Michael Cherney

Michael Cherney inquired about the breakdown of the 2026 revenue guidance (market conditions, bookings, strategic pullbacks) and the specific dynamics behind the Q4 software Tier 1 bookings deceleration, distinguishing between market-oriented and internal execution factors.

Answer

CFO John Gallagher explained the guidance reflects low single-digit services growth and Q4 software bookings deceleration, despite 10% software revenue growth in Q4. He cited market factors like big pharma reprioritization, headcount reductions, and slower clinical trials impacting products like Pinnacle 21, alongside internal execution challenges in pipeline conversion. CEO Jon Resnick added that the market is strengthening, with December services bookings indicating discretionary spend, and noted a lag effect for Pinnacle 21 tied to past study reductions.

Michael Cherney inquired about the impact of IRA price negotiations on the market, specifically asking if Cencora has observed any changes in supplier-side discussions or contracting related to list price adjustments, and how these factors might affect the company's market approach for calendar 2026.

Answer

Jim Cleary, Executive Vice President and CFO, stated that Cencora's global sourcing team was well-prepared for list price reductions resulting from IRA. He confirmed successful discussions with manufacturers, allowing Cencora to maintain its economics and gross profit dollars due to the value provided in the supply chain, citing the insulin example. Cleary also noted that brand price increases observed at year-end were consistent with Cencora's expectations.

Michael Cherney asked about the market construct in light of IRA price negotiations, specifically inquiring about any changes in supplier-side discussions, contracting, and list price adjustments as Cencora prepared for calendar 2026.

Answer

Jim Cleary, Executive VP and CFO, Cencora, stated that their global sourcing team was well-prepared for list price reductions. He confirmed successful discussions with manufacturers, allowing Cencora to maintain economics and gross profit dollars due to the value they provide in the supply chain, citing the insulin example. Cleary also noted that brand price increases at year-end were in line with expectations.

Michael Cherney asked about the durability of the U.S. Healthcare Solutions segment's operating income (USAOI) growth, particularly the mid-20%+ EBIT growth, considering factors like RCA's contribution, COVID headwinds, and the loss of an oncology customer, and how these drivers are reflected in the updated long-range plan.

Answer

EVP and CFO Jim Cleary explained that the U.S. segment's adjusted operating income growth was 25%, or 13% excluding RCA, despite a $15 million COVID headwind and the oncology customer loss. He stated that while fiscal 2025 saw exceptional growth, fiscal 2026 guidance does not anticipate the same level of outperformance. The increased long-term guidance reflects confidence in the business's strength and execution.

Michael Cherney from Leerink Partners asked for insights into the strong organic price per mix, particularly how much of this growth is driven by proactive company strategies versus market dynamics, and its sustainability beyond the current year.

Answer

Chairman and CEO Adam Schechter provided context on diagnostics revenue growth, while EVP and CFO Julia Wang explained that the 2.8% organic price mix increase was primarily due to a favorable mix, including a rise in tests per session and the annualization of Invitae. She projected continued mix growth supported by hospital partnerships, an aging population, health and wellness trends, and specialty testing.

Michael Cherney inquired about the strong organic price per mix, asking what factors were proactive versus reactive, and how this trend is expected to build beyond the current year.

Answer

Chairman and CEO Adam Schechter highlighted 8.5% diagnostics revenue growth, with 6% organic growth, comprising 3.5% organic volume and 2.8% price mix. EVP and CFO Julia Wang explained that unit price remained relatively flat, with mix growth primarily driven by increased tests per session and the annualization of Invitae. She anticipates continued mix favorability, supported by hospital partnerships, an aging population, and specialty testing.

Michael Cherney asked for clarification on the mix in the quarter, specifically how wellness and specialty testing performance compared to March's long-range plan (LRP) expectations, and their anticipated contribution to overall organic volume and revenue growth.

Answer

CEO Jim Davis indicated that consumer channels, both direct and partnerships, are performing slightly above expectations set in March, driven by strong direct channel growth (30-40% YTD) and momentum from consumer health companies. CFO Sam Samad affirmed that the LRP assumptions from March, including mid-single-digit revenue growth and high-single-digit EPS growth, remain largely intact, with positive trends in utilization and test mix contributing to operating margin.