Cencora Q2 2025 Earnings Call Transcript

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May 7, 2025
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Operator

Hello, everyone, and thank you for joining the Senkora Fiscal twenty twenty five Second Quarter Results Conference Call. My name is Lucy, and I will be coordinating your call today. I will now hand over to your host, Bennett Murphy, Senior Vice President, Head of Investor Relations and Treasury to begin.

Operator

Please go ahead.

Bennett Murphy
Bennett Murphy
Senior Vice President, Head, Investor Relations & Treasury at Cencora

Thank you. Good morning, good afternoon and thank you all for joining us for this conference call to discuss Syncora's fiscal twenty twenty five second quarter results. I'm Bennett Murphy, Senior Vice President, Head of Investor Relations and Treasury. Joining me today are Bob Mach, President and CEO and Jim Cleary, Executive Vice President and CFO. On today's call, we will be discussing non GAAP financial measures.

Bennett Murphy
Bennett Murphy
Senior Vice President, Head, Investor Relations & Treasury at Cencora

Reconciliations of these measures to GAAP are provided in today's press release, which is available on our website at investor.zencorra.com. We've also posted a slide presentation to accompany today's press release on our investor website. During this conference call, we will discuss forward looking statements about our business and financial expectations on an adjusted non GAAP basis, including, but not limited to, EPS, operating income and income taxes. Forward looking statements are based on management's current expectations and are subject to uncertainty and change. For a discussion of key risks and assumptions, we refer to today's press release and our SEC filings, including our most recent 10 Q.

Bennett Murphy
Bennett Murphy
Senior Vice President, Head, Investor Relations & Treasury at Cencora

Syncora assumes no obligation to update any forward looking statements, this call cannot be rebroadcast without the express permission of the company. You will have the opportunity to ask questions after today's remarks by management. We ask that you limit your questions to one per participant in order for us to get to as many participants as possible within the hour. With that, I'll turn the call over to Bob.

Robert Mauch
Robert Mauch
President, CEO, COO, Executive VP & Director at Cencora

Thank you, Bennett. Hi, everyone, and thank you for joining Syncora's fiscal twenty twenty five second quarter earnings call. To begin, I want to thank our global Syncora team members. It is due to their purpose driven execution that I have the privilege of reporting our second quarter performance. In our second quarter, Syncora delivered strong results with revenue growth of 10% and adjusted diluted EPS growth of 16%.

Robert Mauch
Robert Mauch
President, CEO, COO, Executive VP & Director at Cencora

We are once again raising our guidance for the fiscal year to reflect our first half results and expectations for continued execution in the second half. Rooted in our pharmaceutical centric strategy, enabled by active learning and powered by the collective strength of our enterprise, Senkor is building on our position as a leading end to end health care solutions provider. We continue to expand our capabilities in key markets, supporting pharmaceutical innovation and access. Today, I will highlight three areas advancing our business to power growth. First, we are creating value by leveraging our expertise and insights to enhance patient care.

Robert Mauch
Robert Mauch
President, CEO, COO, Executive VP & Director at Cencora

Second, we are successfully deepening our customer partnerships by actively learning and anticipating their needs. And third, we are strengthening our global leadership in specialty medications by deepening our offering across geographies and customer channels. I'll begin with how we are creating value by leveraging our leading expertise and insights from our end to end solutions to support our customers, partners, and patients. Senkor is uniquely and intentionally positioned to support pharmaceutical commercialization and access across the health care ecosystem from leading pharmaceutical and biopharma innovators to health care providers. The breadth and scale of our services give us access to extensive data that our teams transform into actionable insights, enabling increased efficiency and innovation.

Robert Mauch
Robert Mauch
President, CEO, COO, Executive VP & Director at Cencora

There are two examples I'd like to mention that demonstrate our progress to engage with industry stakeholders and strengthen our partnerships. First is how we're working to support the resiliency in the independent pharmacy space to ensure patient access to care. Through our advanced analytics capabilities and leading Good Neighbor Pharmacy network of independent pharmacies, we've been able to provide pharmacies with heightened visibility into their communities, allowing them to identify new business opportunities, address populations that may experience gaps in care, and tailor their service offering to specific patient populations. Our work has also highlighted that an estimated 30,000,000 people in The United States live in pharmacy deserts, threatening access to medication, vaccines, screenings, and other services necessary for healthy communities. By leveraging these insights, we are better able to advocate on behalf of our customers to ensure community providers remain vital sites of care.

Robert Mauch
Robert Mauch
President, CEO, COO, Executive VP & Director at Cencora

The second example is using dispensing insights from our relationships with providers to inform biopharma partners on key product trends. One recent initiative provided actionable insights into the treatment of bladder cancer where Suncor combined clinical and market research to show how community oncologists were implementing new treatment paradigms. We are expanding the areas in which we offer these data insights, providing valuable services to our partners as they navigate the ever changing health care landscape. Next, we are deepening our strategic relationship with customers and partners by taking an active approach to learning from them. Through Suncor's industry leading portfolio, we've built a premier customer base end to end throughout the pharmaceutical supply chain dedicated to driving positive pharmaceutical outcomes.

Robert Mauch
Robert Mauch
President, CEO, COO, Executive VP & Director at Cencora

Executing on our strategic priority of leading with market leaders, we are committed to deeply understanding our customer strategies and in turn anticipating their needs and enhancing our capabilities. Just this past week, teams from across Syncora were actively engaged at a number of industry events, ranging from community pharmacies and oncology practices to the largest chain drugstores as well as biopharma companies, allowing our team members to return to our offices equipped with insights to share with colleagues. I'm proud of our significant presence at these prominent industry events where the scope of Suncor's capabilities and expansive partnerships were on full display. At a leading conference focused on specialty pharma, our team members spent time actively learning from partners across the health care landscape while also providing thought leadership through their participation on panels, addressing policy, and health care access. We were also highly engaged in the largest gathering of chain pharmacies working to deepen our partnerships.

Robert Mauch
Robert Mauch
President, CEO, COO, Executive VP & Director at Cencora

In Washington DC, a group of our leaders joined community pharmacists from across the country for meetings with legislators to bring attention to the critical role pharmacists play in their local communities as trusted providers of care. The teams attended over 100 meetings with legislators. Additionally, we gathered with our community oncology partners where the focus was on the continuous evolution of care and need for empowered advocates to ensure the best patient outcomes in the community setting. By engaging in these forums, we develop a deeper understanding of our partners' needs and gain valuable perspective to allow us to better serve them and their patients. And finally, we are strengthening our global leadership in specialty medications by deepening our offering across customer channels.

Robert Mauch
Robert Mauch
President, CEO, COO, Executive VP & Director at Cencora

Executing our strategic imperative of expanding leadership in specialty, our internationally scaled 3PL service is differentiated as we serve pharmaceutical manufacturers who are increasingly seeking partners that can support products across multiple geographies.

Robert Mauch
Robert Mauch
President, CEO, COO, Executive VP & Director at Cencora

We've integrated our US and European three p l businesses, creating an internationally unified network. By doing this, we offer manufacturers deep local expertise along with multinational reach for their products, driving successful launches and positioning Syncora as the partner of choice. We are increasing our capabilities in key markets in Europe, enhancing our pharmaceutical logistics offering, which will power our leadership in specialty across the continent. We're also strengthening our leadership and specialty in The United States by deepening our offerings across provider channels. One example is our approach with health systems, paving the way for us to build upon our critical role in distribution and offering an ecosystem of services health systems increasingly require as the use of specialty medications rise.

Robert Mauch
Robert Mauch
President, CEO, COO, Executive VP & Director at Cencora

Our teams have developed solutions to address the needs of health systems large and small. Our solutions designed in partnership with leading health systems support comprehensive patient centric care. By investing in end to end solutions across sites of care, we strengthen our capabilities to support providers, manufacturers, and patients. In closing, and before I hand it over to Jim, the financial strength we are reporting today is powered by the size and organic growth of our US segment, resulting from many years of strategic investments, strong execution, and leading partnerships. In our international segment, we are navigating a period of market softness for some of our businesses.

Robert Mauch
Robert Mauch
President, CEO, COO, Executive VP & Director at Cencora

However, we are confident we are well positioned and expect to capture opportunities as demand rebounds. I hope each of you take away from my prepared remarks today that while we are performing well, there is no complacency at Senkora. While we execute driving performance in the short term, we are laser focused on building end to end capabilities and partnerships that will enable continued growth over the long term, strategically deploying capital, investing in talent, digital capabilities and enterprise productivity. I want to end with another thank you to the Senkora team members who guided by our purpose, drive a differentiated customer experience, actively learn and apply insights to drive innovation, and deliver value for all of our stakeholders. We are united in our responsibility to create healthier futures.

Robert Mauch
Robert Mauch
President, CEO, COO, Executive VP & Director at Cencora

With that, I will turn the call over to Jim for an in-depth review of our second quarter results and our updated fiscal twenty twenty five guidance. Jim?

James Cleary
James Cleary
Executive VP & CFO at Cencora

Thanks, Bob. Good morning and good afternoon, everyone.

James Cleary
James Cleary
Executive VP & CFO at Cencora

As a reminder, before I turn to my prepared remarks, my remarks today will focus on our adjusted non results. For a detailed discussion of our GAAP results, please refer to our earnings press release and presentation. In our second fiscal quarter, Senkora delivered strong financial performance as our teams capitalized on our pharmaceutical centric strategy. We benefited from our positioning and continued investment in attractive growing areas of the market like specialty, driving adjusted diluted EPS growth of 16%. To reflect our strong U.

James Cleary
James Cleary
Executive VP & CFO at Cencora

S. Healthcare Solutions earnings performance to date and expectations for continued growth in the second half of the year, we are raising our full year guidance for adjusted operating income and adjusted diluted EPS. Before reviewing the revised guidance details, I'll first turn to a review of our consolidated second quarter results starting with revenue. Our consolidated revenue was $75,500,000,000 up 10%, primarily driven by revenue growth in The U. S.

James Cleary
James Cleary
Executive VP & CFO at Cencora

Healthcare Solutions segment as we continue to benefit from volume growth, including continued growth in GLP-one products. Excluding sales of GLP-1s, our consolidated revenue growth would have been 8%. Turning now to gross profit. Consolidated gross profit was $2,900,000,000 up 15% due to growth in The U. S.

James Cleary
James Cleary
Executive VP & CFO at Cencora

Healthcare Solutions segment. Consolidated gross profit margin was 3.86%, an increase of 16 basis points, primarily driven by the gross profit contribution from our acquisition of Retina Consultants of America. Moving now to operating expenses. In the quarter, consolidated operating expenses were 1,700,000,000 up 15%, driven primarily by the RCA acquisition. Excluding RCA, operating expense growth was modest as we continue to focus on identifying and implementing productivity initiatives while also investing in our business and operations to support our customers' growth.

James Cleary
James Cleary
Executive VP & CFO at Cencora

Consolidated operating income was 1,200,000,000 an increase of 15% compared to the prior year quarter due to excellent performance in our U. S. Healthcare Solutions segment, which I will discuss in more detail in the segment level results. Moving now to our net interest expense and effective tax rate for the second quarter. Net interest expense was $104,000,000 an increase of $40,000,000 versus the prior year quarter.

James Cleary
James Cleary
Executive VP & CFO at Cencora

This increase primarily reflects the interest expense associated with the $3,300,000,000 in recently issued senior notes and a term loan to finance a portion of the RCA acquisition on top of our intra period short term borrowings associated with typical seasonal factors minus the repayment of senior notes that matured in March, which we have not yet refinanced. Turning now to income taxes. Our effective income tax rate was 20.8%. Given our year to date effective income tax rate, we would expect our full year tax rate to be slightly below 21%. Finally, our diluted share count was 195,100,000.0 shares, a 3% decrease compared to the prior year quarter driven by approximately $1,000,000,000 in opportunistic share repurchases over the past year, including $50,000,000 in February in concurrence with Walgreens Boots Alliance's sale of shares.

James Cleary
James Cleary
Executive VP & CFO at Cencora

As we look to the balance of the fiscal year, we do not anticipate further share repurchases as we focus on deleveraging following the RCA acquisition. Regarding our cash balance and adjusted free cash flow, we ended March with $2,000,000,000 of cash and year to date adjusted free cash flow slightly below $200,000,000 as a result of strong adjusted free cash flow in our second quarter. We continue to expect full year adjusted free cash flow to be in the range of $2,000,000,000 to $3,000,000,000 This completes the review of our consolidated results. Now I'll turn to our segment results for the second quarter. In The U.

James Cleary
James Cleary
Executive VP & CFO at Cencora

S. Healthcare Solutions segment, revenue was $68,300,000,000 up 11% as we continue to see strong utilization trends, including growth in GLP-1s and growth in sales of specialty products to specialty physician practices and health systems, where we are particularly benefiting from our strategy of partnering with market leaders. In the quarter, sales of GLP-one products increased $2,200,000,000 or 36% year over year. While this is clearly a significant year over year increase, I will note that this represents a 10% sequential decline in GLP-one sales from the first quarter. Excluding sales of GLP-one products, U.

James Cleary
James Cleary
Executive VP & CFO at Cencora

S. Segment revenue growth would have been 9% for the quarter. Separately, I will note that as previously contemplated, there is no significant increase in U. S. Healthcare Solutions revenue resulting from the acquisition of RCA as sales from our Specialty Physician Services business to RCA are now being eliminated in consolidation.

James Cleary
James Cleary
Executive VP & CFO at Cencora

U. S. Healthcare Solutions segment operating income increased 23% to $1,000,000,000 driven by growth across our human and animal health distribution businesses and the contribution from RCA, offset by a smaller than expected COVID vaccine headwind. In the quarter, we saw particularly strong performance in specialty as utilization across health systems and specialty physician practices was robust, and we benefited from the continued uptake of biosimilars in these customer channels. As it relates to COVID, in the quarter, we saw higher than expected sales of COVID-nineteen vaccines that resulted in our COVID related headwind being approximately half the size we indicated on our first quarter earnings call.

James Cleary
James Cleary
Executive VP & CFO at Cencora

I will now turn to our International Healthcare Solutions segment. In the quarter, International Healthcare Solutions revenue was $7,200,000,000 up approximately 1% on an as reported basis and up 6% on a constant currency basis due to our growth at our European distribution business. International Healthcare Solutions operating income was $159,000,000 down 17% on an as reported basis and down 14% on a constant currency basis. The decline was driven by continued softness for our global specialty logistics business as clinical trial activity remains subdued. And we had a difficult comparison for our European distribution business due to manufacturers' price adjustments in a developing market country in the prior year, which we called out on our second quarter earnings call last year.

James Cleary
James Cleary
Executive VP & CFO at Cencora

Excluding the impact of the manufacturers' price adjustments, we saw solid operational performance within our European distribution business, particularly in 3PL. That completes the review of our segment level results. I will now discuss our updated fiscal twenty twenty five guidance expectations. As a reminder, we do not provide forward looking guidance for certain metrics on a GAAP basis, so the following information is provided on an adjusted non GAAP basis except with respect to revenue and share count. I will also provide certain guidance metrics on a constant currency basis.

James Cleary
James Cleary
Executive VP & CFO at Cencora

I will start with adjusted diluted EPS guidance and then provide detail on the income statement items contributing to the increase. We are raising and narrowing our fiscal twenty twenty five EPS guidance and now expect EPS to be in the range of $15.7 to $15.95 up from our previous range of $15.3 to $15.6 and representing growth of 14% to 16%. The updated guidance reflects our strong second quarter operating income performance in The U. S. Healthcare Solutions segment and a lower expected contribution from the International Healthcare Solutions segment.

James Cleary
James Cleary
Executive VP & CFO at Cencora

Additionally, in connection with consolidating the operating results of RCA, we made the accounting determination that the approximately 15% of equity that is owned by RCA physicians and management represents a contingent liability Senkora will be consolidating the entirety of RCA with no noncontrolling interest elimination at the net income and EPS level. Our prior guidance assumed a noncontrolling interest reduction in EPS. Therefore, this determination will result in a higher than expected EPS contribution from RCA for the fiscal year, but has no impact on our operating income results or operating income guidance. We are pleased with the integration progress we are making with the RCA team and are excited about the opportunities we have to drive positive patient outcomes by leveraging our collective strengths. Now moving to revenue.

James Cleary
James Cleary
Executive VP & CFO at Cencora

Our consolidated revenue guidance is unchanged and we expect growth to be in the range of 8% to 10%. At the segment level, we are updating our International Healthcare Solutions segment revenue growth outlook and now expect as reported revenue growth to be in the range of 3% to 4%, down from our previous range of 4% to 5%. On a constant currency basis, we now expect International Healthcare Solutions segment revenue growth to be in the range of 6% to 8%, down from the previous range of 7% to 9%. While we are leaving our revenue guidance unchanged at both the consolidated and U. S.

James Cleary
James Cleary
Executive VP & CFO at Cencora

Healthcare Solutions segment level, we anticipate our growth will be at the bottom end of the respective ranges. In the second half of the year, we will impacted by a couple of factors, including beginning to lap tougher GLP-one growth comparisons in the second half when the market saw product supply constraints subside in the prior year and declining sales of high priced mail order products, which now have biosimilar competition in PBM formularies. These dynamics contribute to the lower revenue growth expected in the second half of the year, but are positive for our profit margins. Moving to operating income. We expect consolidated operating income growth to be in the range of 13.5% to 15.5%, up from our previous guidance of 11.5% to 13.5%.

James Cleary
James Cleary
Executive VP & CFO at Cencora

In The U. S. Healthcare Solutions segment, we now expect operating income growth to be in the range of 17.5% to 19.5%, up from our prior range of 14.5% to 16.5%. The updated guidance reflects our strong business performance to date and continued good pharmaceutical utilization. Turning now to International Healthcare Solutions segment.

James Cleary
James Cleary
Executive VP & CFO at Cencora

On an as reported basis, we now expect operating income to be down 4% to down 1% versus our prior expectations for operating income to be flat. The updated guidance range reflects the continued demand softness in the clinical trial and outsourced pharma services markets impacting our full year expectations for our higher margin businesses in this segment, offset in part by the positive impact of the weakening of the U. S. Dollar against other currencies. On a constant currency basis, we now expect segment operating income to be down 3% to flat.

James Cleary
James Cleary
Executive VP & CFO at Cencora

Moving to share count. We now expect diluted weighted average shares outstanding to be in the range of $195,000,000 to $195,500,000 based on our current share count. That concludes our updated full year guidance assumptions. In closing, the Senkora team has delivered another strong quarter of financial performance as our team members worked collaboratively with our customers and partners to drive a differentiated experience through their expertise and solutions oriented approach. Our team members and our strategic partnerships are foundational to our success.

James Cleary
James Cleary
Executive VP & CFO at Cencora

Our continued investment in the team's development, our focus on enhancing capabilities and emphasis on productivity will further enhance our ability to drive value for all our stakeholders. Now I will turn the call over to the operator to open the line for questions. Operator?

Operator

Thank

Operator

session.

Operator

Our first comes from Elizabeth Anderson of Evercore ISI. Your line is now open. Please go ahead.

Elizabeth Anderson
Senior Managing Director and Research Analyst at Evercore

Hi, guys. Thanks so much for the question and congrats on the quarter. Maybe I just wanted to dig into the strength in the AOI of The U. S. Healthcare business.

Elizabeth Anderson
Senior Managing Director and Research Analyst at Evercore

Given that strength that we saw in the quarter, how do you kind of see that playing out for the rest of the year? And then if we talk about some of the drivers on a longer term basis,

Elizabeth Anderson
Senior Managing Director and Research Analyst at Evercore

how do we see the sort of

Elizabeth Anderson
Senior Managing Director and Research Analyst at Evercore

continuation of those over a longer over the longer period? Thanks.

Robert Mauch
Robert Mauch
President, CEO, COO, Executive VP & Director at Cencora

Hi, Elizabeth. Thanks for the question. This is Bob. I'll I'll I'll take that one. And I think, you know, where you got in your question in terms of the of the drivers are are how I'll how I'll answer.

Robert Mauch
Robert Mauch
President, CEO, COO, Executive VP & Director at Cencora

Because when you when you think about Suncor, I think there are three things to think about when you when you're looking at kind of long term performance, and and we do believe our our strong performance will continue. You know, one is how well we're positioned in the growing parts of the pharmaceutical pharmaceutical market. So, you know, obviously, we talk a lot about how well we're positioned in the specialty market. That is where, you know, most of the innovation in the pharmaceutical industry, is happening. And we're very well positioned there with the biopharma manufacturers, and we certainly expect our positioning to continue and the innovation to continue.

Robert Mauch
Robert Mauch
President, CEO, COO, Executive VP & Director at Cencora

The the second piece is how well we're positioned with with providers. And, you know, we spend a lot of time, again, talking about our our strengths in the independent community specialty practices, which is excellent, and we expect that to continue. But we're also very well positioned, you know, across the continuum of sites of care from, you know, the largest pharmacies to the smallest community pharmacies to specialty pharmacy. I highlighted health systems today in the prepared remarks. So we look at the the market growth in terms of product innovation and specialty, we're well positioned there.

Robert Mauch
Robert Mauch
President, CEO, COO, Executive VP & Director at Cencora

When you think about the the provider base, we're very well positioned there. And the and the third and important piece is just the excellent purpose driven team members that we have here at Senkora, who are spending a lot of time, you know, thinking about not just how do we execute in the short term, but how are we gonna continue to innovate, you know, build services, and build partnerships for the long term. And, you know, also referencing back to my prepared remarks, made a specific point of the amount of time that Centcor leaders are spending out with industry stakeholders, whether that's in Washington DC or our provider customers once again. And the intention there is to make sure that we're, you know, we're listening carefully. We're learning.

Robert Mauch
Robert Mauch
President, CEO, COO, Executive VP & Director at Cencora

We bring that back, to the organization that allows us to be, meeting the needs and exceeding the needs of those provider customers. So I think when you think about the market growth, how well we're positioned, then the, honestly, the growth mindset that we have at Syncora and our commitment to actively learning and continue to innovate, it's what gives us belief that the performance will continue over the long term.

Operator

Our next question comes from Michael Cherny of Lyric Capital. Your line is now open. Please go ahead.

Michael Cherny
Senior Managing Director & Senior Research Analyst at Leerink Partners

Thanks for taking the question.

Michael Cherny
Senior Managing Director & Senior Research Analyst at Leerink Partners

And again, congrats on another strong beat and raise. Maybe to pass through Elizabeth's question a little bit more and particularly dive in more on specialty. Syncora has a long history of being a market leader on all things specialty oriented. As you think about the contributors of specialty to growth, how much can you unpack in terms of what you see as market growth versus share gains versus additional value add services and add ons being able to build out? You're very much, we'd agree with the fact that you're in the right place on a go forward basis relative to the markets growing.

Michael Cherny
Senior Managing Director & Senior Research Analyst at Leerink Partners

But curious as the market continues to grow in various different pacing, where you see the best opportunities for outperformance beyond that.

James Cleary
James Cleary
Executive VP & CFO at Cencora

Yeah. So, thanks a lot for the question, Michael. I'll, I'll take a shot at it. And so we we saw terrific results, really, extraordinary results in the first half in our, US business. In fact, if we, you know, kind of look at our our q '2 beat, really, all of The US Q Two beat versus our internal expectations is due to organic growth from our core US distribution business.

James Cleary
James Cleary
Executive VP & CFO at Cencora

And of course, we've talked about some time that that's driven by utilization trends. It's driven by broad based performance. And in particular, it's driven by sales of specialty products to physician practices and health systems. And so I would say as we look at specialty, it's really been broad based performance, and it's been very good results both with regard to physician practices and health systems. And then, of course, you know, our recent acquisition of RCA and our investment in 2023 of One Oncology, we look at that as really the natural evolution of our specialty business because, of course, we're very strong in distribution.

James Cleary
James Cleary
Executive VP & CFO at Cencora

We're very strong in wraparound services like GPO, and so we view the MSO space as adding, you know, additional, value added services to the same customer base that we've had terrific success with for, quite some time. And so thanks a lot for the question, and I think Bob has something he'd like to add.

Robert Mauch
Robert Mauch
President, CEO, COO, Executive VP & Director at Cencora

Yeah. Thanks, Jim. And, Michael, I would just add our commitment to continuing to invest in the strengths that we have. You've seen over a period of time, we're investing in services. The MSO expansion is a good example of that.

Robert Mauch
Robert Mauch
President, CEO, COO, Executive VP & Director at Cencora

And we're going to continue to make those investments as we move forward to make sure that we're positioned well to support the biopharma manufacturers as well as the providers. So we think that intention to do that, the commitment that we have to do that will allow us to continue to perform well.

Operator

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

Lisa Gill
Lisa Gill
Managing Director at JP Morgan

Great. Thanks very much and good morning. Congrats on the quarter. I wanted to focus on D. C.

Lisa Gill
Lisa Gill
Managing Director at JP Morgan

And the thoughts around tariffs. It's believed that the Trump administration will come out with something in the next week or so. Can you just remind us on each side of your business? My understanding would be on the branded side, kind of similar to what we saw on the flip side with insulin when prices go down, your economics kind of stay the same. Is there any variability if we were to think that prices go up?

Lisa Gill
Lisa Gill
Managing Director at JP Morgan

And then there's been a lot of questions on the generic side if we think back to when there was generic price inflation. And, again, a tariff could add, you know, some kind of inflationary component to this. How do we think about each of those components and how it impacts your business and and how you're thinking about it for your customer?

James Cleary
James Cleary
Executive VP & CFO at Cencora

Yeah. Sure. I'll, take a stab at that, Lisa. Thanks a lot for the question. And and, of course, we continue to monitor the evolutions around tariffs in the pharmaceutical market.

James Cleary
James Cleary
Executive VP & CFO at Cencora

We have teams in place that are analyzing the impact of tariffs on our business and, very importantly, on the supply chain. And to answer your question, what I'll say is as it relates to our business, we have not called out any material impacts as a result of tariffs. As a reminder, we're pharmaceutical centric, and the manufacturers are the importer of record for pharmaceuticals. Now to get to part of your question, our main focus is ensuring patients have access to lifesaving medications, and we're supporting our upstream and downstream partners as they navigate the uncertainty. And, additionally, we'll continue to advocate on behalf of our customers to ensure that they receive adequate reimbursement for the valuable health care services that they provide.

James Cleary
James Cleary
Executive VP & CFO at Cencora

But just to reiterate, as it relates to our business, we haven't called out any material impacts as a result of tariffs. Thank you for the question.

Operator

Next question comes from George Hill of Deutsche Bank. George, your line is now open. Please go ahead.

George Hill
George Hill
Managing Director & Equity Research Analyst at Deutsche Bank

Yes. Good morning, guys. Thanks for taking the questions. And I've kind of got a two parter. Number one, James, if you could kind of quickly walk through the RCA impact on gross margin expansion in the quarter?

George Hill
George Hill
Managing Director & Equity Research Analyst at Deutsche Bank

Think that would be helpful because there's some moving pieces there relating to the way the equity the non owned equity stub is being treated and the eliminations from the sales into the practices. And then my second part would be just kind of the growth where you guys have set yourselves up in specialty is amazing. I was just hoping you might give us any quantitative color on how much of The U. S. Drug business is now like the Part B business versus the Part D business and maybe kind of the growth characteristics you're seeing in each of those?

George Hill
George Hill
Managing Director & Equity Research Analyst at Deutsche Bank

Kind of trying to think of the business and kind of the two big segments from a distribution perspective. Okay.

James Cleary
James Cleary
Executive VP & CFO at Cencora

Well, I'll take the first half of that, and that is on RCA. You asked initially about, gross profit. And, yeah, the you know, as as we look at our consolidated results, RCA does add meaningfully to gross profit margin and operating margin. And one reason why is that it is, you know, a higher margin business than our core distribution business. And then, of course, the other reason why is that now that it is a subsidiary of Senkora, we eliminate the sales from our specialty physician services business to RCA so that we don't double count those sales.

James Cleary
James Cleary
Executive VP & CFO at Cencora

And so as a result of that, it adds meaningfully to our gross profit margin and our operating margin. And then I think the second part of the business kind of got to the accounting. And so let me just kind of address that for you also. Our prior guidance, when we talked in February, incorporated 100% of the operating income for RCA and contemplated, a reduction in EPS due to an expected noncontrolling interest reduction. But, as I said in my prepared remarks, after closing and consolidating the RCA business, we made the accounting determination that the approximately 15% of equity that's owned by RCA Physicians and management represents a contingent liability to Syncora as opposed to a noncontrolling interest.

James Cleary
James Cleary
Executive VP & CFO at Cencora

The results of that is that there's a higher than expected EPS contribution for the fiscal year, but it has no impact on our operating income results or guidance. And so just to give you a little bit more detail there. For EPS, approximately $0.14 of the increase in EPS guidance is a result of the RCA accounting determination. And then the rest is from our core U. S.

James Cleary
James Cleary
Executive VP & CFO at Cencora

Distribution business. And so if you look at our increase in EPS guidance, the significant majority of the increase in EPS guidance comes from our core U. S. Distribution business, which more than offsets a decrease in guidance for international. And just one final thing is that the $0.14 increase in EPS from the RCA accounting determination may be higher than some of you are initially modeling.

James Cleary
James Cleary
Executive VP & CFO at Cencora

And the reason for that is that the 85% of operating income covers all of the interest expense. So the incremental 15% of operating income falls right to pretax income. So I think that, fully, answers your question. And, you know, one one one other thing I I will add is that it's as it relates to the guidance update, I know, kinda everything from standpoint of revenue, GP, and OI for RCA is the same as previously guided.

Operator

Next question comes from Charles Rhyee of TD Charles, your line is now open. Please go ahead.

Charles Rhyee
Managing Director at TD Cowen

Yes. Thanks for taking the questions and congrats on the quarter guys. I actually want to ask about international real quickly here. Obviously, guidance is taken down a little bit here. And just wanted to maybe dive a little bit into more about the your comments about softness in the Specialty Logistics business.

Charles Rhyee
Managing Director at TD Cowen

You mentioned that trial activity is subdued. Can you talk a little bit more about what you're seeing here? Obviously, there's a lot going on in the pharma market, particularly with potential tariffs and a lot of things that the administration is undertaking here currently. Maybe you can give us a sense for what you're hearing from clients, from pharma companies in terms of sort of what they're seeing currently and how they're approaching of business development here and clinical trial starts in particular. And when you're saying it's subdued, does that mean you're just seeing a lot of delays?

Charles Rhyee
Managing Director at TD Cowen

Maybe you could just kind of give us a little bit more details on that, that'd be great. Thank you.

James Cleary
James Cleary
Executive VP & CFO at Cencora

Yeah. Thanks a lot for the question. So as we and other players in the market have been calling out, clinical trial activity has been subdued, which has been pressuring some of our businesses in the International Healthcare Solutions segment, particularly demand for global specialty logistics and earlier stage pharma consulting projects. And the rebound's been slower than we would have expected, resulting in segment performance for our global specialty logistics business to be below the expectations we outlined in February. And we really haven't seen demand begin to ramp materially for our consulting business.

James Cleary
James Cleary
Executive VP & CFO at Cencora

And so, as a result of the performance to date, and to incorporate a wider range of recovery paths for demand in global specialty logistics, we reduced our International Healthcare Solutions segment operating income guidance. But I will say that our end to end service offering is resonating with manufacturers, and we feel confident in our ability to capitalize on a rebound in demand when it occurs given our unique positioning in the market.

Operator

The next question comes from Eric Percher of Nephron Research. Eric, your line is now open. Please go ahead.

Eric Percher
Research Analyst - Pharma Supply Chain and HCIT at Nephron Research LLC

Thank you. Appreciate the detail on RCA. And I'd like to ask a question kind of about the MSO operations more broadly. I know that each of them looks quite different and the share of income can be quite different. But can you help us with your view of the profit stream?

Eric Percher
Research Analyst - Pharma Supply Chain and HCIT at Nephron Research LLC

And we've a lot about the opportunity. When we think about how much of that opportunity is tied to drug versus medical or government versus commercial, can you provide a general framework for that both to think about the opportunity and the risk of some of what is occurring in the market?

Robert Mauch
Robert Mauch
President, CEO, COO, Executive VP & Director at Cencora

Eric Eric, it's Bob. Thanks for the thanks for the question. Yeah. I I would begin with we're excited and confident about the, you know, income streams within the MSO space. As you said, they're, you know, they're different and, you know, the services that, you know, an MSO one oncology would provide to an oncology practice are similar and and and different than RCA would provide to retina specialist.

Robert Mauch
Robert Mauch
President, CEO, COO, Executive VP & Director at Cencora

But when you when you put that together, you know, we believe it's a good really good fit for our expansion of services in both of those spaces. So as, you know, as we discussed and as you know well, Eric, you know, the the strength that we have in both distribution and and the GPO was there. And by adding the the MSO services, you know, we're able to build on our capabilities in supporting those those physicians. You know, one thing that you know, to to reinforce is something else that we're we're excited about in terms of of a future growth proposition is the clinical trial services that are provided now at RCA and that will you know, we believe we can expand into into one oncology. And that's another example of how we'll be well positioned with both the biopharma partners as well as the providers.

Operator

The next question comes from Stephen Valiquette of Mizuho Securities. Stephen, your line is now open. Please go ahead.

Steven Valiquette
MD & Senior Equity Research Analyst - Covering Health Care Technology & Distribution at Mizuho Securities

Yes, thanks. Good morning. Congrats on these results. I had a question that was kind of similar to Charles just on the international solutions and your comments about the clinical trial activity remaining subdued. The only kind of follow-up questions there were just I can't recall off the top of my head just how fragmented versus how concentrated your customer base is in that business.

Steven Valiquette
MD & Senior Equity Research Analyst - Covering Health Care Technology & Distribution at Mizuho Securities

So were there maybe just some customers where activity on clinical trials was subdued or was it definitely wide widespread phenomenon across, you know, the majority of your book? And then is there any chance you're able to put a number just on the approximate percent decline in clinical trial activity, you're seeing across your book? I mean, we're talking single digit decline, double digit. Just want to get, you know, just some rough sense for that. Thanks.

Robert Mauch
Robert Mauch
President, CEO, COO, Executive VP & Director at Cencora

Yeah. I think, thanks for the question. It it's market it's market based. So what we're seeing, are the very same things that, you know, you're seeing across the market from from other players. So our our customer base is broad, you know, and as, you know, as we're seeing, there there has been, a decline in clinical trial starts over the past past few years that, you know, we, all in the space are, are eagerly awaiting, a a bit of a rebound there.

Robert Mauch
Robert Mauch
President, CEO, COO, Executive VP & Director at Cencora

And, you know, within our specialty logistics business, you know, it's part of our end to end service. So when we when we are talking to biopharma companies about commercialization and and them bringing services to market, you know, we're talking to them about, you know, lots of different services from from consulting to three p l services to specialty logistics services that we're talking about here. So we wouldn't call it anything different than what, you know, is being observed across, the market. I think, you know, was a a peak in trial activity, you know, during the COVID, pandemic that, you know, has has been reduced. So we're all you know, we're working through that.

Robert Mauch
Robert Mauch
President, CEO, COO, Executive VP & Director at Cencora

But as as Jim said earlier, as I said in my my prepared remarks, we're we're well positioned, with our services, with our partners, and customers and, expect to be a partner of choice as that market rebounds.

Operator

The next question comes from Alan Lutz of Bank of America. Your line is now open. Please go ahead.

Allen Lutz
Allen Lutz
Senior Equity Research Analyst at Bank of America Merrill Lynch

Good morning and thanks for taking the question. Congrats on the really strong results here. Bob, you called out really good growth in the specialty provider channel. Can you talk a little bit about growth in your different verticals there? Was there any standout as we think about growth in oncology versus retina?

Allen Lutz
Allen Lutz
Senior Equity Research Analyst at Bank of America Merrill Lynch

Are there any other specific areas to call out? And then as you think about the utilization rate from 2024 into the first quarter of twenty twenty five, was there any deceleration, any acceleration either at the top level or within any of the specific verticals you operate in? Thanks.

Robert Mauch
Robert Mauch
President, CEO, COO, Executive VP & Director at Cencora

Yeah. Thanks for the question, Alan. So we don't we don't break out, you know, the specific, you know, commercial components of the business. But I I will say, and and Jim mentioned this earlier, the performance is is broad based. So, you know, we we often talk about the the community specialty space for very good reason, but I I made a specific point in prepared remarks to talk about the health system space and and others because we're well positioned for specialty growth, you know, across all sites of care.

Robert Mauch
Robert Mauch
President, CEO, COO, Executive VP & Director at Cencora

So and we're seeing them all grow. So it's something that we're, again, happy to be well positioned there. We're working hard to make sure that we're adding value to our biopharma partners as well as the providers, but I wouldn't comment specifically on any differences in in growth across those segments. And, you know, I would I would, you know, go back to, you know, the reason that we're often focused on specialty physicians and oncology is the oncology space continues to be the area of largest growth and largest opportunity.

James Cleary
James Cleary
Executive VP & CFO at Cencora

Bob, and just the only thing I'll add, and this goes, of course, back to our results in our press release and my prepared remarks, is, you know, we I mean, we did have just that very strong performance in the first half, and we're just so pleased to be able to increase our operating income guidance for the year, you know, by three percentage points at the bottom end of the range and the top end of the range in The U. S, Seventeen Point Five Percent growth to 19.5% growth and really driven by the things you were asking about, utilization and our broad based strength in specialty.

Operator

The next question comes from Daniel Grosslight of Citi. Daniel, your line is now open. Please go ahead.

Daniel Grosslight
Daniel Grosslight
Senior Research Analyst at Citi

Thanks for taking the question and congrats on the quarter here. I had a similar question to Downing's, but maybe I'll ask it in a bit of a different way. Health Systems seems to be getting a lot more airtime this quarter than previous quarters. So I'm just curious why that is? Are you seeing anything particularly strong in health systems this quarter on the provider side?

Daniel Grosslight
Daniel Grosslight
Senior Research Analyst at Citi

And as we think about the investments that you need to make to support health systems, Is there anything that you would call out as kind of a near term investment in that channel? Thank you.

Robert Mauch
Robert Mauch
President, CEO, COO, Executive VP & Director at Cencora

Yeah. Thanks for the question. From my perspective, you know, with the reason that we're focusing a bit on health systems here is is for the simple reason that, you know, we want the investor base to understand how well positioned we are in for specialty growth across sites of care. And, again, for a very good reason, we we focus on the community practices, and and we're making investments there. But we're also, you know, working very closely with our health systems customers and other customers to make sure that we have a capabilities and a solution set that help them continue to capture the specialty growth that is happening within their side of care.

Robert Mauch
Robert Mauch
President, CEO, COO, Executive VP & Director at Cencora

So, no, it's not anything in particular. It's not anything that's changed, but it is something that we're trying to explain, which is the broad based positioning that we have for specialty growth. And again, that's what gives us confidence in the continuing growth that we will have.

Operator

Our next question comes from Kevin Caliendo of UBS. Kevin, your line is now open. Please go ahead.

Kevin Caliendo
Kevin Caliendo
Managing Director at UBS Group

Thanks. Thanks for taking my question. I just had a quick first one, which is just trying to understand the math on the EPS guide increase. So 14¢ came from HCA. And can you just or RCA.

Kevin Caliendo
Kevin Caliendo
Managing Director at UBS Group

Excuse me. And can you remind us when you said that there was a better than, you know, sort of the loss of COVID was half, What was the expectation? Like, what what did that actually mean in terms of EPS? And I apologize. I couldn't find it in my notes.

Kevin Caliendo
Kevin Caliendo
Managing Director at UBS Group

And then the the actual the real question, is of the remaining sort of upside to guidance. I know you keep saying better specialty. And, like, are you actually getting better economics anywhere through the portfolio than you had been before? Is it a reflection of your fixed cost and the fact that you've kept your operating expenses ex RCA flat. I'm just trying trying to understand, or is it simply mix?

Kevin Caliendo
Kevin Caliendo
Managing Director at UBS Group

I'm just trying to understand where the upside is coming from. If it's specific to, hey. You know what? We're actually generating better economics on similar drugs. Or if it's our cost base is lower and utilization is higher and we're able to run that through or our overall mix is better such that the margin is is better.

James Cleary
James Cleary
Executive VP & CFO at Cencora

Okay. Great. Thank you for the question. Let me try to address those things. And you're asking about what's impacting the increase in guidance.

James Cleary
James Cleary
Executive VP & CFO at Cencora

And, of course, our increase in EPS guidance was $0.40 at the bottom end of the range and $0.35 at the top end of the range. You asked about COVID, and COVID headwind in the most recent quarter was about half of what we had previously expected. And, you know, we had expected a headwind in the $30,000,000 range, and it was a headwind more like in the $15,000,000 range, and so about half of our expectation. And then you asked a number of questions with regard to, you know, things that are benefiting us. And I would say, you know, mix is one of the things that I see us benefiting from is, you know, we see just the specialty part of our business growing faster, and that's really, benefiting us from a mix standpoint.

James Cleary
James Cleary
Executive VP & CFO at Cencora

We see biosimilar growth, and that's, benefiting us from a mix standpoint. And so, you know, one of the, you know, things that you, you know, see in our guidance is and there are couple different reasons for it, one of which we called out earlier on the call, but is that, you know, we we see operating income growth that's exceeding revenue growth, and some of those mix things and higher margin businesses are benefiting us there. So are, of course, very pleased with the increase in guidance that we've put out today. And so thank you very much for asking about it.

Operator

The last question comes from Erin Wright of Morgan Stanley. Erin, your line is now open. Please go ahead.

Erin Wright
Erin Wright
Analyst at Morgan Stanley

Great. Thanks. I understand you don't have future share buybacks in the guide and the focus on is on deleveraging near term. But just as you think about the rationale behind RCA and other potential MSO type deals, I guess, will the RCA deal help to explain your future focus from an M and A standpoint as we think about, you know, your learning so far there? And then second part of my question, maybe this is somewhat related to Kevin's too, but, like, in terms of the economics, is there any sort of change from a GLP one perspective?

Erin Wright
Erin Wright
Analyst at Morgan Stanley

I mean, you mentioned the dynamic into the second half, which should be just more of a revenue dynamic from my understanding, but any sort of potential in terms of improved economics or, like, presumably oral solids could be more favorable for you as well. But how are you thinking about that segment too? Thanks.

James Cleary
James Cleary
Executive VP & CFO at Cencora

Yeah. And so let me start off with both of those things, MSOs and capital deployment and GLP-1s. We've been very pleased with our entrance into MSOs, both with regard to the investment in One Oncology and the acquisition of RCA. And as you know, we own 35% of One Oncology, but there is a, you know, put call structure with our partners there, which makes it likely, that from a capital deployment standpoint, we would own all of that business at some point in time, which, you know, speaks to, you know, a good deal of our capital deployment over the next few years. And, of course, we've been, you know, as I said, very pleased with our experiences thus far.

James Cleary
James Cleary
Executive VP & CFO at Cencora

And then on, GLP ones, no. There's really no change, from an economic standpoint. It's clearly been a driver of our revenue. And as we've indicated in the past, it is profitable for us. They are profitable for us, but they are minimally profitable for us.

James Cleary
James Cleary
Executive VP & CFO at Cencora

And I think that addresses your questions, Aaron. Thank you.

Operator

We currently have no further questions. So I will hand back to Bob Watch, CEO, for closing remarks.

Robert Mauch
Robert Mauch
President, CEO, COO, Executive VP & Director at Cencora

Thank you very much. Thanks all for joining the call today. We're very proud of the strong performance and guidance raise that we've been able to announce today. And you can count us count on us to continue focusing on building on our strengths, learning and leading from market leaders, driving efficiency through productivity, investing in our talent, data capabilities, and all of that will further differentiate Senkora to biopharma partners and providers. Thank you very much all.

Operator

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

Executives
    • Bennett Murphy
      Bennett Murphy
      Senior Vice President, Head, Investor Relations & Treasury
    • Robert Mauch
      Robert Mauch
      President, CEO, COO, Executive VP & Director
    • James Cleary
      James Cleary
      Executive VP & CFO
Analysts
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Key Takeaways

  • Syncora reported strong Q2 results with 10% revenue growth and 16% adjusted diluted EPS growth, prompting a raise in full-year guidance for adjusted operating income and EPS.
  • The company’s pharmaceutical-centric strategy leverages end-to-end data insights—highlighted by analytics in independent pharmacies and oncology dispensing trends—to enhance patient care and support market access.
  • Syncora is deepening customer partnerships through “active learning,” with teams engaging at industry events and legislative meetings to anticipate provider needs and shape policy on pharmacy access.
  • Specialty medications remain a focus, as Syncora unifies its US and European 3PL networks, integrates the Retina Consultants of America acquisition, and expands services across health systems and physician practices.
  • Segment performance was mixed: the US Healthcare Solutions unit grew 11% (with GLP-1 sales up 36% YoY but down 10% sequentially), while International Healthcare Solutions faced softness in clinical-trial logistics, leading to modestly lowered revenue and profit guidance.
AI Generated. May Contain Errors.
Earnings Conference Call
Cencora Q2 2025
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