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

Good morning, everybody. Thanks for joining us. I'm Kevin Caliendo, Healthcare IT and Distribution Analyst at UBS. And we are very proud and happy to have the management team of Cardinal Health. With us today is Aaron Alt, Chief Financial Officer; and Matt Sims, who's the Head of IR. Matt, do you want to...

Yes, great. Well, Kevin, thanks for hosting us. It's great to be here. So before we begin, just a little housekeeping. 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. All right. Let's get started.

Thanks. Do you want to...

So good morning, Kevin. Thanks for having us. On behalf of Jason Hollar, our entire management team, we're excited to be here today. I was commenting at dinner last night that with the Thanksgiving holidays coming, one thing that I'm particularly thankful for is our Q1 results, right? And so before we get into the questions and answers over the course of today, I thought I would provide just a quick summary for those that may not be as familiar with our earnings release last week as others. And it goes something like this. Cardinal delivered a strong set of results. All 5 of our operating segments delivered double-digit profit growth, led by our pharma business, which saw strong demand, saw a strong execution, and we were particularly pleased with the performance of the specialty part of our portfolio, and that business posted profit of what was a 26% [indiscernible] as well. All 3 factors contributed to that. The specialty business was benefited from strong execution by our growing MSO business. You may have heard that we expected to close the Solaris transaction, which we closed last week as well as well as the core specialty distribution was very strong, and we're particularly pleased with the continued progress against our investments in our biopharma services part of the portfolio. Stepping away from pharma, we have a business affectionately known as other, which is the aggregation of 3 smaller businesses, Nuclear Precision Health, at-Home and OptiFreight Logistics. That part of our business delivered profit growth of 60%, driven in part by the acquisition of ADSG. But even if you extract the M&A, we saw strong demand across the portfolio and strong execution in all 3 parts of that business as well. And so we're very pleased with that, which leaves the turnaround part of our business, our GMPD Global Medical Products and Distribution business a very strong quarter. They saw nice revenue growth. And in particular of note to us was the fact that the Cardinal Health brand business for the second quarter in a row grew at 6% or more in the quarter as well. And so there was a lot to be thankful for, from a Q1 perspective for us. All this resulted in us raising our guidance 1 quarter in, the new adjusted EPS or non-GAAP EPS rather for Cardinal Health is now $9.65 to $9.85, which is 17% to 20% EPS growth year-over-year for the year. Last point before I turn it back over to you, Kevin, is part of what we're doing at the same time is investing in our business. And so notwithstanding the good progress in the quarter, at the same time, what we were doing was investing for the future quarters of growth as well. And I would highlight a couple of vectors of that growth. We continue to invest in our new customers. We onboarded $10 billion of new business in the back half of last year. We are making great progress in onboarding $7 billion of new business in the first half of this year, which is part of why our profit will be front half loaded as that business comes on board in the first half of the year. We continue to invest against the MSO platforms that I referenced before, both capability and the tuck-in acquisitions to go with that. We continue to invest in new products, in particular, the NPHS business. If you think about Nuclear Precision Health and categories like Urology, I'm sure we'll come back to that in a bit as well. Nice pipeline of innovation coming, and we're investing with our manufacturer partners around how do we ensure that we've got the best distribution of many of those classes of categories. So overall, a very positive quarter for us.

Well, let's start there. When you reported that quarter, I think I wrote or said that it was the best quarter by a distributor since the days of generic inflation when things were crazy back in 2014, 2015, 2016. Your guidance had assumed strong utilization. I think you said part of the reason why this happened, it was greater than strong utilization. We track what we can, the KPIs that we can track, scripts, generic mix, pricing. We try to track all of it. And there was nothing crazy or outsized in this quarter, yet you and your peers, but you especially said demand was -- exceeded expectations. So tell us where that demand is coming from? How do we see it as analysts? Because clearly, it was better than what you were expecting originally, but it was certainly a lot better than any of us were expecting. And so can you just talk a little bit about where that demand, that higher demand is coming from?

Sure. If you take a step back for a second, what we had guided was that setting aside M&A, core long-term growth in the pharma business would be 5% -- profit growth would be 5% to 7%. We've also guided that we expect the generic portfolio to grow by 2% to 3% on a long-term basis as well. But the real answer to your question is we saw a demand lift everywhere, right? We saw it in brand. We saw it in generics. We saw it in consumer health. We saw it across the specialty portfolio. The specialty business has been a double-digit grower now for some time. It actually exceeded our expectations as well. And so while I love to be able to point to one factor and say this was it, really, we saw a rising tide across the business across the quarter, and that's why we're able to post the results that we did. Now generics, in particular, is a part of the business that we love, of course, because while it's lower in revenue, it's a nice margin. It's a nicer margin business for us than brand historically. And we did see higher volume in the generics part of our business. When you hear me say the words consistent market dynamics on our earnings call, that's a signal to everyone that what we saw was there was no dislocation between the buy and the sell. That's not how we manage the business. We manage to an average gross margin on the category so long as we can manage that and drive incremental volume, we're going to have a good quarter, and that's certainly part of what we saw during Q1.

You talked about onboarding $10 billion, $7 billion, $10 billion last year, $7 billion this year of new business. Is that onboarding of business, is there a different mix than what you had before so that it's a more attractive mix for you guys, whether it's in terms of specialty, whether it's in terms of generic penetration as Publix got more generics than what you had before losing Optum versus bringing on another large payer. How should we think about that?

Well, we have won a series of new pieces of business, including Publix that you referenced before that we're very proud of as we now move past and we have now lapped the exit from Optum from our portfolio. And that business has been higher margin than the business that we lost in the way we were pretty clear at the time of the Optum departure that it was a very complex, low-margin business for us. And -- we have found some great customers to help fill that hole and to grow with us, which is what we're seeing now, having posted 23% revenue growth in the quarter for pharma and 22% revenue growth for the enterprise during Q1. Hard to comment with any specificity as to one customer on the mix of the product line or the specific profitability. But what I will comment is to say we're pleased with the customer onboarding that started at the end of Q2 last year went all the way through last fiscal year and has now continued into the first half of fiscal '26 as we predicted that it would. And here's an important point as well, which is when you have opportunities like customer change, right, that has caused us to actually drill into ensuring that we have the right customer service environment that we have the right service levels that we've got the right network. And so a nice benefit of all the change that we've been through is that Debbie Weitzman and the team have been able to realign our operations within the pharma and specialty business to better serve the existing customers that we have as well as make it easier for us to onboard new customers, and that bodes well for us as we carry forward on being able to deliver against every opportunity for sales that we have.

When you're onboarding this much business or even any contract, we just kind of assume it starts at the regular margin or, hey, this is 50 basis points, 100 basis points, whatever it might be, whoever the definition is. Is there an onboarding ramp to get to what you might consider to be normal or peak margin or whatever? And how long does that normally take?

Yes. I can't give you a rule of thumb because every customer deal is different. And indeed, the cost of implementing them is different based on a number of locations, locations themselves, right, the specific terms, the mix of their business. So I can't give you a rule of thumb in that way.

Was there any growth in margin and onboarding of business -- of the $10 billion, let's say, because now we're almost a year through.

Yes. We haven't -- if where you're going with this is help us identify some of the sources of that profit growth over the last couple of quarters, we haven't provided guidance in that way. And really, it wouldn't be the most material factor, I would call it in any event. The overall lift in demand we've had for the last couple of quarters has been probably the largest driver of our source. Certainly, the increased penetration in specialty, which is a higher-margin part of the business has been very helpful as well. The continued contribution or the growing contribution of our MSO platforms now that we have got them together and are effectively starting to put them together, that is, of course, a higher margin rate business as well. And so really, it's all the pieces coming together for us that are helping to drive the profit growth.

It's a simplistic question, but it sometimes gets confused. When you talk about growth of specialty ex the MSO business, what kind of drugs are you talking about? Because we don't -- what gets defined as specialty is not necessarily consistent across the industry. And so when you say there's seeing a growth in specialty and that's higher margin, what are those kind of products?

Yes. Well, there's a paradigm out there where some of the industry participants focus on oncology, and we tend to focus on what we call the Other ologies, right? And it's really a poorly served name for a key part of our business because the other ologies are -- can be incredibly profitable for us as well. And so Cardinal's strength has historically not been in oncology. It's been in Rheumatology, Urology, Gastroenterology, Nephrology, the Other ologies, if you will. And so when my peers or our peers talk about specialties, they're often talking about oncology and what's been going on with U.S. oncology and OneOncology and the drug distribution that way. We are in oncology, right? Both -- we entered -- we already had a distribution business. We doubled down with the launch of the Navista platform, which we announced, I guess, 2.5 years or so ago at our Investor Day. And then we bought an asset called ION as well. And our goal from a specialty perspective was not to believe that we were somehow going to overtake McKesson from a leadership perspective in oncology, but we needed to be sufficiently relevant to get the best pricing from the manufacturers to be able to serve the customers that we have in that space. But our focus has been on a very different playbook. Our playbook has been on emphasizing the strength that we have and the growth we can drive in the Other ologies, the Urology, the Gastroenterology, Rheumatology. These are all places where Cardinal has historically had one of, if not the largest distribution presence or GPO presence or other assets. And it's no mistake that it's no accident rather, I should say that when we did start doing M&A 2 years ago, the first asset we acquired was something called Specialty Networks, which was a business we knew well, which was one of the largest non-Cardinal Urology GPOs, and we call it GPO plus because importantly, what we acquired it for was the technology assets it had and the integration it had with urology practices across the country, even if they weren't our distribution customers, allowing us to gain, assess and then monetize effectively with the practices and with the manufacturers, the data stream back and forth while it reads the 40-plus EMRs and supports the studies that the manufacturers are doing. That's just one example of how we are running our playbook in specialty and other areas to really drive our success going forward.

So I think a lot of us understood oncology and getting involved in oncology as a company's core business is drug distribution, given the amount of drug spend in oncology is massive. It was less clear to us how -- what Cardinal brings to the table in some of these other ologies where drug spend isn't necessarily as large a percentage as it is in oncology. Can you talk a little bit about the value creation that you provide? And what's attractive about it? Do you -- is there a pipeline coming up in urology, for example, or any of these other ologies that you guys are looking at? How should we think about the opportunity there?

Great question. Let me answer it by talking both about what do we get from it and what do we provide to it. And let me start with what do we get from it. If you think back to how I was describing the dichotomy between the other ologies and oncology, there is a key difference between those categories where if you're a practice or an MSO for that matter, much of the economics comes from the drug spend. We would call it 90% or so and 10% is coming from office visits in that way. That's great if your sole focus is on distribution, right? But what we love about the playbook that we're running focused on the other ologies is that we're not buying companies and MSOs to get the distribution. We're already a top 3 distributor in the country. We have other vehicles by which to acquire distribution. We're doing it because there's a broader play, a broader set of economics that we want to participate in, effectively creating diversity of revenue streams for us while still getting some benefit from the synergies that come from the drug distribution. And so -- that's the primary thing we're getting more exposure to specialty therapy areas that we're already in, then we can grow on a diversified revenue stream basis. Now what do we bring to that table is also important because why would doctors’ groups want to partner with us. We are now the largest -- we own the largest gastroenterology platform in the country, GI Alliance. We also now own the largest urology platform in the country, the Solaris. They are coming together into what is now known as the specialty alliance, and we have more plans there. But the point is what are we bringing to that? As I referenced, we were already one of the largest distributors. And so we have contracting power, if you will, in support of the doctors that we have now partnered with in connection with the distribution of drugs, right? It's also the case, though, that we have a very strong technology footprint and platform behind the scenes that we're able to leverage across the therapy areas as well to drive better practice recommendations to the doctors, to drive better awareness and integration of actual medical results into the real-world studies, right? There's a variety of things going on there. In addition to the scale that we bring from an overall purchasing rate perspective, things like insurance, you name it, these are all places that we can play in support of MSOs or the doctors' practices that we are now bringing together through the MSO landscape.

So I don't know if you've ever answered this question before, but you mentioned oncology, 90% might be drugs. When you think about GI or urology, is it -- I'm guessing that it's not 90-10. It's probably lower.

No, it's not. And if you're curious about this, we actually have some great materials in our Investor Day presentation and I believe also our Q4 materials online. And the way we describe it is in the oncology space, it's 90-10, 90% distribution, 10% office visits. In autoimmune, which is what we would call gastroenterology and a couple of other categories and also in urology, it is more typical that the distribution and ancillary practices would be 35% to 40% of the economics that procedures would be about 1/3 of the economics and office visits would be about 1/3 of the visits -- 1/3 of the economics as well. And so that's the diversity of revenue stream that I was referencing earlier.

Okay. Can you just take us -- like -- we know getting the distribution is part of this. You just mentioned it's still a sizable part of the value of a customer. You don't necessarily always have the distribution contracts when you make these acquisitions. But recently, you upped your guidance because you had more visibility on that. Can you just take us through where we are with the acquisitions, the distribution contracts, which one you currently have, which ones you don't? And like just to understand the timing and how it plays into your guidance because it's a little bit confusing.

Sure. To answer that question, I have to observe that when we announce an acquisition of a company, unless we are -- well, if we don't have the distribution, we don't assume the distribution of the deal economics, right? We don't justify the deal based on the fact that we're going to acquire distribution down the path, and we don't guide to it at that time. And that's because we are staying loyal to our views that it's the overall basket of economics that we're focused on with the businesses, and we don't want to effectively be buying distribution, right? And we are very consistent with that internally. So when we announced the deal, if we don't already have the distribution, we say that, we don't put it in our guide. And that was true for ION. That was true for GIA. That was true for Solaris. The only company -- the only business we've acquired for which we were already part of the distribution was a smaller business, Urology Americas. We had some of their distribution early on. So we then provide updates to our guidance. And we said, I believe, on our Q4 earnings call that we now had line of sight to we had won the contracts for the distribution on ION, and we had won the contracts for the distribution on GIA. But those are rolling in as we speak. And so we won't have a full year of distribution of either of those contracts. ION is coming quickly and GIA is towards the end of -- closer to the end of this fiscal year. Solaris, we just closed the deal in the last 10 days, and we have to work through that yet. And so while the -- our financial guide now assumes the distribution benefits from GIA and ION, it does not assume the distribution benefits from Solaris. Put more specifically, we called $0.05 of accretion in this fiscal year on the Solaris acquisition that does not assume any distribution from Solaris.

And so can -- based on your percentages that you provided earlier, if the distribution contract were to be added, would it be roughly that percentage of the $0.05 that it would be incremental?

I wouldn't want to give guidance before I give...

We did highlight that Solaris in total is about $1.5 billion of revenue. And so you can use that and then some of the other color we provided to get pretty close there.

Got it. That is helpful. Let's talk about -- you mentioned sort of streamlining the business post Optum, it made you change things. If you look at the gross profit number and use that as sort of a top line and you look at the EBIT, your leverage on the OpEx line has been pretty good in the last several quarters. There's definitely been a benefit. You're not alone. McKesson was here yesterday, and they had the same sort of benefit. Is there more room to go there? Like are you streamlined? Or is this more, okay, we have our distribution network in place, the more revenue we can layer on. We can cover pretty much our customers now. We're in a good place. Or is there more automation, more savings that you can generate? Is AI a thing that is benefiting on this side of the business where you might even get more leverage on the OpEx line going forward?

Great question. And the answer is yes, yes and yes, with the following important caveats. So we continue to invest in our network. We are investing in growth. And you have to keep in mind that our network has grown up over decades from a building’s perspective, and there isn't extensive automation in parts of our network operations. So as we are growing the pharma business, we are adding the right distribution nodes in the right places. We recently announced a new node in Indianapolis, I believe, that when we complete the build, it will actually have significant automation as well to help drive the continued profitability of that operation. Similarly, if you translate to our at-home business, that is a business where we move a lot of small dense packages into patients' homes directly. We have been optimizing our distribution network in that business now for a couple of years. And again, as we open new buildings, we just opened Texas, we've announced at least one more. We are putting in automation and technology as well to ensure that we keep our costs down. One of the things that Jason Hollar has done on the operation -- at the enterprise level within Cardinal is really focus our team on how do we continue to optimize our operational excellence, keep our costs down, but importantly, keep our costs down while making sure that we can have high service levels and serve the customers where they need us to be and when they need us to be there.

Got it. So it sounds like there is room.

I'd be a bad CFO if I didn't say there's always room for improvement when it comes to cost structure.

Fair enough. You mentioned how important generics are, and it feels like you emphasize this more than maybe your peers do. Maybe that's because of your mix, maybe it's the fact that you have CVS and Red Oak as a partner and that this is may be more advantageous. Is there anything to call out? You said it's been stable. That means your spreads are stable, you price through a gross margin. I appreciate that. Is there anything in the pipeline coming from a generic perspective that we should care about? I've been doing this a long time, and it used to be, hey, this drug is going generic, and we used to model exactly how much profit the distributors are going to get. And it was -- the stocks to trade on these kind of things. We haven't done that in years. But I'm asking you, as you look ahead over the next 12, 18, 24 months, is there categories of where there's increased opportunity on generics? And again, we'll talk about biosimilars as well.

I'm not going to call out a specific generic innovation or transition that's coming. But I will observe that one of the opportunities we see in the business and part of why we are confident in our long-term guidance is we do see more transitions from brand to generic coming, and we're excited about what those opportunities are for us. And then biosimilars, maybe to get ahead of the question is biosimilars for us, it gets a lot of attention, but we view biosimilars as being an early inning game at this point. The economics have yet to shake out. The number of participants in any particular biosimilar are still up in the air. The decisions that the PBMs are making around what to accept or not accept for a particular biosimilar. There's a lot of work yet to be done or a lot of decisions yet to be taken until biosimilars are really the next generic category for us. And so while we're hopeful in that way, it is not nearly of the -- it's an opportunity for us. It's not nearly what the generic part of our portfolio is yet.

Understood. With the GPO and biosimilars, how do you view that versus -- do you think the GPO will be able to get discounts from the brand when a biosimilar comes, that will match that. This is a question that we all have. It's not as important KEYTRUDA is the one that everybody is focused on in certain oncology drugs. You have some of this. But how is that going to work when all of a sudden, we have a biosimilar for such a large drug? And how does the GPO treat that in terms of how do you negotiate those discounts versus the biosimilar?

I'm going to have to go back to my earlier answer, which is it's going to depend on so many different things, right? It's going to depend on the adoption by the physicians. It's going to depend on the formulary decisions taken by the PBMs. It's going to depend on the number of different manufacturers of alternatives in that way. And we're not a high-margin business per se. And so of course, we're looking for the opportunity to how can we ensure that the American patient has access on an formal basis to what they need, but that business model is yet to fully evolve.

Does it -- do you think if you were just to guess, and this is, again, I'm not holding you to this, I will not call you out on this in 3 years when this happens.

Except if you are on a recording.

But do you think it would be more beneficial for Cardinal as a company to have more utilization of the biosimilar or more utilization of the brand at a discounted price that might match that?

We're living in a world where the administration is pressuring everything which we all have known to be true for decades in the health care space. And so far be for me to sit on a stage today as so much is changing and predict exactly what brand economics look like relative to biosimilar economics, relative to generic economics. We just don't know as yet. What we do know, what we are 100% confident, which is why we're confident in our long-term guidance on the business as well is that we, Cardinal and our peers are essential parts of the American health care system, right? Our role in all this is to safely, securely and efficiently get the drugs from point A to point B or point C, buying from thousands of manufacturers and distributing to many more thousands of hospitals or physician offices or even into the patients' homes. And we do all that at a 1% margin. And so as we think about all the regulatory change, as we think about how the economics across categories are evolving, what we have confidence is that every time that business model has evolved around us, what's become true is people have realized is that we are an essential part of the American health care ecosystem, and we're going to have to be compensated for the services that we're providing. That's why I can set on the stage in the face of so much change going around us and express our confidence that Cardinal has got a bright future.

Has a manufacturer in the midst of all these pricing changes ever come to you and said, "Hey, listen, we don't think we can't pay you as much as we used to or we're not going to pay you as much. Like have you ever had that? Because it feels like at the end of the day, you guys always get paid the same amount regardless of what's happening to the prices of the -- at least on brands.

You just made my point from the last comment, which is that naturally, everyone is trying to negotiate everything at all times. It's what savvy business people do as well. But what it comes down to is we are paid largely on a fee-for-service basis. And if they want the fee, they're going to have to pay us for doing what we do so well.

We haven't spoken about the medical products business, which put up a very good quarter relative to expectations. It doesn't get as much attention, obviously, because the pharma division had such an unbelievably good quarter. What's happening there? And what drove this quarter, in particular? Was there anything -- was it utilization again? And -- but there's a very specific question here as well, which is one of your competitors is selling its business to a private equity firm. I don't know if that's going to provide opportunity for you. I don't know if you've ever talked about this or not. How should we think about that in the context. Because I think that business has always been perceived as potentially being a share loser because of a private company that's been swallowing share, not just in the health system business where you compete, but more broadly. How should we think about the competitive dynamics in that market?

Let me offer some perspective on our business and then offer some perspective on the industry dynamics as well. We launched what was then the Med improvement plan a couple of years ago. It's now -- we now call it the GMPD, Global Medical Products and Distribution improvement plan, really focused on a couple of key things to set that business up for success as you go forward. And you need to look -- not look back too far to see a business that was negative profit and negative cash flow. And now we're at a point where as part of our improvement plan, we've driven it to positive profit and positive cash flow. And really, that business has really turned the corner for us. And we've done that by focusing on the fundamentals. We focused on how do we grow the ever-important Cardinal Health brand part of the business because, of course, our brand is higher profit margin than other parts of the portfolio. We focused on how do we optimize our distribution network and our manufacturing network because we are a manufacturer of products as well as a distributor product globally. How do we do it in the right way, have them in the right locations, how do we optimize our cost structure? How do we really carry that forward? And importantly, the third part is how do we mitigate first, inflation and now tariffs, right? And so the team has done a very nice job over the last several quarters in realigning that business for growth. And I would call out some of the metrics I referenced earlier from this last quarter or last 2 quarters actually where the Cardinal Health brand business grew 6%. That's a sign of progress in that portfolio. And with the profit they put on the table, a lot of that is driven by growing with existing customers, but it's also driven by the very choiceful decisions that the team has made around cost optimization. So we're pleased with how that business has brought the cost profile of that business down overall. Now why would we do all that? We do all that because, a, we need to improve the business; but b, we need to do it because it's a relatively competitive place, right? You have the likes of Medline out there who is a strong competitor. You have McKesson's business that they've announced that they're going to separate in some form in the not-too-distant future. And then you have the OMI business, which, of course, has recently announced that they're selling to Platinum Equity, I guess, is the firm. And so we're looking at that going, we have to constantly raise our game. Now we're going to learn a lot, what we have learned a lot with what's come out of the Medline S-1. I'm sure you all have read that 300-page document detail the way that we have. We're going to see a lot of change happen in the context of the OMI transaction with Platinum if and when it closes. And of course, McKesson is doing their thing with their med products business as well, which is more focused on the patient office than we are. And in all of that, that presents both opportunity and challenge, challenge in that there are a couple of strong competitors. We are purposely raising our game to go after it, opportunity because any time there is transition in the industry, that presents one with opportunity to go after customers. Of course, we are doing our best to win every customer we can in the right way at the right time with whatever the opportunities that presents itself.

There used to be a debate with this business as to whether or not it was truly core to what Cardinal wanted to do. Was this something that you wanted to keep? There's obviously been a lot of these transactions happening, McKesson spinning, OMI selling. It sounds like you're very happy with this business where it is, where it stands. That's been the message. Nothing has changed here.

We're very happy with the progress that the team has made against the GMPD improvement plan. Jason Hollar has been very clear during our Investor Days that we are a pragmatic balance sheet owner in that way and that our focus is on how do we create the most shareholder value, right, both short, medium and long term. And our answer to that question for the last couple of years has been our best way to create shareholder value is to improve that business and really drive the execution of the GMPD improvement plan. That's where we are today.

This is going to be a totally random question, but it's become a debate in the last days, which is around skin replacement products. I don't know if you've heard about this.

Skin replacement products?

Like bands and things like that. There's been some fraud in that industry and the like. You guys are not in any way -- you have not benefited or anything from -- it's not that you would committing fraud, but there has been upcoding and other things, basically Band-Aids by certain providers in Florida and the like. You're not aware...

I can't speak to that. We do have a consumer business, but I'm totally unaware.

It's a managed care issue more than it is anything else because they -- literally billions of dollars of like -- we'll leave it at that.

That's to your next guest.

No, it's fascinating. I really learned about it more last night, and I was like, okay, this is...

Before or after the Packers lost.

It was before. It was before. Can you talk a little bit about where we are with nuclear? Again, not getting a lot of attention. How do we think about what's happening with the mix there? What's the outlook for that business? Has anything there changed in the midst of everything else that's kind of we've forgotten about it a little bit?

So we have the largest nuclear precision health business in the U.S. It's a mix of SPECT and PET and Theranostic products, a nice growth business for us. We've predicted -- we've guided long term that we expect the profit of that business to grow 10% on a long-term basis. And we're really excited about what we're seeing in that business. We're investing $150 million in new locations and new manufacturing capabilities to support Theranostics. And what's particularly cool about that business for us is how it ties into the broader themes within Cardinal. If you go back to where we started the conversation today on specialty and in particular, our conversation on urology, right, we are one of the largest providers of diagnostics -- Theranostics in the urology category. It's something you all may have heard of Pluvicto, right? That's a key part of our portfolio. We're supporting that customer launch and ramp. And that's just one example of how all it takes for us to be successful in our Nuclear Precision Health business is a series of singles and doubles. But the innovation pipeline coming in that business is incredible, right? And so we believe that so long as we can continue to have the available capacity from a manufacturing and distribution perspective that, that business is going to do quite well.

In our last minute, we went this long. When we did our pre-earnings call with Matt, we spent half of our call talking about COVID, which in retrospect was a complete waste of time given all the other trends in the business. It didn't -- nobody is even talking about it now, but it was a headwind that you had called out. What did it end up being in terms of the headwind? And should -- are we ever going to have to talk about COVID again relative to your business?

My job is just to answer the questions as asked, but the -- sometimes COVID was anticipated to be a slight headwind to our Q1, and it was. But the rising demand that we talked about earlier more than covered the slight headwind in Q1. And indeed, we also commented on our earnings call that we expected COVID to be a slight headwind to our earlier expectations in Q2 as well. Now our guidance for Q2, Q3 and Q4 and beyond assumes strong demand. It doesn't assume the outsized demand. And I guess it's for the listener to decide our comment on slight headwind, what does that mean relative to the broader dynamic in the overall enterprise. But we are certainly watching with interest what -- how the American consumer is adopting or not the vaccines and certainly what changes are happening in Washington.

I think the last time you sized COVID was a few years ago. I think it was $70 million of EBIT. And then each incremental year, it's supposed to be incrementally down. So are we at a point where COVID benefit or COVID profit is in the mid-tens of millions.

Yes. We haven't provided an update on guide -- on COVID for this year other than just commenting it's a slight headwind to the first 2 quarters of the year.

And a key call out now with the season is most of that demand is concentrated in September and October. So where we're at in terms of the cadence, we have very good visibility.

Gentlemen, thank you so much for your time. Thanks, everybody, for joining us.

Thank you.