Cencora Q1 2025 Earnings Call Transcript

There are 14 speakers on the call.

Operator

Hello and welcome everyone to the Senkora Q1 Fiscal Year twenty twenty five Earnings Call. My name is Becky and I'll be your operator today. During the presentation, you can register a question by pressing star followed by one on your keypad. I'll now hand over to your host, Head of Investor Relations, Bennett Murphy, to begin. Please go ahead.

Speaker 1

Thank you. Good morning, good afternoon. Thank you all for joining us for this conference call to discuss Syncora's fiscal twenty twenty five first 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.

Speaker 1

On today's call, we will be discussing non GAAP financial measures. Reconciliations of these measures to GAAP are provided in today's press release, which is available on our website at investor.sankora.com. We have also posted a slide presentation to accompany today's press release on our investor website. During this conference call, we will make forward looking statements about our business and financial expectations on an adjusted non GAAP basis, including, but not limited to, EPS, operating income and income taxes. Forward looking statements are based on management's current expectations and are subject to uncertainty and change.

Speaker 1

For a discussion of key risks and assumptions, we refer you to today's press release and our SEC filings, including our most recent 10 K. Syncora assumes no obligation to update any forward looking statements and this call cannot be rebroadcast without the express permission of the company. You will have an opportunity to ask questions after today's remarks by management. We ask that you limit your questions to one per participant in order for us to get to as many participants as possible within the hour. With that, I'd participant in order for us to get to as many participants as possible within the hour.

Speaker 1

With that, I'll turn the call over to Bob.

Speaker 2

Thank you, Bennett. Hi, everyone, and thank you for joining Centora's fiscal twenty twenty five first quarter earnings call. Before we begin, I want to thank the 40 plus thousand global Synchora team members. It's because of their purpose driven approach, expertise and dedication to meeting the needs of customers and patients worldwide that Jim and I have the pleasure of reporting strong Q1 results and updated guidance today. Sencore delivered a strong start to our fiscal year with revenue growth of 13% and adjusted EPS growth of 14%.

Speaker 2

We are also excited to share that due to the strength and execution in our U. S. Business, we are raising guidance for the fiscal year. We benefit from our position as a leading healthcare solutions provider with a pharmaceutical centric strategy and a purpose driven culture, which enables us to capitalize on positive industry trends and innovation. Today, I will emphasize three areas of progress in executing our strategy and driving performance in the quarter.

Speaker 2

First, advancing our leadership in specialty, where we took important steps forward second, driving efficiency and productivity through advanced technology and expert teams across the enterprise. And third, executing with that customer centric mindset as we continue to collaborate and innovate with our customers throughout the supply chain. I'll begin with advancing our leadership in specialty. Our leadership supporting specialty providers is a key differentiator and growth driver for Syncora, and we've evolved our service offerings over time. Over decades, we've deepened our relationships with our specialty provider customers with the expansion of specialty GPOs and other capabilities.

Speaker 2

The logical next step is through managed service organizations. This is in line with our long term commitment to support community providers and extension of that work. After expending significant time understanding the MSO business through our investment in ONE Oncology, we announced the acquisition of RCA, Retina Consultants of America. And we are incredibly happy to have completed that acquisition on January 2. RCA is a leading retina MSO differentiated by its leadership team, clinical excellence, premier physician partner practices and positioning at the forefront of retina innovation through its clinical research capabilities.

Speaker 2

This acquisition, like our investment in one oncology, fits squarely into our strategy and growth by expanding our leadership in specialty in a high growth pharmaceutical centric segment, building on our services for our customers and positioning us well in a medical specialty that has seen significant innovation. While it's early days, we're excited about what we believe our combined organizations will accomplish together. Next is driving efficiency and productivity through advanced technology and expert teams. We are focused on continuously enhancing our capabilities and increasing efficiency through advanced technology and collaboration across our global teams. Across the organization, we are working to streamline operations, optimize business processes and unlock enterprise wide value.

Speaker 2

In the quarter, we worked throughout our business to upgrade systems to safeguard the resiliency of our infrastructure and ensure we maintain best in class standards. This allows us to streamline our operations for enhanced customer satisfaction. All of this, aligned with our digital transformation strategy, focuses on enhancing customer experience and accelerating decision making as we leverage global talent and capabilities to enhance efficiency, scalability and innovation, all while meeting the needs of our partners both now and in the future.

Operator

And

Speaker 2

finally, executing with a customer centric mindset and innovating with our customers. At Senkora, we lead with market leaders. Our portfolio of customers is second to none, driving innovation through drug development, elevating patient care and access through their patient first approaches. Senkora team members with world class expertise are working in cross functional teams collaborating with customers to meet their evolving needs. In the quarter, we were able to display solutions created as a result of working closely with our customers at our inaugural product showcase.

Speaker 2

Our product showcase enabled us to demonstrate advanced solutions in areas like inventory planning and management, specialty GPO, as well as cell therapy and gene therapy solutions. Another example is our enterprise leadership team just returned from The United Kingdom, visiting elements of our international operations, spending time on the ground with our leaders and engaging with several top biopharma customers. Our global footprint and expertise set us apart and gives us the unique ability to combine local expertise with global infrastructure, best meeting the needs of biopharma companies. We are focusing on building on our strengths and value proposition to pharma with our services like market access, regulatory, pharmacovigilance and our unparalleled 3PL and specialty logistics networks. This differentiated approach is strategically important to our biopharma customer relationships over the long term.

Speaker 2

And it's how we capitalize on growth of specialty products in the European market, which has a different structure than in The U. S, but is similar and that our foundation in pharmaceutical distribution and portfolio of services enables us to support pharmaceutical innovation while growing our higher growth, higher margin services. In closing, and before I hand it over to Jim, Syncora's performance is powered by an amazing global workforce, who are advancing our leadership and specialty, driving efficiency and productivity through advanced technology and expert teams, and executing with a customer centric mindset as we continue to collaborate and innovate with our customers. Looking ahead, we will maintain focus, executing against our strategy and amplifying the areas that are fundamental to our success, driving increased value for all our stakeholders. Thank you once again to all Senkora team members.

Speaker 2

And with that, I'll turn the call over to Jim for an in-depth review of our first quarter results and our updated fiscal twenty twenty five guidance.

Speaker 3

Thanks, Bob. Good morning and good afternoon, everyone. As a reminder, before I turn to my prepared remarks, unless otherwise stated, 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. Centora delivered strong results in the first quarter of fiscal twenty twenty five as our U.

Speaker 3

S. Healthcare Solutions segment outperformed expectations due to strong prescription utilization trends and we capitalized on the growth of our industry, the continued momentum of our business and the expertise of our teams. As Bob mentioned, adjusted diluted EPS increased 14% to $3.73 in the first quarter. And for the second time in fiscal twenty twenty five, we are raising our adjusted diluted EPS guidance for the full year. I'll now turn to a review of our consolidated first quarter results, starting with revenue.

Speaker 3

Our consolidated revenue was $81,500,000,000 up 13%, primarily due to strong revenue growth in The U. S. Healthcare Solutions segment as we continue to benefit from overall market and volume growth, including increased sales of GLP-one products. Excluding sales of GLP-1s, our consolidated revenue growth would have been 9%. Turning now to gross profit.

Speaker 3

Consolidated gross profit was $2,500,000,000 up 6% with growth in both The U. S. And international healthcare solutions segments. Consolidated gross profit margin was 3.11%, a decrease of 20 basis points, driven by the continued increase in sales of low margin GLP-one products combined with lower sales of commercial COVID-nineteen vaccines and a lack of sales of exclusive COVID-nineteen therapies, all of which negatively impacted our gross profit margin versus the prior year quarter. Moving now to operating expenses.

Speaker 3

In the quarter, consolidated operating expenses were $1,600,000,000 up approximately 6% due to higher distribution, selling and administrative expenses to support revenue growth. Consolidated operating income was $949,000,000 an increase of 7% compared to the prior year quarter, primarily due to 10% growth in the 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 first quarter.

Speaker 3

Net interest expense was $28,000,000 down 31% due to higher interest income resulting from higher average investment cash balances and interest rates, partially offset by an increase in interest expense. Turning now to income taxes. Our effective income tax rate was 20% compared to 21% in the prior year quarter. Finally, our diluted share count was 195,200,000.0 shares, a 3% decline compared to the prior year first quarter, driven by approximately $1,500,000,000 of opportunistic share repurchases during the period of February through October of twenty twenty four. As a reminder, as it relates to capital allocation, in the near term, we will prioritize deleveraging given the recent RCA acquisition.

Speaker 3

Regarding our cash balance and adjusted free cash flow, we used $2,700,000,000 of cash in our operations during the quarter, resulting in negative adjusted free cash flow of $2,800,000,000 due to the timing of flows at the end of the calendar year. We continue to expect full year adjusted free cash flow to be in the range of $2,000,000,000 to $3,000,000,000 This completes the review of our consolidated results. Now I'll turn to our segment results for the first quarter. U. S.

Speaker 3

Healthcare Solutions segment revenue was $74,000,000,000 up 14% as we continued to see broad based strong utilization trends, including continued volume growth in GLP-1s and growth in sales to specialty physician practices and health systems. In the quarter, sales of GLP-one products were up $3,200,000,000 representing a 53% increase year over year. Excluding sales of GLP-one products, U. S. Segment revenue growth would have been 10% for the quarter.

Speaker 3

U. S. Healthcare Solutions segment operating income increased 10% to $767,000,000 driven by growth at our human health distribution businesses, including specialty products and across commercial segments, including animal health, more than offsetting the significant headwind from lower sales of COVID-nineteen vaccines and lack of sales of exclusive COVID-nineteen therapies in the current year quarter. To provide a little more detail on the headwinds, in the first quarter of fiscal twenty twenty five, the contribution from COVID-nineteen vaccines was about half that of the prior year quarter. And we expect a similar sized operating income headwind in the second quarter of fiscal twenty twenty five, meaning no significant expected contribution from COVID vaccines in our second quarter of fiscal twenty twenty five.

Speaker 3

And as it relates to exclusive therapies, as a reminder, the first quarter of fiscal twenty twenty four was the final quarter of contribution from exclusive COVID-nineteen therapies, which contributed $0.06 to our first quarter of fiscal twenty twenty four. I will now turn to our International Healthcare Solutions segment. In the quarter, International Healthcare Solutions revenue was $7,500,000,000 up approximately 6% on an as reported basis and up almost 9% on a constant currency basis due to increased sales at our European distribution business. International Healthcare Solutions operating income was $182,000,000 down 3% on an as reported basis and up 3% on a constant currency basis. In the quarter, lower operating income at our global specialty logistics business was partially offset by better results at our European distribution business.

Speaker 3

Our global specialty logistics business had a strong quarter in the prior year period, and this quarter was more challenging as clinical trial activity remains subdued. The business remains focused on its pipeline and targeted in its regional prioritization of new volume growth. We expect to see business performance improve later in fiscal twenty twenty five as demand for our premium service capabilities increases from its current levels. That completes the review of our segment level results. I will now discuss our updated fiscal twenty twenty five guidance expectations.

Speaker 3

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. 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. On January 2, we announced the closing of the RCA acquisition and raised our adjusted diluted EPS guidance to the range of $15.15 to $15.45 to reflect the nine month contribution from RCA in addition to continued momentum in The U. S.

Speaker 3

Healthcare Solutions segment. Today, we are pleased to again raise our full year diluted EPS guidance to a range of $15.25 to $15.55 a $0.1 increase to both the top and bottom end of our adjusted diluted EPS guidance range to better reflect the strength and momentum exhibited by the U. S. Healthcare Solutions segment. Now moving to revenue, we expect consolidated revenue growth to be in the range of 8% to 10%, up from the previous expectations of 7% to 9%.

Speaker 3

The updated guidance range primarily reflects an increase in our U. S. Healthcare Solutions segment revenue growth, where we now expect growth of 9% to 11%, up from our previous expectations of 7% to 9% growth due primarily to continued strong organic revenue growth and to a lesser extent, RCA, which was already a distribution customer. In the International Healthcare Solutions segment, we now expect revenue growth in the range of 4% to 5%, down from the previous range of 7% to 9% to reflect updated foreign currency translation rates. On a constant currency basis, International Healthcare Solutions segment revenue guidance remains unchanged at 7% to 9% growth.

Speaker 3

Moving to operating income, we expect consolidated operating income growth to be in the range of 11.5% to 13.5%, up from our previous guidance of 5% to 6.5. In The U. S. Healthcare Solutions segment, we now expect operating income growth to be in the range of 14.5% to 16.5%, up from our prior range of 5% to 6.5%. Once again, segment level guidance reflects expected contributions from our acquisition of RCA and continued strong broad based growth in the segment more than offsetting previously discussed COVID related headwinds.

Speaker 3

Turning now to the International Healthcare Solutions segment. On an as reported basis, we now expect operating income growth to be flat year over year due to the strengthening of the U. S. Dollar against other currencies and lowering the top end of our expectations for the segment. On a constant currency basis, we now expect segment operating income growth to be approximately 5%, narrowed from the previous range of 5% to 6.5% as a result of the slower start for the international segment in the first half of fiscal year twenty twenty five.

Speaker 3

Moving to interest expense, we now expect interest expense to be in the range of $290,000,000 to $310,000,000 up from our previous range of $150,000,000 to $170,000,000 due to the financing of our acquisition of RCA, offset in part by lower net interest expense associated with foreign subsidiaries. From a quarterly cadence perspective, we would expect interest expense to step up meaningfully in the second quarter, similar to the prior year quarter given typical seasonality and cash use as well. Finally, we expect that our full year average share count will be under 196,000,000 shares in fiscal twenty twenty five, given where our share count sits today. That concludes our updated full year guidance assumptions. As it relates to quarterly cadence, I would point out that we expect the second quarter to be the lowest growth quarter in fiscal twenty twenty five with adjusted diluted EPS growth in the mid single digits.

Speaker 3

This is driven by a few factors. First, as I mentioned earlier, the second quarter is expected to have the highest net interest expense for the fiscal year due to typical seasonality of cash use in addition to the financing costs associated with the RCA acquisition. Second, in the U. S. Healthcare Solutions segment, we have the COVID nineteen vaccine headwind in the second quarter, which I referenced earlier, and as it relates to RCA, accretion is expected to ramp over the course of the fiscal year.

Speaker 3

And finally, the slower start for the international segment in the first half of the fiscal year and the income translation impact from the strength of the U. S. Dollar. In closing, Centora has achieved another strong quarter, demonstrating the efforts of our purpose driven team members as we continue to execute on our purpose of creating healthier futures. Their dedication and drive to the advancement of our enterprise has a proven track record of success, which we see continuing in fiscal twenty twenty five and creating value for all our customers, partners and stakeholders in the quarters to come.

Speaker 3

Now I will turn the call over to the operator to open the line for questions. Operator?

Operator

You. Our first question is from Michael Janney from Leerink Partners. Your line is now open. Please go ahead.

Speaker 4

Good morning and congrats on another great quarter and guidance. Maybe just, Bob, this is your second quarter as CEO. I'll start on the strategic question. I'll save some of the other modeling ones down the road. But as you think now about your specialty business as a whole, it clearly is a driver of some of the outperformance.

Speaker 4

As you think about the mix of market growth versus your assets, especially off the back of the one oncology investment and now RCA, where do you think the company is best positioned to outgrow the market on specialty? How much within the guidance do you think is market oriented growth? And where do you think going forward the different dynamics of your specialty growth versus your peers could lie in terms of continuing to drive this potential sources of upside?

Speaker 2

Hi, Michael. Thank you very much for the question. And also hello to everyone on the call. Thank you for joining today. It's a terrific question and I'll just I'll start with the strategy where we are and begin with a pharmaceutical centered strategy.

Speaker 2

So we're going to stay focused on the pharmaceutical sector. And as you know and as we all know, the innovation is significant there. Secondly, as we continue to build on our portfolio of services to be sure that we're well positioned, both inside The United States and outside The United States to make sure that we are able to support manufacturers and providers as that specialty product growth continues over the long term. And lastly, it really begins with having the best customer portfolio in the business. And we think that's really where we're differentiated.

Speaker 2

We spend a lot of time talking about our customer portfolio, not just in specialty, but broadly, and believe that's a big driver of growth. If you're with the market leading providers, with the market leading manufacturers, then that's going to position us well for growth. And kind of pulling back more specifically in the expansion of services, we've spent decades building a suite of services that support community providers from GPO to analytics and many other services that we provide. And we're confident that the MSO services are the right logical next step for our strategy. It's important to providers.

Speaker 2

And it's also very much in line with where we've positioned ourselves over a long period of time. I'd just reinforce the fact that we have not only just in the specialty space, but across our portfolio invested in services that support community providers. And this is another example of that in the part of the market where we expect to continue to lead. So again, Michael, thank you very much for the question.

Operator

Thank you. Our next question is from Lisa Gill from JPMorgan. Your line is now open. Please go ahead.

Speaker 5

Thanks very much and good morning. Thanks for taking my question. I want to ask a numbers question. When I look at the strong revenue, especially in The U. S.

Speaker 5

Segment of roughly 14% in the quarter, the updated guidance is for nine to eleven. I understand previously seven to nine, but can you help me the elements going forward? Are we seeing deceleration in some area? Is it around GLP ones? Any of the store closings for Walgreens or just the natural Sankora conservatism?

Speaker 5

So if you can just help us understand the cadence of that and what you're seeing as far as potential deceleration in revenue in the quarters going forward?

Speaker 3

Lisa, thanks a lot for the question. That's an excellent question. And of course, we had terrific revenue growth in the first quarter and you're asking about the 14% revenue growth, 10% revenue growth ex GLP-1s. And as you noted, in The U. S, we increased our revenue growth guidance by two percentage points at the bottom end and the top end of the range.

Speaker 3

And our guidance is 9% to 11% revenue growth for the fiscal year. But as you noted, that's lower than the revenue growth during the first quarter. And of course, we increased our adjusted operating income guidance in The U. S. By a lot more than we increased our revenue growth guidance.

Speaker 3

And I would say there are a few callouts for those sorts of things. One is our assumption in our guidance on GLP-1s is that growth is higher in the first quarter than in the balance of the fiscal year. And we'll see if that assumption is correct. Of course, we had, fantastic growth on GLP-1s in the first quarter was 53% growth. And we assume that, that growth in Q1, it's higher than it is in the balance of the year.

Speaker 3

I think the key call out here is that, that particular assumption has a big impact on revenue growth, but it has a minimal impact on OI. We've always indicated that GLP-1s are profitable for us, but minimally profitable for us. So really, the revenue growth assumption there doesn't have much impact on OI growth. And then, a second thing is our assumption is, that we see HUMIRA conversion to biosimilar. And again, that's a revenue driver, but it has a minor impact on operating income.

Speaker 3

As we've always said, the main channel there is the lower margin mail order channel. So again, this has a meaningful impact to revenue growth rates, but a minor impact to operating income growth rates. And then probably a third thing I would call out is, the acquisition of RCA, which we feel great about, has a meaningful pickup for us in operating income, but it's not a large revenue pickup from RCA. Again, it's a meaningful pickup in operating income, but not a large pickup on the revenue side. And compared to the balance of Syncora, RCA is a higher margin, but lower revenue business and they've already been a distribution customer.

Speaker 3

And then one kind of detail thing I'd call out there is we don't double count the product revenue. We eliminate the sale of products from our specialty business to RCA so that we don't count the revenue with regard to RCA. And so overall, I'd say, we feel really good about our guidance, but revenue guidance, the increase is not nearly as high as it is for operating income, but they're due to the things that I called out, which really don't impact our strong operating income growth.

Operator

Thank you.

Speaker 3

Thank you for your question.

Operator

The next question is from Elizabeth Anderson from Evercore ISI. Your line is now open. Please go ahead.

Speaker 6

Hi guys. Thanks so much for the question and congrats on a really nice quarter. I had a question on sort of the World Courier business and the pharma services and sort of how you're thinking about that over the course of FY 2025.

Operator

Could you just maybe go

Speaker 6

into a little bit more detail about sort of what happened about Korea in the quarter and sort of how to think about that versus the rest of the year? And then broadly, sort of where do you think we are in the pharma services demand cycle? It seems like we haven't gotten too many additional pharma cuts in the last, you know, month or two. So are we sort of getting through the cycle? I just would be curious to hear sort of your thoughts on where we are in that.

Speaker 3

Great. I will, start out with the answer. And of course, when you're asking about World Courier, in our prepared remarks, that's our global specialty logistics business. And, you know, it had a more challenging quarter. And to get to your question, it was a result of clinical trial activity remaining somewhat subdued.

Speaker 3

And I will call out that this is a very good business, that's had strong performance for the last ten years, I'm going to say. But in the near term, it's been challenging due to the pullback in the market. And we do expect in this business to see performance improve later in fiscal year twenty five, as demand for our premium service picks up. And we were with the management team of this business last week and, they're very focused on the pipeline and they're very focused on the regions where we want to accelerate growth. And I would say as you kind of asked the question more generally about manufacturer commercialization services.

Speaker 3

And I would just, you know, say that, the market, is somewhat subdued as, you know, I commented on our, global specialty logistics, business, Elizabeth. And I think Bob wants to add some things.

Speaker 2

Yes. Thanks, Jim. Elizabeth, thank you very much for the question. I think, just to take a step back, strategically and Jim certainly handled, the part of your question related to the overall pharma services market. But I do want to just reinforce how important our global footprint is to the future growth of Syncora.

Speaker 2

It really is a differentiated component of our business. We hear loud and clear from customers how important not only the specialty logistics services from World Courier are, but also our consulting services that you mentioned as well as 3PL services. And when we think about the future of specialty growth, these are services that are required and valued by the pharmaceutical manufacturers. And as you think about specialty launches in Europe in particular, the suite of services that we have built are very well positioned to support manufacturers in that process. And we hear continually that our approach to having a very local approach or very local expertise in the markets we serve as well as a global infrastructure to support that is valued and is an important contribution to efficiency as we think about that market.

Speaker 2

So, we're bullish on the strategy over the long term. We believe the market will continue to improve and we're very well positioned to participate in that improvement.

Operator

Thank you. Our next question is from Stephen Valiquette from Mizuho Securities. Your line is now open. Please go ahead.

Speaker 7

Great. Thanks. Good morning. So just a quick question in relation to Walgreens. I think no one was really surprised by this last month, but when they kind of more officially disclosed on their earnings call that they're in active discussions with you guys in relation to the current contract.

Speaker 7

I'm just curious, I know you're probably limited on what you could say on this topic, but just open ended, is there any update or additional comments that you have on this topic from your side given their disclosures last month? And also just to confirm, your guidance presumably reflects any potential changes in that contract at least as it pertains to your fiscal twenty twenty five. Just want to confirm that one way or the other as well. Thanks.

Speaker 2

Yes. Thanks, Stephen. I'll start and then hand it over to Jim for the guidance portion. I hope you're hearing loud and clear through our prepared remarks and other answers that partnering closely with our customers to unlock value, to innovate is a core part of what we do. And you should certainly expect that we're doing that with Walgreens on a continuous basis.

Speaker 2

So we're very engaged with them. We're looking for opportunities to create value, win win value as we go forward. We're obviously a very important they're a very important customer, a strategic customer for long term, not just in The U. S, but in The U. K.

Speaker 2

As well as our sourcing relationship with WBAD. So very high priority for us. But again, as we would with all of our most important customers, our teams are engaged. We're bringing the best experts that we can, world class experts in terms of trying to innovate together and create new value.

Speaker 3

And then just to quickly answer, the last part of your question. Yes, our guidance that we announced today includes our assumptions on all aspects of our business, Walgreens and every other aspect of our business, Stephen. Thank you.

Operator

Thank you. Our next question is from Eric Percher from Nephron Research. Your line is now open. Please go ahead.

Speaker 3

Thank you. Bob, you mentioned that you studied the MSO business with one oncology in real time. And I'd be interested in your perspectives on the challenges we've seen in practice management twenty years ago in physician enablement more recently and what's key to motivating and growing practices. And then, Jim, on the financial mechanics of RCA, I want to make sure we understand how much of a retention element is paid out and we're seeing the accretion in U. S.

Speaker 3

Healthcare, but I assume that's flowing through minority interest?

Speaker 2

Yes. Thanks for the question, Eric. Yes, we're spending a lot of time learning. You remember in our investment in Well Oncology, we did that with TPG. We're very happy with that decision and it helps us continue to learn.

Speaker 2

But there are a few things that I would take away that are, I think, connected to your question. One is that the physician leadership of these MSOs is very important. And that's not in the absence of other managers and other leaders, but keeping the entire physician base engaged and motivated, we're confident that strong physician leadership is important. Second is that the real beauty of the MSO model is it's intent, it's value creation. So it could be through new services like clinical trial support, which RCA is particularly good at.

Speaker 2

It can be through analytics and other solutions that help the physicians practice better or more efficiently within their for their patients and really trying to drive the best possible outcomes. And I think third is a long term pathway for physicians who are coming into the model. So, there certainly are these practices that can have long tenured physicians in them. And they're also it's very important that we're able to attract either smaller practices or new physicians into the MSO. And I'll say that both Rowan Oncology and RCA are particularly good at that, attracting the smaller practices as well as physicians right out of fellowship.

Speaker 3

Yes. And then I'll answer the last part of your question, Eric. As you know, we acquired RCA on January 2, at the beginning of our Q2 and our updated guidance reflects RCA. And of course, it's a big reason for our increase, in our operating income growth rate in The U. S.

Speaker 3

And you'll see that all, presented and the details of that when we begin reporting quarters with them and our results starting in Q2. Thanks.

Operator

Thank you. Our next question is from Daniel Grosslide from Citi. Your line is now open. Please go ahead.

Speaker 8

Hi. Thanks for taking the question and congrats on a strong quarter here. I'll stick with the MSO topic. I'm sure you saw this, but one of your competitors made an acquisition in the ophthalmology focused MSO space. I was wondering if you could talk a little bit about the competitive environment within the MSO space, specifically ophthalmology and retina, both from competition from MSO assets as you seek to acquire those and for the physician, the affiliated physicians as you try to attract more of those to your MSOs?

Speaker 2

Yes. Thanks, Daniel. Yes, I can only speak to where we're focused and we are very confident in that. In Retina Consultants of America, we have the leading retina MSO and not just leading in terms of size, but leading in terms of their management team, leading in terms of the clinical excellence, the prominence of the practices that are within that. And as I mentioned in the previous question, also a robust clinical research network.

Speaker 2

So those are the reasons that we're confident that in that case, we'll be able to continue to attract physicians and practices to that platform. And the very same things are true with one oncology. We believe we have the leading platform. It's the right model. They're successfully growing.

Speaker 2

And again, it's because of the model that they've built and the services that they're providing that they continue to add practices. So, So, look, we've talked a lot about why this is the right strategies for Syncora. So it's not surprising to us that we would see others in our space executing in a similar manner. But again, we're really happy and confident in the partners that we've chosen and we'll continue to execute upon that.

Operator

Thank you. Our next question comes from Stephen Baxter from Wells Fargo. Your line is now open. Please go ahead.

Speaker 8

Hi. Thanks for the question. I was hoping you might be willing to give us an update on what the guidance revision for The U. S. Business would have been on an organic basis to try and compare that on an apples to apples basis.

Speaker 8

And similarly, when we think about the accretion, from RCA that you're going to get in this fiscal year, it sounds like it's not quite as simple as just taking the $0.35 and scaling it based on the nine months, but maybe just gives a better sense of kind of the ramping in the second quarter and when we're going to get closer to that full rate? Thank you.

Speaker 3

Yes. And so, great questions. The first one was on guidance. And let me just say, we don't specifically break it out the way that you asked, but with regard to our U. S.

Speaker 3

Segment, it obviously had a very strong first quarter and we see quite good momentum, in The U. S. Segment. And of course, it's not just due to RCA, it's due to utilization trends, it's due to very broad based performance in specialty, but in other businesses also overcoming the COVID headwind that we talked about. And I guess specifically what I'll say is that, is that we talked twice about updating our guidance and improving our guidance because of, strength in The U.

Speaker 3

S. Segment. So it's quite safe to say that it's above the performance that we're seeing there. XRCA is above the 5% to 6.5% range above that range that we initially did in our guidance? And the second question you had was regarding RCA accretion.

Speaker 3

And as we've stated, we expect $0.35 of accretion during the first twelve months of ownership, and nine months of that is, of course, in fiscal year twenty twenty five. And I referred to the fact that we do expect it to ramp up over the course of fiscal year twenty twenty five. And really, the reason for that ramp up over the course of the year is just growth in the business and then also execution of business and strategic initiatives at RCA.

Operator

Thank you. Our next question is from Charles Rhyee from TD Cowen. Your line is now open. Please go ahead.

Speaker 9

Yes. Thanks for taking the question. Hey, I wanted to ask about going back to sort of the specialty business and related to RCA. If I'm not mistaken, right, I think you guys are the largest distributor for Regeneron on EYLEA. And Amgen just launched, I think they announced last quarter, the launch of their version, PAVBlue, into the market.

Speaker 9

I think there's another one supposed to be coming, maybe this summer. Just curious, those scripts are kind of hard to track through sources like IQVIA. Just wanted to understand how that launch is going for you? And what kind of opportunity do you see biosimilar Eylea being? And how does your ownership of RCA perhaps allow you to does that allow you to drive better adoption of biosimilars?

Speaker 9

And I guess that's a more general question across all your M and A practices.

Speaker 2

Yes. Hi, Charles. Thanks for the question. So I'll start with, we've had a long history of partnering with retina physicians over decades. And so we do understand the space very well.

Speaker 2

Two, we have studied the pipelines pretty extensively or very extensively in terms of new innovation as well as biosimilars. And we're confident that that will be a healthy process. So we'll have continuous new innovation. We'll also have biosimilars that come to the market and that's a healthy market. That will be good for patients.

Speaker 2

It will be good for the MSO and good for SENKORA. And I think lastly, what we've seen over both in oncology and coming in retina is that biosimilar adoption is good. It's in the Part B space. It's our experience has been it's faster than you see in the Part D space, and we expect that will continue. But I think the most important part of this is just a healthy market, continuous innovation as well as appropriate biosimilars coming to the market.

Speaker 2

And then physicians will obviously make the best clinical decision for the patients that they're caring for.

Operator

Thank you. Our next question is from Alan Lutz from Bank of America. Your line is now open. Please go ahead.

Speaker 10

Good morning and thanks for taking the questions. As we kind of look back to 2024, utilization was really strong in U. S. Healthcare. I think we've seen that broad across the different distributors.

Speaker 10

And some of that I think was due to just sort of this post COVID reacceleration of scripts as patients are going back to the physician. There were a few things you called out GLP-1s then HUMIRA. If we back those things out, how should we think about new script growth more broadly in 2025 versus 2024? Is what's embedded in the current guidance a normalization of utilization? Is there anything that you're seeing from the benefit design changes that were put forth on January 1?

Speaker 10

Just curious if there's anything embedded within the guide outside of the things you called out that's a little bit different in 2025 versus 2024? Thanks.

Speaker 3

Yes. That's a great question. And as we commented throughout fiscal year twenty twenty four, we saw strong utilization trends. And as we called out during this first quarter, we also saw strong utilization trends. And I would just have to say, kind of as we look at the balance of fiscal year twenty twenty five, this is why we have a range and kind of probably the kind of the key driver in our range and our range is of course twofold percentage points, for both consolidated and The U.

Speaker 3

S. Top line growth and probably, you know, by far the biggest driver of that range is, various assumptions on utilization trends for the balance of the year. But I just want

Speaker 1

to

Speaker 3

say, overall, that kind of we view our both our company performance and leading with market leaders and the strength of our market as quite good and quite resilient, which is one thing that gives us a high degree of confidence in our guidance for fiscal year twenty twenty five. Thank you for the question.

Operator

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

Speaker 11

Yes. Good morning, guys, and thanks for taking the question. I'm going to come back to the MSO businesses for a second. And you Jim, you talked about the clinical trial component, but what I was going to ask is could you rank order the value drivers that allow whether it's Senkora or RCA or One Oncology to add value to its physician partners in these practices? Like we know GPO is a piece, clinical trials is a piece, rev cycle is a piece.

Speaker 11

Just like if you could kind of rank out the three or four main drivers of value creation, I think that'd be very helpful for investors.

Speaker 2

Yes. Hey, George, it's Bob. I'll take this. I don't think we can rank them necessarily. And within the different physician practices, within the different specialties, I think there's a different mix of things that are valuable to those physicians and those are going to be the value drivers.

Speaker 2

And probably the second point of that is, it's continually changing, right? So it's a very dynamic marketplace. The needs of physicians are always changing. And that's one of the great things about having the robust suite of MSO services is you have the infrastructure then to make sure that we're doing our best to keep up with and stay a step ahead of what they need and kind of that same approach that we've been emphasizing, which is working really closely with our customers to bring solutions and innovation to the market. Again, we do that across all of our business, but the MSO platform, gives us an opportunity, obviously, even a step closer to the provider to do that on a continuous basis, which will be our intent.

Operator

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

Speaker 12

Great. Thanks. I think you mentioned specialty strength was broad based, but any key therapeutic categories to call out there? And if I can ask a two parter here, I'm switching species. But, I'm just curious what you're seeing in animal health.

Speaker 12

There seems to be just a lot of commotion in this space, and competition at both the manufacturer and the distributor level to some extent. And just bigger picture, it's been roughly ten years since the MWI deal closed. And how would you characterize how you see MWI fitting in the enterprise now? Your commitment to the business, does it detract at all from some of the broader efforts and long term vision across like specialty or your MSO strategy and just curious on your bigger picture thoughts there?

Speaker 3

Thanks. Yeah. Thank you for those questions. First of all, your question was on specialty and our, you know, specialty business has always, you know, kind of the biggest driver has always been the oncology part of the business. And, you know, obviously a very strong part of that for Syncora, is in Part B in our sales to specialty physician practices and health systems.

Speaker 3

So that's really kind of been the, kind of the key driver of the business. And then the kind of second piece has been in the ophthalmology space and, you know, in particular, the retina space. And so that's exactly why you've seen our significant capital deployment into MSOs, first in oncology and then in the retina market, which is Bob commented on is really kind of a natural evolution and next step of our highly successful specialty business. And then, thank you for your question on animal health. Our animal health business had a very good quarter.

Speaker 3

You'll see in our Q that will be published later today, the animal health business had 7% top line growth. And the growth was and while we don't break it out, the growth was actually good in the quarter in both the companion animal market, which is about two thirds of our business and the production animal market, which is about a third of our business. Both had very nice growth quarters and not only was a good top line growth, but good bottom line growth in the business also. And part of that is probably the market, but I think we're probably continuing to incrementally gain some market share there. And also I'd just say, we feel very good about the animal health business and feel that the management team there is doing a particularly good job.

Speaker 3

So thank you for the questions, Aaron.

Operator

Thank you. Our next question is from Kevin Caliendo from UBS. Your line is now open.

Speaker 10

Thank you. Thanks for taking my question. Does your fiscal twenty twenty five guidance embed any incremental customer loss beyond FCS? I know you detailed that back in November. That was the first part.

Speaker 10

And just specifically on the Paxlovid or the COVID headwind, was it better or worse than expectations in fiscal 1Q?

Speaker 1

Can you say that we missed the last part of your question? Can you repeat that?

Speaker 10

Oh, I'm sorry. Yeah, sure. No, just on the COVID headwind, was it better or worse than expectations in fiscal 1Q versus what you originally thought when you originally guided?

Speaker 3

Yeah. So, the first was, I think, you know, our guidance, does it impact does it expect any customer losses, other than, the one that you mentioned. And I would say, generally, the answer is yes. It assumes some customer losses and gains, but really there's none other than the one you called out that's a meaningful amount of profit or loss that would be, you know, worth calling out. And so we, we don't call it out.

Speaker 3

And then, the second question had to do with, COVID and, with regard to, exclusive COVID therapies, which is, I think, what you're asking about is, it was a $0.06 headwind, during the first quarter, but, the first quarter of fiscal year twenty four was the, was the, last quarter that we had, exclusive COVID therapy contribution. So, it's not a headwind, for the balance of the year. And, you know, with regard to, COVID vaccines, you know, we really called this out in our, in our prepared remarks that in the first quarter fiscal twenty twenty five, the contribution from COVID-nineteen vaccines was about half that of the prior year quarter. Vaccines was about half that of the prior year quarter. And, we expect a similar sized operating income headwind in the second quarter of fiscal twenty twenty five, meaning no significant expected contribution from COVID vaccines in our second quarter of fiscal twenty twenty five.

Speaker 3

And so the strong guidance, raise and increase that we did this quarter is in spite of that COVID vaccine headwind. Thank you for the questions.

Operator

Thank you. Our next question is from Eric Coldwell from Baird. Your line is now open. Please go ahead.

Speaker 13

Thanks very much. I didn't think World Courier could get this much attention on a call, but I do have some World Courier questions. First, I wouldn't disagree that there are some market challenges, subdued clinical trial activity that all makes sense for the softness you cited. You also do cell and gene therapy and other specialty shipments unrelated to clinical trials. So I'm wondering how those are faring.

Speaker 13

Part B, what is the basis for saying clinical trial activity will pick up later this year? And Part C on World Courier, Any additional commentary on competition in the market? We've seen some noise from UPS Healthcare and others. I just want to make sure that the weakness in World Courier is more temporary and end market related as opposed to something going on, on the competitive front? Thanks very much.

Speaker 3

Yes. Let me start out here. First of all, we feel very good about the opportunities in the cell and gene therapy market. And it's a result of our world courier strength, Eric, and then the strength in our other commercialization services businesses. So as we look at the long term, we feel great about that market opportunity and we feel very good about how well positioned we are to be the leader in the market.

Speaker 3

But I would say that it's not of a size yet that it has a material contribution to the bottom line. Second, yes, why do we think that there's opportunity to see improvement in global specialty logistics later in the fiscal year? In meeting with the teams and looking at market data and looking at the pipeline, our teams are really heavily focused on the pipeline, which we feel has the opportunity to pay off later in the fiscal year, given both the market and given, the work that our teams are doing. And then, the third part of the question was on competition. And yeah, that market, it certainly is a competitive market.

Speaker 3

We have a premium service and have been a market leader for many years and are very focused on the market. But we will acknowledge that it certainly is a competitive market where we have been and plan to continue to be a market leader.

Speaker 2

Yes. And Eric, I would only add, and again, this is thematic today, but being a premium provider indicates that we're continually innovating within that space. So the things that we've talked about in terms of temperature monitoring and tracking of products throughout the supply chain, a very specialized supply chain for these products is something that we'll continue to do. That's just an example. But while there is competition, we intend to continue to innovate to make sure that we're ahead of the pack.

Operator

Thank you. We currently have no further questions. So, I'll hand back to Bob for closing remarks.

Speaker 2

Great. Thank you, Becky. Again, I want to thank everyone for joining today. I also want to thank again our, Senkora team members. You know, this performance is due to your purpose driven approach, your expertise, and your dedication to meeting the needs of our customers and patients worldwide.

Speaker 2

And I know you will continue to advance our leadership and specialty, drive efficiency and productivity, and execute with a customer centric mindset. Thanks, everyone.

Operator

This concludes today's call. Thank you for joining. You may now disconnect your lines.

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Earnings Conference Call
Cencora Q1 2025
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