AmerisourceBergen Corporation

Good morning and welcome to the Merisource Bergen third quarter fiscal year 2021 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Bennett Murphy, head of investor relations. Please go ahead.

Thank you. Good morning and thank you all for joining us for this conference call to discuss Amerisburg-Bergen's FISCO 2021 third quarter results. I'm Ben Burby, Senior Vice President, Investor Relations. Joining me today are Steve Collins, Chairman and President of ZEO, and Jim Cleary, Executive Vice President of CFO. On today's call, we'll be discussing non-GAAP financial measures. Reconciliations of these measures to GAAP are provided in today's press release, which is available on our website at investor.MaristRothbergen.com. We have also posted a slide presentation to accompany today's press release on our investor website. During this conference call, we will make four looking statements about our business and financial expectations on an adjusted, non-GAAP basis, including but not limited to ETF, operating income, and income taxes. Four looking statements are based on management's current expectations and are subject to uncertainty and change. For discussion of key risks and assumptions, we refer to today's press release and our SEC filings, including our most recent 10-K. America's program assumes no obligation to update any forward-looking statements, and this call cannot be rebroadcast without the express permission of your company. You'll have an opportunity to ask questions after today's remarks by management. We ask that you limit your questions to one per participant in order for us to get to as many participants as possible within the hour. With that, I will turn the call over to Steve.

Thank you, Bennett, and good morning to everyone joining us today. Before we discuss our results for the quarter, I want to comment on the distribution industry's recent milestone regarding the proposed settlement agreement to address opioid-related claims of U.S. state attorneys generals and political subdivisions in participating states. Throughout the litigation process, we have been consistent in stating our desire to address the enormity of the opioid challenge by bringing solutions to the table. If the industry's proposed agreement and settlement process leads to a final settlement, it would collectively provide thousands of communities across the United States with substantial financial support. Clearly, the process is in an advanced stage and we will not comment deeply at this time. We take our role in the supply chain seriously and continue to work closely with stakeholders concerning these complex matters. AmerisourceBergen will continue to work diligently and alongside partners to combat drug diversion while supporting real solutions to help address the crisis in the communities where we live, work, and serve. Turning now to our results for the third quarter of fiscal 2021, Amerisource Birmingham delivered yet another quarter of exceptional results driven by a high level of execution, purpose-minded team members, and continued focus on delivering differentiated value. As we announced earlier this morning, we had revenues of over $53 billion, representing growth of 18% from the same period last year, and we grew our adjusted EPS by 17% year over year. These results reflect continued strong performance across AmeriSource Bergen's businesses as we capitalize on our differentiated pharmaceutical-centric value proposition. and as our team successfully execute on our key strategic initiatives. This strength and execution continue to create value for our shareholders, and today we are again raising our fiscal 2021 four-year guidance, which Jim will discuss later in greater detail. I will focus my remarks today on the key strategic pillars that are driving our strong performance. as well as how, with the addition of Alliance Healthcare, Amerisource Bergen continues to be well positioned to create value for all our stakeholders. Amerisource Bergen remains next-minded, and we are focused on continuing to enhance our ability to provide global healthcare solutions as we support pharmaceutical innovation and access, both in the United States and internationally. In the United States, Our pharmaceutical distribution business continues to benefit from our industry-leading customer relationships, our leadership in special distribution and commercialization services, and strong end-market trends, including an early and unexpected return to pre-COVID prescription utilization trends in the June quarter. Our leading customer base includes our good neighbor pharmacy and Elevate provider network members. They are proving daily that community pharmacies are at the forefront of providing quality and equitable care and maintaining deep levels of trust with their patients and communities. In fact, for the fifth year in a row, Good Neighbor Pharmacy was ranked highest amongst brick-and-mortar chain drugstore pharmacies by J.D. Power. This is the 10th time we have received that honor in the past 12 years, and it is a testament to community awareness of the value of the quality care and experience patients receive at GMP member pharmacies. We held our annual four-spot conference last week, and I was touched and inspired by the stories that our members shared. Through the entrepreneurship expertise and deep community roots, community pharmacies prove that they do more than just full prescriptions. They are critical promoters of health equity across the US, often going above and beyond to provide holistic care and health education at the local level, particularly in under-resourced communities. Since the beginning of the pandemic, community pharmacies have stepped up fearlessly to meet the unprecedented challenges of a global health crisis and show the world why community pharmacies are integral to our communities. The value proposition of community-based care has never been clearer. Another relevant example is on the animal side. The growth in pet ownership has increased demand for our veterinarian customers as pets are a cherished part of the family and the care a veterinarian provides is valued. This positive trend over the last year has long-term benefits for our business as NWI is well positioned with key anchor customers and services. On the human health side, access to local trusted expertise care remains vital, particularly for those dealing with complex health challenges that bring them into the care of specialty physician providers. As I've said from the onset of the pandemic, we are conscious of the negative impact that restrictive measures have on patients. when they have less access to screenings and tests that help doctors identify serious health issues. This has particularly impacted patients who are new to a doctor or healthcare facility, but now our customers have begun to see a normalization in new patient trends, and as a result, patients are more effectively being diagnosed and gaining access to treatment. This is a clear positive for patient care. As the leading provider of specialty distribution and commercialization services, we will continue to play our role in supporting pharmaceutical innovation and access as patients' visit volumes continues to normalize. Our specialty physician services business has strong performance this quarter and continues to differentiate AmeriSol's burden with leading value-added services, such as those through our physician GPOs. Additionally, BioFenders continue to be a positive for our customers, our business, and the healthcare system overall, as they provide room for new innovative products to come to market. The innovations in CAR-T and cell and gene therapies and the potential applications of the new mRNA technology offer the medical community new potential tools in the treatment of serious diseases that previously eluded truly effective care. AmerisourceBergen is well-positioned to support all these innovations through our specialty distribution and manufacturer services offerings. our unique ability to provide value-added expertise in conjunction with innovative solutions and quality service enhance our partnerships and grow our business with strong partnerships relationships and a leading portfolio of solutions to support a wide pipeline of practices and products Amerisource Bourbon is uniquely positioned to capitalize on the market opportunities provided by global pharmaceutical innovation as we drive growth in our business and help our partners tackle some of the most critical challenges facing healthcare. We have a strong foundation in place across our businesses, and in June we took another significant step forward by closing the Alliance Healthcare transaction and welcoming their talented team to the Marisol's Bourbon family. The acquisition of Alliance Healthcare is the next evolution of enhancing our ability to provide innovative and global healthcare solutions and is a critical component to our future success. Alliance Healthcare is a strong and diversified pharmaceutical distribution and manufacturer services company with leading market positions across an attractive portfolio of both established European markets, and high-growth emerging markets. In addition to their traditional wholesale business, Alliance Healthcare operates a range of leading, higher-margin innovation businesses serving both upstream partners and downstream customers. The acquisition of Alliance Healthcare extends our distribution reach, builds on our market-leading services capabilities, Specifically, Amerisource Birmingham's leading portfolio of key anchor customers now includes a long-term relationship with Boots in the UK and a network of independent pharmacies across Europe through the Alfea Pharmacy Network. Since the completion of the transaction, we have gotten the chance to know both the business and the people at Alliance Healthcare better. and we remain very positive about the opportunity that this landmark achievement provides AmerisourceBergen as we are positioned for a differentiated global growth platform. This includes our dedication to further strengthening our portfolio of solutions and customer relationships to lead with market leaders in every segment and to supporting patient access or if ever a prescription is needed. Second, AmerisourceBurman's leadership in specialty is further enhanced with key commercialization services in new markets. By leveraging the expertise and capabilities of our world career business, along with alliances of LOGA and Alcura, we elevate our ability to be a differentiated solution provider for global manufacturers as they develop and commercialize pharmaceuticals around the world. This is complementary to the solutions that we provide at World Courier, which continues to play a key role in providing global specialty logistics through both traditional commercial offerings and direct-to-patient clinical trial capabilities. we remain dedicated to expanding on our leadership in specialty and to enhancing our capabilities to support global pharmaceutical innovation. Third, Amerisource program focuses on delivering best-in-class services and efficiency, and this transaction enhances our ability to develop innovation solutions that are fundamental to our success operationally and commercially. Our innovative mindset means that we embrace advanced technologies, data, and analytics, and now we can further support positive outcomes through our expanded global platform. This fiscal quarter We were selected as the industry leader award winner at the 2021 SAP Innovation Awards for our work in developing SAP advanced track and trace for pharmaceuticals. This technology tracks millions of daily shipments at the batch level and further strengthens the pharmaceutical supply chain in the US. The value of a resilient and sustainable global pharmaceutical supply chain is vital. and the abilities to support pharmaceutical innovation to a global footprint with broad leadership and local expertise provide differentiated value for our partners. AmerisourceBergen stakeholders recognize the value we create, the importance of our purpose, and the critical nature of the service and the infrastructure that we provide. Fourth, AmerisourceBergen continues to work upon our history of corporate stewardship which focuses on advancing our people and culture, protecting the company's financial health, and ensuring long-term sustainable value creation. With Alliance Healthcare, we are now an even more global and diverse company, and we are committed more than ever to advancing the value of our talent and culture. Over the past year, we have invested in enhancing our talent and diversity and inclusion strategies to enable more growth opportunities within our increasingly inclusive workplace. We recently launched our Executive Leadership Initiative, ongoing success of high-potential Black, Hispanic, and Latinx team members at the mid- and senior levels, addressing the most pronounced leadership and representation gaps identified over the last several months following best-in-class research-based approaches. In the future, we plan to provide dedicated development opportunities for high-potential employees of additional underrepresented groups. Investing in our leadership development and talent and culture is important to our long-term sustainable growth, which is supported by diverse and inclusive teams. This focus is important to ensuring we capture the value of our collective differences and reflect our social commitment as we continue to strategically focus on delivering on all elements of ESG. Our ESG strategy is foundational to Amerisource Birmingham. Our leadership, our board, and our people. Recently, Amerisource Birmingham joined the Science-Based Target Initiative as we continue to line our business with best practice organizations around the world. At the local level, we continue to be deeply committed to our communities. This past year, we launched My Community Impact, a matching gifts and dollar for doers program and we recently made it available to all global employees. Our philanthropic efforts have been recognized by diversity and rank us eighth in their annual 50 Best in Philanthropy rankings. As I close my prepared remarks today, I remain truly inspired by the commitment and performance of our team members who are now numbering 41,000. With their unwavering passion and support, Amerisource Bergen is well positioned to capitalize on our global footprint to provide leading pharmaceutical distribution services and to leverage our expertise as an innovative commercialization services provider internationally. We remain confident in our pharmaceutical-centric strategy, our capabilities as partner of choice with market-leading manufacturer services, and our role in continuing the acceleration of pharmaceutical innovation by providing differentiated value to our stakeholders, focusing on our customers, expanding on our leadership in specialty, and executing, innovating, and supporting pharmaceutical innovation globally. We are well positioned to create long-term stakeholder value as we remain united in our responsibility to create healthier futures. Now I will turn the call over to Jim for a more in-depth review of our results and updated financial guidance. Jim?

Thanks, Steve, and good morning, everyone. Before I discuss our third quarter results, I want to comment on the pharmaceutical distribution industry's continued progress towards reaching a negotiated resolution to substantially address the nationwide opioid litigation. The proposed settlement agreement represents an important step towards achieving a broad resolution of governmental opioid claims. and aligns with the legal approval the company recorded in the fourth quarter of its fiscal year ended September 30, 2020. Merisource Bergen appreciates the enormity of the opioid epidemic, and this broad industry resolution is an important step toward delivering meaningful relief to communities across the United States. Turning now to our business. Amerisource Bergen remains focused on our differentiated and innovative value proposition to deliver long-term growth and value creation to our stakeholders. Powered by our purpose-driven team members, we will continue to execute on our pharmaceutical-centric strategy on an enhanced global platform to serve both upstream partners and downstream customers. As we recently completed the acquisition of Alliance Healthcare in the quarter, I would like to welcome the Alliance Healthcare team to Amerisource Bergen. Having joined Amerisource Bergen myself through an acquisition and experienced several acquisitions during my tenure, I have seen firsthand the thoughtful and strategic approach Amerisource Bergen takes to successfully integrate acquired companies. We enjoy working with our incredibly talented new team members and learning more, not only about their businesses, but also about how much we culturally have in common. As we have said since announcing the acquisition, Alliance Healthcare is a strong and efficient business, and we look forward to working together to continue to provide innovative solutions to our customers and stakeholders. My remarks today will focus on our adjusted non-GAAP financial results unless otherwise stated. Brokerage and comparisons are made against the prior year June quarter. For a detailed discussion of our GAAP results, please refer to our earnings release. I will provide commentary in two main areas this morning. First, I will review our adjusted quarterly consolidated results and our segment performance. Second, I will cover the upward revision to our fiscal 2021 guidance. Turning now to discuss our third quarter results, we finished the quarter with adjusted diluted CPS of $2.16, an increase of 17%, which was driven by the continued strong performance across Amerisource Bergen's businesses and also benefited from the one-month contribution from the Alliance Healthcare acquisition. Our consolidated revenue was $53.4 billion, up 18%, driven by revenue growth in both the pharmaceutical distribution services segment and other, which includes Alliance Healthcare and our global commercialization services and animal health businesses. Consolidated gross profit increased 32% to $1.6 billion, driven by increases in gross profit in each operating segment. In the quarter, gross profit margin increased 33 basis points from the prior year quarter to 3.05%. This was primarily due to the acquisition of Alliance Healthcare, which has a higher gross profit margin and increase in sales of specialty products in pharmaceutical distribution services and growth in some of our higher margin businesses. Regarding consolidated operating expenses, operating expenses were $996 million, up 38% year over year due to the addition of the Alliance Healthcare business, and also includes the internal investments we are making across our business with a focus on continuing to offer innovative services and solutions to our partners. These investments are important as they ensure we continue to create differentiated value and support our long-term growth. Turning now to consolidated operating income, our operating income was $631 million, up 24% compared to the prior year quarter. This increase was driven by increases in both the pharmaceutical distribution services segment and other which I will discuss in more detail when I review segment level performance. Operating income margin grew six basis points to 1.18% as a result of the contribution from the Alliance Healthcare acquisition and growth in higher margin businesses. Moving now to our net interest expense and effective tax rate for the third quarter, net interest expense was $51 million, up 36%, due to debt related to the Alliance Healthcare acquisition. Our effective income tax rate was 21%, up from 18.8% in the third quarter of fiscal 2020, which benefited from a discreet tax item. Our diluted share count was 208.9 billion shares, a 1.6% increase due to the dilution related to employees.com, and the weighted average daily impact of the June issuance of 2 million shares delivered to Walgreens as a part of the Alliance Healthcare acquisition. Turning now to adjusted free cash flow and cash, our adjusted free cash flow was strong in our fiscal third quarter, bringing our year-to-date free cash flow number to $1.2 billion, while our cash balance was $2.6 billion. This completes the review of our consolidated results. Now I'll turn to our segment results. Pharmaceutical distribution services segment revenue was $49.3 billion, up 13% for the quarter, driven by increased sales of specialty products and solid performance broadly across our pharmaceutical distribution businesses. Across our distribution businesses, we are seeing better and earlier than expected utilization trends as there have been more normalized physician interaction patterns leading to new patient starts. Pharmaceutical distribution services segment operating income increased about 13% to $484 million. Amerisource Bergen continued to benefit in the quarter from our leadership and specialty, where there has been a notable return to pre-COVID strength and continued positive biosimilar trends. I will now turn to other, which includes Alliance Healthcare, MWI, World Courier, and Amerisource Bergen Consulting. Alliance Healthcare is in our results for the month of June and has strong performance out of the gate. In the quarter, other segment revenue was $4.1 billion, up 128%, driven by the Alliance Healthcare acquisition and growth across the remaining operating segments. Excluding the impact of Alliance Healthcare, global commercialization services and animal health revenue was up 22%. Other segments operating income was $147 million, up 77%, primarily due to the Alliance Healthcare acquisition and strong performance at both MWI and World Courier. Excluding the impact of Alliance Healthcare, global commercialization services and animal health operating income was up 21%, reflecting the solid fundamentals of the businesses. World Courier has continued its exceptional performance, providing high-touch specialty logistics around the globe. Despite challenges in global logistics due to limited international cargo space, the team has delivered industry-leading solutions and expertise to support our customers and partners. Looking ahead, the business is highly complementary to Alliance Healthcare's Eloga and Valkyria businesses, and we are excited to offer an integrated suite of solutions on our enhanced global platform to serve our manufacturer customers. Turning now to MWI, the pandemic has truly encouraged all of us to focus on the health and well-being of our communities and families, and this includes our animal companions. Over 12 million families in the US have gained a pet since the pandemic began, And since pet owners view their pets as family members, the focus on health and well-being is a positive market trend for our MWI companion business. In the production animal market, our investments in technology solutions and unique offering of value-added services position the business to support long-term global demand for proteins. mwi's strong execution and customer relationships have allowed the business to remain a best-in-class provider that is well positioned to capture these positive market trends that concludes our segment level discussion and i will now turn to our 2021 guidance following the closing of the alliance healthcare acquisition back in june We updated our 2021 guidance for revenue, adjusted diluted UPS, and weighted average shares to reflect the expected contribution from Alliance Healthcare and the weighted average share count impacted the 2 million shares of stock that we delivered to Walgreens. Given the continued strong performance of Amerisource Bergen's businesses, we are again raising our EPF guidance from a range of $8.90 to $9.10, up to a range of $9.15 to $9.30, reflecting growth of 16% to 18% from the previous fiscal year. We are also updating other financial guidance metrics for fiscal 2021, including a meaningful increase to our expectation for consolidated and segment-adjusted operating income. First, I'll begin with operating expenses. Operating expenses are now expected to be approximately $3.9 billion due to the Alliance Healthcare acquisition. As a reminder, when you consider your models, Alliance Healthcare has higher margins for gross profit, operating expenses, and operating income, as evidenced by the update to our fiscal 2021 guidance for consolidated operating expenses to reflect the four months of Alliance Healthcare. Next, turning to operating income, we now expect operating income to be approximately $2.6 billion. This is a result of raising our pharmaceutical distribution operating income guidance to the low double-digit growth range, given the strong trends we have continued to see in our business. including specialty, which was further bolstered by patient referral activity this quarter. This raise also reflects our expectation for operating income in other of approximately $610 to $620 million. Excluding the contribution from Alliance Healthcare, operating income growth for global commercialization services and animal health group is expected to be in the low double-digit range for fiscal 2021, driven by the strong performance of World Courier and MWI. Finally, turning to free cash flow, we have raised our free cash flow guidance to be approximately $1.7 billion, up from approximately $1.5 billion. As it pertains to fiscal 2022, Our corporate planning process remains unchanged. We will provide comprehensive financial guidance at the end of our current fiscal year. This approach allows for guidance to be fully informed by the output of our year-end business planning process. That being said, we wanted to remind you of three important items from fiscal 2021 as you consider your models. First, through the end of June, the financial contribution from sales of COVID-19 therapies has declined in line with the expectations we have shared since the first quarter. COVID therapy distribution contributes roughly 25 cents to our fiscal 2021 adjusted EPS guidance, and the benefit from that exclusivity is not expected to repeat in fiscal 2022. Second, we will have higher interest expense in fiscal 2022 driven by the debt related to the Alliance Healthcare acquisition. Third, for the fourth quarter of fiscal 2021, we expect our weighted average shares to be almost 211 million shares due primarily to the fully weighted impact of the 2 million shares of our stock delivered to Walgreens at the close of the Alliance Healthcare acquisition. Our share accounts will continue to tick higher in 2022 due to normal employees.com related solution and the fact that we have committed to prioritize paying down $2 billion in total debt over the next two years and move share with purchases. Moving past these modeling reminders, the strength of AmerisourceBergen is undeniable and is exemplified by our continued exceptional results quarter after quarter. This is the sixth quarter since the pandemic began, and our results demonstrate the resilience and strength of our company. I am thoroughly impressed by the execution and performance across our businesses that has positioned us for continued success. Our pharmaceutical-centered foundation, market-leading talent, and competitive positioning enable us to capitalize on market trends and continue to deliver strong results. Before I conclude my prepared remarks this morning, I would like to touch on our ESG and diversity and inclusion efforts. AmerisourceBergen remains focused on creating long-term financial value, and we continue to work diligently to build our corporate stewardship initiatives to ensure the work we are doing benefits all stakeholders. We are focused on continuing to build robust talent development programs so that all our team members feel they have opportunities to grow and learn. In our communities, we're supporting nonprofit partners through our foundation to expand access to quality healthcare, promote health equity, and provide resources to ensure prescription drug safety. In addition, we aim to be environmental stewards in the communities where we live and work through initiatives like our commitment to using sustainable packaging to reduce the use of single-use plastics and working closely with our partners to optimize delivery routes to minimize our greenhouse gas emission footprint. We look forward to providing further updates on our ESQ progress as we continue to find ways to make a positive impact on the people, planet, and communities where we live and work. As we close in on the end of our fiscal year with strong momentum and continued outperformance across our business, it is important to take a moment to reflect on the important accomplishments we have already had this year. First, our teams continue to execute and leverage our capabilities to create differentiated value for our stakeholders. Second, our future growth has been further solidified by our acquisition of Alliance Healthcare. Third, Our purpose-driven culture continues to empower our team members to think, plan, and act decisively to do what is right for our people, partners, and communities. And finally, we continue our long-term commitment to strategically invest in our businesses and talent to ensure that Amerisource Bergen will continue to deliver long-term, sustainable value for all our stakeholders. As we look to the future, I am proud of the resilient foundation we have built while we facilitate pharmaceutical innovation and remain united in our responsibility to create healthier futures. Thank you for your interest in Amerisource Bergen. Now I will turn the call over to the operator to start our Q&A. Operator?

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone telephone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. And the first question will be from Charles Rye with Cowan. Please go ahead.

Yeah, thanks, guys. Congrats on the quarter, and thanks for taking the question. You know, I want to ask, you know, last quarter there was a lot of concerns around generic deflation and the impact it might be having on you and the other distributors. You know, given the performance of the quarter, how should we think about the issue of generic deflation, you know, really in the context here of, you know, strong results in distribution both from a top line and an operating profit perspective?

Yeah, Charles, this is Jim, and thanks a lot for that question. Generic deflation is trending relatively in line with our expectations, and overall generic deflation rates are relatively in line with the last couple of years. But I think the key point I'd like to make in answering the question that you asked is that You know, looking at our business model, our business model is not as reliant on generic pricing as it once was in the past. And several years ago, leadership of the company recognized the need to have more balanced profitability across the portfolio of pharmaceuticals, and that rebalancing ensures that AmerisourceBergen receives fair compensation for the value we provide across brand, generics, and specialty. especially as the market continues to shift to include more specialty. And so our alignment with strategic key anchor customers and our leadership in specialty continue to serve as positive differentiators for our positioning and results. And just like you were saying and asking in your question, it's really kind of evidenced in this quarter's results. As we talked about in our prepared remarks, this quarter adjusted operating income was up 24% year over year. But we really, in particular, look at pharmaceutical distribution. Pharmaceutical distribution operating income was up 13% year over year. And we increased our guidance for the full year for pharmaceutical distribution operating income from high single digits to low double digits. And this is just one of the many drivers that enabled us to have the increase in EPS guidance of 20 to 25 cents.

Thank you. And the next question will be from Lisa Gill with JP Morgan. Please go ahead.

Thanks very much. Good morning, everyone, and congratulations on a great quarter. Just want to understand a couple of things. One would be the comments around utilization. Did you have any pent-up demand, or do you feel like this is back to more normalization when we think about utilization? And then secondly, Jim, when we think about the alliance, the original guidance that you gave around the creation and what we saw in the quarter, I know it was only a partial quarter impact for alliance, but how did that come in versus your expectations?

Yeah, great. And so I'll answer both of those. And so as we said in our remarks, we're seeing better and earlier than expected utilization trends. We're seeing patients are returning to physicians' offices, which is resulting in patient referrals to specialists and new patient starts. When we look at year-over-year retail RX trends, we see that the year-over-year growth rates are higher in our third quarter compared to the year-over-year growth rates in the first half. And so we think it's a combination of pent-up demand and return to normal. And with regard to the alliance markets, question that you asked. You know, Alliance had a strong start out of the gate when we initially announced the completion of the acquisition in early June. We updated our EPS guidance to include a 45 to 50 cent contribution from the business during the last four months of our fiscal year. And we now expect that Alliance will contribute approximately 50 cents in those four months of fiscal 2021. Thanks.

And the next question will be from Ricky Goldwasser with Morgan Stanley. Please go ahead.

Yeah, hi, good morning. Thanks for all the details. So from everything we are hearing today, fundamentals are stable to positive, and you have increased visibility. You have the sort of the building blocks across all your portfolios, and, you know, Jim, you referred to a very balanced portfolio. So my first question is with all this kind of like now in place, in the increased visibility. One, how should we think about sort of steady state EBIT or EPS growth beyond sort of the 2022 kind of like headwinds and tailwinds? And then my second question that relates to that sort of long-term outlook, we just recently saw a biosimilar approval with an interchangeable status. I think that's something that we've been waiting for, the industry we've been waiting for, for a very long time. So how do you see this as kind of like long-term implication of this approval? And in what areas do you think interchangeability could impact biosimilar adoption the most?

Yeah, great. I'll start off and, you know, as we kind of think about the longer term, I think, you know, it's kind of key to look at what we've been seeing in our businesses over the last quarter and several quarters. We're really saying, you know, just broad-based performance across our businesses. And, you know, we've been talking about some time about specialty physician services and health systems. We're continuing to see really good performance there and also in community and specialty pharmacy, World Courier. And some of the things that have benefited us and will continue to benefit us are our industry-leading customers. You know, it's really a differentiator for Amerisource Bergen, and it's really across most of our businesses that we have these industry-leading customers that help with our long-term growth. It's the leadership in sales. specialty that was really benefiting us, has been benefiting us, and will continue to benefit us. When we look at market trends, the biosimilar trends, the improvements in utilization, but really just kind of the strong end market trends, whether it be in oncology, biosimilars, companion animal, those are the sorts of things which will really continue to benefit us over the longer term, Ricky.

Ricky, hi. So biosimilars, AmerisourceBergen is, you know, proud of the role that we play in being a really early promoter of biosimilars for patient choice and affordability. You know, it's a clear opportunity for us. Part B is the most impactful for us. especially in oncology, with now 40% share for Avast and Milosec, among other key products. What's interesting, of course, in oncology is the well-developed portfolio, services we have through our ION GPO, and the strong access we have to community oncology practices and leaders. Also, Viacem, as we pointed out, is a positive driver for our services, businesses, including Lashley Center, where we focus on patient access, biomechanomics, and adherence solution. You know, vitamins are also becoming more positive in the health systems area. So, you know, I just noted you talked about the first interchangeable product. That isn't a Part D product. It's in an important therapeutic area, which is diabetes. And, you know, of course, interchangeability will be more important for us when there's more than one product. But it's a positive development. And we are impressed on Take Note. of the FDA's flexibility and willingness to consider interchangeability, and we think that it bodes well for the efficacy and the role that biosimilars will play in pharmaceuticals in the future. So, you know, again, that Part B biosimilars are our sweet spot, so thanks.

And the next question will be from Steven Valliquette with Barclays. Please go ahead.

All right, great. Thanks. Good morning. So with the updated free cash flow guidance from $1.5 billion to $1.7 billion, do you have any color on how much of that is stemming from the Alliance Healthcare Assets versus the core operations? I'm going to miss that. Also, when thinking about the annual run rates, can you remind us of the approximate annualized operating cash flow contribution and also just any capex you'd expect tied to just the acquired Alliance Healthcare Assets on a go-forward basis once all the dust settles? Thanks.

Yeah. So with regard to free cash flow, yeah, we are very pleased that, you know, we're raising guidance on so many fronts, and one of them is, of course, on adjusted free cash flow, which is just a really important metric and value driver for us, and the increase from $1.5 billion to $1.7 billion. And we're seeing good performance at both AmerisourceBurton and But most of that increase is due to Amerisource Bergen because if you look at Alliance during the four months, we have a nice contribution of free cash flow, but that's really largely offset by deal fees and expenses that to a large extent offset the Alliance free cash flow during the four months period. And so most of that increases attributable to AmerisourceBergen. And as we look at Allianz long-term on the free cash flow front, the statement that we made at the closing of the deal is that we expect our combined free cash flow to be 1.25 times what it would have been standalone for AmerisourceBergen. And then you would ask about CapEx, and our CapEx value for the year remains at approximately $400 million. Okay.

Thanks. And the next question will be from Jalendra Singh with Credit Suisse. Please go ahead.

Yeah, thanks, and congrats on a good quarter. Last quarter, you guys called out seeing up to 40% utilization for biosimilars on the oncology side. Curious how that trended in the current quarter and what some of your near- to medium-term expectations are for utilization trend.

You know, we expect that the trends will continue. You know, I just, you know, the answer to Ricky's question, we talked about that same 40% market share for two of the most prominent oncology products. And we believe that this will continue to be a positive trend. And, you know, the innovative products continue to play a role through contracting, and that's where organizations like our ION GPO are very important. But there's no doubt that the trend for biosimilar adoption is intact, and physicians are accepting biosimilars as a key patient opportunity and also a financial opportunity to lower costs.

Thank you. And the next question will be from Eric Percher with Nefron Research. Please go ahead.

Thank you. Appreciate the initial commentary on fiscal year 22 and the fiscal year 21 considerations. I'm curious, when you look at 21 and think about core growth and core growth as you come out of the pandemic, and some of the puts and takes around generics and biosimilars, do you believe that core growth is actually higher as we look into 22 than it was pre-pandemic? And my follow-up there would be when we look at the other business in MWI, certainly World Courier benefited during the pandemic. Is there a headwind going forward, or does that begin to – or does that sustain?

Yeah, so with regard to growth rates and with regard to fiscal year 22, Eric, we'll provide comprehensive guidance at the end of our fiscal year after we've completed our year-end business planning process. And we won't be getting into that in any sort of detail today. You know, I went through some puts and takes in my prepared remarks. I won't go through those again. I will just comment that, you know, we're seeing good strength and momentum across our businesses and really kind of the The special thing is just how, you know, broad-based it is across our businesses, both in pharmaceutical distribution and in other, you know, being driven by industry-leading customers, leadership and specialty, biosimilars, improvements we're seeing in utilization. And that will all inform, you know, the guidance that we put out at the end of our program. fiscal year. I'll talk a little bit about other, and then I'm sure Steve will want to get into more detail. One of the businesses and others are MWI business. And I think some of the benefits that we've seen there during the pandemic of increased pet ownership, I mean, that's going to have legs and continue to enable growth in that business over the longer term. Steve?

Yeah, Eric, thanks for the question on World Korea. We cannot underscore enough what a fabulous job they're doing. The environment for them is really challenging if you think about, you know, the global context that they operate in and all the different pandemic restrictions. And, you know, a lot of the business that we do is based on international rates. which is not as easy to obtain as it used to be. So we recently visited with the team and we had a short visit to the UK when the restrictions were lifted. It was wonderful to not only meet the Lions team but also to see our world career leadership team and really give them a pat on the back because they have done a fabulous job growing the business and meeting the needs of their global clients throughout this very difficult period, and in many cases, shifting the business model to at home. You know, we've owned the business for, you know, eight, nine years now, and I have to tell you, this is a wonderful part of AV that keeps on growing and keeps on finding new ways to maximize the expertise in clinical trial logistics and help, you know, the global pharma partners meet their innovation needs. and you know the last thing i'll say is it's a wonderful um opportunity to share knowledge between alliance healthcare and world career so we we're very positive on that business thank you and the next question will be from kevin caliendo with ubs please go ahead sure um first i was we've got a lot of questions about freight and shipping costs and and those increasing

Wondering if you're seeing any impact from that in any way, shape, or form or how that might impact guidance going forward. And just as sort of a follow-on to the biosimilar question, are you seeing any change in the spreads or the profitability on biosimilars going forward, or are you expecting that to happen? Thank you.

I can take part of it. You know, on the biosimilars part, you know, honestly, we have, you know, we've said that it's somewhere between brand engineering pricing and, of course, every single product is different depending on the number of competitors, the settings. and most of the product is administered. So it's a large category. It's becoming a larger and more interesting category for us. And, you know, Jim can give, you know, more comments about that. But as expected, you know, we expect that the positive trends will continue, and this is becoming an important driver for patients and for physicians and for our resource improvement.

Yeah, and you had asked about some of the input costs And, yes, there is inflation in things like labor and transportation, and that's, you know, I think evident throughout the economy and something that all businesses are experiencing. And, you know, we certainly see it. But, you know, I think it's really important to say that, you know, that's something that we've been experiencing this past quarter. And, of course, you know, this past quarter, We saw the 24% increase in operating income, 13% in pharmaceutical distribution. If we exclude alliance commercialization in animal health, which is a labor-intensive group, the 21% increase in operating income. And those sorts of input costs are all taken into account in our guidance increase that we did today.

Thank you. And the next question is from George Hill with Deutsche Bank. Please go ahead. Yeah.

Good morning, guys, and thanks for taking the question. Steve, I was just hoping that you could talk a little bit more about the opportunities you see in the manufacturer services business and kind of where you think about the white spaces there post the close of the alliance acquisition.

You know, thank you, George. We're tremendously excited because just meeting with the team, we'll spend so much time, you know, pre-close and negotiations. You know, when we get together, the intense discussions we have about opportunities and how do we take all the combinations of businesses that we have and really make one and one equal three. I mean, that's old-fashioned, but that's essentially what we try to do. And there's tremendous knowledge If you look at our corporate team, it's focused in Weybridge in the UK, and that is the headquarters. The UK is also the headquarters for World Korea. But if you look at how AmerisourceBergen is positioning ourselves with the lines, we have a good mixture of developed European markets and high-growth emerging markets. It's a very important priority for us to develop the services and innovative lines in those markets. World Korea has a small expertise and a small presence in almost all the markets that Alliance is already in. But we set up a lot of our commercialization businesses to help smaller companies launch products globally. And I sincerely feel... that this acquisition is going to give us the opportunity to really have the presence, have the boots on the ground, the local market knowledge, to look at both the innovative side, the distribution side, and the commercialization side to benefit the patients we serve and the manufacturers that want global partners with the expertise of Amerisource Group.

Thank you. Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to Steve Collis for any closing remarks.

So thank you for your time today. AmerisourceBergen is a purpose-driven, leading global healthcare company with a foundation in distribution, and we continue to advance our role as a key pillar of pharmaceutical innovation and access. Our expanded reach and solutions in pharmaceutical distribution and added breadth and depth in manufactured services further strengthens our ability to provide innovative and global healthcare solutions for our partners. Our results and guidance clearly exemplify our performance, execution, and how we continue to benefit from leading with market leaders. Our company is well positioned for long-term growth. Thanks again for your time today, and great job to our worldwide associates.

And thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.