Allen Lutz

Allen Lutz asked about Doximity's intermediate-term strategy regarding increasing AI infrastructure and usage costs, noting the year-over-year gross margin decline, and whether AI revenue is expected in the next year or two, or if the focus remains on building the user base before monetization.

Answer

Perry Gold, VP of Investor Relations, clarified that the 50% adjusted EBITDA margin is a floor, not a guide, indicating a willingness to invest in AI given the significant opportunity. He stated that commercial AI products are planned for market later this year, with more revenue expected in calendar 2027. He also noted that unit economics for AI costs are expected to improve over time, similar to telehealth, and emphasized the strategic investment in the differentiating Peer Check program.

Allen Lutz questioned the impact of policy uncertainty on pharma spending, asking about recent conversations with top 20 pharma clients and the potential for a stronger mid-year upsell season due to delayed budget deployment. He also inquired about the intermediate-term strategy for managing increasing AI infrastructure costs without immediate revenue, and the implications for gross margin and the 50% adjusted EBITDA margin floor.

Answer

Perry Gold, VP of Investor Relations, explained that many top 20 pharma brand managers faced unreleased funds due to late-year policy uncertainty, but Doximity believes these funds will become available later, potentially boosting the upsell season. Regarding AI costs, Perry clarified that the 50% adjusted EBITDA margin is a floor, indicating Doximity's willingness to invest in AI for long-term growth. He anticipates commercial AI products later this year, with revenue picking up in fiscal 2027, and expects unit economics to improve over time, similar to telehealth.

Allen Lutz inquired about the current budget flush expectations for the fiscal third quarter (calendar fourth quarter), asking if Doximity is observing a slowdown in engagements or differences compared to last year, and if D2C pressure is affecting the HCP market. He also asked Jeff Tangney about the current stage of adoption for Doximity's AI strategy and the expected timing of future revenue contributions from AI.

Answer

Anna Bryson, CFO, explained that the transition to integrated programs has shifted upsell dollars earlier in the year, leading to a stronger Q2 and making Q3 a more challenging comparison. She highlighted that upsell dollars are now more evenly deployed over the last 4-6 months, improving predictability. Jeff Tangney, Co-founder and CEO, stated that AI is already significantly impacting the business through AI-optimized integrated programs, which now represent 40% of sales. He noted a 3x increase in quarterly active client portal users and a 10x increase in ROI studies, indicating early but strong adoption and value.

Allen Lutz inquired about the fiscal third quarter guidance and budget flush expectations, asking if there's a slowdown in budget flush engagements this year compared to last, and if D2C pressure is impacting the HCP market. He also asked Jeff Tangney about the AI strategy's adoption process and the timing of future revenue contribution from AI.

Answer

CFO Anna Bryson explained that the transition to integrated programs has led clients to deploy upsell dollars earlier, resulting in a stronger Q2 and a more challenging Q3 comparison. She noted upsell dollars are now more evenly distributed over the last 4-6 months of the year, with calendar 2025 back-half growth at 14% year-over-year. CEO Jeff Tangney stated AI is already impacting the business through AI-optimized integrated programs, which accounted for 40% of Q2 sales (up from 5% a year ago). He highlighted the client portal's role in showing ROI, leading to a 3x increase in quarterly active client users and over 10x more ROI studies. He also mentioned the rapid uptake of AI Scribe, especially with Doximity Dialer, and the early innings of marketing the Pathway integration.

Allen Lutz of Bank of America Merrill Lynch inquired about the usage patterns and time spent by 'super users' of the new AI tools compared to the newsfeed, and asked for the specific OpEx impact from the Pathway acquisition.

Answer

CEO Jeff Tangney highlighted that over 75% of Scribe users are active weekly, making it a highly sticky product used during the workday, complementing the newsfeed's morning and evening usage. CFO Anna Bryson clarified that the Pathway acquisition will add just over $2 million in OpEx for the fiscal year, a figure that is already incorporated into the updated guidance.

Allen Lutz followed up on workflow tools, asking if clients are shifting failed programmatic spend to these new products or back to the News Feed. He also questioned the guidance framework, noting the higher initial growth forecast for FY26 despite tougher comps and more macro uncertainty compared to the prior year.

Answer

CEO Jeff Tangney credited the client portal for driving growth across the platform by providing frequent ROI data and reducing purchase friction. CFO Anna Bryson explained the stronger guidance by stating Doximity is in a much better competitive position than a year ago, with new products now proven and client budgets having stabilized, providing greater visibility and confidence despite the tougher comps.

Allen Lutz requested specific examples of how doctors are using Doximity's AI tools and asked whether the broader pharma digital marketing end-market is improving or if Doximity is primarily gaining market share.

Answer

Co-Founder Dr. Nate Gross provided examples of AI use, such as drafting prior authorization appeals and patient letters, to reduce administrative burden. CFO Anna Bryson stated that while the market saw marginal improvement, the 'majority of our outperformance was due to share gains,' noting Doximity grew about 3x the market rate this year, compared to a historical norm of 2x.

Allen Lutz inquired about the growth trajectory and long-term potential of workflow tools, which drove 20% of pharma sales, and asked for an update on long-term EBITDA margin targets.

Answer

CFO Anna Bryson clarified that 20% of Q2 sales came from new workflow products like formulary and point-of-care, which are growing faster than the overall business. She stated the company believes these modules could become as large as the news feed business within 3-5 years. Regarding margins, she said it is too early to update long-term targets, as Doximity is still assessing the efficiency impacts of AI and the client portal while continuing to invest in them.

Allen Lutz inquired about the accelerating strength of Cardinal Health brands within the GMPD segment, even after accounting for timing issues, asking for specific drivers. He also questioned the lower SG&A in GMPD due to optimization efforts, seeking details on savings sources and implications for the segment's full-year guidance.

Answer

CEO Jason Hollar attributed Cardinal Brand growth to sustained investments in the core business, improved manufacturing capabilities, reduced back orders, higher service levels, and robust underlying market utilization. CFO Aaron Alt highlighted the enterprise-wide focus on cost optimization, with GMPD's relentless pursuit of efficiency leading to a notable reduction in SG&A costs, supporting the business's progress against its improvement plan.

Allen Lutz inquired about the accelerating growth of Cardinal Health brands within the GMPD segment, asking for specific drivers behind this strength. He also sought details on the lower SG&A in the quarter due to optimization efforts, including savings sources and implications for the full-year GMPD guidance.

Answer

CEO Jason Hollar attributed Cardinal Brand growth to investments in the core GMPD business, improved manufacturing capacity, higher service levels, and robust underlying utilization. CFO Aaron Alt highlighted the enterprise-wide focus on cost optimization, with GMPD showing significant SG&A reductions from efficiency efforts, reinforcing the business's progress.

Allen Lutz inquired about the drivers behind the over 6% growth in Cardinal Health-branded product portfolios within the GMPD segment, asking about specific product types with high demand and the potential for continued outsized growth.

Answer

CFO Aaron Alt attributed the growth to clinically differentiated products, a key part of the GMPD five-point plan. He specified areas like compression, electrocardiography, surgical kitting, and syringes as key drivers, noting that growth is primarily with existing customers.

Allen Lutz asked about the drivers behind the over 6% growth in Cardinal Health-branded products during the quarter, specifically inquiring about the types of products experiencing high demand and the potential for continued outsized growth in this business area.

Answer

CFO Aaron Alt attributed the growth in Cardinal Health-branded products within the GMPD segment to clinically differentiated offerings, such as compression, electrocardiography, surgical kitting, and syringes. He noted that these areas align with the five-point plan outlined at Investor Day and represent continued investment opportunities.

Allen Lutz of Bank of America Merrill Lynch asked about the primary drivers of the quarter-over-quarter increase in SG&A expenses and how investors should think about the SG&A trend heading into fiscal 2026.

Answer

CFO Aaron Alt explained that while the company is focused on simplification and cost optimization, the vast majority of the SG&A increase was due to the inclusion of recent acquisitions like ION, GIA, and ADS. He noted that these acquisitions also present future synergy opportunities that will develop over time.

Allen Lutz asked if Cardinal Health is observing any headwinds in prescription volumes due to consumer weakness or broader macroeconomic concerns.

Answer

CEO Jason Hollar stated that the company has not seen any specific negative trends and highlighted the historical resilience of pharmaceutical demand, even during significant economic downturns like the Great Recession. He emphasized that favorable secular trends, such as demographics and innovation, provide a strong foundation for the industry irrespective of macro scenarios.

Allen Lutz from Bank of America requested quantification of the year-over-year headwind from COVID-19 vaccine distribution in the second quarter.

Answer

CFO Aaron Alt responded that while the company has not provided a specific number for the COVID-19 impact, it materialized as a modest headwind, consistent with their internal expectations. He noted the company was pleased to overcome this headwind, as demonstrated by the strong overall results in the Pharma segment.

Allen Lutz asked about the drivers of the significant year-over-year gross margin improvement, seeking to understand the puts and takes excluding the impact of losing a large, low-margin customer.

Answer

CEO Jason Hollar addressed the question by emphasizing that the company manages its business on gross margin dollars, not rate. He stated he would not take credit for a rate increase driven by a customer loss, highlighting that the key to their model is ensuring gross margin dollar growth outpaces SG&A growth, which was achieved in the quarter.

Allen Lutz asked about McKesson's specific technology and automation investments that enhance employee productivity during the annual verification season, and inquired about the longer-term opportunity to improve margins within the Prescription Technology Solutions segment.

Answer

CEO Brian Tyler detailed investments in AI, large language models, and other tech tools to streamline workflows, automate emails, and improve agent efficiency, citing a significant productivity boost during the 'blizzard season' and 75% autonomous resolution for DSCSA inquiries. CFO Britt Vitalone added that the segment's strategy focuses on automating capabilities for biopharma partners, which has led to over 130 basis points of year-over-year operating margin growth, with expectations for continued improvement.

Allen Lutz asked about specific technology and automation investments enabling employees to support more patients during the annual verification season, and the longer-term opportunity to improve margins in that segment given strong pull-through.

Answer

Brian Tyler, CEO, detailed investments in AI, large language models, and general tech tools to streamline internal workflows, automate emails, and improve agent efficiency, leading to significant productivity gains. He also cited DSCSA processes built digitally native, autonomously resolving 75% of inquiries. Britt Vitalone, CFO, added that the segment's revenue is split between third-party logistics and biopharma technology services, with operating margins growing over 130 basis points year-over-year due to automation capabilities.

Allen Lutz observed that SG&A expenses were down year-over-year for the third consecutive quarter while gross profit accelerated, and asked for insights into the drivers of this trend and the expected trajectory of gross profit and SG&A into the second half of fiscal 2026.

Answer

Britt Vitalone, Chief Financial Officer, explained that the exit of Canada-based Rexall and Well.ca businesses impacted both gross profit and operating expenses, leading to a more favorable business mix. He also highlighted the company's continued focus on efficiency, leveraging a technology-first mindset and AI-driven modernization to achieve significant operating expense efficiencies. Brian Tyler, Chief Executive Officer, added that these results are a manifestation of prior investments in physical automation and digital technologies.

Allen Lutz observed a unique dynamic of SG&A being down year-over-year for the third consecutive quarter while gross profit accelerates, and asked how to interpret this trend and its trajectory into the second half of fiscal 2026.

Answer

Britt Vitalone, CFO, attributed the trend to the divestiture of Canada-based Rexall and Well.ca businesses, which impacted both gross profit and operating expenses, resulting in a more favorable business mix. He also highlighted the company's continued focus on efficiency, driven by a technology-first mindset and AI-driven modernization. Brian Tyler, CEO, added that this is a manifestation of prior investments in physical automation and digital technologies.

Allen Lutz from Bank of America Merrill Lynch asked about several pharmaceutical market dynamics, including whether brand price increases, potential tariffs, or changes in generic pricing models were developing differently than McKesson had anticipated.

Answer

EVP & CFO Britt Vitalone confirmed that brand pricing trends are in line with expectations and the generics sourcing program is performing well without unusual pricing dynamics. CEO & Director Brian Tyler noted that while the tariff situation is uncertain, known factors are reflected in guidance, and he expressed confidence in the pharmaceutical supply chain's ability to buffer near-term impacts due to existing inventory levels.

Allen Lutz of Bank of America questioned the level of urgency to accelerate capital deployment into biopharma services and MSOs following the MedSurg separation, and asked about the potential size of this opportunity.

Answer

CEO Brian Tyler stated that the urgency to invest has been consistent, but past valuations were a challenge. He stressed that capital deployment remains driven by strategic alignment and financial discipline. CFO Britt Vitalone added that this approach is consistent with their long-term strategy of divesting assets like Change Healthcare and European businesses to reallocate capital to higher-return, differentiated platforms.

Allen Lutz from Bank of America inquired about the drivers behind the strong 2% operating expense growth, the variability between segments like RxTS and MedSurg, and the expected OpEx trajectory for Q4 and beyond.

Answer

CFO Britt Vitalone explained that the low OpEx growth reflects a multi-year focus on driving operating leverage through efficiency, automation, and data analytics. He noted that while the company is achieving greater efficiency, it continues to make strategic investments in growth areas like Prescription Technology Solutions (RxTS).

Allen Lutz asked about the embedded performance expectations for the core business (excluding RCA and One Oncology) for the remainder of fiscal 2026, and the factors that would lead to the low versus high end of the U.S. Healthcare Solutions EBIT range.

Answer

Jim Cleary, Executive VP and CFO, Cencora, reiterated that the core business (excluding RCA and One Oncology) is expected to perform solidly within the 7%-10% long-term guidance range. He attributed this to solid utilization trends, strong specialty sales to health systems and physician practices, and broad-based performance across the U.S. business. Cleary noted that the range reflects the level of strong performance against strong prior-year comps, with confidence in guidance due to underlying trends.

Allen Lutz asked about the expected performance of Cencora's core business (excluding RCA and OneOncology) for the remainder of fiscal 2026, specifically if it's projected to stay within the long-term EBIT guidance range, and what factors would drive the U.S. Healthcare Solutions segment's EBIT to either the low or high end of its revised range.

Answer

Jim Cleary, Executive Vice President and CFO, reiterated that the core business performance is driven by solid utilization trends, strong specialty sales to both health systems and physician practices (particularly health systems due to Cencora's specialty and oncology strength), and broad-based performance across the U.S. business. He explained that the range in guidance reflects the varying levels of this strong performance, acknowledging the strong comparative periods from previous years.

Allen Lutz asked for insights into the relative growth rates between specialty and generics within the U.S. Healthcare Solutions segment for fiscal 2026, assuming specialty is accretive and generics are dilutive to the overall 10-12% AOI growth, and how the generics business is expected to perform compared to fiscal 2025.

Answer

EVP and CFO Jim Cleary explained that Cencora does not specifically break out those numbers but confirmed that specialty has been and is expected to continue to be accretive to operating income growth due to innovation and MSO investments. He noted that Cencora's rebalanced contracts ensure fair returns across brand, generic, and specialty, and that generic deflation moderation trends continue, making all parts of the business valuable.

Allen Lutz inquired about the relative growth rates between specialty and generics within the U.S. Healthcare Solutions segment's 10-12% adjusted operating income (AOI) growth for fiscal year 2026, and the expected performance of the generics business.

Answer

CEO Bob Mauch stated that specific numbers are not broken out, but confirmed that specialty is accretive to operating income growth due to innovation and the MSO strategy. He noted Cencora's rebalanced contracts ensure fair returns across brand, generic, and specialty, and that generic deflation has moderated.

Allen Lutz asked for a breakdown of growth across different specialty provider verticals like oncology and retina, and whether utilization rates had accelerated or decelerated recently.

Answer

CEO Bob Mauch stated that while the company doesn't break out specific verticals, performance has been broad-based across all sites of care, including community specialty and health systems, with oncology remaining the largest growth area. CFO Jim Cleary added that strong utilization and broad specialty strength drove the significant U.S. operating income guidance increase.

Allen Lutz from Bank of America inquired about underlying script growth trends for 2025, excluding major drivers like GLP-1s, and whether the guidance assumes a normalization of the strong utilization seen in 2024.

Answer

CFO James Cleary acknowledged the strong utilization trends seen in FY24 and Q1 FY25. He explained that the guidance range exists to account for various assumptions on utilization for the rest of the year, while expressing high confidence in the market's resilience and Cencora's performance with market-leading customers.

Allen Lutz pointed to strong sequential revenue acceleration and asked if there were any significant drivers for the U.S. healthcare business's top-line growth beyond the impact of GLP-1 drugs.

Answer

Lazarus Krikorian, SVP and Chief Accounting Officer, confirmed GLP-1s were a primary driver, with sales up 55% year-over-year. He also emphasized that continued strong growth in specialty product distribution to physician practices and health systems was another significant contributor to the top-line performance.

Allen Lutz inquired about HealthEquity's perspective on the overall HSA market growth rate, confidence in sustaining current growth, and the expected contributions from the recent budget bill (OBBB) given the company's 7-8% account growth.

Answer

Scott Cutler, President and CEO, highlighted market expansion from the OBBB, efforts to lower barriers for high-deductible health plan selection, and opportunities to increase contributions (currently only 4% max out) and investor participation (only 8% are investors), aiming for more engaged consumers through the mobile app.

Allen Lutz of Bank of America Merrill Lynch asked why the full-year EBITDA guidance was raised by only $5 million when Q1 fraud costs were $9 million better than expected. He also sought clarification on whether proposed legislation would expand the HSA market by 20 million or 40 million families.

Answer

CFO James Lucania stated that the Q1 fraud cost of $3 million was in line with their internal forecast, so the outlook was not significantly altered, though they still aim for a 1 basis point run rate by the second half of the year. Founder & Vice Chairman Dr. Stephen Neeleman clarified the legislation would result in a net increase of 20 million eligible families, not a 40 million total increase.

Allen Lutz posed a two-part question, asking Dr. Steve Neeleman for an update on legislative progress for portable health accounts and asking Jim Lucania if the company has insurance to cover the recent fraud activity.

Answer

Vice Chair and Founder Dr. Steve Neeleman expressed continued optimism about legislative pathways for HSA expansion, noting ongoing discussions. EVP and CFO James Lucania confirmed that the company has a general crime policy and will work with its insurers to determine potential recovery for the fraud-related costs.

Allen Lutz from Bank of America asked for details on how a potential Medicare expansion for HSAs would work for HealthEquity, including the go-to-market strategy for employer and health plan populations.

Answer

Vice Chair and Founder Dr. Steve Neeleman explained that the company could immediately address the needs of working seniors currently on Medicare. For broader distribution, he stated HealthEquity would leverage its extensive network of health plan partners, many of whom have significant and growing Medicare Advantage populations, to market the new offerings through established channels.

Allen Lutz from Bank of America followed up on service costs, asking for the outlook on service gross margin for the remainder of the year and how to model incremental costs for new members given recent efficiency gains.

Answer

President and CEO Jon Kessler stated that typical second-half seasonality in service expense will remain due to new member enrollment and card delivery. EVP and CFO James Lucania added that while the goal is to lower the unit cost to serve an account each year, it's hard to keep absolute costs flat indefinitely due to factors like rising postage. He emphasized that efficiency gains allow for higher-skilled agents to handle complex issues rather than routine requests.

Allen Lutz from Bank of America Merrill Lynch asked for the key factors that need to occur for the company to return to revenue and EBITDA growth in fiscal 2027. He also inquired whether a previously mentioned client termination payment occurred in Q4 and requested its size.

Answer

CFO & Chief Administrative Officer Glenn Coleman detailed the drivers for fiscal 2027 growth, including a rebound in software renewals, continued advisory momentum, synergies from the Illumicare acquisition, sustained gross administrative fee growth, and significantly lower fee share headwinds. He confirmed the client termination payment was received in Q4 and its size was a component of a previous $15 million guidance increase for the Supply Chain Services segment.

Allen Lutz asked whether the strong customer behavior seen in Q3 was expected to continue into Q4, given the ongoing pressures on health systems. He also requested observations on utilization trends from the end of 2024 into early 2025.

Answer

President and CEO Michael Alkire indicated that health systems maintain a cautious outlook due to persistent worries about tariffs, labor markets, and potential federal funding changes. Regarding utilization, he noted that Premier's data through the end of December showed low single-digit growth in the acute care setting, with the non-acute sector growing at a faster pace.

Allen Lutz of Bank of America inquired about the gross administrative fee growth assumptions embedded in the updated guidance for the remainder of the fiscal year and asked about expected differences in utilization trends between calendar 2024 and 2025.

Answer

CFO Glenn Coleman explained that the guidance conservatively assumes a lower gross administrative fee growth rate than the 5% achieved in the first half, creating potential for upside. He noted the main difference in the year-over-year comparison is the one-time member payment expected in Q4 of the current fiscal year.

Allen Lutz of Bank of America Merrill Lynch asked new CEO Dan Scavilla about his early thoughts on investment priorities and whether new investments would be funded by reallocating existing spend or through incremental spending.

Answer

CEO Dan Scavilla identified investing in the customer and the field sales team as top priorities. CFO Matt Garth clarified that the primary approach will be to repurpose funds from efficiency gains in corporate and other P&L areas to reinvest in the field and innovation. He indicated this would be refined during the upcoming strategic planning process, suggesting a focus on reallocation over significant new spending.

Speaking on behalf of Allen Lutz, an analyst asked if getting to market growth for implants by 2026 is still the expectation and what additional investments might be needed. She also requested an update on the previously mentioned $30 million gross profit benefit from SKU optimization.

Answer

CEO Simon Campion declined to provide new guidance for 2025 or 2026 but reiterated that achieving market growth in implants is a reasonable goal and that the primary challenge is execution, not portfolio gaps. Regarding the SKU optimization benefit, he stated that all transformation initiatives are on track and a more detailed update would be provided with year-end results.

Allen Lutz asked about the outlook for gross margins in the distribution business for the second half of the year, given the return to normal pricing, and whether the KKR Capstone initiatives would be accretive to last year's levels. He also asked for an update on de novo dental practice builds and DSO expansion trends.

Answer

Senior VP & CFO Ronald South explained that while glove pricing has stabilized sequentially, distribution gross margins will likely remain slightly below the prior year due to the competitive market. He noted that overall gross margin benefits from the mix shift towards higher-margin technology and specialty products. Both South and CEO Stanley Bergman confirmed that DSO expansion and de novo builds remain strong, with new office design projects showing double-digit year-over-year growth in most months of 2025.

Allen Lutz asked for reasons behind the perceived weakness in the U.S. implant market during Q1 and requested an update on new product launches. He also sought more detail on the comment that new dental practice build-outs are increasing.

Answer

CEO Stanley Bergman suggested the implant market softness could be tied to weaker consumer sentiment for high-end procedures, while the lower-cost segment remains stable. He confirmed new products are being rolled out. Regarding build-outs, he clarified that activity for both de novo and existing practices is expanding more than in 2024, as DSOs and smaller practices have adjusted to the current interest rate environment.

Allen Lutz of Bank of America asked about the opportunity to improve operating margins in the Global Specialty Products group and inquired about Q4 dental implant growth and the potential 2025 impact from a major Medicare Advantage payer ending implant coverage.

Answer

CEO Stanley Bergman explained the specialty segment's margin includes some lower-margin businesses and corporate brand management costs, but he expects margins to grow over time. CFO Ron South added that implant growth was healthy in Europe but tougher in the U.S., with more growth in the value segment. He noted no discernible impact from the Medicare Advantage coverage change.

Allen Lutz inquired about the market's acceptance of recent price increases, particularly in light of dentist expectations noted in ADA surveys, and how the current environment for pricing compares to prior periods.

Answer

CEO Paul Keel stated that the company's modest price increases, which contributed about 1.5 points to growth, have been favorably received, as evidenced by strong 4% volume growth. He explained that the increases are below CPI and do not fully cover Envista's own input cost inflation, which customers seem to understand in the current environment.

Allen Lutz asked about the reasons for the softness in the Challenger implant business during Q1, especially compared to the growth in Premium implants, and the outlook for both.

Answer

President and CEO Paul Keel and CFO Eric Hammes attributed the slight contraction in the Challenger business partly to a non-operational headwind from two fewer billing days in Q1. They affirmed this does not signal a change in trajectory and that the company remains focused on growing this under-indexed segment, expecting steady progress for both Challenger and Premium implants for the remainder of the year.

Speaking for Allen Lutz, Dev asked for quantification on the pace of Spark's gross margin expansion and clarification on the impact of 2024's dealer inventory reduction.

Answer

CEO Paul Keel noted that while the pace of Spark's double-digit unit cost reductions may moderate, continued improvement is expected from a systematic manufacturing strategy. CFO Eric Hammes clarified that dealer inventory levels have been stable since Q2 2024, so no significant reversal or headwind is expected in 2025, with growth anticipated to align with sell-out trends.

Allen Lutz from Bank of America Merrill Lynch asked about the drivers of strong product gross margins, the impact of recent price increases, and the company's gross margin expectations for the second half of the year.

Answer

Randall Lipps, CEO, explained that price increases are part of an ongoing process and are tied to broader inflation rather than just tariffs. Nchacha Etta, CFO, added that gross margins are expected to benefit going forward from the scaling of SaaS and expert services businesses, as well as the positive impact from the XT Amplify innovation program.

Allen Lutz asked about the fundamental drivers in the hospital market, separate from tariff impacts, inquiring if there are signs of pharmacy IT budgets inflecting positively, which could lead to a reacceleration in demand.

Answer

CEO Randall Lipps confirmed a positive trend, noting that specialty pharmacy has become a highly strategic topic for healthcare providers. He explained that this focus is elevating conversations from cost savings to revenue generation, particularly in outpatient settings, and that this momentum from late 2024 is continuing into the current year.

Allen Lutz inquired about the drivers behind the end-market demand recovery, specifically asking for more detail on the "green shoots" and how improved hospital financials are translating into budget growth. He also asked about the expected product revenue ramp throughout 2025.

Answer

CEO Randall Lipps confirmed that improving financial conditions for healthcare providers contributed to stronger-than-expected Q4 bookings, which provides good revenue visibility for 2025. He noted the business is stabilizing and expects sequential growth, aided by customer excitement for the XT Amplify program. Executive Kathleen Nemeth added that Specialty Pharmacy Services are also showing strong traction.

Allen Lutz questioned the key drivers behind the strong Q4 product revenue guidance and inquired about the impact of the Inflation Reduction Act (IRA) on the specialty pharmacy business.

Answer

CEO Randall Lipps attributed the strong Q4 forecast to improved business predictability and a robust implementation schedule, noting nothing was substantially different from Q3. Regarding specialty pharmacy, he explained that the market has broadened to smaller hospitals and complexity has increased, driving strong demand for Omnicell's expertise, particularly in middle and smaller markets.

Allen Lutz questioned the drivers behind the strong sequential growth in subscription revenue, which seemed counterintuitive given the lapping of certain benefits, and inquired about the demand environment for the second half of the year.

Answer

CEO Matt Hawkins described the demand environment as robust, with providers prioritizing efficiency and trusted, mission-critical platforms like Waystar. CFO Steve Oreskovich attributed the strong subscription revenue growth to continued strength and adoption of higher-margin provider solutions, which also contributed to the adjusted EBITDA margin outperformance.

Allen Lutz asked about recent RFP activity with hospitals, whether the prospect of tariffs has altered these conversations, and the size and deployment status of new, separate AI-specific spending budgets at provider organizations.

Answer

CEO Matt Hawkins affirmed that while Waystar has no direct tariff exposure, the company is empathetic to provider concerns. He stated that in difficult economic times, demand for efficiency and ROI-driven software like Waystar's remains strong, positioning them as a net share gainer. Regarding AI, Hawkins confirmed the existence of separate GenAI-focused budgets at large providers and noted that Waystar is actively engaging with these pools of capital, moving from 'AI hype to ROI reality' with solutions like AltitudeAI, though he did not quantify the size of these budgets.

Allen Lutz asked for a bifurcation of the benefit from the competitor cyber event between ambulatory and health system clients, suggesting the health system opportunity may now be more near-term.

Answer

CFO Steve Oreskovich agreed with the general characterization, confirming that while the initial wave of new clients was a mix, the majority were from the ambulatory side. He affirmed that a 'phase 2' opportunity exists with larger health systems that initially weathered the disruption and are now evaluating their options, representing a continuing opportunity for Waystar.

Speaking on behalf of Allen Lutz of Bank of America, an analyst asked about the contribution of pricing to revenue growth in the quarter and full-year guidance, for both ART cycles and the pharmacy benefit, relative to historical inflation.

Answer

CEO Peter Anevski clarified that revenue growth is not being driven by price increases. Instead, he attributed the growth almost entirely to higher member engagement, consumption, and overall activity resulting from a larger base of covered lives. He noted that any impact from drug price inflation in the pharmacy benefit was minimal.

Allen Lutz asked why new clients are adopting new products at a higher rate (40%) than existing clients (20%) and inquired about any changes to the guidance framework for 2025 given the large client loss.

Answer

CEO Peter Anevski and President Michael Sturmer suggested new clients are more likely to adopt a full suite of services during their initial buying decision, but stressed that 20% adoption among the large existing client base is a significant success. CFO Mark Livingston stated the 2025 guidance methodology is consistent with prior periods, using current data while incorporating caution for potential variability.

Allen Lutz from Bank of America asked for details on the Q3 gross margin pressure from care management investments, the outlook for gross margin in 2025, and clarification on the calculation for 2025 covered lives.

Answer

CFO Mark Livingston attributed the margin compression to two factors: pre-hiring staff for 2025 client launches and the unexpected shortfall in ART cycle revenue. He stated it was too early to provide 2025 margin guidance but noted hiring is being moderated. He also clarified that the 2025 lives calculation accounts for roughly 100,000 new lives that went live early and are already included in the current member base.

Allen Lutz asked if the higher prices mentioned on the GoodRx app were driving the increase in revenue per MAC and requested a breakdown of the MAC decline between pricing impacts and store closures. He also inquired about the DC Rx acquisition.

Answer

CEO Wendy Barnes confirmed the primary driver of higher revenue per MAC was a mix shift toward higher-margin transactions at the pharmacy counter, part of a strategy to balance pharmacy profitability with competitive consumer pricing. She did not provide a specific breakdown for the MAC decline. CFO Chris McGinnis described the DC Rx acquisition as strategically important for deepening a key retail partnership, though its revenue contribution is immaterial.

Allen Lutz asked if higher prices in the GoodRx app were driving the increase in revenue per MAC and requested a breakdown of what caused the MAC decline between price changes and store closures. He also inquired about the DC Rx acquisition.

Answer

CEO Wendy Barnes clarified the primary driver of higher revenue per MAC is a mix shift toward higher-margin transactions at the pharmacy counter, which is balanced with maintaining competitive consumer pricing. She did not provide a specific delineation for the MAC decline. CFO Chris McGinnis described the DC Rx acquisition as financially immaterial but strategically important for deepening a key retail partnership.

Allen Lutz of Bank of America inquired if recent market changes, such as pharmacy partners adopting cost-plus models, have altered GoodRx's drug mix or win rates in early 2025.

Answer

CFO Chris McGinnis responded that since a large portion of GoodRx's volume (up to 70%) is already on a cost-plus basis, the impact of broader adoption is not significant. He views the trend positively, as it supports a healthy retail pharmacy environment and an aligned economic model, which he believes will ultimately drive a higher revenue mix for GoodRx. He did not comment on specific changes to win rates.

Allen Lutz of Bank of America asked how widespread aggressive pharmacy-PBM negotiations are, what has changed, and the mechanical impact on GoodRx, such as a weaker take rate or lower volume.

Answer

CFO Karsten Voermann explained that larger pharmacies are leveraging their scale to be more aggressive due to margin pressures, which could impact GoodRx's flow-through from PBM-adjudicated claims. Interim CEO Scott Wagner added that GoodRx's consumer usage growth remains healthy and that the company is growing share, making the issue a marginal dynamic.

Allen Lutz from Bank of America asked for more detail on the 'encouraging signs' in the NIV and oxygen categories during Q4. He also inquired about the current state of the glove pricing cycle and what is assumed for pricing in the 2025 guidance.

Answer

Executive Jonathan Leon stated that new patient starts for NIV and oxygen began to pick up late in the year after the company adjusted to new reimbursement requirements. Executive Edward Pesicka commented that glove pricing has 'somewhat leveled out' after a period of decline and may rise in the future, driven by factors like tariffs.

Allen Lutz asked about the sustainability of the strong margin performance in the Patient Direct segment, given the ongoing work to clear the patient backlog and continued commercial investments.

Answer

Executive Edward Pesicka attributed the margin expansion to both fixed cost leverage and gross margin improvements driven by optimizing the 'Sleep Journey' program and enhancing revenue cycle management. He expressed confidence that the relentless focus on process and service improvements should allow for continued year-over-year margin expansion in the segment, while also acknowledging the business's natural seasonality.

Asked what level of growth for dental consumables is implied in the second-half guidance and if there were any notable market changes exiting October. He also requested more granularity on the recovery from the Change Healthcare incident, specifically asking for a quantification of how many customers are back to normal claims processing.

Answer

The guidance for the second half implies a low single-digit growth environment for dental consumables, similar to Q2, with no significant uptick projected. Regarding the Change Healthcare recovery, the company stated the business is on track with its budget. While not providing a percentage of customers recovered, they quantified the headwind from last year's Q4 at $0.06, which will become a favorable year-over-year comparison in the upcoming Q4.

Asked for quantification of the two main impacts on Dental consumables growth: the effect of customers' cash flow issues from the Change Healthcare incident and the tough year-over-year comparison from the inventory build ahead of a potential UPS strike. Also questioned the margin trajectory for the companion animal segment for the rest of the year, specifically regarding rebate impacts.

Answer

The company identified the Change Healthcare impact as the larger of the two issues affecting Dental consumables. The UPS strike-related comp was described as less significant. For the companion animal segment, the expectation is that they will return to a normal cadence on rebates as the year progresses and get the business back on track to meet its budget.

Inquired about recent dental patient traffic trends and the duration of the elevated SG&A spending on strategic investments.

Answer

The company views patient traffic as steady and favorable. They stated that spending on distribution centers will normalize in Q4, but software investments are more sustaining, though an overall step down in related expenses is expected in Q4.

Allen Lutz inquired about the specific revenue or member contribution from GLP-1s in the quarter and asked for management's vision for the GLP-1 business in the next year, considering new form factors and product additions like liraglutide.

Answer

CFO Yemi Okupe stated that the subscriber base excluding GLP-1s grew over 40% year-over-year, indirectly indicating strong core growth. CEO Andrew Dudum described a durable long-term weight loss strategy built on a diverse portfolio, including a successful oral medication business, the upcoming generic liraglutide in 2025, and hyper-personalized semaglutide to mitigate side effects, which he believes will remain a critical need regardless of drug shortage status.

Allen Lutz questioned the company's significant annual spending on technology development and capitalized software, asking if the current level is appropriate. He also inquired about how much of that capital deployment is expected to be redirected as the company evolves its strategy under new leadership.

Answer

Chief Executive Officer Chuck Divita stated his view that the company is already spending enough in this area and the focus is on rationalizing the portfolio. The goal is to align spending with key imperatives, which will allow Teladoc to both bring the overall spend down over time and free up capacity for new, critical capabilities. He noted this continues a trend of managing T&D spend down, creating efficiencies to fund future investments while delivering solid financial performance.

Allen Lutz questioned the company's high level of spending on technology development and capitalized software, asking if the current amount is appropriate and how much of that capital deployment will be redirected under the new strategy.

Answer

CEO Chuck Divita stated his view that the company is already spending enough in this area. He explained the focus is on rationalizing the portfolio to align with key imperatives, which will allow them to both reduce overall spend over time and free up capacity for new, critical capabilities. He noted progress has already been made in reducing total T&D spend.

Asked for more details on the DeVry customer relationship and the opportunity to replicate that successful model with other customers who are not yet using the full suite of Accolade's solutions.

Answer

Rajeev Singh described the DeVry relationship as a deep partnership where Accolade serves as a strategic adviser on overall healthcare strategy. He affirmed that the company aims to play this broader role with all its customers, using the DeVry case as a key example to demonstrate this capability and value proposition.