Cardinal Health at UBS Conference: Strategic Growth and Future Prospects

On Tuesday, 11 November 2025, Cardinal Health (NYSE:CAH) presented at the UBS Global Healthcare Conference 2025, highlighting its robust Q1 performance and strategic initiatives. The company showcased significant profit growth across all segments, with a focus on specialty business expansion and operational efficiencies. Despite slight headwinds from COVID-19, Cardinal Health remains optimistic about its future, driven by strong demand and diversified revenue streams.

Key Takeaways

• Cardinal Health reported double-digit profit growth across all five operating segments in Q1.
• The company increased its full-year adjusted EPS guidance to $9.65-$9.85, reflecting a 17%-20% growth year-over-year.
• Specialty business profit surged by 26%, with a focus on "otherologies" like rheumatology and urology.
• $10 billion in new business was onboarded last year, with $7 billion expected this year, enhancing higher-margin contracts.
• Operational efficiencies and investments in automation and distribution network optimization were emphasized.

Financial Results

• All five operating segments delivered double-digit profit growth.
• Pharma business showed strong execution, with a 23% revenue growth in Q1.
• Specialty business saw a 26% profit increase, driven by the MSO platform and Solaris transaction.
• The "Other" business, including Nuclear Precision Health, achieved a 60% profit growth, bolstered by the ADSG acquisition.
• Adjusted EPS guidance raised to $9.65-$9.85, indicating a 17%-20% growth year-over-year.

Operational Updates

• Continued investments in MSO platforms and new customer acquisition.
• Streamlined operations post-Optum exit, improving leverage on operating expenses.
• New distribution nodes, such as in Indianapolis, incorporate significant automation.
• The Cardinal Health brand business grew 6%, showing progress in the GMPD portfolio.

Future Outlook

• The generic portfolio is expected to grow by 2%-3% long-term.
• Biosimilars are seen as an emerging opportunity, with economics still developing.
• Profit in the nuclear precision health business is anticipated to grow by 10% long-term.
• Investment of $150 million in new locations and manufacturing capabilities to support theranostics.
• COVID-19 is expected to be a slight headwind, but overall demand remains strong.

Q&A Highlights

• Demand growth observed across brand, generics, consumer health, and specialty sectors.
• Focus on "otherologies" in specialty business rather than oncology.
• The Specialty Alliance formed by GI Alliance and Solaris emphasizes Cardinal Health's strategic direction.
• The company prioritizes overall economics of deals rather than just distribution.

For a complete understanding, readers are encouraged to refer to the full transcript below.

Full transcript - UBS Global Healthcare Conference 2025:

Kevin Caliendo, Healthcare IT and Distribution Analyst, UBS: Good morning, everybody. Thanks for joining us. I'm Kevin Caliendo, Healthcare IT and Distribution Analyst at UBS, and we are very proud and happy to have the management team of Cardinal Health with us today. It's Aaron Alt, Chief Financial Officer, and Matt Sims, who's the Head of IR. Matt, you want to?

Aaron Alt, Chief Financial Officer, Cardinal Health: Yeah, great. Kevin, thanks for hosting us. It's great to be here. Before we begin, just a little housekeeping. We will be making forward-looking statements today, which are subject to risks and uncertainties that could cause our actual results to differ materially from those projected or implied. For a description of these factors, please review our SEC filings, which can be found on our investor relation website at ir.cardinalhealth.com. All right, let's get started.

Kevin Caliendo, Healthcare IT and Distribution Analyst, UBS: Thanks. Do you want to?

Matt Sims, Head of IR, Cardinal Health: Good morning, Kevin. Thanks for having us on behalf of Jason Hollar, our entire management team. We're excited to be here today. I was commenting at dinner last night that with the Thanksgiving holidays coming, you know, one thing that I'm particularly thankful for is our Q1 results, right? Before we get into the questions and answers over the course of today, I thought I would provide just a quick summary for those that may not be as familiar with our earnings release last week as others. It goes something like this: Cardinal delivered a strong set of results. All five of our operating segments delivered double-digit profit growth, led by our pharma business, which saw strong demand, saw strong execution, and we were particularly pleased with the performance of the specialty part of our portfolio.

That business posted profit of, what was it, 26%, you know, Matt, as well? All three factors contributed to that. The specialty business was benefited from strong execution by our growing MSO business. You may have heard that we expected to close the Solaris transaction, which we closed last week as well. As well as the core specialty distribution was very strong, and we're particularly pleased with the continued progress against our investments in our biopharma services, you know, part of the portfolio. Stepping away from pharma, we have a business affectionately known as Other, which is the aggregation of three smaller businesses: Nuclear Precision Health, At Home, and OptiFreight Logistics. That part of our business delivered profit growth of 60%, driven in part by the acquisition of ADSG.

Even if you extract the M&A, we saw strong demand across the portfolio and strong execution in all three parts of that business as well. We are very pleased with that. Which leaves the turnaround part of our business, our GMPD, Global Medical Products and Distribution business, a very strong quarter. They saw nice revenue growth. In particular, of note to us was the fact that the Cardinal Health brand business for the second quarter in a row grew at 6% or more in the quarter as well. There was a lot to be thankful for from a Q1 perspective for us. All this resulted in us raising our guidance, you know, one quarter in, the new adjusted EPS, or non-GAAP EPS rather, for Cardinal Health is now $9.65-$9.85, which is 17%-20% EPS growth year over year for the year.

Last point before I turn it back over to you, Kevin, is part of what we're doing at the same time is investing in our business. Notwithstanding the good progress in the quarter, at the same time, what we were doing was investing for the future quarters of growth as well. I would highlight a couple of vectors of that growth. We continue to invest in our new customers. We onboarded $10 billion in new business in the back half of last year. We are making great progress in onboarding $7 billion of new business in the first half of this year, which is part of why our profit will be front half loaded as that business comes on board in the first half of the year.

We continue to invest against the MSO platforms that I referenced before, both capability and the tuck-in acquisitions to go with that. We continue to invest in new products, in particular the NPHS business. You think about Nuclear Precision Health and categories like urology. I'm sure we'll come back to that in a bit as well. Nice pipeline of innovation coming, and we're investing with our manufacturer partners around how do we ensure that we've got the best distribution of many of those classes of categories. Overall, a very positive quarter for us.

Kevin Caliendo, Healthcare IT and Distribution Analyst, UBS: Let's start there. When you reported that quarter, I think I wrote or said that it was the best quarter by a distributor since the days of generic inflation when things were crazy back in 2014, 2015, 2016. Your guidance had assumed strong utilization. I think you said part of the reason why this happened was greater than strong utilization. We track what we can, the KPIs that we can track: scripts, generic mix, pricing. We try to track all of it. There was nothing crazy or outsized in this quarter. Yet you and your peers, but you especially, said demand exceeded expectations. Tell us where that demand is coming from. How do we see it as analysts? Clearly it was better than what you were expecting originally, but it was certainly a lot better than any of us were expecting.

Can you just talk a little bit about where that demand, that higher demand is coming from?

Aaron Alt, Chief Financial Officer, Cardinal Health: Sure. If you take a step back for a second, what we had guided was that setting aside M&A, core long-term growth in the pharma business would be 5-7% profit growth. We have also guided that we expect the generic portfolio to grow by 2-3% on a long-term basis as well. The real answer to your question is, we saw a demand lift everywhere, right? We saw it in brand, we saw it in generics, we saw it in consumer health, we saw it across the specialty portfolio. The specialty business has been a double-digit grower now for some time. It actually exceeded our expectations as well.

While I would love to be able to point to one factor and say this was it, really we saw a rising tide across the business, across the quarter, and that is why we were able to post the results that we did. Now, generics in particular is a part of the business that we love, of course, because while it is lower in revenue, it is a nice margin, it is a nicer margin business for us than brand historically. We did see higher volume in the generics part of our business. When you hear me say the words consistent market dynamics on our earnings call, that is a signal to everyone that what we saw was there was no dislocation between the buy and the sell. That is not how we managed the business. We managed to an average gross margin on the category.

As long as we can manage to that and drive incremental volume, we're going to have a good quarter. That's certainly part of what we saw during Q1.

Kevin Caliendo, Healthcare IT and Distribution Analyst, UBS: You talked about onboarding $10 billion, $7 billion, $10 billion last year, $7 billion this year of new business. Is that onboarding of business, is there a different mix than what you had before so that it's a more attractive mix for you guys, whether it's in terms of specialty, whether it's in terms of generic penetration? Has Publix got more generics than what you had before, losing Optum versus bringing on another large payer? How should we think about that?

Aaron Alt, Chief Financial Officer, Cardinal Health: Yeah, we have won a series of new pieces of business, including Publix that you referenced before that we're very proud of as we now move past and we have now lapped the exit from Optum from our portfolio. That business has been higher margin than the business that we lost. The way we were pretty clear at the time of the Optum departure that it was a very complex low margin business for us. We have found some great customers to help fill that hole and grow with us, which is what we're seeing now, having posted 23% revenue growth in the quarter for pharma and 22% revenue growth for the enterprise during Q1. Hard to comment with any specificity as to one customer on the mix of the product line or the specific profitability.

What I will comment is to say we're pleased with the customer onboarding that started at the end of Q2 last year, went all the way through last fiscal year and has now continued into the first half of fiscal 2026 as we predicted that it would. Here's an important point as well, which is when you have opportunities like customer change, right, that has caused us to actually drill into ensuring that we have the right customer service environment, that we have the right service levels, that we've got the right network. A nice benefit of all the change that we've been through is that Debbie Weitzman and the team have been able to realign our operations within the pharma and specialty business to better serve the existing customers that we have, as well as make it easier for us to onboard new customers.

That bodes well for us as we carry forward on being able to deliver against every opportunity for sales that we have.

Kevin Caliendo, Healthcare IT and Distribution Analyst, UBS: When you're onboarding this much business or even any contract, we just kind of assume it starts at the regular margin or, you know, hey, this is a 50 basis point, this is a 100 basis point, whatever it might be, whatever the definition is. Is there an onboarding ramp to get to what you might consider to be normal or peak margin or whatever? How long does that normally take?

Aaron Alt, Chief Financial Officer, Cardinal Health: Yeah, can't give you a rule of thumb because every customer deal is different. Indeed, the cost of implementing them is different based on number of locations, locations themselves, right, the specific terms, the mix of their business. I can't give you a rule of thumb in that way.

Kevin Caliendo, Healthcare IT and Distribution Analyst, UBS: Was there any growth in margin in onboarding of the $10 billion, let's say, because now we're almost a year through?

Aaron Alt, Chief Financial Officer, Cardinal Health: Yeah, we haven't. If where you're going with this is help us identify some of the sources of that profit growth in the last couple of quarters, we haven't provided guidance in that way. It wouldn't be the most material factor, I would call it in any event. The overall lift in demand we've had for the last couple of quarters has been probably the largest driver of our source. Certainly, the increased penetration in specialty, which is a higher margin part of the business, has been very helpful as well. The continued contribution or the growing contribution of our MSO platforms now that we have got them together and are effectively starting to put them together, that is, of course, a higher margin rate in the business as well.

Really, it's all the pieces coming together for us that are helping to drive the profit growth.

Kevin Caliendo, Healthcare IT and Distribution Analyst, UBS: This is a simplistic question, but it sometimes gets confused. When you talk about growth of specialty, ex the MSO business, what kind of drugs are you talking about? Because what gets defined as specialty is not necessarily consistent across the industry. When you say there's seeing a growth in specialty and that's higher margin, what are those kind of products?

Aaron Alt, Chief Financial Officer, Cardinal Health: Yeah, there is a paradigm out there where some of the industry participants focus on oncology, and we tend to focus on what we call the otherology, right? It is really a poorly served name for a key part of our business because the otherologies can be incredibly profitable for us as well. Cardinal's strength has historically not been in oncology. It has been in rheumatology, urology, gastroenterology, nephrology, the otherologies, if you will. When my peers or our peers talk about specialties, they are often talking about oncology and what has been going on with US Oncology and One Oncology and the drug distribution in that way. We are in oncology, right? We entered it. We already had a distribution business. We doubled down with the launch of the Navista platform, which we announced, I guess, two and a half years or so ago at our investor day.

We bought an asset called ION as well. Our goal from a specialty perspective was not to believe that we were somehow going to overtake McKesson from a leadership perspective in oncology, but we needed to be sufficiently relevant to get the best pricing from the manufacturers to be able to serve the customers that we have in that space. Our focus has been on a very different playbook. Our playbook has been on emphasizing the strength that we have and the growth we can drive in the otherologies: the urology, the gastroenterology, rheumatology. These are all places where Cardinal has historically had one of, if not the largest distribution presence or GPO presence or other assets.

It is no mistake that it is no accident, rather, I should say, that when we did start doing M&A two years ago, the first asset we acquired was something called Specialty Networks, which was a business we knew well, which was one of the largest non-Cardinal urology GPOs. We called it a GPO plus because importantly, what we acquired it for was the technology assets it had and the integration it had with urology practices across the country, even if they were not our distribution customers, allowing us to gain, assess, and then monetize effectively with the practices and with the manufacturers, the data stream back and forth while it reads the 40 plus EMRs and supports the studies that the manufacturers are doing. That is just one example of how we are running our playbook and specialty in other areas to really drive our success going forward.

Kevin Caliendo, Healthcare IT and Distribution Analyst, UBS: I think a lot of us understood oncology and getting involved in oncology as a company's core business is drug distribution, given the amount of drug spend in oncology is massive. It was less clear to us what Cardinal brings to the table in some of these otherologies where drug spend isn't necessarily as large a percentage as it is in oncology. Can you talk a little bit about the value creation that you provide and what's attractive about it? Is there pipeline coming up in urology, for example, or any of these otherologies that you guys are looking at? How should we think about the opportunity there?

Aaron Alt, Chief Financial Officer, Cardinal Health: Great question. Let me answer it by talking both about what do we get from it and what do we provide to it. Let me start with what do we get from it. If you think back to how I was describing the dichotomy between the otherologies and oncology, there is a key difference between those categories where if you're a practice or an MSO for that matter, much of the economics comes from the drug spend. We would call it 90% or so, and 10% is coming from office visits in that way. That's great if your sole focus is on distribution, right? What we love about the playbook that we're running focused on the otherologies is that we're not buying companies and MSOs to get the distribution. We're already a top three distributor in the country. We have other vehicles by which to acquire distribution.

We're doing it because there's a broader play, a broader set of economics that we want to participate in, effectively creating diversity of revenue streams for us while still getting some benefit from the synergies that come from the drug distribution. That is the primary thing we're getting: more exposure to specialty therapy areas that we're already in, that we can grow on a diversified revenue stream basis. Now, what do we bring to that table is also important because why would doctors' groups want to partner with us? We are now the largest, we own the largest gastroenterology platform in the country, GI Alliance. We also now own the largest urology platform in the country, Solaris. They are coming together into what is now known as the Specialty Alliance, and we have more plans there. The point is, what are we bringing to that?

As I referenced, we were already one of the largest distributors. And so we have contracting power, if you will, in support of the doctors that we have now partnered with in connection with the distribution of drugs, right? It's also the case, though, that we have a very strong technology footprint and platform behind the scenes that we're able to leverage across the therapy areas as well to drive better practice recommendations to the doctors, to drive better awareness and integration of actual medical results into the real-world studies, right? There's a variety of things going on there. In addition to the scale that we bring from an overall purchasing rate perspective, things like insurance, you name it, these are all places that we can play in support of MSOs or the doctors' practices that we are now bringing together through the MSO landscape.

Kevin Caliendo, Healthcare IT and Distribution Analyst, UBS: I do not know if you have ever answered this question before, but you mentioned oncology 90% might be drugs. When you think about GI or urology, is it, I am guessing that it is not 90-10, it is probably much lower.

Aaron Alt, Chief Financial Officer, Cardinal Health: No, it's not. If you're curious about this, we actually have some great materials in our investor day presentations and I believe also our Q4 materials online. The way we describe it is in the oncology space, it's 90-10, 90% distribution, 10% office visits. In autoimmune, which is what we would call gastroenterology and a couple of other categories, and also in urology, it is more typical that the distribution and ancillary practices would be 35-40% of the economics, that procedures would be about a third of the economics, and office visits would be about a third of the economics as well. That's the diversity of revenue streams that I was referencing earlier.

Kevin Caliendo, Healthcare IT and Distribution Analyst, UBS: Okay. Can you just take us, we know getting the distribution is part of this, you just mentioned it's still a sizable part of the value of a customer. You don't necessarily always have the distribution contracts when you make these acquisitions, but recently you upped your guidance because you had more visibility on that. Can you just take us through where we are with the acquisitions, the distribution contracts, which one you currently have, which ones you don't, and just to understand the timing and how it plays into your guidance because it's a little bit confusing.

Aaron Alt, Chief Financial Officer, Cardinal Health: Sure. To answer that question, I have to observe that when we announce an acquisition of a company, unless we are, well, if we don't have the distribution, we don't assume the distribution of the deal economics, right? We don't justify the deal based on the fact that we're going to acquire distribution down the path and we don't guide to it at that time. That's because we are staying loyal to our views that it's the overall basket of economics that we're focused on with the businesses and we don't want to effectively be buying distribution, right? We are very consistent with that internally. When we announce the deal, if we don't already have the distribution, we say that we don't put it in our guide. That was true for ION, that was true for GI Alliance, that was true for Solaris.

The only business we have acquired for which we were already part of the distribution was a smaller business, Urology Americas. We had some of their distribution early on. We then provide updates to our guidance and we said, I believe on our Q4 earnings call that we now had line of sight to we had won the contracts for the distribution on ION and we had won the contracts for the distribution on GI Alliance, but those are rolling in as we speak. We will not have a full year of distribution of either of those contracts. ION is coming quickly and GI Alliance is closer to the end of this fiscal year. Solaris, we just closed the deal in the last 10 days and we have to work through that yet.

While our financial guide now assumes the distribution benefits from GI Alliance and ION, it does not assume the distribution benefits from Solaris. Put more specifically, we called $0.05 of accretion in this fiscal year on the Solaris acquisition that does not assume any distribution from Solaris.

Kevin Caliendo, Healthcare IT and Distribution Analyst, UBS: Can, based on your percentages that you provided earlier, if the distribution contract were to be added, would it be roughly that percentage of the $0.05 that it would be incremental?

Aaron Alt, Chief Financial Officer, Cardinal Health: I wouldn't want to give guidance before I give guidance.

Kevin Caliendo, Healthcare IT and Distribution Analyst, UBS: Fair enough. We did highlight that Solaris in total is about $1.5 billion of revenue. And so you can use that and then some of the other color we provided to get pretty close there. Got it. That is helpful. Let's talk about, you mentioned sort of streamlining the business post-Optum. It made you change things. If you look at the gross profit number and use that as sort of a top line and you look at the EBIT, your leverage on the OpEx line has been pretty good in the last several quarters. There's definitely been a benefit. You're not alone. McKesson was here yesterday and they had the same sort of benefit. Is there more room to go there?

Are you streamlined or is this more, okay, we have our distribution network in place, the more revenue we can layer on, we can cover pretty much our customers now, we are in a good place. Is there more automation, more savings that you can generate? Is AI a thing that is benefiting on the side of the business where you might even get more leverage on the OpEx line going forward?

Aaron Alt, Chief Financial Officer, Cardinal Health: Great question. The answer is yes, yes and yes, with the following important caveats. We continue to invest in our network. We are investing in growth. You have to keep in mind that our network has grown up over decades from a buildings perspective and there is not extensive automation in parts of our network operations. As we are growing the pharma business, we are adding the right distribution nodes in the right places. We recently announced a new node in Indianapolis, I believe, that when we complete the build, it will actually have significant automation as well to help drive the continued profitability of that operation. Similarly, if you translate to our at-home business, that is a business where we move a lot of small, dense packages into patients' homes directly. We have been optimizing our distribution network in that business now for a couple of years.

As we open new buildings, we just opened Texas, we've announced at least one more. We are putting in automation and technology as well to ensure that we keep our costs down. One of the things that Jason Hollar has done at the enterprise level within Cardinal is really focus our team on how do we continue to optimize our operational excellence, keep our costs down, but importantly, keep our costs down while making sure that we can have high service levels and serve the customers where they need us to be and when they need us to be there.

Kevin Caliendo, Healthcare IT and Distribution Analyst, UBS: Got it. So it sounds like there is room.

Aaron Alt, Chief Financial Officer, Cardinal Health: I'd be a bad CFO if I didn't say there's always room for improvement when it comes to cost structure.

Kevin Caliendo, Healthcare IT and Distribution Analyst, UBS: Fair enough. You mentioned how important generics are, and it feels like you emphasize this more than maybe your peers do. Maybe that's because of your mix. Maybe it's the fact that you have CVS and Red Oak as a partner and that this is maybe more advantageous. Is there anything to call out? You said it's been stable. That means your spreads are stable. You price to a gross margin. I appreciate that. Is there anything in the pipeline coming from a generic perspective that we should care about? I've been doing this a long time and it used to be, hey, this drug's going generic and we used to model exactly how much profit the distributors are going to get. And it was the stocks to trade on these kinds of things. We haven't done that in years.

I'm asking you, as you look ahead over the next 12, 18, 24 months, is there categories where there's increased opportunity on generics? Again, we'll talk about biosimilars as well.

Aaron Alt, Chief Financial Officer, Cardinal Health: I'm not going to call out a specific generic innovation or transition that's coming, but I will observe that one of the opportunities we see in the business and part of why we are confident in our long-term guidance is we do see more transitions from brand to generic coming, and we're excited about what those opportunities are for us. Biosimilars, maybe to get ahead of the question, is, biosimilars for us, it gets a lot of attention, but we view biosimilars as being an early inning game at this point. The economics have yet to shake out. The number of participants in any particular biosimilar are still up in the air.

The decisions that the PBMs are making around what to accept or not accept for a particular biosimilar, there is a lot of work yet to be done or a lot of decisions yet to be taken until biosimilars are really the next generic category for us. While we are hopeful in that way, it is not nearly of the, it is an opportunity for us. It is not nearly what the generic part of our portfolio is yet.

Kevin Caliendo, Healthcare IT and Distribution Analyst, UBS: Understood. With the GPO and biosimilars, how do you view that versus, do you think the GPO will be able to get discounts from the brand when a biosimilar comes that will match that? This is a question that we all have. It's not as important. Keytruda is the one that everybody's focused on in certain oncology drugs. You have some of this, but how is that going to work when all of a sudden we have a biosimilar for such a large drug? How does the GPO treat that in terms of how do you negotiate those discounts versus the biosimilar?

Aaron Alt, Chief Financial Officer, Cardinal Health: I'm going to have to go back to my earlier answers, which is it's going to depend on so many different things, right? It's going to depend on the adoption by the physicians. It's going to depend on the formulary decisions taken by the PBMs. It's going to depend on the number of different manufacturers of alternatives in that way. We're not a high-margin business per se. Of course, we're looking for the opportunity to, how can we ensure that the American patient has access on an affordable basis to what they need? That business model has yet to fully evolve.

Kevin Caliendo, Healthcare IT and Distribution Analyst, UBS: Do you think if you were just to guess, and this is a guess, I'm not holding you to this. I will not call you out on this in three years when this happens.

Aaron Alt, Chief Financial Officer, Cardinal Health: Except you are in a recording.

Kevin Caliendo, Healthcare IT and Distribution Analyst, UBS: Do you think it would be more beneficial for Cardinal as a company to have more utilization of the biosimilar or more utilization of the brand at a discounted price that might match that?

Aaron Alt, Chief Financial Officer, Cardinal Health: We're living in a world where the administration is pressuring everything which we all have known to be true for decades in the healthcare space. Far be it for me to sit on a stage today as so much is changing and predict exactly what brand economics look like relative to biosimilar economics, relative to generic economics. We just do not know as yet. What we do know, what we are 100% confident in, which is why we are confident in our long-term guidance on the business as well, is that we, Cardinal and our peers, are essential parts of the American healthcare system, right?

Our role in all of this is to safely, securely, and efficiently get the drugs from point A to point B or point C, buying from thousands of manufacturers and distributing to many more thousands of hospitals or physician offices or even into the patients' homes. We do all that at a 1% margin. As we think about all the regulatory change, as we think about how the economics across categories are evolving, what we have confidence is that every time that business model has evolved around us, what's become true is people have realized is that we are an essential part of the American healthcare ecosystem and we're going to have to be compensated for the services that we're providing.

That's why I can sit on stage in the face of so much change going around us and express our confidence that Cardinal's got a bright future.

Kevin Caliendo, Healthcare IT and Distribution Analyst, UBS: Has a manufacturer in the midst of all these pricing changes ever come to you and said, "Hey, listen, we don't think we can't pay you as much as we used to," or, "We're not going to pay you as much." Have you ever had that? Because it feels like at the end of the day, you guys always get paid the same amount regardless of what's happening to the prices of the drugs, at least on brand.

Aaron Alt, Chief Financial Officer, Cardinal Health: You've just made my point from the last comment, which is that naturally everyone is trying to negotiate everything at all times. It's what savvy business people do as well. What it comes down to is we are paid largely on a fee-for-service basis. If they want the fee, they're going to have to pay us for doing what we do so well.

Kevin Caliendo, Healthcare IT and Distribution Analyst, UBS: We haven't spoken about the medical products business, which put up a very good quarter.

Aaron Alt, Chief Financial Officer, Cardinal Health: Great quarter.

Kevin Caliendo, Healthcare IT and Distribution Analyst, UBS: Relative to expectations. It does not get as much attention, obviously, because the pharma division had such an unbelievably good quarter. What is happening there and what drove this quarter in particular? Was there anything? Was it utilization again? There is a very specific question here as well, which is one of your competitors is selling its business to a private equity firm. I do not know if that is going to provide opportunity for you. I do not know if you have ever talked about this or not. How should we think about that in the context? I think that business has always been perceived as potentially being a share loser because of a private company that has been swallowing share, not just in the health system business where you compete, but more broadly. How should we think about the competitive dynamics in that market?

Aaron Alt, Chief Financial Officer, Cardinal Health: Let me offer some perspective on our business and then offer some perspective on the industry dynamics as well. We launched what was then the Med Improvement Plan a couple of years ago. We now call it the GMPD, Global Medical Products and Distribution Improvement Plan, really focused on a couple of key things to set that business up for success as you go forward. You need to not look back too far to see a business that was negative profit and negative cash flow. Now we're at a point where, as part of our improvement plan, we've driven it to positive profit and positive cash flow. That business has really turned a corner for us. We've done that by focusing on the fundamentals.

We focused on how do we grow the ever-important Cardinal Health brand part of the business because, of course, our brand is higher profit margin than other parts of the portfolio. We focused on how do we optimize our distribution network and our manufacturing network because we are a manufacturer of products as well as a distributor product globally. How do we do it in the right way, have them in the right locations? How do we optimize our cost structure? How do we really carry that forward? Importantly, the third part is how do we mitigate first inflation and now tariffs, right? The team has done a very nice job over the last several quarters in realigning that business for growth.

I would call out some of the metrics I referenced earlier from this last quarter or last two quarters actually where the Cardinal Health brand business grew 6%. That is a sign of progress in that portfolio. With the profit they put on the table, a lot of that is driven by growing with existing customers, but it is also driven by the very choiceful decisions that the team has made around cost optimization. We are pleased with how that business has brought the cost profile of that business down overall. Now, why would we do all that? We do all that because, A, we needed to improve the business, but B, we need to do that because it is a relatively competitive place, right? Now you have the likes of Medline out there who is a strong competitor.

You have McKesson's business that they've announced that they're going to separate in some form in the not too distant future. You have the OMI business, which of course has recently announced that they're selling to Platinum Equity, I guess is the name of the firm. We're looking at that going, we have to constantly raise our game. Now we're going to learn a lot. We have learned a lot with what's come out of the Medline S1. I'm sure you all have read that 300-page document in detail the way that we have. We're going to see a lot of change happen in the context of the OMI transaction with Platinum if and when it closes. Of course, McKesson is doing their thing with their med products business as well, which is more focused in the patient office than we are.

In all of that, that presents both opportunity and challenge. Challenge in that there are a couple of strong competitors. We are purposely raising our game to go after it. Opportunity because anytime there is transition in the industry, that presents one with opportunity to go after customers. Of course, we are doing our best to win every customer we can in the right way at the right time with whatever the opportunities that present itself.

Kevin Caliendo, Healthcare IT and Distribution Analyst, UBS: There used to be a debate with this business as to whether or not it was truly core to what Cardinal wanted to do. Was this something that you wanted to keep? There's obviously been a lot of these transactions happening. McKesson's spinning, OMI's selling. It sounds like you're very happy with this business where it is, where it stands. That's been the message. Nothing has changed here.

Aaron Alt, Chief Financial Officer, Cardinal Health: We're very happy with the progress that the team has made against the GMPD Improvement Plan. Jason Hollar has been very clear during our investor days that we are a pragmatic balance sheet owner in that way and that our focus is on how do we create the most shareholder value, right? Both short, medium, and long term. Our answer to that question for the last couple of years has been our best way to create shareholder value is to improve that business and really drive the execution of the GMPD Improvement Plan. That's where we are today.

Kevin Caliendo, Healthcare IT and Distribution Analyst, UBS: This is going to be a totally random question, but it's become a debate in the last days, which is around skin replacement products. I don't know if you've heard about this.

Aaron Alt, Chief Financial Officer, Cardinal Health: Skin replacement products.

Kevin Caliendo, Healthcare IT and Distribution Analyst, UBS: Like Band-Aids and things like that. There's been some fraud in that industry and the like. You guys are not in any way, you have not benefited or anything from, it's not that you would be committing fraud, but there has been upcoding and other things, basically Band-Aids by certain providers in Florida and the like. You're not aware of that.

Aaron Alt, Chief Financial Officer, Cardinal Health: I can't speak to that. We do have a consumer health business, but I'm totally unaware.

Kevin Caliendo, Healthcare IT and Distribution Analyst, UBS: It's a managed care issue more than it is anything else because they became.

Aaron Alt, Chief Financial Officer, Cardinal Health: Thank you.

Kevin Caliendo, Healthcare IT and Distribution Analyst, UBS: It's literally billions of dollars of like, we'll leave it at that.

Aaron Alt, Chief Financial Officer, Cardinal Health: That's for your next guest.

Kevin Caliendo, Healthcare IT and Distribution Analyst, UBS: Yeah. Now it's fascinating. I really learned about it more last night and I was like, okay, this is.

Aaron Alt, Chief Financial Officer, Cardinal Health: Before or after the Packers lost?

Kevin Caliendo, Healthcare IT and Distribution Analyst, UBS: It was before. Can you talk a little bit about where we are with nuclear? Again, not getting a lot of attention. How do we think about what's happening with the mix there? What's the outlook for that business? Has anything there changed in the midst of everything else? It's kind of we've forgotten about it a little bit.

Aaron Alt, Chief Financial Officer, Cardinal Health: We have the largest nuclear precision health business in the U.S. It's a mix of SPECT and PET and theranostic products. A nice growth business for us. We've predicted, we've guided long term that we expect the profit of that business to grow 10% on a long-term basis. We're really excited about what we're seeing in that business. We're investing $150 million in new locations and new manufacturing capabilities to support theranostics. What's particularly cool about that business for us is how it ties into the broader themes within Cardinal. If you go back to where we started the conversation today on specialty and in particular our conversation on urology, right? We are one of the largest providers of diagnostics and theranostics in the urology category. It's something you all may have heard of, Pluvicto? Right? That's a key part of our portfolio.

We're supporting that customer launch and ramp. That's just one example of how all it takes for us to be successful in our nuclear precision health business is a series of singles and doubles. The innovation pipeline coming in that business is incredible, right? We believe that so long as we can continue to have the available capacity from a manufacturing and distribution perspective, that that business is going to do quite well.

Kevin Caliendo, Healthcare IT and Distribution Analyst, UBS: In our last minute, we went this long. When we did our pre-earnings call with Matt, we spent half of our call talking about COVID, which in retrospect was a complete waste of time given all the other trends in the business. Nobody's even talking about it now, but it was a headwind that you had called out. What did it end up being in terms of the headwind? Are we ever going to have to talk about COVID again relative to your business one way or another?

Aaron Alt, Chief Financial Officer, Cardinal Health: You know, my job is just to answer the questions as asked, but sometimes. COVID was anticipated to be a slight headwind to our Q1, and it was. The rising demands that we talked about earlier more than covered the slight headwind in Q1. Indeed, we also commented on our earnings call that we expected COVID to be a slight headwind to our earlier expectations in Q2 as well. Now our guidance for Q2, Q3, and Q4 and beyond assumes strong demand. It does not assume the outsized demand. I guess it is for the listener to decide, our comment on slight headwind, what does that mean relative to the broader dynamic in the overall enterprise? We are certainly watching with interest how the American consumer is adopting or not the vaccines and certainly what changes are happening in Washington.

Kevin Caliendo, Healthcare IT and Distribution Analyst, UBS: I think the last time you sized COVID was a few years ago. I think it was $70 million of EBIT. And then each incremental year, it's supposed to be incrementally down. Are we at a point where COVID benefit or COVID profit is in the mid-tens of millions of dollars?

Aaron Alt, Chief Financial Officer, Cardinal Health: Yeah, we haven't provided an update on guide for COVID for this year other than just commenting it's a slight headwind to the first two quarters of our year.

Kevin Caliendo, Healthcare IT and Distribution Analyst, UBS: A key call out now with the season is most of that demand is concentrated in September and October. Where we're at in terms of the cadence, we have very good visibility. Gentlemen, thank you so much for your time. Thanks everybody for joining us.

Aaron Alt, Chief Financial Officer, Cardinal Health: Thank you.

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