Good morning, everyone. My mic's on? Okay, excellent. You know, thank you for joining us bright and early. We're happy to be kicking off day two of the conference here with Cardinal Health. Representing the company to my right is Aaron Alton, who's the Chief Financial Officer of the company, and to his right, Matheson, 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 Glenn 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 over to Matt. He just wants to read a quick disclaimer, and then we'll jump right into the Q&A.

Thanks for hosting us, Glenn. 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 implemented. applied 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. There's a little feedback on this. Great. All right, I'm trying not to move. Okay, here we go. You know, so I thought a good place to start up the conversation would be talking about fiscal 2Q. You know, we recently launched on the stock in december it felt like there was some upside to the estimates to us and you know i think in january at at one of the competitor conferences i think you raised guidance and then on february again guidance sort of got bumped up again so maybe if you could just sort of level set us and and talk about the first half of fiscal 26 how things played out maybe what's you know come in a little bit better than 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'd be a good place to start, and then we can sort of dive right into the questions. Well, good morning, Glenn. 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 three things. Strong demand, great execution, and continued investment against both the short-term, medium-term, and long-term objectives of the company. Let me highlight a couple of parts of that. Of course, our pharma business is the largest of our businesses, 19% revenue growth to 29% profit growth. Profit growth really driven by the contributions from our specialty business, our brand business, the MSOs, strong volumes across the world, strong volumes, greater demand than we had anticipated. The business is actually known as Other, which is, of course, the aggregation of three parts of our business, Nuclear Precision Health, At Home, and OptiFreight, three 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 five 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, all 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're investing more than we ever have before this year, last year, the year before that as well. And that's coming in the distribution nodes. 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 of this year, but next year, three or five years out. We're making those investments now as everything's 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 three of the businesses, pharma, as well as GMPD, as well as, you know, 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 $7.50, we updated our share number guide as well. You know, 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 guide. Okay, excellent. You know,

so let's start by diving into the pharma and specialty distribution business. You know, 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, you know, if we go back a little over a year ago, you did Integrated Oncology Network, and then the GI Alliance, and then, you know, ultimately more recently, Solaris. And I guess, you know, what I'm trying to figure out is getting 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 a creative basis to the overall enterprise, M&A for our year for the growth for pharma is about eight percentage points of the profit growth, which means that our underlying core business, including our core specialty business, ex-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 more about those wherever you like. But we are seeing good news across the entire pharma portfolio.

And, you know, 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 two quarters?

So from a timing perspective, we guided at the start of the year that first half profit growth would be higher than second half profit growth, really driven by a couple 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 that carry on effect of that in the first half of this year. 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 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, while I'm not going to call it any one specific investment, a part of how we have provided the profit growth for Pharma for the Backup 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 know, you bought a bunch of different types of businesses, right?

And, you know, 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 two competitors. And I wonder if you can maybe opine on that and maybe, you know, put it in perspective for us. And then, you know, how do you think about the appetite to continue to do deals at the pace with which you've done them, you know, the past couple of years?

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 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 three years ago at our Investor Day that we were focused more on the otherologies, not oncology per se, but the rheumatology, gastroenterology, neurology, neurology, and nephrology, areas like that where Cardinal has historically been one of the strongest, if not the strongest, traditional distributor in GPO. And that's where we really started our focus, while importantly, knowing that we need to be relevant in oncology. So you've also seen this do acquisitions in the oncology space. And so that is why we started our M&A journey two and a half 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 purposefully 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 and 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's 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 and the ways that we can create value for the community physician. Because I want to emphasize the other thing that we think we're doing different is we are starting not with what can they do for Cardinal. We're starting with what can Cardinal do for the community physician. 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 healthcare costs, you know, 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 in 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. 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.

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 condition, 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?

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. 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 restructuring, 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. 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.

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 five years, he's expecting $200 to $300 billion of patent expirations in terms of total dollars amount over the next five years. And that sort of compares to about $100 billion over the last five. 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, the sort of complex generics. Can you maybe talk about, you know, 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, you know, 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 additional thoughts. First is, 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 number one source of generic products around the world, and that that means that Cardinal has first access and best costs in the generic space. And that is saying something, you know, 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 about 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 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 five-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, And 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?

Yeah, 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. Consistent market dynamics for us is the code words 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 unit in that way. And as long as I've been a cardinal, every quarter it's been consistent market dynamics and growing volume. And so 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.

Okay. Maybe just, you know, segue in that conversation to the branded side. One of the concerns that we got, you know, 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, you know, 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's 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 WAC or other choices that would be made. And, you know, there was some skepticism on that, but the good news is we actually put it in the headline of a 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 in 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. It would require a fair amount of investment to replicate what we and Sincora 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 renegotiate 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, you know, 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 an essential part of the American healthcare ecosystem. We only got three

or four 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, Optifrate, Nuclear, this is 20% of the operating profit of this company now and growing at an exorbitant rate. And, you know, Well, some of that has been fueled by M&A, but you've seen 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 thermostics capabilities within the nuclear business or investing in the technology and the capabilities within OptiPrate 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, 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 five discrete businesses or the number of businesses below them, but how do we optimize them in a way where they are supporting each other and offering us more opportunities for value creation across the portfolio.

Can we talk about Global Medical for a second? I mean, the company's 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 G&PD business over the course of the last couple of years. If you go back to our investor day three years ago, what we commented was, as we think about sources of shareholder value creation, 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 – well, a couple of years of good results against that plan, a couple of particular quarters. The fact that we raised guidance for GMP this quarter, I hope, isn't lost on anyone. And so they continue to find ways to take costs out. We've certainly had some good results from a Cardinal Grant perspective. and we continue to lean in to drive success there.

Okay, a couple of financial questions. The leverage on the business, 3.2 times. How comfortable are you? Do you feel like that's sort of the right number, you know, given all the M&A that we've seen? And how active is the company sort of searching for M&A activities, you know, at the current time? And just given, you know, 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?

Yeah, 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, 650 million dollars organically in CapEx in 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. So as you called out, we've completed our share repurchase, baseline share repurchase, $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 three to three and a half billion of just free cash 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 in is lower multiple, tuck in, highly accretive acquisitions in that space. And we can't forget other in the three businesses there or other parts of the portfolio where we will lead in support. And if we don't see those deals, then we will do what we said to them, which is returning incremental capital assurance.

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 two.

We always have that option to do that. And it's part of the discipline we're applying through 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.

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 healthcare industry, as Jason would say, the beginning, the middle, and the end, increasingly across our portfolio, we have high hopes for Cardinal Health. Aaron Alton, that's from Cardinal Health. We'll leave it there. Thank you guys very much.