specialty. And then you called out strength and specialty distribution, a higher margin piece with providers and health systems. You've called that out in Q1 and Q2. Is there an acceleration you saw in 3Q, or is that simply continuation of the trend?

No. I would say, and once again, this is Bennett, and of course, I appreciate you using calendar quarters in your question, but I'll refer to fiscal quarters in my answer in that the fourth quarter, we saw similar trends as we saw throughout fiscal 24 and honestly for the past several years. So we've had the specialty market, particularly for physicians and health systems, has been a key component of a key driver of our growth for a while. It's a really important segment. It's a part of the market where we play a really important role and add a lot of value. But no, we are not representing this as a deviation. It's a continuation of the good trends that we've seen for a while.

Our next question comes from Daniel Grace Light from Citi. Your line is now open. Please go ahead.

Daniel, your line is now open. Please go ahead.

Okay.

We're getting no audio from Daniel, so I'll move on to the next question from Stephanie Davis from Barclays. Please proceed.

Hey, guys. Thanks for taking my question. And Bob, official congratulations on taking the seat. I wanted to dig in a little bit more on the RCA transaction, as it's a sizable move into other ologies outside of kind of your core ONC focus. So with that in mind, can you walk us through your specialty roadmap, any other verticals to watch, or any opportunities in the checklist such as RCA's clinical trial strength that you're hoping to kind of shore up? Thank you.

Hi, Stephanie. Thank you for the question and for the congratulations. Yeah. So when we look at specialty expansion beyond oncology, we're looking for a couple of things. We're looking for continued growth and innovation in that market, and also the Part B components that are there that we can support. So the obvious one percent, Cora, is oncology, and that's where we've been for a very long time. And I'll also note we've been a leader in retina for a very long time, but I'll come back to that. But then, you know, you saw that we added, you know, urology as part of one oncology. So we do have a view and a strategic approach to where, you know, we would look at other specialties that would fit. And certainly, Retina is one. And again, we have a long history, a leading role in the Retina specialty distribution space. We have a real belief in the continued growth and innovation in that market. RCA is best in class. They are world-class clinicians, world-class researchers, and we feel really good about the decision to, you know, expand our investment in retina.

Our next question comes from Kevin Caliendo from UBS. Your line is now open. Please go ahead.

Thanks for taking my question, and, Bob, again, congrats. I want to take this a little bit further on the RCA stuff because, There's been a lot of oncology deals done recently. It feels like there isn't maybe as much opportunity there. You are already a leader in retina, as you said. Is this a stepping stone? Is ophthalmology going to be the next sort of roll up for you? Like how big is the opportunity here relative to what was the opportunity in oncology? And is there anything to maybe read through in terms of expectations around biosimilars in this space or any other like is there analysis done where you're looking at the the growth of the market or the or the drug opportunity in that market evolving favorably for you is also a reason to get into this yeah thanks thanks kevin for the excellent excellent question yeah when it as it relates to to rca uh you know what we've um

said in the prepared remarks, and I'll just repeat now, is RCA is the market leader here. So, you know, we're investing in a platform in Retina that we expect to continue to grow. They will grow by adding additional physicians, and they will grow through the second part of your question, is we do have a strong thesis on the strength of the pharmaceutical pipeline in Retina. And that includes biosimilars coming to market, but also you know, new innovation that will be coming that will help improve, you know, patient outcomes. And again, this is where the clinical excellence of RCA is really important and also the clinical research capabilities that they have because RCA is not only treating the end patient at a very large scale, but they're also a very key player in making sure that the clinical trials are done and that the patients have access to those trials and therefore getting those newer products to market.

Our next question today comes from Eric Caldwell from Bard. Your line is now open. Please go ahead.

Thanks very much. Well, I had a bunch of RCA questions too, but I'll try to make those brief. Just quickly on ophthalmology specialty products or maybe the category overall, you're half of one of the leading manufacturers' distribution volume. Is that a similar share across the entire market? Are you Are you half of the specialty market in ophthalmology?

Yeah. So, um, as Bob said, we are a leader in that space and that we've, it's a part of the market that we've been in for a long time. Um, and we feel really good about not only, you know, our position and the fact that, that, you know, we have really no, uh, RCA quite well, because they've been a customer for some time. And as Bob said, they're a leader in the space. And just to repeat, it's a market that, while I know that there's been a lot of focus on oncology, but for Sancora, retina and ophthalmology have been a key driver of growth along the way as well.

Our next question comes from Erin Wright from Morgan Stanley. Your line is now open. Please go ahead.

Thanks. Could you speak a little bit to World Courier, just give an update on fundamental demand trends across that business and customer base? And then, yeah, going back to sort of a little bit of an RCA question or related is on how do you balance investments in terms of an MSO type of investment versus a more direct relationship with like biopharma and life sciences partnerships? I know it's all kind of intertwined, but curious kind of how you think about that. And then just one quick one on just customer relationships, just your guidance for the year. You addressed COVID and FCS, but you recently renewed your Express Script Cigna contract. How would you characterize the relationship there and any sort of changes as well as your relationship with Walgreens? Thanks.

Sure. So you rattled off a couple there, and I'm going to try and make sure that we hit them all. I'll start with the Express Grips one, no change there. The continuation of a good relationship with them. You know, World Courier, that market continues to have some softness stemming from clinical trial development. But that being said, still, it's a good growing business, and you saw that in the quarter. I'll stop and hand it over to Bob to talk a little bit about the Walgreens. relationship. Yeah, happy to.

And Aaron, I'll probably touch on the broader kind of biopharma focus there for a second here, because it leads on to the World Courier. I'll emphasize the point that Ben had made. World Courier is a terrific business, a leading business, and it leads in clinical trial logistics. So to the extent that clinical trial volumes continue to be down, even though they're beginning to grow, they're still down significantly from from a peak in 2021, we feel great about the business. And as I said in the prepared remarks, we're very well positioned as that market comes back, both in World Courier and PharmaLX. You know, Walgreens is a critically important strategic partner to us. We've had a long productive history together, which continues. And we, as we've said for a long time and continues now, we spend a lot of time with the Walgreens team, I would say continuously. And during that time, we're talking about what are things that we can do together to drive our businesses forward? How can we create more efficiency? What are new programs that we can develop together that are helpful to both companies? So we're very engaged in that. We're committed to making sure that For Walgreens and for all of our customers, you know, one of the things that I tried to be intentional about saying is that, you know, our intention is to really understand the strategies of our customers and then align the resources of CENTCORP to support those strategies. And so that's true for Walgreens and our other customers as well.

You know, and you did write off a bunch there. So I want to go back to one you asked about, you know, this versus biopharma services. I think if you go back and look at our past disclosures and past discussions on the strategy and our strategic focus is we've always talked about looking for ways to build on our strength and specialty and to add to our services and solutions for manufacturers. And that was clearly exemplified by our One Oncology investment and also our acquisition of Pharmalex, which remains a key long-term asset for the business. And I would say that RCA really hits on both of those in that Certainly, it helps build on our leadership and specialty, but it also helps build on our value proposition to pharma, given the clinical research work that they do.

Our next question comes from Alan Lutz from Bank of America. Your line is now open. Please proceed.

Good morning, and thanks for taking the questions. There was a really nice revenue acceleration quarter over quarter, and Bennett, you mentioned that it didn't seem like that was coming from specialty accelerating. So I guess the assumption that we have here is that that's mostly driven by GLP-1s, but is there anything outside of that piece that's worth calling out around that sequential acceleration and top-line growth in the U.S. healthcare business? Thanks.

Yeah. Hi, Alan. This is Lars Krikorian. So we definitely talked about GLP-1s. You know, we continue to see strong growth in the GLP-1 class. Sales of those products in the quarter increased 55% year over year and 14% on a sequential basis. With respect to specialty products and distribution, we continue to see strong growth rates there as well, and they certainly continue to drive our top-line growth.

Our next question comes from Charles Rye from TD Cohen. Your line is now open. Please go ahead.

Yeah, thanks for taking the question. Kind of an RCA question, but maybe more broadly about the MSO strategy. Obviously, you know, Senator Warren had written a letter kind of expressing some concerns about distributors owning group practices or owning these MSOs. Can you talk about sort of, you know, your thoughts on that and your response, and then secondly, you know, maybe, you know, what is the real benefit to, you know, to owning the MSOs for you beyond just the distribution? Is it really just a services business that, you know, that you want to provide for physicians? Maybe just expand on sort of, you know, that aspect of it. Thank you.

Yep. Thanks. Yeah, thanks. This is Bob. I'll take that. Good questions. You know, first of all, I'll start with we have, you know, utmost respect for um you know the process uh that you know any governmental agency will will go through to look at this and you know any senators who want to weigh in we're you know we're happy to participate and uh and be helpful there as as always that's you know that's our orientation to these uh to your question specifically though is you know we view the mso model as a way to really support community providers and as i said earlier that's that's core to what we've done over over decades. The community providers are generally a cost-effective, a more cost-effective side of care. They're also, in many cases, more accessible to patients. So we believe our ownership and participation in the MSO space, at the end of the day, enhances patient access, enhances cost-effectiveness of healthcare, and allows Sancora to continue to support these very important providers.

That concludes our Q&A session for today, and I'll hand back over to Bob Mock for closing remarks. Thank you.

Thank you very much. Thanks all for the excellent questions and for the kind welcome. Again, I'm honored to be in this position. It's an incredibly strong company with an amazing culture, an incredible portfolio of customers, services, and geographies. We're very well positioned and we're going to continue to execute both operationally and strategically. So thank you all very much for your time.

Thank you all for your participation on today's call. That concludes the call. You may now disconnect your line.