AmerisourceBergen Corporation

Good day and welcome to the Merisource Bergen fourth quarter fiscal year 21 earnings conference call. All participants will be in a listening 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. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Bennett Murphy, Senior Vice President, Investor Relations. Please go ahead.

Thank you. Good morning and thank you all for joining us for this conference call to discuss AmerisourceBergen's fourth quarter and fiscal year 2021 results. I am Bennett Murphy, Senior Vice President, Investor Relations. Joining me today are Steve Collis, Chairman, President, CEO, and Jim Cleary, Executive Vice President and 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.maristusbergen.com. We've also posted a slide presentation to accompany today's press release on our investor website. During a conference call, we will make forward-looking statements about our business and financial expectations on an adjusted, non-GAAP basis, including but not limited to EPS, operating income, and income taxes. Forward-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 you to today's press release and our SEC filing, including our most recent 10-K. America's Bergen assumes no obligation to update any forward-looking statements, and this call cannot be broadcast without the express permission of the 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'll turn the call over to Steve.

Thank you, Bennett, and good morning to everyone on the call. Today, we will focus our remarks on the exceptional progress that the Marisol's Bergen team has made on our strategic priorities during fiscal 2021 and how we will capitalize on that momentum to continue executing and innovating in fiscal 2022. Before I begin, I want to take a moment to comment on the distribution industry's recent milestone regarding the proposed settlement agreement to address opioid related claims of US state attorney generals and political subdivisions in participating states. Throughout the litigation process, we have been consistent in stating our desire to addressing the enormity of the OPR 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 supports. 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. Marisol Bergen will continue to work diligently and alongside partners to combat drug diversion while supporting realist solutions to help address the crisis in the communities where we live, work, and serve. In fiscal 2021, AmerisourceBergen advanced its role as a key pillar of pharmaceutical innovation and access as we lived our purpose of being united in our responsibility to create healthier futures by supporting our partners, customers, and our own team members through challenging times. As the pandemic persists, the importance of our purpose in an evolving environment and an efficient global pharmaceutical supply chain is being felt by all our stakeholders. We are proud to be able to offer our expertise, capabilities, and infrastructure as part of the solution, from facilitating the national distribution of COVID-19 therapies to supporting the distribution of more than 75 million vaccines to patients in over 30 countries through our expanded global footprint. Our business has leveraged its position of market strength to become an increasingly vital partner of choice through differentiated solutions for our upstream and downstream customers. Our continuous investments and ongoing focus on being a strategic partner for our customers have deepened our relationships with all our stakeholders during this time of increased focus on the pharmaceutical supply chain. enhancing our position as a provider of key solutions for our customers, both big and small. We also leverage our core capabilities as a leader in pharmaceutical distribution and a differentiated provider of unique solutions for manufacturers globally and healthcare providers locally. In the U.S., we are a key partner for our community pharmacies, veterinarians, and physician practice, In community pharmacy, we are particularly proud to support our Good Neighbor Pharmacy members' trusted role through our innovative tools and programs that allow independent pharmacists to optimize their operations and spend the most possible time serving their patients and communities. In July, for the fifth year in a row, and for the 10th year of the past 12 years, Good Neighbor Pharmacy Network was ranked highest amongst bricks and mortar chain drugstore Our animal health business, we support veterinary practices in similar ways to help them manage their practices as they continue to experience increased demand for their services due to growth in pet ownership. The cherished role of pets within families and increased importance placed upon ensuring health and well-being for all family members. We also continue to differentiate ourselves as the leader in specialty distribution and commercialization services. This fiscal year, we launched a variety of new services and solutions, building upon our historic investments to further drive our leadership in specialty with our customers and partners. For example, through our ION and other value-added solutions, we formed new partnerships that offer industry-leading technologies to specialty physician services customer practices, enabling them to be even more efficient while enhancing their ability to improve the patient experience and ultimately outcomes. We are also pleased to continue to support the growing adoption of biosimilar products in physician offices and community hospitals and health systems, facilitating patient access to important treatment choices to improve their health and well-being. Internationally, we remain a leading provider of global pharmaceutical distribution services and differentiated solutions in key markets across the globe. Earlier, I mentioned the distribution of tens of millions of doses of the COVID-19 vaccines to patients in more than 30 countries. Through our market-leading manufacturer solutions, including our global specialty logistics and commercialization offerings, we are also facilitating direct-to-patient clinical trials and helping manufacturers around the world navigate the ever-increasing complexities of global logistics. Furthermore, we are leveraging our now expanded portfolio of international relationships, partnerships and solutions to facilitate patient access to the rapidly evolving landscape of new pharmaceutical technologies. As we continue to differentiate our business, we remain focused on being strategic partners with our customers as we help them achieve operational efficiencies and support growth in their businesses with innovative solutions. In fiscal 2021, we completed a significant technology investment by bringing the specialty distribution business onto the SAP platform, which will help improve efficiency, increase flexibility, and support continuity. As a global healthcare company, we understand and appreciate the importance of ensuring our businesses have the technology they need to support their operations and enhance their capabilities. Importantly, an increasingly critical part of our global role and responsibility is being strong corporate stewards. That is, ensuring our financial health, investing in our people and culture, and ensuring long-term and sustainable value creation. In terms of our financial health, We continue to take a thoughtful and strategic approach to capital deployment that focuses on value creation and maintaining financial strength. This includes a focus on maintaining our strong investment-grade credit ratings, and we remain on track to delivering on our commitments to the rating agencies. Notably, our financial and strategic position has enabled the continued enhancement of our healthcare capabilities, including the acquisition of Alliance Healthcare which we completed in June. Since then, our culturally aligned teams have worked diligently to integrate our teams and businesses, conducting deep dive into strategically optimizing our operational and business development synergies to exploring ways to enhance the value we create for our partners. As we are seeing through financial results and expectations, our new team members are talented, and I thank the combined Amerisource Bergen and Alliance Healthcare teams for their ongoing support of our integration efforts. Our financial strength also enables us to continue to invest in our people and culture. At Amerisource Bergen, we know our team members are our most valuable asset, and we are committed to inspiring them to achieve their fullest potential. Our efforts go well beyond the table stakes of offering market-aligned pay, and we understand the long-term advantage of being a fair and equitable employer who offers competitive wages at all levels. We have surveyed our team members to find out what is most valuable to them and have invested in attractive benefit programs such as increased paid parental leave, child independent care, and enhanced mental health and wellness programs. Our team members also value a culture of flexibility and we responded with a thoughtfully designed new way of working that provides options for flexibility while balancing the need for in-person connection and innovation. From ensuring the safety of themselves and their loved ones during the pandemic to investing in world-class learning technology and models, we understand that it is absolutely critical that our talent is cultivated and empowered to help drive our long-term growth. Our efforts have been recognized, and we have once again been certified as a great place to work company and named a best place to work for LGBTQ equality by the Human Rights Campaign. Meaningful value can also be unlocked when individuals are empowered to bring their whole selves to work, and we embrace our collective differences. This year, we furthered our diversity, equity, and inclusion efforts. with the rollout of new employee resource groups and new diverse candidate slate objectives. To further align our people strategy with our business strategy, we also introduced a new leadership competency model that will be embedded throughout all of our talent programs. Based on the collective feedback from team members across Amerisource Bergen, the new model focuses on developing leadership competencies aligned to four key business and cultural goals. diversity, equity, and inclusion, collaboration, innovation, and executional excellence and purpose. As a foundation for how we will recruit, engage, and develop our people, this new model and the principles behind them will enable us to create value now and for the long term. Another aspect of our culture, one which helps ensure sustainable value creation, is our dedication to operating in a sustainable and responsible manner and to supporting healthy and resilient communities where we live and work. During the quarter, we are proud to have become a participant of the UN Global Compact, the world's largest corporate sustainability initiative. We also held our third annual Marisol Spurgeon Foundation Conference, which helps foundation grantees connect and learn from each other and the foundation team to help them become even more effective in their work positively impact local communities around the world. Our continued progress in areas like ESG, diversity, equity and inclusion, and strategic planning are made possible by the expert oversight and guidance of our board, as well as the ability of our management team to drive execution and operational excellence. Looking ahead, our key growth pillars enable us to maintain our leading market position and to solidify our differentiated value proposition in fiscal 22 and beyond. First, we are focused on our customers. Through our unique partnership model, we form long-term lasting relationships that integrate us operationally and enable us to provide value-added solutions that help further strengthen our ability to lead with market leaders. We are focused on expanding on our leadership in specialty. By leveraging our global reach, market-leading capabilities, and ability to support rapidly accelerating and global pharmaceutical innovation, we strengthen our capabilities to support both upstream partners and downstream customers. Third, we are focused on execution excellence. This includes continuously investing in our business, which increases our flexibility, expands our suite of capabilities, and enhances our customer experience. Fourth, we are focused on supporting pharmaceutical innovation around the world. With a global manufacturer service platform, we aim to be the strategic partner of choice to global manufacturers as we help them innovate, solve the complex challenges of global logistics and market access, and capture the opportunities of rapidly accelerating pharmaceutical innovation. Downstream, we provide data-driven insights, efficiency solutions, and our unmatched scale to help optimize customer operations and support access for patients in need from the smallest to largest populations across all types of care and across all classes of trade. And finally, our growth is supported by investments in our people, culture, and all dimensions of ESG. By investing in our people and culture, we advance our most important resource. By committing to ESG, we create healthier futures around the world and unlock the added value of being a responsible and impactful enterprise, which ultimately enables a strong and healthy financial position to achieve long-term sustainable value creation for all of our stakeholders. Marisol Spurgeon has made exceptional progress on our strategic priorities, further enhancing our differentiated value proposition and driving consistent art performance throughout the year. As we continue to capitalize on our positive momentum into fiscal 2022, we remain driven by our purpose of being united in our responsibility to create healthier futures. Now powered by 42,000 team members globally, we remain confident in our pharmaceutical-centric strategy and capabilities as a leader in pharmaceutical distribution services and differentiated manufacturer solutions. Thank you to all our team members for their inspiring dedication this year, and we look forward to a great year ahead. Now I will turn the call over to Jim for a more in-depth review of our fourth quarter and fiscal 2021 results and to discuss fiscal 22 guidance.

Joe? Thanks, Steve, and good morning, everyone. For Amerisource Bergen, fiscal 2021 was a momentous year as we celebrated the 20th anniversary of the Amerisource and Bergen Brunswick merger, completed both the acquisition of Alliance Healthcare and the extension of the Walgreens contract through 2029, And our teams delivered another year of strong performance, driven by our continued execution and strategic positioning. Our pharmaceutical-centric business, robust customer relationships, and leadership in specialty distribution and services position us to be a partner in supporting pharmaceutical innovation and access on a global scale. Before I turn to our results, as a reminder, my remarks today will focus on our adjusted non-GAAP financial results unless otherwise stated. Growth rates and comparisons are made against the prior year September quarter. For a detailed discussion of our GAAP results, please refer to our earnings release. I will provide commentary in three main areas this morning. First, I will review our consolidated results and segment performance in fiscal 2021. And then we'll discuss our new reporting segments beginning in fiscal 2022, and we'll conclude with fiscal 2022 guidance. Beginning with our fourth quarter results, we finished the quarter with adjusted diluted EPS of $2.39, an increase of 26.5%, which was driven by both a full quarter's worth of contribution from Alliance Healthcare and the strong performance in our pharmaceutical distribution services segment. Our consolidated revenue was $58.9 billion, up approximately 20%, reflecting growth in pharmaceutical distribution and other. Excluding Alliance Healthcare, our consolidated revenue would have been up 9% from the prior year quarter. Consolidated gross profit was $2 billion, up 51%, driven by increases in gross profit in both pharmaceutical distribution and other, which benefited from the inclusion of Alliance Healthcare. This quarter's gross profit margin of 3.4% is 71 basis points higher than the prior year quarter, as we had a whole quarter of Alliance Healthcare in our consolidated results. Consolidated operating expenses were $1.3 billion versus $795 million in the prior year period, primarily due to the addition of Alliance Healthcare, as well as investments in our talent and initiatives to support the company's current and future growth. This quarter's operating expense margin of 2.23% is 61 basis points higher than the prior year quarter, primarily reflecting the full quarter impact of Alliance Healthcare in our consolidated results. Also, as a reminder, in the fourth quarter of fiscal 2020, we had a bad debt reversal of $13 million that impacts the year-over-year comparison of operating expenses. Turning now to consolidated operating income, our operating income was $694 million, up 31% compared to the prior year quarter. This growth 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 was 1.18%, an increase of 10 basis points as a result of the contribution from Alliance Healthcare and the continued benefit from some of our higher margin businesses. Moving now to our net interest expense and effective tax rate for the fourth quarter. Net interest expense was $55 million, up 57% due to debt related to Alliance Healthcare. Our effective income tax rate was 20.3% compared to 21.7% in the prior year quarter. The lower effective tax rate was due to a change in mix of domestic and international income from the prior year quarter. Our diluted share count was 210.8 million shares, a 2.2% increase due to the impact of the issuance of 2 million shares delivered to Walgreens as part of the Alliance Healthcare acquisition and dilution related to employee stock compensation. This completes the review of our consolidated results. Now I'll turn to our segment results for the fourth quarter. Pharmaceutical distribution services segment revenue was $51.2 billion, up 8% in the quarter, driven by increased sales of specialty products, strong execution across our pharmaceutical distribution businesses, and overall positive prescription utilization trends. Pharmaceutical distribution services segment operating income increased by 11% to $472 million. Operating income margin expanded by two basis points to 0.92% in the quarter. Amerisource Bergen's continued leadership in specialty distribution allowed us to capture the benefits of strong utilization trends during the quarter. I will now turn to other, which includes Alliance Healthcare, MWI, World Courier, and AmerisourceBergen Consulting. In the quarter, other revenue was $7.7 billion, up from $2 billion in the fourth quarter of fiscal 2020, driven by a full quarter's worth of contribution from Alliance Healthcare as well as growth in the global commercialization services and animal health businesses. Other operating income was $223 million, up from $105 million in the fourth quarter of fiscal 2020 due to the inclusion of Alliance Healthcare. That concludes our fiscal fourth quarter discussion. Now I will turn to a discussion of our full year fiscal 2021 results. Our consolidated revenue was $214 million, up 13%, driven by growth in pharmaceutical distribution and other, which includes four months of contribution from Alliance Healthcare. Excluding Alliance Healthcare, our consolidated revenue was up 9% from the prior year. Consolidated operating income grew 20% for the year to $2.6 billion, driven by strong performance across our businesses and the four-month contribution of Alliance Healthcare. Excluding Alliance Healthcare, our consolidated operating income increased by an exceptional 12% from the prior year, driven by growth in our higher margin businesses, strong fundamentals across our business, and the important work our team has done to support COVID therapy distribution for hospitalized patients. From a segment perspective, pharmaceutical distribution services had operating income growth of 13% due to strong performance across our portfolio of businesses and customers. In fiscal 2021, we continued to capitalize on our leadership in specialty distribution, both in the physician space and health systems. We saw a significant contribution from health systems as our differentiated solution set was leveraged by manufacturers to meet the complex logistics for the distribution of COVID-19 antivirals and therapies to hospitals across the country. Additionally, we continue to have strong performance in specialty physician services this fiscal year as the healthcare system has become more accustomed to operating in the current environment. This supported physician diagnosis and related testing and screening processes, resulting in more normal levels of new patient starts. In other, operating income grew 54% year-over-year to $615 million. Other meaningfully benefited from the four months of contribution from Alliance healthcare results, while World Courier and MWI also delivered strong results. As global logistics continued to be challenged by the pandemic, World Courier provided its expertise and innovative solutions to manufacturer partners around the world, facilitating the movement of temperature-sensitive and other high-priority shipments. World Courier's direct-to-patient in-home clinical trials continued to be a differentiator as patients and manufacturers saw alternative lower-acuity care sites. MWI continued to experience strong performance in the companion animal market as pet parents maintained their focus on their pet's health. In the production animal market, the reopening of restaurants and return of travel boosted protein demand. Turning now to tax rates, our adjusted effective tax rate for fiscal 2021 was 21.3% compared to 20.8% in the prior fiscal year, which benefited from discrete tax items. Turning now to EPS, our full year adjusted diluted EPS grew 17% to $9.26, primarily due to strong growth and execution across our business, including continued leadership and outperformance in specialty and the four-month contribution from Alliance Healthcare. Adjusted free cash flow of the year was $2.1 billion, which was better than our expectations due primarily to the timing of certain customer payments in September, a benefit that will reverse in the December quarter due to higher supplier payables. There was also better than expected cash flow at Alliance Healthcare. If you normalize for the timing-related benefit, our adjusted free cash flow for the year would have been roughly $1.7 billion. We ended the year with a cash balance of $2.5 billion excluding restricted cash of approximately $500 million. That completes the review of our fiscal 2021 results. I will now discuss updates to our segment reporting, which will go into effect in fiscal 2022. Following the acquisition of Alliance Healthcare and the subsequent change to the geography of our business, we undertook a strategic evaluation of how we report our segments in order to provide alignment with business operations. Following this review, which concluded in October, we will begin reporting our results in two new segments in the first quarter of fiscal 2022, U.S. Healthcare Solutions and International Healthcare Solutions. The U.S. Healthcare Solutions segment will consist of our legacy pharmaceutical distribution services segment excluding pro-pharma distribution, plus the following businesses which had previously been reported and other, MWI Animal Health, Exenda, Lash Group, and ICS 3PL. The international healthcare solution segment will consist of our non-U.S.-based pharmaceutical distribution and services solutions, including Alliance Healthcare World Courier, NMR, and pro-pharma distribution and pro-pharma specialty. As a reminder, we consolidate ProPharma's results due to our ownership interest and governance of the publicly traded entity. ProPharma's specialty was previously reported in other. This morning, we are also filing a Form 8K with resegmented financials for fiscal 2021 in order to help your quarterly modeling. Our new reporting segments, like Amerisource Bergen, are built on the foundation of leading in pharmaceutical distribution and differentiated by complementary higher margin businesses offering value-added solutions in key markets. Turning now to discuss our fiscal 2022 guidance. And as a reminder, we do not provide forward-looking guidance on a GAAP basis, so all of the following metrics are provided on an adjusted non-GAAP basis. Starting with revenue, we expect consolidated revenue to grow in the high single-digit to low double-digit percent range. On a segment level, we expect U.S. healthcare solutions revenue to be approximately $207 billion to $212 billion, representing growth of 2% to 5% year over year. In international healthcare solutions, we expect revenue of approximately $26 billion to $27 billion. Moving on to operating income, we expect consolidated operating income to grow in the mid to high teens percent range. On a segment level, we expect U.S. healthcare solutions operating income to be between $2.325 billion, and $2.4 billion, representing growth of 3% to 6% on a year-over-year basis. The only business that was included in pharmaceutical distribution services that is not going into U.S. healthcare solutions is ProPharma Distribution, which contributed less than 1% of revenue for pharmaceutical distribution services in fiscal 2021, and roughly 1% of segment operating income. As a reminder, as I said back in February and again in August, we had a significant tailwind in fiscal 2021 related to the financial contribution from sales of COVID-19 therapies. We did have higher than expected COVID therapy sales in the fourth quarter, primarily driven by sales in the month of August, with a subsequent substantial decline in September. The final EPS benefit from COVID therapy sales full year fiscal 2021 was $0.30, $0.14 of which was in the first quarter. If you estimate the first quarter of fiscal 2022 based on the even lower October trends, the contribution from COVID therapy sales would be $0.03, which means the first quarter would have an $0.11 headwind for U.S. healthcare solution segments. While this reduces the segment's growth rate, In the first fiscal quarter, we expect full-year operating income growth of 3% to 6% in U.S. healthcare solutions. We expect international healthcare solutions to have operating income between $685 million and $715 million. Alliance Healthcare represents a little over two-thirds of operating income in the segment, with World Courier making up the majority of the remainder of segment operating income. As you think about your first quarter models, we expect about 25% of the international segment's operating income to occur in the first quarter. As you look at fiscal 2022 for the international segment, there are a couple things to keep in mind. First, we have agreed to sell pro pharma specialty as we focus on our core operating assets. The transaction is under regulatory review and is expected to be completed in the first half of fiscal 2022. Successful completion of the divestiture is factored into our guidance and represents a 2% headwind to our international healthcare solution segments operating income. Second, in fiscal 2022, we will have a step up in expenses at Alliance Healthcare that was fully contemplated when we announced the acquisition and is generally related to IT modernization. As Steve said earlier, we view technology and systems as fundamental to our operations and business continuity, and this step up in fiscal 2022 expense will help align Alliance Healthcare's business technology, operability, and infrastructure with Amerisource Bergen. Alliance Healthcare continues to deliver on our expectations for the business, and we expect Alliance to be high-teens accretive to our standalone adjusted diluted EPS in fiscal 2022. Since closing the transaction, our teams have engaged both in-person and virtually and have furthered our strong relationships. Most recently, we held a deep dive with leaders across Amerisource Bergen and Alliance Healthcare, focused on Alliance Healthcare's manufacturer services businesses. I continue to be impressed by the strong and efficient business and team in Alliance and appreciate the collective thoughtfulness around creating long-term value for stakeholders through our innovative solutions. Moving on to interest expense, tax rate, and share count, we expect interest expense to grow in the mid-teens percent range as a result of debt related to the Alliance healthcare acquisition. We expect our tax rate to be approximately 21 to 22 percent for fiscal 2022. based on current tax rates in effect for fiscal 2022. Without the tax rate benefit from Alliance Healthcare's operations, our range would have been 1% higher on both the top and bottom end of the range. Finally, we expect that our share count will increase to approximately 212 million shares as a result of the full year impact of the 2 million shares delivered to Walgreens as part of the closing of the Alliance Healthcare acquisition and normal dilution from stock compensation expense. As a reminder, as part of our commitment to maintain our strong investment grade credit rating, we are committed to paying down $2 billion in total debt over the next two years in lieu of sharing purchases. We currently expect to pay down roughly half that amount toward the end of FY2022. As a result of these expectations, reflecting the strength of our business, we are guiding for adjusted diluted EPS to be in the range of $10.50 to $10.80, reflecting year-over-year growth of 13% to 17%. Turning now to capital expenditures and cash flow expectations, CapEx is expected to be in the range of $500 million as we continue to invest to further advance our business fortify Alliance Healthcare's IT infrastructure, and support additional growth opportunities. For adjusted free cash flow, we expect adjusted free cash flow to be in the range of $2 billion to $2.5 billion, which includes the benefit of Alliance Healthcare in our results for the entire fiscal year. In closing, fiscal 2021 was another successful year for Amerisource Bergen, as we continue to execute on our strategic priorities while the pandemic persisted. I am proud of our 42,000 team members who worked tirelessly to support our customers, partners, and patients and drove our strong financial results. Given the steps we took in 2021 to advance our business, I'm excited about our 2022 fiscal year as we continue to deliver stakeholder value. As we continue to drive our business forward, we will maintain our focus on our differentiated capabilities supported by our dedicated team members. AmeriSource Bergen is guided by our purpose of being united in our responsibility to create healthier futures, built on a foundation of leadership and pharmaceutical distribution, and differentiated by complementary higher margin businesses that leverage our pharmaceutical scale and expertise creating unparalleled value for our manufacturer partners and healthcare provider customers. With that, I'll turn the call over to the operator to open the line for questions. Operator?

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two.

At this time, we will pause momentarily to assemble our roster. And the first question will be from Lisa Gill from JP Morgan.

Please go ahead.

Good morning, and thank you for all the detailed commentary. Jim, I just want to go back to your comments around the U.S. drug distribution. I understand that there's a number of incremental businesses that are now within that segment. But you made a comment about COVID-19 therapies. So when we think about 2022, one, is there nothing built into your expectation around that? And two, just given the number of new therapies that are coming to market, for example, I think about the new Merck therapy that's just been announced, is Is it not reasonable to think that there's going to be some benefit as we go into 2022 for COVID therapies would be my first question. And then secondly, can you just help us to understand the underlying trends? So, for example, what are your expectations around utilization trends? What's your expectation around cost cold flu, you know, acute scripts kind of coming back and people visiting the office, the physician's office again, et cetera. If you can just help us to better understand that, that'd be great. Thank you.

He said thank you. Great question.

I'll answer that question from a financial perspective. And then I think Steve will want to Add in and talk a little bit more about the business. But as you know, you know, our guidance for this year for our US healthcare solution segment is your revenue growth of two to 5% and adjusted operating income growth of three to 6%. And it's based on continued strong performance really across the business where we continue to benefit from our differentiated position. Now, with regard to your question on COVID therapies, You know, we don't expect to repeat the benefit that we had in fiscal year 21 from our exclusivity on the distribution of the main commercial COVID therapy. The benefit we got from COVID therapies in fiscal year 21, as I said in my prepared remarks, was 30 cents. And kind of let me give you some of the breakdowns there. During the first quarter, it was 14 cents. Second quarter was 7 cents. Third quarter was 3 cents. Fourth quarter was $0.06, so I'm sure that'll help you modeling. And as we're looking at fiscal year 22, we expect the benefit that we get in the first quarter of fiscal year 22 to be $0.03. So we have an $0.11 headwind in the first quarter of fiscal year 22. And so we do expect to have lower operating income growth in U.S. healthcare solutions in the first quarter of fiscal year 22. But we, of course, as I said, expect 3% to 6% operating income growth for the full year, which includes, of course, Q1. Now, you know, you asked about other COVID therapies, and of course, it's early, but we may very well get some benefit from other COVID therapies, and that's exactly why we have, you know, one of the reasons why we have a range, and we have a 30-cent range in our EPS between $10.50 and $10.80. We don't expect a lot of incremental benefit in the first quarter, but it could come later on in the year. Now, you also asked about utilization trends, which is a great question, and we are seeing strong utilization trends across our business, which has improved sequentially from the positive trends that we noted in our third fiscal quarter. And prescription trends are strong and have returned to pre-COVID-19 levels. And, you know, we did see, have seen strong utilization improvement trends across the business in the second half of 21 and expect that to continue to benefit us in fiscal year 22 across our businesses and customers. And I see that Steve would like to just add a couple things on the overall business.

No, you know, we're entering 22 with all of our businesses performing very well, Lisa, and benefiting from, you know, somewhat normal environment. But, you know, there is the innovation factor that remains. And I saw that the Merck poll got, while literally while we were on the call, the Merck poll got approved in the UK, the oral. So, you know, continued innovation. And it's possible that, you know, we could be working with some therapies in the future. as we have in the past, particularly in the emergency use authorization phase is where we've been successful in working on an exclusive basis. So, you know, we're happy and very, if I look back on 21, I think of it as the year that the last deal got done and the year that we responded so well to assisting with the need for responding to the COVID pandemic. and including keeping our people safe. So, you know, that's what I think would be the highlights. But, Jim, I think you gave an exhaustive answer, so we'll probably move on to the next question, please.

Thank you. The next question will come from Charles Reeve from Cowan. Please go ahead.

Yeah, thanks for taking the questions. Hey, Jim, I just wanted to follow up on the guidance, particularly in the international healthcare segment here. You said you were uh planning to sell the the pro pharma specialty business and said there was a two percent headwind that's two percent headwind to the full year operating income but it's not going to sell until so it's really double that for the back half of fiscal 22 and did you give a revenue impact as well yeah no we haven't given a revenue impact but you you are right it is um it is a two percent headwind for the whole year

And we're assuming we're going to sell that business during the first half of the year. And, of course, our international healthcare solution segment is really driven by Alliance Healthcare being the largest part of the segment. And we feel very good about the performance of Alliance. It's operating, you know, at or above our deal model. And then the next biggest piece of the international healthcare solution segment is, of course, our world courier business, which is also performing well.

Thank you. And the next question will be from Stephen Balaket from Barclays. Please go ahead.

Thanks. Sorry, I was doing two calls at once here. I apologize. Basically, a lot of discussion points around freight costs the ability for drug distributors to pass some of that through or have to absorb that. There's a lot of components to that. It could be higher labor costs. It could just be higher fuel costs, et cetera. I'm just curious to hear about how you guys are handling that and whether there's any impact in your business one way or the other, or can you fully either pass that through or just not have that be of a material impact to the company? Thanks.

Yeah, I think really in summary, it is fully reflected in our guidance. And in fiscal year 22, And we do expect to continue to have higher expenses associated with picking, packing, shipping. There are some offsets from certain other FY21 expenses that are not planned to repeat in FY22. But of course, we keep a close eye on economic trends that can impact our business. And we have seen wage and transportation inflation across our business during the summer. We move quickly to adjust wages to ensure that they remain competitive and market aligned, and that's reflected in our fourth quarter results. And these things like higher labor and transportation costs, they're fully contemplated in our fiscal year 22 guidance. And we'll manage these expenses as we do each year and work with our partners and customers to ensure that we're diligent in maintaining our fair compensation for the services we provide.

Next question, please.

The next question is from Eric Percher from Nephron Research.

Please go ahead.

Thank you. I want to take the other side of the U.S. question asked earlier. So this also includes MWI Animal Xenda. Is it fair to assume that that's growing more than the 3% to 6% for the total segment? Are there any headwinds coming out of fiscal year 21 we should be aware of? And then relative to the resegmentation, when we look at 3% to 6%, is that apples and apples? Are there any changes in corporate expense now allocated to the EU segment or the global service entity in Switzerland that

would impact the three to six percent yeah and so um there aren't any changes in the um in the corporate allocation and when we add um businesses like um mwi animal health and the consulting businesses to u.s healthcare solutions mwi has had a um has had a stronger growth rate, particularly in fiscal year 21, the animal health business really benefited from the pandemic and the increase in pet ownership. And so that has been a higher growth business in fiscal year 21, whereas the consulting business has been a lower growth business. And so I think that gives you a little bit of a, you know, a little bit additional color there. And then one thing that we are doing today is, As I said in my prepared remarks, we are filing in 8K where we'll show the segments that two new segments will show that on an historical basis for fiscal year 21 and how they look in in fiscal year 21. And I think you know, probably, you know, a key thing is that when we look at the US segment for this upcoming year, know three to six percent growth which is which is largely um apples to apples because of the you know the the size of the legacy business that are going into the new segment that's very helpful thank you and the next question will be from jalendra singh from credit swiss please go ahead thank you and good morning everyone uh so i was wondering if you could comment on the potential impacts from the recent changes coming out of washington

around Medicare negotiating drug prices among other components. With your leading presence in specialty products, how do you think about the implications as Medicare ramps up the number of drugs it is negotiating?

Yeah, thank you for the question. So, you know, the U.S. is, you know, I think somewhat over-fixated on the cost of medications relative to overall healthcare spending. You know, we've been very interested in benefit design And we also prefer it when the market creates their own solutions for problems, such as high co-pays for adherence products that are so detrimental to the system when a diabetic patient doesn't take the insulin. So we see some real strong benefits if we can remove some barriers that have been artificially created on products like that. You know, on specialty, it's a little bit too early to tell. I think, you know, we've been through many changes in reimbursement, including the change to ASP, you know, tremendous growth in the hospital outpatient market for specialty drugs. And, you know, the wholesalers are very resilient. And we also do believe that legislators understand that healthcare, you know, pharmaceuticals are the most efficient form of healthcare. So there's nothing that tremendously concerns us as a business. Our concern is always with preserving innovation and making sure that our providers have a stable reimbursement environment that they can continue to run their businesses and take care of patients. But definitely something we spend a lot of time and are not very interested in. Thanks for the question.

Thank you. And the next question will come from Kevin Caliendo from UBS. Please go ahead. Thanks.

Just in terms of the guidance, I just want to understand the capital deployment expectations. You gave us the share count. We understand that. Should we just assume that the vast majority of the free cash flow then will be to pay down debt? Or how should we think about it?

Yeah. And so, as we've said before, we do plan to down about two-thirds of the Alliance Healthcare acquisition debt by the end of fiscal year 23. We've started that process, so it's about $2 billion that we'll be paying down during that timeframe. We expect to pay down about half of that in fiscal year 22. And so that is kind of one of the the key parts of our capital deployment. We'll also, of course, continue to invest in the business and invest in current and future growth in fiscal year 22. Thank you.

And the next question is from Elizabeth Anderson from Evercore. Please go ahead.

Hi, guys. This is Eduardo on for Elizabeth. Just maybe given the Walgreens' new expansion toward becoming a provider of healthcare services, How do you envision your relationship with them evolving, and what can you do to support their new strategy?

Yeah, thank you. We're tremendously proud of the benefits we're getting from the recently announced Alliance transaction, including that we have a contract with Boots, who's become a very significant customer of our Alliance division through 2031. And most importantly, we extended our our Walgreens contract in the U.S. through 2029, and this is such a fundamental customer for us that helps us establish such a strong base of scale and efficiency. And I think the teams are at a very good stage where we're looking to how can we help with one another's priorities. We have these discussions with all our large customers, and the needs for the very large customers like Walgreens are very different than say, you know, the independent veterinarians, the community pharmacists. But, you know, over here, for example, we're supporting WPA with their central fill initiatives, and we're looking to understand better how we can help with their strategies on the institutional side. So, you know, I just would say that the relationship is in a good place, and, you know, we still go back to that 2013 agreement as being very fundamental to the success of AmerisourceBergen over the last decade.

Thank you. And the next question will come from Michael Cherney from Bank of America. Please go ahead.

Good morning, and thanks for the color so far. So if I could just circle back a bit on the Americas growth in the U.S. healthcare segment. As you think about the moving pieces, and I appreciate the collagen you gave so far relative to the market improvement, but in terms of the upside downside of the range, what do the macro factors have to look like to get to those numbers? And I'm more just curious because on an all-in basis, you have obviously been tracking higher than that and outpacing the rest of the market. And so whether antivirals are one component, but what else are the moving pieces that you think about in terms of what encapsulates the range on the U.S. segment?

Sure. And so, you know, one of the key things is something that I talked about in the prepared remarks and then also in an earlier answer, but I'll just quickly cover it again, given the scale, and that's the impact that COVID therapies could have. So that really impacts the range. And again, it was a... you know, 30 cents of benefit in fiscal year 21, and, you know, 14 cents of that came in the first quarter of fiscal year 21, and we're expecting that the benefit will be significantly less in fiscal year 22, but, you know, Steve talked about some of the innovation that's occurring. It could be higher, and so that's something that... you know, certainly could impact the range, and that would be one of the larger things. And then, of course, there's always a number of moving pieces in our businesses. We have very strong performing businesses, but there's moving pieces within the businesses in terms of growth rates. And then there's, you know, sorts of things that have also been mentioned, like some higher labor and transportation costs and how those trend. And so those are some of the things that impact us within the range. But I do want to say that we have a lot of confidence in the business, and we, you know, are expecting continued strong performance across the business because of our, you know, differentiated position and our, you know, strength both within, you know, pharmaceutical distribution and manufacturer solutions.

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.

Thank you, operator. It's truly been an honor to spend this hour with you highlighting a very successful 2021, which the management team is extremely proud of. We're also really proud of and appreciated the tremendous efforts of our associates. We enter fiscal year 22 with all of our businesses performing well. And we look forward to building on the success and momentum in fiscal year 22. Thank you.

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