Cencora, Inc. (COR) September 2026 Conference Transcript

I'm Eric Coldwell. It's great to have everyone here with us. We'll fix the mic. We'll have good questions. Bob Motch, CEO, Eva Barato. Nice to have you with us as CFO. Thank you. This is, what, two months now?

A little more than two months. Not quite three.

I think you've, we didn't officially get your first conference, but pretty close, right?

Pretty close.

Pretty close. We're going to go straight into Q&A again. As always, send questions up to the iPad if you have any. I'll try to keep an eye on those. Otherwise, I think the team knows I have a very full list. Overkill is normal. I'm going to dispense with normal formalities. I'm going to skip the CEO and go straight over to the CFO since you're new to the company, relatively new to the company. I'd love to, first off, just set the stage for us. Three decades in healthcare, CFO of CVS years ago, you've made a transition to more of the retail side for a few years. You're back in health care. How dare you? Is your mind straight coming back to health care? It's been such a crazy world over here. What got you excited about Syncora?

So my mind is absolutely straight, Eric. I just want to start there. And listen, it's great to be here with you, but also great to be back in health care, and I can genuinely say I missed it, right? You referenced 30 years across the health care ecosystem, starting back in the days with pharma at Merck to CVS Health in a PBM, and I love the industry. I love the support of patients and what we do from a purpose perspective. You know, my ties to Sincora go back quite a long time, something you may not, something you may not know during my time at Merck I worked at Medco for a number of years and and Medco was at that time one of Sencor's largest customers and I the deep partnership that existed is something that has resonated with me through the year so when the opportunity came up to meet with Bob the extended leadership team it felt like the right opportunity for me where I could bring value with my experience, but also learn another facet of a great business, right? And the strategy that Bob has put together is so clear. The importance of the role that we'll play in the pharmaceutical space just excites me every day.

I know you're a few years removed, but you had to have some bigger questions about the industry, the space, the world we live in, IRA, MFN, 340B, whatever the topic du jour is in the moment, what were the things, if there were items that kept you up at night or said, maybe I want to rethink this, what would those have been?

I would say nothing really kept me up at night, right? This is a big job, a big role. Wanted to make sure I was all in it, right? Which I am. The regulatory landscape was not something that I continued to track over the three years when I left the sector. So just learning the dynamics, how I can support Sincor and help the team continue to drive the business during ever-changing, constant changing time is where I would go to.

Erica, I would add, so Eva joined the beginning of, well, actually the very end of June. And we had earnings on the first week of August. So like the focus and the determination to, you know, take all of our amazing experience that she already had, but then also learn the nuances of our industry and of Sancora, and then just absolutely did an amazing job on the earnings call, which was an important one for us. You know, We had to really demonstrate the momentum that we had committed to in our third quarter and throughout the year.

And it was fun to watch. I suspect Jim left you in a pretty good spot. I mean, good, robust finance team. Company's been at it a while. Things have been executing pretty well. You've seen a lot of businesses. Is there anything that surprised you so far in terms of whether it be process, how the company handles the street, guidance, transparency, is there anything that one way or the other has surprised you or you say, no, I could actually add something here and maybe make a change as opposed to just carrying the baton on what's already a pretty well-oiled machine?

I think there is one thing that's surprised. So to your point, Jim did leave me in very good hands. The finance team, the depth of talent, Jim's generosity with his time during our transition, we've really built quite a relationship, which I really appreciate Jim's support during this transition. I think I might have underappreciated, I'm going to say in a good way, I underappreciated the breadth of services beyond the logistics and the distribution, the services that we're providing to our hospital accounts, to our corporate partners, to our other pharmacy partners, right?

We think about each of these how can we enable them to grow because we'll be successful when when they're successful you had them you had a lot of health care experience you had retail pharmacy PBM you had a sliver a touch of I would say what two years three years with insurance help how long was that about a couple years yeah about a couple of years when you think and again you're a couple of years removed from healthcare you're a few years removed but when you think about what this industry does which I think your last response resonates with me because I always when somebody says talk to me about the distributors I cringe every time because you do so much more than just distribution but what do you have any sense on as a past customer do you have any sense on areas where this industry in general is missing out? Maybe not telling the whole story, not getting the full value proposition across. Do you see things that vertically integrated MCO, PBM, pharmacy companies out there, the big three, the next two or three, do you see things that they're doing that, hey, if we don't do XYZ, we could fall behind to a vertically integrating industry? I'll leave it with that, I'll leave you alone for a minute and come back to Bob. But I want to hit on that if you have any perspective.

I'll give you two perspectives, Eric. The first is, you know, Bob's been very clear on the strategy, right? And the importance of the specialty distribution, the higher growth part of the sector, as well as the acquisition of the MSOs. And you used the word integration, right? And I'll go back. Integration is important where it can create value and differentiate, but don't mess up the crown jewels where it's truly differentiated. And I used to say, don't get bogged down by the mothership on certain things. So balancing where you choose to integrate versus where you enable these companies to flourish and grow. So I think that's the key area that I would highlight.

That's great. Bob, you're coming off of a couple of quarters here that were, I wouldn't say tale of two cities, but the market response was quite a bit different from March quarter to June quarter. And step back, I think maybe a victim of your own success, you still actually had a pretty darn good first quarter or March quarter, if we about it that way but it wasn't quite up to what the street was expecting at the time there were some other noise in the in the channel June looked felt smelt walked talked a lot better and and you guided to a really strong fiscal fourth quarter September quarter some of this might be things that are just not recurring whether it be higher OPEX a year ago that you've talked about whether it be some of your customers being acquired and you needed to get through the annualization process, but I'm asking everybody in the space, and I know it's a bit of a beaten drum in terms of the street asking you about sustainable items versus more transitory items, but talk to us at a high level about what the next several years look like. I know the fourth quarter's good. Sounds like fiscal 27's going to be a pretty good year for the space, maybe not quite the upside momentum of last year for everybody, but talk to us about what's, you know, structural, secular versus maybe more cyclical or company specific in terms of these drivers that have led to the strong performance?

Yeah. Thanks, Eric. Thanks for the question. Thanks for having us. It's terrific to have an opportunity to talk about all of these things where Syncor really is strong. And I will, I'll take it up a level and talk about the real drivers of the business, which at the end of the day, you know, we're executing very, very well. But what is the driver of that growth is really the positioning that we have within the specialty pharmaceutical market. And you have this amazing innovation that's happening in pharma. It's absolutely incredible. Whether you look at the pipeline or whether you look at new launches, even when you look at biosimilars, I mean, it's amazing what is happening there. And then you match that with the demographics. So we are all getting older, whether we like it or not. And we have the opportunity to utilize healthcare services. Pharmaceuticals are the most cost-effective healthcare intervention. And then when you match that with the two decades, two plus decades of investment that Sancora has made in the specialty space, we sit in a position now, we tend to focus on the MSOs because those acquisitions are recent. And I think whether you're new to the company or new to the space, and Eric, you know this well, we've been investing, competing, winning in the specialty space for a very long period of time. So whether that was a specialty distribution, businesses early on, the GPO came after that, and the MSO services are really the next natural extension of that. And everything that we do is intended to provide services to the pharmaceutical manufacturer to help to get that product to the market and to the patients and for the providers to really work in the background, right? We want to be as invisible as we possibly can with the services that we provide so that they can care for patients. And as those patients come in, they need the specialty products. We're well positioned for that. And that's really, whether you're talking about the third and fourth quarter or as we go forward, that's the driver. And that's what's durable beyond anything that might be a put or a take in a short period of time.

Let's jump off that specialty MSO. Both came up in that response. And, you know, clearly this has been a pretty big transformation in what the industry in total went after over the last roughly two years, two to two and a half years, when you and one of your competitors really started to step on the gas. McKesson obviously had been here for a long time. But they, too, have been more acquisitive and more focused on building out their MSO. We went out on a little bit of a limb. I drove Bennett and Melissa crazy for a couple of months with probably the most phone calls and emails I've ever given them. But we put out a deep dive, our best guess, on what your MSO looked like. And I won't bore everyone with the details. But in that report, I forecast that based on the growth rates and the momentum that you had, we thought that perhaps that business could get to, you know, perhaps in the zip code of 10% double-digit contribution to profitability in fiscal 27. You know, the great thing about writing a report is you expose yourself to the street and you never really find out if you're right unless the management team says you're right or you're wrong. I guess I'm curious you had a chance to look at that perhaps how far off are we and if you are getting towards double digit profitability percent of profitability is the business managed in such a way that this could actually become a carve out segment a reportable segment as we go into the next year the next two years as it hits that at least threshold of materiality on percent it also depends on how you're running it and how you're managing it if you're going to break it out but And I'm curious, is this something that could become broken out over time?

Yeah, Eric, I'll give you a couple of thoughts, and then I will quickly hand it to Eva for anything 27 or reportable segments. But the background, the thesis that you're talking about is in line with how we see things. And we do believe that the MSO part of our business will perform well, will be an important part of our business. We've said often one of the things that we love about the MSO is that it's the next natural extension. Its purpose is to help the physicians care for patients. That's right in line with our purpose. We stay far, far away from any clinical decision-making, and they have complete clinical autonomy to do that. And it's also a profitable and growing business on its own, which is terrific. So you do see this driver, and you see Mix improving with our business over time. Again, that's the market is moving in that direction, and then also how well we're positioned there. Either you want to add anything?

Eric, can I go to your point on disclosures? I'm going to make it a little more broad than a segment around disclosures. You know, you've heard Bob talk a lot about here, right, the importance of specialty, the MSO acquisition. So as that part of the business becomes a larger part of our business, a faster growing part of our business, You know, we recognize the importance of thinking through our disclosures for our investors. You know, the transparency, A, unlocks greater appreciation, I think, for the growth and the growth opportunities instills confidence. We've been deploying capital against this, right, so also being more transparent there. So we're going to be thoughtful about that, the right metrics, the right mechanism to do that. But as we head into 2027, it's something that's really top of mind for us.

And, you know, sort of a segue somewhat correlated, you could say it's not bad luck to me. It looked like bad luck that your two competitors did a number of acquisitions of MSOs where the underlying practices were your distribution customers and or GPO customers as well, really just a confluence of events in a short period of time that had some impacts, both optical and, I guess, real. Those transitions are annualizing in a pretty linear fashion from last quarter over the next couple of quarters. Is there anything left in the market that you see in terms of renewals? One of your competitors recently came out and said it sees a consistent customer base over the next year. I'm not really hearing in the next, you know, but for your two competitors, one big shared contract, I'm not really hearing about a lot of churn in the market or other activity. It seems like some of the MSO acquisition activity has slowed down now as companies digest what they've done. You're still waiting on Ice Health. But other than that, is there a reason not to think that there's going to be more stability in the market and optically for you? I know tough comps against the core business last year, but annualizing the distribution transition of a GIA ION Solaris FC, I mean, it feels like things are going to be calmer sailing, if you will, a little smoother. Is that a fair assessment?

Yeah, I'll hit a few pieces of that, Eric, and a follow-up if I don't get renewed. I mean, one part of what you're describing, which is not necessarily the flow-through of the economics, but it's really strategic discipline. And one of the things that we've been really focused on the last couple of years is focusing the portfolio. So that's deploying capital into the MSOs, but into what we would say are the right MSOs, right? So that's going to be retina and oncology, pharmaceutical-centric, and also deprioritizing some businesses. So, you know, when you're looking at a customer that's in the market, that doesn't necessarily fit your strategic thesis from an MSO standpoint. you'd love to have them as a customer, as a distribution customer, but don't fit your strategic thesis. It takes some discipline to, you know, sit on the sideline and allow that to happen. So I'm proud of the team in that we were able to do that. And yeah, it takes some time to transition, but over the medium and longer term, we think that will pay dividends. The second point in there, which aligns with where you're going, is we will continue, I'll just speak for us, Sanquora will continue to add to our MSOs, but they're small additions. So there are small groups of physicians, there are individual physicians coming in, we're being very successful in both RCA and in one oncology, but they're not things that get headlines. And they're not they're out on the tail. They're the independent physicians or independent practices that are not part of an MSO that are choosing to join our MSO. So it's not really competition between between our peers, which which is good. And then the you know, the third piece is which is kind of the overall market stability. And as you know, I've been in this industry for for a very long time and the market continues to be appropriately competitive. but stable. And we still don't see a lot of movement around it, and I don't expect that would change.

That's great. I'm a lifetime R&D services junkie. I covered CROs for as long as you've been in healthcare, I think. And one of your competitors just made a bigger, more direct bite into the space with an acquisition of a mid-tier, let's call it a mid-tier, hybrid CRO-CSO, you have a lot of businesses in and around R&D support. If you want to broadly call it biopharma services, it's a different angle on biopharma services, but you're a huge player in clinical trial logistics management. You still have some pieces left of the Pharmalex acquisition. your MSOs have SMO, maybe some CRO hybrid businesses within them. And research has been highlighted repeatedly by you and your peers as a big growth opportunity. It's a big market. It's a recovering market. Things have been getting better in that space over the last 12 plus months after a bit of a downturn. But long haul, it's a business that has over decades become a much larger marketplace and opportunity. To that end, you talked about sitting some things out. Would you sit out going down the path of maybe getting even closer to R&D through M&A? Or would all of your investment that you're talking about and your growth that you're talking about, taking R&D, taking what you have in one of your MSO platforms, translating it maybe to the other one a bit more, or should we think that, you know, no Syncora actually could be in the market at some point for an actual asset to complete the spectrum of R&D services?

Yeah, let me start there with how the clinical trial support services that we have, which you described so accurately, connect to our pharmaceutical-centric specialty focus. So we do believe it's important for us to support clinical trials and clinical research. We have best-in-class global clinical logistics. So for any of you who don't know, if there's a clinical trial going on anywhere in the world, cell therapies, gene therapies, other complex therapies that require very advanced transport of products or tissues, we're very likely involved in that trial. And that's our World Courier business, which is best in class. And that, given the R&D portfolios, that's very likely going to be driving the specialty strategy. Secondly, we have these physician networks now in the MSOs. And we talked a lot about the capabilities that RCA has in terms of supporting clinical trials. And we think that's very important for patient care, for patient access. It helps recruit physicians. It's also a good business within the MSOs. Having said all of that, we like the way we're playing in this space. And said another way, I don't think that if we owned a CRO that we would be a better site management organization or that we would be a better global logistics provider. So the spaces that we play are spaces that we feel like we can lead. and don't see the need to be a CRO. We want to support the CROs and we want to support the manufacturers in making sure that they can get their trials done, get patients accrued into those trials. And we think that's the right place for us right now.

Are there adjacencies that are of interest on the M&A side, not just the little tuck-in MSO, even one physician at a time or one small practice at a time? Are there areas that you are particularly interested in to complete the biopharma service spectrum of what you do today?

Yeah, I'll start. Maybe you can kind of hit capital deployment as part of that. So, Eric, we have pretty significantly deployed capital to our primary focus area, and investing in the MSOs over the past few years was exactly the right thing for us to do for our business in the short, medium, and long term. frankly, we're going to stay focused there. So that's not a priority for us right now. So the priority for us is continuing to tuck in with the MSOs. That's where the growth opportunities are. Now, we're going to be open-minded and active, but having another adjacency is not on the priority list right now. Do you want to add anything?

Sure. Just broadly on capital deployment, Eric, what I would say is there are no changes to our priorities, right? Number one, of course, investing in the business and growing the business. Bob's been pretty clear here today around M&A, right? We'll focus on the tuck-ins, the things to enhance our portfolio, opportunistic share repurchase, which we did last quarter. The team did it in a really smart way. And finally, I'd say growing our dividend consistent with earnings growth while maintaining our strong balance sheet, right? We generate a significant amount of cash and we'll look to deploy it in the optimal way to drive TSR.

Not my favorite topic because there's only so much you can say, but it is very relevant from a Wall Street stock picking perspective. Recently, headlines hit that your largest and long-term partner, Walgreens, was shifting some distribution. I think this topic has been absolutely explored. You've made some other comments, even this week, at another event on the topic. So I don't want to rehash all of that. But to be clear, it was in your guidance. It started impacting this quarter. This quarter's guidance is great. this kind of stuff happens all of the time we don't always see it it became topical because of the the nature of the relationship I really want to come at it from a different angle which is understanding that large customers large partners oftentimes do use other vendors or they switch for whatever reason what would have been that reason what was I don't know how much you can share with this, but was it a business that you weren't well set up to do? Was it something you didn't want to do? Did somebody else just offer a heck of a good price? Like what actually drove, even if it was a tiny sliver outside of the prime vendor relationship, what actually drove the decision not to just stay with you?

Yeah. I can't get into the specifics of any specifics, of that. But I do think it's important to reiterate some of the things you said. I mean, this does happen, right? It wouldn't be something that would be talked about if it didn't come out in a research report. I mean, I think our team did a fantastic job of recognizing that that report was not necessarily being interpreted for the scope that it was and that there could have been an overreaction. So we did what we needed to do to give our investors the information that was going to be most helpful. When you think about Sancora and Walgreens, I think it's really important to think about the history of the relationship, the amount of work that we do together, the amount of integration that we have together. And they have a terrific team. And as far as we can tell, they seem to be focused on the right things. We're talking, We're working together. So, you know, again, these things happen, and I can't comment on the specifics, but, you know, we like our portfolio of customers, including Walgreens.

And there's no reason to anticipate any kind of more material or notable change from here till, at bare minimum, 2029 or 2031 when the existing contracts mature. Is that a fair statement?

Yeah, as you said, we have a contract in the U.S. through 2029 and 31 in the U.K. with Boots, and we expect to continue to support them throughout that time.

That's great. I'm not going to try to squeeze one more in with 12 seconds, so I'll just say thank you again for being here. It's wonderful to see you, and it's great to have you back. We overlapped briefly many years ago, but welcome back to health care. Welcome to a great company, Eva. Thank you very much. Everyone, please join me in thanking the company for being here with us today.