Cencora, Inc.

Hello everyone and thank you for joining the CENCORA FISBOL 2025 second quarter results conference call. My name is Lucy and I will be coordinating your call today. During the presentation, you can register a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two on your telephone keypad. I will now hand over to your host, Bennett Murphy, Senior Vice President, Head of Investor Relations and Treasury to begin. Please go ahead.

Thank you. Good morning, good afternoon, and thank you all for joining us for this conference call to discuss Sancora's fiscal 2025 second quarter results. I'm Bennett Murphy, Senior Vice President, Head of Investor Relations and Treasury. Joining me today are Bob Motch, President and CEO, and Jim Cleary, Executive Vice President and CFO. 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 discuss 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 discussion of key risks and assumptions, we refer to today's press release and our SEC filings, including our most recent 10Q. Vincent Cerce, CENCORA team member, CENCORA team member, CENCORA team member, CENCORA team member, CENCORA team member, CENCORA team member, CENCORA team member, CENCORA team member, CENCORA team member, CENCORA team member, CENCORA team member, CENCORA team member, CENCORA team member, CENCORA team member,

It is due to their purpose-driven execution that I have the privilege of reporting our second quarter performance. In our second quarter, Sencor delivered strong results with revenue growth of 10% and adjusted diluted EPS growth of 16%. We are once again raising our guidance for the fiscal year to reflect our first half results and expectations for continued execution in the second half. Rooted in our pharmaceutical-centric strategy, enabled by active learning and powered by the collective strength of our enterprise. CENCOR is building on our position as a leading end-to-end healthcare solutions provider. We continue to expand our capabilities in key markets, supporting pharmaceutical innovation and access. Today, I will highlight three areas advancing our business to power growth. First, we are creating value by leveraging our expertise and insights to enhance patient care. Second, we are successfully deepening our customer partnerships by actively learning and anticipating their needs. And third, we are strengthening our global leadership and specialty medications by deepening our offering across geographies and customer channels. I'll begin with how we are creating value by leveraging our leading expertise and insights from our end to end solutions to support our customers, partners, and patients. CENCOR is uniquely and intentionally positioned to support pharmaceutical commercialization and access across the healthcare ecosystem, from leading pharmaceutical and biopharma innovators to healthcare providers. The breadth and scale of our services give us access to extensive data that our teams transform into actionable insights, enabling increased efficiency and innovation. There are two examples I'd like to mention that demonstrate our progress to engage with industry stakeholders and strengthen our partnerships. First is how we're working to support the resiliency in the independent pharmacy space to ensure patient access to care. Through our advanced analytics capabilities and leading good neighbor pharmacy network of independent pharmacies, we've been able to provide pharmacies with heightened visibility into their communities, allowing them to identify new business opportunities address populations that may experience gaps in care, and tailor their service offering to specific patient populations. Our work has also highlighted that an estimated 30 million people in the United States live in pharmacy deserts, threatening access to medication, vaccines, screenings, and other services necessary for healthy communities. By leveraging these insights, we are better able to advocate on behalf of our customers to ensure community providers remain vital sites of care. The second example is using dispensing insights from our relationships with providers to inform biopharma partners on key product trends. One recent initiative provided actionable insights into the treatment of bladder cancer, where Sancora combined clinical and market research to show how community oncologists were implementing new treatment paradigms. We are expanding the areas in which we offer these data insights, providing valuable services to our partners as they navigate the ever-changing healthcare landscape. Next, we are deepening our strategic relationship with customers and partners by taking an active approach to learning from them. Through Sancora's industry-leading portfolio, we've built a premier customer base, end-to-end, throughout the pharmaceutical supply chain. dedicated to driving positive pharmaceutical outcomes. Executing on our strategic priority of leading with market leaders, we are committed to deeply understanding our customer strategies, and in turn, anticipating their needs and enhancing our capabilities. Just this past week, teams from across SYNCORA were actively engaged at a number of industry events, ranging from community pharmacies and oncology practices to the largest chain drug stores as well as biopharma companies, allowing our team members to return to our offices equipped with insights to share with colleagues. I'm proud of our significant presence at these prominent industry events where the scope of CENCOR's capabilities and expansive partnerships were on full display. At a leading conference focused on specialty pharma, our team members spent time actively learning from partners across the healthcare landscape while also providing thought leadership through their participation on panels, addressing policy and health care access. We were also highly engaged in the largest gathering of chain pharmacies working to deepen our partnerships. In Washington, D.C., a group of our leaders joined community pharmacists from across the country for meetings with legislators to bring attention to the critical role pharmacists play in their local communities as trusted providers of care. The teams attended over 100 meetings with legislators. Additionally, we gathered with our community oncology partners where the focus was on the continuous evolution of care and need for empowered advocates to ensure the best patient outcomes in the community setting. By engaging in these forums, we develop a deeper understanding of our partners' needs and gain valuable perspective to allow us to better serve them and their patients. And finally, we are strengthening our global leadership and specialty medications by deepening our offering across customer channels. Executing our strategic imperative of expanding leadership and specialty, our internationally scaled 3PL service is differentiated as we serve pharmaceutical manufacturers who are increasingly seeking partners that can support products across multiple geographies. We've integrated our U.S. and European 3PL businesses, creating an internationally unified network. By doing this, we offer manufacturers deep local expertise along with multinational reach for their products, driving successful launches and positioning Syncora as the partner of choice. We are increasing our capabilities in key markets in Europe, enhancing our pharmaceutical logistics offering, which will power our leadership and specialty across the continent. We're also strengthening our leadership and specialty in the United States by deepening our offerings across provider channels. One example is our approach with health systems, paving the way for us to build upon our critical role in distribution and offering an ecosystem of services health systems increasingly require as the use of specialty medications rise. Our teams have developed solutions to address the needs of health systems large and small. Our solutions designed in partnership with leading health systems support comprehensive patient-centric care. By investing in end-to-end solutions across sites of care, we strengthen our capabilities to support providers, manufacturers, and patients. In closing, and before I hand it over to Jim, The financial strength we are reporting today is powered by the size and organic growth of our U.S. segment, resulting from many years of strategic investments, strong execution, and leading partnerships. In our international segment, we are navigating a period of market softness for some of our businesses. However, we are confident we are well positioned and expect to capture opportunities as demand rebounds. I hope each of you take away from my prepared remarks today that while we are performing well, there is no complacency at Sankora. While we execute driving performance in the short term, we are laser focused on building end-to-end capabilities and partnerships that will enable continued growth over the long term, strategically deploying capital, investing in talent, digital capabilities, and enterprise productivity. I want to end with another thank you to the Sancora team members who guided by our purpose, drive a differentiated customer experience, actively learn and apply insights to drive innovation and deliver value for all of our stakeholders. We are united in our responsibility to create healthier futures. With that, I will turn the call over to Jim for an in-depth review of our second quarter results and our updated fiscal 2025 guidance, Jim.

Thanks, Bob. Good morning and good afternoon, everyone. As a reminder, before I turn to my prepared remarks, my remarks today will focus on our adjusted non-GAAP financial results. For a detailed discussion of our GAAP results, please refer to our earnings press release and presentation. In our second fiscal quarter, Sencora delivered strong financial performance as our teams capitalized on our pharmaceutical-centric strategy. We benefited from our positioning and continued investment in attractive growing areas of the market, like specialty, driving adjusted diluted EPS growth of 16%. To reflect our strong US healthcare solutions earnings performance to date and expectations for continued growth in the second half of the year, we are raising our full year guidance for adjusted operating income and adjusted diluted EPS. Before reviewing the revised guidance details, I'll first turn to a review of our consolidated second quarter results, starting with revenue. Our consolidated revenue was $75.5 billion, up 10%, primarily driven by revenue growth in the U.S. healthcare solutions segment as we continue to benefit from volume growth, including continued growth in GLP-1 products. excluding sales of GLP-1s, our consolidated revenue growth would have been 8%. Turning now to gross profit, consolidated gross profit was $2.9 billion, up 15% due to growth in the U.S. healthcare solutions segment. Consolidated gross profit margin was 3.86%, an increase of 16 basis points, primarily driven by the gross profit contribution from our acquisition of Retina Consultants of America. Moving now to operating expenses, in the quarter, consolidated operating expenses were $1.7 billion, up 15%, driven primarily by the RCA acquisition. Excluding RCA, operating expense growth was modest as we continue to focus on identifying and implementing productivity initiatives while also investing in our business and operations to support our customers' growth. Consolidated operating income was $1.2 billion, an increase of 15% compared to the prior year quarter due to excellent performance in our U.S. Healthcare Solutions segment, which I will discuss in more detail in the segment-level results. Moving now to our net interest expense and effective tax rate for the second quarter, net interest expense was $104 million, an increase of $40 million versus the prior year quarter. This increase primarily reflects the interest expense associated with the $3.3 billion in recently issued senior notes and a term loan to finance a portion of the RCA acquisition, on top of our intra-period short-term borrowings associated with typical seasonal factors minus the repayment of senior notes that matured in March, which we have not yet refinanced. Turning now to income taxes, our effective income tax rate was 20.8%. Given our year-to-date effective income tax rate, we would expect our full-year tax rate to be slightly below 21%. Finally, our diluted share count was 195.1 million shares 3% decrease compared to the prior year quarter, driven by approximately $1.0 billion in opportunistic share repurchases over the past year, including $50 million in February in concurrence with Walgreens, Boots, Alliances' sale of shares. As we look to the balance of the fiscal year, we do not anticipate further share repurchases as we focus on deleveraging following the RCA acquisition. Regarding our cash balance and adjusted free cash flow, we ended March with $2 billion of cash and year-to-date adjusted free cash flow slightly below $200 million as a result of strong adjusted free cash flow in our second quarter. We continue to expect full-year adjusted free cash flow to be in the range of $2 billion to $3 billion. This completes the review of our consolidated results. Now I'll turn to our segment results for the second quarter. In the U.S. healthcare solutions segment, revenue was $68.3 billion, up 11%, as we continue to see strong utilization trends, including growth in GLP-1s and growth in sales of specialty products to specialty physician practices and health systems, where we are particularly benefiting from our strategy of partnering with market leaders. In the quarter, sales of GLP-1 products increased $2.2 billion, or 36% year over year. While this is clearly a significant year over year increase, I will note that this represents a 10% sequential decline in GLP-1 sales from the first quarter. Excluding sales of GLP-1 products, U.S. segment revenue growth would have been 9% for the quarter. Separately, I will note that, as previously contemplated, there is no significant increase in U.S. healthcare solutions revenue resulting from the acquisition of RCA, as sales from our specialty physician services business to RCA are now being eliminated in consolidation. U.S. healthcare solutions segment operating income increased 23% to $1.0 billion driven by growth across our human and animal health distribution businesses and the contribution from RCA offset by a smaller than expected COVID vaccine headwind. In the quarter, we saw particularly strong performance in specialty as utilization across health systems and specialty physician practices was robust, and we benefited from the continued uptake of biosimilars in these customer channels. As it relates to COVID, in the quarter we saw higher than expected sales of COVID-19 vaccines that resulted in our COVID-related headwind being approximately half the size we indicated on our first quarter earnings call. I will now turn to our international healthcare solutions segment. In the quarter, international healthcare solutions revenue was $7.2 billion, up approximately 1% on an as-reported basis, and up 6% on a constant currency basis due to our growth at our European distribution business. International Healthcare Solutions operating income was $159 million, down 17% on an as-reported basis, and down 14% on a constant currency basis. The decline was driven by continued softness for our global specialty logistics business as clinical trial activity remained subdued. And we had a difficult comparison for our European distribution business due to manufacturers' price adjustments in a developing market country in the prior year, which we called out on our second quarter earnings call last year. Excluding the impact of the manufacturers' price adjustments, we saw solid operational performance within our European distribution business, particularly in 3PL. That completes the review of our segment level results. I will now discuss our updated fiscal 2025 guidance expectations. As a reminder, we do not provide forward-looking guidance for certain metrics on a GAAP basis, so the following information is provided on an adjusted non-GAAP basis, except with respect to revenue and share count. I will also provide certain guidance metrics on a constant currency basis. I will start with adjusted diluted EPS guidance. And then provide detail on the income statement items contributing to the increase we are raising and narrowing our fiscal 2025 EPS guidance. And now expect EPS to be in the range of $15.70 to $15.95 up from our previous range of $15.30 to $15.60 and representing growth of 14 to 16%. the updated guidance reflects our strong second quarter operating income performance in the U.S. healthcare solutions segment and a lower expected contribution from the international healthcare solutions segment. Additionally, in connection with consolidating the operating results of RCA, we made the accounting determination that the approximately 15% of equity that is owned by RCA physicians and management represents a contingent liability to CENCORA as opposed to a non-controlling interest. CENCORA will be consolidating the entirety of RCA with no non-controlling interest elimination at the net income and EPS level. Our prior guidance assumed a non-controlling interest reduction in EPS. Therefore, this determination will result in a higher than expected EPS contribution from RCA for the fiscal year but has no impact on our operating income results or operating income guidance. We are pleased with the integration progress we are making with the RCA team and are excited about the opportunities we have to drive positive patient outcomes by leveraging our collective strengths. Now moving to revenue, our consolidated revenue guidance is unchanged and we expect growth to be in the range of eight to 10%. At the segment level, we are updating our international healthcare solution segment revenue growth outlook and now expect as reported revenue growth to be in the range of three to 4% down from our previous range of four to 5%. On a constant currency basis, we now expect international healthcare solution segment revenue growth to be in the range of six to 8% down from the previous range of seven to 9%. While we are leaving our revenue guidance unchanged at both the consolidated and US healthcare solution segment level, we anticipate our growth will be at the bottom end of the respective ranges. In the second half of the year, we will see revenue growth impacted by a couple factors, including beginning to lap tougher GLP-1 growth comparisons in the second half when the market saw product supply constraints subside in the prior year, and declining sales of high-priced mail-order products, which now have biosimilar competition in PBM formularies. These dynamics contribute to the lower revenue growth expected in the second half of the year, but are positive for our profit margins. Moving to operating income, we expect consolidated operating income growth to be in the range of 13.5 to 15.5% up from our previous guidance of 11.5 to 13.5%. In the U.S. healthcare solutions segment, we now expect operating income growth to be in the range of 17.5 to 19.5% up from our prior range of 14.5 to 16.5%. The updated guidance reflects our strong business performance to date and continued good pharmaceutical utilization. Turning now to international healthcare solutions segment, on an as reported basis, we now expect operating income to be down 4% to down 1% versus our prior expectations for operating income to be flat. The updated guidance range reflects the continued demand softness in the clinical trial and outsourced pharma services markets, impacting our full year expectations for our higher margin businesses in this segment, offset in part by the positive impact of the weakening of the US dollar against other currencies. On a constant currency basis, we now expect segment operating income to be down 3% to flat. William Boschelli, M.D.: : Moving to share count, we now expect diluted weighted average shares outstanding to be in the range of 195 million to 195 point 5 million based on our current share count. William Boschelli, M.D.: : That concludes our updated full year guidance assumptions in closing this and core team has delivered another strong quarter of financial performance. as our team members work collaboratively with our customers and partners to drive a differentiated experience through their expertise and solutions-oriented approach. Our team members and our strategic partnerships are foundational to our success. Our continued investment in the team's development, our focus on enhancing capabilities and emphasis on productivity will further enhance our ability to drive value for all our stakeholders. Now I will turn the call over to the operator to open the line for questions. Operator?

Thank you. To ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. We ask participants to limit their questions to one question per person. Our first comes from Elizabeth Anderson of Evercore ISI. Your line is now open. Please go ahead.

Hi, guys. Thanks so much for the question, and congrats on the quarter. Maybe I just wanted to dig into the strength and the AOI of the US health care business. Given that strength that we saw in the quarter, how do you kind of see that playing out for the rest of the year? And then if we talk about some of the drivers on a longer term basis, you know, how do we, how do we see the sort of continuation of those over a longer, over the longer period? Thanks.

Hi, Elizabeth. Thanks for the question. This is Bob. I'll, I'll, I'll take that one. Um, and I think, you know, where you got in your question in terms of the, of the drivers are, are how I'll, how I'll answer. Cause when you, when you think about Sancora, I think there are three things to think about when you, when you're looking at kind of long-term performance and we do believe our, our strong, performance will continue. You know, one is how well we're positioned in the growing parts of the pharmaceutical market. So, you know, obviously we talk a lot about how well we're positioned in the specialty market. That is where, you know, most of the innovation in the pharmaceutical industry is happening. And we're very well positioned there with the biopharma manufacturers. And we certainly expect our position to continue and the innovation to continue. The second piece is how well we're positioned with with providers. And, you know, we spend a lot of time again, talking about our our strength in the independent community specialty practices, which is excellent. And we expect that to continue. But we're also very well positioned, you know, across the continuum of sites of care from, you know, the largest pharmacies to the smallest community pharmacies, to specialty pharmacy, highlighted health systems today, and the prepared remarks. So we look at the market growth in terms of product innovation and specialty. We're well positioned there. When you think about the provider base, we're very well positioned there. And the third and important piece is just the excellent purpose-driven team members that we have here at Sankora who are spending a lot of time you know, thinking about not just how do we execute in the short term, but how are we going to continue to innovate, you know, build services and build partnerships for the long term. And, you know, also referencing back to my prepared remarks, made a specific point of the amount of time that CENTCOR leaders are spending out with industry stakeholders, whether that's in walking in D.C. or our provider customers once again. And the intention there is to make sure that we're listening carefully, we're learning, we bring that back to the organization that allows us to be meeting the needs and exceeding the needs of those provider customers. So I think when you think about the market growth, how well we're positioned, and then honestly the growth mindset that we have at Sincora and our commitment to actively learning and continue to to innovate to what gives us belief that the performance will continue over the long term.

Our next question comes from Michael Czerny of Lyric Capital. Your line is now open. Please go ahead.

Thanks for taking the question, and again, congrats on another strong beat and raise. Maybe about to parse through Elizabeth's question a little bit more and particularly dive in more on specialty. Sincor has a long history of being a market leader on all things specialty oriented. As you think about the contributors of specialty to growth, how much can you unpack in terms of what you see as market growth versus fair gains versus additional value add services and add-ons being able to build out? You're very much, we'd agree with the fact that you're in the right place on a go-forward basis relative to the markets growing, but curious, as the market continues to grow in various different pacing, where you see the best opportunities for outperformance beyond that?

Yeah, so thanks a lot for the question, Michael. I'll take a shot at it. And so, you know, we saw terrific results, really extraordinary results in the first half in our U.S. business. In fact, if we, you know, kind of look at our Q2 beat, really all of the U.S. Q2 beat versus our internal expectations is due to organic growth from our core U.S. distribution business. And, you know, of course, we've talked about some time that that's, you know, driven by utilization trends. It's driven by broad-based performance. And in particular, it's driven by sales of specialty products to physician practices and health systems. And so, I would say, you know, as we look at specialty, it's really been broad-based performance, and it's been, you know, very good results, both with regard to physician practices and health systems. And then, of course, you know, our recent acquisition RCA and our investment in 2023 of One Oncology, we look at that as really the natural evolution of our specialty business, because of course we're very strong in distribution. We're very strong in wraparound services like GPO. And so we view the MSO space is adding, you know, additional value added services to the same customer base that we've had terrific success with for quite some time. And so thanks a lot for the question, and I think Bob has something he'd like to add. Yeah, thanks, Jim.

And Michael, I would just add, you know, our commitment to continue to invest in the strengths that we have. You know, you've seen over a period of time we're investing in services. The MSO expansion is a good example of that. And we're going to continue to make those investments as we move forward to make sure that we're positioned well to support the biopharma manufacturers as well as a provider. So we think that that intention to do that, the commitment that we have to do that will allow us to continue to perform well.

Our next question is from Lisa Gill from JP Morgan. Your line is now open. Please go ahead.

Great. Thanks very much and good morning. Congrats on the quarter. I wanted to focus on DC and, you know, the thoughts around tariffs. It's believed that the Trump administration will come out with something in the next week or so. Can you just remind us on each side of your business? My understanding would be on the branded side, kind of similar to what we saw on the flip side with insulin when prices go down, your economics kind of stay the same. Is there any variability if we were to think that prices go up? And then there's been a lot of questions on the generic side if we think back to when there was generic price inflation. And again, a tariff could add some kind of inflationary component to this. How do we think about each of those components and how it impacts your business and how you're thinking about it for your customer?

Yeah, sure. I'll take a stab at that, Lisa. Thanks a lot for the question. And of course, we continue to monitor the evolutions around tariffs in the pharmaceutical markets. We have teams in place that are analyzing the impact of tariffs on our business and, very importantly, on the supply chain. And to answer your question, what I'll say is, as it relates to our business, we have not called out any material impacts as a result of tariffs. As a reminder, we're pharmaceutical-centric, and the manufacturers are the importer of record for pharmaceuticals. Now, to get to part of your question, our main focus is ensuring patients have access to lifesaving medications, and we're supporting our upstream and downstream partners as they navigate the uncertainty. And additionally, we'll continue to advocate on behalf of our customers to ensure that they receive adequate reimbursement for the valuable healthcare services that they provide. But just to reiterate, as it relates to our business, we haven't called out any material impacts as a result of tariffs. Thank you for the question.

Next question comes from George Hill of Deutsche Bank. George, your line is now open. Please go ahead.

Yeah, good morning, guys. Thanks for taking the questions. And I've kind of got a two-parter. Number one, James, if you could kind of quickly walk through the RCA impact on gross margin expansion in the quarter. I think that would be helpful because there's some moving pieces there relating to the way the non-owned equity stub is being treated and the eliminations from the sales into the practices. And then my second part would be just kind of the growth where you guys have set yourselves up and specialty is amazing. I was just hoping you might give us any quantitative color on how much of the U.S. drug business is now like the Part B business versus the Part D business. and maybe kind of the growth characteristics you're seeing in each of those, kind of trying to think of the business and kind of the two big segments from a distribution perspective. Thanks.

Okay. Well, I'll take the first half of that, and that is on RCA. You asked initially about gross profit. And, yeah, you know, as we look at our consolidated results here, RCA does add meaningfully to gross profit margin and operating margin. And one reason why is that it is, you know, a higher margin business than our core distribution business. And then, of course, the other reason why is that now that it is a subsidiary of Sencora, we eliminate the sales from our specialty physician services business to RCA so that we don't double count those sales. And so as a result of that, it adds meaningfully to our gross profit margin and our operating margin. And then I think the second part of the business kind of got to the accounting. And so let me just kind of address that for you. Also, our prior guidance, when we talked in February, incorporated 100% of the operating income for RCA and contemplated a reduction in EPS due to an expected non-controlling interest reduction. But as I said in my prepared remarks, after closing and consolidating the RCA business, we made the accounting determination that the approximately 15% of equity that's owned by RCA positions and management represents a contingent liability to SINCORA as opposed to a non-controlling interest. The results of that is that there's a higher than expected EPS contribution for the fiscal year, but it has no impact on our operating income results or guidance. And so just to give you a little bit more detail there, for EPS, approximately 14 cents of the increase in EPS guidance is a result of the RCA accounting determination. And then the rest is from our core U.S. distribution business. And so if you look at our increase in eps guidance the significant majority of the increase in eps guidance comes from our core u.s distribution business which you know more than offsets a decrease in guidance for international and just one final thing is that you know the 14 cent increase in eps from the rca accounting determination it may be higher than some of you are initially modeling and the reason for that is that the 85 percent of operating income um covers all of the interest expense so the incremental 15 of operating income falls right to pre-tax income so i think that um uh fully uh answers your um question and um you know one one one other thing i i will add is that it's as it relates to the guidance update i know um kind of everything from standpoint of revenue gp and oi for rca is the same as previously guided

The next question comes from Charles Rhee of TD Cohen. Charles, your line is now open. Please go ahead.

Yeah, thanks for taking the questions and congrats on the quarter, guys. I actually want to ask about international real quickly here. You know, obviously the guidance is taken down a little bit here and just wanted to maybe dive a little bit into more about your comments about softness in the especially logistics business. You mentioned that trial activity is subdued. Can you talk a little bit more about what you're seeing here? Obviously, there's a lot going on in the pharma market, particularly with potential tariffs and a lot of things that the administration is undertaking here currently. Maybe you can give us a sense for what you're hearing from clients, from pharma companies in terms of sort of what they're seeing currently and how they're approaching, you know, sort of business development here and clinical trial starts in particular. And when you're saying it's subdued, does that mean you're just seeing a lot of delays? You know, maybe you could just kind of give us a little bit more details on that. That'd be great. Thank you.

Yeah, thanks a lot for the question. So as we and other players in the market have been calling out, clinical trial activity has been subdued. which has been pressuring some of our businesses in the international healthcare solutions segment, particularly demand for global specialty logistics and earlier stage pharma consulting projects. And the rebound's been slower than we would have expected, resulting in segment performance for our global specialty logistics business to be below the expectations we outlined in February. And we really haven't seen demand begin to ramp materially for our consulting business. And so as a result of the performance to date and to incorporate a wider range of recovery paths for demand and global specialty logistics, we reduced our international healthcare solution segment operating income guidance. But I will say that, you know, our end-to-end service offering is resonating with manufacturer's and we feel confident in our ability to capitalize on a rebound in demand when it occurs, given our unique positioning in the market.

The next question comes from Eric Percher of Nefron Research. Eric, your line is now open. Please go ahead.

Thank you. Appreciate the detail on RCA, and I'd like to ask a question kind of about the MSO operations more broadly. I know that each of them looks quite different and the share of income can be quite different, but can you help us with your view of the profit stream? And we've talked a lot about the opportunity. When we think about how much of that opportunity is tied to drug versus medical or government versus commercial, can you provide a general framework for that both to think about the opportunity and the risk of some of what is occurring in the market.

Eric, it's Bob. Thanks for the question. I would begin with we're excited and confident about the income streams within the MSO spaces. You said they're different and the services that you know, an MSO1 oncology would provide to an oncology practice are similar and different than RCAID would provide to a retina specialist. But when you put that together, you know, we believe it's a really good fit for our expansion of services in both of those spaces. So as, you know, as we discussed and as you know well, Eric, you know, the strength that we have in both distribution and the GPO, was there, and by adding the MSO services, you know, we're able to build on our capabilities in supporting those physicians. You know, one thing that, you know, to reinforce is something else that we're excited about in terms of a future growth proposition is the clinical trial services that uh are provided now uh at rca and that will you know we believe we can expand into uh into one oncology and that's another example of how we'll be well positioned with both the biopharma partners as well as the providers the next question comes from stephen valiquette of mizuho securities stephen your line is now open please go ahead

Yeah, thanks. Good morning. Congrats on these results. You had a question that was kind of similar to Charles, just on the international solutions and your comments about the clinical trial activity remaining subdued. The only kind of follow-up questions there were just, I can't recall off the top of my head, just how fragmented versus how concentrated your customer base is in that business. So were there maybe just some customers where activity on clinical trials was subdued or was it definitely widespread phenomenon across the majority of your book? And then is there any chance you're able to put a number just on the approximate percent decline in clinical trial activity you're seeing across your book? I mean, we're talking single-digit decline, double-digit. Just wanted to get, you know, just some rough sense for that. Thanks.

Yeah, thanks for the question. It's market-based. So what we're seeing are the very same things that, you know, you're seeing across the market from from other players. So our customer base is broad. And as we're seeing, there has been a decline in clinical trial starts over the past few years that we all in the space are eagerly awaiting a bit of a rebound there. And within our specialty logistics business, know it's part of our end-to-end service so when we when we are talking to bio pharma companies about commercialization and and them bringing uh services to market you know we're talking to them about uh you know lots of different services from from consulting to uh 3pl services to um especially logistics services that we're talking about here so we wouldn't call it anything different than what you know is being observed across uh the market i think you know There was a peak in trial activity during the COVID pandemic that has been reduced. And so we're working through that. But as Jim said earlier, as I said in my prepared remarks, we're well positioned with our services, with our partners and customers, and expect to be a partner of choice as that market rebounds.

The next question comes from Alan Lutz. of Bank of America. Your line is now open. Please go ahead.

Good morning, and thanks for taking the question. Congrats on the really strong results here. Bob, you called out really good growth in the specialty provider channel. Can you talk a little bit about growth in your different verticals there? Was there any standout as we think about growth in oncology versus retina? Are there any other specific areas to call out? And then, as you think about the utilization rate from 2024 into the first quarter 2025 was there any deceleration any acceleration, either at the top level or within any of the specific verticals you operate in thanks.

yeah thanks for the question Alan so we don't we don't break out, you know the specific. You know, commercial components of the business, but I will say and Jim mentioned this earlier, the. performance is broad-based. So, you know, we often talk about the community specialty space for very good reason, but I made a specific point in prepared remarks to talk about the health system space and others because we're well-positioned for specialty growth, you know, across all sites of care. So, and we're seeing them all grow. So, it's something that we're, again, happy to be well-positioned there. We're working hard to make sure that we're adding value to our biopharma partners as well as the providers but wouldn't comment specifically on any differences in growth across those segments. And, you know, I would, you know, go back to, you know, the reason that we're often focused on specialty physicians and oncology is the oncology space, you know, continues to be the area of largest growth and largest opportunity.

Bob, and just the only thing I'll add, and this goes, of course, back to our results in our press release and my prepared remarks is, you know, I mean, we did have just had very strong performance in the first half, and we're just so pleased to be able to increase our operating income guidance for the year by three percentage points at the end. the bottom end of the range and the top end of the range in the US, 17.5% growth and 19.5% growth, and really driven by the things you were asking about utilization and our broad-based strength and specialty.

The next question comes from Daniel Grossleit of Citi. Daniel, your line is now open. Please go ahead.

Thanks for taking the question and congrats on the quarter here. I had a similar question to Alan's, but maybe I'll ask it in a bit of a different way. Health systems seems to be getting a lot more airtime this quarter than in previous quarters. So I'm just curious, you know, why that is. Are you seeing anything particularly strong in health systems this quarter on the provider side? And as we think about the investments that you need to make to support health systems, Is there anything that you would call out as kind of a near-term investment in that channel? Thank you.

Thanks for the question. You know, from my perspective, you know, the reason that we're focusing a bit on health systems here is for the simple reason that, you know, we want the investor base to understand how well positioned we are for specialty growth across sites of care. And again, for very good reason, we focus on the community practices and we're making investments there. But we're also working very closely with our health systems customers and other customers to make sure that we have capabilities and a solution set that help them continue to capture the specialty growth that is happening within their site of care. So no, it's not anything in particular. It's not anything that's changed, but it is something that we're trying to explain, which is the broad-based positioning that we have for specialty growth. And again, that's what gives us confidence in the continuing growth that we will have.

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

Thanks for taking my question. I just had a quick first one, which is just trying to understand the math on the EPS guide increase. So 14 cents came from RCA. And can you remind us when you said that there was a better than sort of the loss of COVID was half, what was the expectation? Like what did that actually mean in terms of EPS? And I apologize, I couldn't find it in my notes. Then the actual, the real question is of the remaining sort of upside to guidance. I know you keep saying better specialty and like, are you actually getting better economics anywhere through the portfolio than you had been before? Is it a reflection of your fixed costs and the fact that you've kept your operating expenses X RCA flat? I'm just trying to understand, or is it simply mixed? I'm just trying to understand where the upside is coming from, if it's specific to, hey, you know what, we're actually generating better economics on similar drugs, or if our cost base is lower and utilization is higher and we're able to run that through, or our overall mix is better such that the margin is better.

Okay, great. Thank you for the question. Let me try to address those things. know you're asking about the um what's impacting the increase in guidance and of course our increase in eps guidance was 40 cents at the bottom end of the range and 35 cents at the top end of the range and you asked about covid and the covid headwind in the most recent quarter was about half of what we had previously expected And, um, you know, we had expected a headwind in the $30 million range, and it was a headwind more like in the 15 million dollar range. And so about half of our expectation. And then, um, you know, you asked a number of questions, um, with regard to, um, you know, things that are benefiting us. And I would say, you know, um, mix is one of the things that I see us benefiting from is, um, you know, we see just the specialty part of our business growing faster. And that's really benefiting us from a mixed standpoint. We see biosimilar growth, and that's benefiting us from a mixed standpoint. And so one of the things that you see in our guidance is, and there are a couple of different reasons for it, one of which we called out earlier on the call, but it's that we see operating income growth that's exceeding Kevin Hall- revenue growth and some of the those mixed things and higher margin businesses are benefiting us there, so we you know we are of course very pleased with the increase in guidance that we've put out today, and so thank you very much for asking about it.

The last question comes from Aaron right of Morgan Stanley Aaron your line is now open, please go ahead.

Okay, thanks. I understand you don't have future share buybacks in the guide and the focus is on deleveraging your term, but just as you think about the rationale behind RCA and other potential MSO-type deals, I guess, will the RCA deal help to explain your future focus from an M&A standpoint as we think about, you know, your learning so far there? And then, A second part of my question, maybe this is somewhat related to Kevin's too, but like in terms of the economics, is there any sort of change from a GLP-1 perspective? I mean, you mentioned the dynamic into the second half, which should be just more of a revenue dynamic from my understanding, but any sort of potential in terms of improved economics or like presumably oral solids could be more favorable for you as well. But how are you thinking about that segment too? Thanks.

Yeah. And so let me start off with, uh, both of those things, MSOs and capital deployment and GLP-1s. We've been very pleased with our entrance into MSOs, both with regard to the investment in One Oncology and the acquisition of RCA. And as you know, we own 35% of One Oncology, but there is a put-call structure with our partners there. which makes it likely that from a capital deployment standpoint, we would own all of that business at some point in time, which speaks to a good deal of our capital deployment over the next few years. And of course, we've been, as I said, very pleased with our experiences thus far. And then on GLP-1s, No, there's really no change from an economic standpoint. It's clearly been a driver of our revenue. And as we've indicated in the past, it is profitable for us. They are profitable for us, but they are minimally profitable for us. And I think that addresses your questions, Erin. Thank you.

We currently have no further questions, so I will hand back to Bob Mott, CEO, for closing remarks.

Thank you very much. Thanks all for joining the call today. We're very proud of the strong performance and guidance raised that we've been able to announce today. And you can count on us to continue focusing on building on our strengths, learning and leading from market leaders, driving efficiency through productivity, investing in our talent, data capabilities, and all of that will further differentiate Sancora. to biopharma partners and providers thank you very much all this concludes today's call thank you for joining you may now disconnect your lines