Okay. Hi, everyone. Thanks again for joining us. We are really pleased to have Cencora for our next fireside chat. Cencora is a drug distributor and provider of pharma-focused services. With us from the company are Bob Mauch, the President and CEO, and Eva Boratto, EVP and CFO. We also have Ben with us in the audience. First, wanted to see if you wanted to make any kind of introductory comments or whether we should just really hop right into Q&A.
Yeah, maybe just a quick word.
Yeah.
Hi, everyone. Thank you very much for being here. We are in the midst of an excellent fiscal 2026. We reported last month our third-quarter earnings, which demonstrate a continued growth in our areas of focus, which really are the specialty pharmaceutical areas, both in the physician part of our business as well as in health systems. We also had the opportunity to opportunistically repurchase $1 billion in shares, and expect a strong year in line with our guidance. We are very excited about the future in terms of our pharmaceutical-centric strategy, and the way that we are continuing to focus the company on areas of growth in the market where the specialty area, in particular, where demographics are strong and there is tremendous pharmaceutical innovation.
Okay.
Thank you.
Great. Of course. Yeah, maybe we will just clear through this bit off the top. I think the most recent disclosure piece of news from the company was that certain volumes related to your customer, Walgreens, that were outside of the prime vendor agreement or outside of the PV contract, started to move away from the company. Would love to just little additional context on the nature of these volumes, why they are outside of the PV contract and anything to characterize how typical this is or is not as part of your business.
Yeah, sure. Happy to.
Yeah.
I will start and then I will-
Okay.
I will hand it to Eva. Also should have noted in the introduction that this is the first investor conference for Eva and I to do this together which has been fun so far, and she's been an amazing addition to the Cencora team. Look forward to hearing more from Eva. That's a part of the industry that doesn't get talked about very much. But the idea that a very large purchaser would take a small portion and have that with another distributor, it's not uncommon. What is uncommon is the fact that that would be something that would have to be discussed.
Sure.
Our team did a great job upon realizing that we wanted to make sure that people didn't misunderstand the size of that relative to the overall relationship, the very small size relative to the overall relationship. We did do the 8-K and made sure that we provided the right level of clarity. As I said in the beginning, it is something that happens within the industry. It's not part of our core contract, as you said, and I'll let Eva take it from there.
Yeah, okay.
Yeah. I think, Bob, the only thing I would add is we wanted to provide to the investor community the full factual context around that, and a couple of things. One, the business began moving in July, so at the start of the fiscal fourth quarter. Two, it was contemplated in our guidance, which shows the acceleration in Q4, the guidance we provided back in August. Finally, three, as Bob said, the vast majority of our business with Walgreens is in the prime contract, not outside.
Yeah, I appreciate that. Then, maybe just to expand on the financial component, mentioning that it is obviously it is fully contemplated. I guess, one, it looks to us like the revenue guidance that is implied for the fourth quarter does not really stand out as looking like anything different than we might have expected anyway, implying a small top-line impact. So I would hope you can maybe touch on that thought process a little bit and whether that stands up to reason. Then as we think about the volumes, I guess, transitioning starting in July, I think a natural question is what is the exit rate look like, and do you have visibility to the exit rate at this point? So maybe if you could touch on both, that would be appreciated.
Yeah. So overall, let me take a step back at the Q4 guide that we provided. It was a strong guidance. It was an acceleration from Q3. As you think about what is a key driver of our performance is underlying utilization trends, particularly in specialty, and specialty is becoming an increasing important part of our business as you think about the acquisitions with the MSOs. So we were pleased with the guidance we were able to provide. In terms of revenue and underneath, while yes, there is the Walgreens loss, in Q4, we also annualized the oncology. We have now fully annualized at the end of Q3 the oncology customer that we lost, as well as we continue to benefit from the OneOncology acquisition that we have.
Additionally, in our guidance, in addition to the strength in the U.S., our international business is performing well also, driven by our World Courier and our 3PL businesses. World Courier, really pleased with what that business has been able to do in terms of the market improving, but also the execution. On the 3PL, benefiting from the specialty tailwind. Overall, we are pleased with the outlook that we provided, and we are focused on executing. I would think about the wraparound of the Walgreens. You have three quarters of that wraparound.
Just last one on this topic, and it is kind of a question of the day, really, across all the distributors, because there are some major near-term renewals and ones that are even more closer proximity and timeline than really yours is. Obviously, Walgreens itself has been going through a period of fairly dramatic change. I guess, how should the investment community think about this relationship and what it might look like over the next 5-10 years potentially for the new Walgreens?
Yeah. Thank you for the question. I think to look at it first is to realize it is a strong long-term strategic relationship. That is true over multiple generations of leadership at Walgreens.
Yeah.
That doesn't change. It's an important customer to us. Obviously, we're a very important partner to them, and the fact that we are servicing every one of their stores every single day over a long period of time. The relationship is strong, the relationship is important. I'll go back to the strategic part, because whether you're talking about Walgreens and Cencora or other parts of the market, these large relationships are generally long-term strategic relationships, and I think that's foundationally how we all should look at them. We feel really good about our relationship with Walgreens. We feel good about the team that's there, and we expect to have a long-term relationship with them.
Okay, great. Thank you. Then maybe to touch on the organic growth trajectory of the U.S. healthcare business over the past couple of years. We had a calendar 2025 for you that was obviously incredibly strong. There was a bit of deceleration in calendar Q1, and then you've seen pretty significant rebounds since. I think one thing the market struggles with a little bit is what are the key factors we should be monitoring? Explain the quarter-to-quarter variability in organic growth. I guess, what are some of the factors that have been influencing the growth rates above and beyond the long-term expectations, and how are you thinking about that going forward?
Yeah. I'll start, Bob. Going back to 2025, and I wasn't here, but as I've studied. The 2025 utilization trends were outside of our long-term growth algorithm, and I think, as the company said at that time, expected them to moderate more in line with our expectations. I'll put that off to the side in terms of 2025. In 2026, fiscal Q2, calendar Q1 had some unique dynamics affecting the quarter, particularly in January and February, there were some real pressures. I think you also saw it not just in our data, but in the IQVIA data as well.
Yeah.
That rebounded at the end of fiscal Q2, and we saw that rebound stabilize consistent in Q3 and consistent as of our earnings call. I think one of the reasons why revenue is in part of our long-term growth algorithms is this volatility.
Yeah.
We are focused on managing through that and delivering the operating income growth as we have outlined. Underlying, I think important utilization, I said this earlier, is an important aspect of our algorithm, and particularly in specialty, and we think there are healthy tailwinds to those trends as we look forward.
To go into the different subcomponents of the business, if we look about generics, it has really been a much more healthy part of the market than really it had been maybe going back 10 or 15 years, and there has been a lot less volatility there. But I would love to hear a little bit about how you are thinking about the generic franchise over the next couple of years. There is obviously some material loss of exclusivity opportunities. What do you think happens there as we forecast out maybe one, two, three years?
Yeah, look, the generics, loss of exclusivity the generic market is something that it's important for the overall market. As products mature, whether it's a small molecule generic or biosimilar, as the products mature, they have an opportunity to go to a generic format. That's good for our business in both cases. I will caveat that as you did more of the historical perspective.
Yeah.
There was a time when generics were a larger part of the profitability growth in the model. As we've rebalanced contracts over a long period of time, that is less so.
Yeah.
Still very positive, and it's excellent for our business, but it wouldn't be the significant upside that we might have seen 10 years ago, in that we've taken some of the upside out, but we've also taken some of the downside out from that deflation that we've experienced.
Okay. As we think about some Part B biosimilars, I guess how do we think about potential contribution from biosimilar? Obviously, we follow your biosimilar report quite closely. We see things like additional EYLEA biosimilars or first biosimilar launches for drugs like SIMPONI as an example. I guess how's the company thinking about that, and maybe how the cadence of biosimilar opportunities looks relative to the past couple of years that have influenced the numbers?
Yeah. Let's start with Part B.
Yeah.
EYLEA biosimilar that you gave is a good example or future additional biosimilars. That is a tailwind to our business.
Yeah.
As products go biosimilar within the Part B space, which is where we have the significant wraparound services with those physician practices, the specialty distribution, the MSO, the GPO analytic services that we're providing to the practices and the manufacturers, that really allows us to help the biosimilar gain market traction even more quickly. We've seen over a long period of time that the physicians in the Part B space, in part due to the services that we're providing, get comfortable with the biosimilar more quickly. They begin using it, and therefore we have that adoption, which again, from a profitability standpoint, it is net positive for Cencora. It's a tailwind.
Okay. If we think about GLP-1s, obviously been a huge contributor to top-line growth over the past few years. I think the message across the industry overall is that economics on these drugs have been pretty limited relative to maybe the rest of your business. I guess, how should we think about that? Maybe as you've seen, maybe the mix of drugs potentially change over the next couple of years. Why shouldn't this be a business that eventually, the industry can maybe earn a little bit better economics on?
Eva.
Yeah. I'll start, Bob, and if you need to add anything. Overall, I don't think there's an analogy model out there for the GLP-1s. The robust growth and the continued growth, and we saw that on the top line in Q3. 25%, $2.3 billion of growth. As you said, the profitability is modest, and we don't expect that to change in the near term as you look at the distribution of those. Overall, from a growth perspective, one would expect at some point the law of large numbers comes into play here, as well as any pricing actions pharma decides to take. But what we've seen to date and what we continue to see is the innovation that's coming is bringing broader market access. With some of the direct-to-consumer programs, as well as the innovation from a performance perspective.
We'll see, but from a profitability perspective, we don't expect a change in the near term.
Okay. Just to touch on the IRA, the company has been pretty clear that in terms of the drugs that were selected for 2026, you've been able to maintain economics. I assume at this point you're probably well on the way to conversations around 2027, because how should we be thinking about 2027? Is there any reason to think that the ultimate outcome has any real variability around it compared to maybe what you're able to generate for 2026?
Yeah. We assume that there's not a change, so that the success that we've had working with the manufacturers continues. But a couple of points for context. I think one, as it relates to IRA, an IRA product doesn't necessarily mean a WAC reduction. Most of them have taken WAC reductions, they all haven't. Then there are other products outside of the IRA who will take less price reductions from time to time.
Yeah.
The important thing to think about is just the relationship that we have with the manufacturers and the services that we provide. Because we always have the opportunity to go and have a conversation. We can talk about the value that we're providing, but really, the proof is in the pudding, and this goes back several years. But we've been answering the question about WAC reductions for many years, before they actually were happening.
Yeah, of course.
What we said at the time was we were confident that the services that we provide would be valued by the manufacturers, and that we would be able to maintain that value. Then when we saw the insulin reductions, that was true, and I think people would say, well, maybe that was a one-off, that was kind of a unique case. But over the past year, as you said, we were able to talk to the manufacturers, and discuss the value of the services that we provide. It's everything, we tend to think about the delivery that we do, but it's also we're buying the product, we're warehousing the product, we're insuring the product, we're taking on the AR risk for the product. We're managing the inventory for the manufacturer.
We're providing data services to the manufacturer. So there are significant things that we do for those fees that are important.
Yeah.
We've seen that validated over many proof points at this point, and we expect to continue to work closely with the manufacturers, and having that success continue going forward.
Maybe to pivot to OneOncology, you completed the acquisition of the majority of their remaining equity interest earlier this year. Would love to just get an update on the financial performance of that asset. What at top line and earnings growth look like at the moment, and what changes operationally, if anything, now with the greater control that you have.
Eva?
Yeah. Overall, OneOncology is performing really well.
Yeah.
Slightly better than we expected. We continue to expect it to be net neutral to earnings over the first 12 months. That assumption remains based on current performance trends. But on an exciting note, there are tremendous opportunities as we look at OneOncology platform and RCA to expand value pools. We've spoken about the clinical research side, the clinical trial side is an important part of the RCA model. Whereas in OneOncology to date, it's not. That's an opportunity. There are opportunities to expand the back office services we provide, the Revenue Cycle Management. As the teams are working, they're really focused on driving the growth and enhancing those areas of opportunities.
Got it. When we look at the OneOncology annual report, in case anyone hasn't seen it looks like you now have over 2,300 providers on the platform. I think this time last year it was closer to a number that was like 1,700. It's a pretty substantial number of providers that you have added. Can you talk a little bit about the nature of those provider adds? How much of it has been through acquisition or requiring capital, how much of it is through maybe organic means, and how we should really be thinking about that over the next couple of years?
Yeah. This is what is really exciting about that is OneOncology. That is also happening within RCA. When you think about the growth of the MSOs, we love to talk about the things that we can do together, whether it is clinical research or Revenue Cycle Management. But it is always helpful to go back to the base thesis, which is that these are attractive platforms for individual physicians or small groups of physicians to join because of the services that they provide. It helps them care for patients better.
That is what you really see in that growth. When you couple the attractiveness of the platforms with the market growth that occurs in both oncology and retina, that really is what is driving growth and what will continue to drive growth. The innovation and the demographics, innovation in the pharmaceutical manufacturers and the demographics for these diseases really will drive growth. Then we have the ability to layer on these synergies as we have the MSOs working together. So, the numbers you put out there are instructive of the success that we've had in attracting physicians, which we're really happy with.
Great. When we think about, I guess the right way to think about the growth of the company over the next, specifically of OneOncology and other MSO assets. I guess, what are the key components beyond, sort of growth of the market that they're in and kind of adding providers? What are some of the maybe two to three to four to five-year opportunities for the business to maybe add additional services or different revenue streams than exist today?
You want to take that or I-
Yeah. Go ahead.
Okay. I think, this is where kind of if you go. I kind of go up a level, because we have the MSOs, and they're attracting the physicians in.
Yeah.
The upper level is really the Cencora layer that is very thin, but is where we can begin to cross-pollinate and find the synergies between the practices. Eva spoke about the clinical research capabilities which are very strong in RCA that will be actively moving to OneOncology, which is a huge opportunity for the physicians, for patients, and for manufacturers in terms of clinical trial accrual. Revenue Cycle Management is another opportunity for a shared capability where there will be both growth and cost opportunities there. I think if you play that out three to five years, we're really excited about the data and analytics opportunities that we'll have through those platforms.
Again, partly downstream to the physicians to help them with their practices, run their practices better, but also upstream to the manufacturers. We're going to have information about the product utilization and outcomes, real-world evidence that we'll have in those sites that the manufacturers will be very interested in.
Okay. Got it. A big focus has just been for the MSO assets, again, kind of specifically, how's the company thinking about. Obviously there's some pretty material loss of exclusivities on the Part B side, oncology focus kind of going out towards the end of the decade. At the same time, there's also some real uncertainty, I guess, with how kind of IRA dynamics for Part B could play out. I guess, big picture, how is the company kind of weighing the risks and opportunities around these dynamics, and how are you planning for that over the next couple of years?
Yeah. Thank you. It's an important question. We're confident in how that plays out, so I'll start there.
Yeah.
You do have loss of exclusivity of some large products that will result in biosimilars, which as we've discussed here, will be a real opportunity, a growth opportunity for Cencora. Where you have Part B IRA in 2029, the worry there is that somehow those discounts are administered through a reduction in reimbursement to the physicians. That's where we're confident that that won't happen. We spend a lot of time, I spend a lot of time in Washington, D.C., talking to regulators and legislators, and what I'm confident about is that in the IRA negotiations, the intent is not to reduce physician reimbursement. It's focused on drug pricing, patient out-of-pocket cost, and there are examples out there.
The Globe Demonstration Project, for example takes that discount from the manufacturer directly to the government and does not go through reimbursement. There is other legislation that is being considered in Congress which has a similar mechanism, and so those are reasons to believe that the intent is not to reduce physician reimbursement because, to speak to oncology specifically, the community oncology side of care is the lowest cost side of care.
Yeah.
It is the most accessible side of care. To have a drug price negotiation result in the physicians being damaged in some way, which would surely impact patient access and patient care. Certainly not the intent of anyone in Washington. We are going to stay involved and focused, and that is from an educational standpoint, but we also feel confident that that won't be the result. We will watch it closely.
Great. Do you have an expectation around when you might know for certain, how this is going to play out or what the timeline to that is?
It won't be until everything is finalized for 2029, and we don't have the timeline for that right now.
Got it. That is, yeah, a little ways away.
Yeah.
To pivot a little bit to international, it seems like the business is performing a bit better after a little bit more of a rocky period. I guess when we think about the key drivers of that improvement, it would be good to maybe hear a little bit more about that. And I guess when we think about the leading indicators over the next few quarters, do you think that business could be a little bit more stable, a little bit more consistent with the long-term aspirations that you guys have set out for it?
Yeah. Thanks for that question. Overall, the two core key drivers that have led to the improved business performance is our World Courier business, our global supply logistics business, as well as the 3PL business. I spoke to this a little bit earlier, but as you think about the World Courier business, there were some market dynamics that affected that business as well as some of our own challenges. The market has rebounded a bit and we see consistent demand, but I think more importantly, we've made changes to respond to the market. We've made leadership changes. We've changed how we operate to be closer to the customer, and really our go-to-market strategies have enhanced, and I truly commend the leadership team there for those changes in driving our ability to win in the marketplace.
On the 3PL side, it's pinned to the utilization of specialty, so that's a real tailwind to that business, and we continue to see opportunities there. We'll continue to push to have the consistent performance. We're confident with our long-term growth algorithm for the international business.
Okay, great. Just to think a little bit more about the pivot to fiscal 2027. You made some early comments on fiscal 2027 on the last earnings call, including your current planning assumption around MWI. I guess, as we think about 2027 and putting MWI potentially to the side as a discrete item, I guess at this point, how is the company thinking about key headwinds and tailwinds as you approach the next fiscal year?
Yeah. I appreciate the question, and we'll have a fulsome update of 2027 on our Q4 earnings call. We're in the throes, we're in the heart of our planning process. In terms of, you called out MWI, and what we said to investors was assume a mid-year transaction. We have no updates on the exact timing, but felt that was a balanced assumption to take. I would remind investors that we'll benefit from the continued annualization of the OneOncology acquisition from Q1 through January. As you look at both the U.S. and international business segments, we're confident with the long-term growth algorithms that are out there for those respective businesses.
Okay. That's great. We're obviously very focused on how companies across our coverage are using artificial intelligence. I guess, how should we think about the areas that the company has invested in to date in AI? I guess any maybe materiality or returns that you're targeting as you make investments in AI, and if there's any way to characterize maybe the investments that you've made to date and what the company could look to do potentially in the future as capabilities improve.
You want me to start?
Sure.
Take a quick step back. We have four performance drivers at Cencora that we have called out. One of them is talent culture, the other is productivity. Just driving efficiency all the time, the portfolio optimization that you see us doing, whether that is areas we are investing for growth or in areas that we are deprioritizing. The last, but not least, but relevant to this question is really the digital transformation that is underway at Cencora, and that is everything from modernization to business process optimization to using advanced analytics and artificial intelligence to create value. We are excited about some of the progress that we are making. Eva, I do not know if you want to get into any specific examples.
Yeah. I think I will just give a couple. Obviously, we are focused on making sure our colleagues have access to these tools in their day-to-day. We are going to focus on prioritization of projects where we believe we can drive the most value, whether that is improved customer service, whether that is cost reduction. I will use one example around forecasting demand. It seems silly, but you can be more precise, manage your cash better, have better service levels. Although our service levels are extremely high, these are critical aspects. We are going to make sure we focus on the areas that can truly benefit our customers and benefit Cencora. Obviously, there is plenty back office operational areas to simplify and reduce complexity and cost.
Okay. Maybe to come back to capital deployment, obviously there's been a pretty healthy focus on MSO over the past few years. I guess, how should we think about, I guess first whether there could be more to do on the MSO asset side from here, and if there's any way to characterize what you might expect capital deployment priorities to be over the next few years relative to what they've been perhaps more recently.
Yeah. I'll start. As you think about our capital deployment priorities, things haven't changed. First and foremost, investing organically in the business to drive growth, strategic M&A aligned to our pharmaceutical-centric strategy, opportunistic share repurchases, and growing the dividend consistent with our earnings growth over time. As we look at, as I'm new here, and come in, and as Bob continues the strategy and the leadership team, our goal is to drive the strongest total shareholder returns we can and optimize that deployment and make those decisions within that.
Okay. That's great. Then, maybe to circle back to one on the U.S. healthcare business, and I guess this is a good question for you given some of your prior experience. I guess, when we look at retail pharmacies today, how do you think about the health of that part of the market? You've obviously seen some pretty, what seem to be constructive changes about how reimbursement now works in that business. I guess, how are you guys thinking about the health of retail pharmacy and maybe specifically health of independents, since we've already spoken a little bit to some of the larger customer dynamics?
You want me to start? I'll start.
Go ahead.
Good.
Yeah.
I will start with the independents, because I think that is an area that people think about, wonder about, and are continuously surprised by the resilience of the independent pharmacy, of the independent pharmacy owner, and we absolutely see that in our business. We just had our trade show in Orlando a few weeks ago, where we had a few thousand independent pharmacy owners and staff there to learn together, to talk to us about what they need, for us to talk to them about the exciting solutions that we have for them.
Look, I think the market, you mentioned some likely positive changes in terms of reimbursement. I think that certainly has stabilized, and that is positive. Community pharmacy is an access point to healthcare in a really important way. The independents tend to see the sicker patients who are going into a retail setting. The more comorbidities that you have, the more likely you are to need to talk to a pharmacist.
Yeah.
They have a really nice value proposition there. They are doing well, and I am a pharmacist. I grew up in independent pharmacy, so I have some affinity for this group. Also, it is amazing to me, they are not only resilient, but they are scrappy. They are entrepreneurs.
They find a niche in their community to serve that community from a healthcare standpoint, and every one looks a little different but they work, and they grow, and we find that the customers within our Good Neighbor Pharmacy network and Elevate Provider Network, which is the PBM contracting arm, when they utilize our services, they tend to grow faster than their peers who use less of our services. We are happy to support them. We are proud of the work that they do, and over the long term, which I think is the most important question, I think we can all be confident that community pharmacy will continue to play an important role in healthcare.
Okay.
It has been a while since I have seen this data, but they are one of the most trusted healthcare providers in the ecosystem. Just to echo Bob's point.
Yeah. Okay. That is great. I think that is all we have time for today, so thank you so much. I appreciate you being here.
Thank you.
Thank you.
Appreciate it.
Thank you, everyone.