Good day, and welcome to the Cardinal Health First Quarter Fiscal Year 2015 Earnings Conference. Today's conference is being recorded. At this time, I would like to turn the conference over to Sally Curley, Senior Vice President of Investor Relations. Please go ahead, ma'am.

Thank you, Lisa, and welcome to Cardinal Health First Quarter Fiscal 2015 Earnings Call. Today, we will be making forward-looking statements. The matters addressed in these statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected or implied. Please refer to the SEC filings and the Forward-looking statements slide at the beginning of the presentation, which can be found on the Investor page of our website for a description of those risks and uncertainties. In addition, we will reference non-GAAP financial measures. Information about the measures is included at the end of the slides. I'd also like to remind you of a few upcoming investment conferences and events. We will be webcasting our presentation at the Crédit Suisse First Boston Conference on November 11 in Phoenix. And in addition, we will be hosting one-on-one meetings at the Bank of America One-on-One Conference in Chicago on December 11. Today's press release and details for any webcasted events are -- or will be posted on the IR section of the website at cardinalhealth.com. So please make sure to visit the site often for any updated information. We hope to see many of you in an upcoming event. Now I'd like to turn the call over to our Chairman and CEO, George Barrett. George?

Thanks, Sally, and good morning, everyone. Our fiscal 2015 is off to a really good start. Our organization performed well across the board. And I'm proud of the work our people have done in positioning the organization to anticipate and address the evolving needs of a fast-changing market. During Q1, we saw the growth in both Pharmaceutical and Medical segment profits. Our gross margin rate expanded by over 40 basis points to 5.6%. And we returned nearly $500 million in cash to our shareholders in the form of dividends and share repurchases. Total revenues for the quarter were $24.1 billion, a decline of 2% versus last year's first quarter. This is the last quarter in which we will be comparing to a prior year period, which included sales to Walgreens. The declines in the Walgreens contract expiration was largely offset by sales growth from both new and existing customers. Our first quarter non-GAAP diluted EPS was $1, down from last year's $1.10, which included an $0.18 benefit related to tax settlements. Back in August, as we began our fiscal 2015 year, we provided a non-GAAP EPS guidance range of $4.10 to $4.30. We are reaffirming that guidance today. I will note, however, that while we still expect the contribution to profit to be more back-half weighted, the strong start to the year is certainly an encouraging sign. I'll provide a very quick overview of our first quarter, which Jeff will cover in greater detail during his remarks. I'd like to devote the rest of my time this morning to covering our progress on our strategic priorities. Our Pharmaceutical segment reported revenues of $21.2 billion, down 3%. Revenue growth from both new and existing customers partially offset the Walgreens effect, as I noted earlier. Our Pharma segment margins continued to expand.…

Thanks, George. I'm really excited to be moving into the CFO role. What you may not know about me is that while I've spent most of my 24 years here at Cardinal Health in sales, procurement and general management, I've also been a division controller and CFO for our Medical and Pharmaceutical Distribution businesses. I've also spent over 5 years in public accounting before I joined Cardinal. So in many ways, I'm going back to my roots. George, Jeff and I are already working together on the transition. And with Jeff here through August, I'm confident it will be smooth. I look forward to meeting many of you over the coming months at the various conferences and events. But for now, I'll turn the call over to Jeff for his final earnings call as CFO.

Good morning, everyone. Thank you, George and Mike. I share George's sentiment in welcoming Mike and look forward to passing him the CFO baton officially in a few weeks. As you can tell from George's remarks, we're off to a strong start and making very good progress on the key strategic initiatives that will drive our performance this fiscal year and beyond. In my prepared remarks, I will first focus on outlining the drivers of the first quarter financial performance and then provide some insight into our expectations as we move through the remainder of fiscal '15. You can refer to the slide presentation posted on our website as a guide to this discussion. Although non-GAAP EPS for the quarter was $1, down 9% versus the prior year, the first quarter of fiscal '14 included an $0.18 favorable impact related to the settlement of federal and state tax matters. Eliminating the tax elements from the prior year, non-GAAP EPS grew 9%. Revenues at $24.1 billion exceeded our expectations in the first quarter. Excluding the impact of the Walgreens contract expiration, the fiscal 2015 first quarter revenue grew a robust 13%. Gross margin dollars were up 6% for the quarter, and the gross margin rate expanded 42 basis points versus the first quarter of last year. Total SG&A increased 6% versus the prior year, driven by increased acquisition-related expenses. Consolidated non-GAAP operating earnings were up 6% to $566 million. The non-GAAP operating margin rate increased 18 basis points versus the prior year to 2.35%. Interest and other expense was essentially flat to last year. Our non-GAAP tax rate in the quarter was 36.5%. As I previously mentioned, in Q1 of last fiscal year, the tax rate was unusually low due to the favorable impact of certain settlements. Excluding those settlements, the…

[Operator Instructions] And we will take our first question from Ross Muken with ISI Group.

I was curious if you think the Canadian business was weak as a protest to your leaving the company.

I'm sure that had a big piece to play in it, yes, Ross.

Maybe just -- yes, there was a lot of assumption changes, it seemed like, on the generics side. We know about some of the pushouts and obviously, we've all been tracking inflation. I mean, as you look at the performance in the Pharma business, I mean, x lag, obviously, the growth was pretty spectacular. As you sort of break down your thoughts more so on the profit side for the quarter, obviously, not much you can give on the number side, but just more anecdotally, where do you feel like you really sort of excelled on margin dollars? And where are you hoping for a little bit better performance in the year? Obviously, we know Red Oak is going to come in, but I'm curious just more so on the line items.

Let me just start. I think part of the driver for us is a focus on key priorities, and that really influences the mix of our product lines and services. And so as we look across the business, those areas where we're growing, I think, are higher value areas for our customer base. And as a result, they tend to be higher-margin businesses for us. So again, I think we're doing very well in generics. That customer base is expanding. Our specialty business continues to grow. On our medical side, again, utilization was okay. Obviously, we‘re still seeing it to be somewhat subdued. But I think we're really doing well with our strategic accounts and then, again, with key products in those accounts that are really important drivers for us and important value drivers for them. So I think it's largely about a very clear focus on priorities and mix. Jeff, I don't know what we might want to add to that.

Yes. I mean, if you look at -- I'll start with Pharma. If you look at each of the different businesses within the Pharma business, you got the core Pharma Distribution, Nuclear, specialty and the China piece that's relevant to Pharma, they all outperformed our expectations for the quarter. So I'd say, really, across the board, we're pretty pleased with the results. But I think you touched on the one area that wasn't a disappointment, but I think we're still not seeing the full potential from yet, and that's the Red Oak JV. As we've always said, there's going to be a ramp-up over time. Q1 was largely about setting up the JV, starting the discussions with the manufacturers and starting to sign up manufacturers. But as we've always expected, the actual benefit that will flow through to us will come over time. So I'd say that's the one piece that was largely missing from Q1, but that was as expected.

Yes, it's important. That is what we anticipated. So again, not just one that didn't happen, I think that's key, is that we know that, that flows as the year goes.

On the...

And just -- yes, go ahead.

No, I was going to say, on the Medical side, obviously, we're pleased to see some of the profit growth for the quarter, particularly in a utilization environment that still really hasn't ticked up yet. I think the one area that we're -- again, this is not a disappointment, just something that we knew was going to happen. We're still investing in our physician preference item rollouts. And it's more of an investment story right now than it is a profit story, but that's expected. We want to make sure that we're properly positioned and we have the right portfolio of products and the right sales force and organizations supporting it, et cetera. So we're going to see those benefits more towards the latter part of this fiscal year and heading into next year. So again, not a disappointment, just something that really wasn't a significant driver for us in the quarter.

That's helpful. And just quickly, it seems like you picked up the tuck-in M&A activity strictly in the Medical side. You've got sort of a differentiated strategy there. What's the pipeline look like? And do you feel like you're filling in a lot of the holes? You moved into wound care, you've got some stuff in ortho now. What else is sort of left?

Well, I mean, I think now it's executing. As Jeff said, these are major initiatives for us that we've always described as sort of midterm drivers, Ross. So I think the positioning on orthopedics is really good. By the end of this year, we're going to start to see some of that flow through the system. The move into cardiovascular, interventional cardiology, I think, was really exciting for us. It's doing well, and that bag will begin to fill. And then as we think about wound care, that's a really interesting area for us. And as I mentioned, we are talking about 250 launches that are sort of in process. So I think now, it's more about rolling it out, executing, and we're really excited about these programs.

And we'll go now to Lisa Gill from JPMorgan. Lisa C. Gill - JP Morgan Chase & Co, Research Division: And Jeff, just let me say that I wish you well in your retirement, and I really enjoyed working with you over the years and the last 40-plus earnings calls. So my first question, really, George, just to follow up on what you're talking about around PPI products and clearly, tuck-in acquisitions. But do you see any bigger opportunities in the market? This is clearly a place that the Cardinal has differentiated themselves on the med-surg side. I think I heard you earlier talking about continuing to take action to deliver products to physician offices. Do you feel like you have what you need in order to deliver to physician offices? Or do you need to make an acquisition to continue to grow that business?

So there are 2 parts to that question. The first one is really around our PPI program. And again, I think for us, we like where we are. We'll continue always to look for opportunities to accelerate those programs. So we've got sort of a dual responsibility now. One is to make sure that we're doing the right strategic things to get the bag position to sell with good coverage, and the second part is really about execution and making it happen. So I think we've got a great foundation now, but we'll continue to look at opportunities, both organically to drive the program, new products and whether or not there may or may not be opportunities externally. The second part is really about the physician's office. And here's what I'd say. I would say, again, there are sort of 2 stories to it. Part of the physician office business, as you know, is increasingly affiliating with the IDNs, and we've had obviously an enterprise-wide relationship with many of those IDNs and tend to be stronger there. We've been less strong in those independent practices, and we continue to look at various ways to strengthen that part of our business. But I think, overall, as I look -- if I draw a continuum of our business, we feel pretty strong in the continuum of care, but we'll continue to look at ways to strengthen any pockets of -- new pockets where we're not quite as strong. Lisa C. Gill - JP Morgan Chase & Co, Research Division: I guess, really, what I'm looking for is, as we think about Cardinal, you've got a lot of cash spinning on your balance sheet, your business is running very well, should we expect to see you do a larger acquisition this year? I mean, that's really what I'm looking at. So I was trying to figure out different places where you could potentially add to your business. But really, the core of my question is, should we expect Cardinal to do something bigger in this fiscal year?

Yes, I know. I totally understand the question, Lisa. I think you know it's a hard one to answer. I think you should expect Cardinal to deploy its capital efficiently and I hope, very smartly. So when we see opportunities externally that we think drive our strategies, we are not going to be shy about pursuing them, but we also see obligation to make sure that we're returning cash to shareholders. If those opportunities aren’t appearing in the right way strategically as it relates to acquisitions, then we'll look very carefully at how we deploy capital. Jeff, any -- do you want to...

An example of that is what happened in the first quarter, right? We were building up cash, and those significant opportunities were executed during Q1. So we found an opportunity to use that cash to buy back shares, and that's sort of our -- will be our ongoing approach to it.

And we'll take our next question from George Hill from Deutsche Bank.

And Jeff, I'll continue with pats on the back. Nice work. And it's been a pleasure working with you.

Thanks, George.

I ask -- one thing I'd like to revisit is Red Oak. I'm kind of surprised to hear that it's been accretive this early in the JV. I guess, what I would -- I'd ask a couple of things is -- could you provide -- I don't know if you can provide any more color on the accretion, but I assume it was accretive net of the payment to CVS. And then the other comment, George, that you made was that manufacturers appreciate kind of how simple and streamlined the program is. I guess, is there any color that you can give us on how Red Oak might be -- or how you guys perceive Red Oak to be differentiated from any of the other procurement programs?

[indiscernible], George. Again, thanks for the nice words. We did not expense any of the payment to Cardinal Health in the first quarter. That payment, from a cash standpoint, will flow for the first time in Q2 of this year, and we'll begin expensing it on a monthly basis starting in October. So there was no expense related to that payment in Q1. So the benefit that we saw largely flow to the bottom line, although I would describe those benefits as relatively minimal at this point.

George, I'll sort of touch on the second one. Again, I'm going to be careful because, obviously, this is -- the work that we're doing here in Red Oak and the relationships with the manufacturers is quite proprietary and sensitive. I would just say this. There's a lot of change happening in the system that could be very disquieting for people. We recognized early on that a key to our relationship with manufacturers was to be very, very clear about terms and conditions, about where the decisions were going to be made, about -- there are so many mechanical parts in a generic program, moving parts. And we realized that if we could make that very, very simple, that, that would be appreciated. And that has some value to the manufacturers. And so what I would say, without going too far into it, is that we've had a huge number of meetings already. We're getting very good and very positive feedback that people know what we're trying to do, they understand it. And I would say, people -- and they're really cooperative in working with us, and they've expressed some support for the way we've approached this and just the simplicity of the program.

Okay, that's helpful. And then maybe just a quick follow-up there would be is it seems like if you've looked at the other procurement situations that have taken place in the industry, the ramp that seems to come from these JVs or whatever we want to call them actually winds up being pretty quick. I would just ask, is that your assumption as well is that Red Oak will ramp pretty quickly and we should -- if we think about by the end of fiscal '15, exiting the year, we should probably see pretty close to the full annualized benefit?

Well, let me start first, and then I'll turn it to Jeff. This is George. I probably would not comment on anybody else's programs and the speed at which they can achieve that. It's just not my place. I think for us, I'm incredibly proud of the work that's been done in less than a year to get this thing rolling. You would be astonished at how many moving parts there are. So great work has been done. As we've said, we do expect to start to see a more rich benefit as the year unfolds. But Jeff, a little...

Yes. George, I like the way you described it, as getting to a more normal run rate by the end of this fiscal year is a fair comment and consistent with what I've said previously. That doesn't mean there won't be incremental benefits that we’ll go for in FY '16 and '17 and beyond. That definitely will be the case. But again, characterizing it as reaching a more normal run rate by the end of fiscal '15, I think is fair.

And we'll take our next question from Eric Percher from Barclays.

Strategic priority commentary, and I wanted to drill in a little bit on specialty, where you talked about moving from $1 billion to $5 billion today. I guess, my first question is, is the $5 billion really specialty distribution, specialty pharmacy, hub services outside of specialty flowing through the traditional wholesale business? And then could you talk a bit about where you focused and grown in those different components of the specialty business?

Yes. Thanks, Eric. It's -- this is George. It's a little bit of all of the above. First of all, and again, I'm just -- we're talking really about run rate. It's been encouraging. I think the good news about the way we've approached this -- we've had a pretty methodical approach to our specialty business, and most of this is organic, as you know. I think we've seen each of the little subsegments of our specialty work, whether that's our services to biopharma or distribution as pieces that we need to drive. Obviously, from a revenue standpoint, distribution is always going to carry more weight. But I think in general, we're pretty encouraged by the progress. And I think the addition of this patient hub for us, while it's very early, I think, is really an interesting value driver as it relates to the work that we can do to provide to pharma companies, and thinking about where they're going, how they're trying to increase those touch points with patients in the system. So I would say, generally speaking, we're pretty encouraged by what's happened through most of those sub-businesses and encouraged by the run rate, much of it organic.

Let me just add to that. We've always said that achieving success in specialty is going to be dependent on really 2 factors: number one, getting to critical mass and size so that we're relevant to the manufacturers and to the docs and the payers. I think now, with a $5 billion run rate, we can definitely say we're relevant, and then we have a significant share now of the specialty market. The second piece was, as we gained relevance from a size standpoint to start wrapping services -- or continue to wrap services around that volume, that we can profitize with the manufacturers, et cetera. And that has also happened as well and was accelerated clearly last January with the purchase of Sonexus, which really helped to round out the toolkit that we have now that we can sell as services to the players in specialty. So I do feel very good about the positioning we've achieved over the last couple of years.

So it's felt like some of your positioning was that you didn't need to have a massive footprint but enough to be relevant to manufacture. So it sounds like you're feeling that you've reached that in Sonexus, and the hub services will be the test case for your ability to have relevance. And I guess, the way I would throw a question on there is, how do you think that your assets differentiate from others when manufacturers are deciding which hub to go with?

So it's a great question, Eric. Here's what I'd say. This is going to be a story of defining services that are very uniquely targeted to a biopharma company and the patient population that they are addressing. And so I'd love to tell you that there's a broad answer to that. It's really a sort of "you've seen one, you've seen one" kind of answer. We're very targeted. We actually have a innovation center that is -- all they do is software solutions that address unique needs of some of our customer base. This would be one of those customer bases. So I don't know if I could do a comparative analysis for you rather than say our team is very targeted. And we certainly have the presence in the market to allow us to do the things that we like to do and have those touch points. So -- but very -- honestly, very targeted, very customer-centric, practice-centric work.

We'll take our next question from Charles Rhyee from Cowen and Company.

And congrats, Jeff. Good luck with everything going forward.

Thanks, Charles.

Just a -- actually, a question on Nuclear. This quarter, you talked pretty positively about it. I believe a little -- you talked kind of positively about it last quarter. Can you tell us the shape of this business at this point? If I recall, years ago, I mean, this was something like maybe almost a $2 billion business with something like 20% EBIT margins. Can you kind of give us a sense of the financial health of this? And one time, you talked about how much you liked it. How does it stand now in relation to some -- all the other priorities as you look forward?

So Charles, let me just start, and then I'll turn it over to Jeff to give you color on the financial aspects of it. But here's what I'd say. The business had been through, I think I described it, really significant change over the couple of years. It’s really the market has gone through this significant change, primarily around the utilization. Our hope is that those changes have essentially worked their way through the system, and those are beginning to stabilize. That's good news for us. The second element of -- so one is that, while it's not -- you're not seeing a big increase. What we've seen is some stabilizing. The second element, which is exciting, is the development of new technologies. And so I'd use Xofigo just as an example. So we're not just now seeing radiotherapeutic, but radiopharmaceuticals, and I think there some opportunities there, and we're excited about the potential. But it's -- the market has been through a really major multiyear kind of reset. Jeff, do you want to give any more color on that?

Yes. As a reminder, we wrote down a goodwill on this business over a year ago now really because the core business itself was not growing. And in fact, we're shrinking due to some of the issues we talked about previously. I think one has given us some renewed optimism about the business -- really has been some of these new launches, like the Xofigo launch that George referenced. I'd say we're hopefully optimistic now about the Nuclear business, and we see some particular product areas where there's potential to grow over time. But I would not describe the Nuclear business as one of our more significant strategic growth drivers going forward. It's good margin as long as we can continue to grow it. With these new products, it will be a good contributor to the bottom line and it is margin accretive. But it probably won't be a business that you'll hear us talk a lot about going forward. Unless, of course, some of these areas that George referenced begin to really, really take off and hopefully, they will, and we'll let you know when that happens.

And is this related to the biomarkers area? Is that where we should expect really the growth of this -- this start of the business turns around? Is that the spot you'd focus on?

I think that may be an element of what we're describing. But I also think -- if I were to describe the biggest change, again, assuming that the core market is not going to go through a massive change, I think, to me, the biggest development is the potential commercialization of, let's say, 2 things. One is, if there's some real breakthroughs on the Alzheimer's side, the diagnostic piece becomes much more exciting. And the second is seeing some products that are actually not diagnostics, but are actually therapies. Those are the things that probably are most present in our mind.

And we'll take our next question from Robert Jones from Goldman Sachs.

And Jeff, it's been a pleasure. I wanted to shift over to Medical, where revenue came in at the high end of your low- to mid-single digit range for the year. Several med tech companies this quarter have been citing improved volumes. Your largest competitor on the acute side talked about it, one of the best environments they've seen in a while. Can you maybe just talk about what you're seeing within the marketplace? I know you commented briefly on it in the prepared remarks. But just curious, from a volume standpoint, demand standpoint, how that market has been trending and probably, more importantly, how you're contemplating the progression of that market into your fiscal '15 guidance?

Yes, thanks. I'll take this. We've obviously heard a lot of commentary on different companies. And actually, we're hearing quite different things, and I think there's a good reason for that. I would say this. Because of our really broad reach, we have a relatively good line of sight on the system. And so what we'd say from a system perspective, utilization is somewhat flat to slight -- maybe slightly up, although I would say it's early to describe that as a trend overall. What's noteworthy, and this is why you may be hearing different perspectives, is that it's not one-size-fits-all. We are seeing some systems and some hospitals showing disproportionate growth in relation to others. And we're seeing some shift in channels, so some utilization that was, for example, happening in the acute care centers moving to ambulatory centers. And so you have this interesting dynamic, which is an overall system number, but some shifting on how and where it's done. And so that partly explains, I think, [indiscernible] you might be hearing things. We certainly believe, over the long haul, both through access to healthcare, insurance and demographics, we're going to see a lift. I would say, right now, in the short term, it's still relatively modest. Yes, I think that's the way I'd characterize it. One other thing worth noting again, which is, as we look at, for example, the hospital system, make sure we distinguish utilization from now compensation for what was uncompensated care, so there's a number of moving parts. And I would just encourage everybody to look at all the individual pieces.

No, that's helpful. And then, I guess, just a follow-up on inflation, just given how important it is to the business. I know you guys guided for moderation in generic inflation for fiscal '15. But this quarter, it sounds like you said inflation was consistent. I'm just wondering, have you started to see any signs of the actual moderation in the marketplace? And George, even longer term, obviously having sat on the other side of this equation, how prolonged can this inflationary environment go in your view from a high level? I mean, are we talking quarters, are we talking multiyear? Any perspective there would actually be really helpful.

Yes. Well, that's a really -- there are 2 parts to the question, and the last part is really hard to answer. I just think, historically, we see cycles. That's not unusual. The question is how long those cycles last, and they depend on a lot of different things. They depend on how many companies are beginning to resolve technical issues, which would allow them back in the market. So I think it's -- but I wish I could give you a good answer on the prognostication on that cycle. What I can say in the short term is it is pretty much, Jeff would agree, as we saw, for example, in the last...

Last quarter.

Last quarter.

But it was better than what we had originally modeled for Q1. And that's the reason why we've changed our overall assessment for the year, now looking at slight inflation versus a slight deflation that we had talked about back in August.

We'll take our next question from Ricky Goldwasser from Morgan Stanley.

And Jeff, I know we'll miss you. Enjoy your extra sleep time. And Mike, welcome. Welcome to the role. I'm looking forward to working with you more closely beyond just the once-a-year card [ph] at Dublin Day. So I have 2 follow-up questions. The first one is around specialty. At $5 billion run rate, based on our assumptions, I think Cardinal now accounts for about 8% of the specialty market. So can you help us better understand whether this is more concentrated around some specific drug therapies where you have higher share? And also, as we think of new drug launches in kind of like in the coming years, should we assume that you're now in a position to gain your fair share, i.e. that 8% across the different drug categories?

Well, let me -- I'll start. First, let me say this. Again, I would say, I think we're well positioned. We've got significant presence across the business. I think there are always going to be individual products that are -- that have distinct service contracts. That's probably true for our competitor as well. I think we're positioned to participate in any part of this specialty area. One thing that I probably should point out, I didn't get a chance to -- or didn't in the last question related to this, is that I do think that we've done a very good job. And this may be a bit of a unique positioning for us, of -- in a world, again, where there is a lot of issue around risk management, of connecting the payer perspective with about pharma company and the patient. And I think we've worked pretty carefully at that intersection, and we've got some creative solutions. But I would say, in terms of our overall positioning, we can compete broadly. I'm not sure there is a single area where we would not play and certainly hope to take our fair share as the growth in the system continues.

Okay. And then just 2 follow-up questions on the numbers. So Jeff, first of all, just to clarify on your guidance regarding inflation, do you now expect additional inflation for the remainder of your fiscal year? Or is the change to your view just based on the calculated inflation that you saw in the September quarter?

It's a little of both, Ricky. Obviously, what's happened already is -- it's happened. So let's just take [ph] into the numbers. And I think what happened in Q1 slightly changed our view for the rest of the year, so it's a little of both.

Okay. And then the -- you had a very nice sequential improvement in distribution operating margins. Can you just kind of like walk us through what contributed to that? I mean, obviously, Red Oak is probably part of it, but you kind of like highlighted that Red Oak was relatively modest. So is there anything else that we should be aware of?

Yes. I think your assessment of Red Oak being relatively modest is an accurate one. It wasn't a big contributor to sequential margin expansion. I really would point to the continued strong performance of our generic portfolio overall, really independent of Red Oak. We continue to grow our sales very, very nicely. And really, all aspects of our generic program are really hitting on all cylinders, which will make the addition of the Red Oak benefits even more exciting to see as we get towards the back half of this year. I think the continued growth in specialty, Nuclear, China, all higher-margin areas have improved our mix, and that has driven sequential improvement. And then on the Medical side, obviously, having Medical grow this quarter, given there's a higher-margin part of the overall consolidated business, improves our mix as well. And I think the contribution from preferred products and services, which, as you know, are our higher-margin elements within Medical, also contributes as well. So there's no one thing I'd point to. It was really indeed the continued growth and success that a lot of our various strategic initiatives that we've been pushing for some time are continuing to drive a shift in product and customer mix that's very favorable to us.

And we will take our next question from Dave Francis from RBC Capital Markets.

I'll add my congratulations and hope to see you on another trip down to Vanderbilt sometime soon.

Thanks, Dave.

As it relates -- if I can go back to George's question earlier on Red Oak and timing of the benefits there, if I could ask a little bit differently, George, can you walk us a little bit through kind of the process for whether it's simple annual contracts being renegotiated? Or what is it in terms of the mechanics of getting the Red Oak piece up and running that allows you to so quickly recognize the benefits of that relationship, moving them into the income statement?

So again, I'll try to give you some color without providing answers that would make us uncomfortable given our proprietary relationships with our suppliers. We started working on this right away, identifying the teams with a clear sense of what we wanted to do. And so in a way, it was just a discipline of putting the teams together, identifying the right talent. We've got tremendously capable people working in this and then the support of 2 companies from the back office perspective. What we had to do was to really do a full analysis of the market, every product line, every supplier, all their capacities, what their pipelines look like. And so the Red Oak team, I think, has done all of them. But I would describe it as serious analytics work to identify what the opportunities were and how to work with each manufacturer. And each of those relationships is very, very distinct, and so we work very hard at making sure that everybody feels like they're in the tent, both big companies and small. And the Red Oak teams have been having meetings, really, since early July with all those manufacturers. And so the progress has been really gratifying. I'm extremely proud of this team, but I’m impressed by what I've seen. And they're working their tails off. This is incredibly hard work. As I've said, I don't think anybody can ever appreciate how many moving parts there are, how many products themselves, how many manufacturers, kind of multiple products. And so I think just doing this work and doing the analytics to support a simple program was enormous. It's hard to give more color than that, but I...

Well, and I guess, my question is kind of more to, as you look at both your and CVS' contractual relationships with the manufacturers, it sounds like the -- just structurally speaking, things are on a relatively short calendar such that you are in a position, as a combined purchasing entity, to restructure those agreements and begin to recognize the benefits more quickly than we might've otherwise thought. Is that fair to say?

I think all of us are phasing out. We get -- we all had obligations and commitments and existing product relationships. So I think that is all flowing through. And I think we can say that, as we work through the year, we'll look like, one, a sourcing entity, and I think manufacturers will see that. I do see us that way. And yes, I think we'll see the benefit as it unfolds during the year.

That's helpful. And as a quick follow-up, if I may ask. Appreciate the color relative to your expectations on Nexium in the fiscal year. More broadly speaking, as it relates to other generic launches going forward and understanding that Nexium has some specific circumstances surrounding it, are you guys seeing anything differently from either an FDA perspective or a manufacturing perspective that might create a more drawn-out process relative to other larger products going through a generic launch process? Or is Nexium and perhaps some of the others out there that we've seen some delays where those are just one-off kind of situations. Is there some there something more endemic there?

I think they're largely one-off stories. I think actually FDA has been talking about increasing their cycle times, speeding up their cycle time, so I'm not sure we're seeing an endemic situation at all. These tend to be very unique issues that may or may not have legal issues or manufacturing issues, but I think what we would say is these are largely one-off dynamics that we're describing.

And we will take our next question from David Larsen from Leerink Partners.

So excluding Walgreens, the revenue growth, I think, of 13% year-over-year looks very good. Can you maybe just touch on -- in the Pharma division, we're hearing about some significant wins you're picking up. What's going on in the market that's maybe new this year versus last year? And from a Pharma Distribution point of view, what are you doing that's different than some of your competitors?

Again, always a little reluctant to do a lot of comparative analysis with our competitors in this call. But here's what I'd say. I think our group has a very clear sense of how we create value. I think we become increasingly immersed in the needs of our customers, and I think we demonstrate that in a very consistent way. Again, not a comment on anyone else, I just think our team is doing an extremely good job of, I think, increasingly being recognized as a company who sort of gets it, understands the dynamics of the system as they're exchanging. And we seem to be feeling a good kind of momentum in the way that we are interacting with customers and the things that they seek from us. So it's hard to describe more than that. Other than that, I think our work is -- it's really good. I watched it very closely. For example, when I went to our RBC, our retail business conference, and I watched the kind of interaction that we're having with our customers, the kind of service offerings that we have and their response to that. Now I'd say generally, it's quite positive.

So each client is unique. Can you go the extra mile to basically meet each of those unique needs? Okay. And then just one other question. I think you said you aren't expecting any benefit from Nexium in fiscal '15. I thought that, that was going to originally launch in November of '14. So to not have any benefit for the next 3 quarters, that's a fairly conservative approach, right?

I'm not sure I'd consider it conservative. I guess, I would consider it a fairly realistic view from our standpoint of how that's going to play out. Maybe we’ll be wrong, maybe it'll go earlier, but again, I'm not sure I'd necessarily characterize it as conservative.

Yes. I mean, again I would say, just based on the data that we've received to date, the original expectation we had, which was late fall launch, we've taken that out of our assumption. And I think probably the more cautious assumption, as Jeff said, is appropriate.

And we'll take our next question from John Kreger from William Blair.

This is actually Robbie Fatta in for John today. Going back to the physician preference items that were discussed at length earlier, in the past, you guys have quantified the percent of revenue and/or earnings that these items comprise. Are you willing to quantify that today? Or perhaps what kind of growth rates you've been seeing of late?

Yes. I'll characterize it though, not just physician preference items, but all preferred products. So in this latest quarter, preferred products made up low 20s in terms of revenue and approaching 39% in terms of percent of gross profit of the Medical segment.

Great. And secondly, on utilization, we talked a little bit about the medical utilization. Have you seen any changes in script consumption this year?

Yes. I think, again, the data that we're seeing from certainly IMS and others is fairly favorable. So yes, that's probably a little bit of a different story on the drug side in terms of our overall utilization as compared to the procedural utilization we're seeing, yes.

And we will go now to Steve Valiquette with UBS.

And Jeff, congrats, again, on your retirement. Now I know you already discussed generic inflation a bit at this point obviously. But I guess, as we analyze this, it does seem now that generic inflation may be moving beyond just product supply shortage situations. And it seems to be happening now in a wider basket of older products. And in fact, I think some observers now suggest that maybe generic inflation on a growing number of products on the list price is actually in response to the generic procurement JVs that are being formed in the supply channel as the manufacturers try to offset some of the greater volume discounts. So I guess, I'm just kind of curious to get your thoughts on those particulars within the overall generic inflation picture.

Okay. Yes, a fair question. It's hard to know, again, the drivers for a generic inflation. I think, again, you have to remind yourself that each product is a market, its own market. And so I think, in general, what we look at when we look at products is how many players are in a market. We look at who they are and what their historical patterns are. And that's, I think, the best you can do in analyzing it, whether or not it's in relation to any consolidation of purchasing. I'm not sure I would necessarily say that's the cause because we've been seeing this kind of inflation now for a relatively extended period. So there are probably multiple factors in this. And so we tried to analyze it the best we can, but I would say multiple factors probably.

I mean, does it feel like that was evolving maybe beyond just product supply shortage situations though? Is that kind of a safe [indiscernible]?

Yes. Well, probably yes. It probably is a little bit less debt-driven today than I might have said 1 year ago. That's fair.

And we'll go now to Garen Sarafian with Citigroup.

And Jeff, again, congrats on the retirement. And Mike, we all look forward to working with you. There's one -- to just quickly ask on specialty, to touch back on it. As you -- so thank you for the additional visibility, very much appreciate it. So now that you've reached critical mass, I'm just curious to get your view of what the specialty market growth rate as you define the basket, at what rate it's growing. And if you think the next few years that you guys can grow above or at that rate. Just any sort of visibility would be helpful.

Yes. I don't know if I can actually give you the exact market growth rate because it's defined so differently. Clearly, what we're seeing as it relates to the new product flow, what's in Phase III trials, we should expect a continued growth in products that we tend to call specialty products. And we get started -- our program -- we get started very early. In drug development, we are looking at every product that's in process. We work sort of in every one of the niches in specialty. And so what I would say is, we expect significant growth in the market. I can't give you an exact number. We feel pretty confident that we will be able to grow our business consistent with that market. And again, starting from a smaller base, I think the growth rates could be a little bit more accelerated. But we're feeling very good about our positioning and our ability to compete in any one of these areas as products start to flow through the FDA and into the market.

And do you think there are any more assets that you could consider through M&A that, for any reason, didn’t qualify a few years back?

We've said this before. I'm not -- we continue to look. All of our strategic priorities are areas where we think we have an opportunity to really add value. And so we're doing that obviously organically in terms of our own internal work and our internal investment. But in every one of these areas, we'll continue to look for opportunities externally that we think adds strategic value and where we can execute. So we will not take our foot off the gas pedal at looking at those opportunities. As you know, they don't come up every day. And so we'll pursue this dual strategy of driving organic growth, building our capabilities, using our increasing scale and looking for opportunities externally.

And we'll go now onto Glen Santangelo from Crédit Suisse. Glen J. Santangelo - Crédit Suisse AG, Research Division: George, just wanted to ask about the Medical segment. I think this is an area that has been a focus for you since you became CEO. And it feels like the company's been constantly investing in this area. And I would say, I think it's fair to say that the profit margins in the segment are probably not where you'd like them. And if we go back to Analyst Day, you laid out some pretty aggressive assumptions over the next several years in terms of the profit margins in that segment. So maybe could you opine on kind of where you think we are at this point and what you see as the keys to success to be able to improve the profit margins in that division?

Yes. So generally, as Jeff mentioned earlier, the profit margins in that segment tend to be higher than the profit margins in our Pharma segment. So a, it is accretive to the work in our Medical business is accretive to our margin rate. Number two, we have been seeing some really encouraging work that's affecting our margins, and it really has to do with the mix of products and services that we provide, and that is a huge range of products and services. The areas that we are prioritizing tend to be areas that are actually accretive to our margin rate, and we'll continue to drive those. So we've talked about the consumables area. That's -- those are positive to us. Our growth in the direct-to-patient work that we're doing through Cardinal at Home, that is beneficial to our margin rate. Honestly, it's a midterm driver that we've talked about in terms of preferred products or physician preference items that is accretive to our margin rates. So what I would say is, these are all, for us, priorities because they're really needed, they address real pain points in the system, but they're also beneficial to us in terms of our overall mix and profit. So I'm pretty excited about the work that we're doing and the recent moves we've made, particularly to build that foundation, and the physician preference items is probably a good news story. I don't know if Jeff wants to add.

Yes. I mean, the goal we gave in Investor Day last December was to achieve a 5.75% operating margin or segment profit margin in Medical in FY '17. And I would say, we've taken the steps to remain on track to achieve that. It's not going to be one smooth ride, right? It's going to be quarters where we need to invest to accelerate certain areas. And there will always be certain parts of the business that may have a blip. In this particular quarter, again, that was probably our blip from an operating perspective given the marketing -- or the market conditions there. But the general trajectory we're on remains on target for the 5.75% that we set for ourself.

Okay. And maybe if I can just follow up with one question on the Pharmaceutical segment. Jeff, I jumped on the call late, but I thought I heard you say within your prepared remarks that, that segment benefited from a resolution of some long-standing customer issues of about $20 million. Was that a one-time event in this quarter? And could you maybe give a little bit more color and clarity what that was about?

Yes. I would describe it as -- well, first of all, we're always resolving customer issues, right, that's between us and our customers, disputes, et cetera, that need to be resolved over time. This particular one in Q1 was relatively large, approximately $20 million, so I'd describe it is one-time-ish given the size of it. And all I'll say about it is, for some time now, we've had certain issues that ultimately got resolved in the quarter. And as a result of that, we were able to pull it through to the bottom line.

And we will take our final question today from David Toung from Argus Research.

My question is about the physician preference items. And I think, Jeff and George, you talked about investing in it, and you're expecting some better contribution in the back half of the year. Can you just talk a little bit more about these investments and sort of what is it? Is it on the clinical side or is it on the marketing side? And also, if you could just address sort of the customer uptake of these physician preference items or -- I'm not sure. Is it preference items or is it medical devices?

So let me do a little defining. These physician preference items are medical devices, so it's just a subset of medical devices, David. So largely, the investment is in a couple of areas: building out the infrastructure and sales force, make sure that we can do what we need to do to get the products in and out of the system. We had some development costs. These are not what I would call research costs in the classic sense. These are more sort of development, making sure that the product line is positioned the way we want. And so for example, just expanding that emerged product line requires some costs. We've got launch activities associated with some of these wound management products. So I think we're a little bit in that stage, but we're pretty excited about the flow of products. And I would say, the customer response is very positive right now. And as Jeff said, we're looking towards the back half with some greater sense of enthusiasm about the flow.

Sure, that's great. Yes, did you have more to say?

I'm sorry?

Did you have more?

Yes. Just one piece I would add. Since the AccessClosure acquisition has occurred, I would say that the uptake on the product line coming out of AccessClosure has actually been very positive. So again, it's early on negative pressure wound, ortho is just building, but I would say, on that cardio, it's already beginning to show some good results.

And ladies and gentlemen, this does conclude today's question-and-answer session. I'd like to hand the conference over to George Barrett for any additional or closing remarks.

Well, listen, thanks, everyone, for joining us in what I know is a really busy day for all of you, and it's a bit of a long call. So thanks, again, for your time, and we'll see you all very soon. Thanks.

And ladies and gentlemen, this does conclude today's conference, and we do thank you for your participation. You may now disconnect.