Cardinal Health Aktie

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.

No, that makes sense. And as we stand now, you talked about obviously pulling a bunch of different assets together. Do you have the right set of assets now? Or is there anything you're kind of looking for, whether you build that organically or still sort of looking to add on to that?

Well, we will always keep an eye on the marketplace. We like to think that we are not reacting to what is available, but rather we are either building what we want or seeing what we want to acquire and going and getting that. That's certainly how the GIA acquisition came to the fore. It was not for sale per se. We went and built that relationship and acquired it. I would say the acquisitions are more -- that we may do are more tuck-in in nature than large platform acquisitions. I mean, to be totally honest, Solaris, which is our recent acquisition.

We've just closed of the largest urology MSO and GIA, our acquisition of the largest GIA gastroenterology MSOs. Those were the 2 largest platforms across the other ologies. And so for us, it's about how do we grow organically within those platforms. We're putting them together, by the way, into the specialty lines, how do we grow organically. But then as well if there are tuck-in acquisitions that support the objectives of those businesses, we will certainly smartly look at that.

Got it. No, that makes sense. And maybe -- on the back of that, switching to sort of capital allocation more broadly. I think that was my favorite part of the Investor Day presentation. We're like, I don't even know about this part over here. We have so much cash that we're generating. So can you sort of talk about like if we think about where we stand now, we're not too far out from the Investor Day, but sort of any changes or tweaks or how you're thinking about those capital allocation priorities that you laid out? Or have you thought of what you going to do with that extra money or...

Well, I know you noticed that we did raise our cash -- adjusted free cash flow guide at our Q1 earnings as well. And that's a sign that the team continues to make good progress on making sure that we are as focused on cash generation as we are on profit generation, right? That's been part of what Jason and I have been leading at the company is that relentless focus on the cash. That when you have good cash flow, that enables a lot of things, starting with investing against the business and our highest -- our single highest best use of the cash we're generating, we believe, is investing back in the business and high ROI projects. And so -- we will invest between $600 million and $650 million or so in capital during this fiscal year to do just that, to support that which we're building, and we've had a series of announcements recently around new buildings, technology, et cetera.

And that's where those capital dollars are going. After that, we are very focused on managing our balance sheet smartly, right? We are a BBB, Baa rated company. That's where I want to stay. We have a little bit of work to do by the end of this fiscal year to get back to our Moody's leverage target, but we're confident that we can get that done. That then leads us to our return of our baseline share repurchase. We committed at the start of the year to buying back at least $750 million of share repurchase. We commented at our Q1 earnings that we had launched the first half of that.

It wasn't not yet done on our earnings day. But -- so we're making good progress against that as well. And that leaves the remaining cash for M&A or additional return of capital to shareholders over the course of the year. And we'll talk more about that when we get to our Q2 and Q3 earnings as well because, look, we are very committed to telling you what we're going to do, doing it and reporting back. That's how we operate internally. It's how we operate externally as well. And so nothing has changed about our disciplined capital allocation philosophy that way.

No, that's great. And maybe just talking on the investments. I know AI is the theme of the year or what have you. Where are the biggest opportunities in AI in Cardinal Health?

Yes. We are focused on finding every opportunity we can without distracting the broader team to take advantage of AI there. And whether it's in customer service, we have initiatives underway in customer service. We have initiatives underway within finance to help us to better manage the data and interpret and decision -- make decisions based on the data across our broad business as well. And then our operations teams are also very focused on how can AI support the operations teams. And so we don't view AI as a silver bullet. We view it as a tool that can enable a lot of things, and we're making good progress with Jason leading the charge on where can we relentlessly improve our business, either from an effectiveness or from an efficiency perspective, leveraging AI tools.

Yes. No, that makes sense. Another topic that's come up recently are a bunch of the DTC models, which have come into a lot of prominence this year. If we think about your position as a wholesale distributor and logistics backbone for some of these products, how do you kind of see the evolving risks and opportunities for the DTC model shift? And how do you guys -- how do you sort of envision your role shifting as we move forward in that part of the industry?

It's a great question, and I would observe that there's a difference between following the cash and following the product. Most of the DTC models that are out there actually have one of the distributors behind them in some way. And so I don't view the creation of DTC models or even the growth of DTC models as necessarily being a threat to our business model because we're supporting in one way -- when I say we, I mean, our industry is supporting one way or another, most, if not all, of those very models. And if the DTC models increase, that may well present an opportunity.

Right. No, absolutely. And then should we think of those are traditional economics, so it's not like you support those customers in a very different way than you're not, you're delivering them to pharmacies and they expense that. like that's how we should think about them. Is that fair?

Well, many of them are cash pay models, which is a very small, very small part of the market. And so I think those models will continue to evolve in quarters ahead. But right now, it's a tiny part of the business.

Yes. No, that totally makes sense. Anything to think about on the GLP-1 front? I mean they've been clearly a major revenue driver, but not necessarily as much as a profit driver. Sort of supply and demand normalize and we get the launch of the oral solids at the different price point, how do we think that market changes for you guys over the next couple of years?

Well, I'm smiling just with the idea that supply and demand will normalize within GLP-1s, right? It's been quite the ride. Look, the oral solids, I said earlier that innovation is a positive. Oral solids coming won't -- shouldn't be a bad thing for us in that way. It should be a lower cost of service product in that way, which hypothetically would support the idea that GLP-1s might actually make the distributors some money at some point. They certainly have not been a profit generator for the industry so far. We're in favor of that innovation. Every innovation that comes every year that passes is a continuing conversation with the manufacturers on what is the right economic model for that. But we'll see, right? That story is yet to be written.

Got it. Okay. We'll stay tuned. And then one of the things is I think a bunch of people have been asking about the DME impact. We've had some changing regulatory situations there. But in terms of how you sort of see the potential impacts on your business model, could you maybe walk us through that?

Yes. I have 2 primary thoughts in that respect. The first is that with the new regulations, who is going to thrive in that context? It's going to be the players that have scale. Great news for Cardinal, we have the scale in there, certainly in the diabetes categories. There are other categories involved in the recent announcements as well that we also have scale at. We'll talk more about that in future events, I'm sure.

So we feel good that we have the right to succeed in the new environment. But of course, the new environment isn't here today. It certainly isn't going to impact our fiscal '26. It may not even be terribly material for our fiscal '27. And I say that because there's a lot of time yet to work with the administration to figure out exactly how will all these pieces come together. But we feel good that as an industry leader, we will be leading that charge.

Got it. And maybe in the last couple of minutes, if we're sitting on this stage again next year, what do you see that you'll be most excited that you have sort of done over the past year like looking forward to, like what would you say you're sort of like looking forward to at that point?

Yes. I would start with this. Jason and our management team, we are not running the business for the quarter we're in. We're running the business for the quarters going forward. We're making the investments now so that 2, 3, 4, 7, 10 quarters out, we have the continued opportunity for revenue and profit growth in those businesses. And we're deploying those dollars to the cash -- using the cash flow that we referenced earlier. So what I get excited about is how much opportunity I see coming down the line because I know what the investments are, I know what the return should be.

And then if I look at the innovation cycle as well across our business as well, the new products that are coming as well, there's a lot of goodness in the industry that I believe will support the plans we've got in place and that will ensure that we're -- we continue to have very positive conversations about how Cardinal is doing at this conference next year.

Great. Well, I think that's a perfect place to end it. Thank you very much.

Good morning, everybody. Thanks for joining us. I'm Kevin Caliendo, Healthcare IT and Distribution Analyst at UBS. And we are very proud and happy to have the management team of Cardinal Health. With us today is Aaron Alt, Chief Financial Officer; and Matt Sims, who's the Head of IR. Matt, do you want to...

Yes, great. Well, Kevin, thanks for hosting us. 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 get started.

Thanks. Do you want to...

So good morning, Kevin. Thanks for having us. On behalf of Jason Hollar, our entire management team, we're excited to be here today. I was commenting at dinner last night that with the Thanksgiving holidays coming, one thing that I'm particularly thankful for is our Q1 results, right? And so before we get into the questions and answers over the course of today, I thought I would provide just a quick summary for those that may not be as familiar with our earnings release last week as others. And it goes something like this.

Cardinal delivered a strong set of results. All 5 of our operating segments delivered double-digit profit growth, led by our pharma business, which saw strong demand, saw a strong execution, and we were particularly pleased with the performance of the specialty part of our portfolio, and that business posted profit of what was a 26% [indiscernible] as well. All 3 factors contributed to that. The specialty business was benefited from strong execution by our growing MSO business. You may have heard that we expected to close the Solaris transaction, which we closed last week as well as well as the core specialty distribution was very strong, and we're particularly pleased with the continued progress against our investments in our biopharma services part of the portfolio.

Stepping away from pharma, we have a business affectionately known as other, which is the aggregation of 3 smaller businesses, Nuclear Precision Health, at-Home and OptiFreight Logistics. That part of our business delivered profit growth of 60%, driven in part by the acquisition of ADSG. But even if you extract the M&A, we saw strong demand across the portfolio and strong execution in all 3 parts of that business as well. And so we're very pleased with that, which leaves the turnaround part of our business, our GMPD Global Medical Products and Distribution business a very strong quarter. They saw nice revenue growth. And in particular of note to us was the fact that the Cardinal Health brand business for the second quarter in a row grew at 6% or more in the quarter as well.

And so there was a lot to be thankful for, from a Q1 perspective for us. All this resulted in us raising our guidance 1 quarter in, the new adjusted EPS or non-GAAP EPS rather for Cardinal Health is now $9.65 to $9.85, which is 17% to 20% EPS growth year-over-year for the year. Last point before I turn it back over to you, Kevin, is part of what we're doing at the same time is investing in our business. And so notwithstanding the good progress in the quarter, at the same time, what we were doing was investing for the future quarters of growth as well. And I would highlight a couple of vectors of that growth. We continue to invest in our new customers.

We onboarded $10 billion of new business in the back half of last year. We are making great progress in onboarding $7 billion of new business in the first half of this year, which is part of why our profit will be front half loaded as that business comes on board in the first half of the year. We continue to invest against the MSO platforms that I referenced before, both capability and the tuck-in acquisitions to go with that. We continue to invest in new products, in particular, the NPHS business. If you think about Nuclear Precision Health and categories like Urology, I'm sure we'll come back to that in a bit as well. Nice pipeline of innovation coming, and we're investing with our manufacturer partners around how do we ensure that we've got the best distribution of many of those classes of categories. So overall, a very positive quarter for us.

Well, let's start there. When you reported that quarter, I think I wrote or said that it was the best quarter by a distributor since the days of generic inflation when things were crazy back in 2014, 2015, 2016. Your guidance had assumed strong utilization. I think you said part of the reason why this happened, it was greater than strong utilization.

We track what we can, the KPIs that we can track, scripts, generic mix, pricing. We try to track all of it. And there was nothing crazy or outsized in this quarter, yet you and your peers, but you especially said demand was -- exceeded expectations. So tell us where that demand is coming from? How do we see it as analysts? Because clearly, it was better than what you were expecting originally, but it was certainly a lot better than any of us were expecting. And so can you just talk a little bit about where that demand, that higher demand is coming from?

Sure. If you take a step back for a second, what we had guided was that setting aside M&A, core long-term growth in the pharma business would be 5% -- profit growth would be 5% to 7%. We've also guided that we expect the generic portfolio to grow by 2% to 3% on a long-term basis as well. But the real answer to your question is we saw a demand lift everywhere, right? We saw it in brand. We saw it in generics. We saw it in consumer health. We saw it across the specialty portfolio. The specialty business has been a double-digit grower now for some time. It actually exceeded our expectations as well.

And so while I love to be able to point to one factor and say this was it, really, we saw a rising tide across the business across the quarter, and that's why we're able to post the results that we did. Now generics, in particular, is a part of the business that we love, of course, because while it's lower in revenue, it's a nice margin. It's a nicer margin business for us than brand historically. And we did see higher volume in the generics part of our business. When you hear me say the words consistent market dynamics on our earnings call, that's a signal to everyone that what we saw was there was no dislocation between the buy and the sell. That's not how we manage the business. We manage to an average gross margin on the category so long as we can manage that and drive incremental volume, we're going to have a good quarter, and that's certainly part of what we saw during Q1.

You talked about onboarding $10 billion, $7 billion, $10 billion last year, $7 billion this year of new business. Is that onboarding of business, is there a different mix than what you had before so that it's a more attractive mix for you guys, whether it's in terms of specialty, whether it's in terms of generic penetration as Publix got more generics than what you had before losing Optum versus bringing on another large payer. How should we think about that?

Well, we have won a series of new pieces of business, including Publix that you referenced before that we're very proud of as we now move past and we have now lapped the exit from Optum from our portfolio. And that business has been higher margin than the business that we lost in the way we were pretty clear at the time of the Optum departure that it was a very complex, low-margin business for us. And -- we have found some great customers to help fill that hole and to grow with us, which is what we're seeing now, having posted 23% revenue growth in the quarter for pharma and 22% revenue growth for the enterprise during Q1.

Hard to comment with any specificity as to one customer on the mix of the product line or the specific profitability. But what I will comment is to say we're pleased with the customer onboarding that started at the end of Q2 last year went all the way through last fiscal year and has now continued into the first half of fiscal '26 as we predicted that it would. And here's an important point as well, which is when you have opportunities like customer change, right, that has caused us to actually drill into ensuring that we have the right customer service environment that we have the right service levels that we've got the right network.

And so a nice benefit of all the change that we've been through is that Debbie Weitzman and the team have been able to realign our operations within the pharma and specialty business to better serve the existing customers that we have as well as make it easier for us to onboard new customers, and that bodes well for us as we carry forward on being able to deliver against every opportunity for sales that we have.

When you're onboarding this much business or even any contract, we just kind of assume it starts at the regular margin or, hey, this is 50 basis points, 100 basis points, whatever it might be, whoever the definition is. Is there an onboarding ramp to get to what you might consider to be normal or peak margin or whatever? And how long does that normally take?

Yes. I can't give you a rule of thumb because every customer deal is different. And indeed, the cost of implementing them is different based on a number of locations, locations themselves, right, the specific terms, the mix of their business. So I can't give you a rule of thumb in that way.

Was there any growth in margin and onboarding of business -- of the $10 billion, let's say, because now we're almost a year through.

Yes. We haven't -- if where you're going with this is help us identify some of the sources of that profit growth over the last couple of quarters, we haven't provided guidance in that way. And really, it wouldn't be the most material factor, I would call it in any event. The overall lift in demand we've had for the last couple of quarters has been probably the largest driver of our source. Certainly, the increased penetration in specialty, which is a higher-margin part of the business has been very helpful as well. The continued contribution or the growing contribution of our MSO platforms now that we have got them together and are effectively starting to put them together, that is, of course, a higher margin rate business as well. And so really, it's all the pieces coming together for us that are helping to drive the profit growth.

It's a simplistic question, but it sometimes gets confused. When you talk about growth of specialty ex the MSO business, what kind of drugs are you talking about? Because we don't -- what gets defined as specialty is not necessarily consistent across the industry. And so when you say there's seeing a growth in specialty and that's higher margin, what are those kind of products?

Yes. Well, there's a paradigm out there where some of the industry participants focus on oncology, and we tend to focus on what we call the Other ologies, right? And it's really a poorly served name for a key part of our business because the other ologies are -- can be incredibly profitable for us as well. And so Cardinal's strength has historically not been in oncology. It's been in Rheumatology, Urology, Gastroenterology, Nephrology, the Other ologies, if you will.

And so when my peers or our peers talk about specialties, they're often talking about oncology and what's been going on with U.S. oncology and OneOncology and the drug distribution that way. We are in oncology, right? Both -- we entered -- we already had a distribution business. We doubled down with the launch of the Navista platform, which we announced, I guess, 2.5 years or so ago at our Investor Day. And then we bought an asset called ION as well. And our goal from a specialty perspective was not to believe that we were somehow going to overtake McKesson from a leadership perspective in oncology, but we needed to be sufficiently relevant to get the best pricing from the manufacturers to be able to serve the customers that we have in that space.

But our focus has been on a very different playbook. Our playbook has been on emphasizing the strength that we have and the growth we can drive in the Other ologies, the Urology, the Gastroenterology, Rheumatology. These are all places where Cardinal has historically had one of, if not the largest distribution presence or GPO presence or other assets.

And it's no mistake that it's no accident rather, I should say that when we did start doing M&A 2 years ago, the first asset we acquired was something called Specialty Networks, which was a business we knew well, which was one of the largest non-Cardinal Urology GPOs, and we call it GPO plus because importantly, what we acquired it for was the technology assets it had and the integration it had with urology practices across the country, even if they weren't our distribution customers, allowing us to gain, assess and then monetize effectively with the practices and with the manufacturers, the data stream back and forth while it reads the 40-plus EMRs and supports the studies that the manufacturers are doing. That's just one example of how we are running our playbook in specialty and other areas to really drive our success going forward.

So I think a lot of us understood oncology and getting involved in oncology as a company's core business is drug distribution, given the amount of drug spend in oncology is massive. It was less clear to us how -- what Cardinal brings to the table in some of these other ologies where drug spend isn't necessarily as large a percentage as it is in oncology. Can you talk a little bit about the value creation that you provide? And what's attractive about it? Do you -- is there a pipeline coming up in urology, for example, or any of these other ologies that you guys are looking at? How should we think about the opportunity there?

Great question. Let me answer it by talking both about what do we get from it and what do we provide to it. And let me start with what do we get from it. If you think back to how I was describing the dichotomy between the other ologies and oncology, there is a key difference between those categories where if you're a practice or an MSO for that matter, much of the economics comes from the drug spend. We would call it 90% or so and 10% is coming from office visits in that way. That's great if your sole focus is on distribution, right? But what we love about the playbook that we're running focused on the other ologies is that we're not buying companies and MSOs to get the distribution.

We're already a top 3 distributor in the country. We have other vehicles by which to acquire distribution. We're doing it because there's a broader play, a broader set of economics that we want to participate in, effectively creating diversity of revenue streams for us while still getting some benefit from the synergies that come from the drug distribution. And so -- that's the primary thing we're getting more exposure to specialty therapy areas that we're already in, then we can grow on a diversified revenue stream basis. Now what do we bring to that table is also important because why would doctors’ groups want to partner with us. We are now the largest -- we own the largest gastroenterology platform in the country, GI Alliance.

We also now own the largest urology platform in the country, the Solaris. They are coming together into what is now known as the specialty alliance, and we have more plans there. But the point is what are we bringing to that? As I referenced, we were already one of the largest distributors. And so we have contracting power, if you will, in support of the doctors that we have now partnered with in connection with the distribution of drugs, right? It's also the case, though, that we have a very strong technology footprint and platform behind the scenes that we're able to leverage across the therapy areas as well to drive better practice recommendations to the doctors, to drive better awareness and integration of actual medical results into the real-world studies, right?

There's a variety of things going on there. In addition to the scale that we bring from an overall purchasing rate perspective, things like insurance, you name it, these are all places that we can play in support of MSOs or the doctors' practices that we are now bringing together through the MSO landscape.

So I don't know if you've ever answered this question before, but you mentioned oncology, 90% might be drugs. When you think about GI or urology, is it -- I'm guessing that it's not 90-10. It's probably lower.

No, it's not. And if you're curious about this, we actually have some great materials in our Investor Day presentation and I believe also our Q4 materials online. And the way we describe it is in the oncology space, it's 90-10, 90% distribution, 10% office visits. In autoimmune, which is what we would call gastroenterology and a couple of other categories and also in urology, it is more typical that the distribution and ancillary practices would be 35% to 40% of the economics that procedures would be about 1/3 of the economics and office visits would be about 1/3 of the visits -- 1/3 of the economics as well. And so that's the diversity of revenue stream that I was referencing earlier.

Okay. Can you just take us -- like -- we know getting the distribution is part of this. You just mentioned it's still a sizable part of the value of a customer. You don't necessarily always have the distribution contracts when you make these acquisitions. But recently, you upped your guidance because you had more visibility on that. Can you just take us through where we are with the acquisitions, the distribution contracts, which one you currently have, which ones you don't? And like just to understand the timing and how it plays into your guidance because it's a little bit confusing.

Sure. To answer that question, I have to observe that when we announce an acquisition of a company, unless we are -- well, if we don't have the distribution, we don't assume the distribution of the deal economics, right? We don't justify the deal based on the fact that we're going to acquire distribution down the path, and we don't guide to it at that time. And that's because we are staying loyal to our views that it's the overall basket of economics that we're focused on with the businesses, and we don't want to effectively be buying distribution, right? And we are very consistent with that internally.

So when we announced the deal, if we don't already have the distribution, we say that, we don't put it in our guide. And that was true for ION. That was true for GIA. That was true for Solaris. The only company -- the only business we've acquired for which we were already part of the distribution was a smaller business, Urology Americas. We had some of their distribution early on. So we then provide updates to our guidance. And we said, I believe, on our Q4 earnings call that we now had line of sight to we had won the contracts for the distribution on ION, and we had won the contracts for the distribution on GIA. But those are rolling in as we speak.

And so we won't have a full year of distribution of either of those contracts. ION is coming quickly and GIA is towards the end of -- closer to the end of this fiscal year. Solaris, we just closed the deal in the last 10 days, and we have to work through that yet. And so while the -- our financial guide now assumes the distribution benefits from GIA and ION, it does not assume the distribution benefits from Solaris. Put more specifically, we called $0.05 of accretion in this fiscal year on the Solaris acquisition that does not assume any distribution from Solaris.

And so can -- based on your percentages that you provided earlier, if the distribution contract were to be added, would it be roughly that percentage of the $0.05 that it would be incremental?

I wouldn't want to give guidance before I give...

We did highlight that Solaris in total is about $1.5 billion of revenue. And so you can use that and then some of the other color we provided to get pretty close there.

Got it. That is helpful. Let's talk about -- you mentioned sort of streamlining the business post Optum, it made you change things. If you look at the gross profit number and use that as sort of a top line and you look at the EBIT, your leverage on the OpEx line has been pretty good in the last several quarters. There's definitely been a benefit. You're not alone. McKesson was here yesterday, and they had the same sort of benefit. Is there more room to go there? Like are you streamlined?

Or is this more, okay, we have our distribution network in place, the more revenue we can layer on. We can cover pretty much our customers now. We're in a good place. Or is there more automation, more savings that you can generate? Is AI a thing that is benefiting on this side of the business where you might even get more leverage on the OpEx line going forward?

Great question. And the answer is yes, yes and yes, with the following important caveats. So we continue to invest in our network. We are investing in growth. And you have to keep in mind that our network has grown up over decades from a building’s perspective, and there isn't extensive automation in parts of our network operations. So as we are growing the pharma business, we are adding the right distribution nodes in the right places. We recently announced a new node in Indianapolis, I believe, that when we complete the build, it will actually have significant automation as well to help drive the continued profitability of that operation.

Similarly, if you translate to our at-home business, that is a business where we move a lot of small dense packages into patients' homes directly. We have been optimizing our distribution network in that business now for a couple of years. And again, as we open new buildings, we just opened Texas, we've announced at least one more. We are putting in automation and technology as well to ensure that we keep our costs down. One of the things that Jason Hollar has done on the operation -- at the enterprise level within Cardinal is really focus our team on how do we continue to optimize our operational excellence, keep our costs down, but importantly, keep our costs down while making sure that we can have high service levels and serve the customers where they need us to be and when they need us to be there.

Got it. So it sounds like there is room.

I'd be a bad CFO if I didn't say there's always room for improvement when it comes to cost structure.

Fair enough. You mentioned how important generics are, and it feels like you emphasize this more than maybe your peers do. Maybe that's because of your mix, maybe it's the fact that you have CVS and Red Oak as a partner and that this is may be more advantageous. Is there anything to call out? You said it's been stable. That means your spreads are stable, you price through a gross margin. I appreciate that. Is there anything in the pipeline coming from a generic perspective that we should care about?

I've been doing this a long time, and it used to be, hey, this drug is going generic, and we used to model exactly how much profit the distributors are going to get. And it was -- the stocks to trade on these kind of things. We haven't done that in years. But I'm asking you, as you look ahead over the next 12, 18, 24 months, is there categories of where there's increased opportunity on generics? And again, we'll talk about biosimilars as well.

I'm not going to call out a specific generic innovation or transition that's coming. But I will observe that one of the opportunities we see in the business and part of why we are confident in our long-term guidance is we do see more transitions from brand to generic coming, and we're excited about what those opportunities are for us. And then biosimilars, maybe to get ahead of the question is biosimilars for us, it gets a lot of attention, but we view biosimilars as being an early inning game at this point.

The economics have yet to shake out. The number of participants in any particular biosimilar are still up in the air. The decisions that the PBMs are making around what to accept or not accept for a particular biosimilar. There's a lot of work yet to be done or a lot of decisions yet to be taken until biosimilars are really the next generic category for us. And so while we're hopeful in that way, it is not nearly of the -- it's an opportunity for us. It's not nearly what the generic part of our portfolio is yet.

Understood. With the GPO and biosimilars, how do you view that versus -- do you think the GPO will be able to get discounts from the brand when a biosimilar comes, that will match that. This is a question that we all have. It's not as important KEYTRUDA is the one that everybody is focused on in certain oncology drugs. You have some of this. But how is that going to work when all of a sudden, we have a biosimilar for such a large drug? And how does the GPO treat that in terms of how do you negotiate those discounts versus the biosimilar?

I'm going to have to go back to my earlier answer, which is it's going to depend on so many different things, right? It's going to depend on the adoption by the physicians. It's going to depend on the formulary decisions taken by the PBMs. It's going to depend on the number of different manufacturers of alternatives in that way. And we're not a high-margin business per se. And so of course, we're looking for the opportunity to how can we ensure that the American patient has access on an formal basis to what they need, but that business model is yet to fully evolve.

Does it -- do you think if you were just to guess, and this is, again, I'm not holding you to this, I will not call you out on this in 3 years when this happens.

Except if you are on a recording.

But do you think it would be more beneficial for Cardinal as a company to have more utilization of the biosimilar or more utilization of the brand at a discounted price that might match that?

We're living in a world where the administration is pressuring everything which we all have known to be true for decades in the health care space. And so far be for me to sit on a stage today as so much is changing and predict exactly what brand economics look like relative to biosimilar economics, relative to generic economics. We just don't know as yet. What we do know, what we are 100% confident, which is why we're confident in our long-term guidance on the business as well is that we, Cardinal and our peers are essential parts of the American health care system, right?

Our role in all this is to safely, securely and efficiently get the drugs from point A to point B or point C, buying from thousands of manufacturers and distributing to many more thousands of hospitals or physician offices or even into the patients' homes. And we do all that at a 1% margin. And so as we think about all the regulatory change, as we think about how the economics across categories are evolving, what we have confidence is that every time that business model has evolved around us, what's become true is people have realized is that we are an essential part of the American health care ecosystem, and we're going to have to be compensated for the services that we're providing. That's why I can set on the stage in the face of so much change going around us and express our confidence that Cardinal has got a bright future.

Has a manufacturer in the midst of all these pricing changes ever come to you and said, "Hey, listen, we don't think we can't pay you as much as we used to or we're not going to pay you as much. Like have you ever had that? Because it feels like at the end of the day, you guys always get paid the same amount regardless of what's happening to the prices of the -- at least on brands.

You just made my point from the last comment, which is that naturally, everyone is trying to negotiate everything at all times. It's what savvy business people do as well. But what it comes down to is we are paid largely on a fee-for-service basis. And if they want the fee, they're going to have to pay us for doing what we do so well.

We haven't spoken about the medical products business, which put up a very good quarter relative to expectations. It doesn't get as much attention, obviously, because the pharma division had such an unbelievably good quarter. What's happening there? And what drove this quarter, in particular? Was there anything -- was it utilization again? And -- but there's a very specific question here as well, which is one of your competitors is selling its business to a private equity firm.

I don't know if that's going to provide opportunity for you. I don't know if you've ever talked about this or not. How should we think about that in the context. Because I think that business has always been perceived as potentially being a share loser because of a private company that's been swallowing share, not just in the health system business where you compete, but more broadly. How should we think about the competitive dynamics in that market?

Let me offer some perspective on our business and then offer some perspective on the industry dynamics as well. We launched what was then the Med improvement plan a couple of years ago. It's now -- we now call it the GMPD, Global Medical Products and Distribution improvement plan, really focused on a couple of key things to set that business up for success as you go forward. And you need to look -- not look back too far to see a business that was negative profit and negative cash flow. And now we're at a point where as part of our improvement plan, we've driven it to positive profit and positive cash flow. And really, that business has really turned the corner for us. And we've done that by focusing on the fundamentals.

We focused on how do we grow the ever-important Cardinal Health brand part of the business because, of course, our brand is higher profit margin than other parts of the portfolio. We focused on how do we optimize our distribution network and our manufacturing network because we are a manufacturer of products as well as a distributor product globally. How do we do it in the right way, have them in the right locations, how do we optimize our cost structure? How do we really carry that forward? And importantly, the third part is how do we mitigate first, inflation and now tariffs, right? And so the team has done a very nice job over the last several quarters in realigning that business for growth.

And I would call out some of the metrics I referenced earlier from this last quarter or last 2 quarters actually where the Cardinal Health brand business grew 6%. That's a sign of progress in that portfolio. And with the profit they put on the table, a lot of that is driven by growing with existing customers, but it's also driven by the very choiceful decisions that the team has made around cost optimization. So we're pleased with how that business has brought the cost profile of that business down overall. Now why would we do all that? We do all that because, a, we need to improve the business; but b, we need to do it because it's a relatively competitive place, right?

You have the likes of Medline out there who is a strong competitor. You have McKesson's business that they've announced that they're going to separate in some form in the not-too-distant future. And then you have the OMI business, which, of course, has recently announced that they're selling to Platinum Equity, I guess, is the firm. And so we're looking at that going, we have to constantly raise our game. Now we're going to learn a lot, what we have learned a lot with what's come out of the Medline S-1.

I'm sure you all have read that 300-page document detail the way that we have. We're going to see a lot of change happen in the context of the OMI transaction with Platinum if and when it closes. And of course, McKesson is doing their thing with their med products business as well, which is more focused on the patient office than we are. And in all of that, that presents both opportunity and challenge, challenge in that there are a couple of strong competitors. We are purposely raising our game to go after it, opportunity because any time there is transition in the industry, that presents one with opportunity to go after customers. Of course, we are doing our best to win every customer we can in the right way at the right time with whatever the opportunities that presents itself.

There used to be a debate with this business as to whether or not it was truly core to what Cardinal wanted to do. Was this something that you wanted to keep? There's obviously been a lot of these transactions happening, McKesson spinning, OMI selling. It sounds like you're very happy with this business where it is, where it stands. That's been the message. Nothing has changed here.

We're very happy with the progress that the team has made against the GMPD improvement plan. Jason Hollar has been very clear during our Investor Days that we are a pragmatic balance sheet owner in that way and that our focus is on how do we create the most shareholder value, right, both short, medium and long term. And our answer to that question for the last couple of years has been our best way to create shareholder value is to improve that business and really drive the execution of the GMPD improvement plan. That's where we are today.

This is going to be a totally random question, but it's become a debate in the last days, which is around skin replacement products. I don't know if you've heard about this.

Skin replacement products?

Like bands and things like that. There's been some fraud in that industry and the like. You guys are not in any way -- you have not benefited or anything from -- it's not that you would committing fraud, but there has been upcoding and other things, basically Band-Aids by certain providers in Florida and the like. You're not aware...

I can't speak to that. We do have a consumer business, but I'm totally unaware.

It's a managed care issue more than it is anything else because they -- literally billions of dollars of like -- we'll leave it at that.

That's to your next guest.

No, it's fascinating. I really learned about it more last night, and I was like, okay, this is...

Before or after the Packers lost.

It was before. It was before. Can you talk a little bit about where we are with nuclear? Again, not getting a lot of attention. How do we think about what's happening with the mix there? What's the outlook for that business? Has anything there changed in the midst of everything else that's kind of we've forgotten about it a little bit?

So we have the largest nuclear precision health business in the U.S. It's a mix of SPECT and PET and Theranostic products, a nice growth business for us. We've predicted -- we've guided long term that we expect the profit of that business to grow 10% on a long-term basis. And we're really excited about what we're seeing in that business. We're investing $150 million in new locations and new manufacturing capabilities to support Theranostics. And what's particularly cool about that business for us is how it ties into the broader themes within Cardinal.

If you go back to where we started the conversation today on specialty and in particular, our conversation on urology, right, we are one of the largest providers of diagnostics -- Theranostics in the urology category. It's something you all may have heard of Pluvicto, right? That's a key part of our portfolio. We're supporting that customer launch and ramp. And that's just one example of how all it takes for us to be successful in our Nuclear Precision Health business is a series of singles and doubles. But the innovation pipeline coming in that business is incredible, right? And so we believe that so long as we can continue to have the available capacity from a manufacturing and distribution perspective that, that business is going to do quite well.

In our last minute, we went this long. When we did our pre-earnings call with Matt, we spent half of our call talking about COVID, which in retrospect was a complete waste of time given all the other trends in the business. It didn't -- nobody is even talking about it now, but it was a headwind that you had called out. What did it end up being in terms of the headwind? And should -- are we ever going to have to talk about COVID again relative to your business?

My job is just to answer the questions as asked, but the -- sometimes COVID was anticipated to be a slight headwind to our Q1, and it was. But the rising demand that we talked about earlier more than covered the slight headwind in Q1. And indeed, we also commented on our earnings call that we expected COVID to be a slight headwind to our earlier expectations in Q2 as well.

Now our guidance for Q2, Q3 and Q4 and beyond assumes strong demand. It doesn't assume the outsized demand. And I guess it's for the listener to decide our comment on slight headwind, what does that mean relative to the broader dynamic in the overall enterprise. But we are certainly watching with interest what -- how the American consumer is adopting or not the vaccines and certainly what changes are happening in Washington.

I think the last time you sized COVID was a few years ago. I think it was $70 million of EBIT. And then each incremental year, it's supposed to be incrementally down. So are we at a point where COVID benefit or COVID profit is in the mid-tens of millions.

Yes. We haven't provided an update on guide -- on COVID for this year other than just commenting it's a slight headwind to the first 2 quarters of the year.

And a key call out now with the season is most of that demand is concentrated in September and October. So where we're at in terms of the cadence, we have very good visibility.

Gentlemen, thank you so much for your time. Thanks, everybody, for joining us.

Thank you.

Hello, and welcome to the First Quarter Fiscal Year 2026 Cardinal Health, Inc. Earnings Conference Call. My name is Serge and I will be your coordinator for today's event. Throughout today's recorded presentation [Operator Instructions]

And now I'd like to hand the call over to Matt Sims, Vice President of Investor Relations. Please go ahead, sir.

Good morning, and welcome to Cardinal Health's First 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 a strong start to fiscal '26 with continued operating momentum and broad-based performance. With strong double-digit profit growth across each of our 5 operating segments, these results underscore our team's disciplined execution of our strategic priorities and the strength of our resilient business model. Our performance was again led by our Pharmaceutical and Specialty Solutions segment, where we continue to benefit from a robust demand environment, along with our ongoing efforts to prioritize our core operations and deliver exceptional service for customers. We have made notable progress with our expansion in Specialty evidenced by meaningful contributions from our MSO platforms this quarter, and the expansion of our BioPharma Solutions business.

This progress will be further accelerated by the acquisition of Solaris Health, the country's largest urology MSO with over 750 providers, which we anticipate closing shortly. We're eager to add the Solaris team's capabilities to the Specialty Alliance, our industry-leading multi-specialty platform to deliver even greater value for providers and patients.

With GMPD, we continue to make steady progress against the improvement plan initiatives, and we're pleased to deliver a strong quarter. And our other growth businesses at-Home Solutions, Nuclear and Precision Health Solutions and OptiFreight Logistics also continued to accelerate. This performance reflects their alignment with key secular trends, leading market positions and our focused investments. We are seeing strength in demand across each business and are successfully executing our integration of ADS, which is creating a powerful business serving patients in their homes. Overall, the momentum across our business gives us confidence as we progress further into fiscal '26, and Aaron will walk you through the increases to our outlook.

Our results are driven by the dedication and focus of the Cardinal Health team and is a testament to our unique breadth of capabilities. We are the crucial link across the entire health care spectrum from pharmacies to health systems, to physician offices and surgery centers, all the way to the home, delivering daily to tens of thousands of locations with products sourced from several thousand different organizations. We are constantly innovating to expand our suite of services, both downstream and upstream and are deeply committed to creating value for providers, manufacturer partners and patients while fulfilling our critical role of health care's most trusted partner.

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

Thanks, Jason, and good morning. We are really pleased with our first quarter performance, which exceeded our expectations across the board. Overall, we grew operating earnings by 37% and EPS by 36% while continuing to make strategic progress by integrating last year's acquisitions and making additional organic investments for growth across the enterprise. As Jason signaled, we expect our acquisition of Solaris Health to close shortly. This is a significant step in accelerating our specialty growth strategy and will create long-term value for patients, providers and shareholders, as Solaris benefits from the broader strength of the Specialty Alliance leading multi-specialty platform. With strong results across the board and the anticipated closing of Solaris, I'm pleased to highlight that we are raising our full year EPS guidance to a range of $9.65 to $9.85.

Let's review the results, starting with Slide 4. Total company revenue increased 22% to $64 billion, primarily driven by continued strong demand in pharma and reflecting growth from all 5 operating segments. Gross profit grew 22% to $2.3 billion while also outpacing SG&A growth, which increased 14% to $1.5 billion. Excluding the inclusion of the ION, GIA and [ ADS ] acquisitions and our results, SG&A growth was more modest. This reflects our constant focus on cost management, even as we annualize fiscal '25's customer wins and investments for growth. This led to operating earnings growth of 37% versus the prior year.

Moving below the line, interest and other increased by $43 million to $70 million in the quarter due to financing costs related to our announced acquisitions. Our first quarter effective tax rate was 21.9%, about 100 basis points better than a year ago due to the timing of discrete items. Q1 average diluted shares outstanding were 239 million shares, 2% lower than last year due to share repurchases. The net result for Q1 was EPS of $2.55, growth of 36%.

Now turning to the segments, beginning with Pharmaceutical and Specialty Solutions on Slide 5. First quarter revenue increased by 23% to $59 billion, driven by brand and specialty pharmaceutical sales growth from existing and new customers. This included approximately 6 percentage points of revenue growth from GLP-1 sales. In Q1, we saw a continuation of strong pharmaceutical demand across the business within brand, specialty, generics and consumer health and from our largest customers.

First quarter Pharma segment profit increased by 26% to $667 million, driven by contributions from brand and specialty products, our MSO platforms, and positive generic program performance. The distribution of COVID vaccines was a slight year-over-year headwind in Q1, and we expect a similar headwind in Q2. Notwithstanding that, the strength across the business in Pharmaceutical and Specialty distribution, our MSO platforms, and our upstream biopharma solutions business provides a solid foundation as we look ahead. The acquisitions of GIA and ION contributed approximately 8 points of the first quarter segment profit growth.

Within the core, the consistent market dynamics in our Red Oak enabled generics program continued, and we saw healthy same-store generic unit growth above our long-term expectations during the quarter. Our results also benefited from our continuous focus on efficiency initiatives across our distribution network.

Turning to [ GNPD ] on Slide 6. Revenue increased 2% in Q1 to $3.2 billion driven by volume growth from existing customers. Notably, we continue to see positive trends with Cardinal Health brand with over 6% revenue growth in the U.S. [indiscernible] segment profit increased by $38 million to $46 million in the quarter, driven by growth from existing customers. The [indiscernible] team remains highly focused on mitigating the impact of tariffs and continues to take aggressive actions to control costs across the business, including various sourcing initiatives. Overall, tariffs produced a slight net headwind during Q1. As a reminder, we expect a step-up in tariff costs in the second quarter, which I'll discuss shortly.

Finishing with the businesses reported in Other, as seen on Slide 7. First quarter revenue increased 38% to $1.6 billion, reflecting strong demand across all 3 businesses. Segment profit also increased by 60% to $166 million, driven by strong growth across all 3 of the businesses, including the acquisition of ADS. A few highlights. The integration of ADS into at-Home Solutions is progressing well with earlier realization of planned synergies. In Nuclear and Precision Health Solutions, we were pleased to see continued Theranostics revenue grew up over 30%. OptiFreight continues to see volume uplift and grew Q1 revenue over 20%.

Now turning to the balance sheet. Our enterprise-wide focus on cash flow management continues to benefit us as we generated $1.3 billion in adjusted free cash flow during the first quarter. Consistent with our disciplined capital allocation approach during Q1, we invested approximately $110 million back into the business to fuel future growth. We retired our $500 million bond maturity in September, and we returned $500 million to shareholders in the form of approximately $125 million in dividends, and the launch of a $375 million accelerated share repurchase program. With this program, we've now completed half of our $750 million of baseline share repurchases for fiscal year '26. And after all of this, we ended the quarter with a cash position of $4.6 billion. This includes $1 billion raised from our August bond issuance to partially fund the Solaris Health transaction.

Now let's talk about our improved outlook for fiscal year '26. With a strong Q1 behind us and line of sight to the closure of the acquisition of Solaris Health, we are incorporating the benefit of both items into our guidance. The net of all of this is a $0.35 increase to fiscal year '26 EPS and giving us a new range of $9.65 to $9.85. This equates to 17% to 20% EPS growth from the prior year, reflecting the resilient strength and growing momentum of Cardinal Health. We are also increasing our adjusted free cash flow guidance to a new range of $3 billion to $3.5 billion for the full year.

Drilling into the details. On the top line, we are increasing our pharma revenue guidance to 15% to 70% growth, from 11% to 13% growth, reflecting the positive demand trends we have experienced. Our new Pharma segment profit guidance range is for 16% to [ 19% ] growth, an increase from our prior range of 11% to 13% growth. This primarily reflects our strong first quarter performance and approximately 3 percentage points of growth from Solaris Health. As is our practice in modeling transactions, our guidance does not include potential contributions from the distribution of the Solaris drug spend.

In terms of the expected phasing of our growth throughout the year, we continue to expect strong profit growth in the first half of this year versus the back half, with the $7 billion of new customer revenue primarily in the first half. In the second half of the year, we are annualizing the ION and GIA acquisitions, while benefiting from anticipated Solaris contributions. All in, we expect M&A to add approximately 8 percentage points to Pharma's profit growth in fiscal year '26. In [ GNPD ], we continue to expect 2% to 4% revenue growth, and at least $140 million in segment profit, while net tariff costs are anticipated near the high end of our $50 million to $75 million range, the business' core operational performance continues to improve, and we are holding to our annual guidance.

Looking at [ GNPD's ] second quarter, while we project the business will continue its profitability, we do not expect to see year-over-year profit growth in the quarter, as we realized a larger portion of the tariff costs incurred in previous quarters. We continue to expect Q4 to be [ GMT's ] highest profit dollar quarter as in recent years.

In Other, our revenue guidance remains unchanged at 26% to 28% growth, while our segment profit guidance is up 4 percentage points to 29% to 31%, driven by the strong performance across all 3 growth businesses in the year-to-date. Below the line, interest and other is $50 million higher than originally guided at approximately $325 million, reflecting the financing cost for Solaris Health. Of course, this is more than offset by Solaris' profit contribution within the Pharma segment, which together produces EPS accretion of about $0.05 for the partial year. We are also increasing our expectations for CapEx from approximately $600 million, to a range of $600 million to $650 million for planned investments into the Specialty Alliance platform. Finally, we are lowering our diluted weighted average shares outlook to approximately 238 million shares from the prior range of 238 million to 240 million shares, reflecting our Q1 and anticipated baseline share repurchases.

In closing, we're kicking off fiscal '26 with continued momentum. We are highly focused on continuing to do what we said we would do, and I look forward to updating you on our progress in the coming months.

With that, I will turn it back over to Jason.

Thanks, Aaron. In Pharmaceutical and Specialty Solutions, our disciplined execution of our strategy has enabled us to deliver meaningful progress across the business and ensure we're well positioned to take advantage of future growth in what continues to be a robust demand environment. We continue to prioritize our core, making strategic investments to further expand and modernize our national pharmaceutical distribution network, driving greater operational execution and delivering even greater efficiency and service levels. We recently announced the opening of our state-of-the-art Consumer Health Logistics Center, which serves as a vital link in our supply chain efficiently distributing over-the-counter medications, treatments and diagnostic solutions to our network and serving customers nationwide. This investment creates an additional 20% in overall network capacity, which will support the strong double-digit growth we're seeing, and allow us to move products faster, more accurately and more reliably for our customers.

We also unveiled plans for a new 230,000 square foot flagship forward distribution center in Indianapolis, outfitted with advanced automation and the latest technological advancements, in addition to modernizing and optimizing several other DCs [ had ] capacity and storage for specialty drugs.

Going deeper into Specialty, our expansion across our MSL platforms, our Biopharma solutions business and specialty distribution, including with biosimilars has helped lay the groundwork for sustainable growth. With respect to our MSO platforms, we are well positioned to broaden our impact across our 3 high priority areas. Autoimmune, urology and oncology. The addition of Solaris Health further enhances our progress in building the Specialty Alliances multispecialty MSO platform, adding significant scale and reach to better meet the comprehensive needs of community urologists across an even wider network of communities. Upon closing, our MSO platforms will serve approximately 3,000 specialty providers across 32 states.

Our teams have prioritized integration efforts with a clear and thorough plan to bring together these platforms and create meaningful synergies that will unlock opportunities to deliver greater value for the community physicians we're serving. This work is already underway with teams collaborating to develop how the Specialty Alliance can further partner on solutions that bring together the breadth of our enterprise capabilities, including areas like Nuclear and Precision Health solutions, where we have a leading role supporting urologists with prostate cancer treatments and deep knowledge of the fast emerging field of Theranostics.

Moving upstream. We continue to see growing demand across our Biopharma Solutions business, reflecting both the depth of our manufacturer partnerships and our investments to enhance our capabilities. Earlier this month, we hosted our Annual Business Partners Conference which drew record attendance from our manufacturer partners. As the industry continues to evolve, we remain steadfast in our commitment to being a trusted partner to our suppliers.

As an example, our Sonexus access and patient support business has recently won substantial new business, underpinned by the implementation of our next-generation hub. These wins in our Sonexus business are a key component of the over 30% growth that we expect from our biopharma solutions business in fiscal year '26.

Turning to GMPD. Our improvement plan initiatives are yielding results. We are encouraged by the positive trends within our Cardinal Health branded portfolio particularly with our more clinically differentiated products, which delivered another quarter of strong volume growth in the United States. Critical focus of the team continues to be ensuring our customers have the right products when and where they need them. Our success here was recently recognized by the Health Care Industry Reliance collaborative with an award for our supply chain resilience and transparency, which is consistent with our observed network improvements and service levels near an all-time high. And with respect to tariffs, we remain focused on mitigating this impact for our customers and delivering on our financial commitments for the business.

Now turning to our other growth businesses where we delivered fantastic results, demonstrating the increasingly important role these higher-margin and faster-growing businesses play in our long-term strategy. We are seeing positive performance across all 3 businesses, supported by both strong demand and disciplined execution. Nuclear and Precision Health Solutions continues to decisively outpace the market, backed by our differentiated offerings and team's deep expertise. This performance is driven by strong demand for Theranostics, which again delivered over 30% revenue growth in the quarter. The growth of these transformative products is a game changer for patients, and particularly notable in the area of prostate cancer, which also creates future opportunity for our business.

To meet increasing demand for PET products, we are expanding production of key radio diagnostics for the detection of cancer, coronary artery disease and Alzheimer's. To continue this momentum and advance our leadership position, we are making progress on our $150 million of investments over the next 3 years to expand our PET network across 11 key markets and our Center for Theranostics advancement. Within at-Home Solutions, the demand environment is strong, and we see favorable long-term secular trends in home health care. Those factors, coupled with the synergies from our ADS integration position us for sustainable growth. We've already moved the majority of the ADS volume into our network with minimal utilization of our capacity. Our focus is now turning to integrating back-office operations and systems, which is critical to our goal of building the best customer experience in the industry.

To accelerate this momentum, we continue to invest in our distribution network to drive productivity and reach even more customers. We recently opened our newest distribution center in Fort Worth, Texas and we'll break ground this fiscal year on our next one in Sacramento, California, which is expected to be fully operational in summer 2027. Both facilities are equipped with the latest robotics and automation technology, a key component of our long-term investment strategy to drive efficiency and service levels.

OptiFreight Logistics continues to demonstrate its leading value proposition. With ongoing investments in our proprietary technology-driven platform [ total view insights ], we continue to see long-term potential to deliver cost savings, transparency and operational efficiency for our customers as an extension of their teams. As we outlined during Investor Day, we are expanding OptiFreight's offerings in new areas such as supporting the needs of outbound shipping for hospital embedded pharmacies.

Wrapping up, I'll note that we continue to monitor the dynamic legislative and regulatory environment closely. Across the enterprise, we have confidence in the resilience of our business model as evidenced by our increased guidance and our unique position to safely and efficiently deliver the products and solutions that our customers and patients need. Our essential role in health care has never been more critical, and we will continue to deliver our unmatched breadth of capabilities to meet the evolving needs of our customers and patients.

In closing, this quarter's results are a clear demonstration of our strategy and action and the broad-based momentum of our business. We remain focused on executing with discipline, consistently advancing our priorities and delivering sustainable value creation. And with that, we will take your questions.

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

So at your June Investor Day, you've raised that long-term Pharma and Specialty Solutions profit growth, like you obviously continue to track coil ahead of that. I guess, how should we be thinking about just the broader momentum going forward? And what's embedded in your assumptions? You gave some quarterly cadence in there. But has anything surprised you like on an intra-quarter basis that really drove the upside maybe relative to your internal expectations in the quarter?

And then maybe you could unpack a little bit of the M&A contribution. I think you gave overall M&A contribution, but if you could unpack Solaris embedded in the guidance for the balance of the year, that would be great.

Thanks, Erin. There's a lot there. So I think it's going to require both Aaron and I to contribute to that answer. So let me start connected to some of the Investor Day commentary then that certainly still holds true now.

As I step back and think at the highest level specific to our pharma business, but I think it's largely true across the enterprise. What we've been doing and executing is there's broad-based industry utilization trends that continue to be positive, but we're translating that through very specific Cardinal Health performance into a great financial results. So both have been true.

Let me just start with kind of the utilization picture, but not so satisfying answer is that we're seeing strength really across the board. But I do think that's consistent with our Investor Day messages. When you think about those key trends and themes that we walked through, demographics are clearly in our favor for the aging of America, more and more pharmaceutical products, coupled with the innovation that we continue to see in our industry, innovation, not just in new branded and specialty products. But that innovation that goes into, of course, the loss of exclusivity eventually when those branded products go to generics or, of course, even more and more biosimilars. So that overall utilization remains strong. We've translated that well to a testament to the team's performance.

And even then when you double-click into some of those broader industry trends and strength, we position the business appropriately to take advantage of the secular trends, more investments into that home business to be able to support those patients in the home. Or the trends with more and more innovation in precision health like the [indiscernible] businesses that we have. So these are all ways in which we position the business to take advantage of where the industry is going.

But now let me turn it over to Aaron to actually go through the more specific questions and answers.

Great. Thanks, Jason. Look, as Jason said, we're really pleased with the results in Q1, and they are a continuation of the momentum we've seen across the business. Jason highlighted the strong demand we were seeing stronger-than-expected demand certainly in the first quarter. Some of the key drivers in the quarter carry into our drivers from a guidance perspective. So let me highlight those.

The specialty business in Q1 was trending at above historical levels. It was a strong performer for us, particularly in our areas of strength, autoimmune, urology, oncology, and we're also seeing good progress in biopharma solutions I'm really pleased with the MSO platform as Jason was referencing as well. They contributed as expected, and they add about 8% of the growth in Q1. Generics was a positive performance story for us with volume above our expectations. And there's no substitute for good execution. The team certainly delivered on that in the quarter.

So now as we think about the guide for the year, and Erin, to your point of the raise to our guide. We are guiding profit up 17% to 19% for the year, all in, inclusive of our M&A. Key assumptions underlying that strong demand. We are not assuming outsized demand, as you've heard me say before, but we are assuming continued strong demand. We are assuming continued generics performance. We're assuming a double-digit growth from specialty. That's going to come both upstream and our biopharma solutions business, including our Sonexus business and downstream in the MSOs as we carry forward. And the M&A is going to add 8 percentage points to the year.

In my prepared remarks, I think I commented that Solaris will be 3% of that 8%. Of course, we also have the benefit of a strong customer wins that we're adding in, particularly in the first half of the year, most of the $7 billion of incremental customer wins come in the first half. So as we think about the cadence as well, there H1 -- we do expect to be stronger than H2 from a growth perspective driven by those new customers. We, of course, are annualizing our acquisitions in the second half. But overall, we're expecting a good year carrying forward.

And I think you might have said 17%, 19%. Our guidance is 16% to [ 19% ].

Next question is from Elizabeth Anderson from Evercore.

Congrats on the really nice quarter. Maybe just a follow-on to [indiscernible] parts. One, does the assumptions now include [ Rite Aid ] from [ CVS ] closing that? Obviously, you've aligned with a high-growth customer there, and that's many things. So one, I just want to make sure that's an expectation?

And then two, you alluded to some of the policy changes in DC. And I was wondering if you could just sort of maybe more specifically, help us think through where are some of the opportunities within some of these political changes and regulatory changes given your diverse business mix?

Sure. Yes, [ Rite Aid ] is a tough one to see through where that volume is going. Certainly, you've heard a big customer of ours talk about their same-store sales growth, which is certainly a part of that. And of course, we support that customer and other customers. So that -- we did not support Rite Aid. So that volume has gone somewhere, and we're likely picking up a greater share of that because we started with 0%, and we're now getting a portion of that. So that's a component of it.

I -- given the broad-based strength that we're seeing across different customers and different classes of trade I don't think it's the primary driver by any sense. But it's one of a number of different items. As it relates to policy changes, broadly speaking, I would step back and say that we're very much aligned with the administration's intent to ensure that Americans have access to affordable, innovative health care. And those policy changes, which are still in the works, in some cases, being more defined than others.

As long as it's achieving those objectives, that is neutral to positive for the patient and for the industry and for us, because it drives utilization, the right type of utilization to solve and serve those patients and their needs. And so that's how we look at it. And it's hard to define exactly what utilization does. At the other end, whatever policy changes occur. And of course, if price points come down and access affordability that improve, and that may be good for us, but I think largely speaking, we're seeing a fairly solid utilization environment. And there's nothing we see at this moment that says that these policy changes will materially change that, but hopefully continue on in serving those patient needs as we go forward.

Michael Cherny from Learning Partners.

Congrats on a nice quarter. Sorry, just to keep harping on this. But as you think about what's embedded in your new growth outlook for the year for the Pharmaceutical and Specialty Solutions segment in particular. How do you feel about the, call it, build between what you can control i.e., driving better penetration to your customers versus what you can't, i.e., just the market being incredibly strong. The growth has been so significant. Obviously, you put a lot of operational improvements in place in order to get you there. Just trying to further bifurcate out some of the dynamics that's leading to this significant outperformance. Appreciate it.

Yes. Let me start and see if I leave anything else that Aaron can [indiscernible] on. I think you asked the question the right way, Michael. We stay focused on what we can control, no doubt about it. We believe strongly that utilization is going to continue to be positive. To what degree, we're not assuming that outsized level of growth that Aaron had referenced, but we expect it to be strong, stronger than what it has historically been, but not quite as strong as what it's been more recently. So we are anticipating it's going to be strong, but our objective is to ensure that whatever that volume is, which we anticipate still to be a very growthy type of volume, that we translate that into fantastic service for customers, fantastic service ultimately to the patient and growing the business financially.

So we are focused, to your point, when you see a lot of what we talked about in our prepared comments this morning and more recent press releases, we're investing heavily into our business organically and inorganically to ensure that we're satisfying filling those needs to ensure that we have the capacity, the service levels, the quality, the safety for our team of best-in-class in how we operate. And with that, we think that's attractive to customers. We think customers want to work with us because we really focus on the core of the business that is their core of their business. And when they see that, I think that's an opportunity for us to continue to maintain and grow share.

So we are going to continue to stay focused on that and what we can control, and we think that will ultimately result in a positive outcome. To what degree that's where we need to see exactly what happens with the underlying utilization.

The next question is from George Hill from Deutsche Bank.

Aaron, I'm going to take sources of the beat for [ $300 million ]. So the implied growth rate in the core for the quarter, it looked like it was about 15% or 16% -- I'm sorry, that's for the year. I guess my question is, it seems like you're actually assuming a deceleration in the balance of the year. And I guess there's the M&A component of that. But I guess I'd like you to talk about the sustainability of the beat, and Jason as kind of a sub-question to that. I'd love you to talk about what we call Part B growth versus Part D growth. And if you can spend any time on the differences between kind of like that provider-facing specialty business versus the regular YRx business.

I appreciate the question. Look, what I can observe is we have a lot going on as a business. And Jason just highlighted the fact that we're very focused on executing and specific plans. You look at measured gets done. We're very careful to tell you what we're going to do and then [indiscernible] do it.

Within the portfolio as well, we have the demand strength that we've called out that we're going to be very careful to not get ahead of ourselves on, and we've been consistent in our approach there. But we also have the acquisitions coming as well. We'll be closing on Solaris shortly. We'll be lapping GIA and ION as we move into the back half. And so all I can really tell you from a cadence perspective is that we are comfortable and confident in the momentum we've seen, [indiscernible] in the guidance that we've provided and we're going to do what we have to deliver against that effort. Jason?

Yes. We've already provided a lot of insight into the drivers, George, and I think it's safe to say broadly speaking with -- so we're not [indiscernible] further. But nonetheless, it's safe to say we've seen strength in all aspects there.

Next question is from Eric Percher from Nephron Research.

Let's shift to the other segment. And if I'm reading you right, we're hearing here that there's both strength across all 3 businesses, and then some earlier synergy realization as well as what you expected from ADS. So similar to what you walked through on the other businesses, help us understand maybe some of the cadence you saw in Q1 that pull through and then expectation for the remainder of the year?

Look, there's it's hard not to be proud of what the other businesses have done during Q1 with 60% profit growth really driven across with the strong double-digit profit growth across the businesses. You'll see in our Q that revenue was up dramatically across all three of the businesses. at-Home was up 51%, inclusive of the acquisition of ADSG. Nuclear is up 17%, [indiscernible] up 21%. And that really goes to the fact that the businesses are both positioned well and performing well. And to your point, the at-Home acquisition of ADSG has certainly -- they have leaned into the integration, and we're very pleased with the synergies they are achieving quickly.

I think Jason talked on our last earnings call about the fact that we are quickly moving volume from their third-party provider into our network. Our revenues will go up 33%, but only using 2% of our capacity. And we've commented that we have a detailed integration plan that is reasonable to achieve with potential upside, and we're starting to see the benefit in that across other. I also should point out that within the at-home business, we're seeing strength in areas that are core to who we are urology, CGM, the [indiscernible] categories, other parts of the business that Cardinal is very focused on overall and nuclear precision health certainly is seeing strong growth in the Theranostics part of its portfolio, which Jason referenced in his prepared remarks.

Jason, anything you want to add?

Yes, that's well said. And at the high level, I think, answered the question. I guess when you think about the 38% revenue growth in the quarter and the 60% segment profit growth in the quarter, while we're not breaking out specifically ADS, what we are saying is that both the core as well as the acquisition are significant contributors to both of those numbers. So it's not just the acquisition driving either one of those metrics. They're both very strong because of the acquisition as well as our core performance.

And as Aaron highlighted, within the other segment, each of the 3 businesses is performing strongly, growing strongly. So overall, what I think is just so fantastic about this quarter for the other segment is that, that broad strength that we're seeing across those businesses, executing to the plans, the strategies and actions that we laid out in Investor Day.

Yes. And I did fail to mention the OptiFreight business, which continues to fire on all cylinders.

Allen Lutz from Bank of America. One for Aaron. Cardinal Health brand growth in the quarter was over 6%. That's really nice growth. Can you talk a little bit about the types of products where demand is high and the runway to drive outsized growth within that growing part of the business?

Sure. we're really pleased with the continued strength in the Cardinal Health brand business. The GMPD management team has invested significant efforts in that area, and the strength we're seeing is clinically -- in our clinically differentiated products. which, of course, is part of the Five-Point Plan that Steve Mason walked through at our Investor Day. And we're looking to continue to invest in those areas as we carry forward. So I'm talking about compression electrocardiography, surgical kitting, syringes, et cetera. That's really where we're seeing the growth with our existing customers.

Next question from Kevin Caliendo from UBS.

I want to dive a little bit more into what was driving the same-store generic unit growth. Is there a particular category that moved more? Is their prescribing habits that are changing? Or is this -- are you getting better spreads for some reason? I'm just trying to understand a little bit what made it incrementally better for you, if this was purely generics oral into pharmacies, or were there some biosimilar part of this as well?

The perspective I would start with is that we saw consistent market dynamics within our generic portfolio. As you often hear us talk about, we're managing the buy-sell spread in that way and always seeking to achieve that consistent market dynamics the generic success here is really driven by volume, right? And so consistent with the demand we saw strong volume in the generic portfolio, and that certainly contributed to the portfolio.

Yes. And I'd add, we walked through at Investor Day that the next 3 years, we see somewhat higher new loss of exclusivity and branded products, new item launch. So that's something that we anticipate being a component of this as a component of the $7 billion of carryover, new customer revenue that we projecting for this year. A component of that, the small component of the revenue, more would be the side of that. So it's really a combination [indiscernible]

Eric Coldwell from Baird.

Well, the timing there is perfect. I think every one of my questions have been asked right before now. I guess we'll come back to the biosimilar topic because yesterday, there was a Washington presser on getting the regulatory environment and the industry more in line with investing in biosimilars, I think, of well over 100 biologics coming off patent in the next handful of years. There's only a small percentage of those that actually have biosimilars in development.

Are you thinking at all about the potential for many more of these biologics to actually start to see R&D and advancement of biosimilars based on some of the things happening in DC? Is that at all factored into your long-term vision? I know this is some more recent news from Washington, but I think it's been part of the policy chatter now for the better part of the year. So I'm just I'm curious how exciting that might be for you.

Well, that's a pretty good question, Eric, for how deep the lineup you had to pull and get behind some of those other good questions. So yes, biosimilars is definitely something that we have highlighted and stressed before as a contributor to our long-term plans and actions we see. Kind of irrespective of yesterday's announcement, we certainly see that biosimilars will be a continued tailwind for the industry, and for us as we go forward. It's important to the access and affordability point that I made in my -- some of my opening comments there.

So it's, I guess, not too much of a surprise administration is working on some additional actions to further facilitate that to further improve that access and affordability. And just like any other type of improvements there, anything that they can do to improve that. Could be an opportunity for us, but it is way too early to tell. I would like more than 24 hours to really understand better exactly what that means. Conceptually, it's definitely not bad. Conceptually, it could be an opportunity. But to what degree we need to understand not only the details behind what exactly this is, but more importantly, how will the industry react because it does require companies to make continued investments and that is something that this should improve some of those barriers and all things being equal, should be more positive. But let me come back at an appropriate time as we understand some of the details better.

Daniel Grosslight from Citi.

Congrats on the quarter here. I wanted to focus back on the onboarding of the distribution businesses of your MSO acquisitions. First, just a clarifying question here. When you talk about the accretion from ION and GIA, are you also including the accretion from onboarding the distribution businesses? Or do you view that as separately?

And my real question is, you previously mentioned that you're onboarding the distribution business of ION this quarter, starting in October, I think you mentioned, and then GIA onboards in April 2026. I assume that's all baked into the guidance here. Can you just talk about how that's going versus your expectations? And then as we think about Solaris' distribution, what do you think that could potentially come on board?

A couple of great questions. Let me seek to provide some clarity. In previous calls, we did provide an update on us gaining the distribution over the course of this fiscal year with respect to the ION and GI portfolio, but that is going well. There is no one date per se. But us taking on that distribution for ION and GI, in particular, is included in the guidance updates that we've provided today.

The contrast is in connection with the Solaris transaction, which we've not quite yet closed and the update to guidance we provided today. We're not yet complete in that process. And while we expect the opportunity to be available to us later this fiscal year, we are not in a position yet to provide an update to guidance inclusive of Cardinal Health, gaining the distribution on the Solaris [indiscernible] spend.

Steven Valiquette from Mizuho Securities.

Congrats on the results as well. I think all the questions on the Pharma side have been pretty thoroughly addressed at this point. I guess just on GMPD. One of your competitors kind of divested their business recently. I'm wondering if that creates any opportunity for you if that changes the competitive landscape one way or the other? Just curious to get any quick thoughts on that, that has any impact from your perspective.

Well, it certainly doesn't hurt because we've been very consistent with our customers and with the marketplace that we're going to put service level and performance above and beyond anything else. And we continue in this business appropriately so, but also recognizing that it's still a turnaround. So we're investing in areas that are good for customers, but also good for us. And just like my commentary earlier on the pharma business, I think what we continue to do is focus on what we can influence the most level of performance, the level of quality such that we are the supplier of choice, the partner of choice for each and every one of those customers.

And the last question to the lease from Brian Tanquilut from Jefferies.

It's Jack Slevin on for Brian. Maybe a quick one just to dive deeper, given all the talk on Pharma. So just thinking about the MSO assets, is there any color you can give on where pharma spending within the MSO, or drug spending with the MSO and trending, or anything in terms of growth rates and color on how that might have moved recently, understanding that sort of deeper penetration on those in sort of the other ologies or non-oncology specialties is sort of core to the thesis?

Yes. Well, as Aaron has highlighted, we're seeing broad specialty growth across many different therapeutic areas, specifically to your question on MSOs, what we've indicated before is that there's very diverse revenue streams. And so while the drug spend is a relevant point, it's still only 1/3 of the MSO revenue combined with then -- the -- [indiscernible] Our priorities on the MSO continue to be autoimmune, neurology and oncology. Those are all areas that are fairly strong underlying volume and revenue growth. And -- but they're not quite unique to the industry either because the specialty strength is [indiscernible].

We're very pleased with the team and the progress that we're making to provide the capabilities and the services necessary for our physician partners to be successful, and we're really pleased with the specialty lines, in particular, in the investments that we're making there. But we're just going to keep that.

It appears that there are no further questions. With this I'll hand the call back over to Jason Hollar for closing remarks.

Great. Yes. Thanks, everyone, for all the questions this morning and for your continued interest in Cardinal Health. Obviously, we're really pleased with the quarter. But as I highlighted before, really pleased with the breadth of the strength that we saw this quarter by the each and every one of our 5 operating segments. Great start to the year, and we're going to keep focused on the continued execution of our strategy. So look forward to keeping you updated on our progress. Thanks again, and have a great day.

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

All right. Good morning, everyone. Thank you for attending. My name is Allen Lutz, health care tech and distribution analyst here at Bank of America. We are ecstatic to have the Cardinal Health management team here. We have Jason Hollar, CEO; Aaron Alt, CFO; and Head of Investor Relations, Matt Sims.

I think, Matt, you had a couple of comments before we get started.

Yes. Thanks for hosting us, Allen. It's really great to be here. So yes, just a little housekeeping before we begin. 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.

Back to you.

Perfect. Thanks, Matt. So we were just talking and you were saying you haven't been to London in a few years. So as we get started here, I would love if you could give maybe a brief introduction for the people in the room, the people on the phone, a little bit about the Cardinal Health business and where the business has gone over the past couple of years.

Sure. Thanks again, Allen, for having us, and thank you all for attending here live as well as online.

Yes. So Cardinal Health, we are effectively the beginning, the middle and the end of the U.S. health care supply chain. If you think about everything that connects the innovators, the manufacturers all the way through the supply chain to the patients, we touch or drive the activity across that entire spectrum. There are even some instances where we act as a manufacturer of certain types of products, and we act as the provider in other types of products. So we have a scope and scale breadth that is beyond what anyone else does in health care. This is anchored by our largest, most significant business, our Pharmaceutical and Specialty Solutions business. This is well over the $200 billion of the $220 billion of revenue that we have as an enterprise and is very much, again, the cornerstone of our activities.

Within that distribution business, we have other high-value services, manufacturer service or BioPharma Solutions business that provides unique value to manufacturers as well as providers in different ways. Beyond our pharma business, we have our other growth businesses of Nuclear and Precision Health Solutions as well as our at-Home Solutions business and our OptiFreight Logistics business. These are 3 relatively individually small businesses that aggregate to quite a nice segment in terms of revenue and profitability. They are uniquely positioned with individual secular growth trends, which I'm sure we'll get into in a few moments. But they are our second priority within our enterprise for investments and growth given the unique nature of their growth in their part of the industry, but also their leadership in the industry.

And then finally, our turnaround business, which is our Global Medical Products and Distribution. You'll hear me refer to it as GMPD. That business is largely from a revenue perspective, lower profitability. We have done a nice job of turning it around from significant losses a few years ago when inflation impacted that business quite a bit. And even with tariffs, this is a business that we see being solidly profitable and growing over the next several years.

So that's the overall architecture of our primary businesses. Again, aggregating to over $200 billion of revenue. We have long-term growth plans of our earnings per share being at 12% to 14%, generating adjusted free cash flow of at least $10 billion and solid plans that we recently laid out at our Investor Day to drive that growth well into the future.

And that leads really into my next question. So you hosted an Investor Day a few months ago. Can you talk about some of the key takeaways that you want investors to leave with as it relates to that specific event? Maybe Jason and then Aaron to follow up.

Yes. Yes. Let me start and see if I miss much because there's a lot there at that event. So I would put it all into 3 key categories. First of all, we're really big and focused on accountability and making sure we're measuring what we committed to in the past. And so the first thing we did is we laid out our performance versus our last Investor Day, which was 2 years before that. So in the last 2, 3 years, we've had now 2 different Investor Days to establish the strategy and then we measured against it in this last meeting.

And the results were very strong. We exceeded the vast majority of our metrics and the ones that are the overall enterprise results we vastly exceeded those. Earnings per share, we had originally laid out the 12% to 14% EPS growth, and we achieved 18%. So very strong performance over the 2 to 3 years prior to this Investor Day, and we wanted to demonstrate what those results were. And then, of course, what we did and we focus most of our time and attention on was the evolution of our strategy. We went through each of the 5 operating segments. Again, the largest most significant being our Pharma and Specialty Distribution -- Pharma and Specialty Solutions business, our other growth businesses of Nuclear, at-Home and OptiFreight and then finally, the GMPD business.

We went through each of those 5 businesses and laid out the strategy for each. And mostly, I would say it was an evolution of the strategy because clearly, that strategy was working over the prior 2 to 3 years. And so we wanted to tweak a few things. And the primary tweak that we had was the ordering of our second and third priority.

So again, Pharma and Specialty Solutions being so important, so significant the recipient, the vast majority of our investments, organic and inorganic dollars, that continue to be our highest priority. But the other growth businesses of Nuclear, at-Home and OptiFreight are growing so substantially in such a strong part of the market that we wanted to demonstrate that by making it a higher priority within our strategy.

And then the other part that we highlighted was the talent. Again, each of the 5 operating segments presented and each of those 5 presidents of those segments participated in that, and we were able to showcase that talent. But when you step back from all that, what's really exciting about where Cardinal Health is, is each one of those 5 businesses has a very strong core, and we continue to invest in that core to drive relatively consistent, resilient, a little bit slower growth, and then we accelerate that through these growth initiatives, mostly focused on specialty, but then each of the other 4 businesses have their own version of those growth initiatives as well. For example, within our at-Home Solutions business, we continue to invest in our distribution network. We've refreshed 3 new DCs out of our 11 in our network over the last 3 years, so about 1 a year, and we committed to another 3 over the next 3 years to refresh with the latest in automation technology, driving significant operational improvements.

Within Nuclear, we committed to another $150 million of investment to increase our cyclotron capacity to produce various types of radiopharmaceutical isotopes to continue that growth that we're seeing in Theranostics and the Precision Health that is being driven by oncology and urology. And then finally, OptiFreight to continue to grow and expand in new areas from med-surg to include also the pharmacy types of products.

And then GMPD, again, this is all about the turnaround plan, focused on Cardinal Health volume growth as well as our simplification. You add that all up and that got us to the 12% to 14% EPS growth. We raised our targets for our largest, most significant business with the Pharma segment to 5% to 7% operating income growth or 5% to 7% operating income growth. And then we also raised our other growth businesses to 10% earnings growth on a CAGR basis. So they've got each a place in our portfolio and are clearly laid out as to what needs to be done to continue to drive those above-market types of growth rates.

I just emphasize a couple of things in support of what Jason was saying. First, you heard Jason referenced Specialty. It's more than a $40 billion business for us. It's a CAGR of 14% plus as well. We're very focused on continuing to grow that business because it is a much higher margin part of the business, and that's evidenced by the acquisitions we've done in the last 18 months, particularly the most recent announcement of the acquisition of Solaris in the urology MSO space. And so we spent a fair bit of time talking Dr. Weber, who's leading that enterprise for us, talking about that effort.

But we're able to do that. We're able to make the investments that Jason was just calling out because we did also call out or guide more than $10 billion of adjusted free cash flow over the next 3 years. And that's on top of having delivered $2.5 billion of adjusted free cash flow in a year in which we lost our second largest customer, right? And so I say that, that way to just highlight the point that the team is very focused on the operational performance to generate the cash in support of creating the virtuous cycle of the investment so that we're able to continue that -- we're able to continue the success as we carry forward.

But that's -- we're also going to be very disciplined about how we do it. While we have -- while we are calling out the $10 billion-plus number, what remains unchanged from Investor Day to Investor Day and now into our coming year as well is the idea that our first and highest priority is to invest in our business. We'll invest about $600 million in capital. You heard Jason call it some of the projects during fiscal year '26, we're just approaching the end of our first quarter, of course.

We're going to protect our balance sheet. We are BBB, Baa2 at the moment, and we believe that's the right rating for us. And by the end of this year, notwithstanding all of our acquisitions, we will be within our rating agency guidance to that respect. We prioritize returning capital to shareholders as well. We committed to return $750 million to our shareholders this year as a baseline return of capital to shareholders, and then we'll look for more opportunity to do more as we go through the year and see where our investment needs are as well.

And of course, we pay a growing dividend. We're a dividend aristocrat. Dollars that are left after all of that, we will go back to the cycle again, and we will look for both further return of capital to shareholders. And of course, we will always look at M&A as we have done for the last couple of years. And while we haven't put a limit on the M&A, we're much more focused on tuck-in M&A, given the deals we've done in the last 18 months. The team is very focused on achieving the synergies, driving the integration, getting the value of the deals that we've done.

That's great. Really appreciate all those comments. Now at your Investor Day, you raised Pharma and Specialty Solutions EBIT growth even as, I guess, you and some of your peers have talked about industry growth trends maybe normalizing a bit into calendar '26, you have Medicaid, there's a Part D benefit, there's vaccines. What gave you the confidence to raise the Pharma and Specialty Solutions EBIT growth even if growth is going to normalize a bit at the industry level going into next year?

Yes. For the last several quarters, we have been pleased to report good progress within the Pharma and Specialty business and indeed driven in no small part by strong demand. And the demand, while we plan for and guide strong demand, it has been outsized strong demand as well. And so part of what's driving our ability to take guidance up at Investor Day. And then actually, we took our EPS guidance up again at our Q4 earnings call a couple of weeks later was we continue to see a strong environment in which we are operating. That's being driven by procedures. The scripts are certainly holding up as well.

I also want to emphasize though that we're able to do that because of the operating performance that the team is delivering. We are relentlessly focused on how do we continue to raise our game and how we operate. And you heard Jason reference the investments in our at-Home business as well. That -- it's a purposeful strategy really across our portfolio of we're making investments not just for the revenue growth, but even more importantly, for the operating excellence that we're bringing our costs down because we're investing in technology, because we're doing acquisitions that we can layer on top of our existing platform. And so that's part of what's also driving our confidence in our ability to raise our guidance.

As we think about the seasonality in fiscal '26, you talked about bringing on $10 billion worth of new customers in the second half of last year. I think that's going to be $7 billion you said in the first half of fiscal '26. So there's some seasonality there. Can you talk about some of the -- and you have a unique fiscal year-end as does each of your peers. Can you talk about some of the seasonality as you think about the back half of calendar '25, the first half of calendar '26? How you think about what the major swing factors in the seasonal cadence for your business?

We have a variety of different businesses and the seasonality is a little bit different across each of them. And so let me take a stab here at describing it. As you think about our largest business, the Pharma business, we don't provide a guide on a quarterly basis, but we did provide some guidance on the first half, second half basis. And you called out the first driver, which is last year in '25, we did onboard $10 billion of new customer revenue. And so now coming into the first half of first half of fiscal '26, we're 1 quarter -- almost completely 1 quarter in, we are now getting the tailwind benefit of the first half, right, for those new customers, and that is about $7 million as well.

Historically, for our Pharma and Specialty business, Q3 is the highest dollar profit quarter for us because that's the quarter in which the manufacturers take their inflation as well. Now within the GMPD business that Jason referenced, we tend to see, of course, our results are impacted by the flu season, right? They're also impacted by when people are doing procedures, which tends to be more calendar year end focused as people benefits are coming up on the renewals of their benefits as well. And so that drives some of the relative cadence of our overall guidance and our results.

Jason, anything to add?

No.

Yes. Only other one I would call out is just we have also had the acquisitions within fiscal '25. So the annualization of those will be a tailwind within the first half of fiscal '26 for Pharma. And then within our other segment, the ADS acquisition, we'll annualize that in 4Q of fiscal '26.

We closed our GIA acquisition on February 1. And so -- and we closed ADS in April.

And then one question we're getting a lot is around the vaccine and the evolution of the consumers' view of the COVID vaccine and maybe even the flu vaccine. Now we're a few more weeks since earnings. Can you talk about what's embedded in your guide for COVID vaccines? And any high-level commentary on what you're observing quarter-to-date? And then how should we think about the cadence of vaccine revenue between fiscal 1Q and fiscal 2Q?

I don't think we're alone. And certainly, we were transparent when we provided our guide that in the past year, we had assumed that the COVID vaccine contribution would be a slight headwind relative to the prior year. And indeed our guide for this year for fiscal '26 made the same assumption that it would be a slight headwind or less of a contribution than the year before. It's also the case that the relative timing of the contribution is a little bit up in the year tied to the various approvals happening at the federal and the state levels as well. One year, it was early last year, but it's a little bit later. And while we don't provide a guide on a quarterly basis, we are all reading the newspapers and staying in contact with the administration as far as what their latest plans are for the COVID vaccines.

Yes. And in terms of the -- you have embedded within that question, some timing aspects. I think just a reminder of the journey we've been on, as Aaron highlighted, you really got to go back to '24 was the first time we really meaningfully participated in the COVID vaccine. And so that was a nice tailwind in '24, started in Q1, but then accelerated in Q2 because it was a fairly late approval cycle that happened in '24 as it related to when the FDA provided the clearance and then getting the supply chain up and running.

Now last year was a lot earlier. And so you saw that shift more so to an earlier start date, more of the contribution being in Q1 relative to what it was in the prior year. And then now this year, it shifted back a little bit further and you have these other restrictions. So you got somewhere in between those 2 dates. That just creates a little bit of differences from a quarter-to-quarter.

But when I step back and think about the essence of the question, Allen, whether it's that or other moving pieces, let's go back to some of the opening comments, both Aaron and I made. We remain in a pretty strong overall demand environment for the vast majority of the businesses we're talking about. And so I -- whether we're talking about COVID or any other specific question that we'll be getting into, there's always going to be puts and takes to that demand picture.

And while that was a nice tailwind 2 years ago, it has reduced -- did reduce last year, and we put in a lower driver of profitability this year as well. And overall, those are all elements that will be puts and takes to our portfolio and not something that at the current moment that we're calling out any differently.

Got it. I want to switch gears a little bit, talk about the MSO strategy. Obviously, a big focus and growth driver for you. You're now at $4.5 billion of revenue -- of platform revenue post Solaris and you're acquiring practices in autoimmune and urology. If I'm one of those practices, can you provide an example on the types of services and the value that you're providing to these physicians?

Yes. It's -- the short answer is it's across all services because when you think about our strategy, we are very focused on creating scale for these physicians across 3 key platforms. Yes, autoimmune and urology, as you mentioned, but also in oncology. We have acquired 3 separate large platforms for those 3 key spaces, and we have a great partner within each of those. So that's the platform that you start with. So every physician that's on those platforms, and let's just take urology as the example, we have already acquired several other MSOs that we are then now going to combine once when Solaris closes to create value for each one of those urologists.

So they get scale across the services that are provided, whether that's back office, HR, IT, finance, that type of thing, or it's something more specialized even in areas like revenue cycle management or payer negotiations or physician recruitment, these are all areas that benefit all of the different physicians across all the different therapeutic areas. We're able to create scale across not just all the urologists, but then there's a lot of very similar services in urology as well as autoimmune. That's why we have prioritized those 2 areas specifically and why our biggest investments have been in those areas is that there's a lot of synergies between those businesses.

For example, they have very similar revenue profile. They use similar services like pathology lab services, anesthesia, infusion centers, diagnostics and imaging. There's a lot of the day-to-day services like that, that they all use that we can now scale across different therapeutic areas while continuing to allow them to have the clinical differentiation within their therapeutic area. So we believe we've built the best mousetrap here as it relates to giving the right balance of the scale across the therapeutic areas, but then also specifically with their own clinical independence. That's the short answer.

Now a little bit longer is using urology as that continued example. What we're really excited about is our leadership throughout the rest of our enterprise. If you think about it, no one else that provides distribution services also has a key business within the Nuclear and Precision Health Solutions business. We are the leader in urology as well as in oncology for those therapeutic areas. We're also the leader in our at-Home Solutions business, delivering oncology -- I'm sorry, urology-related supplies to those patients in their home.

And then lastly, another key element that these physicians need is the data and technology support. With our acquisition of Specialty Networks about 18 months ago -- over 18 months ago, that business actually originated with urology and provides the AI, IT engine behind managing the physician's practice, both downstream with the patient, but also upstream with manufacturers. So we have very unique assets that are quite supportive to areas like urology. But then beyond all that, we have all the other scale that provides those benefits to those services.

And this is all as a result of a very purposeful strategy that Jason laid out at our Investor Day 3 years ago now as well, where -- given where Cardinal was at the time and from an industry context perspective, with oncology being 40% of specialty and the other ologies being 60%, our historical strength has been in the other ologies, the urology, rheumatology, the gastroenterology. And so to see us then do a series of transactions in gastroenterology, urology and other areas. And then to see the investments we're making in the areas supporting that part of the business, it really just comes back to how we're approaching the business overall, which is we're going to tell you what we're going to do. We're going to go do it. We're going to report back, and then we're going to continue to reinforce the ecosystem around our competitive strengths.

So to follow up on that, Aaron, you put out a target for the amount of physicians that you want to have under MSO. So obviously, you have strong growth ambitions within the MSO space. Can you talk about the level of fragmentation in the other ologies? Is there -- are there large assets out there? Are there a lot of smaller assets? Just how do you think about the road map there as we think about how Cardinal looks to augment the capabilities and scale there?

Let me start there and then -- so the -- within oncology, there's more of a consolidation that has occurred within -- there's another reason why we like the autoimmune and the urology space is it does remain quite fragmented. In both cases, we are the largest with our acquisitions in urology with Solaris Health and the other assets we've acquired, it's roughly 5% of that market that is -- well, Solaris was almost 5% by itself. So this is a good representation, similar in the GI space with GI Alliance. So very fragmented there of the community physicians that are in those therapeutic areas, it's roughly 80% to 90% remain independent, not associated with an MSO today.

So it's earlier in the consolidation cycle. And with the value that we believe we are creating and that they will see through our MSO with those the broad synergies and capabilities that I referenced earlier that we believe will be attractive to have others come. As Aaron highlighted earlier with more of the capital deployment comments, with the relatively large outlay of capital for these 3 platforms that we've completed over the last year, we recognize that there's perhaps more value for some of the more -- a little bit smaller tuck-in acquisitions to benefit from the scale that we have there.

There are not -- in those therapeutic areas, there are no -- there is no one larger than us. I'm not sure we'd be interested in that anyways, given that we are looking to use our platform to be able to consolidate on to that. So we are always going to be open to the opportunities that can create value for the physicians and for ourselves. But we just think naturally, at this phase given the fragmentation that's still there that there's perhaps more value as it relates to more of the smaller, midsized types of bolt-ons, and that's where we're focused more, but we'll certainly keep our eye open to anything else.

During our last earnings call, we acknowledged that we are quickly approaching 3,000 providers served by the platforms that we're in. And while there is fragmentation, again, part of our focus from an M&A strategy was to acquire the assets that brought the scale to start with. And so it's easy for us to now add on and to drive that value creation for the doctors, importantly, because we want our incentives to be aligned, the value creation for the doctors and the value creation for the Cardinal ecosystem as well by then doing the tuck-in acquisitions and also finding the linkages to the rest of our portfolio.

And there's a difference in mix between urology and oncology, for example. So for oncology, drug revenue is 96%, 97% of revenue. Urology, it's more of 1/3, 1/3, 1/3 between drug revenue and procedures and visits. Does that matter at all as you think about your strategy? Or is that just...

So I would -- back to Aaron's point earlier, we started with a very intentional strategy. We looked at the marketplace. We did a lot of marketing field studies to understand what's important to physicians. They get good support from distributors as it is today. So when you talk to them, it's not like, well, we have to have a distributor come in and own us because we need better distribution. That's not the message. The message is they need help in, yes, distribution and GPO contracting services, that is a component of it.

But what they're not getting as much is the cohesion with the other 2 key categories that they need to support on, data and technology as well as the MSO back office, revenue cycle management, all those type of administrative services. They need help with -- think about all the vendors and partners they need to bring around -- wrap around them to be successful. And ultimately, they became a physician because they want to take care of patients. They don't necessarily want to run a business, but that's a necessary element to what they do. So they work with us to run that business.

And so when we had that and we looked at what was out there and the needs, we saw there was a big need in the autoimmune space. That's -- that's why we started looking there. Then we said, well, who is the best MSO? Who does that better than anyone else, irrespective of the therapeutic area. And that was clearly GI Alliance. What Dr. Weber had built with that team was not only a large following of providers, but also they had the best process. So it wasn't like we were saying, hey, we think GI is the place to go. It's not a bad spot. It's a very resilient therapeutic area, a lot of other services, but it was all about the capability and that capability then crosses over rheumatology and neurology as well as urology in different ways.

So that's where we started. And then we looked at the profile behind it, and we said, okay, yes, 1/3 of the revenue is drug spend. That's not bad. It's an element of the business case to continue to support that type of service. But ultimately, what we saw were the other 60% of those other services roughly 1/3 into the procedures and roughly 1/3 into the physician office visits. That creates value opportunities for other physicians to help them scale those capabilities and the technology behind it and all the other services that go along with it. But it also gives us diversified revenue stream.

We already have over $200 billion of drug spend revenue as a company. Of course, we always want more. That's never a bad thing to grow your business, but it's okay having other higher-margin service revenue behind it as well. And while we don't think that the administration is focused on driving down profitability for these providers because they do remain the lowest cost alternative in their communities relative to other options, we do think that, that's more of an uncertainty on the drug side than all the other services side. So we're much better insulated and protected in this type of policy environment with this. But that is secondary in nature. The primary reason was that there's a lot of value from the physician's perspective that we see we can help create.

And then I want to ask kind of an overarching drug policy question, DC policy, MFN, IRA. Has anything or any of your thoughts evolved at all over the past couple of months as it relates to all the headlines we've been seeing around drug policy and the future drug pricing?

No. Short answer is we continue to be very well positioned as it relates to the fee-for-service distribution side of our business. Of course, that's by far the largest part of our business. We continue to believe that we'll be well compensated for the value that we provide to safely, securely and efficiently deliver those products. Nothing changes with the price point changes in the drug costs. We don't benefit when they go up. We should not be harmed when they come down. And then on the MSO side is the only other aspect that is different.

But given the diverse revenue streams, only 1/3 of our MSO revenue and the government payers, Medicaid specifically being a lower percentage of our payer mix, it's a small percent of a small percent, which gives us confidence that we will not have any meaningful impact as a result of that. But certainly, something that what's most important is that we advocate for all of our customers in DC to ensure that those types of potential unintended consequences are understood by the administration because what's our highest priority is to make certain that we don't have any shortages in the marketplace.

That's great. And I want to switch gears again a little bit about the P&L, SG&A growth versus gross profit dollar growth. You've done a great job over the past couple of years, growing gross profit dollars faster than SG&A. But Aaron, at Investor Day, you talked about some of the investments you've made in supply chain technology, 3 new distribution centers. With some of those investments, M&A, how should we think about your philosophy around gross profit dollar growth and SG&A growth? I guess as a start, maybe around fiscal '26 and then maybe philosophically after that, how you think about it?

Yes. Thank you for noticing because we are being very purposeful in a couple of respects. First, of course, you can attack SG&A, but better if you start at the top line and the gross margin line. And so as Jason has highlighted, we continue to invest in higher growth, higher-margin parts of our business to help drive that gross margin growth to really fuel the overall P&L. And anything specialty related to it, the investments in our -- the other growth businesses are certainly supportive of growing more rapidly the gross profit line of the P&L.

And then SG&A, I really have to pay compliments to our team where really every part of the organization has been very focused on how do we get there, ranging from making the long-term investments in technology to drive efficiency, for which we are seeing the results, right, making -- bringing transportation costs down as a good example, increasing the lines per hour, the higher pick rates, et cetera, as well as just going after everywhere we can, the core SG&A, the people costs, how do we operate more efficiently? How do we -- how is our technology spend more efficient as well. And so we're really going after that as well.

So we were pleased in fiscal '25 to see some good progress on the relative impact of SG&A relative to our gross profit. And as we continue -- as we raised our guidance again at our Q4 earnings call, we continue to focus on driving that operational improvement and bringing our SG&A cost down.

That makes sense. And then around the generics business, how are you thinking about the possibility of tariffs? I know that's been kind of a moving target. And then related to that, has the supply chain evolved at all since the beginning of the year when tariffs were first discussed? Has it changed the way that any of the stakeholders, whether it's the way that pharmacies are bidding, the way that manufacturers are producing? Is there any change that you're seeing in the supply chain? Have prices evolved at all? Just curious if there's anything different that you're observing in the market.

Yes. There's nothing different significantly in the overall marketplace. And of course, the vast majority of any potential implications just haven't occurred. When you think about tariffs, it's been -- pharma products have largely been excluded from that. So there's nothing that's had to be addressed in supply chain. Now our model is such that we take possession title of the product after it comes into the United States, so we don't directly hold that exposure, that risk. But we recognize that with tariffs, there will be additional -- there would be under that scenario, additional cost pressure if that were to occur in that manner.

With that said, we've highlighted continuously over the last several years consistent market dynamics. What you see is various forms of inflation and deflation has occurred over the last several years. And you've seen that our margin spread price per unit on these items have been largely consistent, meaning that even when we see inflationary impacts, we're not seeing impacts to our underlying profitability. What we want is a consistent margin per unit, and then we want to grow our profit through the utilization growth, the volume growth that we expect will continue in the United States, given the demographic trends that are still in our favor for the next couple of decades.

So we're well positioned. We don't think anything is going to change with that, and it's also just a little bit early to tell as to exactly what the administration is going to do because we do think, especially as it relates to the generics products, they play an incredibly important role in the U.S. health care system. It's approximately 90% of the volume, but only 10% of the cost. And so even if there are some cost impacts to that 10%, it's going to be a relatively small part of the overall health care cost in the industry, and it's one that we think makes sense to continue to protect in different ways.

And then I believe at your Investor Day, you said that generics are going to contribute more over the next 3 years than over the past 3 years as more LOEs. Is there any way to size the contribution of generics to the growth algorithm of your business? Is it a primary driver of growth? Is it a secondary, a tertiary driver? And then how is that growth rate going to evolve over the next couple of years versus the prior 3?

Yes. You're right to call out that we did call out that the loss of exclusivity is expected to be higher over the next several years versus where it was in the past several. So that is an opportunity, all things being equal. What you've seen us highlight over the last couple of years is generics is a component of our growth, but it's not the only one that we're calling out. What's so exciting about where Cardinal Health is and where the overall industry is, is that broad utilization. You've heard us in different quarters and different years call out not just generics, but branded products. We've called out score specialty products. So we've had broad contributions to just our pharma business. And of course, we've also been calling out significant growth in our other businesses as well.

But overall, generics is a component of it. And what's in our long-term plans is that will continue to be a component of it. We have modeled for industry growth of 2% to 3%. So if it is able to grow faster than that, then that would be an opportunity. Part of the reason we didn't include more volume in those long-term projections is that while the LOE isn't -- it almost certainly will be better. We know the math of when those products will lose their exclusivity, but it is overweighted with a couple of larger products. And the exact timing and nature of how that exclusivity rolls off and how many manufacturers of those generic products come to market are all questions that aren't answered yet. And once we get more of those specifics, we'll have a better understanding of the contribution to our underlying growth rate that we can then see within the generic space.

Probably worth just adding, given our partnership with CVS and Red Oak, and we are the largest, I believe, purchaser of generics into the U.S. health care system, we're able to achieve the cost that allows us to always call consistent market dynamics, our ability to manage both sides of that equation to drive the profitability there. That is part of why we have comfort that it's a good news story for us relative to generics carrying forward. But I do want to emphasize at the start of the conversation around specialty as well because you asked about the relative drivers as well. And certainly don't want to lose sight of the impact of how aggressively we're looking to grow the specialty part of the business at higher margins.

That's great. And then I think we only have a couple of minutes left here. So I did not do a great job of pacing the question appropriately. So for the other segment here, you're expecting really strong profit growth through fiscal '28. And I would never ask you to rank your children here. But you've talked about a lot of different things in these 3 subsegments here. So you're investing $150 million in Nuclear, OptiFreight is growing quickly, and there's -- within Specialty Pharmacy. And then at-Home, you have the ADSG acquisition. Would love if you could -- don't rank your children, but what are the things you're most excited about here?

So what I'm most -- and I walked through a couple of those key drivers earlier, so I'll try not to be redundant. What I'm excited about is each of the 3 businesses has a strong core that we're investing in distribution capacity, just manufacturing capacity for the isotopes and nuclear. So we have a strong core, but they're also benefiting from the secular growth. With at-Home, it's the trend for more care being delivered to the home. That's a business that only supports the home. That part of the market is going to grow faster.

With Nuclear, its industry is the Precision Health. So these isotopes that go along with the pharmaceutical products that target cancer cells and other therapies more specific so that the patient is harmed less. Think about it as something better, think chemotherapy, things of that nature. And then within OptiFreight, of course, every health system is looking to reduce their freight spend, and we can help them with that.

So each of these businesses are benefiting from growth in the industry. Each of the businesses are the leader in what they do, and they're getting the added support by a broad organization that can afford to invest and not just focus on the day-to-day, quarter-to-quarter type of affordability for a small business, we can really lean in where it makes sense, $150 million for nuclear. The now 6 new DCs with new automation technology for our at-Home Solutions business, things that they couldn't do on their own because we're taking a longer-term view.

And then last question for Aaron around capital deployment. You expect $10 billion of cumulative free cash over the next few years. How should we -- so a lot of opportunity there to invest in the growth opportunities that you've talked about. Should we think about the capital deployment strategy being relatively static over the next couple of years, meaning you have this opportunity that's in front of you, and that's going to be the opportunity that's there for the intermediate term? Or would you expect that the capital deployment strategy to evolve over the next 36 months or so?

The one thing that won't evolve is the core principle of discipline from a capital allocation perspective. As I called out, we're going to spend about $600 million this year. That's a good proxy for future years as well on investing into the internal needs of the business. That's our internal CapEx. After that, we'll protect our balance sheet, but we'll be within our rating agency guidance this year, notwithstanding all the acquisitions we've already done.

That leaves the rest of the $10 billion, if you will, for operating our business. And of course, return of capital to shareholders through the dividend, the dividend aristocrat. We guided at least $2.25 billion of return of capital to shareholders before we then look at further tuck-in acquisitions and additional opportunities for return of capital to shareholders. And so we're disciplined. We're pragmatic about it. We are very focused on getting the right ROI so that we're returning that value to our stakeholders.

Okay. That's great. We don't have a timer, but I think we're out of time. Jason, Aaron, Matt, really appreciate the time. Thank you so much.

Thank you.

Thanks.

Thanks, Allen.

Good to go. Great. Good morning, everyone. My name is Eric Coldwell. I cover pharma services, health care distribution and related industries for Baird. And it's a great pleasure to have Cardinal Health with us here today. On stage with me, Jason Hollar, CEO; Aaron Alt, CFO; and of course, Matt Sims, who leads up Investor Relations. And we're very excited to have Cardinal. This has been a lot of fun for the last few years since you joined. And officially, I had a few best picks for the year, but officially, Cardinal was my top idea for 2025 and...

Well, we enjoy making you look good.

Thank you for making me look good. I needed some help for sure. I'm going to let Matt take a couple of minutes into disclosures, and we'll just jump right in.

Perfect. Well, thanks for hosting us, Eric. It's great to be here as always. And before we begin, just a few reminders. 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 IR website at ir.cardinalhealth.com. Back to you.