Cencora, Inc. (COR) Q3 2025 Earnings Call Transcript

Hello, everyone, and thank you for joining the Sencora Fiscal 2025 Third Quarter Results Call. My name is Lucy, and I'll be coordinating your call today. During the presentation, you can register a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two. It is now my pleasure to hand over to your host, Bennett Murphy, Senior Vice President of Investor Relations and Treasury, to begin. Please go ahead.

Thank you. Good morning, good afternoon, and thank you all for joining us for this conference call to discuss Sancora's fiscal 2025 third quarter results. I am Bennett Murphy, Senior Vice President, Head of Investor Relations and Treasury. Joining me today are Bob Motch, President and CEO, and Jim Cleary, Executive Vice President and CFO. On today's call, we'll be discussing non-GAAP financial measures. Reconciliations of these measures to GAAP are provided in today's press release, which is available on our website at investor.sancora.com. We have 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 our management's current expectations and are subject to uncertainty and change. For our discussion of key risks and assumptions, we refer you to today's press release and our SEC filings, including our most recent 10Q. 10-Core assumes no obligation to update any forward-looking statements, and this call cannot be rebroadcast without the express permission of the company.

You will have 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 thank you bennett hi everyone and thank you for joining sencora's fiscal 2025 third quarter earnings call to start i'd like to thank the over 51 000 sencora team members for the industry-leading expertise and purpose-driven approach they bring to work each day. Their talent and commitment fuel our growth as we continue to strengthen our position as an end-to-end healthcare solutions provider. Through the strength of our strategy, services, and unwavering standards, Sancora's business model is driven by pharmaceutical distribution and complemented by higher margin, high growth, value-added services and solutions for our biopharma and provider customers. In our third quarter, Sincor delivered strong performance with adjusted operating income growth of 21% and adjusted diluted EPS growth of 20%. In recognition of our outperformance during the quarter and year-to-date, both in the U.S. segment and on a consolidated basis, we are pleased to once again raise our fiscal 2025 guidance. Today, I will highlight three growth priorities. First, enhancing patient care and adherence. Through decades of investment in physical and digital infrastructure, our core pharmaceutical distribution services ensure access to life-saving medications. Second, strengthening our specialty leadership. As we focus on future growth, we are differentiating the services and solutions we offer to pharmaceutical manufacturers to support specialty product innovation. And third, leading with market leaders. By prioritizing active learning and active leading, we identify opportunities to create value in collaboration with our leading customer portfolio. I'll begin with how Sancora enhances patient access to pharmaceuticals through our critical role as a leader in pharmaceutical distribution. Our global reach, coupled with our local expertise, ensures patients have access to the medications they need, when and where they need them in an efficient, reliable, and secure manner. We've invested in our distribution capabilities for decades, enhancing our efficiency, security, and ability to handle increasingly complex medications, allowing us to meet the needs of innovation and the increased use of pharmaceuticals. We are responsible for delivering millions of pharmaceutical orders overnight or the same day to hundreds of thousands of healthcare providers we serve, ensuring pharmacists, physicians, veterinarians, and other healthcare providers have access to the medications they require to treat patients. Specifically, we believe our investments over the past decade have made Sencora a market leader in ensuring the supply chain is supported and equipped to comply with the enhanced tracking and visibility requirements of the Drug Supply Chain Security Act, DSCSA, which goes into effect later this year in the United States. The significant investments made over the past several years in support of the DSCSA is yet another clear proof point of the vital role Sancora and our industry play to ensure patients' efficient, safe, and reliable access to medication. Next, Sancora is strengthening our leadership and specialty by enhancing capabilities through RCA. RCA's physician-centric approach in retina is enhancing clinical trial access, supporting specialty product innovation, and improved outcomes for patients. Recently, physician and business leaders across the RCA organization came together at our offices outside Philadelphia for their business and medical leadership board. The time our team spent together demonstrated collective value as we focused on practice management, value creation, and the future of patient care. In addition, retina specialists across RCA had a significant presence at the annual American Society of Retina Specialists meeting, which was oriented around highlighting the rapid innovation in retina treatments. RCA physicians drove discussions in clinical research where they demonstrated clinical excellence, strong clinical trial patient enrollments, and novel therapeutic approaches, including the delivery of an investigational gene therapy. We are proud to support these groundbreaking clinicians. Additionally, Syncora's longstanding leadership and specialty distribution, including deep relationships in the retina market, equips us with specific expertise to support manufacturers' product launches. As a result, we look forward to serving as the specialty distributor for several recently approved retina therapies that are beginning to enter both the U.S. and international markets. Through these partnerships, we are facilitating streamlined market entry, secure storage, and distribution. Innovation is driving specialty pharmaceutical market growth, and Sancora is deepening our leadership and specialty by remaining at the forefront through our portfolio of services and solutions end-to-end from manufacturers to specialty providers. And finally, our focus on active learning and active leading is bolstering relationships with our industry-leading portfolio of customers, furthering our leadership with market leaders. Our teams are prioritizing focused engagement with our partners to deeply understand their business challenges and growth opportunity. The intentional time we spend with our customers is helping inform how we invest and expand our business to best create value. Throughout the quarter, we drove meaningful interactions with our customers and partners across the supply chain. As an example, we hosted our annual Good Neighbor Pharmacy Thought Spot Conference, giving our independent pharmacy customers the opportunity to learn about the latest trends shaping the industry and connect with peers. Our enterprise leadership team recently had the opportunity to visit a Good Neighbor Pharmacy member that is a great representation of a pharmacy that has positioned itself as a differentiated care provider. Community pharmacies are vital, accessible healthcare destinations, providing care tailored to the community they serve. I'm continually inspired by the creativity and tenacity these community pharmacists exhibit, and I'm proud of Syncor's partnership with these market leaders. In closing, and before I hand it over to Jim, as I near the end of my first year as CEO, I'll remind you we are focused on four drivers that will strengthen our execution. Digital transformation, talent and culture, productivity, and prioritizing growth-oriented investments. We're focused on Sancora's digital transformation, using data and advanced analytics to accelerate operational excellence and enhance both the customer and team member experience. We're committed to developing our team members, ensuring Sancor is a place where best-in-class talent come to grow their careers and furthering our purpose-driven culture. We've elevated our concentration on productivity, equipping us to identify ongoing capability and process improvements. And finally, our commitment to leading now and in the future means we prioritize investments in strategic growth-oriented areas, as evidenced by our continued investment in technology and capabilities for our customers, our acquisition of RCA, and our investment with a pathway to full ownership in One Oncology. This also means that we continually evaluate the areas which are less strategically aligned where we should de-emphasize investment. To close, I want to again thank the Sancora team members. It's due to their expertise, efficient execution of our strategy, and dedication to our purpose that Jim and I are able to once again report such strong results. With that, I will turn the call over to Jim for an in-depth review of our third quarter results and our updated fiscal 2025 guidance. Jim?

Thanks, Bob. Good morning and good afternoon, everyone. As a reminder, before I turn to my prepared remarks, my remarks today will focus on our adjusted non-GAAP financial results. For a detailed discussion of our GAAP results, please refer to our earnings press release and presentation. Sancora delivered strong financial performance in our fiscal third quarter, and we are pleased to be raising our full-year fiscal 2025 guidance as we move into the fourth quarter. Our pharmaceutical-centric strategy and positioning in key markets has allowed us to capitalize on favorable industry trends, and our growth-oriented investments to advance our leadership and specialty are driving significant value as evidenced by our adjusted diluted EPS growth of 20 percent. Before reviewing our updated guidance, I'll first turn to a review of our consolidated and segment level third quarter results beginning with revenue. Our consolidated revenue was $80.7 billion, up 9%, driven by revenue growth in both reporting segments. In the U.S. healthcare solutions segment, which makes up the significant majority of our revenue and operating income, we continue to benefit from strong utilization trends and volume growth, including continued growth in GLP-1 products. Excluding sales of GLP-1s, our consolidated revenue growth would have been 8%. Turning now to gross profit, consolidated gross profit was $2.9 billion, up 21%, primarily due to the U.S. healthcare solution segment. Consolidated gross profit margin was 3.55%, an increase of 36 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 1.8 billion dollars up 21 percent driven primarily by the rca acquisition and to support our revenue growth consolidated operating income was 1.1 billion dollars an increase of 21 compared to the prior year quarter due to continued strong 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 third quarter. Net interest expense was $82 million, an increase of $50 million versus the prior year quarter, primarily due to the $3.3 billion in debt raised to finance a portion of the RCA acquisition. Turning now to income taxes, our effective income tax rate was 20.7 percent compared to 21.0 percent in the prior year quarter. Finally, our diluted share count was 195.2 million shares, a two percent decrease compared to the prior year quarter, driven by approximately one billion dollars in opportunistic share repurchases over the past year regarding our cash balance and adjusted free cash flow we ended june with 2.2 billion dollars of cash and year-to-date adjusted free cash flow of approximately 100 million dollars our full year adjusted free cash flow guidance of 2 billion dollars to 3 billion dollars remains unchanged this completes the review of our consolidated results. Now I'll turn to our segment results for the third quarter. U.S. healthcare solution segment revenue was $72.9 billion, up 9%, as the strong pharmaceutical utilization trends continued, including growth in GLP-1s. Across the segment, we saw broad-based revenue growth in all customer classes as it relates to glp1 products in the quarter glp1 sales increased 1.4 billion dollars or 19 percent year over year turning now to operating income u.s healthcare solutions segment operating income increased an outstanding 29 percent to 902 million dollars driven by growth across our distribution businesses and the contribution from RCA. In the quarter, specialty remained a key growth driver in both health systems and specialty physician practices, where we benefited from strong volumes and saw good biosimilar conversion trends. I'll now turn to our international healthcare solution segment. In the quarter, International Healthcare Solutions revenue was $7.8 billion, up approximately 11% on an as-reported basis, and up 9% on a constant currency basis, primarily driven by revenue growth in our European distribution business. International Healthcare Solutions operating income was $156 million, down 13% on an as-reported basis and down 16 percent on a constant currency basis the decline was driven by continued softness for our higher margin global specialty logistics as well as a decline at our consulting business while our global specialty logistics business did have a decline year over year it grew sequentially from the march quarter as our teams have taken steps to optimize the business and drive value for our customers we expect to see the same type of sequential improvement in operating income from the june quarter to the september quarter for this business in the third quarter we also saw solid performance in our 3pl business as our differentiated footprint is resonating with manufacturers that completes the review of our third quarter results i'll now discuss our updated fiscal 2025 guidance expectations. As a reminder, we do not provide forward-looking guidance for certain metrics on a gap basis, so the following information is provided on an adjusted non-gap basis, except with respect to revenue and share count. I will also provide certain guidance metrics on a constant currency basis. I will start with adjusted diluted EPS guidance and then provide detail on the income statement items contributing to the increase. We are raising and narrowing our fiscal 2025 EPS guidance and now expect EPS to be in the range of $15.85 to $16 up from the previous range of $15.70 to $15.95 and representing growth of 15 to 16 percent. The updated guidance reflects the continued strong performance of our U.S. healthcare solutions segment and reflects a lower expected contribution from our international healthcare solutions segment. Moving to revenue, we are narrowing our consolidated revenue guidance to the growth of approximately 9%. At the segment level, we are updating both our U.S. and international healthcare solutions segment revenue growth outlooks. In the U.S., we now expect segment revenue growth to be in the range of 9 to 10 percent, narrowed from our previous range of 9 to 11 percent, and given the trends we have seen and foreshadowed last quarter, we will likely finish in the lower part of that revenue range for the U.S. For the international segment, we now expect our segment revenue growth to be in the range of 6 to 7 percent on an as-reported basis, up from our previous range of 3% to 4% to reflect the weakening of the U.S. dollar relative to several key currencies and sales mix for our European distribution business. On a constant currency basis, we now expect international healthcare solutions segment revenue growth to be in the range of 7% to 8%, up from the previous range of 6% to 8%. Moving to operating income, we are raising and narrowing our expected consolidated operating income growth guidance to be in the range of 15 to 16 percent, up from our previous range of 13.5 to 15.5 percent growth. In the U.S. Healthcare Solutions segment, we now expect operating income growth to be in the range of 20 to 21 percent up from our prior range of 17 and a half to 19 and a half percent the updated guidance reflects our strong performance and execution and expectation for continued strong pharmaceutical utilization trends in our fourth quarter despite the previously disclosed loss of an oncology customer due to its acquisition turning now to the In the international healthcare solutions segment, on an as-reported basis, we now expect operating income to be down approximately 6% compared to our prior expectations for operating income to be down 4% to down 1%. The updated guidance range reflects the pressure we have seen in our higher margin global specialty logistics and consulting businesses. On a constant currency basis, we now expect segment operating income to be down approximately 5%. As we move into the fourth quarter, we have an easier comparison, and with continued sequential improvement from our global specialty logistics business, we expect to see the international healthcare solutions segment operating income return to growth exiting the fiscal year. That concludes our full year guidance update. As we near the end of our fiscal year, I remain inspired by our team members' dedication to being a differentiated and solution-oriented partner for our customers, which continues to result in strong financial results. Sencora continues to drive impressive performance powered by our U.S. healthcare solution segment as we are positioned to capitalize on positive industry trends and our investments in high-growth specialty are generating value. Grounded in our pharmaceutical-centric strategy, Sencora is delivering sustainable growth, investing in our strengths, and is well-positioned to continue driving long-term value for all our stakeholders. Now I will turn the call over to the operator to open the line for questions. Operator?

Thank you. To ask a question, please press star followed by one on your telephone keypad now if you change your mind please press star followed by two when preparing to ask your question please ensure your device is unmuted locally in the interest of time we ask participants to limit their questions to one per person the first question comes from lisa gill of jp morgan your line is now open please go ahead good morning and thanks very much bob and jim congrats on a very strong quarter um first can Can we just start with the U.S. health care segment where we saw strong gross profit, strong operating profit, but a slight trim in the revenue, Jim, that you talked about from a guidance perspective?

Can you talk about what some of the key drivers are there on each side? And then secondly, I just want a clarification on the international business. I'm assuming that some of the things that you talked about from an environmental perspective are around the SMID or mid-sized biotech pharma environment. and you talked about that getting better as we exit the year. Can you maybe just talk a little bit about what you're seeing there as well?

Lisa, thanks so much for the questions. Very much appreciate it. First question had to do with our particularly strong performance in the U.S. business, but revenue growth moderating a bit there. But I'll say, first of all, we were really pleased to be able to increase our adjusted operating income guidance in the U.S. business to a range of 20 to 21 percent because of the excellent performance there. Now, if we look at revenue versus operating income, we did see revenue growth moderating a bit in the U.S. segment. And I'll really call out a few things. One is biosimilars, both Part D and Part B, which, of course, impact top line growth, particularly Part D. Another thing is moderated GLP-1 growth. GLP-1s are still growing, but the growth we saw is 19% in the most recent quarter. So while the growth is still strong, it's decelerating versus prior year. And then a third thing on the top line is a grocery customer that we no longer have that was a very kind of high revenue customer, but a very low margin customer. So those are some of the things that, you know, are impacting revenue growth guidance in the U.S. segment. If we look at operating income results in the most recent quarter and our guidance, you know, it really shows just excellent performance and excellent growth. And I'll just kind of call out things that we've been talking about for quite some time. Broad-based strong performance in the U.S. segment, specialty sales to physician practices and health systems. So some of our higher margin businesses are performing quite well. And then also Part B, biosimilar growth that's, you know, moderating sales growth a bit. It's, you know, kind of very positive from an operating income standpoint. And so those are some of the things that are just causing our operating income growth in the U.S., which is excellent to be faster than our top line growth. And then you were asking about international and just some of the things that we've been seeing there. And, you know, as other players in the market have been calling out, the clinical trial activity this year has been subdued, which has been pressuring some of our businesses in the international segment, particularly our global specialty logistics business and the earlier stage pharma consulting projects that impacts our consulting business. And so the rebound's been slower than expected in the segment and been impacting our global specialty logistics business and our consulting business. And, you know, one thing I did say in my prepared remarks is that the global specialty logistics business, while it's declining year over year, it did grow sequentially in the June quarter versus the March quarter. And we also expect sequential growth in the September quarter versus the June quarter. And so as we look ahead in the segment, we are encouraged by better clinical trial start statistics that we've been seeing the last couple months that other people have been calling out also, and we see that as a positive leading indicator for potential future demand. And so we do expect, of course, to see business performance improve. And as we move into the fourth quarter, we do have an easier comparison. And with the continued sequential improvement from our global specialty logistics business, we expect to see the international healthcare solutions segment operating income to return to growth in the fourth quarter. So thank you very much for those questions, Lisa.

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

Hi guys. Good morning. Congrats on a nice quarter and thanks for the question. You know, you obviously referenced RCA and sort of, you know, how it's been going since you closed on the purchase there. Can you talk about some of how that's tracking versus your expectations and what some of the early customer feedback is? And then on a related note, you know, obviously there's been lots of political commentary around, you know, MFN, and that seems to be a changing landscape. Can you talk about sort of the exposure of businesses like RCA and sort of the general, the medical specialty to that and how we should think about, you know, the potential impact there? Thank you.

Hi, Elizabeth. Thanks very much for the question. I'll start with the question around RCA. And we couldn't be more pleased with where we are so far with the acquisition. I mentioned in the prepared remarks, we had both the clinical and the management leaders from RCA at our offices in the last few weeks. And aside from the work that we got done, which was meaningful in terms of how we'll work together, how integration will progress, how we'll identify new opportunities for growth and value creation. But I think importantly, it's just the cultural fit is really, really strong. And there's an appreciation from the physicians and the practice leaders about the value that Sancora can bring to them in terms of their continued growth. And what that means is more care for patients, which is absolutely terrific. You know, when you think about customer reaction, it's, you know, it's nothing remarkable there, right? So, I mean, the market is adapting to an era where us and our peers are investing in MSOs. As I've said previously, it's important to note that the MSO investments or ownership are analogous to the work that we've done over decades to support community providers, whether they be a community pharmacist or veterinarians or physicians with the wraparound services that we have. And the MSOs are just the next evolution of that. So the market understands that and the customer market understands that. So, you know, I'd say all is well there. I'll take MFN quickly and just, you know, overall policy, Elizabeth, obviously there's a lot of news, you know, a lot of things happening, you know, right now from, you know, IRA implementation to the letters sent to the CEOs. And I would say we continue to believe it's just too early to call, you know, where all this goes i think it's it's clear at this point uh what we all know which is these things take these things take a long time and and we're doing what you would expect that we are we're we're staying very engaged and um as things are happening we're spending time uh in washington dc we're able to really communicate the need to make sure that access to community providers is maintained. So when you get beyond the headlines of drug prices, you know, in many cases that flows to reimbursement to physicians, in particular in the Part B space. So we're spending time making sure that legislators and regulators understand that that most cost-effective side of care is maintained. And somehow that is not an unintended consequence of focus on drug prices. So too early to call. We're very focused there. And thank you very much for the questions.

The next question comes from Michael Czerny of Lear Inc. Partners. Your line is now open. Please go ahead.

Good morning, and thanks for taking the question. I know typically as we get to the end of the year, you're working on your forward year planning. As you sit here today, given the moving pieces we've had into the end of the year between RCA annualizing, between the international sequential upticks, how should we think about moving pieces into next year framed against your long-term 5% to 8% segment growth, 8% to 12% earnings growth? It seems like the street is sitting around 10% EPS growth for next year. I know you still have some contributions from RCA, but how should we think about what could provide a source of upside versus downside, especially given areas of strength like the recent specialty trends? Thank you.

Michael, thank you very much for that question. And of course, as you know, we'll provide comprehensive fiscal 2026 guidance at the end of our fiscal year after we've completed our year-end planning process. And of course, we're really actively involved with our teams in that planning process now. And I will say that Sencora, we've consistently delivered strong financial performance driven by our leading market positions and the continued execution by our team members. And I'd also say that our pharmaceutical-centric foundation and competitive positioning enables us to capitalize on these market trends and to continue to deliver strong results. I'll say that we have confidence and we feel confident about our long-term guidance that contemplates organic operating income growth of 5% to 8% and EPS growth of 8% to 12% including capital deployment. We will benefit from RCA as we lap the close of the acquisition that occurred in our fiscal second quarter. So we had three quarters of RCA in fiscal year 25. We'll have four quarters of RCA in fiscal year 26. As we also look at moving pieces, we'll have three quarters of impact due to the loss of the previously disclosed oncology customer due to M&A activity that was acquired by a peer. And so, we have a one-quarter impact from that in fiscal year 25, the September quarter, and we'll have four-quarters impact from that in fiscal year 26. Now, other key items that'll move us within the range include, you know, changes in utilization And of course, we've seen very strong utilization trends, you know, and those include things like growth and specialty products, sales to physician practices and health systems. Other things that will impact our guidance, of course, include timing of capital deployment, for instance, timing of share repurchases. And as you said, you know, another thing that will impact guidance is we'll assume better international growth given the soft fiscal year. 25. So those are some of the moving pieces. But as I said before, we have confidence in our long-term guidance of 5% to 8% organic operating income growth and EPS growth of 8% to 12%. Thank you for the question.

The next question comes from Stephen Baxter of Wells Fargo. Your line is now open. Please go ahead.

Hi, thank you. Just a numbers question here. I was hoping that you could better help us understand the acceleration in U.S. healthcare earnings growth. I believe it was 23% last quarter or more like 29% this quarter. I'm guessing part of it is that the year-over-year contribution from RCA is greater in the third quarter, but it does feel like the acceleration goes beyond just that. I was hoping to see if there's any other adjustments or kind of drivers in the acceleration you can maybe speak to. Thank you.

Yeah. Yeah. Thanks. Appreciate the question. And, you know, I will say just it was a it was a really strong quarter. And of course, you know, RCA had an impact on the growth rate and that we didn't have it at this time last year. But I will say that if we look at, you know, kind of beating expectations and those sorts of things, it was really more driven by just the strength of the core business and strength of what we saw in specialty market. And as we talked about many times, utilization trends and sales of specialty products to physician practices and health systems. So our core business just performed very strong in the U.S. segment, really good expectation, excuse me, really good execution by our team members and just very strong, very strong broad-based performance. You know, one probably other thing if we look at you know kind of relative comps is um you know less of a covid headwind compared to other points points in time but um overall the um you know the uh 29 percent um adjusted operating income growth in the u.s segment during the quarter just you know just reflects some outstanding execution by our team thank you the next question comes from eric percha of Nefron Research.

Your line is now open. Please go ahead.

Thank you. Bob, I appreciate your commentary. That was a little early for you to go deep on MSN, but I'm wondering if the tariff topic is a little bit different. You've had three months to process the full spectrum of potential policies. Any thoughts on potential impact across brand versus generic, any change to your approach to inventory or sourcing? And do you think we may be heading into a naturally more inflationary environment?

You know, I'll start, Eric. Thanks a lot for the question. And of course, we continue to monitor the evolutions around tariffs in the pharmaceutical market. And as you can imagine, we have teams in place analyzing the impacts of the tariffs on our business and on the supply chain importantly as it relates to our business we've not called out any material impacts as a result of tariffs and as you know we're pharmaceutical centric and manufacturers are the importer of record for pharmaceuticals and so you know the main focus is ensuring patients have access to life-saving medications and we're supporting our upstream and downstream partners as they navigate any uncertainty and we'll continue to advocate on behalf of our customers to ensure they receive adequate reimbursement for the services that they provide. And of course, we're evaluating things and many announcements that come out as to whether or not they impact branded pharmaceuticals versus generic pharmaceuticals. But from a financial standpoint, we haven't called out, you know, any material impacts on our business as a result of tariffs. And I'll turn it over to Bob.

Yeah. Thanks, Jim. Eric, thanks for the question. You know, I think, you know, the headline, you know, is, you know, we're not changing our sourcing practices based on this. We have confidence in the supply chain and we'll continue to work through that. But I do think, you know, the watch out is, you know, there is a difference between the supply chains for brands and generics. And I think what we are being careful, what we're carefully monitoring is the risk of shortages and then therefore a disruption to patient access. So that's, again, an unintended consequence that would not be positive. So, you know, we're thinking about that. We're analyzing it. as Jim said, we're also, you know, educating in Washington about that. Again, it's one of the roles that we play in Washington is to make sure that ideas that are put forward are thought all the way through. We are, you know, one of the very few healthcare players that really have end-to-end visibility of the supply chain. So we can play an education role. And as you think about that, you know, it's the patient access impact of shortages that we're doing everything thing that we can to mitigate.

The next question comes from Charles Rhee of TD Cohen. Your line is now open. Please go ahead.

Yeah, thanks for taking the question. I wanted to just go back to international and just trying to get a sense when you're looking, obviously, understanding that the comms get a little easier and it sounds like sequentially some of the business like especially logistics was improving, what is the lead time generally for projects that come in for you? Is that like a year ahead of time? How far ahead are projects booked for the various business there, particularly maybe in consulting as well? Or is it kind of a short cycle type of business or is it tends to be longer?

And just trying to get a sense on what kind of visibility forward you have in terms of uh of demand yeah thanks thanks charles uh you know we have uh you know as you'd expect you know visibility in terms of bookings uh and then you know our ability uh to pull through and then the the sales cycle is in in your question as well and i would just say it's variable i mean the size of the project the market uh the type of work that it So there's not a simple answer to that, certainly, but you can be assured that we do have good visibility in terms of where we're tracking in terms of future growth. Our teams are very focused on execution on the sales side, and we're also making sure that we're optimizing the services that we have. So as the market begins to turn more positively, that we're going to be even better positioned to take advantage of that. Thanks for the question.

The next question comes from Kevin Caliendo of UBS. Your line is now open. Please go ahead.

Thanks for taking my question. I wanted to expand a little bit on the headwinds and tailwinds for 26. Jim, I appreciate the details that you gave us, but the reality is your growth in the U.S. segment, especially, has been so much above your LRP, and you're talking about incremental things around RCA one quarter and the three quarters loss of FCS. And I understand that. But I guess, is there anything fundamental that you can see that would bring your growth rate down closer to your LRP, where it's been, you know, exceeding it now for almost two years? Fantastic performance. I'm just wondering, is there anything in biosimilars? Is there, Or is GLP-1 slowdown something that could bring you back to within that range, as you sort of described within the range earlier?

Yeah, thank you very much for the question. And thank you for your commentary on our results that we've been having also. That's very much appreciated. Let me just kind of answer one very specific thing that you said, and then I'll get into a broader answer. kind of slowdown in growth in GLP-1s really wouldn't have a major impact on our guidance because, as we've said for a long time, GLP-1s add a lot to top-line growth and they are profitable for us, but they're minimally profitable for us. And as we said during the second quarter earnings call we'll say the same thing here that as we look at things like you know the um the remainder of the year and that next year we you know certainly expect to see um good growth but we aren't assuming you know the same level of out performance that we've had in um the um the uh recent um paths past and so you know we we do have a lot of confidence in our long-term guidance we have confidence in the momentum that we have and what that is, you know, kind of translating in in terms of achieving the long-term guidance. But, you know, we probably wouldn't assume the same level of rapid growth that we've had in the recent past, especially as we begin to comp against periods of exceptional growth that we've had. But having said that, I'll say, you know, we're, you know, very confident in our long-term guidance ranges and we'll, you know, continuing, we'll continue to evaluate them annually. Thank you for the question.

The next question comes from George Hill of Deutsche Bank. Your line is now open. Please go ahead.

Yeah. Good morning, guys, and thanks for taking the question. Bob and Jim, I'm wondering if you could comment a little bit on the competitive environment and specialty distribution, especially in the Part B space. One of your large customers last week talked about trying to rapidly expand their business in this space. So maybe talk about how you think about market segmentation and where you guys kind of want to be strong and where you might have less of a competitive advantage.

Thank you. Yeah, thanks. Thanks, George. You know, we are, you know, focused in our areas of strength, which align very well with our strategy. So I wouldn't call out anything necessarily changing about the market. You know, we are a leader in the market, you know, in particular in retina and oncology, and we're very focused on making sure that we execute well there for the near term and the long term, and also, you know, we're continuing to evaluate what future opportunities that there are, but as we sit here now, I wouldn't call it anything changing. We're happy with our positioning. We're very happy with the investments that we've made, both in RCA and in one oncology uh as well as in our internal capabilities by the way i don't want to i don't want to leave that out right when you talk about you know kind of the future of specialty distribution and uh you know how things are evolving you know i do want to probably remake the point that i made in a slightly different context in in my prepared remarks but we're we're continually investing uh in our in our capabilities uh across our network both digital capabilities as well as uh as physical infrastructure. So we feel good about being able to continue to grow, meet the needs of our customers, both manufacturer customers as well as provider customers. Thanks for the question, George.

The next question comes from Erin Wright of Morgan Stanley. Your line is now open. Please go ahead.

Thanks for taking my question, Bob. Another thing from your prepared remarks, you mentioned that you're continually evaluating, I guess, areas that are less strategically aligned and where you should de-emphasize investments. I guess maybe I'm reading too much into the comment, but how are you thinking about, you know, commitments to, you know, the international business, the different components of that business? I'll throw in animal health as well in your commitment to that business, but how are these all fitting now with the core? Is there the clear synergy that, you know, you originally thought and where there may be kind of, I guess, less so as these businesses have evolved?

Yeah, thanks very much for the question, Aaron. Yeah, what I'm really saying here, and there's not, you know, reading between the lines, what I'm trying to clearly say is that we're applying, you know, rigorous discipline to our entire portfolio of services and making sure that they are the right strategic fit. And then as we go through that, that will help us identify how to best deploy our resources, whether that's CapEx or OpEx or talent, that we make sure that we are investing in a differentiated way in the areas that are going to grow for us and are aligned with our strategy and that we're deprioritizing investment in areas that we see as less aligned. Thanks for the question, Aaron.

The next question comes from Stephen Valliquette of Mizuho Securities. Your line is now open. Please go ahead.

Yeah, thanks. Good morning. So just based on our channel checks, it seems that brand drug manufacturers put in a bigger wave of AWP list price increases at mid-25, really relative to any other mid-year period in almost a decade, it seems.

So I'm just wondering if you were seeing this as well, even though I know you've commented that you know brand inflation has less beneficial impact to european now today versus history but it's curious if you're really seeing the the activity thanks yeah thank you very much for the question um uh what i'll say is that um what we saw in terms of branded price appreciation was you know about in line with our expectations may have been a little bit ahead of our expectations certainly not something big enough for us to call out um but uh you know so i just say it was generally in line with our expectations or a little bit ahead. As we've talked about in the past, it has less of an impact on our overall P&L than it did at one point in time. As we've rebalanced contracts and making sure that we make a fair profit across the board on brand, specialty and generic products. Thanks. Appreciate the question.

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

Sorry about that. Congrats on the strong quarter. Thanks for taking the question. Really just a couple of policy questions for you guys. The proposed hospital outpatient perspective rule seeks to end the pricing advantage that hospital-owned off-campus outpatient facilities have in drug administration. I'm curious how that may impact the competitive environment and growth for your MSO assets. And separately, I'm also curious if there are any tax benefits you're realizing from the OBBBA, and if that's having any meaningful benefit to your free cash flow in the near term. Thanks.

Yeah, I'll start with the second part of that question that the new tax bill moving forward will have some incremental benefits for us. So as we look at our effective tax rate moving forward as a global company, there's always a lot of things that impact our consolidated effective tax rate. But the new tax bill is incrementally beneficial for us as it is for many companies. Thank you for that question.

The final question is from Brian Tranquillet of Jefferies. Your line is now open. Please go ahead.

Hey, good morning. It's Jax Lebanon for Brian. Thanks for taking the question. Just want to double click on the comment around GLP-1s and appreciate the commentary that a slowdown there, you know, shouldn't be particularly impactful when you think about consolidated earnings or U.S. healthcare earnings, but maybe more broadly as you cast forward, just thinking about what are the moving pieces that need to happen as we see more competition in that category for earnings to expand there or for margins to expand there? Is it something that's just not really possible, or do you think over time as as we get more and more competition and in that, that that's something that you can achieve. Thanks.

Yeah, thank you very much for the question. And as we've, you know, consistently said for quite some time, GLP-1's really been a driver of top line growth and they are profitable for us, but they are minimally profitable for us. You know, at some point in time, as there are more competitors on the market. Maybe it will move to a more normalized fee for service and they will become more profitable for us at some point in time. But it's certainly not. We're doing, for instance, our fiscal year 26 planning. It's not something that we're anticipating in our fiscal year 26 plan. We're expecting them to remain profitable, but be minimally profitable for us and kind of that type of time horizon. Thank you very much for the question.

We currently have no further the questions, so I'll hand back to Bob for closing remarks.

Thanks, everyone, for your time and interest in Sancora. We're continuing to deliver strong results powered by our strength and specialty, our leading customer portfolio, and our ability to enhance patient care. I want to, again, thank our incredible team members at Sancora who every day are executing at a very high level, bringing their passion and expertise to our customers, both upstream to manufacturers and downstream to providers and delivering our purpose every day. Thank you, everyone.

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