Cardinal Health Aktie

Okay. Good morning, everyone. My name is Eric Coldwell. Obviously, I cover a number of health care names with Baird. I've been with Baird quite a long time. And not as long as I've covered the pharmaceutical wholesaling space, which is obviously a lot more than that today. But it's been a pretty amazing handful of years here.

And I've said this several times and maybe blowing smoke but my favorite management team at Cardinal in my lifetime, and I continue to enjoy having you guys at events hopefully, many years to come. So thank you for being here.

So of course, we have Jason Hollar today. And David Frost wants to -- an IR wants to make a quick comment before we get started.

Just a quick comment. Yes.

And then we're going to jump straight into Q&A. And if you guys want to send questions up to the front, I'll happily take those on the iPad. Otherwise, I have, believe me, more than enough.

You do. Quite a...

Yes. Just a little bit of housekeeping. We'll be making forward-looking statements today, which are 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. Thanks.

Thank you, David. Okay. A bit of a warm up here. Soften you up before the hard ones.

All right.

So you just provided fiscal '27 guidance. You absolutely crushed last year, more than $2 of upside versus the original midpoint. Yet on a normalized basis, you still see earnings growth at or above the LRP. So against a tough comp against a massive upside year, more incredible strength.

So I'm guessing that you weren't planning on beating last year by over 20% all year long. Talk to us about the 3 or 4 biggest upside drivers and which of those are sustainable versus which were a bit more transitory because that will lead to some of the follow-ons regarding the fiscal '27 outlook?

Yes. Thanks again, Eric, for having us here, and thank you all for attending. It may sound like a simple softball type of question upfront. It's actually a little challenging to answer because it's hard to boil it down to just 3 or 4 things because I think that's the real testament a great management team, a great business, a great industry is the breadth and the depth of the activities and the opportunities that we see in front of us. .

And when you think about that overperformance in '26, it was every 1 of our 5 operating segments performed incredibly well. Every single one of them had earnings growth of at least double digits irrespective of the M&A. They each had some really great cash flow, which was another great story for us this last year. And we have recently increased our long-range targets for the pharma business in the last Investor Day. And we are forecasting for and guiding for growth to be a little bit above even that type of range.

So we haven't raised the bar on ourselves. I do get the point that, that is lower growth, still strong growth, but lower growth than we saw last year. So the reasons why, the key differentiation there. Let's break it all apart. So we have that breadth of each of these 5 businesses doing really well. Within each of these businesses, I think it's important to think about the stuff we can control and the things that we have more difficulty in controlling like volume, utilization. That's been very, very constructive, very strong. I like the word constructive because just having the volume by itself doesn't mean you're going to have a great result, though, and we've seen that in the past.

The last several years, we've taken that predictable, relatively modest, consistent growth, and we translated it into a fantastic result, and that's the performance that we have led. But that underlying utilization continues to be very robust, but we anticipate it being a little bit less robust this last year. A few reasons, why specialty at 25% growth for us. I mean, that's really, really strong volume. Part of that driven by the M&A, part of that driven by some new customer conquest. Those are the types of things that are going to happen at a lower rate going forward and why we think it's more prudent to have a more normalized type of growth rate.

Generics. That one's a little bit harder to pin down. It's been quite robust, but you're talking about relatively small percentage changes to that baseline 2% to 3% growth that we have in our long-term plan. Demographics and innovation, loss of exclusivity, all elements that are driving a nice answer. That's a little bit more difficult to pin down exactly where that's going to be period-to-period. But we saw good growth last year, and we anticipate good growth, but not quite as outsized that we've had in the past.

So overall, from a pharma perspective, strong volume, doing a lot of organic and inorganic investments to optimize that, not just for our benefit, but for that of our customers and ultimately for patients. Other has been a great growth story as well, of course. Same thing, organic and inorganic investments. When you think about the inorganic investment with the ADS, now we fully lapped that. So that means that our growth rates going forward, we're not going to have quite that same upside, but we're not replacing it with some other acquisitions with Strive and the diabetes segment of the Adapt business.

So we do have some inorganic opportunities there, too, but the core growth, the synergies from the prior acquisitions, the Theranostics and nuclear, expanding the product portfolio in OptiFreight, these are all and specific investments that we made that we do think will continue to drive good growth in the future, but not quite that outsized growth we've had in the past.

And then the one big surprise we had this last year that was outside of our guidance on GMPD, core growth right where we thought it would be. The tariff refund created some positive noise for us. But you strip that out and the results were still fantastic. And so it was just a nice add at the very end. But ultimately, the core growth there being right where we thought it would be as well. So those are some of the key points.

When you look back on the last year, you have this 5 segments, a lot of moving pieces, but overall, really good performance. You have a tumultuous global environment, right? War, tariffs, commodities, you name it. What were the aha moments?

What -- was there anything that happened in fiscal '26 or even fiscal '25 where you said, "You know what, we need to double down here or we need to back off here?" We need to -- you went through a big strategic review just a few years ago. So I assume there's probably not a lot of those conversations, but maybe a few.

You always have to challenge yourself. You want to be your own activist is how you approach it. Not many things that we had to back off. But I think that in and of itself may be an aha that we were closer to the center of the target with our strategy than perhaps even we thought. The execution, the connectivity of all these pieces, again, using specialty as a reference point, 25% growth in specialty, that didn't just happen with M&A. That didn't happen with new customer onboarding. It happened with also taking care of all of our other existing customers with service and support.

And these are all kind of aggregated in a way, the flywheel effect that help create value across the spectrum. So I think the aha was the strategy really is not just working the way we thought, but in ways we didn't even think were going to be possible. Our nuclear business with Solaris, I think, is a good example that. We knew there were opportunities bringing on the urology MSO. We knew that we were the leader in the nuclear pharmaceutical space.

The pull that the nuclear team is seeing from those urologists to help them with their business, help them be a better urologist, a better physician to those patients, there's just all sorts of those opportunities with our MSO strategy that we knew were out there, but the thirst for having the connectivity between this huge suite of services and products that we provide to these physicians that have an incredible number of needs to take care of their patients every single day has been a really nice fit.

And then, of course, just the other growth businesses fill in all these categories quite nicely. And we knew that was possible when we resegmented the business 3 years ago, not even 3 years ago, and a lot has changed over that period of time, and we've seen some great growth. Maybe the aha there was the ADS transaction, that acquisition, the synergies went so well above our expectations that we were like, okay, not only do we see the value there, we feel confident with the integration where that's at, we can go faster, and that's why we picked up Strive in the diabetes segment of Adapt as well. So these all are coming together in a way that are very accretive, very synergistic and gives us confidence that we are going at the right pace to continue to look for growth opportunities.

On the last earnings call, you made -- well, I think it was Aaron actually, but there was a very interesting comment. For planning purposes, we are assuming a consistent book of business. Was that a throwaway comment? Or was there something more hidden behind that in terms of we know something you don't know or we're getting ready to do a deal, but we're giving you guidance before a deal.

Well, it felt like there was more. So let me tell you what it is, and I'll let you define if throwaway comment or not. Remember, the prior year, we had a significant tailwind for new business onboarding in a number of our businesses, BioPharma Solutions with our Sonexus business, but also core distribution, picking up some large customers that lapped midway through '26. So we had this tailwind in '26 that we do not see repeating in '27.

And at the beginning of the fiscal year, you have a pretty good understanding of what your book of business is going to look like for the next 12 months. Even if we get a great new customer today, it's unlikely to generate a lot of incremental revenue margin in the current fiscal year. So this really is just for planning purposes that we wanted to highlight that at that stage, we didn't see the book of business changing materially for our -- especially our larger distribution customers. And that's just different than where it was in the prior year, and we felt it was important to make sure that when you look at the growth rates of '26 to '27 that you understand that distinction.

When I reupgraded the group, February of 2020, a few weeks before the national emergency with COVID, which was interesting. One of the main -- there were several, but one of the main tenets in our upgrade thought process was for the first time in my life, I was watching what felt like a very steady playing field, basically pardon the term, an oligopoly of companies playing well in the sandbox, not seeing big churn, not seeing big negative revisions with customer renewals. You just announced one of your larger clients, Kroger, has renewed and I believe, extended. I'm not sure was an expansion -- 5 years?

Long term.

Long term. Okay. And you didn't have to back off putting up upside LRP against upside base here. Are we at a point now where an existing customer, an incumbent customer renewal, it's just a nonevent unless it only becomes an event if they leave?

A couple of things here. First of all, it's our key responsibility objective to provide a continuous improvement to our business that, of course, our customers are always looking for additional value. They're in tough competitive environments as well. So there -- we have a desire and work streams to always get better, use technology, use AI, use productivity, use automation to further improve the business. So we can have it both ways. So we can provide value to our customers while at the same time, growing our business in a way that's consistent with our expectations.

With that said, the comparison points that I think you're referring to where perhaps the dynamic was most out of balance was some other environments where the underlying industry was going through some changes. When you think about the generics at the beginning of the toughest period of time was in the 70% type of penetration and that went pretty quickly to 90%. Well, that created a lot of value because that's also when the buying groups were formed, right? And so it created a lot of value that then was exchanged in different ways with customers.

Well, it's at 90% penetration for, well, the 7 years I've been at Cardinal, it's barely moved. It's nice evergreen new products coming in both brand and generics. But that dynamic of that creation of this incredible amount of incremental value, incremental currency that was then passed back and forth with your customers is a dynamic that's just different today. It is much more consistent.

We're seeing much slower growth, but consistent growth with generics, but not the really significant step cliff event that created all the activity you're talking about. So I just don't see that, that will change in that same way. And you throw on top of that for the wholesalers more broadly, but certainly for Cardinal, that part of our business, while it's growing, is growing slower than the other parts of our business.

And so it just becomes less meaningful, less impactful, still important to us. These are still important parts of the customer, an important part of the core and the base, but there's a lot of other parts of our business that are growing faster, usually higher-margin parts of the business as well that makes that impact -- that relative impact even smaller.

And you and the rest of the industry went through a period of really balancing out profitability across all of the different channels, both with customers as well as with the therapeutic categories. So is there more to be done there with the growth in specialty that we're seeing? I know the generics are stable at 2%, 3%-ish volume.

But with this rapid growth in specialty, this rapid -- well, debatable, but a lot of biosimilars coming to the market and having some impacts, right? You're still seeing some pretty tremendous growth rates in specialty despite that. Do we need to go through another round of renegotiation or hammering out contracts with customers on where mix is today versus where it was 5 to 10 years ago when the industry went through that last big round of conversation?

Well, I think the whole industry has learned about those mix challenges. I think before the mix changes happened dramatically, the contracts weren't structured to be reflective of that. We have now lived in a world of significant mix changes for well over a decade. So our contracts are structured to recognize that as a low-margin distributor, we cannot afford to have substantial mix changes where profitability might be different product category. If the product category profitability is the same, you don't need those contract utilization requirements.

But typically, there's varying product margins within a customer contract that does require a utilization requirement. And so we have that embedded in the contracts that matter with that profitability distinction. And then it just adjusts for itself real time, and it's not the requirement then to have these massive changes come in new contract because it's grown and it's evolved in a way that is much more consistent than what it would have been in the prior contracts.

I want to transition and talk about managed services for a minute. So the acronym MSO came up just 6 times on the last conference call. And I know I've already prepared you for this one, 19x, 12x, 17x on the prior 3 calls. So less than 1/3 of the average of -- or I guess, roughly 1/3 of the average of the last 3 calls. I don't think it became a boring topic, but it definitely did not get the level of attention I was expecting.

I don't believe you came out and provided a revenue framing or other additional color commentary on numbers around it. And we haven't seen big growth in the number of providers in the channels since we did a deep dive on you guys probably 4 or 5 months ago now. So again, am I overinterpreting? Or is it -- was this just more of a period where there were so many other things to talk about that the MSO conversation wasn't as visible?

Yes, I think you're overinterpreting. But let me address it nonetheless. I think that when you're talking about anything 6x, that's still quite meaningful in any business. So -- but remember that the last large transaction we did would have been announced about a year ago. It's been closed now for only about 9 months. But we're now into a much more stable environment as it relates to the [ MSO ]. Our strategy is clear.

We have these 3 very clear platforms, oncology, urology and GI. We have the leadership teams in place. We have the business in place. We are now in execution mode, completing the integration, which is a complex long process, but also continuing though with our acquisitions. We just closed 4 new bolt-on acquisitions over the course of this last quarter.

And it's still a critical component to the critical growth element of our strategy, which is specialty. So it's the high priority within the highest priority of our growth initiatives. Nothing there has changed other than there's been less new things that have occurred with our MSOs this last quarter. And to your point, with the fiscal year-end, I can tell you, we look at our total word count on these scripts, and it was already long.

So to bring in more content on any particular topic means that we have to bring back some other things. And there are a lot of great things happening in the company. We, of course, had the acquisitions with at-Home Solutions and further growing our growth businesses, and that was a little bit more of the focus this quarter than the prior ones. But I would anticipate you're going to continue to see very good focus from this team on not just driving the strategy, but making sure we're transparent with where we're going with the business.

One of your competitors has broken out a subsegment on this business. They've been in the business a lot longer, bigger scale historically. Perhaps another of your competitors winds up doing that over time as well, who knows. But have you thought about providing more detail or transparency in terms of sizing or EBITDA contribution percentage of earnings? Are those the kinds of things that at some point we can expect? Does it have to get to 10% before we hear about that?

Well, the 10% threshold is when you have to break it down if you're managing the business that way, which that's not how we manage it internally. We bring it together as a part of the specialty strategy. So given the flywheel effect, the ecosystem of the specialty business, we see it's hard to differentiate and manage it that way.

When you think about how we structure our segments, we structured the segments based upon how we drive the strategy and how we operate the business, not the other way around. And so I -- while I appreciate the investor desire to see different information, and we will evaluate whether or not to provide incremental information. But as it relates to segment reporting, it's a critical element to make sure the leadership team, my team that is responsible for those areas that they are leading those areas with the accountability and the action ability to actually make all the decisions within that segment.

So I don't want to create something that's not actionable within the business. And how we manage the business today, this is a part of like when you think about specialty distribution, it's really hard to separate from PD distribution. And some of these attributes of BioPharma Solutions drive distribution in the way that we're not ready to separate those as it relates to segment reporting and how we actually manage the business.

I'm going to jump in just to make sure we can cover this. We've got a couple from the audience. First off, and I was going to get there, but I'm going to use the audience to get there quickly. Would you provide any additional color on the 2 home cares? I'm assuming that means the Adapt and Strive deal. And what you can -- what we can expect for more dealmaking before year-end or before calendar end, if there's -- in other words, what's the pipeline? Talk about those 2 deals, frame them, when do they close? But I guess, more broadly, additional deals in the pipeline, what's that look like?

Sure. Yes, the pipeline is good. It's certainly robust enough for us at this point in time. And I think for fiscal '27, I would be surprised if there's anything significantly different than what's there because if we made an announcement today, it's unlikely to actually close too much before the end of the fiscal year. And even the Adapt diabetes business will be a second half '27 closing event.

Strive has already closed. So Strive is primarily urology DME, relatively small in overall size, but a very good provider of urology products to the marketplace, fits very well with the distribution we already have in urology. And you've already heard me talk today, urology is a really key therapeutic area for us. We are the leader across so many different -- really most aspects of urology, whether it's distribution, the MSO, we're the largest there. Nuclear, we're the largest there. At-Home, we're already the largest there. But this in terms of the distribution side, but this helps give us more of a presence on the provider side. So we're in good shape there.

On diabetes with Adapt, that fits really well with our ADS transaction and our core business we already had. So ADS has been a fantastic success, primarily diabetes. I think part of the question there is with competitive bidding and everything happening in that space, not everyone has been successful in diabetes, but it's been a very successful category for us.

I think this is one of those categories. It's growing quickly. Only 35% of people that are eligible for a CGM through insurance coverage actually have a CGM, and that number has been increasing pretty consistently. And the number of Americans who need a CGM and then therefore, have that access to that coverage continues to increase. So it's a growing area.

So volume is not the challenge. With competitive bidding, that's a volume opportunity for us. That's just one payer amongst many. And we feel that being the largest and the most comprehensive in capability in that space will help the government and will help our other payers be very competitive with. So there's no reason why that business should not continue to grow its volume, which is the type of business that's really good for our at-Home business, and it fits that product profile very, very well.

I want to stick on that because I had a really interesting conversation with Cardinal after -- I believe it was after the last call, it was recently. And there were some core points that just -- it hit home for me, which is how you go to market in the direct-to-patient business, you're not walking over the threshold, right?

You're not actively pursuing walking into patients' homes, doing setups. You're highly automated. It's mail order. Just hit those points again because I think people look at your model and they compare you to a couple of public competitors that maybe even a handful of if we include the microcaps that, frankly, have not had the best run...

And it's a fantastic question. I'd love you teed it up that way, Eric, because it's absolutely core to our strategy, and we probably don't spend enough time telling that. We did an Investor Day, and so I'll repeat a couple of key points here. We are very intentional with the types of products that we allow to come into our ecosystem. what those products are, are relatively small, dense, valuable products. Why does that matter? Because we have incredible scale on small parcel freight.

We are one of the largest users of small parcel freight in the industry, not just in health care, but in the industry. Think about our OptiFreight business, which directs a lot of freight, our at-Home business, which directs a lot of freight. And then we have all of our distribution business that directs freight usually a more courier basis, but also small parcel. So we're an incredible user of this. We have great scale.

And we've now built our distribution centers to be focused on that type of product. You've heard me talk about 3 new distribution centers in the last several years that use the latest in automation technology that are perfect for taking small parcels and AutoStore type of setup, and be very efficient at delivering that into the small parcel channel then.

And then we have 3 more coming in the next several years to further build out our whole footprint there. That connects -- thing about the corollary to that is some of these larger bulkier items. That's the smart growth we talked about why our revenue growth was a little bit lower more recently is we've prioritized our efforts to that small parcel, deprioritized on some of the larger stuff because what we've learned through data and analytics is that our profitability is not very good when you got big bulky things, and it uses a ton of capacity in our networks. And it doesn't fit in the AutoStore, and these are all things have been very intentional.

Then what that means, those are all the things that we do. What we don't do is we don't want to go into people's homes. And that is a very difficult, different capability. Other people can do that really well. They should focus on that. That has to be a part of the patient journey, but it's not what we do. We are an expert at freight, logistics, that type of backbone of the health care industry.

But when you get into taking care of patients inside of the home, that's a very different model. It's a very different capability set, and it's certainly not what we have it at home. We want to use other tools, other assets, other parts of the business to support anything that more patient-facing like through the MSOs.

But even there, it's not inside the home, and that's what many of our "competitors" focus on." But that's why this transaction from our perspective with Adapt made so much sense because what they are keeping is all the stuff we don't do, right? That's what they're really good at. That's what their priorities are. That's where they're growing. But what we're taking from them is what we're really good at, and I think why we were the logical buyer for that.

That's great. That's really helpful. Let's go to GMPD. Small segment relative to total corporate economics at this point, but in theory, a lot of potential over time. You went through the medical improvement plan years ago. You're showing real momentum in Cardinal Health Brands growth. And you're kind of fighting back, but at the same time, we have this incredible commodity headwind and the tariff headwind and now reprieve on the back end of IEEPA.

But it does seem to be the one business that due to exogenous events, things outside of your control, maybe under some definitions, isn't fully living up to its promise yet, right? And a lot of that is commodities. Commodities are -- several are hitting new highs. Diesel is hitting a new high as we speak. How much of this can you incrementally offset going into next year? Are we just fighting for another year of getting close to the 3-year plan or maybe inside the low end of it if these commodities stay high? Or is there something more that can be done at this point?

Yes. It's a business that has turned around very nicely. When you think about the substantial losses we had just several years ago, we're pleased with the progress this last year. In spite of tariffs, we grew the business. And then even normalizing for the tariff refund, even excluding that refund, we grew the business nicely this last year. And we're hundreds of millions of dollars stronger than where we were just several years ago.

And to your point, Eric, it's been driven by the 2 key tenets of our growth strategy, growing Cardinal Health brand volume, which is higher volume, higher growth part of our business that we're continuing to invest in. And that drives a lot of margin that allows us to offset some of those other challenges. But if we can manage through those other challenges, then that can be very much the growth driver as well as then further simplification work. This remains a large global business.

And we've, over the years, now reduced by more than 50% of the countries in which we operate in. We are derisking the model. We do have tariffs and commodity costs that more today, more of the commodity costs, to your point. We did provide a bit of a sensitivity at our guidance at that point in time with those economics. If they stayed elevated at those levels for the remainder of the year, we highlighted that it would be more in the lower end of our guidance range.

So still in the range, which for a business that historically had more variability, we feel really good about that level of balance. That's still a nice growth year-over-year from where we were even in '26, which was a pretty good starting point. So more work to be done with the business, but we're really pleased with the progress.

Unfortunately, without Aaron here, my cash flow layup has been avoided today, but you've done a great job on cash flow, and I want to really applaud you on that. Is there anything else -- we just hit time. Is there anything else you want to you want to mention before we walk out.

You've touched all the key topics. I am a reformed CFO, so I can talk about cash flow if you like. It was a real bright spot for the year. And when you take last year and then put in the guidance for this year, I know you know this, Eric, but we're well on our way to likely exceeding that $10 billion that we laid out at our...

I think you're 90%...

We're already 90% of the way there. So we're going to have to think about that '28. We don't have a new number for you today. But clearly, we've made more progress than anticipated, and we're going to make sure we are very responsible with that cash flow invest it in the right ways.

That's great. Everyone, please join me in thanking Jason and David. So really, really good to have you here, and good luck with the rest of the week.

Thank you, Eric.

Thank you.

Okay. Good morning, everyone. Welcome to the Morgan Stanley Global Healthcare Conference. I'm Erin Wright, Head of Healthcare Services Research at Morgan Stanley. We're happy to have Cardinal Health with us today, CEO, Jason Hollar as well as David Frost, who heads up the IR effort. Thank you so much for coming.

I'm going to hand it over to David for some quick remarks.

Yes. Perfect. Thank you for hosting us, Erin. It's great to be here. But before we begin, a little housekeeping. We will be making forward-looking statements today, which are 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.

Okay. Let's get started.

Yes. Important disclosures, please see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures, if I didn't say about that at the beginning.

Okay. So let's kick it off with some Q&A. So thanks so much for coming. Obviously, starting off, you introduced initial fiscal '27 guidance in August. Your EPS guide calls for 13% to 15% growth. That is above the long-term target of 12% to 14%. Can you break down a little bit how much of that growth is expected to come from the operational kind of performance versus some of the below-the-line items, lower interest, other tax rate and just some of those dynamics that we should be thinking about in terms of the important swing factors as we think about this year?

Sure. Yes. Well, first of all, thanks for having us, Erin, and thank you all for being with us here. How I would think about fiscal '27 is very much a continuation of the success we've seen in the last couple of years. And the words that really come to mind for me is breadth and depth of our execution and our results. In fiscal '26, every 1 of our 5 operating segments had fantastic performance, not just the P&L, but also in cash flow. We went truly 5 for 5 this last year. And our guidance for fiscal '27 is a continuation of that success at a little bit more normalized rates. But we are, again, anticipating a very similar level of breadth of performance that we expect all of our businesses to be in a very constructive period for fiscal '27. And it's also why we reiterated our long-term guidance for the 12% to 14% longer term and 13% to 15% for fiscal '27.

When I look at each and every 1 of these 5 businesses, I would then categorize it into 2 key components. First of all, the underlying volume, the market, the utilization remains very constructive. I like that word because it means it sets us up for success, but it's not going to be the reason for our success. The volume growth is solid enough that we have confidence to invest into the business, to provide the investments necessary, both organic and inorganic, to continue to grow and to be successful, whether that be for efficiency purposes or other growth vectors. And when you look at each of these 5 businesses, they have their own growth investments and growth opportunities.

Of course, you got to start with our largest, most significant business. Our Pharma segment remains also in a very constructive period. We anticipate 2% to 3% volume growth within our generics business. We've seen that running a little bit better than that, and we expect it to be slightly better than that in fiscal '27. But it generally is in a very consistent, resilient level. But Specialty was the real hallmark for '26, where we had 25% growth there, and we are anticipating closer to double-digit type of growth for fiscal '27 and beyond. Now, '26 had some key catalysts that are unlikely to repeat in the same way. We had significant M&A. We had some big new customer wins in areas like Biopharma Solutions. These all added to that incremental growth that, while it gives us great momentum coming into '27, we just don't think it will be at the same level.

So we will continue to invest organically in the Pharma business, inorganically with additional bolt-on M&A with our MSOs. We do consider M&A in other areas like Biopharma Solutions, but it remains a very good place for us to be. Our other growth businesses, each of these 3 businesses have their own secular trends within healthcare, growing faster than underlying market. But we're also making discrete investments in each one, whether that's nuclear with our Theranostics and our high-energy PET programs, the new cyclotrons there in 11 key markets. Certainly, our OptiFreight business expanding from the medical side of the industry to inclusive of pharmacy products. And then, of course, at-Home Solutions, which is a combination of both organic investments into our distribution centers, automation, but also additional M&A, very successful transaction that we did about a year ago, a little over a year ago with ADS, and we're replicating that in a little bit smaller bolt-on type of way with Strive and the Diabetes division of AdaptHealth.

And then finally, our GMPD business continues to have significant opportunity with growing Cardinal Health brand volume as well as the simplification work that continues there, both of which drove significant value for us in fiscal '26, allowing us to more than offset the tariff impact, sharing that cost with our customers and setting us up for a constructive '27 as well there. We do anticipate some puts and takes below the line. We had strong cash flow in '26 that will help interest. Our tax rate may be slightly higher in '27 versus '26. But these things are going to be aided by our $1 billion that we have highlighted for share repurchases next year as well. So it will be a little bit of the below line, too, but it will be driven by operating income growth through each of those 3 key reporting segments, each of the 5 key operating segments.

Okay. And I hate to ask this upfront, but I didn't see an 8-K before I stepped up here, but just the obligatory question on sort of the contract renewals, and we just had McKesson up here. But anything to update on that front in terms of your relationship with CVS or any other relationship upsides that we should be thinking about in terms of, I guess, how would you characterize it currently?

Yes. The relationship is very strong. And you have to start with the core of the business. What this leadership team has done for the last several years is prioritize the core of our business. Customers like CVS, that's what they want to see. Yes, they, like everyone else, likes to see us investing in growth parts of the business to remain relevant in areas like Specialty. But ultimately, what's important is, are they getting the products that they need each and every day very efficiently, very effectively. And that we are doing better than anyone in the industry. So we feel good about the service that they're getting. We certainly feel good about the strategic relationships and partnerships that we have.

Yes, the distribution contract comes up for renewal at the end of this year, but we have ongoing longer-dated relationships in areas like Red Oak Sourcing; a few additional years beyond that, our Averon sourcing joint venture on biosimilars; our partnership as it relates to over-the-counter products with IQ Purchasing. So we have a variety of different relationships with them that are much more strategic than -- and not just transactional. So it's an all-of-the-above type of relationship with them, and we feel very good about the service that they're getting.

I mean, it is an onerous process to switch these larger contracts like this.

We think so. But of course, they will always want the value that's necessary for the size and scale that they have.

Understood. So your guidance assumes strong, I think, is the way that you characterized it, but not necessarily outsized demand trends across that core Pharma and Specialty Solutions business, what -- relative to what we experienced in '26. So how would you distinguish strong from outsized demand? And how would you just characterize the underlying utilization backdrop? I feel like it's this debate that kind of keeps going, are we in this sort of normalized utilization environment? Are we not? And how -- what are you seeing right now in terms of prescription volume?

Let's break apart the 2 key components that have very different drivers, but there's a common base between them. Let's go generics and then talk about Specialty. With generics, a little bit less glamorous part of the business, but 2% to 3% growth is very much the foundation, the ballast of this large industry, this large business. And that growth was a little bit faster than that in the last year, driven by continued -- LOE was a little bit better, but just the underlying demographics continue to be quite favorable in the space. And so while we don't expect it to be quite as strong as fiscal '26, we do expect to be a little bit higher than that 2% to 3%. So you're talking about maybe 100 basis points or so. So you're talking about small differences in percentages, but relative to the baseline, that's a meaningful difference.

The other component is, of course, Specialty. We had 25% growth last year, driven by MSO acquisitions that allowed us some additional opportunities in the Biopharma Solutions with new customers like Dupixent within Sonexus, our patient hub. And that, we think, will be closer to that double-digit growth rate that we have in our long-term plan. So in both cases, growing faster than the long-term planning assumptions. But in both cases, we think a reasonable backdrop and reasons for why it's not quite as strong as it was in fiscal '26. And it's a very constructive place to be so that we can continue to invest in the business and ensure we get the most value for ourselves, but also our customers and patients to drive more efficiencies throughout the system.

Okay. And Specialty is increasingly a driver, obviously, across your business, $50 billion in revenue, growing mid-teens. Can you elaborate more on kind of the opportunity to increase your Specialty exposure over time, just more broadly before we get into kind of some of the more details on the MSO business? And then how does that mix shift kind of impact margins as well over time?

Yes. It's a backdrop that gives us a lot of confidence to continue to invest organically and inorganically. So we have prioritized our 3 key platforms: oncology, urology and autoimmune largely with GI. We've made significant investments. And so that's allowing us to grow with those practices through those MSOs, allows us to have additional plug-in opportunities with the rest of our business, whether it's Biopharma Solutions or our other growth businesses. That will likely continue to be the same priorities we have going forward.

It's still a very fragmented space when you think about especially the non-oncology portions of the market I just referenced, GI and urology, especially. About 80% to 90% of the physicians in that space continue to be unaffiliated with an MSO, which is basically the white space that allows us the opportunity to continue to bolt on practices to our MSOs. And that's a long track that we see in front of us that gives us the opportunity to have confidence to invest into each of these businesses.

Biopharma Solutions has been a fantastic growth story for us. We said at our Investor Day over a year ago that we saw a path to get to $1 billion by fiscal '28 from our $550 million in fiscal '25. And that's a 20% CAGR. And this last year, we did over 30%. So it demonstrates that our focus on that part of the market, our leadership, our investments, our execution has been very solid and that gives us confidence that we'll be able to achieve that $1 billion, which is a further component to continue. So we have confidence that we'll be able to continue to grow, again, not at the same rates that we saw this last year, but at rates that are at least as high as what we've seen in the historical past and what we have in our long-term forecast.

Okay. And when you talk about there's other opportunities as well, like what characteristics must the new kind of Specialty platform or area that you're targeting kind of have to fit within the platform?

Yes. I think, first of all, it's got to fit within 1 of those 3 platforms. We have made significant investments, paid a relatively high multiple for each of those 3 platforms for a reason, because it gives us the breadth and the capability that we didn't have. We were building it, and we were on that journey, but we saw an opportunity to accelerate that. So it has to have the profile that fits neatly within those platforms. I just don't think at this stage we need a fourth platform to be able to execute to our strategy. Because it's so fragmented and there's so much opportunity, it's not optimized at this stage yet, and that's where we're going to be focused in the near, medium and perhaps even longer term, but we'll continue to evaluate that.

It has to be the right culture, too. We've worked real hard to pick the right partners for our business. So it fits well with the Cardinal culture, the Specialty Alliance culture, which fits very well with the Cardinal culture. So it's got to be the right organization, the right group of people, but also the right profile. The other kind of component beyond that, when you look at everything outside of oncology, which oncology is a great space in and of itself. When you think about autoimmune and GI and urology, there's a lot of commonality there in terms of the types of services, a lot of infused drugs, a lot of ancillary services, a lot of procedures that happen in ASCs. And so there's a lot of opportunity to bring together different types of activities in a way that's not only a better business, a lot of operating leverage and scale that comes along with that, but certainly helps those physicians manage their practices as well.

So these are all variables to why we chose those platforms, but -- and that's why we're going to remain on this journey to prioritize there. And then they also fit very nicely within the broader Cardinal Health organization. Our nuclear business is a great example, where we are the leader in areas like urology and oncology for those nuclear radiopharmaceutical products. That is a real value proposition for those physicians. So now they're tied up with someone that's a true expert, a true leader in the field that allows them to move very quickly. And I think one proof point of that is Illuccix, which we are one of the largest dispensers, distributors in the country, we now have as our largest customer, our Solaris MSO, so -- on the urology side. So we are now our own largest customer as it relates to those products, and those teams are working just fantastically together.

Yes. I wanted to ask on Solaris, so that's a good segue. So Solaris is now part of the Specialty Alliance and the acquisition, I guess we -- I guess, will lap, I guess, the second quarter of '27.

That's right.

How has that integration progressed relative to plan? How have all the entities across Specialty Alliance working together? And where are you seeing some of those first realized benefits from this? And then also, can you speak to the distribution opportunity for the Specialty Alliance GI portfolio with Solaris as well? Can you quantify that?

Yes. Let me just kind of start with the last point there. We rolled in the distribution for both GI and urology, so GI Alliance and Solaris in the second -- Q4, second calendar quarter of '26. So that's now in place, and we'll get that benefit through our -- up until the fourth quarter of fiscal '27 from a year-over-year perspective.

But to answer your first question, integration is going well. This is a strong organization in and of itself. So back to the people, the culture, the services that they use, even though it is urology versus GI, there's a lot of, not just back office, but a lot of physician-facing services, whether it's payer negotiation, payer -- physician recruitment, where a lot of those ancillary services, infusion, ASCs, all these types of opportunities. There's enough similarities there that we see that there's going to be opportunity to work together, not just within the Specialty Alliance MSO, but back to Cardinal Health to provide the expertise in other areas of the business, like nuclear, like our at-Home Solutions business, like just core distribution. They now have kind of the one-stop shop as it relates to any type of need that they may have, which is varied. I mean, these physicians are juggling a lot in their day-to-day, and we're well positioned to support them with all those needs that they have.

Okay. I want to talk a little bit about biosimilars. I guess our pharma team estimates about $175 billion in revenue that will go off patent by the end of the decade. Biosimilar is obviously a big part of what you do and some of the focus in terms of the profit contribution. But can you speak to where the greatest opportunity is from a biosimilar standpoint? How important are some of these biosimilar transitions as you think about the MSO business as well and the economics there? How do we think about some of the puts and takes?

And then, I guess, since we're on that topic, let's talk about generics, too. Like, in terms of just the generic opportunity, how do you see the cycle different? Obviously, it's very different from the last cycle, many years ago in terms of the last generic wave just with generic purchasing consortiums and otherwise, but you can talk about that.

A lot there. But there's a common theme to your question, though, I guess, at the same time as you step back and think about everything you just asked there, the reason why I suppose you asked the question that way is that you're talking about the innovation evolving to the loss of exclusivity, whether it's in biosimilars or generics. And that's kind of how we see it, too, where there's going to be some elements of variability. Some years are going to be stronger than others. Some products are going to have a greater impact than others. But this is not an environment where we see a singular product therapeutic area that's going to be outsized for our business and our business model. Whether it's generics or biosimilars, it's not a triple or a home run. It's a lot of singles and doubles that add up to a nice base of business.

So whether you're talking about our MSOs, our distribution, our Specialty business, our PD business, they're all areas that we see more -- certainly opportunity with this. This is why we love innovation. Even if we don't have as great of margins on day 1 with these -- some of these innovative products that go straight to brand. Longer term, we have opportunities for services. Shorter term, sometimes we have some opportunities for some of the services like our patient hub. But longer term, as they lose their exclusivity, these are almost always opportunities for us to then generate even higher margins and even higher profitability. And all the examples that you referenced, we see as being opportunities for our business.

LOE, overall, you mentioned the biosimilar piece, but also for generics, '26 and '27 are pretty constructive, pretty good years for LOE. '28, '29 will be a little bit better just by the nature of the cycle of the patents rolling off. So it will be for the next several years. And then, of course, you get after that and you start to get GLPs into some of the time horizons to think about. So as you look out for quite a long time, you see it being a pretty constructive environment, and it's why we have confidence in our long-term numbers. And we'll see if any of those themes and drivers can keep us to the upper end of that range.

But the exact timing of the rollout of these and how many manufacturers participate, how brand manufacturers react and how our customers and PBMs manage the process, these are all relevant factors, but we see more opportunity than not as it relates to both biosimilars and generics, and that environment continues to also remain quite constructive.

Okay. I want to shift to kind of policy IRA drug pricing dynamics. I guess you've indicated the ability to maintain economics, for instance, this year successfully with the price negotiations and IRA-driven changes. So I guess -- and that's kind of the nature of the fee-for-service model these days. But can you talk a little bit about how that evolves with potentially Part B drugs kind of rolling into that as well as your exposure from an MSO perspective?

Yes. So overall, we continue to be very confident in our business and our model as it relates to any and all of those regulatory changes. And not only do we have good contractual protection for this, I'll say it's equally as important, it just makes sense. The compensation we receive is a 1% margin business when pricing changes -- and by the way, we can't control pricing. So when something happens to the industry and happens to us, we are providing a service, and we expect to be compensated fairly for that. And that service does not change as pricing changes. And therefore, we fully expect and have seen very clear, consistent examples of our economics maintaining over that period of time. And there's nothing I see in '27 and beyond that indicates that it will be anything different.

You're right, the MSO piece has a potential variable to that. And there's a whole discussion around that's not the intent of the administration and everything that we're seeing is that they have sufficient off-ramps and opportunities to manage the community physician differently in this process, and we suspect that will likely be the case. But even if it's not, it's not a material impact to our organization because of the diverse revenue streams that our MSOs have. Because of the breadth beyond, yes, oncology, but also the urology and GI, especially urology and GI, which are the bigger pieces of our MSOs, our drug spend is only about 1/3 of the overall revenue. The other 2/3 being split between patient visits, office visits and the procedures.

So this diverse revenue stream gives us diverse margin within the practices and the MSO that mutes any type of impact if there were some impact to their economic model, which, again, we don't anticipate at this point. So it's something that we certainly analyze many different scenarios and variables. We feel very good about the setup. We, of course, advocate ultimately for the patients, the physicians to ensure that the administration hears this voice because it is the lowest cost form of care in the industry through these Specialty community physicians. And that's where patients want to receive their care, is closer to home with that physician and not necessarily in some place that's far away from home. So we think it makes sense as well and that the administration will support that, but we feel good about any and all alternatives that go around that.

And on 340B, you noted that, I guess, the more meaningful exposure would essentially be for some of your, I guess, hospital customers in terms of their ability to fund procedures and patient access rather than your own economics. I guess, can you describe a little bit your exposure to 340B and where kind of some of those changes in 340B kind of could create either volume dynamics that are a little bit different or different economics for you?

Yes. I think the important thing to think about with any type of product class, whether it's 340B, GLPs, generics, brand, Specialty, all these product classes -- because the question that you're asking here is about the health systems. And typically, with the health system, we have a wide array of products with them. And we can't necessarily control where they choose to prioritize their business, their model. And so we have a lot of utilization protection within those different contracts and agreements. So the mix of products are relevant, but we try not to guess so much with that. We try to have contracts in place that allow the customer to have flexibility. And if they choose to really have -- lean in on one part of the business or another, then we shouldn't be harmed by that type of activity.

There's always going to be normal volatility, and there's some timing between when those corridors hit, the utilization hits, and then you have to have those price adjustments. But overall, I think the original comment you're referencing is what we think is most impactful to the industry would be how does this flow down to those that dispense these products? And does that change the behavior? And is there some type of volume impact for those particular locations that then I think people typically find care somewhere, and it may shift from a health system to a pharmacy or something else at a higher cost.

We won't track that individual script. We'll just be present with all of our customers. And given our size and breadth in the industry, if we lose it on one spot, we typically pick it up another. Our health system market share is pretty consistent with our peers. And so we're not unusually large or small in this space. So as that volume moves somewhere else, then we're in pretty good shape to pick it up. So overall, this is one about just being present for our customers and make sure we're helping them manage through any of these scenarios. And it's just not something at this point, a lot to play out with 340B. So we don't know exactly where this is going, just highlighting that care finds a way of getting delivered at some point. And with IRA, with MFN, there's a lot of opportunities to make care more affordable as well.

And so the net-net of that, we think will continue to drive at least that 2% to 3% underlying volume growth for generics and double digits for Specialty. And that thesis remains intact, irrespective of what's happening with 340B or any other particular product class.

Okay. I'm going to do a couple of GMPD questions to make sure we leave enough time for Other, which I view is somewhat underappreciated. But GMPD. So your guidance assumes a modest tariff tailwind that will broadly offset, I guess, rising fuel and commodity costs. What sort of price realization is embedded in your expectations from a medical standpoint? And how does that flow through? And then also, if you could comment on just general underlying medical utilization trends, that would be great.

Yes. We're well into the tariff framework now where anything related to tariffs and pricing has largely been put into place. And so we took very limited types of increases. You may recall that we had a $450 million tariff impact last fiscal year, and we were able to mitigate 2/3 of that operationally through sourcing and other actions. So that remaining $150 million or so is what we effectively split with our customers, and then we refund -- will expect to refund that as we receive our tariff refunds ourselves. So a lot of activity there, but ultimately, a relatively small impact to our underlying business given the $450 million starting point. So that's an important position. But that half that we did price for that pricing remains in place, and that effectively covers the most of what would carry over into fiscal '27 as it relates to tariffs.

Now the part that we highlighted at our guidance for '27 is that, well, you got a lot going on here with the Iran conflict that is putting pressure on oil-based products, whether that's fuel or some of the commodities and raw materials that go into the products. And that is something that is still in the early innings of the underlying cost, and we don't even know exactly where it's going. At this point, we certainly know some of the input costs. But first and foremost, we're doing what we can to mitigate it so that customers won't have to deal with this. We have not put in any significant pricing at this point related to commodities. It's something we're going to watch very, very closely.

But the other key is that we have about a 6-month buffer because most of these products are -- have enough inventory that we don't have to react right away. We'll see what happens with the market, certainly, and we'll see about our ability to mitigate it. But that's a different question for a different day. Right now, we're operating with the mechanisms that were put in place earlier in this last year.

Okay. Okay. Great. So I want to switch gears to the Other segment, which never gets enough airtime. The -- it was significant profit growth in '26, I think, up 37%. You're targeting 15% to 18% AOI growth in '27. That includes about that 2% contribution from Strive, AdaptHealth Diabetes transactions. I guess what's driving then the underlying kind of growth that's now still well ahead of the long-term target of 10%?

Yes. We're really pleased with the performance of the business. Obviously, it came off of a really strong fiscal '26 as well. So it's another example of the continued momentum, not quite the same level from a core perspective, but above our 10% long-term guidance that we had originally put out there for those businesses. So whether it's nuclear with the Theranostics growth that continues to grow well above the underlying market or OptiFreight continuing their expansion, both on the medical side, but also now into new product categories like pharmacy. Those are nice additions as well. The more significant incremental growth has been and will continue to be with our at-Home business because of the M&A piece, as you highlighted.

Now the 2%, that's a part of that 15% to 18% growth, is driven by the Strive and the expected very small benefit for what we would expect at the tail end of '27 for the Diabetes segment of AdaptHealth. But there's also the carryover benefit of the synergies that we have with ADS. So we fully lapped ADS, but it's good volume that when we implemented that, and when we announced that transaction, we talked quite a bit about the synergies we expect that business to bring. So that gives us some additional opportunities in addition to a strong underlying core business there. But each 1 of the 3 operating segments within the Other reporting segment is well positioned to grow and is a component of that growth.

And how are you positioning the business? When I dig into at-Home Solutions, particularly on the Diabetes care segment with ADS and others, I guess, how do you manage the potential changes from a reimbursement environment standpoint, especially with competitive bidding potentially returning for CGMs and pumps? How do you navigate that end?

Yes. Well, first of all, let's step back and think about the administration's intent with competitive bidding. First and foremost, it's getting after fraud. We know there's a lot of fraud in that space. We know that we are operating at the highest level of compliance and regulatory attainment. And we feel really, really good about our leadership in that space, and the partners that we are aligning ourselves with through these acquisitions, we feel really good about how they have operated as well. So we are the leader in the CGM space, the diabetes space already. This will allow us to continue to build even greater capabilities for administration. These acquisitions not only diversify our products, but also our customers and our payer set. So competitive bidding is just for the government payer, and we have a much bigger business above and beyond that.

So our leadership becomes even more clear, our capabilities become even more clear, and we've become an even more obvious partner for the government through competitive bidding to be a part of the solution. We anticipate that with or without these transactions as a key leader in the space that we would be successful in the competitive bidding process, likely picking up share and likely having a lower margin for that share. But net-net, we feel really good about that trade-off. And you see very few people in this space willing to invest in it. It's a bit of a stalemate right now. I can tell you that when we looked at Strive and when we look -- Strive is urology, so it's not impacted at all by the competitive bidding.

But when we looked at Adapt's Diabetes business, there were a lot of choices with who to acquire in that space. We ran a process more than the sellers running a process because we wanted to make certain that we picked the right partner. And that absolutely is the Adapt Diabetes team. We feel really good about the fit with their product set and our capabilities. And we feel really good about the culture and the people that will be coming along with it as well. So some work to be done. We have a few years until whatever impacts will be -- will occur there. And along the way, we'll build up a bigger, better, stronger, more competitive, more efficient business that will allow us to migrate to whatever that outcome looks like.

Okay. And so as you think about the mix of your business longer term, is there anything else that you would reprioritize, deemphasize, lean into a little bit more from a capital deployment standpoint, any areas that you really want to build out more? We did see a competitor of yours buy a CRO asset, for instance, maybe that fits their oncology strategy. But how do you think about building out -- like what is the focus? Is it building out in Specialty? Is it building out in at-Home or OptiFreight or otherwise that across the Other segment and then the continued commitment to GMPD?

It's a fantastic question, especially as we're getting close to wrapping up here. And I think the key about strategy is it should not be done just annually. It shouldn't be -- it also shouldn't change every single year. It should be something that you're always evaluating, always thinking about, making changes when it makes sense to make changes usually because something else changes in the market, the environment, maybe your own operations. Our strategy has remained quite consistent ever since our last reprioritization a couple of years ago. And that remains now the same exact prioritization. And I cannot imagine this is going to change for the rest of even our careers, and David here is a lot younger than I am.

But Pharma and Specialty Solutions, it's by far the biggest, most impactful, important part of our business. It's where we prioritize organic and inorganic growth. Within that, we will continue to prioritize the core of the business. That strong foundation is incredibly important for all customers. You asked about CVS earlier, but for the big customers, especially, they want to see that we have a strong foundation, but also investing into areas like Specialty. We will continue to prioritize as the single greatest recipient of our investment outside of the core is going to be in the Specialty business. It's still the fastest-growing, highest-margin part of the industry. And the reason why they have those attributes is they're solving a lot of customer and patient problems. And so we don't see that innovation slowing down anytime soon. And so I anticipate Pharma with investments in Specialty to be our priority for a long, long time.

The more recent reprioritization that we had on bringing other growth businesses to their rightful place as a close second to Pharma was intentional. And that's when we embarked on an inorganic strategy as well. We saw that we had the foundation of each of those 3 businesses in a really great spot, OptiFreight, nuclear and at-Home. And we saw that in this incredibly fragmented part of the market with at-Home Solutions, the direct-to-patient business, no one doing it really, really well that this was a fantastic opportunity for us not just to grow and expand the business, but those capabilities of bringing those supplies, those products directly to customers' homes fits very well with the other capabilities and strengths that we have in the enterprise. And so that -- those businesses, especially with at-Home and that inorganic investment was a natural fit.

Now with our GMPD business, still an important priority for the company, but it's still in that turnaround mode. But we do see great growth opportunities, like our Cardinal Health brand volume, growing at least at the mid-single digits now for 6 consecutive quarters, highlights that this can be a very good growthy type of business for especially those higher-margin Cardinal-branded products that is a nice addition to our business as well, but not at the same level of priorities as the other 2. And of course, those other 2 are the ones that are getting the M&A dollars, and that will continue to be that priority.

Okay. Great. Thank you so much for your time. I really appreciate it. Thank you.

Thank you

Okay. Thanks, everyone, for joining us today. Really pleased to have Cardinal Health here to join us. Cardinal Health, as you know, is a drug distributor, a provider of pharma-focused services and then operates some other interesting businesses outside of the pharma domain as well. With us from the company, CFO, Aaron Alt. Thanks for joining us; and David Frost, from Investor Relations. I believe David wants to read a prepared statement, and then we can go right into the discussion from there.

Perfect. Yes. Thanks for hosting us, Steve. It's great to be here. And as you mentioned before we begin, a little housekeeping. We will be making forward-looking statements today, which are 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.

If I could give a couple of introductory remarks. So good morning, I see many familiar faces in the room. Good to see you all again. I'm looking forward to the cross-examination that will ensue over the course of the rest of today, knowing this crowd. I smiled as Steve was talking about our business because no doubt you've heard Jason Hollar and I now describing our business a little bit differently, which is we view our -- the portfolio we have and we're evolving to as being the beginning, the middle and the end of the health care ecosystem and we believe that we have an increasingly important and relevant role to play across the full spectrum of American health care.

Now those of you that are paying attention to our business and our story know that we just delivered Q4 results, which were very strong, right? And they ended -- they capped a year for fiscal '26 for us, which was also very strong, driven by a couple of key parts of our business, certainly, the specialty business, which grew at double digits. We surpassed $50 billion in the year in specialty. That's a key sign of progress against our strategy. Our generics business was quite strong as well. But really, what we saw was strong demand across our entire portfolio in Q4 and indeed over the course of the year. Indeed, we saw outsized demand in the first half of last year as well. And so I want to be reflective of the fact that we have just released excellent results capping our fiscal '26.

We also issued guidance for fiscal '27, which is above our long-range guide from an EPS perspective. If you think back to our Investor Day, our Investor Day EPS, adjusted EPS guide, I guess we call it non-GAAP here is 12% to 14% growth, and we guided fiscal '27 at 13% to 15% growth, driven by a couple of assumptions I'm sure we'll talk about, so I won't drain them now. But just to call out the fact that we are expecting a very positive year in fiscal year '27. That's partly because we're executing on the strategy we laid out. First Investor Day 3 or 4 years ago, most recent Investor Day, the strategy hasn't really evolved. We're doing what we said we would do, executing against it and reporting back, strong operational momentum. Service levels are at their highest levels ever across our businesses.

We're executing against the integration on the MSOs that we've acquired over time as well. And we're investing against the growth businesses, which I hope we get a chance to talk about, particularly around the at-Home business, where we recently announced a couple of acquisitions. And so we're integrating those now as well. Coming back to really where I started, which is the beginning, middle and the end, and our business has proven to be incredibly resilient, notwithstanding economic factors, notwithstanding the regulatory change, notwithstanding uncertainty, we are able to leverage our full portfolio, and that's part of why we believe so strongly in the future for Cardinal Health. Over to you.

So did you like the description? Or should I change that for next year?

Well, I now call it the beginning in the middle of the end of that, but the 10-K has to govern there, I suppose.

Okay. Fair enough. All right. So maybe to start and expand a little bit on the point you made about Q4. When we look at the Pharma and Specialty Solutions segment, your segment profit growth there, obviously closed the year quite strong, at least on an underlying organic basis, it seems like to us, it's potentially a bit over double the normalized LRP for the business. Can you expand a little bit on the key drivers of the outperformance and maybe how you think about the components that potentially have the most potential to kind of recur and may become part of the business over the next couple of quarters still, maybe things that could have less opportunity for recurrence.

Sure, happy to. For us, the pharma business had a very successful year because we saw that strong demand in specialty, which is a higher growth part of the business, higher margin part of the business for us. We also saw strong demand, good volumes in the generics part of our portfolio. And when those 2 things are doing well, we are going to have a good month, a good quarter within the pharma business.

But we also saw strong demand across all the other parts of the pharmaceutical portfolio as well, the core distribution, the consumer health parts of the business, specialty pharmacy, those were all humming during the quarter, and so we were delighted with that. We also got -- are starting to see the benefit of the acquisitions we've done. Now we have talked about the fact that we've onboarded the distribution across the MSOs. That is certainly helpful to the cause. We've been adding capabilities as well that are on a higher margin rate. And so the pieces of the strategy coming together have been what's really supported the profit delivery in Q4 and indeed for all of fiscal year '26.

Now the guide for fiscal '27, you also asked about, and the good news is the strategy isn't changing. And indeed, the trends that we believe will drive to the good news, consistent with our guide for fiscal '27 are also tied into those same things, right? We are guiding strong but not outsized demand. You heard me say earlier that the first half of fiscal '26, we saw increased demand. That's not in our guide. We're assuming that the secular trends will continue. Prescription strength will continue, and we'll see strong demand across the portfolio.

Whereas we are assuming excellent growth within the specialty portfolio as we talked about. Generics will continue to have the benefit that we saw in '26, right, the generic benefit, LOE, et cetera, '26 and '27 were both good. It really gets to be good in '28 and '29. We can talk more about that down the road, if you like. But we continue to see that as a positive factor, led just by operational execution and the momentum that we've built in the business.

Yes. That's a good place to take it next. Obviously, you provided guidance for Pharma and Specialty Solutions and helped us to break out the M&A components. We can kind of see the underlying there. And the underlying organic growth is at the high end of the LRP. And you're also noting at the same time that you're not assuming that, that necessarily requires any kind of above-average utilization environment, which I think is a reasonably prudent assumption. So as we do think about what allows you to be at the high end of the range without making that type of assumption, you may expand on that point a little bit more.

Well, we call the high end of the range for the first quarter in pharma, and that's driven in no small part by the fact that we will lap our Solaris acquisition in Q2. And so we want to be reflective of the relative timing of that. But also, we did guide 2% to 3% profit growth from acquisitions over the year, which is down from fiscal year '26 because we don't guide M&A that we have not already announced or completed in that way. And so we are not assuming in our guidance that we are doing significant M&A in the year. You're all aware from the excellent cash flow we had in fiscal year '26 and indeed the strong cash balances that we had at the end of fiscal '26 that we are blessed with financial flexibility such that we could do M&A on the right terms at the right price over the year if we found the right strategic asset. Otherwise, we will roll that cash back through our disciplined capital allocation framework and also be looking at additional return of capital to shareholders.

Got it. And then across really both your business and your competitors' businesses, there's a big focus at the moment on the timing of kind of large customer renewals. Obviously, that's a normal part of your business. You have business renewing all the time. I guess how should we think about the dynamics around kind of large customer renewals is different from maybe more ordinary course of business? And what's a realistic window for when the investment community might start to kind of learn more about how all this is trending?

Sure. I'm going to start with a general observation, which is we discuss, negotiate, collaborate with our suppliers and our customers every day, right? And contract negotiations are not a one and done. They're not a just in this 1-week period during the year. We have a constant rolling cycle of negotiations with both the suppliers and the customers as we seek to ensure that we're creating value across the full ecosystem. And so whether we're talking about the IRA, which wasn't your question, but I'm sure we'll come to it, or we're talking about large customer renewals.

What I want you to walk away with is the understanding that we're on it, right? We believe we have a strong relationship with our customers. We are always focused on how can we do more for them from a service level perspective, how can we drive our own revenue and profitability by virtue of having a value creating, not just a transactional relationship with our customers and suppliers. And I would point out that during our fourth quarter, we did announce that we did renew the Kroger contract, which is our second largest customer within the pharma business, and we renewed the largest customer within our GMPD business. So there are a couple of data points that, to my point, indeed, we're on it and working on it.

Now with respect to other customer renewals that are out there, I imagine you're probably asking me about CVS. And so I can only tell you this, which is we believe we have a strong relationship with CVS. We work with them every day to how can we better support them over the course of their -- the variety of their businesses. And they will ultimately decide when they renew their contracts. But we feel good about our relationship with them and indeed with our other large customers as well.

Okay. Fantastic. Thanks for that. Then you mentioned the generics business has been like a quite strong contributor to results. I guess how should we think about market dynamics in Red Oak and what you're expecting over the balance of your current fiscal year. And then as we start to think about some of the upcoming small molecule LOE kind of pipeline, like how is the company thinking about the cadence of opportunities in that business?

We view Red Oak as a competitive strength. Many of you have heard me talk about the fact that the dual mission of access and affordability is demonstrated by Red Oak to us every day. It's our joint venture with CVS that goes through calendar '29. So we got a couple more years on that as well. And we believe it's been a real benefit, not just to CVS and to Cardinal, but indeed to ultimately the provider and the patient as well because we are the largest purchaser. We lean in differently. We're willing to provide long-term commitments leading to that better access, better cost. And what that means is that when other people are short, they come to us, which is also a business opportunity for Cardinal and the Red Oak team as well.

'26 was a positive year from a generics. While we had consistent market dynamics, which means that we're able to manage to the average margin per unit. That's how we manage the business. We saw strong volumes. And so that contributed to our profitability in a very positive way. And we are anticipating that unit growth within -- or the utilization within generics will be a touch above our long-term guide from a generic unit perspective in fiscal '27 as well. I commented on that in our earnings call.

Where the real interesting thing happens, though, is in fiscal '28 and fiscal '29 because we see a surge of LOE opportunity coming. And so while '26 and '27 will be roughly equivalent positive versus prior years, '28 and '29 is where we will see some real benefit.

Got it. Well, maybe that's the right question to ask now is just when you think about some of these longer-dated biosimilar opportunities, I think you're alluding more to Part B than Part D, but correct me if that's not the right way to be framing it. I guess just how are you thinking about the ways that this potentially could impact the business, both maybe more of the what I describe, I guess, more of the core distribution business, how it could impact MSOs? And I guess how do you think about the interaction of like IRA on some of these opportunities and whether there's a potential chance that, that could dampen it or maybe enhance it in certain cases?

Yes. I mean, look, overall, biosimilars, we view as being a very early innings story for us. And David, why don't you take this one?

Yes. I think we've been relatively consistent with our communication on biosimilars. I think it's a profit opportunity for us. It's not one that has risen to the same level as some of our other profit drivers, which is why you probably don't hear us talk about it as frequently. But the performance would be a part of our total specialty performance, which Aaron just commented, FY '26 grew 25%, surpassed $50 billion for the first time.

So a nice tailwind for the business overall. We view that as relatively early in its maturation. So I think it can continue to evolve, but it's a rising tide. So it has potential benefit for patients as well as our model and the ecosystem. As it relates to IRA, which you brought up and the Part B side of the house, I think still a little bit ways out before that will actually go live. So we'll need to see how it plays. But fundamentally, I think we believe that we're aligned with the administration's intent, increase access, increase affordability.

And we don't believe that their intention is to impact community practitioners. The outcomes that occur at that site of care as well as the cost overall leads to a viable interest in maintaining its viability. So I think overall, we expect that to be something that is top of mind as we continue, and we'll have to see how that plays out. And then I think the third part of your question was our MSOs.

Yes. How do you think about the MSO potential impact financially?

Yes, yes. So I would highlight maybe just a couple of things. So the specialties that we have focused on within MSOs, notably within the specialty alliance, gastroenterology, urology, those MSOs have a more diversified revenue profile. So the drug spend component is a little bit smaller, roughly 1/3 in comparison to something like oncology, which might be closer to 80%, 90%. .

So the overall exposure there, especially when you're looking at IRA's translation to that becomes a percent of a percent and isn't as material. But that said, we still are aligned to the overall intent that I was speaking to before. So I think the biosimilar piece is an opportunity for the MSO space. I think the IRA exposure is something that we're closely monitoring, but believe that the overall expectation is that we're aligned with the administration's goals.

Okay. Fantastic. And then as we think about another facet of the IRA, I mean, obviously, the company is pretty clear that 2026 cohort of IRA price negotiations were something that you were able to deal with as you recontracted with manufacturers and made clear the value provided is not changing as a result of these changes. I guess as we think about the future cohorts here of IRA, and I'm assuming these discussions are well underway for 2027 at this point, is there any reason to think that any of these discussions could ultimately result in a different outcome or equal level of confidence on 2027 at this point?

We are expressing the same level of confidence on the impact for January '27 as we did for January '26. And you're right, those conversations aren't yet to come. Many of them are already underway as manufacturers make choices and we talk about the knock-on consequences of if they're going to adjust their WAC, what does that mean for our overall contract because we will be compensated for the services we're providing, right? And we have a decades-long history of -- along with others in our industry of proving that those conversations can be productive to ensure that we are not negatively impacted by a manufacturer's decision to reduce the WAC price.

Okay. And then to come to the MSO business, I mean we touched on this a little bit. Obviously, you have a bit of a different MSO strategy than perhaps some of your peers more focused on therapeutic areas that have kind of overall less drug spend running through the practice. I guess as you think about strategically why these are the right fit for Cardinal, I guess, like how is that tracking relative to the initial business cases that you've built out and just generally like success attracting providers into these platforms and growing the business?

Yes. The MSOs are the downstream part of our specialty business. As you think about specialty as a whole, which is growing double digit at a higher margin rate for us, it's important that we be exposed upstream, also continue to grow our share within the specialty distribution core of who Cardinal has been historically and then downstream with the MSOs and the provider network as well, along with data, RWE, the other elements that go around it. That's a frothy ecosystem for Cardinal to operate in given the scale, the financial backing, the technology that we bring to that, both organically and through the acquisitions we've done.

We are not quite to lapping the Solaris deal, which is our last large MSO acquisition that happens in November, I believe. We're a little bit over a year now within GIA, a little bit over a year within UA as well. And so we're heads down doing the integration across the businesses as well, thinking through how do we further advance our autoimmune strategy within MSOs and specialty more broadly as well. And so feeling good about where we're going and the potential that those businesses bring to the portfolio as we carry forward.

Naturally, all of the dynamics we've already been talking about far as drug spend and pricing and doctors and the ecosystem and recruiting, to your point, those are all things that we're very focused on in building the plans going forward. But we continue to have the conviction that the MSOs by specialty area that we can help create a lot of value for the ecosystem and for the doctors by bringing our scale, by bringing the efficiencies, by bringing all those pieces together, but heads down focused forward.

Great. I guess when you think about growing provider count in those businesses, I guess, can you speak at a high level to maybe what your expectations are for what growth in provider count looks like over the next couple of years? And then as we think about the composition of that growth, how much of that do you think comes kind of organically given that it's a very attractive platform to physicians versus what might require more of like a capital component to it?

Yes. I don't think we've guided the MSOs by provider. Obviously, we want to increase the number of providers over time, tactically and strategically, both by therapy area. We're very focused on gastroenterology and urology within the Specialty Alliance and then in oncology, both MedOnc and RadOnc within the Navista network as well. And so we don't view it as an either/or in that part of why we liked the assets we acquired was the capabilities they had to go into the marketplace and recruiting, right?

There is a shortage of doctors more broadly across the American health care system. And when you operate at scale, when you have the resources that we help to bring, we believe that we can facilitate TSA and Navista actually adding organically to the doctor count in the right areas with the right specialties to be able to do that. And then M&A will continue to be a tool that we will deploy in the right way, either to add density within market to bring in new therapy areas, right, or to drive the geographic expansion to the point of my very point of scale, we can really drive some value creation in doing that.

And so we are partnered with the leadership teams of those businesses to talk about what are those right acquisitions. I think we said we've done 4 more tuck-ins in the fourth quarter in the Specialty Alliance as well. And while we don't guide M&A, as I called out earlier, we will certainly enable the tuck-in acquisitions that help to drive that density or geographic growth.

Okay. Perfect. And then maybe now pivot to some of the other parts of the portfolio. Just maybe help us understand GMPD, obviously, there's a lot of moving parts at a macro level and I guess, regulatory or legal level that have kind of impacted that business over the past couple of years. As you think about the guidance that you laid out for fiscal 2027, I guess what are the key assumptions? I guess, what are you assuming with regards to Cardinal brand growth on both, I guess, the volume and the pricing side? And how much of the profitability improvement that you're going to drive to comes from the remaining GMPD improvement items that are still annualizing or kind of in front of you prospectively?

The GMPD business is a complex business with a very simple strategy, which is do what we do better than we've done it over time, drive better customer support, drive better penetration of the Cardinal Health brand and the contracts we have, achieve the new contracts we believe we can win and really grow that Cardinal Health brand presence. And so we're expecting to grow Cardinal Health brand a touch above market utilization rates. That's a positive progress for us as well, while at the same time, continue to execute on the cost optimization and simplification elements that we've been pursuing relentlessly for the last couple of years with some success, right?

At the same time, of course, we have to manage tariffs, the ever-changing tariff environment. You all will have noticed that we did call out that we were booking the return of IEEPA tariff in our fourth quarter. There are different tariffs still impacting the business. At the same time that we have commodity costs that will vary over the course of the year based on how long the conflict of Iran continues as well. And so we're managing all of that. Our guide was up, I think, about 50, which is what we had said from a long-term perspective, we aspire to do every year. And so the actual profit guide is $220 million to $240 million for the year, but we're just head down and focused on getting it done.

Okay. Great. And then maybe to pivot into the other business portfolio, maybe starting, I guess, with nuclear and Theranostics. It's been a very positive contributor to growth as you've expanded your pet and Theranostics presence. I guess what are the key drivers of this growth going forward? I guess where are we in terms of innings maybe on the opportunity set there? And also from what I understand, this is a pretty big fixed cost business. I guess how do we think about kind of incremental margins and maybe opportunities to get leverage over some of the infrastructure you need in that business?

We're excited about the nuclear business. David, why don't you take this one?

Yes. And I was just going to comment, GMPD is $200 million to $220 million on the forward guide. And from a Theranostics perspective, we're very excited with the nuclear business. Nuclear overall has been living up to the moniker of its categorization as a growth operating unit within the broader enterprise. And it has the low energy component of the business, which is spec, and there's a strong foundation and national leadership position has been performing well.

But the Theranostics and PET component of this portfolio that I just mentioned is what has been driving a lot of the growth and what we're even more excited about. I think in FY '25 at Investor Day, we laid out that, that portion of the portfolio represented roughly half the total revenue, and we expect it to get to 2/3 by FY '28. To achieve that goal, it needs to grow at roughly a 20% CAGR. In FY '26, we saw Theranostics grow close to 30%, so a clip ahead of those expectations.

As you think about the forward-looking opportunities, the pipeline remains robust. So we have more than 70 products in the pipeline in terms of either manufacturing or commercial development in partnership with our biopharma partners. And to achieve those rates and those outcomes that I'm speaking to, only a handful of the products need to hit, and they need to be singles and doubles, not home runs. So we remain bullish on that opportunity and see great things for nuclear.

Okay. And then I guess, just anything on the financial profile of the business and just how to think about it as it as it grows, like are there big fixed costs that you think you can start to get more leverage on.

Yes. We've continued to make the right investments to expand, especially within the PET manufacturing capabilities or some of the Theranostics molecules that require specific manufacturing sites and locations. So yes, we're preparing to scale, making the right investments, but the business is growing rapidly. So we'll continue to adapt to that. .

Okay. Great. And then if we move to the at-Home business, you've benefited a lot from the integration of ADS and now you're doing the acquisition of Diabetes Health from Adapt. Help us with the strategic fit here, particularly now that maybe more so on the Adapt business because we've heard from you more on ADS and maybe the synergies that you're driving and potential for further room in organic growth in this business?

Sure. First of all, we love diabetes from a therapy area that we can serve. We are equally excited about urology, ostomy, nutrition delivery. Those are the focus areas for our at-home business. And the ADSG acquisition is a great second step for us. And I say that because the first step for us was actually realigning the at-home business, where we changed the geographic location of our distribution nodes to ensure that we could get to the patients faster. We built new distribution nodes that are highly automated and highly efficient to bring our cost down.

And now what we've been doing, and this is part of why ADSG was so helpful is we've been adding scale, right? What we are moving through our buildings is not wheelchairs and crutches and big bulky items. We are moving items that are relatively compact, relatively efficient to store to keep the cube space is efficient and to move them through our network with our best-in-class rates. And as we've been doing the deals, we've actually now been adding scale on top of that. And the ADSG acquisition, for instance, I think it was -- the revenue increase was over 30%, but it used 2% of our cube space, right?

And that gives you a sense of how we were able to really push through the synergies of that deal, and we're very happy with how that acquisition has gone. Layering on top of that, of course, we announced the acquisition of Strive, which is a smaller competitor, but in urology to really add scale within the urology part of our at-home business. Don't lose sight of the fact that we are strong in urology and other parts of our portfolio as well that is equally intentional as to why we invested in the urology part of the portfolio here. And then the diabetes part of the Adapt business. And while Strive has closed, the Adapt asset has not yet closed. That's somewhere after the turn of the year. And -- but the same thing will be true, which is we're bringing both new capabilities, some new talent and scale within the categories that we are very focused upon.

Okay. Great. And then I guess a couple on the regulatory front with the at-home business. I guess it seems like maybe near-term potential benefit if CMS covers type 2 non-insulin using diabetes. So any early thoughts on how that may or may not impact the business? And I guess, secondarily, to the extent that we see Medicare competitive bidding for CGM and insulin pumps, I think that's more of a 2028 item. I guess how do you think about managing the impact of that and what it could be on the business?

Well, we view it as opportunity, right, whether it is patient self-paying or access, the increasing access to coverage for the items that we're selling, we're all in favor of that access. It supports our business. And if you go back to what I was saying earlier, as the administration is changing coverage with CMS, as the administration is changing regulation around the space to combat waste, fraud, abuse. At the same time, they're trying to drive that access, right, who would be their best partner other than the large corporate that has a robust compliance program that operates at scale that can bring costs down. So we think we are well situated to be a very productive force in the industry, both competitively, but then also as the competitive bidding and the other regulations change around us.

Okay. And then just to touch on OptiFreight to kind of round out the other discussion. You've been expanding into outbound shipping and also expanding into the non-acute space. It seems like those are higher growth than the traditional inbound shipping. I guess, overall, how's the OptiFreight strategy playing out? And how are you thinking about growth there in the balance of this year?

I think I've called OptiFreight the little engine that keeps on giving during our earnings calls. And so we're excited about what that team is doing. They -- it's a different business model for us. We continue to invest in both the technology that underlies the business as well as the user experience in the acute environment. And so we have high hopes for OptiFreight to be a very positive contributor to our other growth businesses.

And then as we think about -- one of the things that's, I think, been a really important part of the financial story for the past couple of years has really been cost discipline across the company. I guess as you think about what the key drivers have been and kind of the future opportunity set on costs, like I guess, how is the company looking at opportunities to get more efficient? And then kind of dovetails a little bit with this, how are you using like AI to both make the business run better from a growth perspective and also a cost perspective moving forward?

Yes. Let me start with cost and then move to AI. Look, we run -- in aggregate, we run a 1% margin business. And you're not going to be successful running a 1% margin business if you aren't relentlessly focused on how do you simplify your business and how do you bring your cost down while driving performance. You can't sacrifice performance. So that has a different effect. And so we are very focused. GMPD has proven it can be done.

Similarly, the pharma team, notwithstanding the investments we've made there and the success they've had, they've also had a rigorous program of constantly assessing how do we operate and where can we bring those costs down, and that is operating both at the segment level, the 5 business level, but also within the enterprise whole. Jason Hollar, our CEO, is very focused on what our cost profile may be.

Now AI can be an enabler of cost. But frankly, it's also an enabler of us making faster, better decisions across the portfolio as well, leveraging the data that we have. And so whether it's AI initiatives within the MSOs to better diagnose to drive productivity with the doctors or AI within how we run our supply chain to optimize our -- how we think about our inventory purchasing or AI within our Investor Relations functions. And I'm actually AI. The -- sorry, a little bit of joke there. No one laughed. But the point is, is that we are deploying AI across the portfolio, but carefully, right? We are a large complex business, and we haven't rolled it out across the enterprise yet. That is certainly opportunity, but we do have a lot underway.

And then maybe to comment on capital deployment has been a really important part of the strategy, especially given the really strong cash flow the company generates. As we think about your key capital deployment priorities over the next couple of years, I guess, what would you kind of stake those out as? And to the extent there's a contrast to draw at all with the capital deployment profile of the company over the past, call it, 3 to 5 years, what would those key distinction points be?

Yes. Well, the first thing I can tell you before we even get to capital deployment is we have a relentless focus on continuing to increase the amount of cash that we're generating, right? And we've seen good success in the last several years on that. Last year, in particular, with the $5 billion we reported or so at the end of the year. Our strategy hasn't changed as far as what we're going to do with it and that we are first going to invest in the business.

We committed or we guided that we're going to invest $700 million or so in fiscal year '27. That's more than this past year, which is more than the year before that, which is more than the year before that. You sense the trend of we're investing for the future profit potential in the business while at the same time growing the profit, right? And that -- we're trying to create that virtuous cycle of we're investing now for the future profit 3, 7, 9, 12 quarters out so that we always have good opportunities there.

After that, we're going to protect our balance sheet. But as we talked about in Q4, we're at or within our targeted leverage range. And so there are not actions we need to take to bring ourselves back into compliance there. And then it's a mix of return of capital to shareholders. We are a dividend aristocrat, and we committed to return -- to buy back at least $1 billion of shares in fiscal year '27. That's up from our commitments the last couple of years. And I think you've seen us do that as cash has been available. If we have not had other uses, we've increased the amount that we've been buying back while also looking at M&A, right? And we're going to be smart about M&A. We're going to be smart mark about -- if we don't have M&A, how much cash do we need to run the business. Otherwise, we will look at incremental return of capital to shareholders.

Great. And in terms of being smart about M&A, I mean, obviously, you've done MSOs, you've done assets for the other business, particularly at-home. I guess how do you think holistically about what the opportunity is on the M&A side? And again, like what that might be similar to or different than it's been in the recent past?

Yes. I think it's unlikely you'll see us add a fourth leg to the stool, so to speak. We have been successful in sticking to our strategy and adding capabilities and adding things have connective tissue to the rest of our portfolio. And so as you think about where we might play, certainly within the biopharma services part of the portfolio, which is a key part of our specialty portfolio. We may do some M&A, as I call that tuck-ins around the MSO part of our portfolio. Certainly, we've done some M&A in the other parts of our business. They have access to our balance sheet. That's part of why they have been growing as fast as they have been as well. But we're going to be very -- we're going to be consistent with our strategy is what I would say.

Okay. Fantastic. I think that's all the time we have time for. Thanks so much.

Hello, everyone. Thank you for joining us, and welcome to Cardinal Health, Inc. Fourth Quarter Fiscal Year 2026 Earnings Release. [Operator Instructions] I will now hand the conference over to David Frost, Vice President of Investor Relations. Please go ahead.

Good morning. Welcome to Cardinal Health's Fourth Quarter Fiscal 2026 Earnings Conference Call, and thank you for joining us. With me today are Cardinal Health's CEO, Jason Hollar; and our CFO, Aaron Alt. You can find this morning's earnings press release and investor presentation on the Investor Relations section of our website at ir.cardinalhealth.com.

Since we will be making forward-looking statements today, let me remind you that the matters addressed in these statements are subject to risks and uncertainties that could cause our actual results to differ materially from those projected or implied. Please refer to our SEC filings and the forward-looking statement slide at the beginning of our presentation for a description of these risks and uncertainties.

Please note that during our discussion today, the comments will be on a non-GAAP basis, unless specifically called out as GAAP. GAAP to non-GAAP reconciliations for all relevant periods can be found in the supporting schedules attached to our press release.

For the Q&A portion of today's call, we kindly ask that you limit questions to one per participant so that we can try and give everyone an opportunity. With that, I will now turn the call over to Jason.

Good morning, and thank you for joining us. We delivered a strong fourth quarter, concluding a fiscal '26 defined by consistent execution and broad-based performance across the enterprise. Our strategy remains clear and our relentless focus on execution is producing sustained operational momentum, positioning us for further value creation in fiscal '27 and beyond.

Performance this quarter was once again led by Pharmaceutical and Specialty Solutions, where a resilient demand environment and continued strength across our specialty business, both upstream and downstream, drove strong results and extended the momentum we have built throughout fiscal '26. The Global Medical Products and Distribution segment demonstrated continued progress against our improvement plan initiatives, and we benefited from a nonrecurring tailwind in the quarter. In Cardinal Health brand, we again saw above-market growth when normalizing for the impact of the tariff refund.

We are pleased with the performance of our other growth businesses, who again collectively delivered double-digit profit growth this quarter. This performance highlights the value of these specialized assets and their meaningful impact on enterprise results. We continue to experience a favorable demand environment and supportive secular health care trends across these businesses. Coupled with our strategic long-term investments, we see significant opportunities ahead.

We entered fiscal '27 with momentum and a solid foundation for growth. Backed by the strength of our diversified portfolio, the resilience of our business model and the dedication of our team, we are well positioned to continue delivering long-term value for our shareholders, customers and the patients that they serve.

I'll now turn the call over to Aaron to detail our financial results.

Thank you, Jason, and good morning. Strong demand, strong execution, strong profit, strong adjusted free cash flow, strong liquidity, targeted and increased investments in the business, incremental return of capital to shareholders. We did what we said we would do, and as a result, delivered a successful financial fourth quarter to close out a successful fiscal '26, even before including the positive impact of the anticipated tariff recovery. The anchor to the story for both the quarter and the fiscal year was broad-based and strong volume demand across the enterprise.

At the enterprise level, we grew operating earnings 30% in the quarter and 30% on the year. We grew EPS by 40% in the quarter and 37% on the year. In addition to the outstanding P&L performance, the company generated $5 billion in adjusted free cash flow for the year. We accomplished all of this while providing service levels at or near record levels to our customers, navigating regulatory changes and navigating an evolving macroeconomic landscape. This success demonstrates the resiliency of our business model and our focus on execution.

Let's look at our fourth quarter consolidated financial performance. Total company revenue for the quarter was $63.7 billion, an increase of 6%, driven by strong demand in our Pharmaceutical and Specialty Solutions segment with contributions from our 3 growth businesses that make up other. Gross profit for the quarter grew 16% to $2.6 billion, driven by broad-based contributions from all 5 of our operating segments. Gross profit growth outpaced consolidated SG&A, which grew 9.5% for the quarter. While remaining disciplined on cost, we continue to make potential investments in automation, technology and capability to drive long-term value. The inclusion of our acquisitions also contributed to year-over-year SG&A growth. Overall, our efforts resulted in enterprise operating income of $935 million, up 30% versus last year.

I will address segment drivers when I discuss segment performance. But upfront, I do want to call out in the quarter, we recorded a onetime $100 million net operating earnings benefit from IEEPA tariff refunds in our GMPD segment. This reflects increased clarity and confidence in receiving approximately $200 million in IEEPA tariff refunds, offset primarily by payables to customers for the increased prices they paid related to the IEEPA tariffs. We view the refund as nonrecurring and would note, on an ongoing basis, we continue to incur costs from the tariffs that replaced IEEPA.

Below the line, interest and other expense was $53 million. The year-over-year increase was primarily driven by the impact of acquisition-related financing. We achieved a full year tax rate of 19% based on a fourth quarter rate of 22.5%. These operational and financial metrics culminated in fourth quarter diluted earnings per share of $2.91, a 40% increase over prior year, $0.31 of the EPS is due to recording the IEEPA tariff refund or approximately 15 percentage points of the total 40 percentage point growth.

Now I'll turn to cash, our capital allocation and strategic updates for fiscal '26. As I referenced, we generated $5 billion of adjusted free cash flow and ended the year with $4.9 billion of cash on hand. We did so while also maintaining our disciplined capital allocation framework to drive shareholder value. We continue to invest significant capital back into the business to enable profitable growth, deploying $264 million in CapEx in the fourth quarter and $649 million in CapEx for the year. These investments include automation, supply chain technology, customer solutions and platform capabilities to enable future earnings growth. We did not need to repay indebtedness as we are already within our targeted leverage ratio.

We did not fund a meaningful M&A in the quarter, but we did complete an incremental $350 million share repurchase program, which, when added to prior quarters, repurchase efforts totaled $1.35 billion of share repurchase during the year at an average price of $187 per share. For the full year, we repurchased $600 million more than our previous baseline commitment.

With respect to liquidity, we are today confirming a new $4 billion revolver program, replacing 3 historic facilities. While we have a strong cash position, the updated facility provides us with strong liquidity on a simplified and more efficient basis than prior programs, which have been sunset.

I will now transition to our segment level results, beginning with Pharma. Fourth quarter revenue for the segment grew 6% to $58.8 billion. We observed robust brand sales originating from our existing customer base and recognized roughly offsetting tailwinds from GLP-1 growth and headwinds from IRA WAC changes, each worth approximately 500 basis points. We also saw the profit positive impact of brand to generic conversion in our revenue results.

Pharma segment profit was $645 million, growing 21%, driven by growth in our brand and specialty portfolios. We also saw positive performance across our generics program, observing continued strong demand aided by brand to generic conversions and consistent market dynamics. The core distribution business remains highly durable, and we have continued to demonstrate our ability to be compensated for value we provide during times of regulatory change.

In our GMPD segment, fourth quarter revenue was $3.1 billion. This represented a 2% decline and is impacted by the revenue reduction from expected payables to customers associated with our anticipated tariff refund and lower distribution volumes. This was partially offset by growth in Cardinal Health brand, which on a reported basis declined 2% in the United States. Excluding this tariff impact, we saw the sixth consecutive quarter of at least mid-single-digit Cardinal Health brand growth in the U.S.

Fourth quarter GMPD segment profit increased $80 million in comparison to the prior year, growing to $150 million. GMPD segment profit was $50 million, normalized for the $100 million impact of the IEEPA tariff refund within the GMPD segment. While this industry and our business remain a work in progress, the significant increase in profitability reflects solid underlying operational performance and the impact of recording the onetime net IEEPA tariff refund benefit. The team remains focused on executing our improvement plan, driving cost efficiencies and managing supply chain resilience to serve our customers effectively. The multiyear progress and earnings expansion this plan has driven has created significant value for our shareholders, and we remain committed to prioritizing value creation.

Next, our other growth businesses also had a successful quarter. This group delivered $1.7 billion in revenue or 7% growth and $183 million in segment profit for a 14% growth. While we experienced good demand in the at-Home Solutions business, we lapped the ADS acquisition in the quarter, while at the same time purposely curating our customer base and category management opportunities through the ROI lens. We also continued our investments in infrastructure and technology to achieve increased economies of scale. The integration of Advanced Diabetes Supply is progressing well and is ahead of schedule on the integration synergies.

Nuclear and Precision Health Solutions continues to execute consistent with its strong position in radiopharmaceutical manufacturing and distribution, and will continue to benefit from the rapid expansion of Theranostics. This business posted another quarter of impressive revenue growth as we scale our manufacturing and pharmacy network.

Finally, within OptiFreight Logistics, customers increasingly appreciate the strong economic value provided by our broad assortment of logistics solutions. The fundamental performance of these 3 distinct businesses continues to validate our decision to prioritize their investment profiles.

Turning briefly to full year commentary for fiscal year 2026. The enterprise delivered remarkable financial results. We generated double-digit profit growth across all 5 of our operating segments even when adjusting out the positive impact of IEEPA tariffs refunds in GMPD. For the full year, enterprise revenue grew 14% to $254 billion driven by branded specialty sales. Full year gross margin grew 20% to $9.8 billion and benefited directly from our segment performance and accretive acquisitions. SG&A grew more modestly, and we generated total operating earnings of $3.6 billion or growth of 30%.

With our fiscal '26 foundation established, let's look forward and discuss our guidance. First, from a baseline perspective, for ease of comparability between fiscal '26 and our guidance for future years, we will be excluding the $0.31 of onetime positive EPS impact from the IEEPA tariff refund recognition in our just past Q4. So the baseline adjusted non-GAAP EPS number is $10.95.

Before I talk about fiscal '27, let's address the long-term guidance. We are reconfirming our long-term EPS growth rate guidance of 12% to 14% per year. This represents our confidence in continued shareholder value creation based on the growth trajectory of our business and the strength of our balance sheet. However, for fiscal year '27, we are guiding EPS growth of 13% to 15% against the baseline and expect fiscal '27 EPS to be between $12.40 and $12.60. This growth will be driven by continued progress against our businesses and up and down our income statement. Here are some details.

We expect Pharma segment revenue to show 3% to 5% growth in the coming year. This more normalized growth rate incorporates a couple of key assumptions. First, in our core pharma distribution, strong demand, but not the outsized demand we experienced periodically through fiscal year '26.

Second, a headwind from the annualization of 2026 IRA price changes and the implementation of 2027 IRA price changes. We anticipate the 2027 [ percent ] impact to revenue growth to be generally consistent with what we observed in H2 of fiscal '26 and to have no adverse profit impact.

Third, the stability that comes with our successful customer renewal efforts in the past year, including a long-term extension with Kroger. For planning purposes, we are assuming a consistent book of business.

Fourth, in specialty, inclusive of all organic and already announced inorganic efforts, double-digit revenue growth, including contributions from new customers in our biopharma solutions business. On the profit line, we expect the Pharma segment to deliver 8% to 11% growth. Drivers include continued generic and brand volume strength and higher margin growth in specialty, both upstream and downstream. We do expect some generics benefit in fiscal '27 from new item launches, largely driven by fiscal '26 carryover items as well as continued consistent market dynamics in our Red Oak enabled generics program. We anticipate growth in our MSO platforms, and we will benefit from the previously announced distribution wins that began to ramp in Q4 of fiscal '26.

As a reminder, we will lap the Solaris acquisition in Q2 of fiscal '27, and would note that our already announced M&A is expected to contribute 2 to 3 percentage points to profit growth in the year.

In terms of Pharma segment profit cadence, we expect Q1 profit growth to be near the high end of our full year guidance range due in part to the benefit from Solaris before we lap it in Q2. For the Global Medical Products and Distribution segment, we project 2% to 4% growth in revenue. This growth is driven by low single-digit utilization and above-market growth in Cardinal Health brand revenue. We are reconfirming our previous GMPD segment profit guide of growing approximately $50 million off the ex IEEPA tariffs refund fiscal '26 results with expected segment profit of $200 million to $220 million. This guidance reflects the ongoing execution of our GMPD improvement plan focused on growing Cardinal Health brand, operational simplification and cost optimization. We are monitoring the dynamic tariff environment and geopolitical landscape. And normalizing for the IEEPA tariff refund, in fiscal '27, we expect a modest tailwind from tariffs.

For the moment, our guidance assumes that our expected tariff tailwind will offset headwinds from rising fuel and commodity costs. However, we continue to monitor both tariffs as well as the length and severity of the conflicts in Iran. Should the conflicts in Iran be protracted, we would expect that to move us to the lower end of our profit guide for GMPD.

Segment profit for GMPD will be weighted in the second half, particularly Q4, driven by margin initiatives and seasonality. For purposes of modeling, we expect the first quarter of fiscal 2027 to be roughly half of the Q1 fiscal 2026 result, driven by the impacts of both foreign currency and the impact of distributor purchase timing. We do expect year-over-year growth in each of the subsequent quarters on an ex IEEPA tariff refund basis.

In our other growth businesses, we anticipate 11% to 13% growth in revenue and expect that growth to accelerate over the course of the year. We expect segment profit to deliver 15% to 18% growth in the year. These metrics are driven by the powerful secular trends our businesses are aligned to capture leading to strong demand. We also expect benefit from continued operational execution of our fiscal '26 investments while at the same time continuing to invest during the year in support of ROI-driven future growth opportunities.

As a matter of clarity, our guidance includes the partial year impact of the announced tuck-in acquisitions of the Diabetes Health segment of AdaptHealth and the recently completed tuck-in acquisition of Strive Medical, which are expected to add 2 percentage points of profit growth through the year to other.

Moving below the operating line, we forecast interest and other expense to be $240 million to $290 million, benefiting from our year-end high cash balances prior to deployment. We project our effective tax rate to be 19% to 20% for the year. All this together leads to the full year enterprise-wide EPS guidance of growth of 13% to 15% off of the baseline.

With respect to cash flow, we expect to generate between $3.5 billion and $4 billion in adjusted free cash flow in fiscal '27, driven by the growth of our businesses, maintaining a disciplined approach to working capital management and the impact of discrete business initiatives focused on cash flow generation.

From a disciplined capital allocation model perspective, our plans and priorities remain unchanged. First, we expect capital expenditures of $700 million with infrastructure, technology and other investments across the portfolio in support of future growth. Second, we do not need to take significant actions to protect our balance sheet in the year given our leverage ratio. Third, returning capital to shareholders, as always, remains a priority. In fiscal year '27, we expect at least $1 billion in share repurchases, which would be the third consecutive year of additional share repurchases above our original stated baseline commitment. Consequently, we expect our diluted weighted average shares outstanding to be approximately 233 million.

Finally, we are not assuming material M&A, but have reserved modest capital flexibility to support tuck-in acquisitions. Given our cash balances, leverage levels and available financing, we also have financial flexibility to consider strategic M&A or incremental return of capital to shareholders, which we will assess as the fiscal year plays out.

In summary, fiscal '26 was an excellent year for Cardinal Health. We executed our strategy, successfully integrated strategic assets and fortified our balance sheet. We are well positioned for growth and long-term value creation in fiscal '27 and beyond. We remain disciplined in our capital allocation, precise in our execution and relentlessly focused on serving our customers. We look forward to updating you on our progress throughout the year.

Jason, back to you.

Thank you, Aaron. When we started this journey as a management team, Cardinal had just delivered $5.07 in EPS and $2.3 billion in adjusted free cash flow in fiscal '22. Our company's performance was not meeting its potential as we battled business and organizational complexity that was impacting both our strategy and our operations. 4 years later, we are in a very different place. We have simplified our strategy, our structure and how we operate. We have invested heavily in our infrastructure to drive economies of scale, new customer service capabilities and efficiency through automation and technology. Indeed, in each of the last 4 years, we have invested more than we ever have before. We executed 6 strategic acquisitions, and we've gotten to know our supplier partners and our customers better than ever before, which have presented us with opportunities to win with the winners.

And while doing all of that in fiscal '26, our non-GAAP EPS has more than doubled to $11.26, and our adjusted free cash flow has increased to $5 billion, which has allowed us to return $7 billion of capital to shareholders over the 4-year period. By any metric, whether set at either of our 2 Investor Days or our guidance updates along the way, we have done what we said we would and more. And now as we enter a new fiscal year, even in the face of a continuously evolving industry environment, we are committed to continuing our efforts to create shareholder value.

Aaron just walked you through our financial guidance for fiscal '27, which is above our reconfirmed long-term growth rates. Even after all our success, significant opportunity remains, starting with our biggest but significant business, Pharma. Robust demand and favorable utilization trends are a good launching point and a source of momentum for the future. We continue to emphasize blocking and tackling to improve the core with our operational metrics at or above all-time high levels of performance.

Our continued deployment of automation, technology and advanced analytics across our distribution network builds on past progress driving meaningful gains in efficiency and service performance. And we are also adding scale and new capabilities. Our Consumer Health Logistics Center completed its first full year of operations, elevating over-the-counter product service levels to record highs and improving customer access to consumer health and diagnostic testing products when and where they are needed most.

We remain relentlessly focused on our commercial efforts. We have retained key customers across all classes of trade and have benefited from the new more strategic customers we have added over the last 18 months, creating stability as we enter fiscal '27. We also hosted our 34th Annual Retail Business Conference last month, recognizing our industry-leading position with retail independent pharmacy partners.

Expanding our Specialty business remains a fundamental priority. Upstream, BioPharma Solutions continues to gain traction as demand for specialized commercialization capabilities expands. Recent example of this comes from our 3PL business, which secured 2 additional gene therapy commercialization agreements, positioning us to support innovative therapies expected to enter the market in fiscal '28.

With these wins, we now exclusively service nearly 1/2 the cell and gene market in approximately 3/4 of the total market. To further support these cutting-edge treatments, we opened our Innovative Care Pharmacy earlier this quarter, a differentiated specialty pharmacy specifically designed to meet the rigorous standards of high-cost and complex cell and gene therapies. The pharmacy offers channel optionality, clinical support and financial solutions for providers seeking to procure complex therapies.

Located in La Vergne, Tennessee, the pharmacy leverages our existing 3PL and specialty distribution infrastructure to meet an end-to-end complex therapy market need, providing an innovative solution to improve the provider experience and expand patient access. We also continue to see significant opportunity in our multi-specialty MSO strategy both by expanding the MSOs and by expanding the services provided by the MSOs.

Turning to GMPD. We continue to execute against our improvement plan initiatives and are seeing the impact of our simplification efforts in our results this quarter. We saw steady growth in Cardinal Health brand products in the fourth quarter, continuing the trend witnessed throughout the fiscal year. Our unwavering commitment to our customers, our ability to deliver value at scale and operational efficiency and the breadth of our capabilities continue to yield tangible results, most recently with the long-term renewal of our largest customer. Operationally, we continue to deploy automation in our distribution network, which drives improvements in efficiency, employee safety, and order accuracy.

In at-Home Solutions, we saw a strong operating performance and the impact of our strategic investments in fiscal '25 and '26. We continue to lean in on our smart growth strategy and expect to benefit from the efficiencies arising from our ongoing distribution capacity and automation expansion. Our core operations demonstrate exceptional reliability. Total fill rate reached nearly 99% and we recorded our best quarter in history for on-time departures. These metrics were a result of continued inventory control, driven by the increased capacity throughout our at-Home Solutions network enabled by our investments in technology and automation. We see opportunity to continue this momentum in fiscal '27, both organically and inorganically as with the recently completed acquisition of Strive Medical and the announced acquisition of the Diabetes Health business of AdaptHealth. These additions build on the synergies created by our recent investments in home care, and enhance the framework established by our ADS acquisition, where we are seeing greater than anticipated synergies.

Our actions to date are focused on building the foundations of an at-Home operation that we can profitably scale in support of our customers, whether that be patients in the home or other at-home distributors. We're also seeing continued strong progress in our pursuit of enterprise synergies across offerings and models. A good example being our continued care pathway program with which our at-Home Solutions business simplifies diabetes supply management for both pharmacies and patients.

Within Nuclear and Precision Health Solutions, our strong performance reflects our leading position, powered by our differentiated offerings and specialized expertise. This is evidenced by our above-market growth in our core business and rapid expansion in our Theranostics and PET portfolios, with PET growing over 20% and Theranostics growing nearly 30% in the quarter and over 30% in fiscal '26. We are uniquely positioned to capitalize on the continued growth in these fast-growing categories, especially in the areas of urology, oncology and neurology.

Further, we have integrated Sonexus, our specialty access and patient support business directly into our Nuclear businesses web ordering platform to create a seamless end-to-end digital workflow for high-cost radiopharmaceuticals. This internal collaboration between the Nuclear and Sonexus teams unites insurance benefits verification, enrollment and order placement into a single digital system.

In OptiFreight Logistics, the business continues to demonstrate a leading value proposition for health care providers. We expect continuation of strong core volume growth as well as benefits from the expansion of our offerings, including our tech forward products, [ Shipment Navigator and Tracking Beacon ] announced last quarter. We have seen strong interest in and adoption of these products that are designed to support our customers with their outbound pharmacy shipments. This business will continue to create value for our customers as the solutions drive insights, cost savings and efficiencies. So in summary, on the businesses, significant progress matched with continued opportunities.

One final comment on return of capital to shareholders. I will note that we are announcing today that the Cardinal Health Board of Directors has authorized a $5 billion increase to our share repurchase authority. This takes our total share repurchase authorization to $6.4 billion. This is a purposeful indication of our continued commitment to returning capital to shareholders. Earlier, Aaron highlighted an increase in our fiscal '27 baseline share repurchase to $1 billion. As we think about fiscal '27 and beyond, our new authorization effectively recharges the battery, signaling our confidence in our durable cash generation and commitment to our disciplined capital allocation framework.

The company has excellent assets led by a talented team and the financial flexibility necessary to enable great choices on how best it creates shareholder value. We spent today telling you what we have done and what we're going to do. And now we're just going to go do it. With that, we will take your questions.

[Operator Instructions] Your first question comes from the line of Erin Wright from Morgan Stanley.

Great. It was a solid Pharma and Specialty Solutions AOI growth in the quarter. In the context of your guidance for 2027, the 8% to 11%, I guess, can you talk about what happened in the quarter, over the course of the quarter, what you expect to continue from here across that segment? What's baked into that guidance in terms of the momentum there?

Erin, thank you for the question. As you called out in the fourth quarter and indeed, for the year behind us, we had strong momentum within our Pharma business, driven by strong demand really across our key product categories and indeed, with our largest customers. We saw a strong specialty growth, of course, at higher margins. And we had positive performance in our generics program above our long-term targeted levels with consistent market dynamics. When you match that with strong operational excellence by our teams, it leads to a good result. From a guidance perspective, we expect all of those to continue into our fiscal year '27.

Now you heard us call out the broader context from a guidance for the year. I do want to point out that, ofcourse, we are not assuming outsized demand, which, as you know, we did experience a couple of times over the course of fiscal year '26. We are assuming strong demand with that momentum carrying forward. It is also the case that we did some M&A during the fiscal year '26 period. We have not assumed material M&A in fiscal year '27, but we will have 2 to 3 percentage points of positive benefit from the M&A that's already been concluded during the year.

Your next question comes from the line of Elizabeth Anderson from Evercore ISI.

Maybe just to pivot on Erin's question a little bit. As we think about specialty, you obviously added a bunch of assets and have been integrating them very successfully over the past couple of years. How do you think about how growth in specialty transitions over -- in the course of fiscal '27? Is there more sort of focus on services as sort of that initial wave of integration comes through? Any additional details there would be very helpful.

Sure. Thanks, Elizabeth. Overall, we had a very solid specialty growth in fiscal '26, about -- actually, over 25% growth overall, and that was certainly strong specialty distribution, but also some contributions from the M&A that Aaron highlighted. So we have a really strong momentum there as well as the broader segment. What we guided towards for fiscal '27, consistent with Aaron's comments is more of the same, but not to the same extent. The M&A portion will still have some bolt-on tailwind benefits, some carryover from the deals done in '26 as well. And we still see fantastic growth in our Biopharma Solutions business. We, at our Investor Day a year ago, we guided to getting that business to $1 billion by '28. We're well on track with 20-plus percent growth expected and realized.

So we're seeing not only in distribution but the MSOs and the biopharma solutions and the services that go with that broad-based growth. The strategy all connects together to the point of your question, and we continue to find opportunities to work within the different parts of our business in ways that can create not only growth for Cardinal Health, but creating even better service and products for our customers and ultimately for patients.

Your next question comes from the line of Lisa Gill from JPMorgan.

Can we just talk about the regulatory environment? And really two things I just want to better understand here. The first would be potential regulatory changes. You talked about the IRA headwind. But is there anything else that you're watching from a regulatory perspective? And then secondly, the potential changes when we think about 340B and the impact to your hospital customers on that drug distribution side. Can you talk about what the potential change means there from a volume perspective? And any incremental opportunity that you maybe see in working with some of those larger hospital systems as they try to navigate the regulatory changes in 340B?

Okay. Yes. Thanks, Lisa, for the question. And while that was one question, I guess we could probably spend the rest of the time just talking about that. There's a few different programs you referenced, but I actually think there's probably one overarching answer to all these questions, which is we obviously are tightly plugged in, not only with the customers that you're referencing, manufacturers, retail customers as well, but also with administration. So we do spend a lot of time with all of the stakeholders that are involved in this, and we are certainly tracking and influencing it the best we can as we go forward.

As I think about what everyone is trying to accomplish, it really does come down to access and affordability to that continuously innovative health care. And that ultimately is good for us. You mentioned volume, depending on what happens, if affordability continues to be the priority and there are actions to make health care more affordable, then that drives volume, and that really is the lifeblood of our business. It's the key driver of what we need to be able to invest into the business. So we absolutely support the administration's efforts to that improved access and affordability.

How do they go about it, to the nature of your question, there's a lot of different mechanisms, whether that be IRA, 340B, all these elements. And in each case, we work with our customers and the manufacturers very closely to understand the intent of the program, the practical realities of the logistics behind it. And each case, we feel very, very good about our role to safely, securely and efficiently deliver these life necessary products to patients. So we don't see our role changing and we don't believe our compensation should change as a result of our role remaining the same.

How that ends up getting transacted most likely will evolve. But in each case, we are looking at the consequences of any changes, and we adapt accordingly either upstream or downstream with those impacts.

You, I think, rightly point out the customer impact is likely to be greater than our impact, and 340B is certainly important to our health system customers. And the more pressure they're under, that may impact the types of procedures, the types of patients that they can serve. That certainly can actually go against access in the health care space. So that's something that we are certainly tracking very closely. We have much less ability to influence that directly, but we'll support them in our time in D.C. and our time working with others. But overall, we feel very confident in our role to continue to provide the value that we have always done.

Your next question comes from the line of Eric Percher from Nephron Research.

The commentary on opportunities and returns on internal investment was quite clear. And I'd like to ask you to compare the investment priorities for fiscal year '27 relative to where you were when we entered '26. Maybe what's continued, continued elevated or even incremental in '27? And then I heard a comment on building capacity within specialty and pharma. Is that focused on Kroger and existing customers? Or do you have a desire to build capacity for potential wins?

So the first part of your question as it relates to our investment priorities. The framework Aaron highlighted in his commentary certainly is exactly the same. I think your question is trying to translate that to something maybe a little bit more outcome related. So when I think about where we have invested both organically as well as inorganically, where we've leaned in the most, it is in areas, certainly specialty within our other growth businesses, the M&A side, of course, being in at-Home. These are all areas that not only are they faster growing parts of the market, they are more specialized parts of the market. Therefore, margins usually follow with them. And they're also still fragmented parts of the market where there's a lot of opportunity to not only scale and build a better, more profitable business but frankly, to create even better services for ultimately the physicians or the patients that they're into that process.

So I think we're in the very early innings of that scaling of these capabilities. So let's just kind of look at a couple of the big ones. Within MSOs, we certainly invested heavily in autoimmune, namely within GI, oncology and urology. But especially within urology and GI, we're fairly large in that space, but we still represent a very small percentage of the market. So we're large, but still very fragmented. So there's a lot of opportunity to not only, again, scale and build the business, but importantly, we're creating a much better service and capabilities on top of a very strong foundation that was already built by those that started those businesses.

Within at-Home, I would say the same thing. This is a fast-growing part of the business, part of the market still. And yet, it's quite fragmented, and that's where we saw the opportunities with Strive and the Diabetes division within Adapt. So there's still a lot of opportunities to scale up there. The organic investments are a little bit more spread out. You don't see the CapEx by business. But when we invest. We are investing broadly across each of those businesses. So I would -- I do think it's more of the same because we are still in the early part of the journey of what's possible there.

As it relates to building capacity, I would not read too much into that other than we are always looking to make sure we're not late. When you look at specialty, that 25% growth, the double-digit growth this year, it's usually areas like refrigeration and freezing capabilities that tend to be more of the bottleneck. [ Ambient ] is a lot easier to work through. So we're always looking at the bottleneck of that. We're also looking at, of course, automation so that we're not only creating capacity, but we're creating lower levels of cost per order. So it's not like we're a build it and they will come strategy. This is very much tied to the long-term plans, the growth that we have embedded in the plan to make sure that our customers receive the service that they expect. And as we mentioned in our commentary, our service levels are levels that we've never had as an enterprise. And that's because we've invested appropriately to make sure we don't get behind that curve.

One thing I would add to that, just to emphasize is that the investments we're making are consistent with a plan, which has been in place for some time. And so we are executing on a multiyear investment plan, all in service of growth, an efficient growth that is also taking advantage of the increasing economies of scale that we are seeing. And so we are sticking to our knitting and getting it done.

Your next question comes from the line of Allen Lutz from BofA.

I'll stick with Pharma and one for Aaron. How much of the revenue softness in the Pharma segment was due to the brand to generic conversion you talked about? And then how much, if any, of the EBIT acceleration in the quarter was due to generics? And how should we think about that for the rest of fiscal '27?

You are right to call out that generics was a positive part of our delivery certainly for the quarter and for the year as well. Naturally, we prefer the profitability that comes with a generic conversion. And as we called out in our prepared remarks, we did see some further benefit in the quarter from that. And as I called out in my guide, we expect to see some benefit from that in the Pharma profit delivery in '27 as well, all dropping to the bottom line.

And so while the revenue line has been variable all year, as we've guided consistently through the year, taking into account the impact of IRA WAC changes, growing but moderating GLP volumes, et cetera, and things like the LOE shift, right? We're quite pleased with the strong pharma results for the year and with the increase to the guide for next year.

The only thing I would add is we did call out the GLP WAC changes at around 500 basis points each, kind of offsetting. So you're trying to figure out the other pieces Well, I think it's probably obvious, I'll say it anyways. It's enough to call out but not so much that we're going to break out that number, so you can certainly think about well below the 500 basis points.

Your next question comes from the line of George Hill from DB.

I want to clarify one comment. I thought I heard you guys say you renewed and extended your largest customer, which I would assume would be your friends in Rhode Island. I was wondering if you could put any more color around that.

And as it relates to that large customer and to come back to Lisa's question. They've talked about a slowdown as it relates to 340B and a headwind as it relates to 340B. And my question there is just how do you guys think about like the disaggregation of services that are threatened under a lot of the reform initiatives that could kind of -- it's either recontract with customers or kind of create opportunities for new vendors to come into the space to provide things like technology services. And we just would love if you could comment on these two topics.

Okay. So first of all, I'd be really clear. We were on the GMPD section when I highlighted the renewal of our largest customer. So George, you might have been multitasking. You heard those words and just jumped on it. So yes, that was GMPD. So as it relates to CVS, I'm not sure what all you were getting at there, but let me just kind of touch on that point since we're on this topic. Certainly, we have a long-standing relationship with CVS. We have a lot of strategic collaboration with them throughout the enterprise. You certainly know about the distribution arrangement, but we have a lot more strategically aligned with them that go outside of the time line of that distribution agreement, whether that's Red Oak, the Averon joint venture and biosimilars procurement or the over-the-counter relationship and partnership that we have with IQ purchasing. So we have a broad base of relationship with them and your comment and the asking about different impacts that our customers may see with some of these different programs.

And I think the key is that they are -- and I'm not talking on CVS, I'm just talking more broadly. Now they are impacted. Our customers are impacted in many different ways as the pharmacy, as the dispenser, as the retailer. Our role -- our margin at 1% overall aggregate margins for the enterprise highlights that we play a very different role and we support them in ways to create value wherever we can.

But with that said, ultimately, they're taking on more of the risk and have more of the return as a result of the value that they bring. So we have a typical distribution margin for that part of our business for other parts of our business, whether it's the other businesses or our service businesses within Biopharma Solutions, it's a very different model and a very different margin profile where we take that on.

You're asking about disaggregation, I'm not sure exactly which part of the business or your question was there. I keep going back to the role in which we play. We do more than just putting together different parts of the industry. We are physically moving product, taking on ownership, risk tens of billions of dollars of capital that's deployed in areas like inventory and receivables to make sure that these products have near flawless levels of service and quality.

So I feel very good about our role. Of course, the model around it will always change and we'll -- and when you look at the different models, they're always -- almost always utilizing services of the distributors because of that value that we create for them. So the model will change. It will evolve. It will require us to make changes to ours, but that's our role to stay in front of that to make sure that we're always creating incremental value so that we're the obvious partner as health care, not a stressing partner.

Your next question comes from the line of Stephen Baxter from Wells Fargo.

I wanted to ask about the other segment. So for the fiscal 2027 guidance, you have EBIT growing faster than revenues. Is that driven more by mix or synergy realization? What drives the acceleration that you're talking about for the top line through the balance of the year? And then I did notice in the press release that nuclear wasn't called out as a year-over-year driver of product growth than it was in the prior 3 quarters. Any elaboration there would be appreciated.

Sure. Well, let me emphasize what Jason signaled earlier, which is we are excited about the opportunity that the other businesses present for us as we go forward. From a guide perspective, we called out 11% to 13% revenue growth and 15% to 18% profit growth. And the profit growth is really coming from across all of the businesses. And in prior quarters, you would have heard me call out the fact that we're making investments against all of those businesses as well, whether it's technology, capacity, capability. They each have discrete business plans that we are investing in for the long-term value creation of those businesses and for Cardinal Health overall.

As we think about the year ahead, I want to emphasize that for all 3 businesses, we are assuming strong demand, right, really fueled by the secular tailwinds and the strong competitive positions that each of those businesses has, and they are able to fund the investments we're making at the same time against each of those businesses as we push ahead. And so we do expect the revenue to accelerate over the course of the year as a result of both the trends and as we move past some of the investments that are already underway as we push ahead.

It's also the case that we've done M&A. Of course, in the important at-Home part of the portfolio. And the combination of the Strive and Adapt's diabetes businesses are going to contribute 2% of the profit growth to the other business over the course of the year. We've already closed the smaller Strive deal. The adapt part of the business, we'll hopefully close on the second half of our year. But we're really excited about how they can add to the scale we're building. And particularly, as we look at the smart growth strategy and driving strong ROI on customer and category management, we're excited about that.

Nuclear has continued to be a strong part of the portfolio, and we are expecting double-digit growth from Theranostics, strong growth from the PET part of the business, and we continue to focus on expanding our reach and our capacity. And I wouldn't read too much into the order of prioritization of the drivers, given the investment plans that I referenced earlier.

And of course, I would be remiss if I didn't mention the OptiFreight business, which just continues to drive strong core volume growth is a key part of our strategic plan.

Jason, anything you want to add?

You covered most of that. The only thing I would add is as you think about the 3 different businesses, they have very different margin profiles. There is a fairly large distribution aspect to the at-home business. So as you would expect, that one has a larger -- or a smaller overall margin rate. OptiFreight being a services business has an overall higher rate, and Nuclear kind of somewhere closer to the average.

Point is just the relative growth of the 3 businesses also impacts the difference between revenue growth and operating earnings growth. But I think you're right to call out the M&A is certainly a component of the synergies. Associated with that is on the at-Home side is certainly a contributor to why we see some deviation from time to time between revenue and earnings.

Your next question comes from the line of Kevin Caliendo from UBS.

This one's a little cheeky. But can you quantify the difference between what is outsized demand and what is strong demand? Like how should we think about that mathematically? And just as a sort of a follow-up, the 19% to 20% tax rate for fiscal '27, is that something we should just consider to be the baseline going forward now? Like is this the new Cardinal tax rate? Or would it revert back to the 21-plus percent going forward?

Well, let me address the questions in reverse order. With respect to the tax rate, I spent last quarter commenting that we expected the 19% anticipated rate for to be durable into '27. And indeed, we confirm that today with the guidance that we're expecting a lower tax rate than has historically been our case. We've not provided updated long-term guidance beyond the fact that we have confirmed the 12% to 14% non-GAAP EPS growth each year. And so as we're only a couple of weeks into our fiscal '27, I'm going to defer comments on longer-term tax rates beyond that to a later call.

With respect to your first question, I always appreciate some cheekiness on our earnings call. And I guess I would observe that, as we've talked about before, we're not going to provide you with a mathematical formula on strong versus outsized. We all know it when we see it. We continue to believe we will have the strong demand carrying forward and we'll be the first ones to report that back if we see something outsized relative to what we've experienced in the past.

And I'm perhaps a little less cheeky, and I'll try to give you at least one data point. One thing we referenced, of course, is specialty being a key driver of our growth this last year at 25% growth. And we're talking about double-digit growth, which I know 25% is double digit, but nonetheless. A slowing of that to levels that we think is more appropriate for the longer term. We've talked about our generics volume being long-term planning, 2% to 3% growth. And we've seen a nice step up above that. While we're still not in the 2% to 3% range for '27, we're somewhere between where we've been more recently in the 2% to 3%. So we're getting closer to that level.

Those are a couple of the key drivers that end up driving some of the more profitable volume growth in the enterprise. And when we look at the right planning assumptions, those are 2 key areas that we look to. The one thing I should -- I'll go back to the very beginning on specialty, while we haven't called out the number explicitly, one thing we did highlight at the last Investor Day was that we expected a continuation of the mid-teens type of growth rate that we've seen at that time. So the fact is that, that stepped up from mid-teens to the 25%, but mid-teens was a rate that we have seen for the last several years prior to that and is something that's certainly a lot closer to that type of planning assumption than what we've seen this last year.

Your next question comes from the line of Charles Rhyee from TD Cowen.

This is Lucas on for Charles. I wanted to ask about your comments on GMPD and some of the moving parts in your fiscal '27 guide. I understand that lower tariffs are supposed to offset higher input costs. Can you maybe provide a little more information on what sort of pressures you're seeing on the input cost side? And then just kind of stepping back a little bit and thinking about how this business has improved in profitability over the last several years since you implemented your GMPD recovery plan. Can you kind of update us on where GMPD fits within your overall strategy?

Sure. As it relates to the commodity costs that we're always tracking very closely and that where we see some pressure today, think just oil and petroleum types of products, so diesel fuel being something that impacts our distribution, logistics, costs, and the oil-based come up, these things like polyethylene, polypropylene, polyvinyl, these types of products, but it goes broader than that as well, some resins. These are things that we look at as input costs where sometimes those are raw materials we buy for our products. Sometimes we buy the finished product. But in any event, we're seeing some pressure there, not to the level that we saw several years ago coming out of COVID, but something that we are watching very closely. Of course, we spent the last several years creating a more flexible commercial environment that we have more optionality there. For example, the diesel fuel, we are better protected as it relates to surcharges for some of those distribution types of customers. But nonetheless, there is some flow through.

One thing that Aaron highlighted and we tried to dimensionalize it for you because we've recognized in the past is there's a much greater impact to our business, not only because the cost per item was going up, but we, frankly, did not manage it as well as we could have as well. And so what Aaron highlighted is that if these types of costs and rates stay elevated for the duration of our fiscal year, it's likely we'd be closer to that bottom end of our guidance range for GMPD.

So that highlights that it's impactful, but much more manageable than what we've seen before. So we feel good about our ability to mitigate the vast majority of what comes at us. At the same time, we know there's a lot of pressure on our customers, and we're always looking for opportunities and ways to mitigate this entirely so that they're not having to deal with it as well. But we'll have some work to do there, and we'll watch it very, very closely. But we feel pretty good about the setup right now.

On the tariff side, we have a planning assumption that is fairly consistent with what we have in place today. We're watching that one as well. When you lap and carry over the impacts in the prior year, we do have some year-over-year tailwind for that, that we think is largely offsetting the commodity risk that I referenced before. So it's all factored into our guidance. But if they stay elevated for the full year, then we'll be at the lower end of that, all things being equal.

As it relates to GMPD and more of the strategic question behind it, you're not going to hear anything different from me today. We are very pleased with the progress that we've made with this business, not only with our financial results, as you highlighted, Lucas, but also just the service and support and the quality of reliability and everything that our customers are receiving has never been better with this business. And so we will continue to find opportunities to further improve both the business financial results but also how our customers are treated. And the GMPD improvement plan remains in place. We see a lot of opportunity to grow Cardinal Health brand volume. We see a lot of opportunity for further simplification actions. That's where we're focused. And we always look for all of our businesses as to how they fit into the portfolio, how -- where we invest, is it organically, is it inorganically. And all these things are always considered and we'll stay focused along the way on driving the operations.

Your next question comes from the line of Eric Coldwell from Baird.

Just maybe two, if you don't mind. First off, sorry if I missed this, but did you mention what the WAC price changes are that are embedded in your fiscal '27 PSS revenue growth? I know it's been running sort of in that 5% ZIP code. As a headwind this year? Is it the same model for next year or more?

My real question is around GMPD again. If I'm not mistaken, you've been doing about $1 billion to $1.1 billion of revenue in brands per quarter. And you just cited, I believe, $100 million of repayments to customers that I believe would have been the revenue headwind driving the 2% negative growth as reported. But if I take that $100 million over baseline quarterly revenue, it would imply about a 9 to 10-point headwind. So by default, would core growth in brands be running more in the ZIP code of 7% or 8%? And if so, that seems above your -- what you've -- you've certainly been doing better than you used to do and showing momentum there, but it maybe seems even a little bit better, if I'm not mistaken? And if so, could you get into that with us?

So maybe on the first part of your question, I would just point out that we're assuming the same percent impact in '27 from the IRA impact. But of course, we'll have both the lapping of last year's IRA WAC changes and, of course, now the January of WAC, it changes as well. All that is built into our updated revenue guide here for the year as well.

Yes. And to your point, Eric, perhaps to understand this, but they're not all defined at this point in time as to whether it's rebates or WAC reductions. So we are using the planning assumptions that Aaron highlighted for the time being. And it's obviously consistent with what we saw in '26, which is why we picked that planning assumption.

Your math is not entirely wrong, not all that flows through to revenue, a big chunk does. But when you normalize for all that we saw on the Cardinal Health brand side, we saw growth at or a little bit above that mid-single-digit rate normalized for all that. So there's some other smaller adjustments that come through there, but it's pretty consistent. Last 6 quarters have been right around that mid-single-digit rate and this quarter was fairly consistent with that.

At this time, this is all the time we have for questions. I will now turn the call over to Jason Hollar for closing remarks.

Yes. Just we're pleased with another strong year, and we're already well into '27 and focused on driving our business, our results to achieve those numbers as well and look forward to staying tight with you and providing further updates. With that, have a great day.

This concludes today's call. Thank you all for attending. You may now disconnect.

My name is Allen Lutz, I run Healthcare Tech and Distribution here at Bank of America. We are very excited to have Cardinal Health here. We have CFO, Aaron Alt and VP of Investor Relations, Dave Frost. I'm going to hand it over to David quickly for a quick disclosure.

Thanks for having us Allen, and it's great to be here, it's great to be here. Before we begin, a little housekeeping. We'll be making forward-looking statements today, which are subject to risks and uncertainties that could cause our actual results to differ materially from these 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. And with that, we can get started.

All right. I think Aaron has some opening comments.

Great. Good morning. Thank you all for being here. Before we delve into the Q&A, I just want to observe that having released earnings now just a couple of days ago, we feel really good about our Q3 results, right? We delivered a strong quarter across our enterprise. Our Pharma business delivered profit growth of 18%. Our other business grew affectionately known as other, our 3 growth businesses, grew profit more than 30% as well, and we continue to deliver against the GMPD execution improvement -- execution of the GMPD improvement plan, which is critical to our overall efforts.

At the same time, we also have been progressing against our investments in the portfolio, really going against the strategy that we announced in our recent Investor Day, right? You can see that in the context of us continuing to execute on the MSO integration efforts. So clearly, we closed Solaris in November. We continue to execute against that along with doing tuck-in acquisitions in support of our leading GI and urology platforms.

We're investing in our Nuclear Health business as well, our OptiFreight business really across the portfolio, we're making -- we're having -- we're investing before we need it, so to speak, from a profit growth perspective so that we have the ongoing cycle of profit growth as we carry forward. We raised our guidance at the same time. Of course, we raised our non-GAAP EPS to $10.70 to $10.80. So contrast that with where we started our year back from an Investor Day guide perspective really shows the strong growth we've had, driven by both operational performance and dare I say it, strong demand, right, really across the portfolio.

So we're really pleased with that as well, all leading to a business which we believe has momentum as we carry into our Q4, as we carry into next year, which I know we'll talk about as well, really driven by resiliency, which has been developed over time and the durability of our business model. I'm happy to take that wherever you like.

Perfect. Thank you. Really appreciate all that color at the top here. On the earnings call, you talked about broad-based strength in the business. Would love to get a sense of those utilization trends. There were a lot of things that have evolved from 2025 to 2026, IRA, maybe a little bit of change in Specialty trend, benefit designs, GLP-1s. Would love to get a sense as we went from calendar '25 to first quarter 2026, was there anything about trends or pricing growth that surprised you as we think about going from calendar '25 to the first quarter of 2026?

It's a great question because there were a lot of moving pieces, and I would describe it this way. It all leads off with strong demand, which is what we saw across the portfolio. We saw it in our core Pharmaceutical business. We saw it in our Specialty business. We saw it in Biopharma Services. We saw it in each of the other businesses. We even saw it in GMPD with the Cardinal Health brand growth.

And so set aside revenue for a second, I'll come back to that in a second. Strong demand really raises the tide for the entire portfolio, and we were pleased to see that enabled by the strong execution across the portfolio overall. Now specialty, in particular, has been an area of strategic focus for us, and we grew specialty more than 20% in the quarter and indeed year-to-date as well. And so we're seeing good strong trends within the Specialty business as we're carrying forward.

Now there's some distraction in the numbers, right? The distraction is not -- was not unexpected for us because we have been communicating now for several quarters that notwithstanding the impact of IRA as of January 1, we expected to maintain the profitability of our business. And indeed, that's exactly what we delivered as part of that 18% profit growth in Pharma. The revenue line adjusted as WAC pricing came down. And there was some impact from GLP-1s where GLP-1s continue to grow, but they decelerated from the prior quarter -- indeed from the prior year and sequentially as well, but they still grew.

And so we had a 6% contribution to our 11% growth from GLP-1s, offset by a 6% decline from the WAC pricing adjustments, along with what for us is favorable in the context of LOE changes moving from brand to generics. I know one of our peers -- competitors has commented that, that presented them a challenge in the quarter for a different business model reason. It was a positive for us when something transitions from brand to generic. We sell both sides of that. It's actually more profitable for us on the generic side so long as we're getting strong volumes, which we saw. We had consistent market dynamics in generics, and that was a key part of the delivery overall.

Around the comment you made around the brand to generic conversion, can you just remind us, do you have any large mail customer -- mail order customer that would have made a shift that could have impacted or taken volume out of your model?

No.

Great to hear. All right. So based on our math, you're growing organically in the Pharma and Specialty business above your long-term guidance of sort of this mid-single-digit plus EBIT growth. Can you talk about what is embedded in that long-term guide? And what are the reasons today that you're growing faster than that? And can you talk to the durability of that growth you're seeing today?

Sure. Let me cover a little bit of ground here. First, I should have pointed out in response to your question on first half of our fiscal year versus second half of our fiscal year, we were actually also -- we're also now lapping $10 billion of new customer volume. We took on a couple of significant -- more than a couple of significant customers in the second half of last year and the first half of this year. And so that is elevating the numbers beyond what can be expected from a long-term growth perspective.

The second thing that is in our view of the long-term guide from a Pharma perspective is, of course, we guide to strong demand because we can see the industry trends. We see the demographic trends. We see how Specialty is growing overall, but we're not going to guide to outsized demand, right? That comes and goes depending on the quarter, depending on a variety of factors. And so we guide and think about our long term, assuming the secular trends will continue, assuming the demographic trends will continue, assuming our increased operational excellence will continue as we carry forward.

We do not -- we assume renewals of our customers. We aren't assuming anything losing and we aren't assuming anything coming in, in that way. That would be an adjustment over time as well. But overall, what it comes down -- I want to come back to this, which is we believe strongly in our business momentum. We believe we have a strong business. We think we've proven it now several quarters in a row. We are executing it well, better than Cardinal ever has before. We're making the investments we need to, to be able to continue to deliver on that top line and bottom line growth across the portfolio, and that's what we're excited about.

I want to talk a little bit about your M&A strategy around some of the MSO assets. Your strategy is similar to your peers, but different in that some of the physician groups that you're pursuing, GI, Autoimmune, Urology are a little bit different than Oncology and maybe even Retina. I'll probably just say Oncology as maybe the main differential.

But the physician group you're going after, a lot of them, I think, 90% or the vast majority are not affiliated with an MSO. So it's a very different type of model in terms of M&A. Can you talk about the differences? Can you talk about that strategy, first off? And then second, can you talk about -- is there less competition for those assets in the market? And is there anything else that's different that you think investors should be aware about as you think about Cardinal's strategy in that space?

We do not -- as a housekeeping matter, we do not forward guide M&A, right? So it's not part of our overall guidance, but we've been very pleased with the M&A we've done in the last couple of years. And just by -- in direct response to your question, we acquired purposely the largest gastroenterology MSO platform in the country in the form of GI Alliance. We then followed on that with the acquisition of 2 significant platforms in urology, Urology America and then Solaris.

So we are now the proud owner of a majority stake in each of the largest gastroenterology platform and the largest urology platform and continue to do tuck-in acquisitions in each of those platforms along the way. I should point out, we closed GIA a year ago, February. So we've now lapped that acquisition. We only closed Solaris, the most recent urology acquisition in November. And so we have not yet lapped that acquisition. So it will contribute to the positive growth as we move into the new year.

But we remain very focused on continuing to build against the assets that we've acquired, right? And whether that comes in the form of tuck-in acquisitions or operating improvements. You might ask, well, why are you doing these deals there?

And there's a couple of key reasons. First, Cardinal's strength historically has been in what's affectionately known by us as the other ologies, right? We are a presence in Oncology. We have a nice strong business there. It grew -- in Oncology, we grew 30% last quarter to give you a sense there. But we have the leading presence in Urology and Gastroenterology, and that is consistent with Cardinal's historical strength in the other ologies from a therapy area perspective.

We put the community practitioner at the center of everything we do. We don't put the drug spend at the center of everything we do. And so when we're looking at acquisitions for MSOs or other assets around, what we're really building is the ecosystem to our benefit and to the benefit of the community practitioner around the data, around the contracting, around the back-office services, around the procedure volumes, around the offices, we love the diversification of revenue streams that comes from our presence in the MSOs in Urology and Gastroenterology and indeed, even in ION, Navista, which is our Oncology platform as well. But of course, we're stronger in Urology and Gastroenterology than we have been.

And so our investments from a continued focus perspective, we will absolutely continue to look at smart tuck-ins in those platforms. We've done several of them. Jason talked about a couple of them in Q3. But we're also investing in the technology. We're investing in the process. We're investing in the team to ensure that when you have areas like Gastroenterology and Urology, which are still fragmented, notwithstanding the fact that we own the largest platforms, that we are the choice, right?

The doctors want to come to us, right, not go to someone else because they can see what we're building from a platform perspective. They can see the benefit of the partnership that comes from working for us. Now there's a side benefit to this that isn't part of our deal models, but that's a very important part of our own strategy, which is if you take urology, for instance, right, it should not be lost on anyone that we were already one of the strongest, if not the strongest distributor of Urology pharmaceuticals.

We already had a strong presence in the MedSurg business, GMPD around servicing acute environments with urology-related products. We're also the leading provider of at-home urology products. If you think about our Nuclear Precision Health business as well, radiopharmaceuticals, we are the leading presence in that space.

And many of the innovation developments that are coming in that space that we are very excited about are also urology focused. really what I'm trying to build here for you is a picture of an ecosystem within a therapy area, Urology, Gastroenterology, even Oncology, other ologies we're thinking about that the sum of the pieces is greater than the sum of the pieces, I guess. I'm mixing my words there, but we see some real opportunity in parts of the portfolio helping to drive each other as we create that flywheel within specific therapy areas.

That's a really interesting point. I want to unpack that a little bit. As we think about the business today, is there any way to speak to maybe what -- I would assume it's not maybe as material right now, but the revenue contribution to some of those MSOs around Urology and GI that you mentioned in GMPD. Is GMPD serving those clients in any material way? And is there any way to size that?

We've not provided specific disclosure on how any other part of our business is now interacting with the MSOs. But what I would tell you is that each of the parts of our business is asked to put their best foot forward in connection with the leadership teams of the MSOs. So we have to compete for the business. It's not a done deal if we acquire an MSO that we get the Nuclear volume or we get the distribution volume or we get GMPD.

Because we have to do the right thing, we have to put our best foot forward. If that's not in our deal models, then we don't assume it from a business perspective. We have been blessed to, on the Pharmaceutical side, be able to announce that we have gained the distribution -- the pharmaceutical distribution for each of -- for GIA and Solaris as well. And the GMPD team has also put business in front of -- business opportunity in front of those teams, particularly on the ASC part of the world, which is not an area where we have traditionally been strong. And so there's a fair amount of opportunity out there that we continue to mine as we carry forward.

I want to switch gears a little bit and talk about the Sonexus business. At your Investor Day, which I think was maybe 11 months ago at this point, you said you expected to double the number of supported therapies by fiscal 2028. Can we just get an update on that business? How are trends there? Are you still on track to do that by fiscal '28?

We are very excited about what Specialty is doing, what Biopharma Services is doing. And certainly, the Sonexus part of that portfolio for us has been delivering every day for us. In recent quarters, we've been able to announce the fact we've taken on several new customers, several big wins. Dupixent MyWay, for instance, I believe is one of the biggest programs in the industry. We recently picked up that business along with a couple of significant oncology platforms as well. And having taken on those three, we have a large number contracted to come on board as well. And so we're excited about what that business is doing.

You might ask, well, Aaron, why is Cardinal being successful when others in the industry are exiting or selling and writing down the assets there? It's because that very investment cycle that I was referencing earlier, we've been investing ahead of need around technology and process within the hub business, within Sonexus, it's patient access and adherence. And because we had made those investments, we're able to serve in an efficient way that actually is good for everyone, right?

Everyone is better, starting with the patient, through the physician, through the distributor, through the pharmaceutical manufacturer. If patients get early access to the medications they've been prescribed and they stay on the therapy the way they should, right? And what we are building and what we have built and what we are expanding rapidly in service of exceeding that very goal that we called out at Investor Day is how do we continue to lean in so that we are the partner of choice for the pharmaceutical manufacturers around their patient access programs.

Really great to hear. And then before we leave the Pharmaceutical and Specialty business, would love to get a sense, as we think about prescription trends in April and early May, is there anything about what you're seeing so far post quarter that's different than what you saw in the first quarter? Or put another way, the exit rate in March, how should we think about that versus what you're seeing so far in April?

I can't comment on April specifically. I can offer some observations by analogy. And then our recent earnings call, we did raise our guidance, right? We raised our guidance for the Pharma business, for our other -- for the 3 components of our other business as well. And I provided some good insight without giving '27 guidance on how we're thinking about the long term.

And it's really driven by the fact that we continue to expect strong demand, right? The demographic trends are there. The specialty trends are there. The operational performance that we've been building at Cardinal is durable and resilient as well. And so again, while I can't comment on April, what I would observe is that we have reason to believe in our business, reason to believe in our performance, and that's why we're able to both raise our guide for the rest of this fiscal year. We're in our fiscal fourth quarter now and provide what I hope is taken as very positive commentary around our long-term guide. Of course, we'll provide specific fiscal '27 guidance on our August Q4 earnings call.

And then moving to the GMPD business. Oil prices have been volatile recently, having an impact on raw materials. Can you remind us how your contracting works in that business and how any changes in commodity prices like oil and resin could impact your business?

The impact of oil on us in our Q3 and indeed, what we anticipate for Q4 has been very modest, right? And that's driven by a couple of things. One, it's driven by the fact that we have some contractual protections, given the improvements we've made to the business from a contracting perspective, from a partner perspective, from a lanes we use, how we drove out our acquisition process since COVID, right, it's a better business than it was before, and that gives us more certainty and ability to control our costs, whether it's on oil or even things like resins, which we acquire on a contractual basis, not typically on a spot basis as well. So that brings some certainty to our overall picture.

We pay a lot of attention to what's going on from an oil -- from a distribution perspective, as you can imagine, right? We do feel -- yes, we do feel diesel and gas costs, to a degree. But thus far, and certainly for our Q4, we don't expect it to be material to the enterprise. And as we carry forward, given the resiliency we've built within the model, our ability to adjust how we're manufacturing, where we're manufacturing, how we're moving our goods as well, it means that we have the flexibility to be able to optimize our cost structure, and this is all part of the overall GMPD improvement plan.

And then on the Cardinal Health branded products, growth has been really strong there. You called out a new product recently. One was the SmartFlow intermittent pneumatic compression device. As you think about new products in your private label brand, how much is that contributing to revenue growth for the Cardinal brand product? And then you made a very interesting comment that GMPD is positioned around some of the physician groups that you're acquiring. Should we think about Cardinal having a real opportunity to expand private label in areas that directly support those specialties that you have relationships with in the other segment?

Let me start with the last part of your question and go to the first, which is what we are seeking to do in connection with the -- both the M&A we've done and with our raising our game across our entire portfolio is to make sure that we're not leaving opportunities on the table, right? And that my comments about the ASCs was an example of that where if you think about our GMPD business, we have a significant share in the acute environment. We have not typically been as strong in the ASC world or the physician office.

Nevertheless, as we are partnering more directly with physicians or with -- who are doing procedures in ASC, it certainly -- it would seem to be a smart move to pay more attention to where do we have opportunities that we have not traditionally gone after. And so I'm signaling is we're thinking about those opportunities now in a way that Cardinal has not previously done. All as part of this comprehensive strategy across the enterprise that Jason Hollar has led us through at Cardinal Health. And so we feel good about that.

Now more specifically with -- in connection with GMPD, and David actually has come to our IR function from the GMPD business and is the real expert here for questions as for the fact. What I can tell you is we remain focused on innovation because it's an important part of our improvement plan. It's in areas where we can differentiate because we have the technology, we have the experience, surgical, resource, things like that.

And the example you called out, along with other innovations, the nutrition delivery systems, for instance, those are places where we've been able to drive nice growth in partnership with key customers of ours, and we continue to double down on investing in how can we do more of that because we have been clear all along that growing Cardinal Health brand is a part of us delivering against our GMPD improvement plan, both for this year and for the future as we carry forward.

Just by way of reminder, we grew Cardinal Health brand about 5% in this past Q3, and that was after we had shifted forward to Q2 a couple of percentage points of growth as well, and we grew in Q2 10 percentage points, again, with some of that growth shifted between quarters. And so we feel really good about the Cardinal Health brand revenue growth over the course of the last 5 quarters actually.

And moving to the other segment. I want to talk about the Nuclear Precision business. You're lapping really robust growth in the Theranostics business you experienced a year ago, where I think growth was north of 30%. But the pipeline, you talked about 70 products in the pipeline. So it seems like the momentum is still really strong there. How should we think about the expected growth rate of the nuclear business exiting your current fiscal year?

I love the other businesses, all 3 of them. I have no favorite children. But what I would tell you is from the businesses we affectionately know as other, Nuclear is a business that excites all of us because we are -- we have the leading market position. We are across the full value chain across the businesses. And we only need a handful of the therapeutics coming down the innovation pipe to be successful for us to have our plans.

And you referenced the 70 that I had called out before. If you have more than a handful of that 70 over the next couple of years, that gives you a sense of why we're excited about the potential of the Nuclear Precision Health business.

Now a little bit of further contextual reference points. A couple of quarters ago, we actually announced that we were investing $150 million to further expand and build out our PET network, right? And that's an important investment on our part because as that business evolves, we are increasingly moving from what has been heavy SPECT to much more heavier volume of revenue in the PET and Theranostics space.

And you were referencing the Theranostics volume. It's both a diagnostic and a therapy. We're excited about what we're seeing really across therapy areas and doing that, but now I'm going to take you all the way back, I think back to my comments about Urology because a significant part of the innovation coming and indeed, a good part of the business right now is also tied to Urology.

And so it creates a further ecosystem of opportunity within Cardinal, both for the Nuclear Precision Health business, but then also in service of Solaris, right, the Urology platform. And also in partnership with other parts of the business that I haven't talked yet about in this presentation, if you think back to our first acquisition of Specialty Networks, right, which was focused on GPO, RWE, very data-intensive. Now that Nuclear is partnered with Specialty Networks, we can actually drive even further goodness for Cardinal.

And then moving on within the other segments, OptiFreight Logistics, really strong growth, and our checks on that business have been really positive. Can you speak to what is the industry growth rate within that business? And if Cardinal is growing faster than the market, where are you taking share?

We haven't provided a specific guide on industry growth rates on Opti as yet. We have guided that, that business is going to grow dramatically as well. And we are taking share within OptiFreight because we are the market leader in providing the logistics services that the acute environments and indeed now the pharmacy environments are after, right?

And so as we have built out our technology suite around that, we are saving our customers, particularly in the acute space, a significant amount of money. It becomes obvious to them as to why they should be partnering with us in the OptiFreight space because they can see the savings on their own bottom line coming from partnering with us.

It's a smaller part of our business from a revenue perspective. It's probably the smallest part. It is the smallest of our 5 reporting units in that way, even though it reports into our other segment in that way. But we're very pleased with both the business performance and the opportunity presents for us.

And then moving on to the LRP. You made a lot of comments about the LRP and maybe a preview to some of the qualitative items that could impact fiscal '27 on the last earnings call. How should we think about the biggest swing factors to achieving your LRP in fiscal 2027?

So I'm going to speak to the long term because, of course, I haven't provided fiscal '27 guidance, but there are a couple of things which are true about the long term, which are equally true of '27, which is we believe the trends are in our favor, right? Demographic trends, none of us are getting any younger. Well, I feel like I'm getting younger, but you all be the judge on that.

At the same time, Specialty trends. People are taking better care of themselves again as we age, and that is helpful to our industry and our business model overall. The market-leading positions we have now will continue into next year in the LRP, and that's true across each of our businesses. And so we're excited about that. Similarly, we feel great about the operational execution we've built. We are performing better than ever before. Our service levels are higher than they ever have been across key parts of our portfolio.

And what that means is, first, we're not leaving sales on the table, right, because we can actually serve the demand. But importantly, and this goes back to some of our earlier conversations about new customers, right? We have gained a number of significant new customers and aspire to gain additional new customers over time because they come to us because our service level is great and better than our competitive set, right? That is -- we have at least one customer who's been very public about the fact that why they transitioned to us and away from their incumbent is because we were serving -- they knew we would serve them better, and they did that.

So we are very focused on continuing that operating environment as a reason for why we'll be successful over the long term as well as in the short term in fiscal '27. Now it's also the case in fiscal '26 that we had some below-the-line benefit, right? And you haven't asked me about capital allocation or tax yet, but let me get on the table before we run out of time here.

We did see some nice benefits in our fiscal Q3 this year, some below-the-line benefits really driven by the continued share repurchase we've done and tax benefits we saw in the quarter and the year. We had about 10% tax rate in Q3. That was driven by some -- us realizing some multiyear benefit, also benefit in the quarter from our tax rate. And we're really focused on ensuring that our tax opportunity is durable over time.

And so I wouldn't view the tax -- the updated guidance we've given for fiscal '26 at about the 19%. That's not -- that shouldn't be a challenge for us as we move into '27 because we continue to execute on ensuring that we have durable tax opportunities as we carry forward. And of course, in the context of capital allocation, as we continue to do share repurchase, both that, which was part of our road map, the $750 million commitment we made and now that we've exceeded that in Q3 with us announcing that we had already done $1 billion in the year, that is further reason for us to be able to deliver against our commitments.

And then you're kind of leading right into my next question on capital deployment. Your leverage ratio of 3x is in the middle of your target of 2.75 to 3.25x. How do you think about the outlook for capital deployment over the remainder of this year? Your stock has moved around a lot. Does the change in your share price impact the pecking order of the different options that you have there?

First, let me observe that we've generated strong cash flow each of the last couple of years, right? And we actually raised our adjusted free cash flow guidance for the year on our most recent earnings call. We started the year, I think, about $3 billion. We're now up to $3.3 billion to $3.7 billion from an adjusted free cash flow for the year. That presents us with opportunity.

One thing which hasn't changed in any of our guidance adjustments and one thing that is equally true as we carry forward is our disciplined capital allocation structure. First, invest every dollar we think we should into the business, and that's about $650 million this year from a CapEx perspective, we're on track with that. Second is defend the balance sheet. If we need to do anything to get within our leverage ratio. We -- as you pointed out, we're at 3x the Moody's leverage ratio. And so we don't need to do more there, which then takes us to the next category, which is the table stakes return of capital to shareholders.

We've done that. We did the $750 million. Indeed, we've leaned in and done now $250 million more in our third quarter, which then puts us in the opportunity land of, is there more investment to make? Is there more M&A to do? Or is there more opportunity for return of capital to shareholders? And while I'm not here today to announce anything in particular, what I would observe is that we have been consistent in saying we're going to do exactly what we said we're going to do. We're going to remain loyal to that disciplined capital allocation opportunity. We're going to find the highest and best uses of the cash -- the strong cash that our business is generating and look forward to talking more about that as we carry forward.

Want to sneak one last question in here. You raised the free cash flow guidance, as you mentioned. And that's despite all the different dynamics going on in the business, the IRA, WAC price reductions, GLP dynamic. I guess what are you seeing in the business that allowed you to raise that free cash flow guidance? Because I think that was pretty notable this past quarter.

Yes. We have been very careful to convey confidence in connection with the IRA changes that happened this past January and indeed, confidence in connection with the IRA changes that will come in this next January as well. And that is true both in connection with the income statement and the cash flow, right? We have been around for 50 years, right? We have seen a lot of changes in business models. We negotiate our contracts, suppliers and customers on a regular basis.

In some cases, it's every year, in some cases it's every 18 months, in some cases, it's 2 years. But what I'm trying to convey is that we look at these negotiations in the context of any regulatory change as an all-in conversation. It's not one line, it's every line. And what that means is we're actually able to get ahead of it as we have done and as we will to ensure that we are being compensated for the services that we're providing and to ensure that we are generating the cash flow necessary to support the business model that we've built up over time.

And so we feel good about the fact that in the quarter that the IRA changes happened, we delivered 18% profit growth and we raised our guidance, and we then also raised our adjusted free cash flow guidance. And that's the signal I would give you about why I believe in the strength of our business and the durability and resiliency of our model and why we believe there's good things ahead for Cardinal Health.

Yes. That's great. It looks like we're out of time here. Aaron, David, thank you so much for the time, and thank you, everyone, for joining us.

Hello, and welcome to the Third Quarter Fiscal Year 2026 Cardinal Health, Inc. Earnings Conference Call. My name is George, and I'll be coordinator for today's event. Please note, this conference is being recorded. [Operator Instructions]

I'd like to hand the call over to your host, Mr. Matt Sims, Vice President, Investor Relations, to begin today's conference. Please go ahead, sir.

Good morning, and welcome to Cardinal Health's Third Quarter Fiscal '26 Earnings Conference Call, and thank you for joining us. With me today are Cardinal Health's CEO, Jason Hollar; and our CFO, Aaron Alt. You can find this morning's earnings press release and investor presentation on the Investor Relations section of our website at ir.cardinalhealth.com.

Since we will be making forward-looking statements today, let me remind you that the matters addressed in these statements are subject to risks and uncertainties that could cause our actual results to differ materially from those projected or implied. Please refer to our SEC filings and the forward-looking statement slide at the beginning of our presentation for a description of these risks and uncertainties.

Please note that during our discussion today, the comments will be on a non-GAAP basis, unless specifically called out as GAAP. GAAP to non-GAAP reconciliations for all relevant periods can be found in the supporting schedules attached to our press release. For the Q&A portion of today's call, we kindly ask that you limit questions to one per participant so that we can try and give everyone an opportunity.

With that, I will now turn the call over to Jason.

Thanks, Matt, and good morning, everyone. We are pleased to report another strong quarter for Cardinal Health, building on the momentum we displayed over the past few years. This quarter's performance highlights the durability and resilience of our business and the team's disciplined execution. The results reinforce our conviction in the company's growth trajectory and ability to deliver long-term value creation. Our underlying operating strength continues to be led by our largest and most significant business Pharmaceutical and Specialty Solutions, and is amplified by contributions from our higher-margin growth businesses.

Within Pharma, we delivered strong growth, highlighting the strength of our core. We continue to see benefits from our strategic focus on expanding our capabilities across Specialty, both downstream of providers and upstream with manufacturers. We are progressing the expansion of our MSO platforms, in particular with the Specialty Alliances multi-specialty offerings, delivering differentiated value to a growing network of physicians and enhancing patient care and access. The integration of Solaris into the specialty Alliance remains on track, and we are taking actions to realize synergistic benefits across our portfolio.

In GNPD, we continue to execute against our improvement plan. Our focus on simplification and cost optimization initiatives is producing tangible results, and we continue to see notable strength in our portfolio of Cardinal Health brand products. Our deliberate actions to simplify operations, enhance supply chain resiliency and drive commercial excellence remain strategic priorities as the business navigates the dynamic tariff environment. Our other growth businesses, at-Home Solutions, Nuclear and Precision Health Solutions and OptiFreight Logistics continued to deliver robust results. Their sustained performance is a direct outcome of our continued strategic long-term investments in these areas, which are aligned with a favorable demand environment and positive secular trends in faster-growing areas of health care. The collective strength and sustained momentum across the enterprise, including our financial position, gives us the confidence to again raise our full year outlook for fiscal '26 and highlight our expectations for continued momentum in fiscal '27.

And with that, I'll turn it over to Aaron to review our financials and outlook.

Thank you, Jason, and good morning. Our team delivered strong financial results in the third quarter, reflecting positive and broad-based demand, operational execution and loyalty to our disciplined capital allocation framework. Our strong operational performance was supplemented by positive discrete tax planning benefits below the operating line and continued share repurchase activity. Given our confidence in the remainder of the fiscal year, we are pleased to be raising our full year fiscal 2026 non-GAAP EPS and adjusted free cash flow guidance.

Let's begin with a review of our consolidated third quarter results. Total company revenue increased 11% to $61 billion. This growth was driven by strong demand in our Pharmaceutical and Specialty Solutions segment and in Other. Gross profit grew 18% to $2.5 billion due to benefits from our acquisitions and segment performance. While we maintained our focus on cost management, we also invested in the business with SG&A, inclusive of the impact of our M&A, increasing 17% on a headline basis. When you adjust for the impact of the M&A, our SG&A growth was 7%, reflecting increased volumes and purposeful investments in teams and technology across our business.

The combination of these results led to an 18% increase in enterprise operating earnings to $956 million. Moving below the line, we recorded net interest and other expense of $117 million for the quarter driven primarily by the increased financing costs associated with prior acquisitions. Our non-GAAP effective tax rate for the third quarter was 10.2% due to the benefit of discrete tax planning items in the quarter. Included in our Q3 ETR was a multiyear benefit that contributed approximately $0.35 for the quarter.

Average diluted shares outstanding were 236 million shares. This reflects the positive impact of the completion of our second quarter ASR program in January as well as the launch of an additional $250 million share repurchase program in the quarter, which was completed in April. This brings our fiscal year '26 total share repurchases to $1 billion, exceeding our fiscal year baseline target by $250 million year-to-date. The net result of these factors was third quarter non-GAAP EPS of $3.17, representing 35% growth.

Diving deeper into the businesses, the Pharma segment delivered a strong quarter. Segment revenue grew 11% to $56.1 billion. This was primarily driven by existing customer growth across the portfolio. We continue to see strong overall pharmaceutical demand across product categories, including specialty, generics and consumer health. Within brand, volume growth also remains quite healthy though we did observe some fluctuations in mix that impacted the overall revenue line between GLP-1s, IRA changes and generics.

Of note, during Q3, GLP-1s added 6 percentage points to our revenue growth. GLP-1 revenue growth remained robust at over 30%, but moderated from the prior quarter. The growth from GLP-1s was generally offset in the quarter by a 6 percentage point impact to revenue from inflation reduction at WAC pricing adjustments.

Segment profit growth outpaced revenue growth significantly, increasing 18% to $784 million. This strong result was primarily driven by contributions from brand and specialty products. As previously shared, we maintained our economics on distribution contracts notwithstanding the impact of WAC changes. We also saw positive performance of our generics program, and we're pleased to again see consistent market dynamics.

I want to highlight how our teams adeptly managed through the increased operational complexity resulting from heightened winter storm activity during the third quarter, a testament to the agility of our workforce and fundamental durability of our business model. As a matter of financial transparency, I will note that on a GAAP basis, earnings were impacted by $184 million pretax goodwill impairment charge related to our Navista business. The noncash impairment charge was primarily due to changes in the risk profile of the business plans, resulting in an increase in the discount rate. These changes reflect business model updates and base operational performance.

The impairment does not affect our non-GAAP results. Our strong positive outlook for our Specialty business is unchanged. We are pleased with the above-market growth we are seeing in Specialty, including over 20% revenue growth in the third quarter, and we continue to expect our Specialty revenue to exceed $50 billion in fiscal 2026.

In our GMPD segment, revenue was $3.1 billion. This was generally flat to prior year reflecting lower distribution volumes, offset by Cardinal Health brand growth. We were again pleased with Cardinal Health brand performance, which grew over 5% in the U.S., including timing shifts into Q2 that we called out last quarter. GMPD segment profit saw decreased to $25 million due to the adverse net impact of tariffs. That said, our segment results reflect solid underlying operational performance, and the team remains focused on executing our improvement plan driving cost efficiencies and managing the supply chain resilience to serve our customers effectively.

As you are aware, our tariff exposure is concentrated in the GMPD segment. In February of 2026, the Supreme Court ruled tariffs imposed under the International Emergency Economic Powers Act unlawful, and work is underway to establish a refund process. Uncertainty remains in the timing, and administration of refunds, and we have not recognized any financial impact in the quarter, not reflected potential impacts in our updated guidance. To date, we have paid approximately $200 million in IEPA tariffs and previously noted sharing in these impacts with our customers. As a result, if circumstances change and become more certain, we would anticipate the potential future net benefit to Cardinal to be about half of that $200 million primarily driven by the repayment of the IEPA pricing that we've taken to our customers.

Turning to our other growth businesses. at-Home Solutions, Nuclear and Precision Health Solutions and OptiFreight Logistics, we saw strong results. These businesses represent a key element of our long-term growth expectations. Segment revenue grew 31% to $1.7 billion and segment profit grew 34% to $179 million. This performance was driven by robust demand across all 3 businesses and the acquisition of ADS. The integration of ADS into our at-Home Solutions business is progressing well, and this combination has created a powerful platform for patients with chronic conditions that supports and can be supported by other parts of our business.

Our Nuclear and Precision Health Solutions business is executing like MPHS, again saw over 30% revenue growth from Theranostics, a key area of innovation and investments. And OptiFreight Logistics continues to deliver its unique value proposition, helping health care providers manage logistics with greater efficiency and cost effectiveness, growing revenue nearly 20% in the quarter.

Now turning to the balance sheet. Our capital deployment priorities remain consistent, investing organically in the business for long-term profit growth, maintaining our investment-grade credit rating, returning capital to shareholders and opportunistically pursuing value creation through strategic M&A. We ended the quarter with a cash position of nearly $4 billion after generating $1.7 billion of adjusted free cash flow in the quarter and taking several actions that align with our disciplined framework. We continue to invest heavily into the business with CapEx of $385 million so far this year across all of our businesses. We prepaid $100 million on our outstanding term loan, further reducing our Moody's adjusted leverage ratio to 3x. This places us comfortably within our target leverage range of 2.75 to 3.25x and demonstrates our commitment to our BAA2 rating at Moody's. As I noted, we also returned capital to shareholders through an additional $250 million accelerated share repurchase.

Let's talk about the rest of fiscal '26. Our strong performance through the third quarter and our confidence in the fundamentals of our business leads us to raise our non-GAAP EPS outlook for the full year to a range of $10.70 to $10.80. That is a $0.50 increase at the midpoint, made up of approximately $0.13 from operational strength at Pharma and in our other growth businesses and the remainder below the line. This new range represents annual EPS growth of 30% to 31%.

In pharma, we expect our fiscal 2026 revenue to come in at the lower end of our 15% to 17% range, reflecting the continued strong overall volume growth and the mix dynamics within brands that I referenced earlier. For segment profit, we are pleased to raise and narrow our profit growth outlook to 22% to 23%, an increase from our prior range of 20% to 22%. This change reflects our performance through the third quarter and is indicative of our confidence in the segment's continued operational execution with anticipated high teens profit growth in the fourth quarter at the midpoint. As you model the remainder of the year, please keep in mind that we have not fully lapped our large pharma wins from fiscal '25 and the GIA acquisition. Consequently, Solaris will be the primary inorganic driver to account for in your year-over-year comparisons.

Additionally, I will note we are onboarding distribution volumes for GI Alliance and Solaris during Q4, which are reflected in our guidance. For the GMPD segment, we are reiterating our revenue outlook of 1% to 3% growth and holding our profit guidance to $150 million. We remain pleased with the progress against the GMPD improvement plan and are encouraged by both the consistency of our Cardinal Health brand growth and tangible impact of our simplification strategy.

With our other growth businesses, revenue guidance is unchanged, projecting the full year between 26% to 28% growth. However, we are increasing our profit growth guidance to a range of 36% to 38%, up from 33% to 35%. This positive revision is driven by strong performance across all 3 growth businesses to date. As you model the remainder of the year, please continue to remember that we have lapped the acquisition of ADS in April, which will result in more normalized Q4 growth.

Focusing below the line, we are updating our outlook for interest and other to approximately $340 million up from our previous estimate of $325 million. This is due to some Q3 adjustments within the other income and expense line, the majority of which was offset in tax and net neutral to the enterprise. Additionally, as a result of the discrete planning benefits in Q3, we are lowering our expected non-GAAP effective tax rate for the full year to approximately 19%, down from our prior range of 21% to 23%. Reflecting the impact of our share repurchase activity, we are updating our outlook for weighted average shares outstanding to approximately 237 million shares from our previous guidance of 237 million to 238 million shares.

Finally, we are raising and narrowing our full year adjusted free cash flow guidance to a range of $3.3 billion to $3.7 billion from our previous guidance of $3 billion to $3.5 billion, which reinforces the robust and resilient cash-generating capabilities of our business model.

In summary, our third quarter results demonstrate the broad-based strength of our business and the progress we are making against our strategic objectives.

Before I close, I'd like to share some initial thoughts on fiscal 2027. The headline is that we remain confident in our long-term targets, and we'll continue to assess the various puts and takes for next year as we progress further through our annual planning process. We look forward to sharing details of our fiscal 2027 outlook during our fourth quarter earnings call, but before then a few items of perspective.

While the health care landscape and regulatory environment remain dynamic, we have consistently demonstrated an ability to navigate change, reinforcing the durability and deep resilience of our model and our enduring value proposition. In our Pharmaceutical and Specialty Solutions segment, we anticipate positive demand and demographic trends to persist, supported by strong ongoing operating performance. There are several positive items informing our views. The scale and efficiency of our pharmaceutical distribution operations and our growing position in Specialty, including Specialty distribution, our MSO strategy and biopharma solutions. We will see benefits from the annualization of the Solaris acquisition in the beginning of the fiscal year and anticipate benefits of continued synergy realization.

The three businesses and other are exceptionally well positioned to benefit from secular trends and to win in high-growth innovation areas like Theranostics. We plan to continue to strategically invest and position ourselves to capitalize on those trends. In our GMPD segment, the successful execution of our multiyear improvement plan is on track and gives us confidence in our continued potential to unlock value in this business. We continue to monitor the dynamic tariff environment and broader macroeconomic factors, including fuel and commodity exposure with improved ability to navigate change as a result of our multiyear focus on simplification and efficiency. All of this is supported by the fact that we are completing our third year of long-term, sustained investment in our businesses to ensure that the foundations of future growth are built before we need them.

Below the line, we'll have the comparison to the discrete tax benefits this year while continuing to pursue opportunities to drive durable improvements in our tax position. We expect another year of robust cash flow generation and will be sticking to our knitting with respect to our disciplined capital framework, which creates opportunity for accretion through our baseline share repurchases.

In closing, we are confident in our ability to achieve our updated higher guidance for fiscal 2026. Our priorities are unchanged, and we are executing against them. Our team is committed to our vision and will remain focused on its achievement while investing for long-term growth and value creation.

With that, I'll now turn the call back over to Jason.

Thanks, Aaron. Our Pharma segment once again led our performance, providing proof points of our strategy to strengthen the core and expand in Specialty. Our continued focus on the core with investments in infrastructure, technology and our people are delivering measurable improvements across the network. As an example, we continue to invest in our existing distribution centers through automation and productivity initiatives, which both improves our cost and expands our capacity. We are achieving record high service levels, which is a testament to our employees and the investments we've made focusing on the core. We continue to see consistent dynamics in generics with our Red Oak partnership and continue to have best-in-class performance in the strength of our generics program. Specialty continues to be an increasingly important driver of our strategy and results. Upstream, our biopharma solutions business is advancing its momentum, providing critical services to our pharmaceutical partners, evidenced by 3 new pharmaceutical therapies that our SYMEXYS patient support business onboarded this quarter with another 10 scheduled to be completed over the next 2 quarters. This growing pipeline underscores the trust and value we provide to manufacturers, bringing life-changing therapies to market. .

We continue to see opportunity from our multi-specialty MSO strategy within the Specialty Alliance, which is proving to be a key differentiator in the marketplace, generating value for community-based physicians and their patients. Since last quarter, we closed three tuck-in acquisitions within the Specialty Alliance, adding physicians to our network and further extending our geographic reach into our 33rd state. Our model continues to unlock value through the synergies we create across our businesses. For instance, specialty Networks and the Specialty Alliance are now partnering to support a pharmaceutical company on a multiyear study focused on understanding real-world outcomes for patients receiving care at community gastroenterology clinics across the country.

Specialty Networks will perform the analysis, showcasing how we connect our vast network of partners, physicians and patients to create long-term differentiated value.

Turning to GMPD, we continue to demonstrate disciplined execution and make progress on our ongoing improvement plan. The team remained focused on growing Cardinal Health brand and relentlessly simplifying operations, and we made tangible progress on both fronts during the quarter. With the execution of our 5-Point Plan, Cardinal Health brand has now grown at least mid-single digits for five consecutive quarters, outpacing the broader market.

Our other growth businesses, which remain an increasingly critical component of our long-term strategy were again, a significant driver of our performance this quarter. at-Home Solutions, we continue to see a strong demand environment, fueled by the ongoing shift of care into the home. To support the growing demand, we are investing to expand the capacity of our network, the breadth of our offering and in new technology to drive efficiencies and customer experience. We are pleased with the integration progress of ADS, which now marks 1 year as part of Cardinal Health. We have successfully migrated ADS volume into our distribution centers as well as onboarded nearly 1,000 new employees and nearly 500,000 new patients. This marks a significant operational achievement that positions us for enhanced efficiency and long-term growth.

We are well positioned to capture ongoing growth as evidenced by the key synergies between pharma and home health, where we are seeing strong growth of our continued care pathway program, which we announced early this year, with the team now serving 165,000 patients and growing up nearly 20% since January. This progress is supported by our ongoing investments in technology and our core distribution footprint. To that end, we have signed a lease and are progressing with our new Sacramento distribution center, which will help us serve an even more customers on the West Coast.

Nuclear and Precision Health Solutions continues to demonstrate its leading position, thanks to our differentiated offerings and specialized expertise. This quarter, we announced a significant expansion of our Actinium 225 production capabilities at our Center for Theranostics advancement, which will substantially increase our capacity to support the rapidly growing demand for novel targeted cancer therapies and strengthen our ability to meet customer needs today and into the future. To date, Nuclear's Actinium-225 has supported more than 15 clinical trials worldwide reflecting broad engagement with pharmaceutical innovators, a clear indicator of our ability to execute and scale in this complex and highly differentiated field.

We continue to unlock opportunities for greater connectivity between our nuclear business and our Specialty businesses, exemplified by a recent supply agreement with the Specialty Alliance, which makes them our nuclear business' largest user of allusix for prostate cancer imaging.

Our OptiFreight Logistics business also continues to perform well and expand its offerings, consistently demonstrating its leading value proposition for health care providers. Launched last quarter, the pharmacy solution from OptiFreight Logistics, inclusive of tech board products, shipment Navigator and tracking Beacon provides meaningful shipping process efficiencies and improved tracking visibility via an all-in-one platform to drive confidence, security and clarity for outbound pharmacy shipments.

In closing, our results this quarter again demonstrates the clear progress we're making across the business. The relentless focus and dedication of our colleagues around the world underscores the vital role we play in ensuring critical products reach the right place at the right time for our customers, evidenced by the increased complexity our teams managed through to achieve record high service levels for the quarter. Our resilient business model and our foundational role as the backbone of the health care system give us great confidence in our ability to capitalize on opportunities ahead and to deliver sustained long-term value.

With that, we will take your questions.

[Operator Instructions] Our first question today is coming from Lisa Gill from JPMorgan.

Lisa, I'm just going to put you back in the queue you could check your phone. And we're just going to move to our next question from Michael Cherny of Leerink Partners.

Can you hear me? Okay. Perfect. Just one quick housekeeping and then one broader question. First, on the housekeeping side. Is there any way to quantify the accelerated SG&A investment that you mentioned in the quarter relative to positioning for future growth? And then broadly speaking, great to hear all the progress on Specialty. As you look at the portfolio now, where do you think -- if there are any kind of holes or shortfalls that you continue to see the opportunity to build out either organically or inorganically from here?

Great. Thanks for the question. Happy to address them. We did call out in the prepared remarks that while SG&A was up 17% across the enterprise overall. If you exclude the impact of the M&A, it was up 7%. And I can assure you we are being quite purposeful and disciplined in thinking through our SG&A structure to ensure that where we are investing, particularly in technology and team, as I called out, it's focused on setting us up for success going forward.

With respect to the Specialty portfolio, I guess I'll start and just observe that we are really pleased with the continued strength we're seeing in our specialty business. Indeed, across the pharmaceutical demand overall. But as we think about the Specialty portfolio, that was a key contributor to the excellent results that no Pharma had. GIA, Solaris, ION, all of the businesses that we've acquired have certainly partnered well with the existing Specialty capabilities, Specialty Networks, et cetera, and are performing as we expected when we brought them into the portfolio.

As far as where to next, if your question is really about the inorganic opportunities, what I would observe is, while we will continue to be focused on Specialty, we have prioritized autoimmune and urology, and we'll remain focused there. But we are going to be quite disciplined as well, the right assets at the right timing at the right price, we will continue to lean in to support our growing Specialty platforms. Jason, anything to add?

Yes. I'd just add that we're very pleased, Aaron, just used the word platform. And I think that's an important distinction of the investments we've made to date. We're clearly much more focused on the bolt-ons. We believe we have the capability, the business and perhaps most importantly, the teams in place to execute this strategy. And we see that there's a lot of opportunity, not just within each of these platforms, but how these platforms work together. You even heard in this call already, some of the examples of the areas that we're working not just between the MSOs but the MSOs and the rest of the Specialty business between MSOs and what we're doing with nuclear or our at-Home Solutions business. We have a lot of interconnectivity there, and it's all a component to our broader strategy to drive overall Specialty growth, which we reinforced again today is growing at over 20%. Still expect to exceed $50 billion of revenue this year.

The only other thing to add outside, Specialty clearly our highest priority. We've been very clear on that point. The other acquisition that we've done in the last year that we just anniversaried here April 1, of course, is the at-Home Solutions business. So the other businesses are the other areas of potential opportunity for us. Secular growth trends that are part of the market that's growing very quickly. We are very well positioned in each of those 3 spaces. And if the right opportunity presents itself. I would use similar words as to Aaron just said, we will be very disciplined as to how we approach those opportunities. But we think the market is growing and we're well positioned.

The next question is coming from Elizabeth Anderson of Evercore ISI.

I wanted to dive into other. Obviously, that continues to grow very nicely, and you just reseed the guidance for the fourth quarter. Are you seeing any sort of changes in trend there that give you the confidence to do that? Or how should we think about that as we sort of think about the back half of the year and then into 2027?

Thanks for the question. We saw a strong performance across all 3 of the growth businesses affectionately known as other. Revenue was up 31%. Profit was up 34%. But if you really unpack that, Jason referenced the strong secular trends, the positioning -- the competitive positioning we have, that's contributing to good results within the business and indeed lots of positive perspective on where those businesses are going to take us as we carry forward.

Strong demand has also been a key part of why those businesses have succeeded the way they have. I would highlight a couple of things. The core business within at-Home is doing well, and it has been reinforced by the ADS acquisition. The integration that Jason referenced earlier, it's going very well. We had highlighted in an earlier earnings call that we had a plan with opportunities to overperform, and we continue to see the goodness coming from the at-Home business supported by the ADS acquisition. And we pivoted from the integration of the supply chain, the distribution to now being focused on the systems, the back office and ensuring that we're providing the best-in-class customer experience that we aspire to for the patients being served by our at-home business.

Within nuclear, boy, that Theranostic growth just keeps coming. The investments that we're making in supporting the 70 different therapeutics that are coming our way, really have created a pipeline of success for the business, some of which we're now starting to see, particularly within urology and oncology. So we're excited about that. And then OptiFreight, continues to perform, providing the excellent services to its customers with another good quarter as well. And so we were pleased to deliver a good quarter, and this business will, of course, contribute to our raise to our guidance and achieving our long-term targets.

Next question will come from Erin Wright of Morgan Stanley.

Great. So some of the commentary on 2027 and the moving pieces was helpful. When we dig into that core pharma and Specialty distribution segment and the AOI growth assumptions that we should be considering remains strong, but how do we think about to sustain momentum into 2027? What would make you deviate from the long-term growth algo, in that segment? And how do we kind of reconcile with underlying utilization trends that you're seeing or you're expecting into 2027? And then also those continuing Specialty drivers?

A couple of thoughts there. First, we remain confident that our business is quite resilient and has demonstrated durability notwithstanding a fair amount of change in the industry. And I think it's important to keep that in mind that as we talk about fiscal '27 as well. And that's part of why we're able to express the confidence in the long-term targets that we have really across the enterprise, but particularly within the pharma business.

We have a strong core to our business, right? We have seen consistent positive demand, right? We saw it again this quarter. and the business is supported by positive demographic trends that aren't going away as we get one more quarter into our business. And so we think those are all things that are going to support the trajectory of that business.

We will also continue to benefit from the Specialty expansion that Jason and I have just commented upon, right? And one thing we're particularly excited about as well is how the pieces are all now starting to fit together. Specialty Alliance working with nuclear. Biopharma really working with the broader portfolio. And so there's a lot of goodness there within the pharma business that we think is supportive of the long-term target. And of course, we'll provide more perspective as we get through our planning cycle at the Q4 earnings call.

Next question will be coming from Eric Percher of Nephron Research.

I wanted to stick with Pharma and Specialty. And I'd like to get a little bit more on Navista and ION and the impairment. And I know you called out changes to the risk profile relative to a business plan. Can you give us a feel for whether that was near term versus long-term changes? And does it alter at all the oncology MSO strategy or economics of the platform?

Sure. Thanks, Eric, and I'll go ahead and start and then turn it over to Aaron to walk through the mechanics. First of all, I'll just reinforce what Aaron already said, the broader strategy, we're very pleased with the execution, not just this quarter but this year but also the last several years. Exceeding this $50 billion this year, continuing to see over 20% growth in Specialty highlights our strategy is working within the collective assets that we have put in place. And I'll remind you that, that 20% growth is pretty consistent to what we said over the last 2 quarters, so each quarter this year, which was an acceleration from the mid-teens growth that we saw in the prior several years. So we've seen our specialty growth be strong and then it's accelerated this year into very strong competitive positioning. And then within oncology, it was even stronger this quarter, continuing on those trends as well, over 30% growth in oncology.

So as a reminder, Specialty has a lot of components to it. Within Specialty, MSO is just one component within -- within the MSOs, oncology is just one component. And then we have, of course, Navista within that.

So Navista is a component of that, and it was a combination of an acquisition, but also organic business. And we had a couple of different strategies in place. We had the equity strategy working with physicians to create this long-term cooperation, collaboration agreement with an equity component. And then we had the nonequity where it was more a transactional more contractual. And what we've seen is that while physicians like to have choices and like to have a different alternatives, ultimately, we're seeing the market voting for the equity arrangement, and that's where the market has moved. And why we're prioritizing our strategy to that component. It does not change the broader strategy of either on the MSO strategy or the broader Specialty strategy. And I think the underlying data certainly supports that. It's all coming together in a very accretive way. But with this pivot and strategy, it did have some knock-on effects that Aaron can walk through.

I won't believe the point just to observe that as one piece of Specialty and one piece of oncology, and we're keeping score, right, on ourselves. As we've always committed we would tell you what we're going to do, do it and report back. And in this case, we have increased the discount rate applied to a small part of the oncology business. And -- but we remain pleased with the contribution that the specialty M&A is adding to our portfolio overall, the 8 percentage points or so within fiscal '26, consistent with the prior guidance that we've given.

The next question is coming from Allen Lutz of Bank of America.

Aaron, big free cash flow raise with a quarter to go. You mentioned or called out that revenue was maybe a little bit lower than your expectations. I think you called out IRA and maybe a little bit from GLP-1. We know that IRA is maybe more a headwind on the revenue side, but you were able to raise the free cash flow guidance. Can you talk about what gave you the confidence for what you're seeing? Was it better than expected? Was there a mix shift with a movement, I guess, more towards those IRA drugs that was actually a positive contributor to free cash flow? Was it more generics, just trying to understand what mix shift, if at all, impacted the free cash flow guide that was maybe a little bit better than you expected?

Allen, thanks for the question. What I would observe is that -- it's amazing how what gets measured gets done. And I can't point to just 1 factor across the enterprise as being the single source of success for our ability to generate the adjusted free cash flow we did or indeed drive the increase -- the increase of the guidance. It was driven really across all of our businesses with the management teams focused on the intersection between our customer service levels and our inventory positions, ensuring that we're collecting that, which is due to us from an ARR perspective and focusing on the appropriate levels of AP with our suppliers. And so -- there were a series of initiatives that have been underway now for several quarters that are really generating the success that we are able to call out.

I do want to seize on your question to maybe answer a question I haven't gotten yet or maybe for an emphasis on a point in the broader your pharma results, which is you called out the revenue. And I think this is probably a good point for me to observe that. The revenue growth within the pharma business was 11%, which I understand some were maybe expecting a little bit more than that. It's important to understand that we're in a quarter -- we're in the first quarter of a couple of things going on. Firstly, of course, we have the IRA WACC changes, which was a -- that was a negative relative to the overall growth rate and similarly -- sorry, [indiscernible] thank you.

And similarly, GLP-1s is also in a period of change. And so while GLP-1s are growing extensively, still over 30%, they're growing less than they were before. And so we saw a 6 percentage point uplift from growth within GLP-1 is offset by a similar level of downdraft from IRA WACC. And then when you some other brand dynamics like some like the LOE to generics, which is a positive for profit, right? That's really what's going on within the revenue line, even though the profit line, the demand line was very strong, the profit line is very strong. So I just want to take this opportunity to reference what was going on there.

We will now move to Glen Santangelo of Barclays.

Jason, I just want to follow up on some of those comments you were just making because I think there is obviously a lot of focus these IRA impact on the pricing and the revenue line. And I guess what the concern that some may have is, as these prices come down, it seems like on the fee-for-service side, you're clearly maybe being made whole, but maybe some are concerned about the buy margin on the 2% discount and then ultimately downstream when you look at practice profits if the price of these drugs are coming down, if these practices inherently become less profitable. Can you get squeezed in any way at the distributor level from the IRA price reductions beyond just the fee-for-service agreements. And I think that's what we're all trying to sort of figure out is the different components of the profitability there and if there's any vulnerability?

Yes. Thanks for the follow-on question on that. Let's break it into the two components because I think you're right to talk about this in two different pieces. Aaron's comments were very much focused on the distribution side. That's by far the biggest component of our business, and it's relevant to start there. We remain incredibly confident in our underlying business model. When you think about the fees that we receive today for the services we provide, that should not change. The services are certainly not changing, and we remain the lowest paid component of the supply chain than anyone in the supply chain. So we feel very good about continuing to receive the fees that we currently receive for that work.

And as a reminder, we announced the completion of the renegotiation of these contracts at the very beginning of the quarter at an analyst conference there. So this was all done prior to the quarter. It executed exactly consistent with that announcement because those agreements were already in place. Very similar to what happened with the insulin repricing the year before that. So there's a lot of precedents and frankly, it just makes sense, and it is consistent with we have [Audio Gap] be right to renegotiate the vast majority of our contracts for situations like this. So I continue to feel very, very confident with that. Now when you talk about other components of our business, MSOs in particular, as a reminder, the drug spend for our $4 billion, $4.5 billion of revenue in MSOs is pretty diversified.

We have only about 1/3 of that being drug spend. And within that, we have a very diverse payer mix. So we feel very confident that the implications to our MSOs are going to be very manageable, if any at all, because ultimately, what we're all looking for is exactly what is the administration's intent for providers as it relates to these go-forward initiatives. We don't think the intent is to harm community providers that provide excellent service to their patients, excellent care at the lowest cost already today. So it all makes sense for them not to be harmed, but we recognize actions need to be taken. But even if they don't, we believe this is very manageable for Cardinal Health.

The next question will be coming from George Hill from Deutsche Bank.

I'm going to dovetail right off of what Glen just asked. I guess I would -- Jason or Aaron, how would you guys characterize your fee-for-service pricing power as it relates to distribution agreements, especially in the face of some falling drug prices? And then I would ask as a follow-up. Like how have you guys analyzed that in the face of BFS risk as that's supposed to roll out and kind of get recalculated in the back half of this year?

Yes. As it relates to unified service fees, I think it's just too early to talk about the -- exactly what the implication is going to be for the whole industry. I mean, this is far from just a distributor type of process change, if at all. And again, it goes all back to we feel very comfortable with the value we're providing. So just like in the initial shift to fee-for-service in the first place, which maintain those economics, we would expect there to be a similar type of transition if there is a transition that that's required.

In terms of just the pricing power, it's quite simple. We have 1% margins. And I think we've been -- I've been very clear that branded products are at the low end, about 1%, right? I mean this is a blended margin of 1%. These products are at the low end. We have the right to renegotiate these rates. We get paid a certain dollar fee today the service we provide. It's clearly the best value for all those in the supply chain or they wouldn't be using the distributors in the first place. So there's nothing that changes in terms of value we're providing tomorrow. So we fully expect, we fully demand to be paid the same amount going into the future.

Our next question will be coming from Stephen Baxter calling from Wells Fargo.

I appreciate the early comments on next year at this stage. I'm trying to boil down some of the business commentary and the below-the-line commentary. I guess I'm trying to understand whether you're suggesting that the benefits from lapping deals and ramping synergies you think could potentially offset the below-the-line items that we're going to be comping against as we move into next year and therefore, leave the kind of typical EPS long-term growth rate intact? Or do you think people need to be modeling maybe something more conservative at this stage? I just want to make sure I understood that right.

It's a great question. Our job is to manage the entire income statement year-over-year. And what I want you to take my comments as being is providing initial perspective that we believe there are good reasons to believe in our long-term targets overall, the 12% to 14% non-GAAP EPS growth. We've talked about some of the operating reasons, the demand, the demographics, industry positioning, et cetera, all in supportive of the overall position. And as we do in every year and every quarter, we will continue to go looking for ways to optimize our below-the-line items, whether it's finding further durable ways to ensure we have the appropriate tax rate or also looking at our share repurchase plans. And so we have a lot of planning yet to do in our cycle but we are confident in our long-term targets.

[Audio Gap]

you can talk about that's happening and have the volumes improved in April if it was a macro thing? And then secondly, you talked about the potential clawback on the tariffs. How do you account for that? You mentioned it's potentially upwards of $100 million versus the maybe the $200 million impact. How does that get accounted for? Does that drop through the P&L? Is it something that you're reserving for on the balance sheet now? I just want to sort of understand from an economic perspective, from a modeling perspective, from an accounting perspective, how that all works?

Sure. Yes, this is Jason. I'll go ahead and start, and I'm sure Aaron will clean up then after that. In terms of volumes, I think the underlying industry volumes for the [indiscernible] fairly resilient anti-digit type of range. On the one area -- not one that's materially driving our numbers, but it is one that does have a little bit of an impact on the top line as well. We had called out in the past a large government customer, the VA that we did lose earlier in the year. And so that is a fairly low Cardinal-branded product customer. We also had a large customer that went through a significant merger. We had a part of the business better had another part. And so we did not carry over that piece of the business. Also a relatively low Cardinal branded mix customer, which is why you're seeing over 5% Cardinal brand growth in the quarter even though the top line was a little bit weaker. So we feel pretty good about the underlying industry strength the underlying positioning we have, and we're seeing continued strength on the most valuable parts of our business, which is that Cardinal-branded product. We're at the best service levels we've ever been at. We're in a really good position, certainly some supply chain complexities, but underlying a really good, strong position to continue to support our customers and grow that part of our business.

As it relates to the tariffs, I think the message is trying to be simple and clear that we have the potential for a $200 million refund based upon the tariffs that we paid up to the IEPA announcement. And that is -- none of that has been put into our P&L at this point in time. What Aaron commented that we want to be really clear with is that we have directly received price increases from our customers over the last year as a result of these tariffs. And so about half of that $200 million, we ultimately -- if we receive it, we would expect to share in that about half range with our customers, implying that someday, we may have a $100 million earnings gain as a result of that change. But it is still too uncertain for us to put through any of that into the P&L. And so we have not recognized any of that.

Yes, I'm just going to emphasize that last point. We haven't recognized impact in Q3. We've also now provided an update to our guidance reflective of that. The amount of any recovery that means by which the recovery occurs, the timing of the recovery, those are all uncertain at this point. And so I'm not going to get ahead of ourselves and provide you with a specific accounting and treatment until we have more clarity on...

Yes. And while we're on the topic of tariffs, it wasn't exactly the question that was asked here, but we had a couple of questions so far in the '27 puts and takes. Just one thing to kind of double back on to what Aaron had referenced earlier. As it relates to unrelated to the tariff refund, but the ongoing tariffs that are still in place and certainly may change further with the 232 study that's ongoing. We would anticipate that from a year-over-year perspective, there is some opportunity as it relates to tariffs for the GMPD business, but we also all know that fuel prices are higher at this moment in time. And that also flows through to some of the commodity prices within our products. These are fairly modest in their nature. They're nowhere near the impact that we saw several years ago with the hyperinflation that was in place. So we have a tailwind associated with tariffs that we think at this moment will be likely from an operational standpoint. We also expect that it's likely that there's going to be this ongoing commodity impacts. Both are, I'll say, a reasonable similar ballpark. We'll get a lot more specific with this when we provide our '27 guidance. But you have a put and take there. That is, to some degree, offsetting, it will be dependent upon where things stand in 3 months, and we'll provide those at that time. But overall, we think that, that's not only manageable for the GMPD business, it's even more manageable for the overall enterprise. We have some impacts for fuel, but it's certainly the GMPD business is where we are most closely focused at this point.

The next question will be coming from Charles Rhyee of TD Cowen.

This is Keith in on Charles. I just wanted to go back to the IRA topic real quickly. So given that you said you expect to be at the lower end of your rev guide for pharma. Is it a fair extrapolation to say that the IRA impact so far this year has maybe been a bit larger than your expectations?

No. I think what I observed is there are a series of things going on within the revenue line or the revenue guide that we had provided, and we're trying to be transparent that as we are modeling as you are modeling the revenue impact to be thinking about, on the one hand, the strong demand we're seeing certainly as a positive, but also understanding the impact of GLP-1 growth given that they are relatively empty calorie dollars for us, the impact revenue don't provide a lot of profit for us. Similarly, when a branded product converts to generic, and we are seeing some notable LOE examples this year. That is a downdraft on revenue, but a positive for us from a profit perspective as well. And so we're just trying to provide some of the puts and takes that are going on within that revenue line.

The next question will be coming from Steven Valiquette of Mizuho Securities.

Hopefully, I didn't miss this, but I think in some of the segment discussions with the talk about the soft distribution volumes, et cetera. It seems like some of the investors believe that that's been tied to weather impact. That was obviously pretty prevalent in some of the public hospital patient volumes, but it seems like a not really callout whether as a volume headwind in either GMPD or pharma unless I missed it. So even though the whole weather discussion is obviously irrelevant going forward. Just want to get your thoughts on that dynamic just within the just reported quarter really for any of the segments.

Yes. Thanks for the question. And I don't think you missed much. We didn't dwell on that point, Steven. It's -- it was so many focus on prior days on what's important as our team did a fantastic job of maintaining record high service level across the enterprise in an environment that was fairly complicated. We have some global supply chain challenges, of course, but in the quarter, you're right to point out weather. I would characterize it as a slight financial impact across enterprise. It kind of popped up a little bit here or there, very little within our traditional distribution types of businesses, some excess costs associated with just getting the right people in the right spot and transportation reroutes and things like that, but it was very slight and not. Certainly not large enough to call out. The 1 area that was relative to the size of business, the MSOs had a little bit more of an impact just because of the nature of -- it's much more difficult to make up for lost volume on an MSO. When you think about like pharmaceutical or medical products, the next week, the next day, you can just send a second truck and you can kind of catch up nearly real time.

With lost physician visits and procedures, it's harder to reschedule those. And so that's likely we lost a little bit of volume there, too, but I would consider that also slight in the big picture for the Pharma segment, a little bit more for the specific.

The next question is coming from Daniel Grosslight of Citi.

You mentioned that the ION distribution contract began transitioning in 2Q and the DIA and Solaris distribution contract will again this month. I'm curious how the ramp of distribution volumes have tracked versus your initial expectations? And then on the Solaris contract, I don't believe that was previously included in guidance. Can you confirm that and comment on how much of the pharma profitability guidance lift was driven by the Solaris distribution onboarding?

Yes, on Eagle is always on that caught that. We are indeed confirming today the Solaris distribution volume is now in the process of ramping up with our pharma business. And so we're pleased with that development as we were when we achieved the GIA distribution contract and the Ion distribution contract as well. I want to emphasize, when we talked about the acquisition originally, but we do not include the impact of the distribution contracts in our financial models. That is a separate part of our business. And so it is good news for us to have the volumes coming in. Now it is late in the year. It's our fourth quarter. And so the impact to our fiscal '26 will not be material. Otherwise, we would have called it out. But as you think about the puts and takes for next year within our Specialty business, certainly now having Solaris ramping up is a positive for our...

We now move to Brian Tanquilut of Jefferies.

You've got Jack Slevin on for Brian. Maybe just one, a lot of questions has already been asked. Maybe one to just sort of clean up. I haven't heard too much discussion on it. There's been some reference to some of the energy cost and shipping trends you had that created headwinds for this business in 2022. Can you maybe just speak to if any of that applies right now, given some of the volatility we're seeing in energy prices or input cost of things like polypropylene? Can you maybe speak to what's different now versus what happened in 2022? Or if there's anything we should be worried about as it relates to some of those trends across the business?

Sure. Yes. And I did touch on it, but I can expand further to try to answer the question of what's different now. Well, first of all, the shock we're talking about now is different. It's very much focused on not just energy but it's on oil. And that does take time to kind of filter through to some of the products from the polyethylene, polypropylene types of products. But what we're seeing is more of an oil shock right now. It does translate to fuel, and that's the comments I made earlier. The excess inflation that we saw several years ago was way beyond just fuel. It was a lot -- the container cost, you may recall, international freight was by far the biggest piece. We had very high labor inflation that carried on with that as well. And so while we did call out fuel 4 years ago, it was #4 on the list of items. Since then, we've also structured our agreements to be more flexible for us both with the carriers as well as our customers. It's not completely protecting us, but it gets back to the -- I think the word I used earlier, that I think is a good one of using here. It's certainly much more manageable than it had been structurally, but also based upon the type of issues that we have. And as it really to the product cost, really exam gloves is the one item that I continue to see and hear a lot of industry chatter about. That is one product category that we're already seeing cost increase quite a bit. Just as a reminder, PPE is a relatively small category for us, but exam gloves in particular, is relatively small. It's less than 5% of our Cardinal-branded product. So again, manageable even when we see significant dollars like that. It's important for those customers that are buying a lot of exam gloves, which are many, but it will be a relatively small pull-through today based upon those prices, and we will certainly continue to evaluate that.

Also as a reminder, if there are further impacts the fuel tends impact the distribution activity. So that's a current period type of cost, and you kind of see it a little bit quicker. The product cost will take at least a couple of quarters before they'll start to flow through the P&L. So we've not seen a lot of product costs yet other than exam gloves. And when we do, we're going to have 2 to 3 quarters to be able to understand and see if we can mitigate and then, of course, delay the impact on the cost side so that we can see what happens with industry pricing at that point in time.

I guess I would just close on that point of we're better positioned than we ever have been before in this business, and we are not backing away from our longer-term guidance with respect to the GMPD business either.

And our last question will be from Eric Coldwell from Baird.

And I think most of mine were covered here. But I just want to circle back on two quick ones, if I may. First, on Navista and Ion and the changes you're making. I just want to kind of tie the bow on this. The topic of the impairment and the changes you're making -- just want to make sure that, that is 100% Cardinal-specific, how you're going to market, how you're interacting with the MSOs. And this is not any kind of a broader comment to the overall oncology or MSO marketplace. Is that a fair interpretation?

Absolutely. And as I highlighted in my comments -- in Aaron's comments as well, over 20% specialty growth so far this year in the quarter as well, more than 30% growth in oncology. We're very pleased with our Specialty strategy, very pleased with our oncology strategy. This is entirely a focus of prioritization on the equity model of our MSOs. And Eric, do you have one other?

Discrete item. Could you just tell us what that multiyear capture was what the actual nature of that tax item is?

Yes, Eric, we aren't in the practice of disclosing our individual tax positions. We take other than to observe that it was a multiyear opportunities that we did take in the quarter, which was about [indiscernible]

We do not have any further questions. Now I'd like to turn the call back over to Mr. Jason Hollar for any additional or closing remarks.

Yes. pleased with another strong quarter. Of course, we're looking to finish the year strong. But more importantly, as always, we're focused on the long term, doing the right things today to make sure we're successful tomorrow. So thanks for joining us today, and have a great day.

Thank you, much, sir. Ladies and gentlemen, that will conclude today's conference. Thanks for your attendance. You may now disconnect. Have a good day, and goodbye.

Good morning, everyone. Okay. Excellent. Thank you for joining us bright and early. We're happy to be kicking off day 2 of the conference here with Cardinal Health. Representing the company to my right is Aaron Alt, who's the Chief Financial Officer of the company; and to his right, Matt Sims, who I think many -- most of you know, heads the Investor Relations function at the company.

Before we get started -- and let me just quickly introduce myself for those who don't know me, I'm Glen Santangelo. I'm the analyst at Barclays that covers the stock. Happy to follow up with anybody. But before we get started, I just want to turn it over to Matt. He just wants to read a quick disclaimer, and then we'll jump right into the Q&A.

Well, great. Thanks for hosting us, Glen. It's great to be here. So before we begin, just a little housekeeping. We will be making forward-looking statements today, which are 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 jump in.

Okay. Excellent. All right. Well, let's get started. Thank you, Aaron. Thanks, Matt.

Okay. Here we go. So I thought a good place to start off the conversation would be talking about fiscal 2Q. We recently launched on the stock in December. It felt like there was some upside to the estimates to us. And I think in January at one of the competitor conferences, I think you raised guidance. And then in February, again, guidance sort of got bumped up again. So maybe if you could just sort of level set us and talk about the first half of fiscal '26, how things played out, maybe what's come in a little bit better than maybe what you thought. I don't know if there's anything that was maybe a little bit different than what you thought, but I think that would be a good place to start, and then we can sort of dive right into the questions.

Glen, thanks for having us. Delighted to be here. And indeed, you're right, we have had a strong first half at Cardinal Health, really driven by 3 things: strong demand, great execution and continued investments against both the short-term, medium-term and long-term objectives of the company. And let me highlight a couple of parts of that. Of course, our pharma business is the largest of our businesses, 19% revenue growth, 29% profit growth. Profit growth really driven by the contributions from our specialty business, our brand business, the MSOs, strong volumes across the board, greater -- strong volumes, greater demand than we had anticipated.

The business affectionately known as other, which is, of course, the aggregation of 3 parts of our business, nuclear Precision Health, at-Home and OptiFreight, 3 well-positioned businesses that have great secular positions that are responding to key demographic trends, industry leaders. They also delivered strong profit growth, more than 50% for the quarter with strong revenue growth as well.

And we can't forget our GMPD business, which continues to execute against the GMPD improvement plan, and they saw strong Cardinal Health brand growth as well as strong execution against the operational excellence and the cost takeout. And so we were pleased to be able to have good results there. All 5 of our operating businesses, more than double-digit growth in the quarter, continuing the trends from the first quarter.

Now going on behind the scenes, of course, of all of that is the fact that we continue to invest. We're investing in M&A through the MSOs. We're investing in the organic growth of the company. We are investing more than we ever have before this year, last year, the year before that as well. And that's coming in the distribution note, that's coming in the acquisition of MSOs, that's coming in technology investments that we're doing across the board. What I want you to take away is that we're doing the right things now to set the company up for profitable growth, not just this quarter, this year, but next year, 3 years, 5 years out. We're making those investments now as everything is going on.

Lastly, of course, we did raise our guide. During our Q2 earnings for the rest of our fiscal year, we raised our EPS guide to $10.15 to $10.35. We raised the operating profit guide across all 3 of the businesses, Pharma as well as GMPD as well as the other business. We also commented, of course, that we've got some good news below the line, having completed our baseline share repurchase of $750 million, we updated our share number guide as well. And we did comment that we see some discrete positives coming on the tax line, particularly in Q3. So we're able to take down our tax rate for the year as well. All that led to our raising guidance.

Okay. Excellent. So let's start by diving into the Pharma and Specialty Distribution business. I think one of the challenges for us as an analyst, and I'm sure for investors, there's a lot of moving pieces here, right? So if we go back a little over a year ago, you did an integrated oncology network and then the GI alliance and then ultimately, more recently, Solaris. And I guess -- what I'm trying to figure out is get a read on underlying operating income growth, excluding those acquisitions. And so I'm wondering if you can give us some characterization of how the core may be performing ex those acquisitions and what may be driving strength in the core?

Great question. And the simple answer is we are seeing strong demand and strong execution even within the core of the business. And while we are mindful of the fact that we have done significant M&A and that the M&A is contributing on an accretive basis to the overall enterprise, M&A for our year for the growth for pharma is about 8 percentage points of the profit growth, which means that our underlying core business including our core specialty business ex the M&A is contributing above our long-term target during the year. And so we had guided pharma up to 20% to 22% profit growth. If the M&A is 8% of that, you see that indeed the core is growing faster.

And that is -- we are seeing strength in our generics business. Of course, we call consistent market dynamics all the time. As volume grows, we see good news there. We're seeing strong performance in the brand business and the consumer health business that we have across the biopharma services business. Happy to talk about more about those wherever you like, but we are seeing good news across the entire pharma portfolio.

And on your recent quarterly call, you called out the lapping of the integrated oncology deal, right? And so when we think about the balance of the fiscal year, I mean we still have the tailwinds. Well, we'll lap GI Alliance and then Solaris will continue to be a tailwind. Anything -- any other headwinds or tailwinds we should be thinking about for the balance of the fiscal year in these last 2 quarters?

So from a timing perspective, we guided at the start of the year that first half profit growth will be higher than second half profit growth, really driven by a couple of things. First, we can't lose sight of the fact that we onboarded $10 billion of new business in the back half of last year. And there's about $7 billion of that carry on effect of that in the first half of this year. And so the combination of the $7 billion of growth in the first half and lapping the $10 billion will bring us down from a growth rate perspective somewhat in the back half.

The second thing, as you pointed out, is indeed, we have -- we are lapping the acquisitions with ION and GIA. We didn't close Solaris until November, and so that's further out. But indeed, we are lapping the acquisitions. And to my point earlier, we do continue to invest across the business. And so although I'm not going to call out any one specific investment, part of how we have provided the profit growth for pharma for the back half of mid-teens is driven by the lapping of a couple of those items as well as some of the investments.

All right. Can we talk about the M&A strategy? Because it feels like you bought a bunch of different types of businesses, right? And you talk about the MSO platform, and that sort of gets a lot of attention. And it feels like at least the feedback that I get from investors is it feels like Cardinal's acquisition strategy is maybe a little bit different than your 2 competitors. And I wonder if you can maybe opine on that, and maybe put it in perspective for us? And then how do you think about the appetite to continue to do deals at the pace with which you've done them the past couple of years?

Yes. Well, I'm thankful that the investment community has noticed the difference in strategy because it is intentional. The old business school adage is you're running everyone else's playbook, you're doomed to failure, and that's not what we're doing. We have been specific to -- we've been purposeful in identifying where are our competitive advantages, where do we have opportunities to further take advantage of the assets we already have by virtue of adding M&A to that.

And we identified 3 years ago at our Investor Day that we were focused more on the other ologies, not oncology per se, but the rheumatology, gastroenterology, neurology, urology, nephrology, areas like that where Cardinal has historically been one of the strongest, if not the strongest, in traditional distributor in GPO. And that's where we really started our focus while importantly, knowing that we need to be relevant in oncology. And so you've also seen us do acquisitions in the oncology space.

And so that is why we started our M&A journey 2.5 years ago with the acquisition of Specialty Networks. Specialty Networks was originally a urology-based GPO that then moved into technology in a way which we saw as being purposely additive, not just to urology, but we could do more with it in gastroenterology, urology, nephrology, oncology, et cetera. And so we acquired Specialty Networks, even though it wasn't an MSO to really be part of the backbone of the upcoming acquisitions that we were going to be doing. And we've been delighted to do that.

GIA and gastroenterology, they were a customer of Specialty Networks from a data perspective, even though they weren't part of the GPO, they weren't part of the urology network. Solaris was a customer of Specialty Networks, even though they weren't a broader part of the network. And by the way, neither of them were -- they were not customers of ours from a distributor perspective. And so we're really building an ecosystem around the therapy areas for which Cardinal has historically had reasons to succeed in that way. And we're going to continue to lean in, in those areas.

We've done a number of follow-on acquisitions in urology and gastroenterology, Urology Americas, Potomac Urology, those are some of the ones we've announced, but there are a series of tuck-ins that go with those as we seek to increase the scale of those MSO efforts. And indeed, as we seek to, along with the scale, really bring the operational excellence in the ways that we can create value for the community physicians. Because I want to emphasize the other thing that we think we're doing different is we are starting with -- not with what can they do for Cardinal? We're starting with what can Cardinal do for the community physicians?

Because as you think about the regulatory environment in which we're working, right, it's all about how do we ensure that patients have access to care? How do we ensure that health care costs come down? How do we ensure that innovation is accessible, right? And we believe that we can be a productive participant in that and indeed someone who's really supporting that effort by leaning in with the MSOs, by ensuring that we're bringing our scale in purchasing, our scale in contracting, our scale and distribution, et cetera, to the table. And that's why we believe that the doctors are excited to partner with us from an MSO perspective.

Now where to from here, we benefit from a strong balance sheet, right? We have a disciplined capital allocation framework. And of course, we'll continue to look at M&A while at the same time, investing every dollar we can into organic growth, protecting our balance sheet and also fulfilling our commitments to return capital to shareholders.

Okay. Maybe just a couple of quick questions on the core, back to that. I mean, how do you see any sort of volume volatility related to the macroeconomic conditions, shifting labor markets? You're starting to see a lot of layoffs getting announced. You're starting to see any sort of issues arise on the volume side?

Yes. I can only point to our update to guidance again, which is in the first half, we saw a strong demand really across the portfolio. And indeed, we raised our guidance at our Q2 earnings call to -- and part of the raise to that guidance was the fact that we were seeing -- that we actually raised our internal expectations of demand for the back half of the year. And so notwithstanding what's going on in the Middle East, notwithstanding corporate restructurings, notwithstanding changes to the regulatory environment, changes to health care coverage from the federal government, we continue to see strong health care demand, which makes sense to us, right?

The demographics are in favor of the industry and that the American patient, we're all getting a little older, and indeed, we're all taking better care for ourselves. And with the access that we're increasingly having to new therapeutics, we believe that we're in a strong demand environment.

Okay. All right. Maybe just shifting gears over to sort of the LOE pipeline sort of coming up. We hosted a panel yesterday with a consultant that we use in the space. And one of the comments that he made is, if we look over the next sort of 5 years, he's expecting $200 billion to $300 billion of patent expirations in terms of total dollars amount over the next 5 years, and that sort of compares to about $100 billion over the last 5.

So no matter how you slice the data, it feels like we're about to embark on an uptick in sort of LOE activity, and that's coming from a range of specialty sort of complex generics. Could you maybe talk about how Cardinal is positioned to take advantage of that, if you believe that's to be the case? And I guess maybe more broadly, do you see that uptick on the horizon? And do you think that Cardinal benefits just from its position in the supply chain?

We do benefit. We do see the opportunity, and we are excited about what it can do both for our business and for the health care community given the LOE that's coming. A couple of additional thoughts. First is we have a -- we have had for many years, a strong collaboration with CVS in the form of our Red Oak Sourcing relationship. And we believe that Red Oak is the #1 sourcer of generic products around the world and that, that means that Cardinal has first access and best cost in the generic space. And that is saying something given the relative scale. And so we believe that Red Oak is a competitive advantage for us and for CVS in that way.

As we look at the LOE that's coming down the pipeline, you're right, there is a significant surge of LOE coming. I'm not going to comment on any particular generic good coming, but I will observe that we make more money typically on the generic goods. The revenue line is much smaller, of course, given the pricing, but we make more profit on that on the absolute scale basis. And so we're excited about the generic trends that are coming and the opportunity it presents for all of us.

Are you more excited about the small molecule orals, the complex generics or the specialty is like one class of those drugs better for you in terms of this trend?

They're all part of the ecosystem. And I mean, the small molecule has been around for a long time. But the more complex, the biosimilars, I get questions a lot as well. That is all part of the pipeline of what's coming. And the economics are different based on how the various players address them, but we see it all as opportunity. I'll use biosimilars as an example. We've been talking about it now for several years. That market is in early innings. It's not yet -- it has not yet become, I think, that which everyone aspires for it to become from a utilization or an economic perspective. And so there is opportunity there for the future.

And similarly, as more LOE comes through, we're going to continue to optimize that for the portfolio. But I want to leave you with the point that like you were looking at the LOE pipeline, it's not coming as much this year or next year. It's in the back half of the 5-year period you were calling out. But we do think it's a good trend supportive of our industry and our company.

Just back to the comments you made on Red Oak, one of the other things that we've sort of come to the conclusion based on some work we've done with some consultants is it kind of feels like generic pricing has gotten I'll call it, less bad relative to maybe where it was a few years before that. And so I'm just kind of curious, are you seeing that trend like when you compare '25 into '26 versus maybe '22, '23, '24, does it feel less bad to you now versus a couple of years ago?

Yes. We don't actually talk about our business in the same way as some of our peers do. And as you look back through our earnings call commentary on the generic part of our portfolio, what I want you to notice is if we're talking about consistent market dynamics and we're talking about volume growing, that's a very positive sign. And consistent market dynamics for us is the cohorts for we're managing our portfolio to average margin per unit. And if that is consistent really across the basket, that means that we're not having to deal with or we have successfully dealt with across the portfolio, any rise and fall on a particular item or units in that way.

And as long as I've been at Cardinal, every quarter, it's been consistent market dynamics and growing volume. And so we haven't -- we have not commented on anything other than that. And it's certainly part of what's part of our guidance is that continuing on, again, driven by the scale we have through Red Oak and just how we manage the business.

Maybe just segueing that conversation to the branded side. One of the concerns that we got later in the year and heading into the new year was the concern around the IRA pricing and some of the reductions we were seeing on the branded side or scheduled to see in '26 and '27. And investors ask the question a lot, do you feel like the distributors have adequately renegotiated their fee-for-service contracts in anticipation of those price reductions. Any sort of commentary to investors in terms of how well you feel Cardinal is prepared or how well those negotiations have gone to make the company whole for this price erosion that we're seeing?

I appreciate the question. And I will observe a couple of things. One is we expressed confidence for months in advance of the 2026 IRA changes that we expected to retain the economics with our branded manufacturer partners, notwithstanding changes to WACC or other choices that will be made. And there was some skepticism on that. But the good news is we actually put in the headline of press release last time around, I believe, that indeed, we maintain the value of our economics. And here's the simple reason why.

We are the backbone of health care and that we are buying things from thousands of manufacturing sources and distributing to tens of thousands of customers every day, right? And we get a 1% margin on that overall. So there aren't many that want to do that for those returns. There's a -- it would require a fair amount of investment to replicate what we and Cencora and McKesson do in that way. And we're very clear with the manufacturer community what it would cost them to try to replicate us.

And we give them that choice every year when we negotiate our contracts, and they have thus far not taken us up on that opportunity. And so we continue to express confidence as it relates to 2027 IRA. Indeed, as we talk about '28 and other regulatory change where -- the words on the contract may change, the individual provisions may evolve. But at the end of the day, we will be compensated for the services that we provide because we are a central part of the American health care ecosystem.

We only got 3 or 4 minutes left. So I'm going to do a little rapid fire here. Can we talk about the other segment? I mean some of these businesses, the at-home solutions, OptiFreight, Nuclear, I mean it is 20% of the operating profit of this company now and growing at an exorbitant rate. And some of that has been fueled by M&A, but you're seeing decent organic growth. How should we think about how Cardinal prioritizes those businesses from an investment perspective? And help us think about the durability of some of the recent trends that we've seen in that business.

From an internal perspective, those businesses are anything but other, right? They are small relative to pharma. And so from an accounting perspective, they aggregate together into other. But I affectionately know them as other, and we are investing in those businesses for the long term. We expect double-digit profit growth on an organic basis from each of those businesses as we carry forward. And whether we're investing in $150 million into the pet network within nuclear or investing in the advanced theranostics capabilities within the nuclear business or investing in the technology and the capabilities within OptiFreight Logistics or investing in automation, new distribution nodes, et cetera, within at-home to bring that cost down as we seek to optimize that business.

So we are leaning in with each of those businesses. They report directly to our CEO. They have access to capital they've never had before. Because we believe they are a differentiated part of our portfolio that we can drive growth on. And importantly, we also believe that each of those businesses can be supportive of and support the other parts of our portfolio. So part of what we're building is not how do we optimize 5 discrete businesses or the number of businesses below them, but how do we optimize in the way where they are supporting each other and creating more -- and offering us more opportunities for value creation across the portfolio.

Can you talk about Global Medical for a second? I mean the company has been pulling costs out of that business. How much more opportunity is there to restructure and pull costs out?

We are really pleased with the progress in the GMPD business over the course of the last couple of years. If you go back to our Investor Day 3 years ago, what we commented was as we think about sources of shareholder value creation, right? What we could see at that time was we had a specific plan, the GMPD improvement plan, led by growing the Cardinal Health brand, led by optimizing the cost structure, led by a better customer service, the core operational elements to make us the partner of choice. If we could execute against that plan, we could see that we would create more shareholder value by doing that than other alternatives we were discussing.

And that continues to be the case where we've now had a couple of quarters of good -- a couple of years of good results against that plan, a couple of particular quarters. The fact that we raised guidance for GMPD this quarter, I hope isn't lost on anyone. And so they continue to find ways to take cost out. We've certainly had some good results from a Cardinal brand perspective, and we're -- we continue to lean in to drive success there.

Okay. A couple of financial questions. The leverage on the business, 3.2x. How comfortable are you? Do you feel like that's sort of the right number given all the M&A that we've seen? And how active is the company sort of searching for M&A activities at the current time? And just given what you and all your competitors have done, are you starting to see upward pressure on acquisition multiples that maybe you're seeing in the marketplace?

Yes. We have a disciplined capital allocation framework, which the most important word is disciplined there and that we take -- we hold ourselves accountable to doing exactly what we say we're going to do. And so first thing we're going to do, of course, is invest $600 million, $650 million organically in CapEx into the business every year. We have plenty of investments. We have internal competition for that capital. And so that keeps us honest internally. We've protected the balance sheet by bringing leverage down. As you called out, we've completed our share repurchase -- baseline share repurchase of $750 million. And after that, it's additional capital for either further M&A or incremental return of capital to shareholders. And so we have those options in front of us.

As I said before, we've got a strong balance sheet. We're in a great cash position. We're going to generate $3 billion to $3.5 billion of adjusted free cash flow this year and $10 billion over a couple of years. And so what I love is it gives our management team choices, right? We continue to be active in the M&A market for the right opportunities at the right price at the right time. Having acquired platforms within urology and gastroenterology, we don't have a need to pay a high multiple for more platforms in that space. But what we will be interested is lower multiple tuck-in, highly accretive acquisitions in that space. And we can't forget other and the 3 businesses there are other parts of the portfolio where we will lean and support. And if we don't see those deals, then we will do what we said, which is returning incremental capital share.

Right. That's what I was going to ask. So if you can't find the deals, it's fair that you're going to go above the baseline share repo that you already completed through the first 2.

We always have that option to do that. It's part of our -- it's part of the discipline we're applying to the capital allocation framework.

Okay. Well, we're out of time. So what I want to do, I mean, it sounds like there's a lot of things going in the right direction. Maybe I want to give you a minute just to sort of tie it all together, if there's any message you want to leave the investors with here today. And just as part of that, is there anything that sort of keeps you up at night, anything you're concerned about, anything you're watching a little bit closer, but I want to give you the sort of last word to close it out with you.

Yes. There's no escaping the fact that we're operating in a dynamic environment, economic, regulatory, business as well. What I take -- what I sleep well as a result of is the fact that we have a business that's got momentum. We've got a great management team that works very well together that is able to grab the strands of our business, has great relationships within the industry. And so we have been able to drive growth across the entire portfolio, both from operational execution, importantly, as well as a result of demand. And as we carry into future quarters, of course, we're carefully monitoring changes that are out there. But with us being the backbone of the health care industry, as Jason would say, the beginning, the middle and the end, increasingly across our portfolio, we have high hopes for Cardinal Health.

Okay. Aaron and Matt from Cardinal Health, we'll leave it there. Thank you guys very much.

Good morning, everyone. Welcome to this session of Leerink Global Healthcare Conference. I'm Mike Cherny, the health care 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 asserted strategic efforts and then David Frost, who will be the additional IR person sitting in the front row here.

So I believe Matt has an opening statement and then...

Yes. Well, thanks for hosting us, Mike. It's great to be here, as always. Not a bad view. So 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. So Aaron, maybe -- let's level set here. 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 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 2 fiscal quarters in. We're in the middle of our third quarter. And while I'm not going to provide a specific update on Q3 today, certainly, you can take some observations from my comments.

And if you think about our Q2 results, which we released several weeks ago, all 5 businesses grew profit double digits plus, right? And 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 couple of years. And so that has really come together and put us -- put Cardinal in a position of strength relative to our business and the environment in which we're operating.

Now it's equally true that we saw a 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. And then GMPD, a business we don't talk a lot about these days, delivered a great result as they continue to take cost out and drive success in the Cardinal Health brand part of the portfolio. And so across the enterprise, we have seen year-to-date 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 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 aren't guiding that, right? We're guiding strong demand. If demand is outsized, that would be opportunity for everyone in that way, particularly around our Specialty business.

Pharma has been driven so far this year and 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 we'll be hitting $50 billion plus 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. And 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, where 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. So while growth in the second half of the year for the Pharma business will be mid-teens, I think we've said from a guide perspective, it won't be as high as it was in the first half because of those 2 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. And that's also carrying forward into the other parts of our business as well. You take Nuclear where 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 today is leading with Specialty. 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 of $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? And along the second part, what is Cardinal able to do to make the MSO assets that you've acquired better businesses where you've been able to execute so well against them?

Yes. It's important to keep in mind that we view the Specialty business as really 3 larger parts. You have the Specialty Distribution, which is heritage Cardinal. We have traditionally had strength in the other ologies, the urology, the rheumatology, nephrology. We've doubled down on those areas and certainly increased our exposure in areas like oncology as well. I'll come back to that in a second.

Then we have the downstream elements like the investments in the MSOs we've been making, which we're super excited about because that isn't -- 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 the MSOs, which I think is a little bit different strategy than some of our competitors.

And 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 a couple of years of investment in the business and from a team, from a technology and capability perspective. And so 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 3 of those. And 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, but the pieces are really starting to come together.

And maybe to the other point of your question, for us as much now is how do the pieces connect to each other, right? I'd 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 a -- historically was a urology GPO-based business that then moved cutting-edge into technology that we then acquired to get the technology and got the urology, the GPO and relationships part of the business.

We're then able to leverage that capability, not just in urology, but GIA was a customer of Specialty Networks, right? And so now Specialty Networks -- GIA is using the technology from Specialty networks. Similarly, with Solaris now in the portfolio as well, we're connecting Solaris with 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 us. And so 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, there's more you can do. And so 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.

Yes. Great point. We are starting with the community provider at the core of what we do, right? And so 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. And so 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 want to do and shouldn't have to spend their highly educated time doing, right? That's really where we are focused.

And so what we're bringing to the table there, for instance, we're able to bring scale and better expertise on technology, right? And we're able to do that across the scale of 3,000 providers in 30-plus states at this point. And so 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 do you do scheduling across 5 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 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. And so 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.

Now there's some additional benefits that are second circle effects, if you will, of the acquisitions. I'm going to 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 and Specialty Alliance-related urologists get from being partnered with Cardinal and our Nuclear Precision Health business with the number of the 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 to Cardinal Health.

Maybe thinking about the core Pharma business, you kicked off the year with some -- at least for this market, fairly significant changes with the first change in the IRA negotiated prices. 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. But what we have is 50-plus years of experience and relationship working with each of the counterparties.

What we have is 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 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 thousands of manufacturers, and we distribute it to tens of thousands of locations every day. And that requires scale, that requires expertise.

And so when we have a conversation on an annual or a biannual basis, it all goes down -- 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? And we have that conversation 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. And our peer set is in a similar position in that way.

Now 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. So that is true. It's not -- there's not an automatic escalator or de-escalator tied to what's going on with WAC. But what we showed and the proof points I would give you first with insulin and more recently with the 2026 IRA changes, we expressed confidence going into it that it would be fine. We would be compensated for the services we're providing. And 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 expected.

I am sure the same question is going to come up in connection with 2027. We're already seeing some of the news around 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 that high-growth drug. And I'm sure we'll get to the same question in 2028 when we get to Part B as well. And maybe I can just jump there quick in case it was coming, which is...

It was.

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 innovation. And we expect that just like we have with Part D in '26 and '27 that by the time the 28 changes actually roll out, we will have negotiated the appropriate compensation certainly for Cardinal and for the docs that are part of the broader MSOs with whom we're partnered.

And when those negotiations go on, one of the things I've always found is like trying to level set and look at the role that you and your 2 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 that goes more than just a margin percent 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, but that's not easy, so.

I've got an easy answer. We're a 1% margin business on core distribution. And so if someone wants to look at what we do and buying from thousands and selling to -- and moving to 10,000 on a regular basis and tell us that 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 and indeed the return on capital that comes with it.

And so these are -- we are all sophisticated counterparties. They're all the conversations or negotiations you would expect ensue. But at the end of the day, what it comes down to is the fact that 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 in exchange for doing that. And frankly, we do it well, right? And the American health care system needs us to continue to do that. And 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 50-plus years and why we have great confidence that notwithstanding everything else going on in the industry, the world, et cetera, that we are an essential backbone to the American health care system, and we will continue to be successful doing what we do day in, day out.

So you're primarily U.S. domiciled business, but one that is subject to world geopolitical strike. Obviously, top of mind right now besides AI is oil prices and 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?

Sure. My short answer is going to 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 into the Middle East. And so we have no direct exposure from a business operations perspective.

Similarly, given where our manufacturing or sourcing operations are located, we don't move much, if anything, through that part of the world. And so as we think about transportation costs, ocean logistics, et cetera, we're in the Pacific, not in Strait of Hormuz or the Red Sea in that way. And so we are, again, not directly exposed to the cost of shipping through that part of the world.

Of course, we do move stuff, right? And so we pay very careful attention to price of gas. And we have a variety of contractual provisions around that as well. And we manufacture stuff, and we manufacture stuff that uses petroleum as a base. And I would observe as follows.

The first is that I anticipate an immaterial impact across our enterprise to fiscal '26. 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 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 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.

And so while, of course, we're carefully watching what's going on with oil, we don't believe it's going to 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 '26. 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 7 or 8 months as we carry forward. So that would push us into '27 to the extent that our input costs were elevated for the long term.

And 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 inform -- 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 absolute lessons to be learned. And the good news is we've learned them, right? And I think you can see the proof point of that we've learned many of the lessons with a couple of quarters of good results from the GMPD business in particular. Most of our global supply chain is 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.

But 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 couple of quarters. And whether it's Jason or Steve Mason or the broader GMPD team, we are very focused on that.

I might come back to farm and the MSO side, but I want to make sure we have some time to talk about the other assets because I feel like at times, they're not talked about.

Affectionately not as other.

It's the best unit name I thought. We kind of do the math on when you closed the ADSG deal, but how -- where are you in the integration of that asset and of the ability to basically position it within the AssureMed platform and make 1 plus 1 more than 2.

Yes. 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 2 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.

And what I can tell you is we're doing well, right? We are at or above our initial expectations for the integration of ADSG. A 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 in 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.

And we're excited because, of course, when you go into a new environment with the administration creating new rules and regulations as well, you want to be the player at scale. You want to be the player with a great compliance program. You want to be the player who can bring benefits to the industry, who can bring benefits to the manufacturers. And certainly, with our focus -- with our larger focus on CGM and diabetes, we believe that the combination of the 2 assets is going to put us in a great position to do just that, which is deliver great service to the ultimate patient in the home, but 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.

So 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. It has a fairly nice, almost direct overlapping link with the stuff that you do on the Pharma side. Like where does that push and pull come to make sure that you can continue to maximize the value because you can expand that portfolio?

Yes. What I would observe is opportunities like Continue Care, 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. And so that's an upside to our business case, and we continue to look for opportunities like that.

And for something like that, how long do you think it takes before you could tangibly see the results that's working?

Of course, it's hard to answer without talking about a specific driver in that way. But 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. And obviously, the result was that they blew it out across their network, and now we're benefiting from that, both from a relationship perspective and stickiness perspective, but then 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. And so 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 as 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 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? And obviously, I think for many, many reasons, we're all waiting, hoping that we have a broader adoption of Alzheimer's drugs, given it's been a tough category to crack. Like how do you think about your role against that pipeline potential and the push and pull on investing in nuclear business, which obviously has a great market position already?

We are very excited about the nuclear Precision Health business. I mean it is, to a degree, Specialty on steroids, pardon my unintended pun in saying it that way. If you think about where the distribution -- 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 to hit, right? And 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.

And so given that, right, we are -- we actually are investing in the MPHS 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 the therapy area, we are either the manufacturer or the distributor or the commercialization partner, in some cases, all 3. And so 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.

Because we run out of time, I'm going to jump back to the MSO side. And you referenced it a bit, the Specialty Networks acquisition being the first Specialty capability. I've long thought about it as being kind of a nice overarching platform to make everything else work well together. Like what does Specialty Networks bring to you from an analytical capability, from a connectivity capability, from a GPO capability? And 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 of ways. The first magic is they had 2 technology platforms, PPS Analytics and SoNaR, which are doing a couple of things. 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. And so 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 also sharing practice recommendations back to the doctors, which creates stickiness because the doctors are -- they know their systems are into the broad -- feeding into the broader hole, but we're actually saying to them, you've got this patient here. By the way, there are 5 other patients who are presenting similarly, not part of your practice group, but over here, and this is what's been effective for them. Keep that in mind, investigate that further. It also leads -- it also supports the studies, the real-world evidence that's out there.

And so we're super excited about 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. Now I referenced 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. And 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 Network systems within urology, which brings me to a larger point as well just on the customer base side. The value of Specialty Networks from an 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 just spent out of time. Last quick question. You did a bunch of M&A, all of it value add. You got back 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 and that we are going to 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 this year. Good news is we've got great high ROI projects. We protected the balance sheet, 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. And that's the conversation that Jason and Matt and I are having on a weekly basis. And unfortunately, we have to stay tuned as to where exactly that goes as we push ahead.

But I do want to 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, 2 years, 3 years, 5 years here or there. And that's what we're going to 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.

Thanks. Cheers.

Thanks, everyone.

Hello, and welcome to the Second Quarter Fiscal Year 2026 Cardinal Health Inc. Earnings Conference Call. My name is Serge and I will be your coordinator for today's event. Please note that this conference is being recorded. [Operator Instructions]

I will now hand you over to your host, Matt Sims, Vice President, Investor Relations, to begin today's conference. Thank you.

Good morning, and welcome to Cardinal Health's Second Quarter Fiscal '26 Earnings Conference Call, and thank you for joining us. With me today are Cardinal Health's CEO, Jason Hollar; and our CFO, Aaron Alt. You can find this morning's earnings press release and investor presentation on the Investor Relations section of our website at ir.cardinalhealth.com.

Since we will be making forward-looking statements today, let me remind you that the matters addressed in these statements are subject to risks and uncertainties that could cause our actual results to differ materially from those projected or implied. Please refer to our SEC filings and the forward-looking statement slide at the beginning of our presentation for a description of these risks and uncertainties.

Please note that during our discussion today, the comments will be on a non-GAAP basis, unless specifically called out as GAAP. GAAP to non-GAAP reconciliations for all relevant periods can be found in the supporting schedules attached to our press release. For the Q&A portion of today's call, we kindly ask that you limit questions to one per participant so that we can try and give everyone an opportunity.

With that, I will now turn the call over to Jason.

Thanks, Matt, and good morning, everyone. We are pleased to report that the Cardinal Health team has delivered another excellent quarter, driven by broad-based performance across the enterprise. I am encouraged by our results, which are a direct reflection of our continued operating momentum and relentless commitment to serving our customers and driving our strategy forward. We have continued to prioritize strengthening our core and expanding in specialty, accelerating our other growth businesses and executing our GNPD turnaround.

What stands out to me most in this quarter's performance is the balance of results across our portfolio as we achieved strong profit growth of at least double digits from all 5 of our operating segments. Our performance was again led by strength in our Pharmaceutical and Specialty Solutions segment, where we continue to see a robust demand environment, coupled with strong operational execution. Our strategic focus on specialty is delivering tangible results. As we shared at a recent industry conference, we expect our specialty revenues will surpass $50 billion in fiscal '26, a testament to our progress in this high-growth, higher-margin space.

Our MSO platforms continue to be a meaningful driver of our growth, in particular, led by the Specialty Alliance's leading multi-specialty platform. With the acquisition of the country's leading urology MSO, Solaris Health, officially completed in early November, we are positioned to further expand as we add additional practices and capabilities to our platform.

Turning to our GMPD segment. We are pleased to report continued progress against our improvement plan initiatives. The team remains focused on driving Cardinal Health brand growth, where we continue to see positive results and simplification, which is driving improved operational health.

Other growth businesses, at-Home Solutions, Nuclear and Precision Health Solutions and OptiFreight Logistics also again delivered a strong quarter. The performance of these businesses is driven by secular tailwinds, the strength of their value propositions and our focused long-term investments. Our second quarter performance gives us confidence as we move forward. And as a result, I'm pleased to share that we are again raising our outlook.

With that, I'll turn it over to Aaron to go through the financials.

Thank you, Matt and good morning. We provided an interim update at a recent industry conference, but noted at the time that our books were still open for the second quarter. I'm now pleased to share the final details of our second quarter results, which reflect another period of exceptional execution and broad-based demand strength across our enterprise.

Our performance demonstrates the resilience of our business model and the tangible benefits of our diversified portfolio as demonstrated by the significant earnings growth in all 5 of our operating segments. As a result of this momentum and factoring in our updated forecast for the remainder of the fiscal year, I'm also pleased to note that we are raising again our fiscal year 2026 earnings per share guidance. Our new range is $10.15 to $10.35, up from the -- at least $10 interim guidance update. This updated outlook represents year-over-year EPS growth of 23% to 26%.

Let us begin with the second quarter consolidated results, which are most easily explained with the observation that when revenue and gross margin grew faster than SG&A, positive progress is the result. Total revenue for the second quarter increased 19% to $66 billion. This top line expansion was primarily driven by continued strong demand within the Pharmaceutical and Specialty Solutions segment as well as others. Gross margin dollars increased 24% to $2.4 billion, driven by favorable mix across our businesses. We remain disciplined with our cost structure even as we expand our capabilities and invest for the future.

While SG&A expenses increased 16% to $1.5 billion, it is important to note that excluding the impact of recent acquisitions, our organic SG&A growth was more modest in the low single digits, and that the turnaround part of our business, GMPD, actually saw lower SG&A year-over-year from optimization efforts. The combination of robust growth and disciplined expense management resulted in operating earnings of $877 million at the total enterprise level, an increase of 38% compared to the prior year period.

Moving below the operating line. Interest and other expense increased to $77 million compared to $38 million in the prior year. This increase was driven primarily by the financing costs associated with our announced acquisitions, including the Solaris Health transaction, which we were excited to close during the quarter.

Our effective tax rate for the quarter was flat at 21.4%. Average diluted shares outstanding were $237 million, a decrease of 2% from the prior year. In the quarter, we repurchased $375 million in shares, reaching our full year fiscal '26 target for baseline share repurchase of $750 million. Our weighted average price on these repurchases has been $173 per share. The net result for the quarter was non-GAAP diluted EPS of $2.63, an increase of 36% compared to $1.93 in the second quarter of last year.

Now let's turn to the segment results, starting with Pharmaceutical and Specialty Solutions. Revenue for the segment increased 19% to $61 billion. This growth was driven by both existing and new customers, and we observed a continuation of strong pharmaceutical demand across the portfolio. This included approximately 6 percentage points of revenue growth from GLP-1 sales. Segment profit increased 29% to $687 million. This significant profit expansion was driven by contributions from brand and specialty products our MSO platforms and positive results within our generics program.

We experienced consistent market dynamics in our Red Oak enabled generics program. And once again, we saw healthy generic unit growth that exceeded our long-term expectations. Furthermore, these results benefited from our continuous focus on efficiency initiatives across our distribution network. Our teams are leveraging our investments in technology infrastructure, such as the Ventus HQ e-commerce platform to drive customer efficiency and streamline our operations, which directly supports our margin profile.

Moving to the GMPD segment. Revenue increased 3% to $3.3 billion, driven by volume growth from our existing customer base. We were particularly pleased with the performance of our Cardinal Health brand portfolio, which saw revenue growth of 10% in the United States. It is worth noting that we estimate 3 to 4 percentage points of this growth in the quarter was driven by the timing of inventory restocking by other distributors, which we anticipate offsetting in Q3.

Segment profit for GMPD increased to $37 million compared to $18 million in the prior year period. This improvement was driven by volume growth from existing customers and the realization of benefits from our cost optimization initiatives. These positive drivers were partially offset by the adverse net impact of tariffs. Despite the tariff headwind, the segment's transitioned from past challenges to solid profitability is evident, and we remain committed to the improvement plan initiatives that focus on growing Cardinal Health brand, enhancing our supply chain and simplifying operations.

Now let us discuss our other growth businesses, Nuclear and Precision Health Solutions, at-Home Solutions and OptiFreight Logistics. Revenue increased 34% to $1.7 billion, driven by strong demand across all 3 businesses and the contribution from the acquisition of Advanced Diabetes Supply or ADS. Segment profit increased 52% to $179 million. This impressive growth was driven by strong underlying performance across all 3 businesses as well as the acquisition of ADS.

The integration of ADS into our at-Home Solutions business continues to progress well. This combination has created a powerful platform for patients with chronic conditions, and we are seeing the benefits of our dual strategy as both a direct-to-home distributor and a direct provider.

In Nuclear and Precision Health Solutions, we were pleased to see continued momentum in our theranostics offerings with revenue growth exceeding 30%. Our leadership in the radiopharmaceutical space and our end-to-end service capabilities continues to resonate with pharmaceutical partners and providers alike.

OptiFreight Logistics also delivered an exceptional quarter. welcoming new customers to our logistics management program and helping current customers succeed in expanding utilization of our program drove significant growth in inbound and outbound shipments. As a result, the business was able to grow revenues by over 30% this quarter, further validating our position as the leader in health care logistics management.

Turning to the balance sheet and cash flow. Year-to-date, we've now generated $1.8 billion in adjusted free cash flow. Our teams continue to focus on working capital efficiency to support our capital deployment priorities. We ended the quarter with a cash position of $2.8 billion. Regarding capital allocation, we deployed significant capital during the quarter to drive value for shareholders and invest in our future. Year-to-date, we've invested approximately $240 million back into the business through capital expenditures to support our organic growth initiatives.

We've also returned $1 billion to shareholders so far this year comprised of approximately $250 million in dividends and, as mentioned, $750 million through accelerated share repurchase programs. We accomplished all of this and still closed the quarter with a Moody's adjusted leverage ratio of 3.2x, which is back within our targeted range of 2.75x to 3.25x. We achieved this target well ahead of schedule, and that provides us with flexibility to assess opportunities consistent with our disciplined capital allocation framework.

I will now highlight our updated fiscal year '26 guidance. With 2 strong orders behind us and signs of continued momentum across our portfolio, we are raising again our outlook for the full year to a new range of $10.15 to $10.35. In the Pharma segment, our revenue guidance remains unchanged. Our prior guidance had already contemplated an anticipated impact from manufacturer list price decreases associated with IRA. For Pharma segment profit, we are pleased to raise our outlook to a range of 20% to 22% growth, up from the prior range of 16% to 19%. This increase reflects the strength we have seen year-to-date and the confidence we have in the continued performance of our largest operating segment.

As we've previously highlighted, in the second half of fiscal '26, we annualized the $10 billion of new customer revenue that we onboarded last year as well as the prior acquisitions of ION and GIA while also benefiting from Solaris contributions this year. Although we aren't assuming the same level of outsized demand to persist for the balance of the year, we have incorporated some of the recent strength and anticipate mid-teens profit growth in the second half of the year.

In the GMPD segment, we are updating our revenue outlook to 1% to 3% growth. On GMPD segment profit, we are raising our guidance to approximately $150 million. This raised outlook reflects the continued progress our team is making against the GMPD improvement plan, including with Cardinal Health brand. As I mentioned when reviewing the GMPD Q2 results, some of the outperformance in Q2 was attributed to the timing of Cardinal Health brand distributor buying patterns, which we anticipate will normalize in Q3. We continue to anticipate sequential profit growth from Q3 to Q4.

In our other growth businesses, our revenue guidance remains unchanged at 26% to 28% growth. We are increasing our segment profit guidance for other to a range of 33% to 35% growth up from the prior range of 29% to 31%. This revision is driven by the strong performance across all 3 growth businesses to date. As you model the remainder of the year, please remember that we will lap the acquisition of ADS in our fourth quarter. Additionally, we will face more difficult comparisons in our nuclear business in the third quarter as we begin to lap some of the robust theranostics growth that we experienced a year ago.

Moving below the operating line, we are lowering our outlook for our effective tax rate by 1 percentage point to a range of 21% to 23%, down from the prior outlook of 22% to 24%. This improvement reflects our first half performance and the expectations of positive discrete items in the back half of fiscal 2026. We are also updating our share count assumptions reflecting our Q2 accelerated share repurchase program. We are lowering our outlook for diluted weighted average shares to a range of 237 million to 238 million shares from approximately 238 million shares. Finally, regarding adjusted free cash flow, we continue to anticipate robust adjusted free cash flow generation between $3 billion and $3.5 billion for the year.

In conclusion, our second quarter results demonstrate that Cardinal Health is executing effectively on its strategy. We are strengthening our core distribution business, while aggressively expanding in higher-margin areas such as specialty and our other growth businesses. We remain focused on operational excellence, simplification and delivering value to our customers and partners. Our updated guidance reflects our confidence in the remainder of the fiscal year and our ability to navigate the dynamic health care environment. We are well positioned to deliver sustainable growth and long-term value for our shareholders.

With that, I will turn the call back over to Jason.

Thanks, Aaron. Our strategy within Pharmaceutical and Specialty Solutions remains clear and the team's consistent execution gives us confidence in the long-term potential ahead. We continue to prioritize the core and the investments in our footprint and technology have contributed to improved service levels, including a 10% improvement over the past 2 years, setting a new benchmark for product availability.

In Specialty, we are seeing growing contributions across specialty distribution, our MSL platforms and biopharma solutions. Our acquisition of Solaris Health is already gaining momentum in the market with the addition of our first urology practice under this new structure in Michigan.

Moving upstream to a key part of our specialty growth, biopharma solutions. We are pleased to highlight that a number of key manufacturer partners have recently selected our Sonexus access and patient support business to support their hub programs totaling over 1 million new patients served. These wins were enabled by our significant investments to digitize the patient support journey.

We're seeing similar momentum in our leading 3PL business, where we continue to partner with manufacturers in the commercialization of their specialty therapies. As an example, in calendar '25, our business supported roughly half of all new product launches that utilize the 3PL.

Turning to GMPD. Our improvement plan initiatives are yielding tangible results. We remain focused on simplification while continuing to invest in our network and are encouraged by the positive trends within the Cardinal Health branded portfolio. This is particularly evident in our more clinically differentiated product categories where innovation remains central to our product portfolio. For example, the SmartFlow intermittent pneumatic compression device designed to reduce the risk of deep vein thrombosis has had a very positive market response with volume exceeding our launch expectations.

Now turning to our other growth businesses where we remain encouraged by both the momentum in the results and strong positioning for future growth. Increasingly, we see additional points of connectivity across nuclear, at-Home Solutions and OptiFreight and an ability to leverage the full strength of our enterprise portfolio.

Nuclear and Precision Health Solutions continues to outpace the market, backed by our differentiated offerings and our team's deep expertise. I'm pleased to share that nuclear recently conducted their 2025 customer survey and again earned a Net Promoter Score well above the industry average, a clear reflection of the reliability, adaptability and cutting-edge technology we deliver to customers.

Our performance is driven by our unique end-to-end capabilities and strong demand for theranostics, which again delivered over 30% revenue growth for the quarter. The expansion of these products has meaningful impact for our customers and the patients they serve and we will continue to invest to support the business' growth of the more than 70 products in our pipeline, which is largely dominated by novel theranostics in the areas of oncology and urology. We continue to see opportunities for greater connectivity between our nuclear business and our MSO and specialty businesses, aided by industry shifts driving greater demand for precision medicine. We are uniquely positioned to equip community practices with the know-how to establish and manage the theranostics program to accelerate adoption.

Within at-Home Solutions, the demand environment continues to be strong, supported by the shift of care to the home. We are executing a smooth and efficient integration of ADS, positioning us for long-term growth. We see synergistic opportunities with our large core Pharma and Specialty Solutions business with the latest example seen in the announcement of our continued care pathways program. This program leverages the full Cardinal Health portfolio to simplify diabetes supply management for partner pharmacies and patients, which is already supporting over 11,000 pharmacies today with more opportunities in the pilot testing phase. We are pleased to announce a key partnership with public supermarkets, a recent new customer in our pharma business to further expand our reach.

Finally, OptiFreight Logistics continues to demonstrate its market-leading value proposition. With ongoing investments in our proprietary technology-driven platform, Total View Insights, we see long-term potential to deliver cost savings, transparency and operational efficiency for our customers. We are also making strong progress with new customer-centric technology to expand our presence in the pharmacy space as we continue to drive core growth and tech forward transformation.

In closing, we have great confidence in the resilience of our business model and our essential position as the backbone of the U.S. health care system, delivering daily to tens of thousands of locations with products sourced from several thousand manufacturers. This vital role was on full display during the recent storms that impacted much of the United States, where the Cardinal Health team demonstrated its extraordinary commitment to ensuring critical products and services reach customers and patients. The team's commitment and actions are instrumental to our success, and we're deeply grateful for their contributions.

As we move into the back half of the fiscal year, the momentum across our business reinforces our belief in the opportunities in front of us and gives us confidence in our ability to continue delivering sustainable value creation.

With that, we will take your questions.

[Operator Instructions] Our first question is from Erin Wright from Morgan Stanley.

So can you unpack or break down some of the components of the profit performance in Pharma Solutions? And can you break down what's organic versus inorganic? And for the balance of the year, what's implied in terms of that underlying organic growth in the second half? And just that underlying demand trend, I think you commented on that in your prepared remarks, how do you think about that continued underlying strength and stability of the business from a utilization term perspective as well as strength in specialty?

Erin, thank you for the question. We saw momentum in the quarter within the Pharma business, as we've seen in the last several quarters with strong demand really across all categories and parts of the business, brand, specialty, consumer generics. You saw the significant revenue growth and profit growth as well. It's really driven in particular by -- on the profit line by specialty, right, trending above historical levers.

As we talked about at JPMorgan, we're going to be above the $50 billion for the year there. seeing strength in the key priority areas, urology, oncology, nice strength within the biopharma parts of the business as well. You've heard us talk about the Sonexus. We saw the contributions we expected from the MSOs, and we're pleased to close the Solaris transaction in November. So we got 2 months of benefit in the quarter there.

But I want to emphasize the contributions in the quarter from the MSOs were consistent with our expectations. We really saw a strong core growth. Generics is always a positive or has always been a positive story for us when we see growing volumes, which we saw and consistent market dynamics, which we saw, right, that is certainly a nice contributor to the underlying business. And of course, you can't get past just strong execution by our operations teams in the quarter as well.

As we think about where pharma goes from there and the guide for the rest of the year, I guess, I'd observed that the raise to our guide is really driven by both reflecting the strong Q2 performance and improved expectations as we carry forward, particularly in the core part of the business. We do have higher growth in H1 than we have called, we called mid-teens profit growth in the back half. And that's not a deceleration of expectation on demand. It's rather the observation that as part of our guidance along, we've referenced the fact that we'll be lapping $10 billion of new customers in the back half from last year and lapping of course, ION and GIA, which we acquired in the second half last year with some benefit from Solaris not being in the portfolio.

We are assuming strong -- stronger demand, if you will. As we called out in my prepared remarks, we did raise our expectation in part based on demand we're seeing but we are not calling outsized demand. That would be an opportunity, and that's consistent with our guidance philosophy from prior quarters as well. And lastly, I would observe that we are not assuming as is our practice, that the Solaris distribution moves over to Cardinal Health, that if that were to come to us, it would be towards the end of our fiscal year, so that is not baked in.

Jason, anything you want to add?

Yes. I would just -- I know this question will probably come up a variety of different ways. I think it is helpful to remind you all what we said in the last call is still pretty consistent with our current expectations that M&A for the pharma business is expected to be about 8% of our total growth for the full year. So that's the same ballpark that we're anticipating today and can help you kind of piece together all those different elements.

But definitely very pleased with the core performance of the business, not just the pharma business, but throughout the other operating segments. So while M&A has been a nice accelerator of our strategy, what we've continued to demonstrate is that the core is strong and our organic core investments and priorities continue to drive the business forward as well.

The next question is from Elizabeth Anderson from Evercore ISI.

Congrats on the quarter. I was wondering if you could maybe parse apart the other segment a little bit. Is ADSG sort of performing in ahead of your expectations in terms of how you thought that sort of full first year performance would be? How would you -- is it sort of improved competitive position? You talked about some of the underlying dynamics in nuclear. So I'm just maybe trying to parse apart on the sort of 3 underlying business levels, some of that outperformance there as that was obviously a very nice result in the quarter.

Yes. I'll go ahead. This is Jason. I'll go ahead and start and have Aaron add in any additional details. I'd say it's a very similar type of commentary that Aaron and I just provided for our pharma business. The core was strong for each of the 3 businesses within our Other segment. We saw good double-digit growth irrespective of the M&A and the ADS acquisition as well. That acquisition has gone at least consistent, perhaps a little bit better than what we had anticipated. It's still early in terms of all the integration and synergy opportunities. But the core business remains strong overall for at-Home business, but also for our nuclear and OptiFreight businesses.

Each 1 of these 3 businesses are very much focused on core organic investments, making sure that, that core is strong and that we're taking care of customers and patients that we have today. We are investing organically in each of these 3 businesses in different ways to further propel their capabilities and their growth going forward. And then as it relates to at-Home, of course, we are also doing the inorganic investments. But it's really important for us that we keep that organic investments and organic growth going.

Each 1 of those 3 businesses have a little bit of a different story. Within our at-Home business organically, we're very much focused on the distribution network. Continuing to build out the automation and the technology there. We've completed 3 of the 11 DCs. We have another 3 to go for the next 3 years. Nuclear, it's very much a story around the continued growth of Theranostics and the innovation that we're seeing in that space, and we're investing into our capabilities and our cyclotron capacity to get there.

And OptiFreight is to take the leadership and the capability that we already have a long history of in the medical side and expand that into a greater share of wallet with those medical customers, but also expanding over time into the pharmacy side of that. So each of them are operating very well, very consistent growth right now, and we'll continue to evaluate the right type of M&A to further accelerate that as appropriate.

But for the time being, we're still wanting to make certain we're taking care of the at-home customers and make sure that this integration goes flawlessly.

Aaron, anything I missed there?

I would just emphasize strong positioning, positive secular trends, double-digit core profit growth in each of the 3 businesses, setting aside the positive impact of the ADS acquisition. Jason did reference the theranostics point. I would point out that we will be lapping a strong Q3 in theranostics with the product launches from last year. And so that will be -- that is part of our guidance already as well.

The next question is from Eric Percher from Nephron Research.

Question on capital allocation. I believe your prior commentary was somewhat predicated on returning to the low 3s. You're back there, maybe earlier than we expected significant cash flow over the balance of the year. Can you give us a bit more on capital allocation and maybe also the capacity or opportunity for further transactions? Do you need some time on MSOs? And do you see opportunities in the other segment?

Thank you for the question, Eric. I would observe 2 things. First, that we try very hard to tell you what we're going to do and then go do it and report back. And we are very disciplined in the following the aptly named disciplined capital allocation framework that we have. And so 2 quarters into the year, we are on track to make the $600 million to $650 million of CapEx investments that we talked about before.

We have protected our balance sheet and gotten us back within our targeted leverage range at the end of Q2. So that's good news as well. And we've 2 quarters in, fulfilled our baseline share repurchase commitment of $750 million. And what that means for a business that is continuing to generate strong cash is that we have flexibility to assess how will we create the most shareholder value as we carry forward.

We are working -- as you can tell from Jason's comments, we are investing of our growth in the businesses really across the portfolio, whether it's in the pharma business with specialty within the other -- 3 parts of the other business we just highlighted or indeed continuing the progress against the turnaround plan for GMPD.

Now part of that as well is we are looking at the landscape and seeing where can we drive more growth? Or where should we be returning additional capital to shareholders. And while we have nothing to provide today from a commitment in that respect. We are very mindful of the flexibility that the business is generating for us to ensure that we are relentlessly focused on creating the shareholder value.

Yes. What I would add is we've worked real hard. The team has done a fantastic job and worked very hard to generate a lot of cash, and we're going to be very careful as to how we deploy that. And when you think about in our industry where there's been some of the greatest operational challenges, it's very much on this core decisions on where to allocate capital. So we have learned from that and are very intentional around where we put that to work.

As I already mentioned, we're really focused on the core of the business, and the strategy is not predicated on any significant M&A. With that said, I think the word opportunistic will come up, whether we're talking about repurchases or whether we'll talk about additional M&A. I don't see that there is a large gap or anything that we're going to be really leaning into. We're really pleased on the MSO side with the 3 different platforms that we have now acquired and/or built oncology, autoimmune and neurology. And we're going to want to look at how we can create more value with each of those partnerships and those assets. And we think that there's opportunities probably to do more but smaller types of acquisitions in that type of space.

The at-Home space and other in general remains quite fragmented. So there will be opportunities, if we so choose. But we're going to make certain that we protect the core with any of those additional acquisitions to ensure that it truly does create synergistic value, helps build capabilities and that we're not going to be doing anything defensively here. We'll be looking to see if there's some offensive actions take place. And while we're pleased with the leverage, our cash is at a little bit of the lower side where it's historically been, and that's something that we'll be having a lot of flexibility with all of our other levers that are in place to continue to have the flexibility as needed when those opportunities do arise. So we'll continue to evaluate all that and certainly report back as we get better clarity on it.

Yes. Just to summarize, I guess what I would say is we're pleased that both internally and externally, there is competition for our capital.

The next question is from Michael Cherny from Leerink Capital.

Maybe if I can build on that a little more. Clearly, the last couple of years, the story in many eyes has been about the improvement on specialty, both from an MSO as well as distribution capability, the scaling you've done. As you think about that prioritization of internal capital and external capital, how has the experience you've had with specialty combined with the pipeline for a variety of different new launches and biosimilars impacted your thought process of where strategic advancement should be as you continue to push for driving towards your LRP and potentially higher.

Yes. Great question. I'd love to go deeper. Our view has changed very little. If you go back to not this last Investor Day, but the one before that, we talked about the specialty flywheel effect and benefits that we anticipate that while distribution is important to us. The MSO strategy, the biopharma solution strategy, all these capabilities, both upstream with the manufacturers and downstream with our customers and ultimately patients all work together. And I don't think it's a surprise that what we're seeing in specialty is across the board performance improvements.

The MSOs certainly help bring it all together in different ways. Our biopharma solutions strength has absolutely improved our credibility in the distribution space. We have fantastic relationships, both upstream and downstream. So we're executing very well, both directions, and that then creates additional opportunities. Having really referenced our other businesses of nuclear at-Home and OptiFreight, all 3 of which plug into pharmacy capabilities in different ways. One of which we've talked about a little bit this last month with our continued care pathways program with at-Home and connecting the dots with those large pharmacy customers.

So we see a lot of opportunity to continue to bring that together. And that's why we're less focused on expanding into new and different areas because there's still a lot of opportunity to expand within the customers within the products, within the platforms, within the capabilities that we already have. And I think when you look at those opportunities, there's more than enough there that we just don't need to get distracted and grow in other ways because we just don't have a gap in that portfolio that currently we're worried about. So that means we can just, again, be more offensive and take on additional growth vectors within what we already have.

The next question is from Allen Lutz from Bank of America.

The Cardinal Health brands in GMPD continues to accelerate, even if you net the timing issue that you mentioned, is there anything specific to call out there around that strength? And then a second question on GMPD. Lower SG&A in the quarter around optimization efforts. Can you talk a little bit about what you're seeing there, specifically where those savings are coming from? And then what's implied in the GMPD guide for the remainder of the year?

Yes. Great. Yes, I'll start and then hand it over to Aaron for the SG&A question. As it relates to Cardinal brand growth, it's really not all that sophisticated. It goes back similar to my last commentary, you have to go back at least a few years, probably more like several years to when the GMPD team really started to not only focus on but really invest into their core.

So that's the 5-point plan that we walked through before, really focused on the basics of the business. We had to invest in some capacity and capability at the manufacturing sites. We have fantastic products, and we had great demand, but we weren't always getting product to the customer at the right time in place. So getting those capabilities right, our back orders, I don't think it's ever been lower.

Our service levels have never been higher. I mean we're at levels of operational excellence that we've just not seen before and that creates lots of opportunities. It was hard for us to expand into new customers, new categories with those constraints we had before those constraints are largely off and we're really executing quite well to those customer requirements.

It's nice that the underlying utilization is still relatively robust. It's not like what we see on the pharma side. but that low single-digit consistent type of market growth, so it allows us to have enough underlying volume that we're then able to come in and take care of more of our customers' needs.

I'll now turn it over to Aaron for the...

And on the SG&A topic, certainly, GMPD is a highlight there, which we'll come to in a second, but I want to emphasize that Jason and I are really pleased with the focus that the entire enterprise has been putting on how do we both invest for the future and relentlessly optimize our cost structure to, of course, reinforce that flywheel. The GMPD business in the face of the -- executing the GMPD improvement plan has been relentless and looking for opportunities on how do we both consistent with the 5-point plan, raise our game and service our customers better, but do it at a much efficient -- in much more efficient way. And this quarter is testament to the progress they've been making and that their overall SG&A costs, both direct and from an enterprise perspective, really came down in ways that we were pleased to see in support of that business.

The next question is from George Hill from Deutsche Bank.

I guess, Jason, I'd like to ask about the macro pricing environment as we're seeing some brand drug manufacturers take price increases is 2026 starts. It doesn't seem to have impacted your guys' guidance at all. But as you look forward, I guess I'm wondering, should we expect to see manufactured brand drug price decreases -- I'm sorry, not increases, decreases, impact either the revenue -- either the revenue line or the operating income line as we think about calendar '26. And maybe also if you could talk about the offsets that you guys have used to preserve your operating earnings in the income statement.

Sure. Yes, as -- well, I mean, when you talk about prices, I don't think your question was around the contingent inflation, but that piece of it has been pretty consistent with what we've anticipated as it relates to IRA, MFN, all those types of discussions, there's really no new news as it relates to this. You've heard from us quite consistently that we anticipate that whatever changes do occur to the top line will be adjusted within our cost structure and with the DSA fees with the manufacturers to preserve that margin. We communicated at the recent industry conference that we indeed were successful with that for all the '26 items. And there's nothing at this moment that we see with the '27 and '28 items that would make us believe it would be any different than that.

You are right, George, that revenue is a different story. So as the WACC levels come down, that will adjust through revenue as well as our cost of goods sold so that our margins remain stable. But that's all been factored in for '26. We didn't see anything that came through as it relates to WACC level adjustments that was significantly different than our original guidance. And so we've not adjusted our revenue meaningfully for any changes there.

We would anticipate that, like what we've seen in '26 in the future, we'd anticipate something similar that some manufacturers will choose to adjust WACC and some will choose to utilize more of a rebate structure. And it's our expectation in our -- as we think about longer term, that while that should not impact our margin in any meaningful way, it could impact revenue a little bit differently than what's anticipated, but we don't see that being, again, very, very impactful across those years at this point in time. But still need to get a little bit more information before we can solidify any of that.

The next question is from Stephen Baxter from Wells Fargo.

This is James on for Steve. As far as GLP-1s, we're seeing a lot of change in the market between pricing changes, channel changes, the introduction of orals. Is there any way you're any difference in how you're modeling revenue or earnings for GLP-1s this year? And maybe how you're thinking about it in the long term.

No. The oral contribution that we see so far is slow. We anticipate it growing quickly, but it's not something I would expect to be material for this fiscal year. and the underlying economics behind it, we've talked before that the cost to serve, we anticipate being a little bit better on the oral versus the injectables. But it's just too early to determine what the volume contributions will be for the different pieces.

Irrespective of all that, I've been fairly consistent on this point. What you've seen is a massive increase in volume growth over the last couple of years. And you just haven't heard us call it out as a meaningful driver. And I do not anticipate that you're going to hear us call it out as a meaningful driver going forward, irrespective of how strong the oral growth is or the mix between the two. While there are some differences, it's just relatively unlikely that, that's going to be a big driver for underlying profitability.

Revenue certainly has been much more of a contributor. We saw similar contributions this quarter than what we've seen in the last several quarters in terms of the growth pieces, yes, 6% of sales in Q2, and we expect a 6% of the growth rates being for GLPs. And while we would expect that to start to slow down a little bit for the injectables, just by the nature of the size of the market, that's where the orals will come in and start to offset that slower growth rate. But make no mistake, we expect both to be growing fairly significantly still for at least the near term.

The next question is from Kevin Caliendo from UBS.

I want to change up a little bit and ask a GMPD question. Specifically, CMS put out a proposal around domestic PPE recently. I know it's just a proposal, there's comments and the like. But if it were to go through, would this be a positive or a negative for you guys? Like how would it impact what you're doing or the profits potentially on PPE, what do you think happens to pricing? I'm just trying to understand if this is something as investors, we should be following and care about if it will impact you or the industry in any way?

So you're going to have to make the -- go way back and give a little bit of a history lesson on PPE in general. I can't recall how long ago it was, but it was probably several years ago. I remember when we were dealing with the COVID impacts, making statements like, well, normally, you would never expect us to talk about PPE because the revenue and margin is relatively low and fairly consistent. Obviously, with COVID, the volatility on both the volume, the price and the cost created a bit of a perfect storm of volatility.

So I guess I'd start off by saying that because not a huge category for our business. It's an important one, certainly for customers, but it's not a key part of the growth that we just described certainly. And given its importance to our customers, that means it is important to us. And if they see value in buying PPE domestically or if they're incentivized to do so in some way or whether we're incentivized to do some way, absolutely, we can support that.

We have a very flexible talented procurement team in our GMPD business, and we source very diverse sources today throughout the world. that, of course, was expanded as a result of COVID. We would love to source even more in the United States. Quite frankly, today, the cost is not typically something our customers choose to buy, but we are very, very open, willing and flexible to support that, but there's not a lot of choice today in that type of marketplace, especially at the price points that are compared to the market. But that's where the incentives are going to be important within this equation. And if doing so, we are very able, very flexible in order to support that type of action.

The next question is from Lisa Gill from JPMorgan.

I was wondering if you could just spend a few minutes discussing your relationship with hospital and health systems on the specialty side. And do you see incremental opportunities there when we think about your specialty business?

Well, so we're quite present today and have a great relationship and reasonable share within that particular part of the market. So we are very much capable of supporting the broad needs of specialty irrespective of what channel, what customer. So we've seen growth consistent across the different channels over the last several years. As a reminder, up until recently, we have talked about the 14% overall specialty revenue, and we've increased that recently in our 3-year CAGR to about 16%. So we've seen a little bit of an acceleration. And that is part of the market that we have been winning at least our fair share within.

And I really have to go back to 3.5 years ago when I put Debbie Weitzman into the leadership role of that business. One of the first things that she did in terms of the pharma business, as she brought together the specialty and the nonspecialty side and had created a 1 face, 1 voice to the customer that allows us to make sure that we're taking care of all of those customers' needs. And because while specialty is really interesting and important to us, it's only one component of what they need to have their support with. And so we've changed our go-to-market type of strategy and has really resonated quite well with our customers. And that's the type of innovation and very high-touch type of support that we'll continue to drive to ensure that their needs are met.

The next question is from Daniel Grosslight from Citi.

Congrats on a strong quarter here. I wanted to go back to the biopharma solutions and specifically, the new business wins that you've highlighted for Sonexus, including a significant competitive takeaway. What specific capabilities are resonating most with manufacturers? And then as we look forward for the next year or so, are there any significant investments that you anticipate making to keep you guys competitive in your hub business?

Yes. I love the question. Thank you. So I'd put it into 2 key buckets. First of all, I guess, aren't the team. Not only is it great group of people. They understand the customer and they really listen to what the customer is wanting and needing and demanding. And that's where it starts because then from there, you then implement the solutions to take care of those customers.

And the solutions is the digitization that we did with our tool, our platform. And while it's always technology, we really leaned into it in a way that simplified their work with us. We allow them to -- once when they bring one of their products under our platform, it allows it to be replicated quite seamlessly to other products that they have. So once we get that foot in the norm, we can prove that we have a better tool, better process then we see a lot of follow-on opportunities that go from there.

This is not a recent investment that we made. This team has been all over this for years. And your last part of your question is I think in terms of future investments, we're always going to have additional investments. What we're trying to instill is a culture and a process that is not ever starving any of our businesses and then requiring some big catch-up. It may mean that we have elevated levels of spend for longer periods of time, but we like having less volatility on spend and more of a consistent investment so that we're getting in front of those opportunities and not having to be more defensive and catching up.

And so we have made widespread investments across each of our investments. There's nothing that we're calling out today that will be significant. But just keep in mind, we are spending more today on whether it's capital or these types of projects than we have in the past. And so we're already at, to some degree, elevated levels. I don't anticipate that dropping, but also expecting that to spike in any significant way.

The SG&A comments that Aaron made and he was answering a specific question around GMPD. But I think those types of -- that type of answer goes for each of our businesses. What we are looking to do is take away the excess and the waste in the system that always exists in any business and reinvest that in much more productive areas. So we're always looking for productivity, efficiency, using technology, AI and just elbow grease to go after and to take cost out.

But then we're always also looking for -- well, where can we invest that with a great return, not only to drive financials, but to solve more of our customers and patients problems. And that's what's really going well with the organization right now is that we're able to look ahead farther than we ever have in the past. And that's what we're spending on. It's not today's problems, but we're spending on tomorrow's opportunities.

Just as a reminder, we have committed to getting the biopharma services part of the portfolio to $1 billion revenue by 2028. Jason has been highlighting the successes at Sonexus with doubling the therapy supported, et cetera. That's all been a key part of that internal and external competition for our capital that I referenced before. So we're quite excited about us Sonexus being half of the growth to get to that $1 billion target.

The next question is from Glen Santangelo from Barclays.

Jason, I just wanted to come back to the Pharma and Specialty segment. I think in your prepared remarks, you seem to suggest that one of the big drivers was the Red Oak Generics program may be performing a little bit better than you thought. And I think you sort of highlighted maybe better generic volumes than maybe you were expecting. I'm kind of curious if you could just give us a little bit more detail there and what's maybe driving that? Is it greater generic introductions? Or is it greater penetration within your existing customers? And any sort of comments you have around generic pricing would be helpful.

Yes. I think Aaron had made the comments around strength in terms of the generics program. I believe it was more from the perspective as a year-over-year driver, which it certainly is. And when you look at Red Oak, the utilization has been strong. That part is clear. In terms of the spread, the margin per units, we didn't call out anything in particular. It remains very consistent market dynamics.

It also remains a year that does have good launches not -- the launches aren't any greater than what we had thought in terms of new items this year. But the underlying utilization across the industry remains quite good. I'd focus more on the volume than any other type of price cost or new item type of perspective.

Yes. We manage the business to average margin per unit, right? That's why we call consistent market dynamics. The business did see great service levels that is certainly supportive of the volume trends. And of course, we were onboarding new customers. And so that is helpful from a generic volume perspective as well.

The next question is from Charles Rhyee from TD Cowen.

Maybe just sticking with sort of the pharma segment and sort of thinking about the guide for the second half. If we look at the first half performance, I think AOI growth was up 20%. And if you look at the guide for the second half, it's roughly about 16%. Should we think about this delta being sort of entirely just lapping new customers and M&A and understanding we have contribution from Solaris. And of course, we're raising our second half expectations. Just trying to understand sort of what the moving parts is, and I'm really trying to get a sense for like how you're thinking about underlying sort of core growth in the Pharma segment.

A couple of thoughts. I want to point out that our second half guide is well above our long-term growth target within that business. It is the case that our guidance philosophy all year long has been to call out the fact that we will be lapping that $10 billion of new customer in the back half as well as lapping the M&A. And so we want to make sure people are modeling that appropriately as we carry forward.

I did call out that we are, based on the success and the strength we saw in Q1 and Q2 from an internal forecast and guidance perspective, we have factored in some stronger demand within for the back half for us than what we had originally been anticipating. But we've not gone so far as to assume that the outsized demand we've seen so far will be there, that I consistently call that out as an opportunity for everyone if it continues at that higher rate.

We have not assumed Solaris, the distribution coming in. That would be end of fiscal year, if that happens as well. And those are the drivers we've provided.

The next question is from Stephen Valiquette from Mizuho.

So I just have a question also on the GMPD segment. If we go back to the Analyst Day last year, you guys talked about as part of the 5-point plan new product development and commercialization. So I'm just kind of wondering as we fast forward another 6 months or so, when still a lot of moving parts on tariffs and everything else, just the progression of like the new products and with the better than average growth right now, how much of that is driven from either growth of -- from the existing portfolio versus new products. And also what's your appetite for just our runway to still increase that number of Cardinal private label SKUs within the overall GMPD portfolio?

Yes. I'm happy you asked the question because after Aaron and I answered the prior question, it hit me that I missed that point of our 5-point plan. New product development investment is certainly a component of our prioritization and of the success we've had. Now to be clear, what we mean by that and where we're prioritized, is within the product categories that we participate in today, like the new compression device with -- that I referenced in my commentary or our new pump in our nutrition business. These are all categories that we already have a significant presence, but allows us to grow broader -- providing broader products to those existing customers, existing markets.

We have not prioritized new products into new product categories, a similar reason for what I described before with our other businesses, where we have a fantastic opportunity to still grow Cardinal brand mix within the product categories that we're already participating in today. We can get at it faster, more efficient, more effective, solving more patients' problems and create more value for our customers by prioritizing on those product categories.

So it is a key component of our growth, but it's a little bit of a broader, better products within those same exact categories. So we'll continue to invest into that, and that will remain our priorities for at least the near term with this business.

We'll now take our last question today from Brian Tanquilut from Jefferies.

Congrats on the quarter again. Maybe, Aaron, as I think about the growth in the embedded or tech businesses within the core like Sonexus, anything you can share with us in terms of the growth rates for those tech operations? I know last quarter, I think you pointed to Sonexus more than 30%. So just curious how we should be thinking about that? And how do you think about it going forward?

Yes. We've called out both the aspirational goal of the $1 billion by fiscal '28 and biopharma services growing within the year, up 30%, half of it from Sonexus. We don't separately break the parts of the portfolio out, but I do want to emphasize that when Jason talks about how our key strategic investments are in specialty, we view this as an important part of the specialty business. And so we continue to invest, whether it's in Sonexus the hub business, cell and gene, 3PL, the other parts of the portfolio, we are investing for the long term there to help support the broader growth objective for the specialty part of our business.

We do not appear to have any further questions. And I would like to turn the call back over to Jason Hollar for any additional or closing remarks. Over to you, sir.

Yes. Thanks for joining us today. Obviously, we're very pleased with our performance this quarter as well as the progress in advancing our strategy. As always, please reach out if you have any further questions. With that, have a great day.

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Good morning. My name is Lisa Gill, and I head health care services here at JPMorgan. It is with great pleasure this morning that we have Cardinal Health. Presenting for Cardinal Health will be CEO, Jason Hollar. Post Jason's presentation, he will join myself and CFO, Aaron Alt, for some questions.

With that, let me turn it over to Jason.

Great. Thank you, Lisa. Thanks for having us, and thank you all for coming. Real quick housekeeping. We'll be making some forward-looking statements today, which are subject to risks and uncertainties. For a description of these, please refer to our second slide or our SEC filings.

So today, I'll be talking about the continuation of our multiyear growth journey. And I think that's the perfect way to sum up what you're going to hear today, consistent with our press release this morning. You're going to hear about very clear operational, financial and strategic progress that we've made over the last really now several years. I'll go into each of these topics in more detail. But at the highest levels, we're going to talk about financial improvements that we see in fiscal '26, the short-term progress we're making. EPS now expected to be at least $10 per share, in part driven by broad-based growth in the marketplace, but also the strategies that we're driving within our specialty business, giving you some proof points on that business as well as a little bit of business resiliency, business model resiliency and going a little bit deeper into some of the work that's been completed as it relates to the more recent IRA price changes.

And then we'll also give you a few strategic proof points, one of which is related to how we're working together between our pharmacy business, our Pharmaceutical Distribution, Pharmaceutical and Specialty Distribution business, but also the other growth businesses, in particular, the at-Home Solutions business.

When you think about the continuation of this journey, you certainly should start with the facts and the data. We've focused on the core, driven a lot of strategic growth on top of that strong foundation, giving us nice strong core operating earnings growth of 14% CAGR over the last several years. That's translated into EPS of 18%. And we've also kept a close watch and driving the cash flow, so adjusted free cash flow averaging over $3 billion. That certainly translated into strong equity returns. And again, as we're demonstrating and communicating today, the momentum continues with our team.

Real quick on who we are. I suspect you have a good idea. We won't spend a lot of time on this. We are health care's crucial link. You can think about us as the backbone of the industry. In some cases, we are the manufactured innovator, but often we're working with others. We work with literally thousands of different innovators, thousands of different manufacturers, thousands of different receipt points. And then we translate that in own, take the risk on, warehouse, distribute to tens of thousands of different customers throughout the country. More and more, that's the foundation of our business, the distribution being the foundation of the business, and we build higher value-add services, higher value add for us, but also for our patients and customers.

We're big and getting bigger, over $250 billion in revenue expected for this year. We are very U.S.-centric. This is intentional since I've arrived at the company several years ago, 5 years ago, we have reduced by more than 50% the number of countries in which we operate. We simplified the organization. We're prioritizing in the markets, the customers, the products that matter most for us, and that's getting us to more than 99% of our revenue being in the United States. Not only do we have strong consistent earnings and earnings growth, but we are translating that into significant cash flow, adjusted free cash flow conversion of over 150% over the last 3 years.

Of course, our largest most significant business is our Pharmaceutical and Specialty Solutions business. Over 90% of the revenue, nearly 80% of the profit. But more and more, this is being aided by the growth of our small but mighty other business of at-Home Solutions, Nuclear and OptiFreight. I'll say only 3% of our revenue, 3% on a company of this size is $7 billion of revenue. So when you think about high-margin, high-growth business, it hits above its body weight, no doubt, giving us nearly 20% operating earnings segment profit percent for the enterprise.

GMPD continues to be our transformation business, stable at roughly mid-single-digit revenue as well as profit. But again, the biggest part of our business is our Pharma and Specialty Solutions business. We think about that as a center of everything that we do. The 3 growth businesses of Nuclear, at-Home and OptiFreight do provide interesting strategic touch points into our Pharma business. GMPD does to a little bit lesser extent. GMPD, of course, being the turnaround. More of our investments are going to the other growth businesses as well as our Pharma and Specialty business.

I love the Healthcare Industry. I imagine that unless you're here because you were told to become here by your manager that you have an interest in this industry as well. Many of the items you see on this slide are not unique to just us in the industry, but the broad benefits of our industry. When you think about utilization, that's very much the lifeblood of our business. We need that volume to continue to reduce our unit cost to continue to get better, to continue to grow the business.

And when you think about demographics, it's really just math. For the last 30 years or so has been a consistent increase in the number of Americans that are over the age of 65. Why that's always seen as the bright line in utilization is really quite simple. If you're over the age of 65, you have an over 50% chance that you're taking 4 or more pharmaceutical products. If you're under 50, you only have a 10% chance that you're taking 4 or more products. So think about it as a 5x factor if you're over 65 versus under 50. Well, the math is quite simple. There will be more Americans over age of 65 each and every year for the next 30-plus years, 50% more by the time we get to 2060 from where we are today. That's just a fantastic rising tide of opportunity that doesn't even start talking about innovation and solving more of those patients' problems over time.

So those are the strong foundational elements of our industry. But then what you've seen with Cardinal Health is that we continue to invest in the faster-growing secular trends in the market place. So we benefit from the broad growth, but we try to benefit even more by focusing on those areas that are growing faster, whether it's Precision Health with nuclear or as we listed here, the site of care shift where we've made more of our inorganic investments, our at-Home business, taking care of patients in their home. That's where they want to have care or near their home with their specialty community physicians. And of course, that's the cornerstone of our specialty and MSO strategy.

So we'll continue to organically and inorganically invest into those shifting trends in the marketplace. And while that's great for our business, what's fantastic about this strategy is it also is solving more of the patients' needs and giving them service and care where they wish to receive it. Of course, technology is the baseline of everything that we're doing here. We use technology not only to deliver improved service levels, lower cost, but also to create businesses and higher margin, higher growth type of service businesses.

We have a lot of confidence in the resiliency of our business model. We have an announcement on that today as well. Beyond all the facts that I just stated before around the growth in our industry, there's also the resiliency of the industry, the consistent growth that we've seen. Think about some of the more recent types of shocks that industry overall has experienced, whether it was the pandemic or the Great Recession in 2008, 2009. In all these cases, you saw very short-term blips in terms of utilization in the health care pharmaceutical industry. And we would anticipate that under any normal types of situations or even abnormal ones like those big events, we saw very short-term types of trend changes.

But we don't just stop there and coast on the industry. We're always making ourselves better because we want to ensure that not only are we building a strong successful business, but we're protecting that and making sure that our customers don't have any better alternative than to work with us. So that's why we're always investing into our capabilities. why we're always looking for broader, deeper relationships with our customers. It's a good place to remind you that we do have 1% margins, and I don't know too many companies out there that are really wanting to come after us for our 1%. And we have always looking for ways to further expand that and to use that 1% base as a way to grow more profitably into other areas. And we have a lot of proof points that this model is resilient and adaptable, whether it's the original fee-for-service migration a couple of decades ago or the more recent insulin price changes or today's announcement that we have now concluded successfully the negotiation on prices related to the IRA items for 2026.

Of course, one of the key updates today is the continued momentum as it relates to our earnings, at least $10 EPS per share, broad-based. We're highlighting the strength and growth across the enterprise. But of course, given the size, significance, importance of our pharma business, you can be assured that, that business continues to be a key contributor of the success that we've had to date and anticipate for the balance of the year.

Strategic priorities have remained relatively unchanged over the last several years. The one tweak that we had recently in the last year is just the order of #2 and #3. What has not changed is our focus on the Pharma and Specialty Solutions business and our intense focus on investing into organically and inorganically the Specialty business. It's the largest, fastest-growing part of the marketplace, and we are not only relevant, but we are increasingly leading in many different therapeutic areas. The tweak is providing the other businesses of Nuclear, at-Home and OptiFreight in their rifle position as a higher priority in this company. Again, secular trends, the right to win, leadership positions, and we're investing more heavily into those businesses and expecting more from them in terms of their higher growth rates well into the future.

With that said, there's still a lot of opportunity to continue to create value with GMPD. Remember, this is a business that had significant losses just several years ago. And we not only turned that around, but we made them solidly profitable, positive free cash flow and still opportunity in front of us.

A key component of the earnings growth that we're seeing this year and a part of our long-term plans, of course, is specialty. Pleased to give you the data point today that we're now expecting over $50 billion in revenue in fiscal '26, which gives you about a 16% CAGR over the last 3 years. Our priorities and where we're focused within specialty remain the same. We have capabilities across the therapeutic areas, especially within the MSOs. We're more focused on autoimmune, urology and oncology, about 3,000 providers and really leveraging the specialty alliance leading multi-specialty platform. You're going to hear a little more about our BioPharma Solutions business, over 30% growth we anticipate in fiscal '26 and making a lot of investments and benefiting from that growth within that business.

The specialty strategy that we have is very much focused on the customer, truly putting the customer in the middle of everything that we're doing. They have a wide range of needs. It's not just distribution. It's not just MSO support. It's also data and technology. We are very deliberate in looking at their needs, allowing them to stay focused on taking care of the patient, clinical outcomes and let us manage as many aspects of the business as they're willing to provide. That's what we do better than anyone, better than they can, and we want to partner with them so that they can do what they want to do and what they can provide -- where they can provide most value for their customers.

Our priorities within the 3 specialty areas that are listed here, autoimmune, urology and oncology have various reasons why we're focused on each of the different areas. Obviously, oncology is growing quickly. We are relevant there with our Navista business and the acquisition about a year ago now in ION, with ION, continue to invest into that platform in that space. We have prioritized and are investing more into the multi-specialty, the other 60% of the specialty market. Autoimmune and neurology have a lot of similar characteristics. So while they are depicted here separately, while we work independently with the different physicians, we have very similar back office, very similar even clinical types of processes like the path labs or infusions, things of that nature. And you can see there's a very similar revenue profile. While drug infusion is a relevant part of their P&L and their revenue, what we like about it as well is it's a very diverse set of financials, sharing with other revenue drivers such as office visits, procedures, things of that nature.

What we also like about autoimmune and urology is the fact that it's an incredibly fragmented space. Oncology has matured quite a bit. It has consolidated. The other areas remain quite fragmented. Roughly 80% to 90% of all physicians in those other areas remain unaffiliated with an MSO, a great white space opportunity for us, especially given we're the leader in both of those areas and gives us a lot of opportunity. That today is about a $4.5 billion business when you look at these MSOs in aggregate. And like I said, significant growth opportunities in front of us.

Another example of some small but mighty parts of our business is our BioPharma Solutions business. We have a set of plans and actions to achieve $1 billion in revenue by fiscal '28. That would give us about a 20% CAGR. Really pleased to announce today some more recent contract wins that we've had in this space.

To step back, we invested heavily in this business over the last several years in our next-generation hub to ensure that we had a much more seamless, efficient platform for our customers and ultimately to take care of patients. That's been well received in the marketplace, and we're really excited to talk about the biggest program in the industry, the Sanofi and Regeneron DUPIXENT MyWay patient support program. That came underneath our Sonexus umbrella earlier this year in the fall. And we also had several other significant wins in the oncology space. So it's a part of the business that is growing quickly in combination with our 3PL that gives us the confidence that we'll grow our revenue in this business by 30% this year and the CAGR of 20% over the next several years.

And we see additional opportunities as we look at, again, the Pharma and Specialty Solutions business being at the center of everything we're doing, the other growth businesses have a lot of interesting connection points across the enterprise. One in particular that we're stressing and going a little bit deeper on today is the continued care pathway program. That's a program of a collaboration between our at-Home Solutions business and our Pharma segment.

Think about it this way, our large pharmacy customers, they are taking care of a lot of customers' needs, a lot of different payer sets, a lot of different products. Some such as Medicare Part B related to diabetes and CGM is something that they often don't have the ability to fill efficiently. And so we can partner with them and basically take on that referral on their behalf.

And when you think about the relationships that we have and the work that we do to be their trusted partner in the distribution side of the business, it has created a lot of opportunities. One that we're really excited about is the recent addition of Publix. This is a business that we just took under our distribution umbrella in the last year. And now we already have an agreement with them to expand into this program for the at-Home Solutions side, so we can take care of their Part B customers and do so in a way that allows them to maintain that relationship. They're not having to give up that patient to another provider in a way that creates a break in their relationship.

Another area that more generally, we see a lot of opportunities in urology. Think about all the areas of our business that we are the clear leader in urology. Not only our GPO and distribution, but we are clearly the largest best position MSO. We have the clear lead as it relates to providing urology supplies to the home through our at-Home Solutions business. And we're certainly the lead as it relates to our Nuclear radiopharmaceutical business, not only with the ability to manufacture but also to dispense patient-ready doses to the health systems and community physicians.

Going deeper into that nuclear opportunity, this is similar to what we talked about at our Investor Day in June. Both urology and oncology were key -- are key drivers of our current performance. The top growth drivers that we're seeing today in urology, specifically, the growth that you're all seeing more broadly in the industry in products like Pluvicto and Illuccix are products that we dispense on behalf of those manufacturers throughout our 130 pharmacies throughout the United States. And when you look at the next wave, we are highly confident that these products will continue to solve patients' needs and challenges. And when you look at the pipeline, it's significantly overweighted to both urology and oncology, which have interesting connections back to our MSOs. Think about those physicians and those MSOs. They have an in-house expert in the form of radio nuclear radiopharmaceutical products.

One thing that you're not going to hear too much from Aaron or I today is any changes to our very disciplined capital allocation framework. It is consistent with what we said before, we continue to prioritize, have table stakes as it relates to driving organic growth, returning a baseline level of capital to our shareholders. We believe every year, they should receive both dividends and some level of share repurchases and to do that while maintaining our investment-grade balance sheet. As I referenced before, given our strong expectations for free cash flow generation over the next several years, we'd anticipate there to be some opportunity for additional capital to be either sent back in the form of additional share repurchases or additional M&A, which we've demonstrated more recently has been quite successful.

So we feel great about the setup here. We have our consistent track record, the announcements today giving you both financial and operational progress updates. But as important to that, we're making clear progress on our strategic initiatives, feel really great about the updates there as well and have a clear path in front of us to achieve our 12% to 14% EPS CAGR.

And with that, Lisa, we'll turn it over to you, and I'm sure you have some follow-ups.

Great. Thank you so much for all the comments. The first follow-up would be the disclosure that you had today around black pricing. And I think there was a lot of concern in the marketplace of what this would mean to the business model as we saw those changes come about. Can you talk about it from a contractual standpoint? Is this simply you go back to the manufacturer? Did you already have something contractually? I remember back, insulin was a good example back a few years ago. But just if you can help investors understand how to think about this.

Sure. Yes. It's -- we definitely have the contractual ability to go renegotiate prices for changes that are significant like that. So that is a clear part of the majority of our contracts, and that's the type of clause that you utilize to have those discussions. It also just makes sense, right? If you think about it, some of these WAC reductions are 50%. We're paid for a fee-for-service. The value we provide is not going to be dependent upon that price level, especially when the customer, in this case, the manufacturer, they can choose what that level of price is.

So we don't have control over that. So we should continue to be compensated in the same economics we had before. And that's our expectation, and that's what we concluded not just with the IRA items. It's just like what we did with insulin, and we have a lot of confidence in the resiliency of that model.

If I go back to the most recent quarter, you had incredible strength in pharmaceutical distribution and accelerated growth sequentially versus normally what we see seasonality wise. Is there anything you'd like to highlight changing in the second half from a cadence perspective versus the first half as we thought about '25. Some people think that perhaps it was Part D and an acceleration in Part D as we go into the back half of the year. CVS, a large customer of yours, bought Bartell's in the Pacific Northwest. They've also gained a lot of share in the last several quarters. Are there anything specific that you would call out as to what was really driving that?

I know that you're looking for the easy single item. In fact, what gives us a lot -- I'm much more pleased that it's not a single driver. It really is broad-based throughout our book of business. Yes, the big customers are performing well. They're growing nicely. But really all categories of products, all categories of customers are benefiting from the utilization that I just described. There are some first half, second half dynamics. I wouldn't call it a change in trend. It's -- when you do the year-over-year comps, though, we did have a fairly large set of new customer wins midyear in 2025 that then anniversaries itself by midyear of this year.

So we see that growth, we would expect to be still strong and stable, but not as much from a year-over-year perspective. And we have also the M&A that was completed more over the course of '24 and '25 that while we did the Solaris deal that closed in November, that's the only big one that's been in fiscal -- in the last 12 months that will start to anniversary itself come the second half of the year as well. But in terms of the essence of your question, the core utilization strength and growth we see, it's across brand, specialty, generics, biosimilars, you name it. There's strength across the enterprise. And the industry for the reasons I highlighted before, whether it's demographics or innovation, continues to be robust.

We touched on WAC pricing and IRA pricing. There are also, though, CMMI doing some demos in the market today that could have some impact on Part B, which could have an impact on the Specialty business. Can you spend a few minutes just talking about things that you're looking out for and potential changes that can come about?

Yes. Everything I said about pricing is really focused on the core distribution part of our business. And so when you get into some of the other models, some of the other areas, there could be some impact on MSOs because their pricing is not fee-for-service, it's more of a spread. So while that exists and there's -- we need to know a lot more before we say there is any impact. But even if there is an impact there, just go back and remind yourself of it's roughly 1/3 of our MSO revenue is tied to drug infusion. And so it's a relatively small percent of our business.

And when you look at the therapeutic areas that were largest and strongest areas like GI, like urology, those tend to be more overweighted towards commercial payers. So you have a relatively small percent of the book of business being tied to that and a relatively small payer set there, too. So we think that's going to be quite manageable for a business of ours. But those are all things that not only are we tracking closely, we're doing our best to advocate for community physicians. We don't think the administration's intent is to go after those physicians that are already the lowest cost providers in the chain, and they're where patients want to have their care administered. So we think that there's some opportunity for that to be mitigated anyways. But even if it doesn't, it's something we think is quite manageable for our business.

And we hosted a panel this morning with some DC experts who similar to what you just said, feel like there is bipartisan support to really support the community-based physicians because the cost in the hospital, as you well know, is 3x what it is for an outpatient setting. And the -- when you think about the rate of infection, et cetera, I know you do a lot in that area as well, is 50% higher. So when you think about where this ultimately should go, sometimes there are unintended consequences in what they're trying to do, but they ultimately feel it will get fixed.

That's right. So there's a lot of ifs within that. There's also the if perhaps that's good for our business, right? Because if logic prevails in all of that, then perhaps more care will go to the community physicians, and that would be good for our business. So we're not able to anticipate precisely where that's going to go.

I don't think anybody else?

No. And you shouldn't believe me if I told you I could. But our job is to prepare for all these potential elements. We've been intentional with every one of these acquisitions and where we're investing, modeling through all these scenarios. And we can't be entirely risk averse or we'll never do anything. So we have to balance all that. But we feel really good about where we position the business to benefit in certain scenarios where we'll probably have some puts and takes. But, again, back to the resiliency, what we do, how we deliver products, the margin we earn, but compare the margin we earn versus the value we create, we feel really good about the equation. And of anyone in the health care supply chain, I would rather be this model than any others. I think it's the most resilient.

Aaron, when we were at your Analyst Day back a little more than 1.5 years ago now, June or so, we talked about generics and we talked about stability of generics in the marketplace. And it feels like that has held. Can you maybe just talk about what you're seeing in the marketplace around generic pricing and the stability?

Well, our guide, indeed, what we're experiencing in the marketplace is consistent market dynamics, which for us, if you hear us use those words, that the business is chugging along as we would expect it to do. We manage to the same margin -- average margin per unit, if you will. And the real magic for us is when volume is rising, right? And so in the face of strong demand, which we've seen across the portfolio, certainly, that's been a positive for us as we push ahead. We did highlight that, of course, there's a strong LOE coming down the pike. There's more in the next 5 years than there has been in the last 5 years. So that is a positive for our portfolio overall, and we're looking forward to that.

On the other side of the equation, of course, we can't ignore the branded part of the portfolio, not as profitable for us. And we are at that time of year when manufacturers are taking their price increases. And so from an inflation perspective, what we can report is what we're seeing is about what we expected to see at this time of year, and we were expecting for this year about what we've seen the last couple of years.

Kind of mid-single digits?

Yes. So there's no real news in that respect for us.

When I go back and I think about generics, you have a long-standing relationship with CVS with Red Oak. And you talked about the number of incremental generics that are going to come down the pipeline in the next several years. Do you see incremental opportunities there?

Well, we are really pleased with Red Oak's performance. For those of you that don't know our story as well, we do have a partnership with CVS, which means that together with CVS, Cardinal has best access and best price really across the generic portfolio. And we are in constant communication with the Red Oak team about how do we do more? How do we continue to take advantage for our customers, both on the first access, particularly in the case of shortage, but also best cost.

I'm going to shift gears for a minute and talk a little bit about some of your newer initiatives, which would be around your MSO. When we -- within your MSO business, you benefit from several drivers, increased utilization, GPO activity, data, other services that you provide. Can you maybe just spend a minute talking about the key drivers of growth and where you see the most opportunity from a margin perspective?

Yes. It's another less than satisfying answer because there's not going to be just any 1 or 2 items. It's the fact that we have across several 3 key therapeutic areas. So we expect all those areas to grow nicely. Really, there's not any part of specialty that we see as a soft spot. We think the overall growth is going to be quite robust. We -- our long-term plans assume about 10% type of industry growth there, and we believe we can at least hold our own there. We're investing into areas like BioPharma Solutions. We're investing into, of course, the actual MSO capabilities as well. And we think there's opportunity for their version of organic growth, whether it's growing the profitability within the MSOs, but there is still also M&A opportunity.

We were very clear and have been very clear that we're prioritizing the M&A into those areas. We're not looking to expand significantly at this point in time. And we've made some bigger acquisitions to create the platforms, but now we're really focused on creating more value within that. And the broad-based nature of that gives us confidence that whether the models change and all that, that we're going to continue to build to grow the business.

And so when I think about it from an M&A perspective, maybe you can answer this, Aaron, is are we thinking about you acquiring the physicians? Do you need to acquire incremental capabilities within the specialties?

Yes. Well, look, we're really excited. At this point, just after 2 years of working on the M&A, we've got almost 3,000 providers in 32 states. And our playbook is exactly what we've said is which we've now created the industry-leading platform in gastroenterology, the industry-leading platform in urology coming together as the specialty alliance. And the powerful element of that is that we can drive growth and synergies within the specialty alliance across gastro, across urology, but also now into other therapy areas as well.

And if you think about Jason's comments earlier about the practice of medicine, the doctors don't want to do the business part of it. They want to practice medicine where Cardinal can bring capabilities is we can bring technology, right? We can bring how to manage the back office. We can bring capabilities around RCM, specialty pharmacy, anesthesia, infusion. These are all things that we can support the effort. And so the growth for us will come both from the recruitment of additional providers organically and in the form of additional tuck-in acquisitions that make sense. And then as we look at broader therapy areas, where this may go. So we see a lot of opportunity to grow the specialty presence.

That makes a lot of sense. When we think about growth in overall pharma, we can't have a discussion without talking about GLP-1s, which has been a big growth area. You have talked about the margin profile because of the refrigeration needed, the special handling needed. There is an anticipation that we'll see an oral GLP-1 come to the market in 2026. How do we think about that ramping in the next few years? And how do we think about that changing that -- again, the margin profile?

Yes. At the end of the day, it is a large branded product, and so it carries with it a relatively low margin profile. When you think about the logistics and the cost behind supporting a product like that, we do prefer those types of oral solids versus injectables. Injectables not only carry with the requirement to, of course, refrigerate, but it's also bulkier to handle and to ship. So we would expect there to be similar economics, but with some cost advantages. I just don't think -- and there's a lot of questions open still around cannibalization versus true incremental growth and things of that nature. We certainly don't anticipate there to be any significant change in economics in the short term. It's not a part of our guidance. It's not what we would anticipate.

Longer term, we do like innovation, right? It helps make us better, helps bring down our overall unit costs, absorb some fixed costs. I suspect you're going to see other initiatives driving profitability much greater than anything here. But at the same time, we see it as just one more example of the benefits of utilization and innovation throughout the industry.

I want to spend a few minutes talking about an area that we don't talk about very often because it is only 3% of your revenue, and that's other. And we think about the 3 businesses within other, right, OptiFreight, nuclear at-Home. Can you maybe just spend a few minutes talking about the dynamics of where the growth is coming from, the competitive marketplace and the future opportunities that you see?

Yes. They have very similar profiles. They all have the different secular trends that they're benefiting from. They all have different specific strategic initiatives that we've invested into. And yet we're seeing strong growth across each of them. In terms of size, the size of the business, you can all see that through the SEC filings, but they're all relevant in terms of the profitability that they contribute to the other segment. But we have strong confidence that we're going to continue to lead, and that's the component we lead in each of these 3 areas, which is why we created the business as we are, even though it's all consolidated into one segment, that's not how we manage it. These are 3 separate businesses, 5, if you include the other 2 segments that all have leaders, presidents that report directly to me so that we can allocate capital, we can move at speed, and we can give them the accountability, the financial incentives and all those things to make sure they're just driving the heck out of those businesses.

So there are very different parts of the industry, which is why I wanted to pull them out of the bigger segments is because you tend to kind of average things out if you have it under one leader. These are all businesses that need to be managed independently from one another, very different customers, very different growth vectors, but a lot of strategic ability to benefit our large central pharma segment. So important to keep it within the enterprise, but not something that we wanted to actually be a part of the other -- the bigger segments.

Jason, there's been talk for a long time about shift in patient care to the home. and getting people out of the hospital, et cetera. The path has taken much longer than anticipated, but yet you continue to see growth in that business. What are some of the bigger opportunities you see?

Yes. We've seen very consistent growth. And when you think about the types of products that we're prioritizing, those have been part of the market that's been growing quickly, like diabetes, right? So while there may not be the same growth across the industry, it is absolutely hitting a bit of the sweet spot of where we're at. We benefited more than the industry in terms of the overall growth, especially within our distribution side.

When you think about the investments that we've made in our distribution centers, they are the best in the industry. We have 11 DCs throughout the country. We can get to our customers and our patients in a day or 2. We have 3 of those 11 are already new and in service with latest state-of-the-art technology and automation. We have 3 more coming over the next 3 years that will have the same type of technology. So we're going to have a highly capacitized, efficient network that is the best at serving those customers and those patients. So we are the partner of choice with other DMEs. And that will -- that has been a secret to our success here for the last several years and will be a component going forward.

As it relates to where we're the provider, the acquisition of ADS has been a huge shot in the arm. When you think about -- they are the best at customer acquisition and retention. They have great processes. We were fantastic at the operational end. Bringing together the best of the best has been a great solution there. And we think we're well positioned to continue to lead in the industry.

It's become a smaller part of your business, which is the medical supply side, GMPD. As I think about that business going forward, you put in this category of a turnaround. And I noticed when you had the chart around talking about making investments that there's maybe less investments in this business. So are you where you need to be to get the business turned around? And how do I think about the fit within Cardinal for that business going forward?

So let me be really clear on what that message is supposed to be there. We are making huge investments into the infrastructure of GMPD, and we have made huge investments. It is a big component of our capital spending. So this is a business that we have invested in to improve performance, to improve service levels. We are at all-time highs as it relates to our service and delivery metrics and KPIs. So this is a business that has benefited greatly and continues to benefit with those investments. So we're not starving the business by any means. We're continuing to invest into it.

The investments that I think you're referring to are more of the M&A and those strategic growth investments. It's not a space that we prioritize for M&A. We've been very clear on that. Highest priority is Specialty, then it's the other growth businesses, namely at-Home has had the most opportunity. GMPD is getting their fair share of the organic investments. It's a business that has a great deal of opportunity to create value. There are connections into the rest of the enterprise, less so than what we see with the other businesses. So we see less strategic connection, but there are strategic connections. And importantly, we're staying focused on the primary objective, which is to continue to turn around the business to continue to be closer and closer into best-in-class for all the KPIs. And we think there's still a lot of opportunity there.

And just to add to that, the benefit of the investment profile that Jason has called out is if you look back a couple of years, this business -- the GMPD business has gone from negative profit, negative cash flow to positive cash flow, and that's because we continue to do exactly what we said we would. We have the turnaround plan. We have the GMPD improvement plan, really improving the customer experience, improving our supply chain offering as well. And we're just going to keep going after that business just like that.

In the last minute or so, Jason made a comment that your capital deployment strategy hasn't really changed. You've done a number of M&A in the last year. How do I think about M&A going forward? Do you see a lot of opportunities, Aaron?

Well, we are going to remain disciplined on our capital allocation, right? If we can invest the dollar organically, we would rather do that. We're going to protect our balance sheet as we have. We're going to return capital as we've committed we would. And then we have the bucket of money, which is we will look to see if there are additional opportunities in the marketplace to support our strategic plan from an M&A perspective. And our focus continues to be in the specialty part of the portfolio, right, and in the other businesses.

But leaning in, given the number of deals we've done, we're very focused on integration of the assets we've already acquired. And we'll do some tuck-in acquisitions, right? We have flexibility. We do a -- we can do a high ROI investment if one comes down the pipe that we like. But our focus is on integrating that, which we've acquired and continue to support the platforms through the tuck-in acquisitions.

Great. In our last 30 seconds, anything that I didn't touch today? You want to make sure that investors know about Cardinal Health?

I think we covered it all, but I appreciate the opportunity to summarize. Really pleased with the financial performance today that we're announcing, continued momentum that we're seeing in the business, not only in what we -- early stages of closing the books for Q2, but we've seen enough to believe that there's momentum for the rest of the fiscal year as well. So pleased with that as well as the strategic updates we provided today, demonstrating both the resiliency in the core of the business, but also the really interesting and exciting growth opportunity still in front of us.

Great. With that, thanks very much for joining us. Thank you.

Thank you.

All right. Good morning, everyone. Welcome to day 2 of the Citi Global Healthcare Conference. Really pleased to have with us today this morning, Cardinal Health, Aaron Alt, the CFO of Cardinal Health; and Matt Sims, Head of IR. Before we start, I'm going to hand it over to Matt to make some comments.

Perfect. Well, thanks for hosting us, Daniel. It's great to be here as always. And so just before we begin, I'll note, we will be making forward-looking statements today, which are 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.

Great. And I think Aaron wanted to make some introductory remarks as well.

Thanks. Good morning. On behalf of Jason Hollar and our entire management team, delighted to be here and talk about our business. Before we do the Q&A, I just want to provide a little bit of context on the Q1 results that we issued a couple of weeks ago as maybe some anticipatory set for the conversation we'll have both in this session and during the one-on-one sessions over the course of today. And it goes something like this.

First, we were really pleased with our Q1 results. All 5 of our operating segments showed double-digit profit growth. That was headlined by our largest business, our pharma and Specialty services business, which had significant profit growth really driven by 3 factors, the 3 factors you want to see. Starting with strong, perhaps outsized demand really across the entire portfolio within our pharma business. That was matched with strong execution. The teams have been working very hard to make sure that we are servicing our customers in the right way, and that certainly helped to raise the boat as well. And thirdly, our focus on Specialty for the last several quarters continues to be successful. And so we saw strong growth within our $40 billion plus double-digit growth Specialty business as well. And so we were really pleased with that.

The second thing going on was, of course, we have a reporting segment called Other. It's the combination of at-Home, Nuclear and Precision Health and OptiFreight, 60% profit growth with organically each of the 3 businesses growing more than our 10% long-term target. A lot of progress there against the specific strategic plans, the investments we're making really across that portfolio that I think we'll come to later on in the presentation.

And then lastly, the GMPD business, which is the turnaround part of our story, a very strong quarter. That team makes -- continues to make good progress. They are managing through the tariff environment well. We're doing what's right for our customers. We're doing what's right for our business and making good progress, and I'm happy to talk more about that.

If I zoom out from the specific business performance, though, I do want to highlight two things, which is we are investing for the long term. Jason and his team are not managing the business to this quarter. They're managing to the -- remaining to 3 quarters, 4 quarters, 5 quarters, 7 quarters out so that we have a continued cycle of good growth opportunities within the business, and we're starting to see that. We've been seeing that now for a couple of quarters. We continue to see that, I should say, as far as the success that's coming from those investments are now being realized.

And lastly, and I imagine we'll talk about this as well. There is a changing regulatory environment out there. And I want to just convey at the start the confidence that what's in our guidance, the raise to guidance, we raised our guidance to $9.65 to $9.85. That incorporated that which we knew and that which we believe to be true. And what I would observe is that while regulatory change -- this particular regulatory change is new, we've been at this a while, right? We understand how to work with our supplier customers. We understand how to work with our suppliers and our customers, if you will. And we are -- we believe that we're on it. We believe that we have a close tie with the administration and whether it's IRA or MFN or the other regulatory changes out there, we have confidence in the future of Cardinal Health and the model that we are building.

Yes. I think that's a great foundation for us to launch and then dig a little bit deeper into each one of those areas of growth. And what's been surprising to me and I think to a lot of folks out there, not just on Cardinal, but on the industry, the drug distribution industry at large is just how durable the strength has been really over the past 7 years. It's been an amazing run for the space. Specifically related to Cardinal, you're guiding to 16% to 19% profit growth for your upcoming fiscal year fiscal '26. 8 percentage points of that is from acquisitions. But even when you back that out, the organic growth is very strong, ahead of your targets -- long-term targets of 5% to 7%.

So as we think about the sustainability of that momentum, maybe help us parse out in a little bit more detail the drivers of the near-term outperformance? And why shouldn't we expect you to grow higher than that 5% to 7% long-term growth rate given what you've done over the past few years?

Great question. To answer, I need to provide a little bit of historical context, which is if you go back in several years, the growth aspirations for our pharma business was actually low single digits. And then we raised that to 4% to 6% a couple of years ago at our Investor Day. And at the most recent Investor Day, we raised that to 5% to 7% ex M&A. And so that's the core demand expectation, if you will. And we think based on what we can see that, that is a reasonable expectation for the industry or for the business, generally aligned with our peer set as well. And it assumes strong demand given the demographic trends that are out there as well.

Now what it doesn't assume is outsized demand. And part of what you're reacting to and part of what we get questions about is the fact for the last couple or several quarters, we've seen demand that has actually been more than strong, right? It has exceeded -- it's been outsized demand, and it's been -- particularly in this last quarter, it was everywhere, right? We saw it in Brand. We saw it in generics. We saw it in Specialty. We saw it in Consumer Health. The business was humming. And so that outsized demand helped to lead to a very strong quarter for us as we push ahead.

The second part of that I would call out is the operations piece of it as well, which is Cardinal has been finding its groove within the pharma business as well. And so we're able to service all the orders we're getting, and that is certainly contributing to strong success. And when you have strong demand and you're able to meet all the demand, good things happen as you push ahead.

Now as we carry forward, it's also the case that the generic pipeline is robust, right? There is a significant number of pharmaceuticals that will go generic in the next 5 years, '25 forward, if you will. That's one reason why we have confidence in the guide that we've provided and that we can see that goodness coming. And as you all know, the generic part of our portfolio is certainly a strong contributor to our overall profit base.

Great. Great. And we'll dig into generics and also biosimilars a little bit later. But one of the questions that has been increasingly coming up at this conference, and I'm sure you're getting these questions, too, is just the impact of WAC reductions on your core distribution business. We were just at a panel right before this fireside chat where the speaker basically said this is going to put pressure on all intermediaries, the reduction in WAC. How would you respond to that? I think there's a good test case that you guys went through with insulin on WAC price reductions. But maybe if you can dig into how WAC price reductions impact your business, impact margins and how you can offset some of that potential.

Sure. I understand the concern. I understand the questions that are being asked, but I would go back to something I said in my introduction, which is we've been at this for a long time, and there has been consistent industry change over decades. The model has evolved. What hasn't evolved is the fact that the distributors as a group provide an essential service to the health care industry. Our role is to safely, securely and efficiently move the goods from point A to point B or point C, if you will. And that comes with a cost, right? And we historically have been and we expect to be compensated for the service that we're providing. And how that service -- how that compensation happens within the aggregated P&L, right, isn't something that's decided by one particular regulation or one particular line within the income statement.

And so while there may be changes to WAC there -- I would observe that there is a regular negotiation with all of our supplier partners on how will we be compensated for the services that we're providing. And just because regulations change, doesn't mean that our cost of service in a 1% margin business is going to change. And so I would observe that we expect and will be compensated for the service that we're providing, and we have certainly seen that to be true.

The IRA changes, questions around WAC, et cetera, this isn't happening this week. This conversation has been underway for some time. And we have entire teams that work with our suppliers on renegotiating those contracts all the time. And part of why we were able to, as recently as our Q1 earnings call to express confidence in our raise to guidance is that which we know to be true and that which we believe to be true at a detailed level is rolling up into our overall guidance. And I hope you take away from that, that we believe we're on it.

Okay. Okay. And maybe as we just think about how these WAC changes roll through your income statement, potentially a headwind to revenue, gross profit dollars, no change.

I guess I would have you think about it this way. At the end of the day, we are managing our business to profit, right? Revenue is certainly nice. Everyone wants to see revenue growth as well. But to the extent that there are WAC changes that are driving changes to the revenue line, so long as the profit line is appropriate, then we can work with our customers on what's the relative composition of the income statement in a particular contract because we will be compensated for the services we provide and again, acknowledging that we're about a 1% margin business overall.

Okay. Let's switch over to your MSO business, which is a bit of a newer strategy for you guys and actually one that you're pursuing in a bit of a more differentiated way than your competitors as I look at them versus you. You've bought nice growing platforms like GIA, Solaris. And I think what sticks out to me is that you're not wed specifically to the pharmaceutical aspects -- revenue-generating aspects of those business. I think drug spend is about 1/3 of those assets, whereas if I talk to your competitors, they're much more focused on the drug spend revenue generation of their MSO assets.

So talk a little bit about how you're differentiated in your MSO strategy. And also, you're a bit unique, too, because you have not just the drug distribution business, GBO business, but you also have nuclear health, you have at-Home solutions. You've got Specialty networks. How does that all work together with your MSO strategy?

That's a really important lens on our company. And so I'm delighted to talk a little bit about it. Let me start with the MSO strategy and then layer in the other parts of our portfolio and how it comes together.

When Jason became CEO of Cardinal Health and he reconstituted his management team, and we were together working on what will be the strategy for Cardinal Health going forward, there are a couple of things that were clear. The first was is that we had to identify our own strengths, where are we strong so that we could play toward our strengths. And part of what comes with that, though, is the acknowledgment that we have to run our own playbook, not run the playbook from the other guys, right? Because if you're running someone else's playbook, you're doomed to failure in that way.

And so what you -- what we hope you detected from our Investor Day 3 years ago was the fact that we were very focused on our strength in the "other ologies" the 60% of the Specialty business separate and apart from oncology. Our goal was to be relevant in oncology. We needed to be getting the good pricing from the manufacturers that our peers are as well. But we really have strength in the other ologies, the urology, the gastroenterology, the rheumatology places where that's not new for us. We've had strong distribution strength there as well.

Importantly, we also, in the background, and this was less well understood, we had strength within the GPO world in those categories, and we were building strength in the technology space of the world. And so even before we started acquiring MSOs, the first acquisition we did certainly in my time at Cardinal was to acquire something called Specialty Networks. Specialty Networks was a GPO plus, and the plus is really important because the plus is the fact that even if we were not the distribution partner to a urology practice, right, we were integrated into their EMR system. We were also integrated back up into the manufacturers. And so we were the connection point, if you will, between the practices getting recommendations on how to provide better clinical practice of medicine based on data as well then that data then going back up into the manufacturers as well. And so we had an ecosystem of urology customers that, again, even if they weren't a distributor customer, we knew the industry.

Now fast forward, well, by the way, GIA, which was our first scaled MSO presence, they were in GI, not urology. They were also a Specialty Networks customer because they could see the benefit of what we were building in that way. And by the way, Solaris, which we recently acquired, they were not a distribution customer of ours, but they were also a customer of Specialty Networks. And so what we have been doing is building an ecosystem from the suppliers down through the clinical practice of medicine where Cardinal can provide value, certainly, if it's from the distribution, that's great, but also on the data side of the house and now increasingly on the ancillaries and the back-office elements of the overall portfolio.

So where we find ourselves today is we acquired the single largest platform within gastroenterology, which we would call part of autoimmune. We acquired the single largest platform in urology. Both of these play to Cardinal's strengths as we push ahead. And along the way, we also both built organically and acquired a smaller platform called ION, which is now part of our Navista oncology platform, again, so that we would be relevant in oncology, but our focus is much more on the other ologies and the MSO platforms.

You referenced it, I want to emphasize it. We don't do these deals to gain distribution, right? We should be winning distribution based on our distribution strength and our distribution economics. And so we don't include the distribution in the business cases that we put together on doing deals. What we are focused on is the broader opportunities within the MSOs. And what I love as CFO about these deals is the fact that only 1/3 of the economics is around distribution. We have higher margin, good growth opportunities in connection with the office visits in connection with the procedures and in connection with the ancillaries that diversify the profit streams that we have at Cardinal Health. And so we're excited about the roughly $4.5 billion of revenue that is coming with the -- how we're putting the MSOs together.

Now there's a second part of this that is still building as the acquisitions are closing, which is if you think about my comments earlier about Specialty Networks and the focus on urology, so on the one hand, we have Specialty Networks in urology and we've just acquired Solaris, Urology Americas and a number of other practices. Well, by the way, our Nuclear Precision Health business has -- is the strongest provider of radiopharmaceuticals in connection with urology. You've heard, I'm sure some of this conference talk about Pluvicto, right? We are part of that Pluvicto ecosystem. There are a significant number -- there's a significant number of innovation coming in urology that our Nuclear Precision Health business is either manufacturing or manufacturing and distributing for our manufacturers. We like the synergies that come from that and are now able to connect the dots between the various parts of that ecosystem.

And the same thing is true across other parts of our portfolio. Our at-Home business, right, so not in the acute environment or even in the physician office, but our at-Home business has a very strong presence in urology. And so what we love about these acquisitions and how we can take the broader ecosystem that is Cardinal Health, start connecting the dots to drive growth across every element of the business.

Yes. Yes. Great. Let's turn to GLP-1s, still a very big topic of conversation at this conference certainly. But I want to tackle it from a little bit of a different angle and maybe a 2-parter here. First, the introduction of orals in '26. Obviously, a little bit less, maybe a lot less complex to distribute than the injectables, the whole cold chain is not necessary there. You've commented that the injectables are minimally profitable. But as your costs come down with the introduction of orals, I'm wondering, will you start to generate meaningful profit from GLP-1s with the introduction of orals? And then separately, and I'll dig in a little bit deeper after you answer that, I would love to get your views on the DTC channel. But why don't you start with the orals?

They've not yet launched, right? But I would observe that the oral solids for GLP-1s certainly aren't going to be a bad thing, right? I can say that with -- I can declare that today. We would believe that -- well, first, we believe that innovation is good, and so we're always in favor of that. How the oral solids play out within GLP-1s and the broader ecosystem will depend on a couple of things. The first is demand. Will the oral solids replace the injectables? Or will they be additive to it, right? And depending who you talk to, you get a different view of that. If they were to just replace the injectables, then your point on -- it should be easier for us to manage it because there's no cold chain involved would be absolutely true, right? What we don't yet know is it -- will it grow the pie completely? Or will it replace some of the existing pieces?

So the jury is still out. What is the case is that, a, we love innovation; b, we support patients taking care of themselves; and c, any time there's innovation, it presents us with an opportunity to have a continued conversation with the manufacturers of what are the right economics in that category. And so that's all I can say today.

Got it. And then on the DTC channel, certainly not just specific to GLP-1s, but probably most noticeable in GLP-1s, the development of LillyDirect and NovoCare, and there's a few other pharmaceutical companies that are launching direct-to-patient. I'm curious how the development of these direct-to-patient channels might impact your business? For instance, the speaker that I referenced the previous question mentioned that Lilly's tirzepatide vials, when you look at new starts are taking a significant share, and that doesn't touch a distributor. But I'm curious how development of this channel might impact your business and how you may change as we see further drugs flow through direct-to-patient.

Guess I would observe that we're in support of access, the same way we're in support of innovation. And the way that the administration is working with some of the manufacturers to provide better access at better cost to a limited number of items, right? We support that overall. And it is actually the case that in the vast majority of cases, if not all cases, I haven't done the math on every case, but vast majority of cases, there's actually a distributor behind the model, right? And so you have to be careful to differentiate between the flow of the money and the flow of the product. Inevitably, there's a distributor of some size, whether it's the big 3 or otherwise behind that.

And while the models will continue to evolve, I'm going to go back to my earlier point, which is our role alongside our peers is to safely, securely and efficiently move the products to ensure that whether it's the acute environment, the physician office or the patient that they have what they need. And that can't be done at scale without significant investment. And how many people are going to invest the necessary dollars to get that 1% return to come into that space.

Right, right. All right. Great. Let's dig into the generics business because this is one of the areas of strength that you called out last quarter, and it is one that your competitors haven't really called out and maybe it's just their messaging versus yours. But I'm curious, your -- as you presented at your Investor Day, your long-term model is built on kind of 2% to 3% growth in generics. The recent performance is tracking ahead of that. Is that some structural shift in the market that you're seeing? There's obviously a lot of LOEs coming up there? Or is it a function of Cardinal-specific execution?

I think there are a couple of things going on. Let's just start with my earlier comment about demand. Demand has been strong, right? And demand is strong in our industry when scripts are being written because it's the script that determines what is -- what are we selling effectively to our customers. And so customers are -- our patients are getting health care. Their doctors are giving them the appropriate prescriptions relative to their health care needs, and that is translating into demand for us. It is certainly the case that the growing number of generics, the LOE, if you will, has been a positive factor in the last couple of quarters. We often talk about when generic volume is strong, we do well. Generic volume has been strong in the last couple of quarters for us. And so we have seen that. And we have no reason to believe that the generic volumes are going to decline in part based on the LOE.

But I want to be careful to not get too far ahead of ourselves as well. We -- our guidance assumes strong demand. It does not assume the continued outsized strong demand. And I know I'm dancing on the head of a pin in saying it that way, but I want to be clear that our expectation is -- is it 2% to 3% or 2% to 4%? 2% to 3% generic growth over the long term. If there was more than that, that would be upside for us. The same way if demand were -- overall demand will continue to be as strong as it was in Q1, that would be upside for us as well. But we're being careful to calibrate that as we carry forward.

It's also the case that our service levels are great. And so part of what's going on in our business is that we continue to better perform every quarter with our customers. We're not missing the opportunity to sell something in that way. And so that is assisting our business. And lastly, with some of our customer wins, particularly I'll reference the Publix win as well from the back half of last year, right? As we get those new customers that are selling those prescriptions, right, that is supporting our overall generic business as well.

Lastly, we talk about and perhaps manage our generic business differently. If you're hearing me talking about consistent market dynamics on an earnings call, that means that we've accomplished our goal, supported by our Red Oak partnership of managing to an average margin per unit, right? We are much more focused on the basket of generics than we are on finding an opportunity in any one item.

Got it. And let's switch over to biosimilars. I think this is still very much in the early innings. But yesterday, we had Dr. Marty Makary giving a keynote and he was very focused on accelerating biosimilar adoption as a mechanism to increase affordability. So I was wondering if you can help us think through your biosimilar business. You haven't really called it out as a significant driver of recent outperformance, but a nice kind of tailwind at your back. But I'm curious how you're tackling the biosimilar market through your distribution business, through your MSO business and your Averon sourcing partnership and how all of these pieces kind of work together?

We have big aspirations for biosimilars over time, but we also believe that the biosimilars industry is in early innings in the game and that while there were hyped expectations of the impact that biosimilar was going to have in the short term, it's run into a couple of hurdles such that biosimilars has not become the next generics, if you will. And I would call out a couple.

The first is that as individual items are open -- become open to the biosimilar alternative, there has to be a rationalization of the number of manufacturers in a particular biosimilar, right? Because if you have too many, the economics aren't good for anyone, and they end up -- it ends up disrupting the industry. At the same time, PBMs have been making choices around biosimilars and their formularies, which have been good for them, perhaps not good for the adoption of biosimilars overall, and we're watching carefully what that looks like because, of course, if a PBM makes a formulary choice, right, that limits how far a particular category of biosimilars can go as we push ahead.

So we do have the Averon partnership. We are focused on supporting the development of biosimilars overall. But from our view, it is early innings and not -- certainly not a contributor to our profitability the way that our generics or branded business would have been so far.

Got it. Okay. Let's switch over to your growth businesses. We'll start with the Nuclear business. Just really fascinating. And I think a bit under the radar, even though it's been growing nicely, and you've been talking about it as a nice contributor to growth. And one of the areas you're investing in, you're making $150 million investment in new capacity. You're seeing growth in -- significant growth in Theranostics. You mentioned that there's synergies around kind of your urology practices on the MSO side as well. How are you building kind of the competitive moat here? Is it the manufacturing scale, commercialization services, your distribution network? Just talk to us a little bit about the competitive dynamic moat in the nuclear space.

The short answer is all of the above, right? And we are developing and building capacity in manufacturers in manufacturing in support of our brand partners. We already have an awesome distribution network where we can service 95% of hospitals within 3 hours. And as you think about the further innovation that's coming, I would observe that there are more than 70 new radiopharmaceuticals under development across therapy areas. What we need to be successful is for a handful of them to hit, right, because not all innovation will play. And we're excited about the innovation pipeline and what it means, not just for our business, but also for patients and having access to new pharmaceuticals as we push ahead.

The business excites me because it is a little bit under the radar, but growing very nicely. And I believe we've disclosed that the margin structure of this business is around what the overall margin structure is of the other reporting segment as it is, so about 10%. So it's a higher-margin part of our business. And so as you can imagine, that means that we're motivated to put capital into this business to drive the manufacturing capabilities, to drive the distribution capabilities. And we recently announced that we were investing in more cyclotron capacity across the country as well. And so an exciting part of our portfolio.

Yes. And on that margin point, I think you've noted that the margin varies based on the model in that business. So it depends on if you take possession of the product if you manufacture, if you dispense it. How should we think about what's driving growth in terms of those models and how that might impact your margin going forward?

Yes. We don't actually comment on the financials around any specific therapy, right? We look at it from a basket perspective. And there may be different models with the same manufacturer depending on the therapy that we're supporting in that way. We ultimately aspire to be -- to cover the full value stream with the brand owners in that way. But we're flexible, right? And part of what we believe is our competitive advantage is the flexibility we bring to the equation given the scale we have as the largest incumbent in the industry in the U.S. in that way.

Got it. Okay. Let's now switch to another component of your growth business, the at-Home. I think the big news there, which was announced late Friday, was the finalization of rules around competitive bidding. Can you help frame in that business what percent of your revenue is subject to competitive bidding? If I'm remembering correctly, I think you've previously said around less than around 15% of your at-Home solutions business is Medicare fee-for-service and CGMs. I'm wondering if there's a broader number that you can provide.

Yes. We haven't cited a broader portfolio number, if you will. We have said the 15% number that you called out. So I'm going to anchor us there for a conversation. And I would have you think about what the administration is doing in a couple of ways. Their first objective in going to the new regulatory framework is just to eliminate fraud, waste and abuse. And we know this because this is what Dr. Oz and the administration has said to us. We stay very close with the administration on the proposals, both through our industry groups and through our own regulatory team. And as you think about what the administration wants to accomplish there, who better than a large public company that takes its compliance obligation very seriously to partner with them to do that, right?

And so you add the fact that we have the right compliance framework, we have the right systems in place to be able to measure and provide the metrics. You add to that the scale we have with these regulatory changes and the competitive bidding, we believe the parties that are going to be the most successful in the new regulatory regime will be those that have the scale, right, that can make the right investments for bob and weave appropriately to help the administration get to their goals. And as the largest provider of CGM and indeed, the largest or one of the largest providers in other categories as well, we think we're ideally situated to be the best partner really across the board in the at-Home space.

Lastly, I would observe that the near-term financial impact is small, right? The regulatory changes, we don't think will hit our business until our fiscal '28. We're 2 quarters into our fiscal '26. And so that's a lot of time, a lot of time to both work out the details, a lot of time to position ourselves to be helpful to what the administration is seeking to accomplish. And so we're very bullish on the at-Home business, which is part of why we did the ADSG acquisition to increase the scale of that business early on in the tenure of at-Home reporting directly to Jason.

Yes. Yes. And maybe if we just stick on the CGMs and pumps out of the competitive bidding because that is the most significant new thing in my view there, not a surprise because that was kind of hinted at with the interim rules. But I'm curious, and I'm not going to ask you to give away your bidding strategy on stage, but I'm curious, there was limit prices, ceiling prices effectively that were put into the finalized rule. I'm curious how you think bids will -- may develop relative to those ceiling prices or those limit prices.

Yes. All I can say is we have a strong relationship with the manufacturers. We have a strong relationship with the administration, and we will sort it out over time. Otherwise, I'd be giving away our bidding.

All right. Okay. Let's switch to your turnaround business, GMPD. You've noted that the net tariff impact there is going to be around $50 million to $75 million or so. As you can -- as you manage through that impact, what is the nature of your conversations with customers been? Really, I'm talking about pricing. And how do you balance that need for price adjustments with the goal of strengthening customer partnerships?

Yes. The GMPD business is part of our -- it is our -- the turnaround part of our strategy, and we've taken that business from negative profit, negative cash flow a couple of years ago to now positive profit, positive cash flow. So we're really proud of what Steve Mason and his team have accomplished over the last couple of years in connection here with that business. And that was all without reference to the tariff environment that came along. And so what we've been particularly pleased with is the fact that, that team has been able to adeptly navigate through the headwinds, the complexity that comes with the various changes to the tariff regime.

We had called out a $450 million gross impact, 2/3 of which was being offset internally through operational changes and 1/3 of which we were going to have to take pricing in the market. We were the one leading that drive because we have committed to our stakeholders that we will do the right thing by the business, the right thing by the enterprise in doing that. And we've had productive conversations. Most of the pricing that we need to take is already out there. Of course, our team is monitoring the tariff evolution as it happens and adjusting accordingly.

But it's a highly competitive industry, right? And just as we are doing that, we know that Medline and McKesson and OMI's businesses all are equally making choices in that way. And so our effort is consistent with our 5-point plan of business improvement to take -- to put our best foot forward with our customers to have the right fair conversations around pricing that we need to have to support our shareholder value creation. And so far, so good as our first quarter results indicate.

Great. And maybe if we can just end on your capital deployment priorities because that is such an important part of your business. You are generating a ton of cash flow. I think you've got about $5 billion of cash to deploy over the next 3 years, and that's taking out all of the capital that you're returning to shareholders via buybacks and the dividend. Can you just remind us what the priorities are for that capital deployment over the next few years?

Well, I'd love to talk about cash. I wish we had more time to do that. But you're right, we are a strong cash generator. We raised our adjusted free cash flow guidance after 1 quarter. So we're now $3 billion to $3.5 billion within the year. And you're right, we do have long-term aspirations that are much higher and some capacity there. Our view of capital is the highest and best use is to invest the capital back into high ROI projects in the business. And during -- after Q1, we raised our CapEx guidance for this year to $600 million to $650 million. That's reflective of the fact that we are investing not for our results this quarter, but for future quarters, future years as well so that we have the continued cycle of profit improvement as we carry forward.

After that, we will manage our balance sheet to ensure that we stay at the BBB/Baa rating that we have. We expect to be back -- post acquisitions, we expect to be back in that rating during this fiscal year. And so not a lot of action we have to take there. We're well on track to accomplish that goal. Then it's return of capital for us, living by our commitment to return at least $750 million of capital to shareholders through share repurchase and maintaining or growing our dividend modestly every year. We've completed half of the share repurchase for the year already. And we'll talk more about our plans for that on our Q2 and Q3 earnings calls as well, but feeling good about that, which leaves us with the bucket of what's left in that way. And that's an important bucket that I spend a lot of time thinking about as well.

And what we have committed to shareholders is that if we don't have a high ROI internal investment and we don't need to deleverage the balance sheet, we're going to look at a combination of strong return M&A or returning additional capital to shareholders. And I'm not here today to tell you what we're going to do in that respect. I will observe that we would expect that our M&A, as I sit here today, is -- we'll be open to further opportunities, but they are more likely to be tuck-ins than anything else in support of the strategy that we've already laid out. But there, again, if the M&A doesn't come, we will be focused on returning capital to shareholders.

Looking forward to more details. Thank you so much for joining us this morning, Aaron and Matt. It was a very interesting conversation.

Thank you.

Thanks, Daniel.

Good afternoon, everybody. Thank you so much for joining us. I'm Elizabeth Anderson. I am the health care services analyst here at Evercore. Welcome to the people online as well. I am very excited to be joined by Aaron Alt, CFO of Cardinal Health; and Matt Sims, VP of IR. And before we kick off our opening statement, I think Matt has a few words.

Well, great. Well, thanks for hosting us, Elizabeth. It's great to be here again. Before we begin, just a little housekeeping. So we will be making forward-looking statements today, which are 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.

Perfect. All right. Well, on that note, Aaron, do you want to kick us off with a few comments, and then we'll jump into the...

That would be great.

And good morning, and thank you for having us or good afternoon, rather. On behalf of Jason Hollar and the entire team, we're excited to be here, excited to be talking about the Cardinal Health story. A little bit of context before we jump into questions, which is I hope you've all noticed we delivered a strong quarter for our first quarter earnings results. We saw double-digit growth across all 5 of our operating segments. And so we were pleased by that. That was driven by strong demand really across the business. It was also driven by strong execution as our team continues to raise the game. And importantly, the specialty part of our pharma business as well, where we have been investing heavily was also a strong performer as well. "the other part of our portfolio," which is the combination of at-home, nuclear and OptiFreight also had strong revenue growth and very strong profit growth.

So we're delighted that the progress that those parts of our portfolio are making. And last but not least, the progress against the GMPD improvement plan continues, and our GMPD business delivered a strong quarter in the first quarter as well. All that is happening while we continue to invest for the future. And while we're pleased with the results in Q1, we are really looking at the business on a multi-quarter basis, and we continue to invest in new customers. We can talk about the fact that we have the benefit of new customers in the first half, about $7 billion of new customers in our pharma business.

We continue to integrate and invest in the MSOs, the acquisitions that we've done. Speaking of acquisitions, of course, we did a recent acquisition of ADSG into our at-home business, where the integration is going quite well. So we're pleased with that as well. And then innovation. The innovation cycle is a core part of our business. And certainly, the investments we're making in our nuclear Precision Health business as well is paying dividends to us as well. So all in all, a very positive Q1, and we're delighted to have also raised our guide relative to our full year to $9.65 to $9.85. So that's where I would start.

Yes. That's a great place to start. So maybe thinking about some of the positive long-term drivers of pharma, of which there are many. One thing we've gotten an increasing number of investor questions about recently is the generics LOE contribution to that growth. I know if we rewind 10 years, that was a different story, and you guys have totally evolved the business model since then. Can you talk about, as we think about this upcoming generic wave, how do we think about the contribution on that and what's sort of similar and different to what we saw in the 2010 to '14 time frame?

Yes. We spent some time talking about this at our Investor Day in June, and it is the case that part of why we're bullish on the future for the business is there is a nice pipeline of new generic products coming, right? And the pipeline from '25 through '29 is stronger than the 5 years before. And so we're excited about that. You often hear me talk about the fact that we make more of our money on generics than we do on the branded side of the portfolio. So having that pipeline coming is a positive for us, particularly where we can continue to be confident in consistent market dynamics, which is we manage our generic portfolio to average margin per unit, right?

And so long as we can keep the buy and the sell in equilibrium, so long as volume is rising, right, we're going to do well. And we believe that has been the case for the last several quarters. And certainly, as we look forward, we continue to predict strong demand, perhaps not as strong as Q1 was, but strong demand, including in our generic portfolio. We, of course, have the benefit of our industry-leading Red Oak partnership with CVS, which has the dual...

It was not there last time?

That's exactly right. As the dual goal of both access, we believe we have better access than anyone else in the industry as well as keeping our costs in -- under control. And so we are -- that will contribute to our success as we carry forward as well.

Got it. That's very helpful. And one thing you guys have obviously done a nice job of aligning yourself with nicely growing customers. So can you talk about how you sort of weave that into your broader like strategy and portfolio? And then you're also thinking CVS acquired Rite Aid, so that brings you some new volumes. So you're sort of there, you're seeing a nice structurally growing customer. How do we think about that as it contributes to your model? And how do you kind of plan for that strategically?

So part of being able to talk about strong demand is also being able to talk about winning with the winners, right? And we have -- we are very pleased with our ongoing strategic partnership with CVS. It's been outstanding for many years, both on a service to their stores as well as the Red Oak partnership. We were pleased to onboard new great customers like Publix in the back half of last year as well. And when I was commenting earlier about us having strong demand or outsized demand in Q1, it was across every element of our business and with our key customers like the Publix, like the CVS, et cetera. Now we don't typically comment on the individual drivers within a customer. But to your point on what else is going in the industry, while I can't identify exactly where the Rite Aid file buys went, right? We do know that CVS acquired many of them, right? And certainly, for that portion of our portfolio where we service of their portfolio that we service, that would have been a contributing factor to our success.

Yes. No, that makes sense. And then just talking about seasonality. I know that there -- although you have great visibility in terms of the longer-term model. We think about the sort of quarter-to-quarter visibility. So fiscal third quarter is typically the highest profit dollar quarter for pharma, at least in each of the past 2 years, we've also seen very good strong growth in the first quarter and then sort of maybe a little bit more moderation. How do we think about the main drivers of those seasonal dynamics and sort of how are you expecting that to play out this year?

Yes. There are a couple of things going on this year in particular. The first is we have called out the fact that the first half will benefit from the fact that we have the $7 billion of new customer volume coming into our portfolio. Of course, we had $10 billion in the back half of last year. So we will lap that when we get to the end of H1. It's also the case that we have a couple of acquisitions that -- as we get past Q2, we'll be lapping those as well. We closed ION last November. We closed GI Alliance, now the Specialty Alliance in February as well. And so their contributions will be lapping that. We had a little bit weaker COVID demand in Q1, notwithstanding the fact that overall demand was very strong. And so there's a variety of puts and takes across the portfolio this year that are a little different than prior years. But we're -- like I said, overall, we're expecting a very strong year given the raise to our guide.

Got it. And it sounds like those are all sort of not core run rate like drivers of the business. They just happen to be based on when you made an M&A or...

Yes. I mean, look, from a core business perspective, if we have strong demand as we've seen and our team is executing and raising their game every quarter, which they are. And if we continue to make progress in the specialty portfolio as well because it's higher margin and higher growth. And if the other businesses continue to make good progress as well. I mean, 60% margin growth last quarter. That is the recipe that gets us to our full year success for the year. And so we're pretty bullish in that respect.

No, that makes sense. Recently, you've also spoken about the stability of the buy-sell spread as a driver of profit growth. How do you sort of -- why has that spread been more stable of late?

For us, it's been stable for several quarters, right? I know that we talk about it differently than some of our peers do in the industry. But because of Red Oak, because of the way we manage the business to that -- to the average margin per unit, right? We're able to price and be rewarded for what we're providing in a way which gives us more stability than perhaps others are commenting on there. And so in our business, so long as volume is rising, we are going to continue to do well. And when you have volume rising with outsized demand, right, it's pretty easy to see where the success comes from.

Yes. No, that makes sense. And the other -- another segment that's obviously done quite well recently is the other segment. I'm still waiting for your marketing department to get a hold of that. I know the lawyers are winning at the moment.

We run a 1% margin business. There is no marketing department.

There's no marketing department. Well, there you go. The cost center is right there. Okay. We'll take polling answers for a new segment name later. So if we think about the other segment's AOI growth, excluding M&A, this has been sort of running still well ahead of the long-term 10% target the last -- this year, last year. So how do we think about that like core underlying outperformance ex M&A? And sort of how do you see those trends developing for the rest of the year?

So the portfolio we're talking about is at-Home, nuclear Precision Health and OptiFreight, 3 very different businesses. All 3 businesses, we're very excited about it. We're investing in those businesses in different ways. The at-home business and sort of all 3 are growing at double-digit rates on an organic basis. And then if you add acquisitions on top, that's when you get to the 60% from the last quarter. From an at-home perspective, we are very focused on driving efficiency. And so our investments have been in creating a supply chain, which is best-in-class, which is highly automated, which is shipping the right products at the lowest cost. And so that is -- their success is contributing to the profit growth in that business.

From a nuclear Precision Health perspective, we're investing in capacity. We're also investing in the cyclotrons. We're investing in the theranostic product, which is a high-growth part of the business for us as well. And so there, again, that is supporting the double-digit profit growth in that business as well. And then OptiFreight is a little bit different business for us. It's a logistics technology provider to acute environments, and they have been investing in better capabilities and driving penetration with existing customers and getting new customers. And so the profit growth in that part of the business is coming from both doing well with our existing customers and gaining new customers with the new technology.

That makes sense. If we think about the most recent quarter, you also talked about favorable mix within ADSG. Can you help us unpack what those favorable mix drivers are?

Well, we did the -- when we did the acquisition of ADSG, we were really putting 2 very complementary assets together. And when we -- let me take a step back for a second. When we resegmented our overall enterprise to create the 5 operating segments, we were -- our goal was to reinforce that which gets measured, gets done and to drive accountability in the right place so that if we were investing, we would see a return on the investments in higher growth parts of our portfolio. The Edgepark part of our business, the at-home part of our business as well, does a lot of things well, but where they had some opportunity was on the patient acquisition and patient care pieces that we're able to match what ADSG brings to the portfolio with the operating excellence that the at-home and Edgepark part of the business he brings as well. And those together is really what's driving the success within the at-home portfolio.

Got it. No, that makes sense. And then turning to GMPD. I mean, 2 of your peers in the medical products distribution business are up for sale or exploring strategic alternatives. How do you think about some of these like potential strategic changes like ultimately impacting competition in the market? And sort of are there any other factors that you think that, that will drive? And then how do we think about the ongoing consolidation of physician offices into health systems and the sort of the dynamics between inpatient and outpatient growth playing in that?

So for reference, our GMPD business has historically been very acute environment heavy, and we have been moving into more physician office experience, but we've been very focused on the acute part of the space. And you're right, the competitive set is going through a lot of change with Medline going public, with OMI selling to private equity and with McKesson announcing a separation of their Med-Surg business. But the one thing which is constant in all this is that we have a plan, we're sticking to it, and we are executing against it very effectively as the first quarter demonstrated for GMPD, which is we are constantly raising our game from a customer service perspective.

If you look back at our Investor Day materials, Steve Mason spent a lot of time talking about his 5-step plan, customer service, et cetera. Every quarter, we raise our game in that respect, and that is contributing to our success. It's also the fact that we continue to find great ways to take cost out of the system even in a world where tariffs is creating complexity in the overall environment. And so that team has been able to manage through the tariff environment quite well as well. We see progress against the plan, and we're not going to allow ourselves to get distracted by what the other folks may be doing in the meantime. We're going to grab the opportunities we can, and we're just going to deliver against what we said we're going to do.

Great. And speaking of that, and I know this is probably your least favorite question of all time, but any updates on the tariff front or sort of steady as she goes. I mean, there are updates on the tariff front, but just in terms of material impact on the business.

Nothing new from what we described at earnings, which is we did comment that we expected the net tariff impact to be the top end of the range that we had publicly disclosed, but we are doing what we said we were going to do as far as executing against pricing initiatives, but working with our customers, as you would expect us to do to make sure that we're giving them the right service, but also we're being compensated for the service that we're providing given the environment in which we're operating.

Yes. No, that makes sense. And maybe turning to some of the broader policy questions, which there have obviously been many recently. If we think about CMS' BFSF rule currently on that didn't go into the final physician fee schedule. How do you think about the potential impact of that if it's reinstated? Obviously, there was -- that's very detrimental to the independent physicians. And so I think that, that doesn't make a ton of sense given them being the lowest site lowest cost site of care. So I guess, how do you see that? Is there sort of an evolution? What do you see happening to that over the next year or two?

If I zoom out for a second, we agree with the administration's objectives for access and affordability and innovation. Those 3 things are good for all of us in that way. And there continues to be a robust policy debate in which we are participating around what should that look like? We don't believe that the administration is focused on hurting the economics of the community physician, whether it's a generalist or specialist in that way. And many of the rules and regulations that have come out have been subsequently modified over time. And as you called out, the bona fide service fees are not in the current. They were not put in place. And so hard to say exactly how that's going to play out other than I would observe that we've been consistent for many years that given our role in the industry, we expect to be compensated for that, which we do. And so far, we see no signs that, that won't be the case.

Okay. Got it. And then just maybe on another drug policy, hot topic. If we talk to think about CMS implementing drug price negotiations under the IRA, any meaningful differences we should think about in terms of Part D versus Part B? And any things you would call out in terms of the impacts there?

No, we are -- when we provided our updated guide in our Q1 earnings, that which we knew or that which we thought to be true was already baked into the guidance. And so I don't -- I have no reason to change the guide based on anything which has evolved since that time. We're going to continue to be compensated for the services that we provide. And as I said earlier, we're working closely with industry groups and with the administration to make sure that the proposals or the changes that are rolled through, the negotiations, et cetera, are thoughtful and have the impact that they're after around affordability and access and innovation. And so far, so good.

Okay. No, that makes sense. Maybe turning to your MSO business. As we lap sort of the 1-year anniversary of some of the recent acquisitions. Where are you in sort of that integration journey? And sort of how do we think about the expanding set? You've been attracting more physicians to the group, which is great. And then how do you think about the sort of that going forward and then also the sort of expanding the services -- level of services you offer to that group of clients physicians?

Great question. So we are in a little bit different position from an industry perspective than some of our peers and that our strategy is unique to Cardinal and that while we are relevant from an oncology perspective, both through the organic Navista build and the acquisition of the ION assets, our emphasis has been more on what you would call the other ologies, if you will, which we've defined as autoimmune and urology, at least to start with. Autoimmune includes the gastroenterology parts of GI Alliance. We're excited about those assets because Cardinal has historically been quite strong from a distribution perspective in those other assets.

Indeed, we've been quite strong from a data and technology perspective. It's part of why we did -- our first acquisition was not of an MSO. It was of a GPO plus, the specialty networks acquisition because they had pieces that we knew we were going to be putting together with other assets to be able to drive a more diversified revenue stream and a more diversified profit stream, not just focused on drug distribution, right? And so what excites us about the MSOs we're in is the fact that in contrast to oncology, if you were to look at the revenue streams within the MSOs, it's 1/3, 1/3 or so around drug distribution around in-office procedures and around other ancillaries and ambulatory procedures. And so there's goodness there that we are able to contribute to the success of the individual doctors because our incentives are aligned. But for us, it's not all about the drug spend.

Right. And are you -- have those other ancillary assets that you talked about acquired, have those been rolled out across the broader customer bases, different ologies? Or where are we in that?

Still in the process. And so whether it's pathology or the in-office dispensing, right, or the anesthesiology, right, or the revenue cycle management, the data pieces of it, we are -- we have a very detailed integration plan across these efforts, and Dr. Weber and his team are being very careful and thoughtful about which practice is assuming which of the ancillaries on what time line. And we're very pleased with the progress he's been making in that respect so far.