Charles Rhyee

Charles Rhyee inquired about the average number of Veeva Development Cloud products used by top 20 biopharma clients, the tipping point for 'full Veeva' in R&D, and the overall competitive landscape in R&D.

Answer

Peter Gassner (CEO) clarified that Merck's partnership was strategic, not an 'everywhere' commitment. He noted 20 out of 20 top 20 clients selected Veeva for eCTMF, but newer areas like RTSM, eCOA, and safety have fewer top 20 adoptions, indicating early days for Development Cloud. He stated that Veeva has competitors in each specific area but no overall Development Cloud competitor, emphasizing Veeva's execution, integrations, and platform advantage.

Charles Rhyee inquired about the average number of Development Cloud products used by top 20 biopharma clients, the definition of a 'full Veeva' R&D environment, and the current competitive landscape.

Answer

Peter Gassner (CEO) noted that 20 out of 20 top 20 customers use eTMF, but newer areas like RTSM, eCOA, and safety have fewer enterprise standards. He explained that Development Cloud is still in early stages due to long implementation cycles and continuous application additions. Peter stated Veeva has no direct competitor attempting an overall Development Cloud, focusing on execution and platform advantage.

Charles Rhyee asked whether the trend of large pharma insourcing development via an FSP model has driven Development Cloud growth, or if the platform's availability has enabled this trend.

Answer

CEO Peter Gassner suggested that the Veeva Development Cloud has likely played a small part in enabling large pharma to shift towards more functional outsourcing by providing an efficient, integrated technology stack. However, he noted this was a contributing factor rather than the primary driver of Development Cloud's uptake.

Charles Rhyee asked about the Walgreens partnership's role in the Data Cloud strategy and Veeva's competitive position. He also inquired about the growth rate of Crossix relative to the overall commercial business.

Answer

CEO Peter Gassner stated the Walgreens deal is part of an ongoing effort to expand their industry-leading data network, which powers both Crossix and Compass. He expressed confidence in their competitive position. CFO Brian Van Wagener declined to provide a specific growth rate for Crossix but noted it is performing well and taking share in a healthy market.

Charles Rhyee asked if strong performance signals a 'thawing' in discretionary biopharma spending and inquired about the reasons for the uneven quarterly billings guidance for the second half of the year.

Answer

CEO Peter Gassner stated he would not call it a 'thawing,' but rather a better flow of some pent-up demand in the absence of new negative macro news. Interim CFO Tim Cabral explained the billings forecast is shaped by a harder Q3 year-over-year comparison and the impact of billing term changes, primarily related to renewal date shifts.

Charles Rhyee sought clarification on the full-year tax rate guidance, specifically how to interpret the tax rate trajectory for the back half of the year, given the updated 18%-19% range and previous comments about the first half being higher.

Answer

Britt Vitalone, CFO, explained that the second half of the year is anticipated to have a slightly higher tax rate than previously guided, leading to the updated 18%-19% full-year range. He specified that the third quarter tax rate is expected to be 23%-25%, with the fourth quarter likely lower due to the timing of discrete tax items and income mix.

Charles Rhyee sought clarification on the company's tax rate guidance for the fiscal year, specifically how the back-half tax rate would trend given the updated full-year range and the previously stated cadence of higher rates in the first half.

Answer

Britt Vitalone, Chief Financial Officer, explained that the tax rate can vary due to income mix and timing of discrete items. He noted a modest change in the full-year outlook to 18%-19% and provided specific guidance for the third quarter at 23%-25%, anticipating a lower rate in the fourth quarter due to discrete tax items and income mix.

Charles Rhyee of TD Cowen questioned the outlook for the RxTS segment, noting the strong quarterly performance and raised revenue guide but unchanged operating income forecast. He asked about expectations for GLP-1s and the impact of recent insurer prior authorization changes.

Answer

EVP & CFO Britt Vitalone attributed the strong quarter to successful prior authorization programs for both GLP-1 and non-GLP-1 drugs, as well as lumpy but strong 3PL revenue. CEO & Director Brian Tyler added that prior authorization policies have been largely steady, and a mix shift between program sponsors has not negatively impacted overall prior authorization volumes.

Charles Rhyee of TD Cowen asked for a bridge to explain why the fiscal 2026 free cash flow guidance is lower than the amount generated in fiscal 2025.

Answer

CFO Britt Vitalone explained that the fiscal 2026 guidance of $4.4 billion to $4.8 billion is still historically strong. He attributed the year-over-year decrease primarily to the timing of working capital, which can be affected by which day a quarter ends on, and a few non-operational cash flow items that favorably impacted fiscal 2025.

An analyst on for Charles Rhyee at TD Cowen asked about the Medical-Surgical segment's outlook, questioning the implied Q4 growth rate, its dependency on the respiratory illness season, and the impact of lapping cost-saving initiatives in fiscal 2026.

Answer

CFO Britt Vitalone clarified that specific fiscal 2026 guidance has not been provided. He acknowledged the current soft flu season's impact but declined to predict future seasons. He confirmed the company is on track to achieve its $100 million cost savings goal for fiscal 2025 and is continuing to align the business with market conditions.

Charles Rhyee inquired about the interaction between CoverMyMeds and PBM-owned prior authorization platforms, the revenue model for prior auth, potential cash flow impacts from IRA-driven specialty utilization changes, and the current strategy and state of the Health Mart independent pharmacy network.

Answer

CFO Britt Vitalone explained that prior authorizations can be initiated at the provider or pharmacy and the revenue model depends on the services provided, which can change as a drug matures. He does not expect significant cash flow changes from IRA impacts on receivables, as terms are set by customer contract. He described Health Mart as a resilient network that McKesson supports with sourcing and reimbursement services, noting its membership has remained stable through natural churn.

Charles Rhyee followed up on the U.S. Healthcare Solutions segment's core growth, questioning if the underlying strength, even after normalizing for RCA, COVID, and customer loss, remains above the long-range plan (LRP). He also asked if the 3-4% capital deployment in the LRP already accounts for the next step in the One Oncology transaction.

Answer

EVP and CFO Jim Cleary clarified that the U.S. adjusted operating income growth guidance for fiscal 2026 is 9-11%, or 10-12% excluding a 1% net headwind from RCA's extra quarter and the oncology customer loss. He affirmed strong confidence in the increased long-term guidance, acknowledging the 'law of large numbers' effect. He also confirmed that the long-term guidance for capital deployment does include the highly likely acquisition of the rest of One Oncology.

Charles Rhyee followed up on USAOI, questioning if the core growth, normalized for RCA, COVID, and the oncology customer loss, remains significantly above the long-range plan. He also asked if the 3-4% capital deployment in the LRP already accounts for the next step in the OneOncology transaction.

Answer

CFO Jim Cleary clarified that the FY2026 USAOI guidance is 9-11%, or 10-12% excluding the net headwind from RCA and the customer loss. He acknowledged the 'law of large numbers' but reiterated confidence in the LRP. He confirmed that the OneOncology acquisition is included in the capital deployment assumptions within the long-term guidance.

Charles Rhyee of TD Cowen asked about the typical lead time for projects within the international business, specifically for the global specialty logistics and consulting services, to better understand the company's forward visibility on demand.

Answer

President & CEO Robert Mauch explained that there is no simple answer, as the lead time and sales cycle are variable and depend on factors like the project's size, the market, and the specific type of work. However, he assured that the company has good visibility into its pipeline and future growth tracking, and that teams are focused on sales execution and optimizing services to capitalize on a market recovery.

Charles Rhyee asked for more detail on the softness in the international specialty logistics business, particularly the subdued clinical trial activity and feedback from pharma clients.

Answer

CFO Jim Cleary confirmed that subdued clinical trial activity has pressured the global specialty logistics and pharma consulting businesses, with a market rebound occurring slower than anticipated. This led to the lowered guidance for the International segment. He expressed confidence in Cencora's ability to capitalize on an eventual recovery.

Charles Rhyee of TD Cowen asked about the potential opportunity from biosimilar EYLEA launches and whether Cencora's ownership of RCA could help drive better biosimilar adoption.

Answer

CEO Robert Mauch stated that the retina market is healthy with both new innovation and biosimilars. He noted that biosimilar adoption in the Part B space has historically been strong and is expected to continue, but physicians will ultimately make the best clinical decisions for their patients.

Charles Rhyee asked about Cencora's response to political concerns over distributors owning MSOs and questioned the strategic benefit of these acquisitions beyond securing distribution volume.

Answer

CEO Bob Mauch stated that Cencora respects the governmental review process and is prepared to participate. He defended the MSO model as a vital tool for supporting community providers, arguing that it enhances patient access and promotes a more cost-effective healthcare system.

Charles Rhyee asked about Cigna's strategic decision to move to a new business model, the dialogue in Washington with peers and regulators, and the potential for broader regulatory resolution to alleviate the industry's long-standing regulatory overhang.

Answer

David Cordani, Chairman and CEO, highlighted Cigna's belief in sustained public-private partnership, citing examples like prior authorization reform and fertility treatment access. He also emphasized Cigna's relentless innovation, such as the Encircle program for GLP-1s, and described the new rebate-free model as a 'step function transformation' reframing the marketplace for consumers, employers, and independent pharmacists. Cordani affirmed ongoing collaborative engagement in Washington.

Charles Rhyee of TD Cowen requested details on the CuraScript specialty distribution business, including its market when selling to health systems, its competitive landscape, and its role in distributing biosimilars.

Answer

President and COO Brian Evanko described serving health systems as a key growth opportunity, as they seek to manage their own specialty pharmacy capabilities. He clarified that CuraScript focuses on the provider-administered medical benefit market, differentiating it from traditional wholesalers. He also confirmed CuraScript is a distribution vehicle for new biosimilars, like its Stelara biosimilar, capitalizing on the growing biosimilar wave.

Charles Rhyee followed up on the Arkansas legislation, asking about recourse for PBMs and potential steps to address conflict-of-interest concerns. He also asked about the launch of the biosimilar for STELARA.

Answer

Chairman and CEO David Cordani reiterated that the Arkansas bill is flawed and suggested recourse includes fact-based engagement, amplifying client choice, and embracing transparency, with litigation as a final option. President and COO Brian Evanko announced that a $0 patient out-of-pocket biosimilar for STELARA would be available this month, expecting gradual adoption through the year, which is contemplated in Evernorth's outlook.

Charles Rhyee from TD Cowen asked if GLP-1 drugs were a driver of the stop-loss pressure and questioned if the 2025 Evernorth operating income growth guidance was conservative, given its strong performance in 2024.

Answer

CFO Brian Evanko clarified that the stop-loss pressure was driven by high-cost specialty injectables like KEYTRUDA and OCREVUS and high-acuity surgeries, not GLP-1s. Regarding Evernorth's 2025 outlook, he explained that after normalizing for the absence of VillageMD income, stranded overhead from the Medicare divestiture, and new investments, the segment's growth falls within the company's 5% to 8% long-term target range.

Charles Rhyee asked about the opportunity to gain incremental share in community pharmacy following Omnicare's bankruptcy, including market overlap and the attractiveness of expanding into skilled nursing. He also inquired about the FDA's pace of drug approvals and any concerns for BrightSpring's limited distribution drug (LDD) pipeline.

Answer

CEO Jon Rousseau stated that Omnicare's bankruptcy is not expected to be material, as BrightSpring focuses on its existing customers and attractive end markets like assisted living, behavioral health, hospice, and PACE. He clarified that while home and community pharmacy scripts declined year-over-year due to a large customer bankruptcy (signed Q3 last year, now unwinding), proactive customer base scrutiny, and a later flu season, the segment's EBITDA was up due to growth in other markets and operational efficiencies. Mr. Rousseau also noted that BrightSpring has not seen any impact from the FDA's drug approval pace, with LDD launches having a record year and the pipeline remaining robust.

Charles Rhyee asked about the opportunity presented by Omnicare's bankruptcy for BrightSpring to gain incremental market share in community pharmacy, considering market overlap and the attractiveness of expanding into skilled nursing. He also inquired about the FDA's pace of drug approvals and any potential concerns for BrightSpring's limited distribution drug (LDD) pipeline.

Answer

CEO Jon Rousseau stated that Omnicare's situation is not expected to be material, as BrightSpring focuses on existing customers and attractive end markets like assisted living, behavioral health, and hospice. He clarified that a decline in home and community pharmacy scripts was due to a large customer bankruptcy from Q3 last year, proactive customer base scrutiny, and a later flu season, emphasizing that EBITDA is performing well due to growth in other markets and operational efficiencies. He also noted no impact from FDA approval pace, with a record year for LDD launches and a robust pipeline.

Charles Rhyee of TD Cowen inquired about the contribution of generic drugs to the quarter's strong performance. He also asked for the company's perspective on the revived 'most favored nation' pricing discussions and their potential downstream effects.

Answer

CEO Jon Rousseau explained that the company's clinical liaison team effectively acts as a sales force for generics, driving rapid conversion and market share. Regarding 'most favored nation' pricing, Rousseau stated it's uncertain but believes pharmacies are not the intended target. He emphasized the company's diversification, strong balance sheet, and the likelihood that payment models would evolve to ensure provider stability.

Charles Rhyee followed up on the backlog, asking about the quality of the remaining projects and confidence that most potential cancellations have been processed. He also inquired about biotech RFP flow, win rates, and market share changes in Q3 2025 versus 2024.

Answer

CEO Barry Balfe expressed confidence that the company is closer to the end of the disruption-driven cancellation process, anticipating a return to more normalized levels in 2026. He noted a healthier association with recent awards entering the backlog. For biotech, he highlighted significant increases in RFP flow year-over-year and quarter-over-quarter, but acknowledged that win rates have remained materially flat, indicating work to be done in converting opportunities.

Charles Rhyee asked about the quality of ICON plc's remaining backlog and the comfort level regarding potential future cancellations. He also inquired about biotech RFP flow, win rates, and market share changes in the biotech sector for Q3 2025 versus Q3 2024.

Answer

CEO Barry Balfe expressed confidence that ICON is closer to the end of the disruption process that led to delays and cancellations, anticipating a return to more normalized cancellation levels. He noted a healthier association between recent awards and future revenue. For biotech, Balfe highlighted significant increases in RFP flow year-over-year and quarter-over-quarter, but acknowledged that win rates in biotech have remained materially flat, indicating a need for improvement in converting opportunities.

Charles Rhyee of TD Cowen sought clarification on the Q3 cancellation forecast, asking if the expected ~$900 million figure implies another large one-off item, and requested a breakdown of the drivers for the updated revenue guidance.

Answer

CEO Steve Cutler clarified that the Q3 cancellation forecast will be in the 'same sort of postcode' as Q2's number and should not be viewed as containing an exceptional item. CFO Nigel Clerkin added that the change in revenue guidance is 'fundamentally driven from the uptick in pass-throughs,' with foreign exchange having a neutral impact since the April guidance was issued.

An associate for Charles Rhyee asked about any common themes among the elevated Q4 cancellations, the company's expectations for this trend, and whether it is factored into the 2025 revenue guidance.

Answer

CEO Dr. Steve Cutler reported that there were no specific themes, with cancellations spread evenly across the business, though perhaps slightly more in large pharma for the full year. He expects cancellations to remain on the 'higher side of normal' through 2025, particularly until biotech funding becomes more broad-based. He confirmed this elevated cancellation rate is fully contemplated in the company's reaffirmed guidance.

Charles Rhyee inquired about the scale of near-term M&A opportunities and whether ICON's balance sheet could support both M&A and share buybacks simultaneously.

Answer

CEO Dr. Steve Cutler confirmed that ICON's strong balance sheet allows for both M&A and share repurchases. He characterized the M&A pipeline as consisting of non-transformational, bolt-on acquisitions similar in size to the recent Eastern Europe deal. The focus is on supplementing and improving current operations in areas like laboratory services, patient and site solutions, and late-phase evidence to enhance overall performance.

Charles Rhyee of TD Cowen sought to confirm that the Q4 pharma expenses were separate from strategic investments and asked if the $0.05 EPS impact from the NCI liability change included a catch-up from Q3.

Answer

CFO Aaron Alt confirmed the Q4 expenses were not the strategic investments discussed at Investor Day. Regarding the EPS impact, he guided analysts to focus on the forward-looking FY26 impact, where roughly half of the $0.20 guidance raise is from the liability classification.

Charles Rhyee asked for the primary components driving the company's forecast for double-digit non-GAAP EPS growth in fiscal 2026.

Answer

CFO Aaron Alt explained that the growth is expected to be broad-based. Key drivers include continued momentum in the Pharma segment (from utilization, generics, specialty, and new customers), strong demand and secular tailwinds in the three 'Other' businesses, and accretive contributions from recent acquisitions like GIA and ADSG. This combined strength supports the outlook even with GMPD's profit expected to be flat.

Charles Rhyee of TD Cowen asked if potential new tariffs are accelerating domestic manufacturing plans and questioned the outlook for the generic drug market, given data suggesting moderating deflation.

Answer

CEO Jason Hollar reiterated that while onshoring is a consideration, short-term acceleration is difficult due to regulatory and investment constraints, and decisions depend on the scale and certainty of tariffs. CFO Aaron Alt addressed the generics question, stating that the market dynamic was consistent in the quarter. He emphasized that Cardinal Health manages both sourcing and pricing to maintain a consistent average margin per unit, rather than focusing solely on the rate of deflation.

Charles Rhyee sought clarification on procedure deferrals mentioned earlier and asked about the underlying assumptions for healthcare utilization costs embedded in the updated guidance.

Answer

CEO Jason Hollar clarified that any disruptions, such as from hurricanes, were not meaningful to GMPD results. He explained that while GMPD utilization is stable, it is not as strong as the pharma side. He confirmed that the forward guidance for Q2-Q4 assumes a 'normal utilization type of environment,' consistent with the company's long-term growth targets.

Charles Rhyee of TD Cowen asked if the $2.5 billion 2026 revenue target includes an assumption for a decline in the individual exchange business and if there were discussions with a large partner about switching back to Performance Suite.

Answer

CFO John Johnson confirmed their 2026 revenue build-up does assume some decline in the exchange population. CEO Seth Blackley addressed the partner question generically, stating that the Performance Suite is the best value proposition and he expects partners to move that way over time, though timing is uncertain due to factors like membership volatility.

Charles Rhyee from TD Cowen asked at what point the company might consider the current lower-than-expected oncology trend to be the new baseline, and also inquired about authorization trends observed in April.

Answer

Executive John Johnson responded that leading indicators for April showed patterns similar to Q1. However, he stated that the company would wait for Q2 results, which will include significantly more completed claims data, before providing a formal update on its trend forecast.

Charles Rhyee questioned if the 2025 oncology trend forecast is comparable to 2024 results given new contract protections, and asked about trends in the cardiology business.

Answer

CFO John Johnson explained that the trend comparisons are different because new contract corridors now bind the potential volatility more than in the prior year. CEO Seth Blackley added that cardiology trends are smaller than oncology and that the company is taking a conservative approach in its 2025 forecast for cardiology as well. He also confirmed that the new risk corridor structures apply to both the oncology and cardiology businesses.

Charles Rhyee of TD Cowen inquired about the claims audit process, asking for details on out-of-scope expenses and the revenue concentration of the partners driving high medical loss ratios (MLR).

Answer

John Johnson explained that while the claims audit is a normal process, the volume of claims to review has grown tenfold compared to the prior year. He noted that less than 10% of the flagged claims have been reviewed so far and the company is taking a conservative stance. Johnson also confirmed that the small number of partners driving the high MLR represent 40% to 50% of the Performance Suite revenue.

Charles Rhyee of TD Cowen asked for clarification on the full-year guidance, specifically quantifying the expected impact of tariffs on gross margins in the second half. He also inquired about inventory levels, progress with healthcare channel revenue, and the dilutive impact of the recently announced warrant exchange.

Answer

CFO Amanda Crawford detailed the tariff impact, noting a ~$500k effect in Q2 and an expected ~5% impact on gross margin by Q4. She also stated the company targets about six weeks of inventory. President Jonathan Harris described healthcare revenue as "inconsequential" but noted progress with DME partner Adapt covering 29 states. At the call's conclusion, CFO Amanda Crawford clarified the warrant exchange would result in approximately 5.4 million newly issued shares.

Inquired about the financial impact of tariffs on gross margins for the back half of the year, inventory levels, progress in the healthcare channel, and the dilutive effect of the recent warrant exchange.

Answer

The company quantified the tariff impact, expecting it to affect gross margin by about 5% in Q4. They target six weeks of inventory. Healthcare revenue is currently minimal, but progress is being made with DME partners and the CHKD hospital integration. The warrant exchange details were provided at the end of the call, converting ~9M warrants into ~5.4M new shares.

Charles Rhyee of TD Cowen requested a breakdown of the $35-40 million revenue guidance reduction between the Rite Aid bankruptcy and ISP headwinds. He also asked about the potential market size for direct-to-consumer brand drugs.

Answer

CFO Chris McGinnis clarified that the revenue impact is split roughly half-and-half between the Rite Aid bankruptcy and the erosion of one ISP program. CEO Wendy Barnes addressed the DTC opportunity, suggesting that the key factor is the price delta consumers experience, creating a meaningful opportunity even for higher-cost drugs.

Charles Rhyee of TD Cowen asked for a breakdown of the $35-40 million negative revenue impact between the Rite Aid bankruptcy and the ISP program erosion, and questioned the size of the direct-to-consumer opportunity for brand drugs.

Answer

CFO Chris McGinnis clarified that the revenue headwind is split roughly half-and-half between Rite Aid and the ISP issue. CEO Wendy Barnes addressed the brand drug opportunity, stating that consumer value is driven by the savings delta relative to the original price, making it a significant opportunity even for drugs with cash prices above historical thresholds.

Charles Rhyee followed up on GLP-1s, asking for the reasons manufacturers have not yet moved forward with a cash price program on GoodRx. He also asked about the HCP strategy and what the company is doing differently now compared to last year.

Answer

CEO Wendy Barnes stated that they are 'close' to securing GLP-1 partnerships, suggesting that recent resolutions of supply shortages and the anticipated launch of more competing molecules will increase pressure on manufacturers to partner. Regarding the HCP strategy, she highlighted the high engagement from over 750,000 HCPs in Q1 and noted the new Chief Pharmacy Officer is focused on better monetizing this audience in partnership with pharma manufacturers, an opportunity she believes was not fully capitalized on previously.

Charles Rhyee followed up on the GLP-1 topic, asking for the reasons manufacturers have not yet moved forward with a cash price program on GoodRx. He also asked for details on the HCP strategy and what is being done differently compared to last year.

Answer

CEO Wendy Barnes stated they are 'close' with GLP-1 manufacturers, suggesting that recent supply shortages and the newness of their direct models are temporary hurdles. She anticipates that increasing competition will change the dynamic. Regarding the HCP strategy, she highlighted that over 750,000 unique prescribers engaged with the platform in Q1 and the new focus under the Chief Pharmacy Officer is to better monetize this engagement in direct partnership with pharma companies, an area she believes was previously underutilized.

Charles Rhyee of TD Cowen requested an update on the rollout status of the traditional Integrated Savings Program (ISP) with major PBMs like ESI and Caremark, noting a perceived shift in focus towards ISP wrap and manufacturer solutions.

Answer

CEO Wendy Barnes acknowledged that the ISP has evolved since its launch, with a greater focus now on the 'ISP wrap' for non-covered brands, which presents a larger value proposition to PBMs and their clients. She confirmed that dialogues with existing PBM partners are dynamic and ongoing, and that GoodRx is actively working to expand its list of ISP partners to address the significant opportunity in coverage gaps.

Charles Rhyee of TD Cowen asked for more detail on the retail market "choppiness," the potential impact from Walgreens' store closures, and GoodRx's efforts to redirect consumers from closed pharmacies.

Answer

Interim CEO Scott Wagner acknowledged that industry announcements on footprint changes and retail-PBM interactions are factored into their outlook. He highlighted that GoodRx's value proposition, particularly its brand programs, helps retain consumers by providing affordability, which can lead them to switch pharmacies and demonstrates the company's ability to direct volume.

Charles Rhyee of TD Cowen sought to confirm the primary headwinds for second-half margins, including DSA hiring and CDMO normalization. He also asked if the conclusion of the DOJ investigation into NHP shipments would provide any margin benefit to the DSA segment.

Answer

CFO Flavia Pease confirmed the second-half margin headwinds are driven by increased DSA hiring, the absence of high-margin CDMO revenue from H1, and the timing of annual merit increases. Regarding the DOJ investigation, she explained that the associated legal costs and inventory write-offs were previously treated as non-GAAP items. The NHP inventory will now be expensed as a normal cost of goods sold as studies are run, unwinding the prior non-GAAP adjustment.

Charles Rhyee asked about the risk of study cancellation rates increasing and requested an update on the FDA's Form 483 for the CDMO business.

Answer

CEO James Foster explained that cancellation rates have been declining for over a year and are approaching target levels, indicating market stability. Regarding the FDA inspection, he stated that the company is working closely and productively with the agency to respond to their requests, giving them confidence in their ability to support future commercial clients.

An associate for Charles Rhyee asked for more detail on the drivers of margin expansion in the Manufacturing segment beyond microbial growth, and for clarification on whether a client mentioned in the 10-K who received a CRL from the FDA was one of the two previously discussed commercial CDMO clients.

Answer

EVP & CFO Flavia Pease explained that margin expansion is also driven by company-wide cost savings initiatives benefiting all businesses, including biologics testing and CDMO. Chair, President & CEO James Foster confirmed that the client mentioned in the filing was one of the two commercial clients previously discussed at the JPMorgan conference.

Charles Rhyee from TD Cowen asked for guidance on the revenue cadence between Q3 and Q4, the visibility behind that ramp, and for metrics on member conversion rates given the reported drop in customer acquisition costs (CAC).

Answer

CFO Ian Harris projected a ramping revenue cadence for the second half, with Q4 being the strongest quarter. He cited visibility from the large Q2 user base increase, product improvements, and new plan launches. He quantified the CAC improvement as a high single-digit to low double-digit percentage improvement sequentially and year-over-year.

Charles Rhyee from TD Cowen asked for guidance on the revenue cadence between Q3 and Q4, the visibility into that growth, and for metrics on member conversion rates given the falling customer acquisition cost (CAC).

Answer

CFO Ian Harris projected consistently ramping revenue growth, with Q4 being the highest run-rate quarter. He noted visibility comes from the Q2 user base increase and longer payer LTV. He quantified the CAC improvement as a high single-digit to low double-digit percentage improvement both sequentially and year-over-year.

Charles Rhyee of TD Cowen questioned the sales and marketing strategy, asking why the company isn't spending more aggressively given stated positive ROIs. He also requested details on the new partnership with Bark Technologies, including its mechanics and economics.

Answer

CFO Ian Harris explained that while ROIs are positive and the company is leaning into marketing, especially in the first half of the year, spending is a balance between driving top-line growth and achieving bottom-line targets. CEO Dr. Jon Cohen detailed the Bark partnership, noting the Talkspace app will be preloaded on Bark phones and available to its users, but did not disclose specific financial terms, highlighting the strategic value of reaching parents alerted to their teens' online risks.

Lucas, on behalf of Charles Rhyee, asked if Waystar is seeing its cyber-attack-impacted competitor aggressively trying to win back lost customers, potentially using contractual obligations, and if this poses a retention risk.

Answer

CEO Matt Hawkins stated that Waystar has not observed this behavior and has maintained excellent retention among the clients that switched over. He reiterated his view that as time passes, the ongoing unrest at the competitor creates a significant opportunity for Waystar to gain further market share from a second wave of clients looking to switch.

Charles Rhyee of TD Cowen asked about the primary limiting factors preventing higher penetration of virtual care, questioning whether the main challenges lie at the provider, payer, or consumer level.

Answer

CEO Charles Divita responded that a key opportunity is to evolve virtual care from being transactional to being more longitudinal. He explained that the company's strategy is to use its millions of engagement points not just as visits, but as opportunities to address care gaps, navigate patients, and resolve issues more holistically. This shift aims to make each interaction more valuable and impactful, thereby driving more volume.

Charles Rhyee questioned the company's capital deployment strategy, asking why the board favored acquisitions like UpLift over more aggressive share buybacks given the stock's valuation. He also asked about management's capacity to handle the distinct strategic challenges in both the Integrated Care and BetterHelp segments simultaneously.

Answer

CFO Mala Murthy responded that capital is being prioritized for acquiring capabilities to drive long-term growth, though share buybacks remain an option. CEO Chuck Divita added that recent organizational restructuring has streamlined the company, putting leadership in place to effectively execute on the distinct strategies for both major segments and unlock value from the company's scale.

Charles Rhyee of TD Cowen asked about the marketing plan for the TRICARE population and whether new visit-based contracts are structured to be as profitable as the older access-fee models.

Answer

CEO Chuck Divita stated that marketing strategies are broad-based, leveraging the main Teladoc brand, rather than being specific to TRICARE. CFO Mala Murthy explained that when transitioning clients to visit-fee models, the goal is to be gross margin neutral over time, often achieving gross profit dollar accretion by bundling additional services.

Charles Rhyee asked about utilization trends within the Integrated Care segment, noting that it appeared to be down year-over-year. He questioned if this was due to the influx of new members and what 'same-store' penetration looks like for established clients. He also asked how value-based arrangements would be reflected in financial results.

Answer

Chief Financial Officer Mala Murthy acknowledged that with rapid new member growth, it takes time for utilization to fully ramp up across the new base. However, she stressed that the company is seeing strong visit volume growth and, more importantly, robust visit revenue growth. This is driven by volume and an accretive mix from areas like mental health and Primary360. She expects this trend to continue as the company focuses on improving engagement across its entire member population.

Charles Rhyee asked about utilization trends within the Integrated Care segment, questioning if the apparent year-over-year decline was due to new member mix and what 'same-store' penetration looks like. He also inquired about progress on value-based arrangements.

Answer

CFO Mala Murthy acknowledged that it takes time for utilization to ramp up with a large influx of new members. She emphasized, however, that the company is seeing strong visit volume growth and, more importantly, robust visit revenue growth, driven by accretive visits in high-value areas like mental health and Primary360.

Charles Rhyee from TD Cowen asked if RFP flow has been constant while cancellations were the main variable, inquired about the drivers of cancellations, and asked why client decision-making has accelerated.

Answer

CEO August Troendle confirmed that while the overall environment had weakened previously, the biggest recent variable has been cancellations, which he stated are "very highly related" to funding. He also attributed the accelerated client decision-making primarily to improved funding, which allows sponsors to move forward with awarded projects.

Charles Rhyee of TD Cowen asked if Medpace is seeing instances of VC or PE backers pulling back on previously committed funding for clients. He also sought to understand the relative mix between pre-backlog and in-backlog cancellations and whether the level of pre-backlog cancellations was higher than anticipated.

Answer

CEO August Troendle confirmed that sponsors pulling back on funding commitments is part of the current dynamic. He clarified that while backlog cancellations were within a manageable range, pre-backlog cancellations were 'significantly worse and very high.' President Jesse Geiger also reiterated the company's plan for mid-single-digit headcount growth, dependent on the market.

Charles Rhyee of TD Cowen asked how long pre-backlog cancellation dynamics would impact the book-to-bill ratio and sought to understand the expected progression from the current 0.99 book-to-bill to the 1.15+ target for the second half of 2025, questioning if bookings would dip below Q4 levels in the first half.

Answer

CEO August Troendle explained that the impact of 2024's elevated pre-backlog cancellations will persist through 2025, causing weak bookings in the first half. He clarified he is not projecting future RFPs but expects bookings to be weak, though hopefully above a 1.0 book-to-bill, before accelerating in the second half of the year as the impact of prior cancellations wanes.

Charles Rhyee asked if the strong biotech funding in the first half of 2024 benefited the at-risk clients from the COVID era. He also questioned the lack of share repurchase activity despite stock pressure and asked if lower pass-throughs were related to trial delays.

Answer

CEO August Troendle explained that the H1 funding was not evenly distributed; some clients did receive funding and continued their projects, while others did not. CFO Kevin Brady stated that the company's share repurchase plans are disciplined and opportunistic, but the pre-set plans did not trigger in the quarter. He also clarified that pass-through volatility is due to various factors like site invoicing timing and is not necessarily a new trend or solely due to trial delays.

Charles Rhyee of TD Cowen inquired about the specifics of timeline delays attributed to tariffs, the impact of potential drug price controls on pharma partnerships, the rollout status of the Rula Health partnership, and the primary drivers for achieving cash flow breakeven by year-end.

Answer

CEO Erez Raphael clarified that the main revenue headwind was not tariffs but a large health plan client transitioning to a broader RFP, creating a temporary revenue gap. He noted that while there are some slowdowns with pharma partners, that channel is a small portion of revenue. Acting COO Lara Dodo added that the Rula Health partnership is being systematically rolled out, with 3-4 clients already live. Erez Raphael concluded that reaching cash flow breakeven is a combination of revenue growth to a $40-$45M run rate and continued OpEx reduction, with the breakeven run rate expected around December 2025 to January 2026.

Charles Rhyee inquired about DarioHealth's GLP-1 support program, focusing on member off-boarding success rates and customer adoption. He also asked about 2025 growth expectations, the revenue potential of the GLP-1 solution, employer uptake of the MediOrbis prescribing partnership, and the timeline for reaching cash flow breakeven.

Answer

CEO Erez Raphael stated that specific data on GLP-1 off-boarding will be released in a study in June 2025, though early data exists. He projected 50% growth in new accounts for 2025, with GLP-1 deals expected to double. Raphael also confirmed the target for operational cash flow breakeven is the end of 2025. CCO Steven Nelson added that the MediOrbis prescribing partnership was recently launched and adoption data is forthcoming, and confirmed a large health plan is expected to sign a full-suite deal in the second half of the year.

Charles Rhyee sought more detail on biotech funding challenges, asking if committed funding was at risk, and how this might affect DSOs and bad debt assumptions.

Answer

CEO Tom Pike clarified that the primary impact from funding concerns is increased caution and slower decision-making from biotech clients, not cancellations. CFO Jill McConnell added that Fortrea's booking policy requires clients to have funding for the trial's duration, which mitigates risk. She confirmed there has been no spike in bad debt provisions and the company is proactively managing collections.

Charles Rhyee asked when the company began differentiating between pre-spin and post-spin projects and requested a sense of current capacity utilization.

Answer

CEO Tom Pike explained that the pre- versus post-spin analysis became a focus in recent months as they dug into the portfolio's profitability to confirm that new business was meeting economic targets. Regarding capacity, he stated it is 'closely managed' as they 'thread the needle' between having sufficient resources for quality delivery and maintaining cost efficiency.

Charles Rhyee asked if the Q1 gross margin of nearly 53% represents a sustainable run rate for the year and questioned why the strong quarterly performance did not lead to an upward revision of the full-year EBITDA guidance.

Answer

CFO and COO Mark Hirschhorn confirmed the gross margin trend is improving and should continue to increase as the revenue mix shifts towards higher-margin software. He explained that the full-year EBITDA guidance remains unchanged due to the conservative timing of significant DHA-related revenue, which is now expected in Q3 rather than Q2.

Charles Rhyee questioned the implied revenue contribution from the DHA contract in the 2025 guide, asking for clarification on the rollout timeline and the source of offsetting revenue declines in the core business.

Answer

CEO Dr. Ido Schoenberg clarified the DHA deployment is on track, with payment timing tied to component readiness, not geographic rollout. CFO & COO Mark Hirschhorn corrected the analyst's math, suggesting the 2025 DHA revenue would be nearly double the analyst's estimate. He attributed past revenue pressure to a significant 2024 miss in visit volume from a few clients but stated he expects significantly less churn going forward.

Charles Rhyee from TD Cowen asked about the drivers behind the lower implied Q4 revenue step-up in the revised guidance and questioned the potential impact of a competitor's TRICARE rollout on Amwell's DHA business.

Answer

CFO Mark Hirschhorn attributed the guidance change to continued softness in visit volumes. He also distinguished Amwell's role with the DHA as a deeply integrated 'operating partner' with guaranteed subscription revenue, not just another vendor choice, thus minimizing the impact from competitors in the broader TRICARE network.

Charles Rhyee asked about the potential strategic response to legislation like that passed in Arkansas, questioning if CVS would consider divesting its PBM while retaining specialty pharmacy if such laws become widespread. He also asked for confirmation that the Wegovy formulary placement includes a better rebate structure.

Answer

President and CEO David Joyner called the Arkansas law 'bad policy' that harms patients and increases costs. He expressed confidence that other states would reject this approach, making strategic divestitures unnecessary. He affirmed the value of the integrated model. On Wegovy, he confirmed that the PBM's role is to create competition and lower costs for customers, which the new agreement achieves, and this benefit will now extend to its retail pharmacies.

Charles Rhyee requested a breakdown of the performance trends across the different parts of the Technology & Analytics Solutions (TAS) segment, including RWE, analytics, and technology, and asked about the outlook for each.

Answer

Ari Bousbib, Chairman and CEO, detailed that within TAS, the information business remains a stable low-single-digit grower. Analytics and Consulting, which had been negative, recovered to mid-single-digit growth. The higher-growth Real-World and Technology businesses returned to double-digit growth in Q4, driven by the execution of previously delayed but necessary client projects related to new drug launches.

Charles Rhyee asked why the company is maintaining its full-year guidance despite a strong Q1 performance and positive developments in 2025 pharmacy contracts, which have not yet taken effect.

Answer

CEO Tim Wentworth clarified that the Q1 strength was driven by good pharmacy volumes, partly from successful script retention during store closures, and favorable reimbursement on vaccines. He noted that the positive impact of the new 2025 contracts is already factored into the full-year guidance. While the new contracts are expected to result in a better reimbursement environment than in 2024, the full-year outlook remains unchanged to account for various factors, including the strong but non-recurring drivers of Q1.

Charles Rhyee sought clarification on whether the 80% of renegotiated pharmacy contracts set a new, stable baseline for reimbursement and asked for an estimate of free cash flow for fiscal 2025.

Answer

CEO Tim Wentworth clarified the reimbursement reset is a dynamic, multi-year structural process, not a static baseline. Global CFO Manmohan Mahajan outlined the drivers for FY25 free cash flow, noting headwinds from lower AOI and higher legal payments would be partly offset by $500 million from working capital initiatives and a $150 million reduction in CapEx. He also highlighted the potential for non-core asset monetization.

Charles Rhyee of TD Securities followed up on pharmacy reimbursement, asking if the 80% of contract volume renegotiated for 2025 establishes a new, stable baseline for rates going forward. He also requested a clearer outlook on free cash flow for fiscal 2025, given the various headwinds and tailwinds.

Answer

CEO Tim Wentworth clarified the reimbursement reset is a dynamic, multi-year process to restructure contracts, not a static new baseline. CFO Manmohan Mahajan outlined the key components of FY25 free cash flow, noting that while AOI will decline, about $400 million of that from sale-leasebacks and Cencora earnings does not impact cash. He highlighted headwinds from higher legal payments, offset by $500 million in working capital initiatives and a $150 million CapEx reduction.

Charles Rhyee of TD Cowen asked about the cash flow implications of exiting long-term leases for the 25% of underperforming stores and whether their poor performance is driven more by weak consumer spending or high levels of shrink.

Answer

CEO Tim Wentworth explained that many store locations are prime real estate, creating opportunities to mitigate lease liabilities upon closure, and that lease economics are a key factor in the closure analysis. Tracey Brown, President of Walgreens Retail, added that underperformance is driven by multiple factors, including consumer trends, competitive landscape, and product assortment, not just shrink.

Inquired about the financial capacity to exit long-term leases for the 25% of underperforming stores and questioned whether their poor performance was driven more by weak consumer spending or high levels of shrink.

Answer

The company believes it can manage lease exits efficiently due to the quality of its locations. The underperformance of stores is attributed to a combination of multiple factors, including consumer trends, competitive landscape, and product assortment, not just shrink. They are also partnering with local officials to improve market conditions.

Charles Rhyee inquired about Walgreens' cash flow position to manage lease exits for underperforming stores and whether store underperformance is driven more by weak consumer trends or high shrink.

Answer

CEO Tim Wentworth explained that many stores are on prime real estate, creating opportunities to mitigate lease liabilities, and that lease economics are a key factor in the closure analysis. President of Walgreens Retail Tracey Brown clarified that underperformance is multifactorial, stemming from shrink, consumer behavior, market competition, and assortment, not a single issue.

Questioned the underlying fundamental EBITDA growth of the business, excluding various moving parts, and whether a 15%+ growth framework is still valid with Gen AI. Followed up on the potential for a significant growth uplift in 2025 due to maturing investments and synergies.

Answer

Executives confirmed that core R1 margins are improving, but 2024 EBITDA growth is tempered by investments in the Providence deal and the lower-margin Acclara business. They agreed with the logic that 2025 should see a significant growth uplift as these investments mature, synergies are realized, and AI contributions increase.