We are good to go. Morning, everyone. Welcome to this session of the Leerink Partners Global Healthcare Conference. I'm Michael Cherny, the healthcare tech distribution analyst. It's my absolute pleasure to have the Cardinal Health management team here with us. Aaron Alt no longer, still new-ish CFO. Now you're just the CFO. Matt Sims in Investor Relations and other assorted strategic efforts. David Frost, who will be the additional IR person sitting in the front row here. I believe Matt has an opening statement, and then... Yeah. Well, thanks for hosting us, Mike. It's great to be here, as always. Not a bad view. Before we begin, just a little housekeeping. We will be making forward-looking statements today, which will be subject to risks and uncertainties that could cause our actual results to differ materially from those projected or implied. For a description of these factors, please review our SEC filings, which can be found on our investor relations website at ir.cardinalhealth.com. All right, let's get started. Awesome. Thanks, Matt. Aaron, you know, maybe, you know, let's level set here. You know, you've had now a number of quarters of continually increasing momentum across the business, and you always keep talking about being very broad-based. I'm not asking you to rank order or go any deeper, but when you think about the broad-based nature of the outperformance, can you give us a little bit more of the why and in particular, how you think about where the market has developed versus the actions that Cardinal Health has taken to make sure to execute on the market? Well, to talk a little bit about the path forward, I need to, of course, talk about the year to date so far. We're two fiscal quarters in. We're in the middle of our third quarter. While I'm not gonna provide a specific update on Q3 today, I certainly, you can take some observations from my comments. If you think about our Q2 results, which we released several weeks ago, all five businesses grew profit double digits plus, right? That was driven by the combination of strong demand, right? Stronger than we had anticipated demand. I'll come back to that in a second. As well as great execution by the teams really across the board, as well as the benefit of the investments we've been making over the last, you know, couple of years. That has really come together and put Cardinal in a position of strength, you know, relative to our, you know, business and the environment in which we're operating. Now, it's equally true that we saw strong performance of our other businesses, OptiFreight, Nuclear, and at-Home, right? Strong demand there as well, good operations, the benefit of M&A in those categories as well. Then GMPD, a business we don't talk a lot about these days, but delivered a great result as they continue to take cost out and drive success in the Cardinal Health brand part of the portfolio. Across the enterprise, we have seen year to date, you know, good success driven by the demand, driven by the operating excellence, and driven by the delivery on the strategies we've now been deploying for a period of years. As we think about, you know, how that carries forward and, really to the point of your question, what I would tell you is we're always careful to guide strong demand. We lean in in that way, but I'm also very careful to always say, "Look, if things are just exceptional, we ain't, we ain't guiding that," right? We're guiding strong demand. If demand is outsized, you know, that would be opportunity for everyone in that way, particularly around our specialty business. Pharma has been driven so far this year, indeed, the plan for the year is good core growth within core pharma, specialty growing faster than the rest of it. I think we recently announced specialty will be hitting $50 billion plus, you know, this year. That's a result of specialty distribution as well as the biopharma services, the MSO businesses, all the places we've been leaning in. We're very pleased with how that business is developing over the course of the year. I would also, of course, for those that are less familiar with the story, keep in mind that we have a first half, second half dynamic from a guidance perspective as well. We're in the first half, we were benefiting from the second part of the new customers that we onboarded in the second half of last year, and by the fact that we had not yet lapped most of the acquisitions we've done. While growth in the second half of the year for the pharma business will be, you know, mid-teens, I think we've said from a guide perspective, won't be as high as it was in the first half because of those two very important factors as we carry forward. Look, at the end of the day, demand has been good, supported by the demographics in the industry. The American consumer, where 99% of our revenues are generated, is growing older. They're taking better care of themselves. The specialty dynamic is important. We are benefiting from that as we have doubled down in specialty as well. That's also carrying forward into the other parts of our business as well. You take Nuclear, where, you know, the innovation pipeline coming there, 70 plus therapeutics, a lot of them in the specialty areas we're investing in in pharma, urology and oncology, right? You really start to see how the pieces are knitting together across the Cardinal portfolio to carry us forward. I find it fascinating, and we've talked about this, that Cardinal, the Cardinal of today is leading with specialty. Mm-hmm. You know, it's something that's been a very distinct portfolio improvement, portfolio investment that you've made over time. As you think about the growth of specialty and the high level $50 billion of revenue is great, how do we parse through what's driving the growth of the distribution side versus the MSO assets you've acquired? Along that second part, what is Cardinal able to do to make the MSO assets you've acquired better businesses where you've been able to execute so well against them? Yeah. It's important to keep in mind that we view the specialty business as really three larger parts. You have the specialty distribution, which is, you know, Heritage Cardinal. We have traditionally had strength in the other ologies, the urology, the rheumatology, nephrology, we've doubled down on those areas. Certainly increased our exposure in areas like oncology as well. I'll come back to that in a second. We have the downstream elements like the investments in the MSOs we've been making, which we're super excited about because for us, that isn't about the drug spend. The drug spend is what we do otherwise. It's about the ancillary services, the office visits. It's the diversified revenue streams at a higher margin that are additive to our overall P&L. That's why we're focused on, you know, the MSOs, which I think is a little different strategy than some of our, you know, competitors. Then there's the biopharma services parts of the specialty portfolio, which is more upstream or in the background. In our most recent earnings call, we talked about a particular element of that portfolio, our Sonexus Hub business, with significant customer wins organically based on two years of investment in the business and from a team, from a technology, and capability perspective. As we're leaning in on specialty, because you're right, it's a core part of our strategy, it's not just one of those, it's all three of those. We have a variety of organic investments occurring at all times. We are always open to further inorganic investments in support of the specialty portfolio, the pieces are really starting to come together. Maybe to the other point of your question, for us as much now, it's how do the pieces connect to each other, right? I like to use urology as an example, right? We have historically been a strong distributor of specialty urology products. Our first acquisition was actually Specialty Networks, right? Which was historically a urology GPO-based business that then moved cutting-edge into technology that we then acquired to get the technology and got the urology GPO and relationships part of the business. We're able to leverage that capability not just in urology, GIA was a customer of Specialty Networks, right? Now Specialty Networks is, or GIA is using the technology from Specialty Networks. Similarly with Solaris now in the portfolio as well. We're connecting Solaris with, you know, the core distribution business as well as now with Specialty Networks. They were a data customer but not a broader, not a distribution customer of ours. You can really start to see how the pieces are coming together. When you think about what comes next, you talk about the other ologies. What are you finding in terms of once you get in there, you figure out more, there's more you can do? How do you think about that expansion on the services side in order to make sure that within the ologies, whether it's organic or inorganic investments, you can continue to be more value add. I mean, more value add brings obviously more revenue, but, like, it only works if you're actually adding value. Great point. We are starting with the community provider at the core of what we do, right? We are relentlessly focused on how do we ensure that incentives are aligned. We are in partnership with the doctors in many respects. They are owners of Specialty Alliance for that matter. As we focus on what do they need to better care for their patients, where they are the experts, we are not providing care recommendations, right? We are helping them run the business. We are helping to make sure that they have the resources necessary, helping them to run the back office, the stuff that frankly they don't wanna do and shouldn't have to spend their highly educated time doing, right? That's really where, you know, we are focused. What we're bringing to the table there, for instance, we're able to bring scale and better expertise on technology, right? That's, and we're able to do that across the scale of 3,000 providers in 30 plus states at this point. You can see that that can lead to some benefits. We're able to bring expertise and scale on how do you run a back office, how you do scheduling across five doctors, 50 doctors, 500 doctors, right? That's a capability that we're able to bring. We're able to bring a better cost of capital, right, to these, to the practices as we carry forward. We're able to, of course, bring better distribution economics. We negotiate with the doctors on those, I think the contracts we've picked up, they've been quite pleased with the deal that we've put on the table with them in that way. Really as we think about the core economics, it's all about how do we enable the clinical practice of medicine so that they're able to do what they do best while we do what we do best. There's some additional benefits that are second circle effects, if you will, of the acquisitions. I'm gonna go back to my urology example as well. With us now, being the majority owner of the largest urology MSO in the country, think about the benefits that the Solaris Health and The Specialty Alliance related urologists get from being partnered with Cardinal Health and our Nuclear and Precision Health business. With the number of theranostic, diagnostic and theranostic products that are out there, with our scale across the country, right, we're able to teach and train, we're able to make therapeutics accessible to them, we're able to provide best practices from a practice perspective. We're really starting to see the benefits of that accreting to the doctors, as well as, you know, to Cardinal Health. Maybe thinking about the core pharma business, you know, you kicked off the year with some, at least for this market, fairly significant changes with the first change in the IRA negotiated prices. Mm-hmm. You came out and said flat out, "We've recontracted, and we feel good about where we stand." Can you maybe just give us a reminder on how exactly those changes go about, how automatic they are in nature versus the work that you have to do to make sure that the unit economics that you deserve, you feel you deserve, are appropriately reflected in the contracts? Sure. I don't want anyone to walk away with the impression that this is easy, because every contract between Cardinal and one of the suppliers manufacturers is unique to that particular counterparty. What we have is 50-plus years of experience and relationship working with each of the counterparties. What we have is, you know, we are a, we are the backbone effectively of the pharmaceutical distribution business, such that it's hard. It's not like there's a lot of alternatives where someone can go to, and it's not like, you know, the manufacturers themselves want to set up a national distribution chain across temperature classes to serve their specific drugs. What we do is we buy the drugs from, you know, thousands of manufacturers, and we distribute it to tens of thousands of locations, you know, every day. That requires scale, that requires expertise. When we have a conversation on an annual or a biannual basis, it comes down to the fact that we're going to be compensated for the value of what we provide or we won't provide it, right? We have that conversation, you know, every year, every time there's a contract renewal, and 50 years later we're still doing what we're doing because we've gotten to be experts. Our, our peer set is in a similar position, you know, in that way. Most of our contracts actually have a provision in them which says that if there is a dramatic change in the ecosystem, like IRA, we have the right to renegotiate. That is true. It's not. There's not an automatic escalator or de-escalator tied to what's going on with WAC. What we showed, and the proof points I would give you first with insulin and more recently with the 2026 IRA changes, you know, we expressed confidence going into it that it would be fine, we would be compensated for the services we're providing. Indeed, that was the result that we were able to confirm on our last earnings call that those negotiations had ensued and resulted as we had expected. I am sure the same question's gonna come up in connection with 2027. We're already seeing some of the news around, is it Ozempic with Novo. My answer is not any different, which is we will be compensated for the services that we're providing in connection with, you know, that high growth drug. I'm sure we'll get to the same question in 2028 when we get to, you know, Part B as well, and maybe I can just jump there quick, in case it was coming, which is. It was. Yep. We also expect that, look, the Part B changes, the administration isn't out to stick it to the community, physician, right? They're all about ensuring affordability, they're about ensuring access, they're about ensuring, you know, innovation. We expect that, just like we have with Part D in 26 and 27, that by the time the 28 changes, actually roll out, you know, we will have negotiated, the appropriate compensation, certainly for Cardinal and for, the docs, you know, that are part of the broader MSOs, with whom we're partnered. When those negotiations go on, and one of the things I've always found is, like, trying to level set and look at the role that you and your two peers play in the market and try to break down the profit pool of how much money you make versus what you actually do against the economic benefit. Like, are those the discussions that you're having? You always talk about the whole fair share dynamic, and I tend to agree with it, and maybe it goes more than just a margin% rate, but it's more a. Is there that broader discussion about the fee for service versus the economic value of what we touch? Like, how do those negotiations play out? I'm not asking obviously for a specific discussion point with a customer. Well, I've You said it's not easy, so. I've got an easy answer. We're a 1% margin business on core distribution. If someone wants to look at what we do and, you know, buying from thousands and selling to and moving to 10 thousands on a regular basis and tell us that, you know, earning a 1% margin is egregious on our part, I will encourage them to look right back at their own gross margin structure and explain to me the relative fairness of that, indeed the return on capital that comes with it. There, these are. We are all sophisticated counterparties. There are all the conversations or negotiations you would expect ensue. At the end of the day, what it comes down to is the fact that, you know, Cardinal and our primary peer group, we provide an essential service. We do it safely, we do it securely, we do it efficiently. We have a modest margin, you know, in exchange for doing that, and frankly, we do it well, right? The American healthcare system needs us to continue to do that. At the end of the day, contract negotiations aside, right, reasonableness prevails, right, in that way. That's what I would really, why I would answer the question of why Cardinal has been successful in doing this for the last, you know, 50 plus years, and why we have great confidence that notwithstanding everything else going on, you know, in the industry, the world, et cetera, that we are an essential backbone to the American healthcare system, and we will continue to be successful doing what we do day in, day out. You're primarily a U.S. domiciled business. Mm-hmm. One that is subject to world geopolitical strife. Mm-hmm. Obviously top of mind right now besides AI is oil prices. Mm-hmm. Potential inflation on raw materials and other items. Can you just remind us roughly how your contracting works and how to think about pushes and pulls on changes in commodities such as oil and potentially others? Yeah. Sure. My short answer is gonna be it depends. My longer answer is as follows. First, let me get some of the details out of the way. 99% of our revenue is in the U.S. We have very small revenue into the Middle East, and we have no actual operations on the ground in the Middle East. We work through distributors for sales of our products, largely through GMPD, you know, into the Middle East. So we have no direct exposure from a business operations, you know, perspective. Similarly, given where our manufacturing or sourcing operations are located, we don't move much of anything through that part of the world. As we think about, you know, transportation costs, social logistics, et cetera, we're in the Pacific, not in the Strait of Hormuz or the Red Sea in that way. We are, again, not directly exposed to the cost of shipping through that, you know, part of the world. Of course, we do move stuff, right? We pay very careful attention to price of gas. We have a variety of contractual provisions around that as well, and we manufacture stuff that uses petroleum as a base. I would observe as follows. The first is that I anticipate an immaterial impact across our enterprise to fiscal 2026. We're in our Q3. That's driven by the fact that we have contracts that allow us, based on some metrics, to actually pass prices, pass cost increases along to the extent that our costs increase. We have contracts that actually give us some room where we don't actually suffer the pain until costs increase, you know, beyond a particular level. It's also the case that we're negotiating every day, and we have expert teams that are very carefully watching the commodity environments as well. While, of course, we're carefully watching what's going on, you know, with oil, we don't believe it's gonna have a short-term impact on us, and we believe we'll be able to manage through it in the longer term once we get past fiscal 2026. I should also observe you asked me about how it works. I will observe that anything which goes into our input costs, particularly from a manufacturing perspective, we won't realize for, you know, seven or eight months as we carry forward. That would push us into 2027 to the extent that our input costs were elevated, you know, for the long term. Obviously, Cardinal had some push and pulls and headwinds back during the COVID period and some of the freight challenges on the West Coast shipping in particular at that time period. Is there anything that could be learned from customer engagements, customer negotiations then that can form, obviously, we don't know how long this, the commodity spike will last, but is there any lessons learned that are brought forward now, or does that just go back to the point about you're constantly negotiating and building room, et cetera? There are absolutely lessons to be learned, and the good news is we've learned them, right? I think you can see the proof point of that we've learned many of the lessons with two quarters of good results from the GMPD business in particular. Most of our global supply chain is tied, where we are responsible, is tied to the GMPD part of the business, which is a very small part of our profit profile, of course. The way we've leaned in on better managing our supply chain, the way we've leaned in on, the location of our sourcing, the contracts we have with our inputs, the contracts we have on ocean transport, that is all, those are all things that we've taken to heart and part of why the GMPD team has been successful, in delivering good profit growth over the last, you know, couple of quarters. Whether it's Jason or Steve Mason or the broader GMPD team, we are very focused on that. I might come back to pharm and the MSO side, but I wanna make sure we have some time to talk about the other assets Sure. Because I feel like at times they're not talked about. Affectionately known as other. It's the best unit name I've thought of. We can all do the math on when you closed the ADSG. Mm-hmm. Deal, but how where are you in the integration of that asset and of the ability to basically position it within the AssuraMed platform and make one plus one equal more than two? Yeah. At the time we announced the deal, I used words something like, "We have a reasonable integration and synergy plan with opportunities to overperform." I may have got a word or two wrong there, but the point was, is we were very careful in building a detailed integration and synergy realization plan, but also very focused on we wanted to do better than that. What I can tell you is, we're doing well, right? We are at or above our initial expectations for the integration of ADSG. Couple of proof points. The first is that, the first thing we could see is we could ingest all of their volume on top of our platform. It would raise our sales by something like 30%, but only use 2% of our capacity. That gives you a sense of just how immediately synergistic it was as we made that transition from their provider into ours. We've been equally focused now on the background of integrating the back office, right? The technology, the sales teams, the contracts, et cetera. All that work is underway and proceeding well. We're excited because, of course, when you go into a new environment with the administration creating new rules, new rules and regulations as well, you wanna be the player at scale. You wanna be the player with a great compliance program. You wanna be the player who can bring benefits to the industry, who can bring benefits to the manufacturers. Certainly, with our focus, with our larger focus on the CGM and diabetes, we believe that the combination of the two assets is gonna put us in a great position to do just that, which is deliver great service to the ultimate patient in the home. Also, a great business model, whether it's direct to the home or, of course, we also service some distributors on the other side of the at-Home business. We're really excited about what the ADSG acquisition has done for us so far. It's been a key part of our results, but also what the opportunity in front of us to further mine the synergies coming from that acquisition. As you think about the mining of the synergies, how much of it is on portfolio expansion? I mean, diabetes obviously is an extremely wide category. Mm-hmm. It has fairly nice, almost direct overlapping link with stuff that you do on the pharma side. Mm-hmm. Where does that push and pull come to make sure that you can continue to maximize the value because you can expand that portfolio? Yeah. Well, what I would observe is, opportunities like ContinuCare, which we announced in our last quarter, that wasn't part of our business case, right? That's an opportunity that as we have increasingly looked at how do the various parts of our organization work together, we identified as something that we could blow out. So that's an upside to our business case, and we continue to look for opportunities, like that. For something like that, how long do you think it takes before you could tangibly see the results that it's working? Of course, it's hard to answer without talking about a specific driver in that way. ContinuCare is something where we saw the technology, we saw the relationship. It took a couple of phone calls to then deploy our sales team to work with partners like Publix on, "We've got this great idea for you. It's additive to everything we're doing for you as a new customer already." Obviously the result was that they blew it out across their network and now we're benefiting from that. Mm-hmm. Both from a relationship perspective and stickiness perspective. Mm-hmm. Serving the need that they had and ultimately their patients had. Part of what Jason and the leadership team at Cardinal is doing really well these days is not being constrained by how have we always done it in the past, right? There's a relentless focus on where do we have opportunities to do more with what we've got before we then also talk about what else do we need in that way. That's part of why I'm excited and why we're confident in the future of Cardinal Health, notwithstanding everything else going on in the dynamic world around us, is we look at the opportunities within the portfolio already, tied to the strong demand we've seen, tied to the operating excellence that the team has been showing, and that's what gives me heart about the, and me confidence as we carry forward. Thinking about the Nuclear and precision medicine business, like how do you think about your growth environment against the pipeline of potential new radiotherapies coming to market? Yeah. Obviously, I think for many, many reasons, we're all waiting, hoping that we have a broader adoption of Alzheimer's drugs. Yes. Given it's been a tough category to crack. Mm-hmm. Like how do you think about your role against that pipeline potential and the push and pull in investing in Nuclear business, which obviously has a great market position already? We are very excited about the Nuclear and Precision Health Solutions business. I mean, it is to a degree, you know, specialty on steroids. You know, pardon my unintended pun in saying it that way. If you think about where the innovation pipeline is coming from, 70, more than 70 different therapeutics, theranostics, diagnostics are in the development pipeline. Our guidance does not require all 70 to hit. Our guidance requires a handful of those, you know, to hit, right? Some of the ones that we're particularly excited about are in urology and in oncology, areas that you know we've been investing in pretty extensively so far. Given that, right, we actually are investing in the NPHS business. We're investing in the PET network. We announced a substantial investment there. We're investing in the theranostics part of the portfolio. Of course, depending on, depending on the therapy area, we are either the manufacturer, or the distributor or the commercialization partner, in some cases all three. What we love about that is that because we're bringing the assets we have, the capital we've already invested and are investing more in, we're bringing that to the manufacturers. That makes us the partner of choice, and provides us with even more opportunity across that very specialty ecosystem we were talking about before. 'Cause we're gonna run out of time, I'm gonna jump back to the MSO side. You referenced it a bit, the Specialty Networks acquisition being the first specialty capability. You know, I've long thought about it as being kind of a nice overarching platform to make everything else work well together. Mm-hmm. Like what does Specialty Networks bring to you from an analytical capability, from a connectivity capability, from a GPO capability? Mm-hmm. How easy is it to layer the Specialty Networks assets into an MSO that you've acquired? Right. I would describe the magic of Specialty Networks in a couple ways. The first magic is they had two technology platforms, you know, PPS Analytics and SoNaR, which are doing a couple things. The first thing is they're doing is they're reading 42 EMRs across thousands of doctors. Whether they're partnered with Cardinal or not, whether we have anything to do with their distribution or not, they may be customers of Specialty Networks, and we have access into their EMRs. We are reading the data, the practice notes, et cetera, aggregating it, and we're able to then share that with manufacturers and innovators, right? At the same time, between PPS Analytics and SoNaR, we're actually then also sharing practice recommendations back to the doctors, which creates stickiness because the doctors, they know their systems are into the broad feeding into the broader whole. We're actually saying to them, "You've got this patient here. By the way, there are five other patients who are presenting similarly, not part of your practice group, but over here, and this is what's been effective for them. You know, keep that in mind. Investigate that further." It also supports, you know, the studies, you know, the real-world evidence that's out there. We're super excited about, you know, what Specialty Networks brings and how it can be additive for the MSOs. because again, I'll go back to, it's not just our MSOs that are customers of Specialty Networks. It's a broader group of MSOs and physician practice groups that are not unaffiliated with an MSO that are benefiting from this activity. I reference that because, of course, you may have caught that I referenced that GIA, a GI MSO, was part of Specialty Networks, which was largely focused on urology historically. That's because Dr. Weber and the GIA team could see what they were building with PPS Analytics and SoNaR, and they wanted that for the GIA practices, and they were building it. We have completed that build, and as practices are coming into the Specialty Alliance, both for GI and for urology, now they are integrating into those systems and taking advantage of the Specialty Networks systems within urology. Brings me to a larger point as well, just on the customer base side. The value of Specialty Networks from a industry exposure perspective, from an industry relationship perspective, the fact that the doctors know that part of Cardinal perhaps before they know Specialty Alliance or before they know Cardinal as well is of value to us because it makes us part of a broader industry collaboration that we think we can drive, bring further value to, certainly through all the capabilities we're building, but also that we can partner with as we carry forward. We're just about out of time. Last quick question. You did a bunch of M&A, all of it value add. You got back to your target leverage, I think faster than most anticipated. What comes next? We are sticking to our knitting. It is called a disciplined capital allocation framework for a reason, in that we are gonna continue to do exactly what we said we would, which is invest every dollar we can or need to organically. That's $600 million-$650 million of CapEx, you know, this year. Good news is we've got great high ROI projects. We protected the balance sheet, you know, as you pointed out. We have returned capital, and with any incremental cash, we have the opportunity to look for more M&A that fits our strategic needs or to provide an incremental return of capital to shareholders. That's the conversation that, you know, Jason and Matt and I are having on a weekly basis. You know, unfortunately, you have to stay tuned as to where exactly that goes as we push ahead. I do wanna end on this note. There's a lot going on in the world, but demand has been strong, right? Performance, the operating execution by our management teams has been strong as well, and we continue to invest for the future so that the profit opportunity is not this quarter or next quarter, but next year, two years, three years, five years, you know, are there. That's what we're gonna continue to do, notwithstanding what's going on in the broader world. Awesome. Great way to end. Aaron, Matt, thanks so much for being here. Cheers. Thanks, everyone.