Good day, and welcome to the Cardinal Health, Inc. Fourth Quarter Fiscal Year 2018 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Lisa Capodici. Please go ahead.

Thank you, Silvia. Good morning, and welcome to Cardinal Health’s fourth quarter fiscal 2018 earnings call. I am joined today by our CEO, Mike Kaufmann; and Chief Financial Officer, Jorge Gomez. During the call, we will provide details on our fourth quarter and full-year results, and update on our strategic initiatives and FY19 guidance. Today’s press release and presentation are posted on the IR section of our website at ir.cardinalhealth.com. During the call, we will be making forward-looking statements. The matters addressed in the statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected or implied. Please refer to our SEC filings and the forward-looking statement slide at the beginning of our presentation for a description of these risks and uncertainties. During the discussion today, our comments will be on a non-GAAP basis, unless they are specifically called out as GAAP. Our GAAP to non-GAAP reconciliations for the fourth quarter and full-year can be found in the schedules, attached to our press release. In addition, during the call we will provide forward-looking guidance for FY19 on a non-GAAP basis. We do not provide guidance on a GAAP basis, due to the difficulty in predicting items that we exclude from our non-GAAP earnings per share. During the Q&A portion of our call, we ask that you limit your questions to one with a brief follow-up, so that we may give everyone in the queue a chance to ask a question. As always, the IR team will be available after this call. So, feel free to reach out to us with any additional questions. And with that, I’ll turn the call over to Mike Kaufmann.

Thanks, Lisa, and good morning, everyone. I am glad you could join us. As Lisa mentioned, I’ll start with some comments on our fourth quarter and full-year 2018 and then spend a few minutes on the strategic initiatives we have underway to best position Cardinal Health for the future. We have many opportunities ahead to build on Cardinal Health’s strengths as a critical contributor to the healthcare industry. I feel good about the progress we are making. We encountered a couple of unexpected challenges in fiscal ‘18, and we are addressing those issues. We are on track and well-positioned to deliver long-term growth and enhance value for all of our stakeholders. Overall, for the quarter, our non-GAAP EPS of $1.01 came in higher than expected, due to a lower tax rate. Revenue for the quarter reached $35 billion, up 7%. Non-GAAP operating earnings were $465 million. For the year, non-GAAP EPS was $5 on revenue of a $137 billion, up more than 5%. Non-GAAP operating earnings were $2.6 billion, and operating cash flow was $2.8 billion. Turning to the Pharma segment, I’ll make a few comments. For the quarter, we saw revenue growth from both existing and new customers. In PD, while Red Oak continued to have a positive impact, our generic program remained a headwind overall. As it relates to brand drugs, the contribution was better than expected this quarter, but we know this is an evolving marketplace. We provide significant value to our manufacturing partners, and we will continue to work closely with them during this evolution. Both the Specialty and Nuclear businesses had a strong finish to the year. Specialty continues to be a standout, once again delivering robust, double-digit revenue and profit growth, while nuclear also performed well, generating top line growth and an even stronger…

Thank you, Mike, and good morning. Today, I’ll cover three topics. First, I will review some key elements of our fourth quarter results; second, I’ll share additional information on our operational and strategic initiatives; and third, I’ll discuss our outlook for fiscal 2019. To allow ample time for Q&A, my comments on these results will be focused primarily on the fourth quarter. Our full-year results can be found in our press release. On slide four, Mike already covered revenue and EPS. So, I will give you additional commentary on our financial items. Gross margin grew 7% in the quarter, driven by Patient Recovery. We saw increased SG&A this quarter, primarily due to acquisitions and incremental 401(k) plan contribution. This SG&A increase is not one we anticipate will continue as we are laser-focused on making our expenses in a very -- on managing our expenses in a very-disciplined way. I will cover specific initiatives later in my presentation. Net interest and other expense was about $107 million in the quarter. The increase versus the prior years was primarily driven by the interest on the debt issued to finance the Patient Recovery acquisition. Our Q4 effective tax rate was 12%, which was substantially lower than what we had modeled for the quarter. Let me take a moment to further explain. The Q4 tax rate was driven by onetime tax benefit derived from the restructuring of international legal entities for Cordis. We took decisive actions over the last three months to address the tax rate pressure we mentioned in Q3 that was related to Cordis financial performance in certain jurisdictions. This onetime tax item was a result of the faster-than-anticipated progress we made in Q4. We are continuing to work on this front and expect to complete most of the specialties plan in…

Thank you, sir. [Operator Instructions] And the first question comes from Michael Cherny from Bank of America. Please go ahead. Your line is now open.

Good morning and thanks for taking the question. So, I want to unpack some of the generic commentary you’ve made over the course of the call. You talked about stabilizing performance in the business. You talked about Red Oak being less of a contributor going forward. As you think about the moving piece of the competitive dynamic, where are the areas where you’re gaining upside opportunities on generics? And what are the -- is it competitive dynamics, is it sourcing or what are the biggest areas that are creating those incremental headwinds on a year-over-year basis as you think about how generics play forward in the market against the commentary of that competitive but stable?

Thanks for the question, Michael. I would say, as you know, there are several components, as we’ve talked about in the past, to our generics program. The ones that we continue to feel very good about is Red Oak. We continue to expect that to be a positive for us, just less of a positive then we saw this prior year. We continue to see generic launches as a positive, although we see them as a pretty small set of launches this year. We continue to see overall generic volumes to be growing for us as we’ve been able to work with some customers to buy more generics from us and from recent wins. Then, the biggest offset being the generic deflation, which we continue to see the market being stable compared to where it was this prior year. But, based on all of the other facts, the net of all that for our generics program, we would still expect to be a headwind.

Thank you. Next question comes from Ricky Goldwasser from Morgan Stanley. Please go ahead. Your line is now open.

Yes. Hi. Good morning and thank you for all the comments. So, Mike and Jorge, I just wanted to focus a little bit on the branded inflation assumptions. You talked about mid single digit assumption factored into the guide. Can you clarify what cadence is it, what are you assuming for branded inflation between now and December, and then for the second half of the year? I mean, from of the comments we’ve heard from manufacturers, it seems that we’re unlikely to see much in terms of inflation between now and year-end. So, I just want to better understand whether you’re assuming high single -- mid to high single digit in second half of your fiscal year versus assumption for the first half of the year? So, that’s the first part of the question. And then, the second part of it, and obviously you are guiding for fiscal year 2019. But, when we think about the business and we think of everything you’re doing, do you think that in fiscal year 2020 and beyond, you can return to growth in the distribution segment?

Great. Thanks for the questions, Ricky. On branded inflation, I’ll start there, couple of different things. I’ll step back first and just say that we really believe that what we do for manufacturers and what’s often forgotten with customers is incredibly valuable. We are a very important part, as you know, of the very secure and transparent supply chain where industry service levels have really been near a 100%. So, I think both customers and manufacturers find what we do to be incredibly valuable and I would expect that going forward. As I think about branded inflation, let me give you just a few comments. First of all, remember that less than 10% of our branded TSA margins are contingent to inflation, and we are continuing to have active conversations with those manufacturers that still have a contingent portion. And so, we will continue to look at that and specifically look at reducing risk where possible on that. That being said, July is typically our second most important month, when it comes to branded inflation. Now, that being said, it is a far distance second to January in our Q3. So, while it’s the second largest month, it’s significantly less than January. And so, it was a little light, what we saw in July was light. And again, we heard what you heard, which is branded manufacturers potentially waiting until end of calendar year. So, at this point in time, it is -- we still expect our Q3 to be our strongest quarter, because that’s when our contingent manufacturers tend to take their price increases. We continue to have discussions with them. And while we are forecasting overall branded inflation to be slightly less than what we incurred as an actual this year, a significant and vast majority we expect…

Next question comes from Charles Rhyee from Cowen & Company. Please go ahead. Your line is now open.

Hi. It’s James on for Charles. Could you maybe provide us with greater visibility regarding the impact of inventory to Cordis, maybe help us quantify what the write-down was this quarter, last quarter, and perhaps how much is assumed in fiscal 2019?

Yes. This is Jorge. I’ll take that question. We have not provided specific numbers around inventory write-offs, but what I could tell you is that the team has made tremendous progress in fiscal 2108, in terms of improving our demand planning system, improving our global supply chain platform. And as we go into fiscal 2019, we believe we are in a much better position to manage our inventory levels across our global supply chain. So, I’d say, we are making good progress. The trends are moving in the right direction. And it’s one of the key elements of our turnaround plan four Cordis.

Okay. And one of your peers recently noted that they’ve renewed notable customer contracts, but didn’t expect that to be a margin headwind. In contrast, the repricing of Optum is a headwind for Cardinal. Can you maybe provide us with some color on some of the components of a customer contract that could account for this disparity, and are there any notable customer pricing assumed in fiscal 2019?

Yes. Thanks for the question; couple of things to keep in mind. Each customer is very unique until of itself. There has been multiple times over years where we’ve renewed customers with very minimal year-over-year margin impact, because we’ve either been able -- because they’ve either been very low priced in market already at the time of the renewal, or that we’ve been able to find ways to grow other parts of their mix to offset some of those. So, I think that it’s hard to compare individual contract. Each contract often is at different times in its lifecycle, different percentages of brands and generics that you have and very other items that can affect the mix. So for us, when we look at our mix and where we are, the length of term of our contracts, our ability to go after additional mix in that, we do continue for us to see customer contract renewals to be a headwind for FY 2019. Just a couple quick points on that. Many of those contract renewals have already occurred in 2018. So, what you are seeing is the impact, one of the notable ones is Optum, which is a customer that went from a three-year renewal kind of a cycle to a longer term six-year renewal. And we’ve agreed to work with them in a more strategic way. And so, we made some investments working with them as a partner going forward. And as far as any other detail on customer contract renewals, we don’t like to go into any detail on specific counts at this point in time. Next question?

Next question comes from Ross Muken from Evercore ISI. Please go ahead. Your line is now open.

Thanks, everybody. So, maybe just trying to understand one thing on the quarter. So, if I look at sort of the segment results for Medical and for Pharma, it kind of implies on the corporate side, larger loss than normal. Is that sort of some of the compensation charges you were talking about? I’m just trying to figure out and net those out, and figure out what the true underlying margins were and how they net to the total for the quarter?

Good morning, Ross. Thanks for the question. Yes. When we step back and look at the performance of the segments in Q4, we actually operationally, we landed pretty much where we thought we were going to in Q4. You’re right, in the corporate segment, we have -- there’s a large expense amount that is related to the 401(k) contribution that I mentioned on my prepared remarks. So, that’s what reconciles the performance of the segments to the total performance of the Company in the quarter.

Got it. And so, then, if medical was truly a little bit step three for the quarter, I guess, how are you just thinking about the cadence? Because obviously, we’re coming up against the inventory charges in the first part of last year, but then some of the restructuring in quarters is going to take some time. And then, you stated, the Patient Recovery is kind of on plan. And so, are we expecting kind of a step-up over the balance of next year and then the normal seasonality? I’m just trying to get that Medical cadence maybe a little bit more finely tuned.

Yes. I think medical in Q4 is hard to look at that and see those numbers as representative of the cadence that we’ll see next year. The other element we had in Q4 for Medical was the push down, the allocation of enterprise-wide compensation entry that happened in the quarter. So, when you combine that with the amount of inventory write-offs that we had in Q3, Q4, that brings the margins for medical in Q4 below the levels we would expect to see for that business. So, when we think about 2019, we should see a lift in those margins, given the non-recurring nature of some of those items.

The next question comes from Robert Jones, Goldman Sachs. Please go ahead. Your line is now open.

Thanks for the questions. I guess, Mike, just starting on the EBIT guide for Pharma to be down high single digit to low double digit. I know you’ve walked through some of the headwinds obviously. But, I was hoping maybe you could just give us a little bit more of a breakdown, maybe rank order off the headwinds that you’re expecting or baking into guidance in 2019? If you could just talk a little bit about generic deflation versus the lower branded and inflation expectations, the contract expiry, and then the offset from some of the cost cutting?

Yes. So, why don’t I just do this to be helpful, and you’ll be able to figure out which pieces are specifically Medical, Pharma or something that might be captured at a top end. I’ll just go through all of the puts and takes kind of in descending order for each to try to be helpful. First one on the outside, Patient Recovery, year-over-year accretion is going to be number one for us. Number two is going to be growth in our existing businesses with Specialty continuing to be expected at double-digit growth. Tax is going to be third for us. We expect the tax rate, as Jorge mentioned, to be in the 25% to 28% range versus roughly the 29. Shares would be next. The discretionary 401(k) contribution, which we don’t expect to have next year at this point in time; and then, next would be the net benefit from the cost structure initiatives. Remember that I told you that we expected annualized savings of over $100 million this year, but we are reinvesting a large portion of those back into the business to grow and drive future growth. So, those are kind of the puts. And the takes would be the divestiture of China and naviHealth. Those -- P&L impact of both of those are -- obviously, China has gone and naviHealth is much lower the next year. Customer renewals would be the second piece. And again, remember, a lot of those have already been done in ‘18. And then, generics program would be next. PharMerica would be after that. And then last would be the tampered brand inflation that Jorge said. So, specifically for us in Pharma, it’s going to be the customer renewals, generics, PharMerica America and brand.

I appreciate all that, Mike. I guess, just on that last point, your brand doesn’t sound like it’s as big a headwind as some of the other issues. But, you mentioned talking to some of the branded manufacturers about potentially changing fee structures. Just curious how have those discussions been received and what’s their willingness to renegotiate the way that you guys get paid?

We have been having discussions with manufacturers. In fact, not only discussions, as I mentioned, some of the ones that were contingent last year have been moved to non-contingent this year, and those have gone well. The reasons for the headwind year-over-year is essentially we’re expecting a little bit lower inflation rate. And as I mentioned some of those converted. So, there is some timing of when you go off of the contingent to non-contingent. So, those are really the things driving the year-over-year headwind for Pharma. But conversations have been going well. I think what I would say about them is that I’ve not had any manufacturer that’s not recognized that if that is contingent that and if they’re not going to be able to have expected inflation that they don’t understand that we’re going to need to renegotiate for higher rates. And if some of the other things being talked about in the marketplace such as changes to WAC prices occur. I think all of the manufacturers understand that there needs to be discussions and that the way we get compensated will need to be changed. They are negotiations, so they’re -- it’s always hard to predict how those will go. But, as far as having the right attitude to want to work with us, having the willingness to work with us, understanding that we provide significant value and that it’s the best way to get to market, I don’t think there is any doubt from any of the manufacturers or ourselves that that’s the right thing to do and that we would expect to work through these. Thanks. Next question?

Next question comes from Erin Wright from Credit Suisse. Please go ahead. Your line is now open.

Thanks. Can you speak to the rationale behind the naviHealth partnership/divestiture? If that business was growing nicely for you and how does this -- put into perspective, how you’re thinking about other potential divestitures? And are there any other exits, I guess contemplated in your guidance at this time, I guess how do you envision your business mix evolving here? Thanks.

Yes. Thanks for the question, Erin. A couple of things. We really like the naviHealth business. But as we look to a couple of things that were important, one is there is a lot of changes in that space, and we knew there was going to be significant investment needed in that space, particularly over the next 12 to 18, 12 to 24 months. And we knew that all of that investment would be not only impact on the P&L but even more importantly an impact on our ability to focus on the things that will drive these for more value in our Medical segment. And so, we began to explore opportunities, the potential for us to be able to, if we could in a disciplined way, get back what we had invested in the business but still retain some type of ownership with the path back as opportunity to take it back, if we wanted to over the midterm, then that might be something worth doing. And so, we did that. We were able to accomplish. We were able to exit the business and get back more than what we had invested, as we all as retain 45% ownership and work with a really good partner like CD&R who we think is really well positioned to invest significantly in the business over the next 12 to 24 months. And then, both in terms of hiring people and talent, is a way for us to do this. So, we really think that this maximizes the growth potential of naviHealth and really allows us to stay focused on the big key drivers for us in Medical, which is turning around Cordis and landing the patient recovery business and driving the rest of our business. So, that was the overall reasons behind that. As far as the other decision on our portfolio, as you can you imagine, we can’t talk about those specifically right now. But as I said in my prepared remarks, there’s nothing off the table. We continue to look at our portfolio. Each business needs to perform well. And we need to feel that we’re an advantaged owner. And with those types of lenses, we will continue to take a look at our portfolio.

Okay...

Next question -- go ahead, Erin.

No, just on the patient recovery accretion goal, I guess, can you quickly just mention the accomplishments there and where we stand with that topic process of exiting the TSAs and how we should think about the financial implications of transitioning those off?

Yes. Thanks, Erin. This is Jorge. So, with respect to accretion goals, as I indicated in my prepared remarks, we delivered what we committed to delivering in fiscal 2018, and we are on track also to be in excess above of the accretion that we have forecasted for fiscal 2019. So, things are going well in that part of the performance of the business. With respect to TSA exits, we just began in the last couple of weeks the exit of the TSAs in North America. It is a complicated process that is going well. It will take several weeks to bring everything in line and have -- and make sure that all the processes are working as expected. But, the early indications are positive. After we complete the exit from the North American TSA exits, we will move on to OUS TSA exits, and in the fall, we’ll begin to exit the arrangements that we have in place for Europe and Asia Pacific. All the preparation work for those exits is also on track. And we feel good about the ultimate outcome of those transitions.

Next question, please?

Next question comes from David Larsen from Leerink. Please go ahead. Your line is now open.

Hi. Jorge talked about $0.16 of higher cost tied to client investments in the back half of fiscal 2018. Are we through those or are those complete? And were those tied mainly to renewals? Thanks. And then, also the opioid investment, are you through that as well? Thanks.

Yes. Dave, thanks for the question. With respect to customer investments, yes, the amounts that we had contemplated to invest in fiscal 2018 were completed. And there was a combination of customer renewals and other type of initiatives that we have in place with key customers.

As far as the opioids go, we continue to be committed to this. This is something really important to us as a company. We think that -- 10 years ago, we started doing our various programs that we have Generation Rx, and have been making investment steadily for over the last 10 years into this, both internally and externally. So, I don’t see that changing. At this point grime, it’s hard to predict what the level will be in 2019 versus 2018, but we will continue to make investments in opioids going forward because it’s important to us.

Okay. And then how more renewals do you have in fiscal 2019, like new renewals? Thanks.

Yes. Since we don’t go through specific customers, it’s difficult for us to really give you any color on that other than of the renewal impact. A portion of it has already occurred in 2018. And then, the rest are those that we know have come up for that if contract expires or that we anticipate to renew early. So, it’s just us looking at our entire portfolio as we do every year. But, other than that, I can’t give any more detail. Next question, please?

Next question comes from George Hill from RBC Capital Markets. Please go ahead. Your line is now open.

Hey. Good morning, guys. I appreciate you getting me in and all my questions have been asked. I guess, Jorge, one for you would be I guess, can you give us the timing of the net realization of the cost savings programs kind of versus the gross numbers, because it seems like you guys are going to reinvest a lot? And then, my second follow-up will be -- I’ll just ask and that was, it seems like we’ve stopped talking about the gloves business. I guess, have we fixed kind of the sourcing issues there and is that business back on track?

Yes. Thanks, George. With respect to the savings, we have a number of initiatives going on. The most important one for fiscal 2019 is in the process of being executed right now. And so, I expect to have the majority of those savings in 2019, but not 100%. So, we will analyze as we go into fiscal 2020. But, the majority of those savings will be captured in 2019. There are elements around labor reduction, there are elements around changing spending policies, the is indirect procurement initiatives. All of those things are underway. So, we began to implement all of them. So, I expect a majority to be captured in fiscal 2019. But, there is going to be a piece that is going to annualize in fiscal 2020. With respect to gloves, this equation is not that different from what we have experienced in the last several quarters. So, as we go into 2019, I think, we will be kind of lapping the effect of the increased costs that we see -- that we began to see in early fiscal 2018. The team has continued to work on multiple fronts to address those cost concerns. I don’t see it as a headwind going into 2019, at this point. But, we are trying to make sure that we do -- that we implement initiatives to actually improve and go back to our prior cost positions with those products.

Okay, great. Maybe just a quick follow-up on gloves. Is there a tariff step on there or s that just a cogs issue?

It’s cogs for the most part. Yes.

Okay. Thank you.

Next question, please?

Next question comes from Eric Percher from Nephron Research. Please go ahead. Your line is now open.

Thank you. Mike, early on when you were talking about evaluating customer contracts and the way that you contract and you also were speaking to pricing, you said that things are likely to change and that they should change. Is the should change specific to the pricing environment or did you actually mean that to extend to the way that we’re contracting today with manufacturers and do you see risk and opportunity from that?

Yes. I think it’s both directions, but I’ll -- probably little bit of different color. I think, upstream with manufacturers, as we continue to see manufacturers make different decisions on the amount of inflation they feel comfortable with, if they’re contingent manufacturer, then, we’re going to need to work through those contracts. If manufacturers also decide to make any decisions around WAC prices and reductions there, again, in order to make sure we get compensated for the value that we provide, then, those agreements also are going to have to change. And so, I think from that standpoint, as I mentioned earlier, we feel good about the conversations we’re having. It’s a little early to say how they’re going to go because manufacturers are still assessing themselves what they’re going to do, if anything, in those areas. And so, we’ll continue to monitor it and continue to have discussions. But, if they do change WACs or they change their inflation assumptions, then the contracts should change, and they will change, and I believe we’ll get through those. As far as downstream, I think it’s a little bit differently in the sense that we need to continue to have the type of conversations we’ve been having with customers to educate them on the changing marketplace and to make sure that we’re looking to them to have those types of conversations, look at the mix that we have with those customers. Because at the end of the day, it all comes down to balancing your pricing with your cost structure. We’re a little bit obviously out of balance which is why we’ve had declines in our pharma distribution. And we’re working both on the cost side and the customer side to get that more in balance.

And having been through the transition once before, it feels like the last couple of years of working both upstream and downstream have been heavy lifting. If there was a change and you needed to re-contract across because there had been a major shift in WAC. How difficult would that be if we know in 1/1/21 or at some stage you have to make that change?

Yes. It’s a good question. I think part of the -- last time I was the Head of Procurement we went through this, so I was in the middle of all of those DSA negotiations. And of the things that was helpful is that it kind of changed overnight that it was very clear that it was gone away with the situation in the marketplace. And so, every pharma manufacturer and all the distributors knew that things had to change because it was very obvious and everybody knew what has happened. In this case, I think there is still a lot of uncertainty, which is why I think you see a lot more conversation because the fact is that as what we did, 12, 13, 15 years ago has worked incredibly well. Manufacturers have seen near 100% service levels. Customers like it and have moved most all their purchasing directly into their distributors and love the prime vendor model. The supply chain is very secure. When was the last time you’ve heard anything about a counterfeit hitting the system? So, I think everybody really likes the current system. It’s transparent; it works. And so, I don’t think -- one of the reasons why it’s a little hard to predict is because we don’t know exactly where it’s going, and it’s working really well. That being said, if there is a date certain that something is going to change, that would be nice, because then we’d all know that what we’re working to. And I think the conversation, as such like I said, everybody understands that needs to be changed well, and it will. But, if it’s overnight where it’s more of a surprise, as you can imagine, like it was back then, it’s probably going to be rocky for a few quarters, as we work through them. So, it’s not, if we’ll work through them; I am confident that we will. It just might be the timing could be a little off, if it’s more of a surprise and less of kind of a date that’s out there that we could work towards. Next question, please?

The next question comes from Steven Valiquette from Barclays. Please go ahead. Your line is now open.

Thanks. Good morning, everybody. You guys are pretty good about providing guidance on a quarterly basis, if your expected trends are a little bit different than what the Street maybe modeling. Given that you didn’t make any comments today about F1Q 2019 and Street is showing some modest EPS growth year-over-year. I guess, I am just curious are you comfortable with the view of some EPS growth in F1Q 2019 or maybe not even focused on the quarterly cadence of your EPS growth here relative to what the Street might be modeling right now?

Good morning. Thanks for the question. Let me start. First thing I would say is, at this point, we don’t want to be too granular about the quarterly guidance, because as you know there are elements that create some difficulty in making those estimates. For example, the ETR, as you’ve seen, it could fluctuate from quarter-to-quarter and therefore could move the EPS around on a little bit with actually reflecting the underlying performance of the business. So, if you think that you should expect to see in the quarters in fiscal 2019, obviously Q3 will remain one of the probably the strongest quarter of the year, due to a seasonality, particularly on the Pharma side. On the Medical side, we should see improvement throughout the year. John and the team continue to improve the operations of Cordis, continue to transform the commercial approach, its commercial strategies for the overall Medical segment, but we should be seeing the benefits of those changes, ramping throughout the year. And that’s probably what I could tell you at this point. Is that helpful?

Yes. That’s helpful. Thank you.

Next question?

Thank you. Next question comes from John Kreger from William Blair. Please go ahead. Your line is now open.

Hi. Thanks very much. Mike, just to go back to your discussion a minute ago about the sort of changing economics within the pharmaceutical distribution business. From your perspective, do you sort of have a model that you envision that would sort of work in an environment where the gross to net spread is getting materially smaller?

I don’t necessarily have a specific model at this point in time. I think, the importance is, is that we’re very discipline. 12, 15 years ago, we went through the model change. We created what we call our next best alternative model, where we really look at each specific manufacturer to the value that we deliver for them. And as you know, each manufacture kind of has their own dynamics and mix and the adjustments they may make, the growth they may have and stuff differs. So, we’re going to continue to work with each pharma manufacturer to see what’s the right type of structure that may work for them and for us. We’re going to be really focused on our value prop and then make sure we get paid for what we do. But, I’d say, it’s still a little too early to know exactly what might be the right model. But, we’re having multiple discussions including keeping it similar to what it is, but higher rates the WACs are lower. So, we’re -- that model could be a very simple change from that standpoint. So, we’re looking at a continuum of different opportunities.

Great, thanks. And then, I quick follow-up for Jorge. The guidance in fiscal 2019 for low single-digit revenue growth within the Medical segment, if you take out the acquisition benefit of patient recovery, what would you say the organic growth implied is on the top line?

Well, we haven’t broken down the pieces of the revenue growth. But, I would tell you that within the Medical segment, there are a number of businesses that are growing organically well. You have at-Home, you have Cardinal Brand other than Patient Recovery. We have Cordis who -- which is also ramping -- continues to grow from a top line perspective. So, I think there’s a number of -- most of the businesses within the Medical segment organically are showing increment from the top line perspective.

Thank you. And our last question comes from Eric Coldwell from Baird. Please go ahead. Your line is now open.

Hey. Thanks very much and good morning. Jorge, at the end of the call, you made a comment on the New York State opioid assessment. I didn’t catch that. I was hoping you could clarify what you’re talking about. I do know the judge’s decision there was considered a negative precedent, but I’m not sure I’m familiar with this assessment that you’re talking to?

Yes, sure. Let me help you a little bit with that. So, in April, the state of New York created an aggregate $100 million annual assessment on all manufacturers and distributors who sell or distribute opioids in New York. Based on that, a law -- the initial payment is due on January 1st of 2019 for opioids sold or distributed during calendar year 2017. And we haven’t factored any impact from this newly passed law into our guidance because there’s still a lot of uncertainty around how it would be implemented. Some of the uncertainties that we see with this law include, there is a significant legal challenge pending against that law. There are a lot of complexities in the way the law was written, and is waiting some guidance from the state. And frankly, there’s a lot of uncertainty in terms of how much each participant in that market will actually pay.

Okay. Thanks very much. That’s helpful.

Great. Well, thanks, everyone. Is there any more questions?

There are no further questions over the telephone at this time, sir.

Great. Well, I just want to thank everyone for taking the time to join us this morning. And we look forward to seeing many of you at some of the upcoming conferences. Thanks and have a good day.