Medical Segment Turnaround
Q: Are you still committed to the core Medical business, and is the turnaround on track?
A: Management affirmed their commitment to the Medical business, emphasizing that their #1 priority is turning it around following their 5-point plan to drive Cardinal Health brand volumes, mitigate inflation, and reduce costs. The core operational performance is as laid out, with no changes to their fiscal year '26 aggregate targets or long-term profitability plans.

Medical Segment Profitability and One-Time Items
Q: What were the one-time items in Medical, and how does that affect profitability trajectory?
A: The underlying performance of the Medical business was encouraging, consistent with expectations despite adjustments taken in the quarter. The nonrecurring adjustments, primarily impacting the at-Home and WaveMark businesses, reduced guidance from approximately $400 million to $380 million, but core operational plans remain on track. They anticipate a step-up in the second half driven by inflation mitigation and Cardinal Health brand volume growth.

Optum Contract Renewal
Q: Any updates on the United (Optum) contract renewal timing?
A: There are no updates on the Optum contract, which runs through this fiscal year. Optum is a significant customer, generating over $30 billion in revenue last year, primarily through low-margin mail order volume. Management emphasized their strong relationship and desire to continue working with Optum.

SG&A Growth and Investments
Q: What drove SG&A growth in the quarter, and how should we think about it going forward?
A: SG&A growth was tied to variable costs from higher volumes and purposeful investments in strategic areas like Navista. While gross profit grew faster than SG&A, management is focused on optimizing the cost structure and balancing short-term needs with long-term strategic investments.

COVID Vaccine Distribution Impact
Q: What was the contribution from COVID vaccine distribution, and expectations for the balance of the year?
A: The COVID vaccine distribution peaked in October, with higher contributions in Q2 versus Q1. Volume tailed off in November and December, and minimal impact is expected in Q3. The performance was consistent with expectations, and costs associated with the rollout were incurred due to ramping up for two months of high volume.

Interest Expense and Capital Structure
Q: Why did interest expense decrease, and what are the ongoing thoughts on capital structure?
A: The company ended the quarter with $4.6 billion in cash, driven by strong cash generation and optimization efforts. Higher cash balances in a higher interest rate environment led to greater returns, reducing net interest expense. Upcoming debt maturities in June and November are being assessed, and cash balances will fluctuate seasonally.

Generics Market Dynamics
Q: Are you still seeing easing deflationary dynamics in generics, and how material is it?
A: Consistent market dynamics in the generic space, combined with strong volume, contributed to a strong quarter. The balance in generics is a core component of guidance for the Pharma segment, which saw profit guidance raised to growth of 7% to 9% last quarter.

Impact of Shipping Rates on Medical Segment
Q: How will recent spikes in shipping rates affect the Medical improvement plan?
A: While shipping rates have spiked, the magnitude is substantially less than previous levels, and management does not believe current rates will be permanent. Increased flexibility in contracts and improved capabilities mitigate the impact, and it is not seen as a material issue for the Medical improvement plan.

Restatement of 'Other' Segment Growth
Q: Which subsegments are showing softness relative to long-term expectations in the 'Other' segment?
A: The 'Other' segment, including at-Home, Nuclear and Precision Health, and OptiFreight businesses, is expected to grow at a long-term CAGR of 8% to 10%. The near-term growth of 6% to 8% in fiscal '24 is due to nonrecurring adjustments impacting the at-Home business in Q2. Each business is expected to contribute to revenue and profit growth moving forward.

Specialty Networks Acquisition
Q: Can you provide more details on Specialty Networks' capabilities and future deals?
A: The acquisition of Specialty Networks brings valuable analytics and technology, notably PPS Analytics, which can be expanded across therapeutic areas. The company values the technology and leadership team, seeing it as a profitable business today. They plan to invest early on to expand its scope, aligning with their strategy in the specialty space.