I'm Steve Baxter, the Healthcare Services Analyst at Wells Fargo. Really pleased to have Cencora with us today. Cencora is one of the largest drug distributors in the U.S., also operates, you know, pharma services business, as well as international portfolio of businesses. From the company, we have the CFO, Jim Cleary, and Head of IR and Treasury, Bennett Murphy. Did you wanna make any kind of opening comments, or should we just kinda hop into it? Just wanna thank you for having us here today. Great conference that you have, and we're very much looking forward to our time with you, so. Great. Yeah, we really appreciate you coming, so all right, well, maybe we could start out with, you know, the update that you guys put out yesterday, you know, making updates to your fiscal twenty twenty-four guidance and giving us some initial thinking on, you know, twenty twenty-five. I guess as we start maybe with fiscal twenty twenty-four, you know, obviously good to see the increased guidance. You know, give us a flavor of what's driving that, where the strong performance is coming from. Sure, yeah. In fact, as you all saw yesterday morning before the market opened, we issued an 8-K with really kind of three items, and the first thing that we did, as you just asked about, is we increased our guidance for fiscal year twenty twenty-four. We increased our adjusted EPS guidance, and it was a small increase. We increased it by a nickel at the low end of the range and a nickel at the top end of the range. So our current adjusted EPS guidance for fiscal year twenty twenty-four is $13.60-$13.70 a share, and really the reason for the increase is just continued strong performance in our U.S. business for, you know, the same reasons we've been talking about. Mm-hmm ... for quite some time. Strong utilization trends, strong sales of specialty products to physician practices and health systems, and the overall, just a broad-based, really good execution in our U.S. business, and then the second reason was some continued favorability in net interest expense. Okay. Makes perfect sense. And then to move to the, you know, the twenty twenty-five commentary, I think, you know, generally made a lot of sense, at least how we were thinking about the business. Obviously, it flagged with the previous quarter that, you know, COVID vaccines were gonna be potentially a bit of a swing factor. So as you think about, you know, EBIT growth at kind of the lower end of the long-term range, I mean, again, not, not a surprise, but as we think about, you know, the moving parts there, you know, we'd love to get a sense of kind of like the materiality of, of each one of these things. You've been more helpful than a lot of companies with, with quantifying it. But wondering how you're thinking about the step back in COVID vaccines for fiscal twenty twenty-five. Yeah, yeah, sure. And so the second thing that we did in the 8-K that we put out early yesterday morning before the market opened was we indicated that for fiscal year twenty twenty-five we expect our adjusted operating income growth and our adjusted EPS growth to be at the bottom end of our long-term guidance range. And our long-term guidance for adjusted operating income is 5%-8%, and our long-term guidance for adjusted EPS is 8%-12%. And so again we expect in fiscal year twenty twenty-five we'll be at the bottom end of those ranges. And we indicated that really the principal driver there is- Mm-hmm ... COVID-related. And, you know, COVID has had a meaningful impact on our business, and, you know, we're really pleased about the work we've been able to do with COVID vaccines and therapies, and in that it has had a meaningful financial impact. As you were saying, we've, you know, I think, done a really good job on disclosure over the past couple of years and provided a lot of insights. And one of the things that we indicated last year is during the first six months of... And when I say last year, excuse me, I'm referring to fiscal year- Mm-hmm ... twenty-four. During the first six months of fiscal year twenty-four, we, our U.S. segment, grew operating income by 16%. Ex-COVID vaccines, that growth would have been 8%. Mm-hmm. And so that, we really wanted to kind of size it and give an order of magnitude of the operating income growth we were getting from COVID vaccines. And then also in the Q1 of the fiscal year twenty twenty-four, we had $0.06 of contribution from exclusive COVID therapies. And of course, COVID therapies are no longer exclusive, so we don't have that contribution. And so we expect our contribution from COVID vaccines and therapies to be meaningfully down in fiscal year twenty twenty-five versus fiscal year twenty twenty-four. And so, you know, that was kind of the key driver of indicating that our operating income growth would be at the bottom end of our long-term guidance range. Yeah, it makes perfect sense. The disclosures have been, you know, very helpful. I think we were. You know, I think the math you did was the first half math. I think the full year math, we were getting to 4% or 5% of segment EBIT was coming from the commercial vaccines. I guess, as you fill your forecast and your initial commentary for twenty twenty-five, how are you thinking about how much that declines? And I guess what's informed that decision? I guess, like, what are you basing that decision based off of? Yeah, I think it's a combination of mix, product mix, right? Less complex products now going through that, now being utilized for the vaccine and just some differing expectations on how much share will go through the retail channel or how much volume in total will kind of go in. But there's a number of factors in there that are all really factors that tie back to how we talked about the COVID vaccine as, you know, being above our expectations- Yeah. and being a bigger contributor in twenty twenty-four. So I think it all ties back nicely. What we're talking about now- Yeah is somewhat intuitive or understandable relative to how we talked about it throughout the year. Yeah. And actually, Bennett called out something there, which is really key. And in twenty twenty-four, you know, one of the vaccines was an ultra-frozen product, and it no longer is. Okay. And so, you know, the fee that we earn is somewhat less. Okay. Makes sense. Okay. And then if we were to set these headwinds aside, like, how would you characterize the underlying growth ex the headwinds relative to your more normalized levels of performance you'd expect in the LRP? Yeah, and, you know, we continue to see, you know, kind of, a quite good trends across our core business. And we've, you know, talked about this, for quite some time, that, you know, we see, really, good utilization trends across the core business. We see, you know, very good growth in sales of specialty products to both physician practices and health systems. And then really kind of a number of the other, kind of macro dynamics are consistent, with, you know, what we've been seeing and talking about for quite some time in terms of, the fact that generic deflation has moderated and really kind of, branded price increases are, we think will be in line with our expectations. Actually, we just finished two full days this week of business planning meetings, where you know all of our business units present to the executive management team and present on their fiscal year twenty twenty-five plans. You know, kind of in, you know, in terms of the dynamics, both the, you know, macro and business dynamics driving the business, we feel quite good about the business. Okay, got it, and I think the one other item that we didn't, you know, maybe touch on from the update yesterday is I think you flagged, hey, there's potentially a customer loss. I think the timing maybe would be pretty late in the fiscal year, so it maybe seems unlikely that it would've had much of an impact, but any sense you can give us of, you know, as we think about, hey, the run rate of that transaction, you know, potentially going through, what that could mean maybe on a more run rate basis? Yeah. So, you know, we... When we indicated that we'd be at the bottom end of the ranges for fiscal year twenty twenty-five, we called out COVID. But then we also talked about, you know, to a lesser extent, it was impacted by factoring in the potential loss of a customer, which would happen, you know, in June of twenty twenty-five. A customer that's in the oncology market that recently went through an announced and pending M&A event. And so, you know, and that's a business which is a, you know, it's a good business for us, you know, the oncology business, and one that we are, you know, quite focused on and, you know, really want to continue to grow in. We're, you know, really pleased with our investment in OneOncology that we made in June of last year, which we have a, you know, put/call to, you know, own the full business- Yeah within two to four years, and we think will be, you know, a very good growth platform. Good. Yeah, we're gonna come back to that. Good. All right. And then just to maybe close out the twenty twenty-five discussion, how should we think about the international expectations that are factored in? I know it's, you know, a smaller part of your business, but, you know, there were some headwinds this year, so trying to think about what that means for growth into next year. Yeah. Yeah, sure. And so if you look at Cencora overall, 80% of our operating income is from our U.S. business, 20% is from our international business. And if you, you know, look at our international business, it's a, it's a higher margin business than our U.S. business. It has, it has kind of a core wholesale business, but then it has a number of, higher margin, services businesses, including, 3PL and global specialty logistics and the PharmaLex consulting business. And, you know, it had a, a softer quarter in the Q3 that, that we had, talked about. But, the, the business is positioned for, growth in fiscal year twenty twenty-five, and, you know, we expect to see, you know, growth across that portfolio in fiscal year twenty twenty-five. And of course, you know, our long-term guidance for the U.S. business is 5%-8% operating income growth, and our long-term guidance for the international business is also 5%-8% operating income growth. Okay. No, that's great. And then, you know, we, we obviously try to do our, our own work to track, you know, your end markets and, and demand trends. We thought that maybe this most recent quarter we would see, you know, maybe a bit of a deceleration in the revenue growth that you reported in your U.S. business. Instead, you accelerated, I think, ex-GLPs from 6.5% year-over-year growth to 10% year-over-year growth, so going the opposite. And we'd love to hear a little bit about what drove the acceleration and the growth rate, especially compared to the, the prior quarter, which was maybe a little softer. Yeah. I think, you know, we... You know, in the quarter where we talked about is that we had really good growth in health systems and- Yeah and especially physicians in those inside of that customer base. It's an important plus customer base, and- Yeah The classes where we saw the most growth was, like, oncology and ophthalmology, and those would be the areas that were really, you know, probably a bigger driver of the growth in that quarter versus the prior quarter. But still good in the other quarter, and you just have quarter- to- quarter, you're having unique dynamics. Yeah. Okay. ... but, not big moving pieces in the grand scheme. Okay, got it. And you've mentioned seeing, you know, more stability on the generic side, which obviously has been very helpful for the industry. As you look at that over the next couple of years, you know, I think, like, one concern that comes up still, there's been less attention on generics, but one thing that still comes up is, you know, "Hey, if things have been stable for a while, does that mean that at some point we could see maybe a re-acceleration of competition or things like that?" How do you guys see it from your position at the top of the perch? Yeah, sure. And so, and of course, a few years ago, we had gone through a period of, you know, accelerated generic deflation, and we've been talking about for some time now that generic deflation is moderated, and that continues to be the case. There still is generic deflation, so that is a headwind for us. But you know, it continues at that moderated level of deflation. And you know, that's something that we have, you know, one of our—it's one of our expectations. And you know, I think, you know, it's occurred because generic manufacturers have prioritized their portfolios. You know, I think it's also occurred probably because there's been increased FDA inspections of generic facilities post-COVID. I think maybe it's also been impacted by some spikes in demand in some product categories also. I'll also say that, you know, as we've, you know, gone through our planning process, we, you know, also do analysis that, you know, what happens if generic deflation increased by 1% or 2%? Or what happens if deflation moderates by 1% or 2%? And I'll just say that that's, you know, very manageable also. Got it. That's good to hear. And you mentioned, you know, OneOncology. It's been about a year since, you know, the close of the transaction, your minority stake in the transaction. Obviously, we can't see the results in your PNL. Can you give us an update on how the business is performing and what we should know about where the business is today versus where it was a year ago? Yeah. We feel, we feel very good about the business, and we feel very good about the long-term opportunity. As you know, in a little over a year ago, in June of twenty twenty-three, we made an investment and have 35% of the business. But as I said earlier, we have a put/call structure in place to potentially own 100% of the business in two to four years. We, you know, just feel very good about the business and the way it's executing from a business standpoint. Feel, you know, great about the work it does for patients. You know, feel very good about the management team, and so we just are, you know, very optimistic about the growth prospects there. Of course, specialty has been a very good business for us for quite some time. You know, the business is growing nicely. It did in the last month announce that it will be making an acquisition of United Urology, which is the number one player in that market, and there are nice synergies between the two businesses. You know, overall, we feel you know very good about the scale of the business prior to the United Urology acquisition. It's you know over a thousand providers in 16 states, so it's a you know very nice growth platform for us. Yeah, so as we think about the growth, I mean, can you speak a little bit about what are the key differentiators for OneOncology that's gonna allow it to compete against other competitors in the market effectively? Yeah. It is. I think kind of one of the kinda key things about it is the MSO was formed in two thousand and eighteen, and so, you know, it has, you know, kind of six years of experience. So it's, you know, very well-established in its business, very well-established in its business model. And it's, you know, and so it's just from an organization standpoint, it's well-positioned for growth and obviously, and, and very importantly, it's, you know, very well suited to provide, you know, very important treatment for patients. There's good physician leadership in there, right? We've had a relationship with the key anchor physician practices that are in that business for decades. Mm-hmm. Many of those business leaders are on the leadership board of OneOncology, and I think that physician leadership helps as well. Okay. And then, you know, you mentioned obviously that, you know, the strength in the health systems was something that was notable. As we think about, you know, maybe the other side of the customer base, obviously, there's been a lot of focus on what's going on, you know, with retail pharmacies. I guess maybe if we start with independent, you know, retail pharmacies, there's been, you know, some pressure points that seem like they're emerging maybe on things like Medicaid reimbursement benchmarks, potential pressures to their model, maybe from IRA. I guess, as you think about, you know, the needs of your small customers, like, what are you hearing from them? What are your expectations for how that plays out over the next couple of years? Yeah, I think that the independent pharmacy customer base is, like, are exceptional business operators. Yeah. The challenges that are outside of their control are frustrating. Mm. You know, the DIR reform is a big help to them. They can actually see what their reimbursement is, you know, more live, as opposed to a six-month, twelve-month look-back, surprise invoice. So that piece was helpful. As you look at what's happened with the NADAC data, like, the volatility there is just really unfortunate because it, you know, they're being impacted. Yeah. There's not a lot of clarity what's happening on the survey side. Yeah. I think we continue to advocate for the pharmacist because at the end of the day, it's important that those pharmacists are paid fairly, reimbursed fairly. All pharmacists are reimbursed fairly because it's a really important site of care. If you're a patient and you're managing- Mm ... multiple prescriptions. The pharmacist is the one person that can't hide from you, or you don't, you know, you don't have to try and wait four weeks for an appointment. You walk in, you have a personal relationship, you know, and for a lot of the community pharmacists, they have a lot of overlap, you know, 'cause they're typically leaders in the community. Mm-hmm. So there's a really good relationship there. It's important that they get reimbursed fairly, and they're a really important part of the care team for a patient, particularly ones that are managing three to five prescriptions. Okay, got it. I know this is probably a harder question to answer, but, you know, obviously, you know, a large customer of yours, you know, struggling a bit, plans to shrink. I guess, how should we think about your company's ability to help them through the challenges that they're having, and what's the right set of trade-offs to make for somebody who makes such an important partner for you? Yeah, and, let me say kind of a couple of things there. Mm-hmm. You know, one with regard to the store closures, which will, you know, happen over an extended period of time. I think that, you know, Walgreens has, you know, terrific experience and expertise in doing that, and, you know, I expect it's, you know, some of the lower performing stores that are being closed, and of course, they have a lot of expertise in shifting the scripts, and I believe they, you know, intend to keep their teams also and have them- Mm-hmm ... you know, shift over to other stores. And so, you know, that's something that, you know, we expect to, you know, have, you know, minimal impact on our overall business and have, you know, a lot of respect for their capabilities to, to, execute on those sorts of things over a period of time. And then really the, you know, just the, the other thing I'll say is that, you know, it's of course, in a way, you know, an extremely important, customer and partner- Mm-hmm ... that we've had for quite some time. Our businesses are integrated to, you know, a very high extent, and, you know, we'll always be looking for win-win opportunities with our customers, in particular, our key partners. Okay, I appreciate that. Another area of focus for retail pharmacies has been whether we could potentially see something that looks more like a cost plus reimbursement model. As you think about how that would impact your business, what are the important things to keep in mind if this model becomes potentially more prevalent over the next few years? Yeah, I think I'd kind of go back to the commentary I just made earlier. Yeah. There's been a lot of pressure in terms of the dynamics that play out between PBMs and retail pharmacies. Clarity and fair reimbursement is really important to supporting the pharmacist as a site of care. So however that materializes- Yeah ... it should be good for, you know, hopefully, that provides that clarity and appropriate economics for pharmacy. Okay. So that'd be good. Okay. And then a couple of biosimilar questions, and maybe starting with one, you know, Part D biosimilar question and maybe Part B after that. You know, there's been some recent news, I think, around, like, formulary changes and certain biosimilars potentially moving from external distribution to more of, like, an internal distribution model. How should we be thinking about, you know, Humira and some of these, you know, pretty significant formulary and biosimilar shifts that we've seen, you know, really over the course of this year? So it's not a new dynamic. I mean- Yeah ... in many cases, mail-order pharmacies in-house, non-patent-protected products. Mm-hmm. So in past discussions, you know, product goes brand, then it goes to generic, and it moves in-house. So it's not overly surprising that you have that dynamic potentially Mm-hmm. You know, being talked about here. I think you're just—it's just different names. And I think that, yeah, I don't think it's a very different dynamic. And it—I think it's... If you go back over the last three to five years, maybe even longer, we've never talked about the Part D biosimilar opportunity being something that we thought was a big- Yeah ... big opportunity because we knew where a lot of that volume was concentrated and a lot of that, procurement would be done. But for us, the biosimilar, the Part B biosimilar market is the sweet spot, and that's the part of the market that we've been very positive about and had really good trends, quick utilization- Mm-hmm ... good patient experience, and good doctor comfort. And as in the Part D biosimilar side, that's obviously been a lot slower, uptake- Mm-hmm ... than the Part B side. The one thing I will add there is that if you know in Part D, if Humira biosimilar is sourced- Mm-hmm ... direct by a customer- Mm-hmm ... you know, that's the sort of thing that would have a would have a pretty big top-line impact on us, but, you know, a very small operating in- Yeah ... income impact on us because, you know, that's a shipment we're doing to mail order pharmacy. You know, those are typically, you know, like pallet shipments that we're shipping- Mm-hmm ... to a handful of locations, and so that is, you know, very much lower margin business for us. Yeah. Okay, that makes perfect sense. And then to bring it back to the Part B biosimilars, like, as you think about, you know, the potential, you know, for these to continue ramping and building over the next few years, I guess, like, what kind of context can you give us about where we are in the big biosimilar opportunity that I think everyone's been, you know, excited about for some time now? Yeah. Why don't I start, but then I'd love- Yeah ... for you to add also to this. And then, you know, in Part B, biosimilars have been a very good opportunity for us, both in oncology and ophthalmology. It's been an opportunity for us in physician practices and in health systems. And it, one of the reasons why it's been a good opportunity for us is we not only do the distribution, but we have a bunch of wraparound services that we also can offer. So it is a very attractive market for us, and, you know, kind of one of those, you know, there are, of course, many things that, you know, move us within our guidance range, but that's, you know, clearly one of the things that moves us up within our guidance range. Yeah, I think the site of care is what matters, right? So the, you know- Mm-hmm ... where is it going through, as I alluded to earlier, with that Part B, Part D side. I think we've seen really good trends in the oncology biosimilar and some good trends on the ophthalmology side. Health systems are increasingly utilizing these products, and, you know, anything that's going through that professional physician channel or health system channel, that's gonna be where we have a good opportunity to support access. And then, you know, they asked a little bit about the IRA and Part D redesign. I guess, you know, we just got the most recent set of negotiated drug prices that have came out. I guess, as you study the impact of drugs, I guess, how are you thinking about what the potential impacts could be on your business, specifically related to the price negotiations? And then, just broadly, how you think about, you know, Part D redesign, any kind of benefits or, you know, risks that you might see to your business from that? Yeah, I think, certainly a lot of headline reaction to it. I think, you know, we'll see, and pharma talks a lot about potential impact of innovation long term. But I think, for us, it's something that's really more... It's not directly linked to us, given that- Mm-hmm ... what we're really talking about here is the government reimbursement price- Yeah - dynamics, as opposed to some, like, a wholesale acquisition change. Good then. Okay, so you don't think on that group of drugs that you're- Well, actually, the- Yeah ... the other piece, the opportunities. Yeah. So the out-of-pocket caps on the Part D side- Yeah ... that could be good. I think one of the things that's probably underappreciated in the market, whether it's by whoever, that is that a lot of prescriptions still get walked away from at the counter. Mm-hmm. And that's usually, you know, something related to sticker shock or a lot... And then there's, I think, also a good amount of prescriptions that don't get refilled properly, and then once again- Mm-hmm ... could be that out-of-pocket piece. And the people not finishing out their or following the prescribed their prescription can have negative health outcomes and can also have readmittance costs, and it's just not- Mm-hmm ... good for the healthcare system to have that potential incremental touch point with a healthcare provider when, if a patient had been able to adhere to the initial prescription plan, then they could have, you know, gotten back to the good health they need to be in. Hopefully, some of that out-of-pocket cap, so hopefully, that out-of-pocket cap dynamic helps to have the scripts utilized as they're intended. Okay. It's just, you know, one of the many things over the long term that, you know, should cause our industry and market to continue to have good utilization trends. Yeah, that makes perfect sense, and, you know, there's obviously been a lot of, you know, focus on, you know, GLP-1s, and they've been impacting your results obviously, you know, much more so at the top line than at the bottom line. Does seem like this is a service that, over time, you should be able to hopefully earn a reasonable margin on. Like, what has to happen between now and then to maybe see some kind of improved economics on GLP-1 drugs? Sure. And, of course, you know, we've done a lot of disclosure on GLP-1s, and they have been a driver of our top line, and we've been consistent in our communication, that they are profitable for us, but they are minimally profitable. With regard to top line, last quarter, our growth in GLP-1s during the quarter was $2.1 billion of growth, that was 38% growth over the prior year, and I believe 30% growth over the prior quarter. And so, it's and so, you know, it's clearly a you know, a top-line driver for us and minimally profitable for us. You know, you ask, you know, what are the things that, you know, could cause it to be- Mm-hmm ... to become more profitable over time? I think certainly when supply catches up with demand, Mm-hmm ... you know, that would be, you know, one thing, that could impact it. You know, maybe, different forms also, but I think then, you know, if there are, you know, competitive products, on the market, you know- Mm-hmm ... in a couple of years or so, you know, that's the sort of thing also that could, you know, get it to, you know, closer to a normal level of profitability. Then, a couple on the international. I think we've kind of referenced this earlier in the discussion, but, you know, I think you said in the Q3 you saw some higher IT costs and maybe a little bit of slowness in, like, the global specialty logistics business. What's the latest thinking on kind of those issues and how we might see them, you know, translate for the next couple of quarters? Right, and that was with regard to international? International. Yeah, yeah. So, we... And once again, you know, last, last quarter, when we announced our results, which were overall great results, we did have, you know, softer results in the international business, which is 20% of our operating income, and we really called out three things. One was elevated IT expenses, and, those continue in the Q4, but in fiscal year twenty twenty-five, they go to a more... more normalized level of growth. Second was a down quarter in our global specialty logistics business, and that's a business that's a leader in doing things like logistics for drug trials, and it's had fantastic growth for a long period of time. It did have lower shipments and volumes last quarter. You know, that's something that's probably been, you know, impacted by that market. But, you know, that business will turn and will be, you know, in the future, you know, a very good grower like it has been in the past. And then we called out some softness in the PharmaLex business, which we've, you know, now owned for about a year and Q3. And I think that business, we have it, you know, organized well now, and it's well-positioned for growth in fiscal year twenty-five. And so those are kind of the things that, you know, kind of have impacted twenty-four, but I think we'll be well positioned for twenty-five. Okay. Sounds like a lot of that's happening outside of the core distribution business. Can you just talk a little about how the core international distribution business? Yeah -is performing? Yeah. And, yeah, it's performing well, and, I think that, if you look at it over time, our core distribution business internationally will not grow as fast as the U.S. business because it doesn't have some of the same specialty dynamics. But our international business has a lot more services, businesses like 3PL business and the global specialty logistics business that I talked about in the consulting business, and those higher margin businesses will, you know, kind of get us to that same long-term growth range. Our long-term growth range is 5%-8% in both the U.S. and international. Okay, great. Maybe just for the last couple of minutes, you know, we could talk about capital. I know that obviously you have the buy-in for OneOncology on the horizon. But just overall, can you speak to kind of how much of your capital capacity you expect that will take, and then what will your priorities be outside of OneOncology over the next couple of years? Yeah. And so we'll continue to have balanced capital deployment. And, you know, one great thing about our business, there's so many great things, but one great thing is we have, you know, very strong free cash flow, and we have very strong return on invested capital. And so we're fortunate in that we have good capital deployment opportunities. So we'll continue to invest in the business, and that, you know, typically has our highest ROIC. Historically, we've done about $500 million of CapEx a year, a little bit less. It'll probably be a bit more than that as we're investing in technology and distribution capacity. We'll continue to do strategic acquisitions, and I'll use the last two investments that we've done as, you know, good examples. You know, one was in specialty, a key market for us in the case of OneOncology, and the second was PharmaLex, which again, is biopharma services, higher margin growth businesses. We'll continue to do opportunistic share repurchases. We've done $1.2 billion of share repurchases each of the last two years. You know, we, I think, executed very well in repurchasing shares from WBA as they were selling down some of their shares. And then we'll continue to grow our dividend each year also. So you'll continue to see balanced capital deployment from us. Okay. That's great. I think that basically brings us to time, so I think we'll leave it there. Thanks so much. Appreciate it. Thank you so much. Yeah. Thank you.