Eric Coldwell: Thank you. Most of mine have been covered, but I did want to hit on the generics pricing topic. I know you’ve made some positive comments during the call, but also suggested that market dynamics are generally consistent. We’ve seen some generic pricing in our data, some generic pricing deflation improvement over the last few months. I’m curious if you’re seeing the same thing. And what your outlook might be on that front moving forward? Thank you.
Jason Hollar: Thanks, Eric. We called out favorable volume and mix and consistent market dynamics. As we’ve highlighted many times before, it’s important to look at the total of both sides, buy and sell. And we continue to think those overall dynamics are fairly well balanced. And there will be ongoing volatility on one direction or the other, one side or the other, but it’s the importance of Red Oak Sourcing and continue to deliver the best-in-class service levels as well as cost. And we feel very good about our competitive positioning there and why we think the margin per unit will continue to be as expected and not as much a part of the story than as the volume in the mix.
Operator: Thank you very much, sir. Next question is going to come from Mr. Steven Valiquette calling from Barclays. Please go ahead.
Steven Valiquette: Great. Thanks. Good morning. You might have just touched on this a little bit, but I guess I was curious more just for the overall Pharma segment. You’ve had obviously a bunch of consecutive quarters now of double-digit top line growth, including 14% this quarter. And you talked about brand inflation, brand volume, generic specialty, all being strong. So I guess my question was related to.
Operator: Very sorry about that gentlemen. We’ll go to Daniel Grosslight of Citi.
Jason Hollar: Well, if I could, I think I might know where he’s going with the question. I think he was leading up to — I’m guessing that he’s leading up to, were there any deviations from that. I mean what we saw was really broad-based performance throughout our Pharma segment. I meant — I’ve asked — answered questions about nuclear, nuclear was just like our other businesses this quarter. We referenced generics. We referenced brand. We referenced specialty. We saw a strong performance across the board. Utilization is certainly strong across the board. I also wanted to highlight our performance on delivering this very strong volume was also positive. The one thing to maybe add to this as well, the — we talked about a new customer that was onboarded Q3 of last year.
And that was — they were onboarded in the prior year Q3, but there’s always a ramp-up process there. So we did see some benefit this quarter relative to last year in terms of this customer now being fully onboarded. So we had a bit of a benefit there, not to the extent of what we saw in the last couple of quarters. And then the last piece that has been — was very robust this quarter as well. That was not the case in the prior year, certainly were the GLP-1s that Aaron had mentioned. So it was a combination of strength across customer class customers, trade — class of trade as well as the individual business units. All right. So now you can go ahead to the next question.
Operator: Thank you very much, sir. Sorry about that. Our next question is coming from Daniel Grosslight calling from Citi.
Daniel Grosslight: Yeah, thanks for taking the question. I had a similar question, but more on the EBIT for Pharma. Nice raise obviously this quarter. But I’m curious if you can kind of break out for us the nonrecurring items in a little more detail in the Pharma EBIT raise and how much will be recurring in fiscal ’24? Thanks.
Aaron Alt: Well, I think the benefit of them being nonrecurring items is they won’t recur into fiscal ’24. If your question is more on Q4, I think the answer is similar in that way. For the Pharma segment, we saw strength across the board. It was a stable macro situation. We had the strong underlying fundamentals. We have the good operational performance as well. We did see some modest benefit from branded manufacturer price increases and this being the third quarter for us as well, which we don’t — we don’t predict are going to repeat as we carry forward. And so I think the story for us for Pharma was a good year so far, a good quarter for Q3. We have — we raised our guidance for the year, and we’ll talk more about fiscal ’24 and indeed our long-term expectations for the business during our Investor Day on June 8th.
Jason Hollar: Yes. And I’ll just add, the way Aaron put it was perfect as it relates to true nonrecurring items, the only one that we could think of that way would have been — it depends on your assumption of what you think brand inflation will be next year. That was modest. The other part that we did call out that was a benefit from a growth rate perspective year-over-year is that we do see some of our costs related to opioid legal fees and our ERP implementation running a little bit lower than anticipated. Now those are — that’s nonrecurring, right? It just means that we have gotten to a bit more of a normalized level quicker than what we had anticipated. So I do not expect there to be further significant improvements in the out periods out years related to those costs going down even further.
It will be something that we’ll continue to evaluate and provide updates if that’s the case. But it’s for those reasons why our implied growth rate in Q4 is more normalized. It’s also why we’re not communicating anything differently right now for our longer-term targets. And we’ll certainly revisit that point when we come together at the Investor Day on June 8th. But generally speaking, we’re seeing the strength, whether it’s the new customer, the brand inflation or some of these cost drivers trending in the right direction, are all items that we think we are normalizing now on a go-forward basis and why you should expect more normalized margins from here on out.
Daniel Grosslight: Thanks for the color.
Operator: Thank you very much, sir. Next question is coming from Charles Rhyee calling from TD Cowen. Please go ahead, sir.
Charles Rhyee: Yeah. Thanks for taking the question. I wanted to — just wanted to follow up. I think it was with Eric’s question around, you were talking about in that specific instance about insulin pricing and sort of how you can kind of mitigate some of that. Can you just kind of go into, again, for us a little bit, how your fee-for-service contracts are arranged generally? And maybe more specifically, with insulin perhaps ahead of with these changes occurring, and — because I would have thought that a lot of the language is already built into your contracts that would automate sort of adjudicate to maintain sort of the — to capture that service that you are providing. And then as a follow-up, you had talked earlier about sort of Red Oak and continuing to perform well in generics. Curious if any work in Red Oak is being done in terms of biosimilars and trying to get better economics on that side as well. Thanks.
Jason Hollar: Well, I’m not going to go into the mechanics of a product level contracts and structure. Just go back and reiterate that we feel very confident about our process, our experience, our history with any type of change that comes any other product. Again, as a distributor, we play a role. We play the role of getting the product from the manufacturers to those who need it. And with that will always be changes in the structure and how we go about it. But we — nothing is different in today’s environment than what’s been present for the last 50 years of our existence when we’ll have to continue to adapt and evolve with this and that’s enough to be said there.
Aaron Alt: And then with respect to biosimilars, what we would say is that we are quite well positioned to support the next phase of growth over the next several years in that expanding therapeutic area on the sites of care. It’s going to — we believe it’s going to come predominantly from products with a greater retailer or a specialty pharmacy presence, which plays to our strength as well as new therapeutic areas such as immunology and ophthalmology. And so we — our expectation is it will be a tailwind for us as we push ahead into the end of fiscal year ’23 and beyond.
Jason Hollar: Next question please.
Operator: Thank you very much, sir. Thank you, sir. Next question is from A.J. Rice of Credit Suisse. Please go ahead, sir.
Jonathan Yong: Thanks. It’s Jonathan Yong on for A.J. here. Just going back to Medical again. I appreciate the comments on the cost improvements that you’re doing and how that’s going to set up a good framework for ’24. But I guess given some of the volume constraints that you’re kind of seeing and not seeing the same flow through, how much of improvement related to the cost side, especially on the freight line is tied to actually improving that volume side that you kind of need to flow through. Thanks.
