Cardinal Health, Inc. (CAH) Earnings Call Transcript & Summary

All right. Good morning, everyone. Thank you for attending. My name is Allen Lutz, health care tech and distribution analyst here at Bank of America. We are ecstatic to have the Cardinal Health management team here. We have Jason Hollar, CEO; Aaron Alt, CFO; and Head of Investor Relations, Matt Sims. I think, Matt, you had a couple of comments before we get started.

Yes. Thanks for hosting us, Allen. It's really great to be here. So yes, just a little housekeeping before we begin. So we will be making forward-looking statements today, which are subject to risks and uncertainties that could cause our actual results to differ materially from those projected or implied. For a description of these factors, please review our SEC filings, which can be found on our Investor Relations website at ir.cardinalhealth.com. Back to you.

Perfect. Thanks, Matt. So we were just talking and you were saying you haven't been to London in a few years. So as we get started here, I would love if you could give maybe a brief introduction for the people in the room, the people on the phone, a little bit about the Cardinal Health business and where the business has gone over the past couple of years.

Sure. Thanks again, Allen, for having us, and thank you all for attending here live as well as online. Yes. So Cardinal Health, we are effectively the beginning, the middle and the end of the U.S. health care supply chain. If you think about everything that connects the innovators, the manufacturers all the way through the supply chain to the patients, we touch or drive the activity across that entire spectrum. There are even some instances where we act as a manufacturer of certain types of products, and we act as the provider in other types of products. So we have a scope and scale breadth that is beyond what anyone else does in health care. This is anchored by our largest, most significant business, our Pharmaceutical and Specialty Solutions business. This is well over the $200 billion of the $220 billion of revenue that we have as an enterprise and is very much, again, the cornerstone of our activities. Within that distribution business, we have other high-value services, manufacturer service or BioPharma Solutions business that provides unique value to manufacturers as well as providers in different ways. Beyond our pharma business, we have our other growth businesses of Nuclear and Precision Health Solutions as well as our at-Home Solutions business and our OptiFreight Logistics business. These are 3 relatively individually small businesses that aggregate to quite a nice segment in terms of revenue and profitability. They are uniquely positioned with individual secular growth trends, which I'm sure we'll get into in a few moments. But they are our second priority within our enterprise for investments and growth given the unique nature of their growth in their part of the industry, but also their leadership in the industry. And then finally, our turnaround business, which is our Global Medical Products and Distribution. You'll hear me refer to it as GMPD. That business is largely from a revenue perspective, lower profitability. We have done a nice job of turning it around from significant losses a few years ago when inflation impacted that business quite a bit. And even with tariffs, this is a business that we see being solidly profitable and growing over the next several years. So that's the overall architecture of our primary businesses. Again, aggregating to over $200 billion of revenue. We have long-term growth plans of our earnings per share being at 12% to 14%, generating adjusted free cash flow of at least $10 billion and solid plans that we recently laid out at our Investor Day to drive that growth well into the future.

And that leads really into my next question. So you hosted an Investor Day a few months ago. Can you talk about some of the key takeaways that you want investors to leave with as it relates to that specific event? Maybe Jason and then Aaron to follow up.

Yes. Yes. Let me start and see if I miss much because there's a lot there at that event. So I would put it all into 3 key categories. First of all, we're really big and focused on accountability and making sure we're measuring what we committed to in the past. And so the first thing we did is we laid out our performance versus our last Investor Day, which was 2 years before that. So in the last 2, 3 years, we've had now 2 different Investor Days to establish the strategy and then we measured against it in this last meeting. And the results were very strong. We exceeded the vast majority of our metrics and the ones that are the overall enterprise results we vastly exceeded those. Earnings per share, we had originally laid out the 12% to 14% EPS growth, and we achieved 18%. So very strong performance over the 2 to 3 years prior to this Investor Day, and we wanted to demonstrate what those results were. And then, of course, what we did and we focus most of our time and attention on was the evolution of our strategy. We went through each of the 5 operating segments. Again, the largest most significant being our Pharma and Specialty Distribution -- Pharma and Specialty Solutions business, our other growth businesses of Nuclear, at-Home and OptiFreight and then finally, the GMPD business. We went through each of those 5 businesses and laid out the strategy for each. And mostly, I would say it was an evolution of the strategy because clearly, that strategy was working over the prior 2 to 3 years. And so we wanted to tweak a few things. And the primary tweak that we had was the ordering of our second and third priority. So again, Pharma and Specialty Solutions being so important, so significant the recipient, the vast majority of our investments, organic and inorganic dollars, that continue to be our highest priority. But the other growth businesses of Nuclear, at-Home and OptiFreight are growing so substantially in such a strong part of the market that we wanted to demonstrate that by making it a higher priority within our strategy. And then the other part that we highlighted was the talent. Again, each of the 5 operating segments presented and each of those 5 presidents of those segments participated in that, and we were able to showcase that talent. But when you step back from all that, what's really exciting about where Cardinal Health is, is each one of those 5 businesses has a very strong core, and we continue to invest in that core to drive relatively consistent, resilient, a little bit slower growth, and then we accelerate that through these growth initiatives, mostly focused on specialty, but then each of the other 4 businesses have their own version of those growth initiatives as well. For example, within our at-Home Solutions business, we continue to invest in our distribution network. We've refreshed 3 new DCs out of our 11 in our network over the last 3 years, so about 1 a year, and we committed to another 3 over the next 3 years to refresh with the latest in automation technology, driving significant operational improvements. Within Nuclear, we committed to another $150 million of investment to increase our cyclotron capacity to produce various types of radiopharmaceutical isotopes to continue that growth that we're seeing in Theranostics and the Precision Health that is being driven by oncology and urology. And then finally, OptiFreight to continue to grow and expand in new areas from med-surg to include also the pharmacy types of products. And then GMPD, again, this is all about the turnaround plan, focused on Cardinal Health volume growth as well as our simplification. You add that all up and that got us to the 12% to 14% EPS growth. We raised our targets for our largest, most significant business with the Pharma segment to 5% to 7% operating income growth or 5% to 7% operating income growth. And then we also raised our other growth businesses to 10% earnings growth on a CAGR basis. So they've got each a place in our portfolio and are clearly laid out as to what needs to be done to continue to drive those above-market types of growth rates.

I just emphasize a couple of things in support of what Jason was saying. First, you heard Jason referenced Specialty. It's more than a $40 billion business for us. It's a CAGR of 14% plus as well. We're very focused on continuing to grow that business because it is a much higher margin part of the business, and that's evidenced by the acquisitions we've done in the last 18 months, particularly the most recent announcement of the acquisition of Solaris in the urology MSO space. And so we spent a fair bit of time talking Dr. Weber, who's leading that enterprise for us, talking about that effort. But we're able to do that. We're able to make the investments that Jason was just calling out because we did also call out or guide more than $10 billion of adjusted free cash flow over the next 3 years. And that's on top of having delivered $2.5 billion of adjusted free cash flow in a year in which we lost our second largest customer, right? And so I say that, that way to just highlight the point that the team is very focused on the operational performance to generate the cash in support of creating the virtuous cycle of the investment so that we're able to continue that -- we're able to continue the success as we carry forward. But that's -- we're also going to be very disciplined about how we do it. While we have -- while we are calling out the $10 billion-plus number, what remains unchanged from Investor Day to Investor Day and now into our coming year as well is the idea that our first and highest priority is to invest in our business. We'll invest about $600 million in capital. You heard Jason call it some of the projects during fiscal year '26, we're just approaching the end of our first quarter, of course. We're going to protect our balance sheet. We are BBB, Baa2 at the moment, and we believe that's the right rating for us. And by the end of this year, notwithstanding all of our acquisitions, we will be within our rating agency guidance to that respect. We prioritize returning capital to shareholders as well. We committed to return $750 million to our shareholders this year as a baseline return of capital to shareholders, and then we'll look for more opportunity to do more as we go through the year and see where our investment needs are as well. And of course, we pay a growing dividend. We're a dividend aristocrat. Dollars that are left after all of that, we will go back to the cycle again, and we will look for both further return of capital to shareholders. And of course, we will always look at M&A as we have done for the last couple of years. And while we haven't put a limit on the M&A, we're much more focused on tuck-in M&A, given the deals we've done in the last 18 months. The team is very focused on achieving the synergies, driving the integration, getting the value of the deals that we've done.

That's great. Really appreciate all those comments. Now at your Investor Day, you raised Pharma and Specialty Solutions EBIT growth even as, I guess, you and some of your peers have talked about industry growth trends maybe normalizing a bit into calendar '26, you have Medicaid, there's a Part D benefit, there's vaccines. What gave you the confidence to raise the Pharma and Specialty Solutions EBIT growth even if growth is going to normalize a bit at the industry level going into next year?

Yes. For the last several quarters, we have been pleased to report good progress within the Pharma and Specialty business and indeed driven in no small part by strong demand. And the demand, while we plan for and guide strong demand, it has been outsized strong demand as well. And so part of what's driving our ability to take guidance up at Investor Day. And then actually, we took our EPS guidance up again at our Q4 earnings call a couple of weeks later was we continue to see a strong environment in which we are operating. That's being driven by procedures. The scripts are certainly holding up as well. I also want to emphasize though that we're able to do that because of the operating performance that the team is delivering. We are relentlessly focused on how do we continue to raise our game and how we operate. And you heard Jason reference the investments in our at-Home business as well. That -- it's a purposeful strategy really across our portfolio of we're making investments not just for the revenue growth, but even more importantly, for the operating excellence that we're bringing our costs down because we're investing in technology, because we're doing acquisitions that we can layer on top of our existing platform. And so that's part of what's also driving our confidence in our ability to raise our guidance.

As we think about the seasonality in fiscal '26, you talked about bringing on $10 billion worth of new customers in the second half of last year. I think that's going to be $7 billion you said in the first half of fiscal '26. So there's some seasonality there. Can you talk about some of the -- and you have a unique fiscal year-end as does each of your peers. Can you talk about some of the seasonality as you think about the back half of calendar '25, the first half of calendar '26? How you think about what the major swing factors in the seasonal cadence for your business?

We have a variety of different businesses and the seasonality is a little bit different across each of them. And so let me take a stab here at describing it. As you think about our largest business, the Pharma business, we don't provide a guide on a quarterly basis, but we did provide some guidance on the first half, second half basis. And you called out the first driver, which is last year in '25, we did onboard $10 billion of new customer revenue. And so now coming into the first half of first half of fiscal '26, we're 1 quarter -- almost completely 1 quarter in, we are now getting the tailwind benefit of the first half, right, for those new customers, and that is about $7 million as well. Historically, for our Pharma and Specialty business, Q3 is the highest dollar profit quarter for us because that's the quarter in which the manufacturers take their inflation as well. Now within the GMPD business that Jason referenced, we tend to see, of course, our results are impacted by the flu season, right? They're also impacted by when people are doing procedures, which tends to be more calendar year end focused as people benefits are coming up on the renewals of their benefits as well. And so that drives some of the relative cadence of our overall guidance and our results. Jason, anything to add?

No.

Yes. Only other one I would call out is just we have also had the acquisitions within fiscal '25. So the annualization of those will be a tailwind within the first half of fiscal '26 for Pharma. And then within our other segment, the ADS acquisition, we'll annualize that in 4Q of fiscal '26.

We closed our GIA acquisition on February 1. And so -- and we closed ADS in April.

And then one question we're getting a lot is around the vaccine and the evolution of the consumers' view of the COVID vaccine and maybe even the flu vaccine. Now we're a few more weeks since earnings. Can you talk about what's embedded in your guide for COVID vaccines? And any high-level commentary on what you're observing quarter-to-date? And then how should we think about the cadence of vaccine revenue between fiscal 1Q and fiscal 2Q?

I don't think we're alone. And certainly, we were transparent when we provided our guide that in the past year, we had assumed that the COVID vaccine contribution would be a slight headwind relative to the prior year. And indeed our guide for this year for fiscal '26 made the same assumption that it would be a slight headwind or less of a contribution than the year before. It's also the case that the relative timing of the contribution is a little bit up in the year tied to the various approvals happening at the federal and the state levels as well. One year, it was early last year, but it's a little bit later. And while we don't provide a guide on a quarterly basis, we are all reading the newspapers and staying in contact with the administration as far as what their latest plans are for the COVID vaccines.

Yes. And in terms of the -- you have embedded within that question, some timing aspects. I think just a reminder of the journey we've been on, as Aaron highlighted, you really got to go back to '24 was the first time we really meaningfully participated in the COVID vaccine. And so that was a nice tailwind in '24, started in Q1, but then accelerated in Q2 because it was a fairly late approval cycle that happened in '24 as it related to when the FDA provided the clearance and then getting the supply chain up and running. Now last year was a lot earlier. And so you saw that shift more so to an earlier start date, more of the contribution being in Q1 relative to what it was in the prior year. And then now this year, it shifted back a little bit further and you have these other restrictions. So you got somewhere in between those 2 dates. That just creates a little bit of differences from a quarter-to-quarter. But when I step back and think about the essence of the question, Allen, whether it's that or other moving pieces, let's go back to some of the opening comments, both Aaron and I made. We remain in a pretty strong overall demand environment for the vast majority of the businesses we're talking about. And so I -- whether we're talking about COVID or any other specific question that we'll be getting into, there's always going to be puts and takes to that demand picture. And while that was a nice tailwind 2 years ago, it has reduced -- did reduce last year, and we put in a lower driver of profitability this year as well. And overall, those are all elements that will be puts and takes to our portfolio and not something that at the current moment that we're calling out any differently.

Got it. I want to switch gears a little bit, talk about the MSO strategy. Obviously, a big focus and growth driver for you. You're now at $4.5 billion of revenue -- of platform revenue post Solaris and you're acquiring practices in autoimmune and urology. If I'm one of those practices, can you provide an example on the types of services and the value that you're providing to these physicians?

Yes. It's -- the short answer is it's across all services because when you think about our strategy, we are very focused on creating scale for these physicians across 3 key platforms. Yes, autoimmune and urology, as you mentioned, but also in oncology. We have acquired 3 separate large platforms for those 3 key spaces, and we have a great partner within each of those. So that's the platform that you start with. So every physician that's on those platforms, and let's just take urology as the example, we have already acquired several other MSOs that we are then now going to combine once when Solaris closes to create value for each one of those urologists. So they get scale across the services that are provided, whether that's back office, HR, IT, finance, that type of thing, or it's something more specialized even in areas like revenue cycle management or payer negotiations or physician recruitment, these are all areas that benefit all of the different physicians across all the different therapeutic areas. We're able to create scale across not just all the urologists, but then there's a lot of very similar services in urology as well as autoimmune. That's why we have prioritized those 2 areas specifically and why our biggest investments have been in those areas is that there's a lot of synergies between those businesses. For example, they have very similar revenue profile. They use similar services like pathology lab services, anesthesia, infusion centers, diagnostics and imaging. There's a lot of the day-to-day services like that, that they all use that we can now scale across different therapeutic areas while continuing to allow them to have the clinical differentiation within their therapeutic area. So we believe we've built the best mousetrap here as it relates to giving the right balance of the scale across the therapeutic areas, but then also specifically with their own clinical independence. That's the short answer. Now a little bit longer is using urology as that continued example. What we're really excited about is our leadership throughout the rest of our enterprise. If you think about it, no one else that provides distribution services also has a key business within the Nuclear and Precision Health Solutions business. We are the leader in urology as well as in oncology for those therapeutic areas. We're also the leader in our at-Home Solutions business, delivering oncology -- I'm sorry, urology-related supplies to those patients in their home. And then lastly, another key element that these physicians need is the data and technology support. With our acquisition of Specialty Networks about 18 months ago -- over 18 months ago, that business actually originated with urology and provides the AI, IT engine behind managing the physician's practice, both downstream with the patient, but also upstream with manufacturers. So we have very unique assets that are quite supportive to areas like urology. But then beyond all that, we have all the other scale that provides those benefits to those services.

And this is all as a result of a very purposeful strategy that Jason laid out at our Investor Day 3 years ago now as well, where -- given where Cardinal was at the time and from an industry context perspective, with oncology being 40% of specialty and the other ologies being 60%, our historical strength has been in the other ologies, the urology, rheumatology, the gastroenterology. And so to see us then do a series of transactions in gastroenterology, urology and other areas. And then to see the investments we're making in the areas supporting that part of the business, it really just comes back to how we're approaching the business overall, which is we're going to tell you what we're going to do. We're going to go do it. We're going to report back, and then we're going to continue to reinforce the ecosystem around our competitive strengths.

So to follow up on that, Aaron, you put out a target for the amount of physicians that you want to have under MSO. So obviously, you have strong growth ambitions within the MSO space. Can you talk about the level of fragmentation in the other ologies? Is there -- are there large assets out there? Are there a lot of smaller assets? Just how do you think about the road map there as we think about how Cardinal looks to augment the capabilities and scale there?

Let me start there and then -- so the -- within oncology, there's more of a consolidation that has occurred within -- there's another reason why we like the autoimmune and the urology space is it does remain quite fragmented. In both cases, we are the largest with our acquisitions in urology with Solaris Health and the other assets we've acquired, it's roughly 5% of that market that is -- well, Solaris was almost 5% by itself. So this is a good representation, similar in the GI space with GI Alliance. So very fragmented there of the community physicians that are in those therapeutic areas, it's roughly 80% to 90% remain independent, not associated with an MSO today. So it's earlier in the consolidation cycle. And with the value that we believe we are creating and that they will see through our MSO with those the broad synergies and capabilities that I referenced earlier that we believe will be attractive to have others come. As Aaron highlighted earlier with more of the capital deployment comments, with the relatively large outlay of capital for these 3 platforms that we've completed over the last year, we recognize that there's perhaps more value for some of the more -- a little bit smaller tuck-in acquisitions to benefit from the scale that we have there. There are not -- in those therapeutic areas, there are no -- there is no one larger than us. I'm not sure we'd be interested in that anyways, given that we are looking to use our platform to be able to consolidate on to that. So we are always going to be open to the opportunities that can create value for the physicians and for ourselves. But we just think naturally, at this phase given the fragmentation that's still there that there's perhaps more value as it relates to more of the smaller, midsized types of bolt-ons, and that's where we're focused more, but we'll certainly keep our eye open to anything else.

During our last earnings call, we acknowledged that we are quickly approaching 3,000 providers served by the platforms that we're in. And while there is fragmentation, again, part of our focus from an M&A strategy was to acquire the assets that brought the scale to start with. And so it's easy for us to now add on and to drive that value creation for the doctors, importantly, because we want our incentives to be aligned, the value creation for the doctors and the value creation for the Cardinal ecosystem as well by then doing the tuck-in acquisitions and also finding the linkages to the rest of our portfolio.

And there's a difference in mix between urology and oncology, for example. So for oncology, drug revenue is 96%, 97% of revenue. Urology, it's more of 1/3, 1/3, 1/3 between drug revenue and procedures and visits. Does that matter at all as you think about your strategy? Or is that just...

So I would -- back to Aaron's point earlier, we started with a very intentional strategy. We looked at the marketplace. We did a lot of marketing field studies to understand what's important to physicians. They get good support from distributors as it is today. So when you talk to them, it's not like, well, we have to have a distributor come in and own us because we need better distribution. That's not the message. The message is they need help in, yes, distribution and GPO contracting services, that is a component of it. But what they're not getting as much is the cohesion with the other 2 key categories that they need to support on, data and technology as well as the MSO back office, revenue cycle management, all those type of administrative services. They need help with -- think about all the vendors and partners they need to bring around -- wrap around them to be successful. And ultimately, they became a physician because they want to take care of patients. They don't necessarily want to run a business, but that's a necessary element to what they do. So they work with us to run that business. And so when we had that and we looked at what was out there and the needs, we saw there was a big need in the autoimmune space. That's -- that's why we started looking there. Then we said, well, who is the best MSO? Who does that better than anyone else, irrespective of the therapeutic area. And that was clearly GI Alliance. What Dr. Weber had built with that team was not only a large following of providers, but also they had the best process. So it wasn't like we were saying, hey, we think GI is the place to go. It's not a bad spot. It's a very resilient therapeutic area, a lot of other services, but it was all about the capability and that capability then crosses over rheumatology and neurology as well as urology in different ways. So that's where we started. And then we looked at the profile behind it, and we said, okay, yes, 1/3 of the revenue is drug spend. That's not bad. It's an element of the business case to continue to support that type of service. But ultimately, what we saw were the other 60% of those other services roughly 1/3 into the procedures and roughly 1/3 into the physician office visits. That creates value opportunities for other physicians to help them scale those capabilities and the technology behind it and all the other services that go along with it. But it also gives us diversified revenue stream. We already have over $200 billion of drug spend revenue as a company. Of course, we always want more. That's never a bad thing to grow your business, but it's okay having other higher-margin service revenue behind it as well. And while we don't think that the administration is focused on driving down profitability for these providers because they do remain the lowest cost alternative in their communities relative to other options, we do think that, that's more of an uncertainty on the drug side than all the other services side. So we're much better insulated and protected in this type of policy environment with this. But that is secondary in nature. The primary reason was that there's a lot of value from the physician's perspective that we see we can help create.

And then I want to ask kind of an overarching drug policy question, DC policy, MFN, IRA. Has anything or any of your thoughts evolved at all over the past couple of months as it relates to all the headlines we've been seeing around drug policy and the future drug pricing?

No. Short answer is we continue to be very well positioned as it relates to the fee-for-service distribution side of our business. Of course, that's by far the largest part of our business. We continue to believe that we'll be well compensated for the value that we provide to safely, securely and efficiently deliver those products. Nothing changes with the price point changes in the drug costs. We don't benefit when they go up. We should not be harmed when they come down. And then on the MSO side is the only other aspect that is different. But given the diverse revenue streams, only 1/3 of our MSO revenue and the government payers, Medicaid specifically being a lower percentage of our payer mix, it's a small percent of a small percent, which gives us confidence that we will not have any meaningful impact as a result of that. But certainly, something that what's most important is that we advocate for all of our customers in DC to ensure that those types of potential unintended consequences are understood by the administration because what's our highest priority is to make certain that we don't have any shortages in the marketplace.

That's great. And I want to switch gears again a little bit about the P&L, SG&A growth versus gross profit dollar growth. You've done a great job over the past couple of years, growing gross profit dollars faster than SG&A. But Aaron, at Investor Day, you talked about some of the investments you've made in supply chain technology, 3 new distribution centers. With some of those investments, M&A, how should we think about your philosophy around gross profit dollar growth and SG&A growth? I guess as a start, maybe around fiscal '26 and then maybe philosophically after that, how you think about it?

Yes. Thank you for noticing because we are being very purposeful in a couple of respects. First, of course, you can attack SG&A, but better if you start at the top line and the gross margin line. And so as Jason has highlighted, we continue to invest in higher growth, higher-margin parts of our business to help drive that gross margin growth to really fuel the overall P&L. And anything specialty related to it, the investments in our -- the other growth businesses are certainly supportive of growing more rapidly the gross profit line of the P&L. And then SG&A, I really have to pay compliments to our team where really every part of the organization has been very focused on how do we get there, ranging from making the long-term investments in technology to drive efficiency, for which we are seeing the results, right, making -- bringing transportation costs down as a good example, increasing the lines per hour, the higher pick rates, et cetera, as well as just going after everywhere we can, the core SG&A, the people costs, how do we operate more efficiently? How do we -- how is our technology spend more efficient as well. And so we're really going after that as well. So we were pleased in fiscal '25 to see some good progress on the relative impact of SG&A relative to our gross profit. And as we continue -- as we raised our guidance again at our Q4 earnings call, we continue to focus on driving that operational improvement and bringing our SG&A cost down.

That makes sense. And then around the generics business, how are you thinking about the possibility of tariffs? I know that's been kind of a moving target. And then related to that, has the supply chain evolved at all since the beginning of the year when tariffs were first discussed? Has it changed the way that any of the stakeholders, whether it's the way that pharmacies are bidding, the way that manufacturers are producing? Is there any change that you're seeing in the supply chain? Have prices evolved at all? Just curious if there's anything different that you're observing in the market.

Yes. There's nothing different significantly in the overall marketplace. And of course, the vast majority of any potential implications just haven't occurred. When you think about tariffs, it's been -- pharma products have largely been excluded from that. So there's nothing that's had to be addressed in supply chain. Now our model is such that we take possession title of the product after it comes into the United States, so we don't directly hold that exposure, that risk. But we recognize that with tariffs, there will be additional -- there would be under that scenario, additional cost pressure if that were to occur in that manner. With that said, we've highlighted continuously over the last several years consistent market dynamics. What you see is various forms of inflation and deflation has occurred over the last several years. And you've seen that our margin spread price per unit on these items have been largely consistent, meaning that even when we see inflationary impacts, we're not seeing impacts to our underlying profitability. What we want is a consistent margin per unit, and then we want to grow our profit through the utilization growth, the volume growth that we expect will continue in the United States, given the demographic trends that are still in our favor for the next couple of decades. So we're well positioned. We don't think anything is going to change with that, and it's also just a little bit early to tell as to exactly what the administration is going to do because we do think, especially as it relates to the generics products, they play an incredibly important role in the U.S. health care system. It's approximately 90% of the volume, but only 10% of the cost. And so even if there are some cost impacts to that 10%, it's going to be a relatively small part of the overall health care cost in the industry, and it's one that we think makes sense to continue to protect in different ways.

And then I believe at your Investor Day, you said that generics are going to contribute more over the next 3 years than over the past 3 years as more LOEs. Is there any way to size the contribution of generics to the growth algorithm of your business? Is it a primary driver of growth? Is it a secondary, a tertiary driver? And then how is that growth rate going to evolve over the next couple of years versus the prior 3?

Yes. You're right to call out that we did call out that the loss of exclusivity is expected to be higher over the next several years versus where it was in the past several. So that is an opportunity, all things being equal. What you've seen us highlight over the last couple of years is generics is a component of our growth, but it's not the only one that we're calling out. What's so exciting about where Cardinal Health is and where the overall industry is, is that broad utilization. You've heard us in different quarters and different years call out not just generics, but branded products. We've called out score specialty products. So we've had broad contributions to just our pharma business. And of course, we've also been calling out significant growth in our other businesses as well. But overall, generics is a component of it. And what's in our long-term plans is that will continue to be a component of it. We have modeled for industry growth of 2% to 3%. So if it is able to grow faster than that, then that would be an opportunity. Part of the reason we didn't include more volume in those long-term projections is that while the LOE isn't -- it almost certainly will be better. We know the math of when those products will lose their exclusivity, but it is overweighted with a couple of larger products. And the exact timing and nature of how that exclusivity rolls off and how many manufacturers of those generic products come to market are all questions that aren't answered yet. And once we get more of those specifics, we'll have a better understanding of the contribution to our underlying growth rate that we can then see within the generic space.

Probably worth just adding, given our partnership with CVS and Red Oak, and we are the largest, I believe, purchaser of generics into the U.S. health care system, we're able to achieve the cost that allows us to always call consistent market dynamics, our ability to manage both sides of that equation to drive the profitability there. That is part of why we have comfort that it's a good news story for us relative to generics carrying forward. But I do want to emphasize at the start of the conversation around specialty as well because you asked about the relative drivers as well. And certainly don't want to lose sight of the impact of how aggressively we're looking to grow the specialty part of the business at higher margins.

That's great. And then I think we only have a couple of minutes left here. So I did not do a great job of pacing the question appropriately. So for the other segment here, you're expecting really strong profit growth through fiscal '28. And I would never ask you to rank your children here. But you've talked about a lot of different things in these 3 subsegments here. So you're investing $150 million in Nuclear, OptiFreight is growing quickly, and there's -- within Specialty Pharmacy. And then at-Home, you have the ADSG acquisition. Would love if you could -- don't rank your children, but what are the things you're most excited about here?

So what I'm most -- and I walked through a couple of those key drivers earlier, so I'll try not to be redundant. What I'm excited about is each of the 3 businesses has a strong core that we're investing in distribution capacity, just manufacturing capacity for the isotopes and nuclear. So we have a strong core, but they're also benefiting from the secular growth. With at-Home, it's the trend for more care being delivered to the home. That's a business that only supports the home. That part of the market is going to grow faster. With Nuclear, its industry is the Precision Health. So these isotopes that go along with the pharmaceutical products that target cancer cells and other therapies more specific so that the patient is harmed less. Think about it as something better, think chemotherapy, things of that nature. And then within OptiFreight, of course, every health system is looking to reduce their freight spend, and we can help them with that. So each of these businesses are benefiting from growth in the industry. Each of the businesses are the leader in what they do, and they're getting the added support by a broad organization that can afford to invest and not just focus on the day-to-day, quarter-to-quarter type of affordability for a small business, we can really lean in where it makes sense, $150 million for nuclear. The now 6 new DCs with new automation technology for our at-Home Solutions business, things that they couldn't do on their own because we're taking a longer-term view.

And then last question for Aaron around capital deployment. You expect $10 billion of cumulative free cash over the next few years. How should we -- so a lot of opportunity there to invest in the growth opportunities that you've talked about. Should we think about the capital deployment strategy being relatively static over the next couple of years, meaning you have this opportunity that's in front of you, and that's going to be the opportunity that's there for the intermediate term? Or would you expect that the capital deployment strategy to evolve over the next 36 months or so?

The one thing that won't evolve is the core principle of discipline from a capital allocation perspective. As I called out, we're going to spend about $600 million this year. That's a good proxy for future years as well on investing into the internal needs of the business. That's our internal CapEx. After that, we'll protect our balance sheet, but we'll be within our rating agency guidance this year, notwithstanding all the acquisitions we've already done. That leaves the rest of the $10 billion, if you will, for operating our business. And of course, return of capital to shareholders through the dividend, the dividend aristocrat. We guided at least $2.25 billion of return of capital to shareholders before we then look at further tuck-in acquisitions and additional opportunities for return of capital to shareholders. And so we're disciplined. We're pragmatic about it. We are very focused on getting the right ROI so that we're returning that value to our stakeholders.

Okay. That's great. We don't have a timer, but I think we're out of time. Jason, Aaron, Matt, really appreciate the time. Thank you so much.

Thank you.

Thanks.

Thanks, Allen.