Cencora, Inc.

Good morning or good afternoon and welcome to the Amerisource Bergen Corporation fiscal 2022 second quarter earnings call. My name is Adam and I'll be your operator today. If you'd like to ask a question during the Q&A portion of today's call, you may do so by pressing star one on your telephone keypad. I will now hand you over to Bennett Murphy, Head of Investor Relations, to begin. So Bennett, please go ahead when you're ready.

Thank you. Good morning, good afternoon and thank you all for joining us for this conference to discuss Amerisource Bergen's fiscal 2022 second quarter results. I am Bennett Murphy, Senior Vice President of Investor Relations. Joining me today are Steve Collins, Chairman, President, CEO, and Jim Cleary, Executive Vice President and CFO. On today's call, we're discussing non-GAP financial measures. Reconciliation of these measures together are provided in today's press release, which is available on our website at .amerisourcebergen.com. We've also posted a slide presentation to accompany today's press release on our investor website. During this conference call, we'll make four looking statements about our business and financial expectations on an adjusted non-GAP basis, including but not limited to GPS, operating income, and income taxes. Four looking statements are based on management card expectations that are subject to uncertainty and change. For discussion of key rates and assumptions, we refer you to today's press release and our SAP guidelines, including our most recent 10K. Reconciliation is no obligation to update any four looking statements. In this call, 10 of you broadcast out the express permission to accommodate. You have an opportunity to ask questions after today's remarks by management. We ask that you look at your questions to one participant to work for us to get to as many participants as possible within the hour. With that, I turn the call over to Steve.

Thank you, Bennett.

Good

morning and good afternoon to everyone on the call. Before we discuss our results for the quarter, I want to provide a brief update on opioid related litigation. As previously disclosed on April the 2nd, the comprehensive settlement agreement to settle a substantial majority of opioid lawsuits filed by state and local governmental entities became effective. 46 of 49 eligible states, as well as the District of Columbia and all the eligible territories, as well as over 98% of eligible subdivisions in the states, agreed to participate in the settlement. Additionally, we have reached an agreement for a settlement with the state of Washington that is consistent with the state's allocations under the comprehensive settlement agreement. That brings a total number of states settling opioid related claims to 47 of 49 eligible states. We are encouraged by this progress and we look forward to providing further updates as they become available. Turning now to our second quarter of fiscal 2022, I am excited to discuss our results and the continued progress we are making on our strategic imperatives. During the quarter, revenue was up 17% over the prior year to $58 billion. Adjusted operating income increased by 30% and adjusted EPS grew by 27%. Our exceptional results reflect continuous positive momentum across our business as we deliver high levels of execution and capitalize on the strength of our differentiated value proposition, including our broad set of leading capabilities, deep customer relationships, innovative manufacturer solutions, and expanded global footprint. In the US, our leadership and specialty continues to differentiate. Our robust distribution capabilities, portfolio of preeminent customers, and integration of innovative solutions allows us to serve both manufacturers and providers, meeting their unique needs while providing a vital connection to help improve patient outcomes and access. To better take manufacturers and providers, we recently launched an enhanced digital dashboard offering, a new world-class three-way digital portal that streamlines core specialty GPO processes, improves data accuracy and availability, and enhances transparency. With real-time data at their fingertips, manufacturers gain visibility into market trends, and providers are better able to streamline their operations. This is yet another example of how our teams are embracing their intellectual confidence and leveraging our data and analytics capabilities to move the industry forward, building upon our strong legacy of creating solutions and services that meet the unique needs of our partners. In addition to our continued efforts to enhance our solutions portfolio, our manufacturer services teams have been realigned to streamline our contracting and engagement with biopharmaceutical manufacturers with the goal of forming broader and more robust relationships. With our ability to offer a full suite of market-leading capabilities, from market access and distribution to patient access and adherence, we are uniquely positioned to be a key partner for biopharmaceutical manufacturers and providers. Our prominence and market presence have uniquely positioned the MaraSource program to leverage our platform and capabilities to support the global response to the pandemic, and we are proud to have played a central role in supporting pandemic efforts globally. Our contributions have included providing specialized logistics services, facilitating access to testing, and distributing millions of doses of vaccines in over 30 countries across four continents. In the U.S., we have worked with government and manufacturer partners to distribute COVID-19 antibody and antiviral therapies, including the oral COVID treatments, where we have also supported services that pharmacies have provided to their communities throughout the pandemic, including education, testing, and vaccinations. In fact, our Good Neighbor Pharmacy Network recently allocated its 5 million COVID-19 vaccine doses as part of the federal retail pharmacy program for COVID-19 vaccinations. Since February of 2021, Good Neighbor Pharmacy has helped more than 1600 independent community pharmacies in 45 states, Puerto Rico, and Guam to participate in this federal program. We actively support continued patient access to care provided by pharmacists, including pandemic-related services that have helped to keep communities safe and advocate for expanded provider status to keep communities healthy over the long term. Increasingly important providers of family and community care are those who care for our pets. In our animal health business, we are similarly building on our relationship with veterans to help them access the pharmaceuticals, health care products, and supplies they need to serve their patients. We work side by side with veterinary practices to automate and streamline processes to improve their efficiency,

enabling

them to maximize time spent with patients and improve outcomes. Our NWI Easy Care program, for example, helps veterinary practices improve access and adherence to their pet patient's preventative care plans while introducing automation to remove the burden of administrative and marketing processes. By offering standard-setting technology solutions in both the companion animal and production animal health markets, such as imagery management, light-feeding technology, and enhanced tracking capabilities, we are uniquely able to capture the growth opportunities that we have in the care as the human-pet connection continues to strengthen and as the global demand for protein continues to grow. Turning to our international business segment, we delivered another quarter of growth as we maintained our strong momentum. Our -in-pledge global specialty logistics services business remained focused on supporting manufacturers with global clinical trials and on ensuring temperature-sensitive shipments arrive on time and at the right temperature. Our specialty supply chain services team supported partners across the healthcare landscape by providing -to-end transport solutions that enhance supply chain efficiency and allow customers to focus on bringing life-changing treatments to patients around the world. Our teams at Alliance Healthcare provided high levels of execution and leveraged their local expertise to further deepen customer relationships, provide innovative solutions to customers and partners, and support the global pharmaceutical supply chain to improve patient access and outcomes. As we continue to work to integrate systems and teams, we expect to find more opportunities to work together and capitalize on the full power of our combined platform to provide value-added solutions to stakeholders and capture the substantial growth opportunities we see ahead. As we move into the second half of 2022, we remain focused on carrying this momentum forward and building on our core strengths by advancing our strategic imperatives of meeting with market leaders, leveraging our infrastructure to increase efficiency, access, and the customer experience, investing in innovation to further drive our differentiation, expanding on our leadership and specialty, and contributing to healthier outcomes around the world. Our global base of key anchor customers and our strategic partnership model has allowed us to integrate ourselves into our customers' operations and deepen our relationship with market leaders across the healthcare supply chain. With our portfolio of innovative solutions, extensive industry knowledge, world-class teams, and a forward-thinking innovative mindset, we are able to form long-term relationships as we help our customers navigate the healthcare challenges of today and anticipate the opportunities of tomorrow. Our strong customer relationships are supported by expansive and market-leading infrastructure, which helps us facilitate patient access wherever a prescription is needed and to improve efficiency across the pharmaceutical supply chain. Since the onset of COVID, we have demonstrated the value of our differentiated operating model and our vital role connecting key stakeholders across the healthcare system. From supporting government preparedness for current and future potential pharmaceutical needs to ensuring health equity and vaccine access globally, I remain inspired by the way our team members have adapted, collaborated, and innovated to support patient needs. Innovation remains an important element in our ability to respond to the rapidly changing healthcare environment and to support the advancement of our customers' businesses. In keeping with our commitment to innovation, we recently established a venture capital fund through which we will support all of our ideas globally in areas such as the future of pharmacy and distribution, clinical development and commercialization of pharmacy costs, and practice solutions for healthcare providers and veterinarians. We are excited to formalize a process of leveraging our deep expertise and broad networks of relationships to support all thinking companies as they identify innovative solutions that can benefit Amerisource Business partners and the patients they serve. The venture capital fund is another example of our continued efforts to enhance and grow our platforms across healthcare channels. Sometimes that conduit is best served by partnering with smaller entrepreneurial companies to help them reach their full potential. Importantly, our venture capital fund was invested in companies that amplified the innovation themes I have been discussing today. While Masuditall Innovation is advancing at an exceptionally rapid pace, particularly in the specialty and cell and gene market, where we continue to differentiate ourselves as the market leader. During the quarter, we, along with our partner, FactCell, the leading innovator of cellular orchestration solutions, unveiled an integrated technology platform designed to accelerate patient access to prescribed cell and gene therapies and to deliver complete visibility throughout the treatment journey. The platform increases connectivity between patient services and providers, resulting in a seamless and timely exchange of benefits and eligibility information that expedites patient enrollment and support, ultimately helping patients start on therapy sooner. This partnership is an example of how we are leveraging the full breadth of our strength and specialty to create innovative solutions for patient access to promising new therapies. By offering different chatty solutions for pharmaceutical innovators, we further our position as a key pillar supporting global pharmaceutical innovation. As a global healthcare solutions leader, we leverage our expanded footprint, our expertise in all phases of pharmaceutical development, and our investments across the pharmaceutical supply chain to contribute to positive pharmaceutical-driven outcomes. This work is called to our purpose and who we are as a company. As an organization, we are 42,000 purpose-driven team members, united in our responsibility to create healthier futures. Our team members perform inspiring work every day, and we are focused on supporting their continued growth and development within the Marisos program. We know that to empower our team, we must operate with transparency and greater culture that values diversity, inclusivity, and belonging. Our recent disclosures reflect our focus on transparency. We provide enhanced human capital disclosures in our most recent 10K, and we have separately disclosed our EEO1 report. In our most recent global sustainability report, we disclosed our gender pay gap in the United States, which revealed that for every dollar male employees are paid, female employees in the Marisos program are paid 99.4 cents. We are proud of this statistic that demonstrates that what we believe about our culture and the way we respect and value our team members is being validated by more extensive data insights. As a further reflection on both my personal dedication and the Marisos program's united commitment to advancing equal gender rights and opportunities, I was honored to sign the CEO's Statement of Support for the United States nation's Women's Empowerment Principles in March. We believe management and our board's commitment to a diverse, inclusive, and equitable culture is working, and look forward to continuing to share our progress on our diversity, equity, and inclusion initiatives. One of the ways we have identified to further our progress is in assisting credible efforts to improve health equity in our communities. For example, the Marisos Birkin Foundation has been a long-standing partner to the National Association of School Nurses to optimize student health and learning by advancing the practices of school nursing. Recently, we expanded upon our support for education by sponsoring a supply chain elective course at Xavier University of Louisiana's College of Pharmacy, a top-ranked, historically black university, and a top educator of black pharmacists in the country. By investing in tomorrow's diverse healthcare leaders, we are making a meaningful impact in promoting inclusivity and equity in our communities. We invite you to visit our Global Sustainability Micro-site and ESG Reporting Index to view the data, strategies, and stories representative of our diverse and inclusion journey. As a purpose-driven global organization, we are also closely tracking global events and their impact on the communities where we live and work. The conflict in Ukraine is a sobering continuation of the challenges of the past period, and I think daily of our colleagues who are facing it. Teams within our business and our global business resilience organizations are in active communication to do everything possible to ensure the safety of our colleagues on the ground in Ukraine. Our Associate Assistance Fund, which supports team members facing financial hardship due to events outside their control, has provided financial assistance to the Ukraine-based team members as well as team members around the world while supporting immediate families in the conflict zone. Team members from 29 countries and counties are stepping up to provide financial support to help address the humanitarian crisis in and around Ukraine through our Matching Gift Program. Additionally, the Marisols Birdman Foundation has provided financial donations and our business program is providing product donations to support both human and animal health in the region. We join organizations from around the world in our hope for a timely and peaceful end to the conflict. At the same time, I find strength and confidence in the fact that our organization has never been better positioned to positively impact our communities and that we are living our purpose. As we continue to be united in our responsibility to create healthier futures, we are holding on our strong momentum across our business and delivering on our strategic priorities to further strengthen our relationship with our customers, advance global pharmaceutical innovation, and enhance our differentiated value proposition. I am thankful and grateful for the commitment and performance of our 42,000 purpose-driven team members who help our partners and customers navigate the increasingly complex and evolving global health care landscape. Marisols Birdman is a global health care solutions leader that is focused and executing to advance pharmaceutical innovation and access to create a positive impact on the health of people and communities around the world. We move into the second half of our fiscal year with significant momentum and are well positioned to continue creating significant long-term value for our shareholders. Now I will turn the floor over to Jim for a more in-depth review of our second quarter 2022 results and to discuss our updated financial guidance. Jim? Thank you,

Steve, and thank you all for joining us on today's call. Before I turn to my results as usual, my comments will focus primarily on our adjusted non-GAAP financial results. Growth rates and comparisons are made against the prior year of March quarter. For more details on our GAAP results, please refer to our earnings press release. Marisols Birdman delivered exceptional results in our second quarter as our pharmaceutical-centric strategy continued to drive strong performance across our business. Our long-term leadership and specialty and commitment to delivering innovative solutions for our partners continue to be key differentiators in our fundamental long-term strategic comparatives. Our purpose-driven team members have worked diligently to support our stakeholders, which has driven our strong results. Turning now to our second quarter results, Marisols Birdman finished the quarter with adjusted diluted earnings per share of $3.22, a 27% increase with strong operating income growth in both our U.S. segments. Consolidated gross profit increased 47% to $2.2 billion as a result of increases in gross profit in both segments. Gross profit margin grew by 76 basis points to .84% driven by the Alliance Healthcare acquisition and the increase in the U.S. income growth increased by $806 million as a result of higher distribution, selling, and administrative expenses and depreciation expense primarily due to the Alliance Healthcare acquisition. Consolidated operating income was $917 million, up 30%. The increase was driven by operating income growth in both segments, which I will touch on in more detail when discussing segment-level results. Turning now to interest expense and the income tax rate, net interest expense was $53 million in the quarter, an increase of 53% due to an increase in debt related to the Alliance Healthcare acquisition. Our effective income tax rate was 21% compared to .9% in the prior year quarter. Our diluted share count increased .3% to 212 million shares as a result of dilution related to employee compensation and the June 2021 issuance of 2 million shares to Walgreens Boots Alliance in connection with our acquisition of Alliance Healthcare. Regarding free cash flow and cash balance, adjusted free cash flow was $951 million for the first half of fiscal 2022. We ended the quarter with $3.5 billion in cash, including $500 million of restricted cash on our balance sheet. In the quarter, we repaid our $250 million term loan prior to its maturity date in line with our commitment to the rating agencies to pay down two-thirds of the debt issued to acquire Alliance Healthcare. As a reminder, we committed to pay down $2 billion in debt within two years of closing the acquisition, and we are well on track to achieve this debt pay down by March 2023 ahead of schedule. This completes the review of our consolidated results. Now we'll turn to our second quarter segment level results. Starting with our US Healthcare Solutions segment, segment revenue increased by .8% to approximately $51 billion driven by a broad increase in sales across our portfolio, including growth and sales as specialty position practices, offsetting an over $300 million decline in sales of commercial COVID-19 therapies. Revenue from US Human Health was $49.8 billion, representing growth of 5.8%. Revenue from our Animal Health business was $1.2 billion, up .9% year over year, as many veterinary practices were closed or had limited hours in January, carrying into February due to COVID-related staffing issues. The animal health market continues to have good fundamentals supported by high levels of pet ownership and spending and increasing global demand for protein, which we expect to be enduring trends in the coming years. Segment operating income was $730 million, representing growth of .4% versus the second quarter of fiscal 2021, driven by the important work we are doing to distribute COVID treatments and good performance across our businesses. Our Manufacture Solutions businesses rebounded during the quarter, in line with my commentary from last quarter's earnings call. Our Human Health distribution businesses continue to benefit from prescription growth across the market, underscoring the resilience and importance of our industry. The segment also benefited from our important work supporting COVID therapy distribution across the country, which meaningfully contributed to our strong growth and margin expansion. US Healthcare Solutions segment operating income margin increased seven basis points in the quarter, primarily due to these earnings relating to the distribution of government-owned COVID treatments. As it relates to the COVID therapy impact on the quarter, the contribution was higher than previously expected for the quarter and contributed $0.22 to EPS, resulting in a $0.15 tailwind over the prior year quarter. We viewed the -than-expected contribution in the second quarter as a pull forward. Our full-year expectations for COVID contribution are generally unchanged. For fiscal 2022, we are estimating the contribution from COVID treatments in the US to be around $0.60 for the full year. We are working closely with a variety of stakeholders to ensure the treatments reach areas where they are most needed and are encouraged by efforts to make them more accessible, especially if that supply improves. I will now turn to our International Healthcare Solutions segment. In the quarter, International Healthcare Solutions revenue was $6.8 billion, including $5.6 billion in revenue from Alliance Healthcare and high teens growth for the balance of the International Healthcare Solutions segment. Segment operating income for the second quarter was $187 billion, up 261% on a reported basis. Alliance Healthcare has continued its strong performance, and like the rest of Ameriforce Bergen, the pharmaceutical-centered nature of the business positions it well to continue delivering solid operating performance. The strong team at Alliance Healthcare continues to impress with their ability to operate through challenges in the region. In addition to the solid performance and execution, the collaboration between our teams globally continues to impress and positions us well to capitalize on long-term synergy opportunities going to market with differentiated global solutions. The strong results in the quarter for the International segment in the face of significant foreign exchange pressure as well as supply chain cost pressure are a testament to the resilience of the business and underscore the importance of our pharmaceutical-centric strategy. This completes the review of our segment-level results. Now I will turn to our updated fiscal 2022 guidance. As a result of our strong performance in the first half of our fiscal year and to reflect continued momentum in the second half, we are raising our fiscal 2022 adjusted UPS guidance from a range of $10.60 to $10.90 to a new guidance range of $10.80 to $11.05, reflecting growth of 70% to 19% from the prior fiscal year, resulting from the increase in our expectations for full-year consolidated operating income. In the U.S. Healthcare Solutions segment, we are increasing operating income guidance to be in the range of $2.42 billion to $2.48 billion, representing growth of 7% to 10%. As I said earlier, the U.S. Healthcare Solutions segment operating income includes around a $0.60 full-year contribution from COVID-19 treatment distribution, which is generally in line with the COVID treatment expectation we had embedded in last quarter's guidance. The increased guidance for the segment is a result of the continued operating strength and resilience of businesses in the segment, which has been on full display throughout the pandemic. Turning now to International Healthcare Solutions, there is no change in our full-year guidance for that segment, despite the significant foreign exchange pressure caused by the relative strength of the U.S. dollar. Let me take a moment to highlight a few of the key items that impact the comparison between the first and second half. First, our guidance contemplates that the dollar remains strong in the second half of our fiscal year. Our international healthcare segment's businesses are performing well, including Alliance Healthcare, which is performing above expectations that are original budgeted foreign exchange rates. Assuming exchange rates in the month of April continue for the second half of the fiscal year, the foreign exchange impact on our actual dollar results for the full year would be north of $80 million when comparing expectations versus constant currency, meaning using the prior year exchange rates. And with April exchange rates, we would expect to finish closer to the bottom of our segment guidance range. Second, while the dollar has been a headwind, favorable manufacturer price adjustments this quarter in one of our developing market countries have more than offset the negative impact of the decline in value of local currency. Third, the vaccination support work being done by Inamar in Canada and Alliance Healthcare in Europe is expected to contribute around $0.10 to our fiscal 2022, with almost all of it having already occurred in the first half of the fiscal year. Inamar's partnership with FedEx to support Canadian vaccination efforts has been important work and represents a small portion of that $0.10. Alliance Healthcare has played a significant role in the European COVID response across its footprint, distributing vaccines and COVID tests to pharmacies and other sites of care throughout Europe. We expect the contribution from this activity to largely subside in the second half as COVID-19 moves away from the emergency phase of the pandemic. The contribution from this important work has largely offset supply chain cost pressure in the first half. Finally, we received regulatory approval on our sale of pro-pharma specialty in Brazil, which we called out on the November earnings call. The business contributed over $0.04 to the international segment in the first half of fiscal 2022. Overall, in the International Healthcare Solutions segment, we believe it is impressive that we are able to reiterate the full year actual dollar contribution from the segment in spite of the substantial foreign exchange pressure. Without the negative impact of foreign exchange, we would be raising our full year guidance for International Healthcare Solutions segment operating income. As a result of the increase in our US Healthcare Solutions operating income guidance and results in the International Healthcare Solutions segment largely mitigating the foreign exchange headwind, we are raising our expectations for consolidated operating income growth to be at least in the high teens percent range, up from growth in the high teens percent range. This includes approximately 70 cents of consolidated benefit related to our work supporting COVID-19 treatment and vaccine distribution across our footprint. Before I conclude my prepared remarks today, I would like to briefly touch on one of our ESG initiatives. The importance of business resiliency has become more clear than ever as the world around us continues to change and become more complex. Maintaining resilient and stable operations is a key focus as we navigate environmental challenges and fulfill our vital social role. To ensure the safety and stability of the pharmaceutical supply chain, we maintain robust business continuity practices that include monitoring for potential threats that could impact our business such as climate related and geopolitical events. This work, supported by the outputs of the physical risk assessments of our complications, enables strong continuity plans to support our critical role of delivering life saving medications every day. In closing, I have been and continue to be inspired by the strength and resilience of our business and the value created by our team members, robust partnerships, innovative solutions and pharmaceutical centric strategy. We are well positioned to continue thriving sustainable long term growth and to deliver on our purpose of being united in our responsibility to create healthier futures. Thank you for your interest in Amerisforce Bergen and I will now turn the call over to the operator to begin our Q&A. Operator?

Thank you. As a reminder, if you'd like to ask a question today, please press star followed by one on your telephone keypad now. Our first question today comes from Elizabeth Anderson of Evercore. Elizabeth, please go ahead. Your line is open.

Hi, guys. Thanks so much for the question and all the color on the quarter. I guess in terms of I heard what you said about the contribution from COVID therapies in the quarter and the sort of unchanged expectations for this full year and seeing that as a pull forward. Can you maybe in a little bit more detail talk us through the other puts and takes as you sort of see things progressing in the back half of the year?

Thanks. Yeah, sure. Thanks a lot for that question. And I'll start out by saying that we're really pleased that we're able to increase full year guidance of three key metrics, consolidated operating income and US healthcare solutions segment operating income and EPS. And also note, as I said, that we would be increasing our operating income guidance, the international healthcare solutions segment, if not for the negative impact of foreign exchange. And, you know, the reasons for the increase in guidance were the stronger than expected performance in several businesses. The, as I said, the increase in FY22 guidance is not due to the important COVID treatment distribution work that we're doing. It's that contribution from COVID product distribution was higher than expected in the second quarter, but we view that as a pull forward and our full year expectations from COVID product distribution are largely unchanged. Around 60 cents in the US and 10 cents internationally. So 70 cents on a consolidated basis, which was about what we were expecting three months ago when we provided guidance a few months ago. And so what we're seeing in US healthcare solution segment is an increasing guide due to broad based performance across several businesses. And we expect that to continue, notably specialty physician services, prescription growth across our businesses and the recovery in manufacturer solutions. So those are three kind of key components that enabled us to increase guidance and we'd expect strong performance to continue there. In international healthcare solutions, there are a number of moving pieces that I mentioned that impact guidance. Importantly, we talked about the impact of FX and the strong dollar. And besides that, at north of $80 million on a constant currency basis, our guidance assumes that the April FX rates hold for the balance of the year. And so that's a moving piece. You know, I noticed that we benefited from a manufacturer price adjustment in a developing country. And for the full year, that price increase fully offset the decline in value of that local currency. In international, as I mentioned, we have 10 cents of COVID product benefit, most of which occurred in the first half of the year. And then also one thing impacting our international guidance is the sale of pro-farmers specialty in Brazil, which contributed four cents in the first half of 2022. And I think talking about international, a key point to make about our international segment is that it's performing better than expected at the initially budgeted FX rates. And you finally mentioned COVID contribution. And I think we've been very transparent about the COVID treatment contribution and we'll continue to be transparent with that. It contributed about 22 cents in the second quarter, 32 cents in the first half, and 60 cents for the full year is our expectation. All these cents are for the US. And kind of the way that we come up with that estimate is for each product, we estimate the full year volume, calculate the full year contribution, their significant volume from government owned antivirals. And we assume that most are distributed. We're not factoring in all the volume that we expect to receive by the end of September, but we assume that we distribute most of that by the end of September. So those are some of the key assumptions that go into our guidance, some of the key moving pieces, and will continue to be transparent both in the US and internationally in terms of the contribution from COVID products. I think the most important takeaway is that overall we feel very good about our momentum and guidance increase, which is driven by stronger than expected performance across several businesses.

The next question comes from Lisa Ginn from JPMorgan. Lisa, please go ahead. Lisa Ginn from JPMorgan, your line is open. Please ask

your question.

Good morning. Thanks for all the detail, Jim. I just want to go in a little bit deeper on a couple of things that you talked about. One, when you talked about specialty to the physician office, are you seeing uptake in biosimilars and is that helping to drive the profitability? Secondly, we've heard some rumblings around some product shortages on the generic side. Clearly China shut down once again. Are you seeing any type of inflationary environment on the generic side that that's helping to drive the numbers at all? And then just lastly, when you call out the 70 cents, how do you think about that for 2023? Are you calling that out for us? So do you think it repeats itself in years going forward or should we think about that as a one time here in 2022?

Okay, so there are I think three things there. Biosimilars and then I think drug pricing and then kind of the 70 cents on COVID therapies and what we would expect for that for the future. So, you know, in biosimilars, it's, you know, clearly it's been benefiting us and our specialty businesses and particularly our specialty physician services businesses. And we expect there to be continued growth and benefit there. Biosimilars, as we've mentioned, particularly in that part of the business, are a profitable part of the business for us with strong margins. And so the trends and benefits that we're seeing there are quite positive and we'd expect it to be enduring. With regard to drug pricing overall, and I think your question was mostly around generics, there's really nothing new to call out. Overall, the deflation rates are relatively in line with the last couple of years. We expect that to continue throughout our fiscal year. From a supply and demand standpoint, supply and demand dynamics remain generally imbalanced. And as we talked about, a really important point is that our business model is not as reliant on generic pricing as it once was in the past. Our leadership team has done a very good job of rebalancing contracts to have balanced profitability across the portfolio of pharmaceuticals, including brand, generics, and specialty to make sure we receive fair compensation and all those areas. So really kind of nothing new to call out on the pricing side. And then with regard to the 70 cent benefit from COVID products, of course, 60 cents of that is COVID treatments in the U.S. and 10 cents of that for this fiscal year is international vaccines and other products. We just wanted to be really transparent to call that out and will continue to be transparent in future quarters in 2022. And I would expect in 2023, you know, calling out what our COVID treatment benefits are. And it's something that is, as you can imagine, and it was to a large extent beyond our control. And so it's hard to predict what the volumes are going to be next year. And so that's one of the reasons, Lisa, why we continue to be transparent in giving the specific numbers.

The next question is from Charles Ray from Cohen. Charles, please go ahead. Your line is open.

Yeah, thanks for taking the questions. If I could just follow up, you know, Jim, on the COVID, at least in U.S. healthcare, if we think about the remainder of the 60 cents, I think you did about 10 cents in the first quarter. We talk about the 22 cents here. Is that more weighted here into the June quarter or are you thinking about it more evenly through the rest of the year? And was the benefit mostly in January? I think Omicron really peaked in January and then really kind of tailed off. What are you seeing here? And how is that demand given that when you look, testing volumes have been falling, you know, even though as cases rise a bit, you know, there's not as much people finding out whether they have COVID or not. You know, how does that impact how you get treatments out to folks? Thanks.

Yeah, great questions. So you're absolutely right in the numbers. We made 32 cents in the U.S. from COVID treatments in the first half of the year, which was 22 cents, the most recent order. And 10 cents in the first quarter and our expectation is 60 cents for the year. As we look at volumes in the back half of the year, a significant amount of the volume is the government-owned antivirals, which have become increasingly available. And we did see good volume. You asked about the month of January. We did see good volume during the month of January during Omicron. But as the antivirals have increasingly become available and there's, you know, actions to increase access for those products, you know, we would kind of expect to see sales throughout the year. And our current estimates are that, you know, it's not like it's weighted towards the third quarter or the fourth quarter. It's roughly equal in both the quarters. And I think Steve has a couple comments he wants to make.

Yeah, thanks for the question. So, you know, as has been well documented, COVID case counts have fallen since the winter when there was a high number of cases and very limited supply of oral treatments. Amerisource Birken stands ready to distribute treatments where they are most needed. Pharmacies and other care providers have recognized the value of stocking these oral products and their long shelf lives. And effectiveness against new variants has been helpful in driving demand and awareness for the products. And we are encouraged by efforts announced by the administration to make it easier for patients to access these treatments, including expanding test and treatment initiatives at pharmacies. And Good Neighbour Pharmacy has been very helpful in assisting their pharmacists in the critical roles in the community. So, as we said, we've accredited many of our members and we are very enthusiastic about the role for community pharmacy in combating the next phase of the pandemic. Next

question. The next question is from Stephen Valiquette from Barclays. Stephen, your line is open. Please go ahead.

Great. Thanks. Good morning. So, just regarding the success over the past year or two of your physician-related GPO operations, is there any update on the or change on the percent share of the per unit economics that are flowing to ABC from the specialty drug procurement you're doing for your physician customers? Or is it status quo on the profit algorithm? And also, is that contribution still growing meaningfully year over year? I just want to get a little more colour around that.

Thanks. Yeah, Steve, we're kind of all scratching our heads here. No. So, definitely, you know, there's more oral products, of course. You know, there's more cell and gene therapy treatments. There's, of course, personalized medicine treatments coming in into oncology. But, you know, our proposition for physicians remains very consistent. You know, our market share, we are with a lot of the leading companies. We have tremendous presence with a lot of these aggregated companies. We've been working with Amerisource Bergen. Often before they became aggregated, the formative platform oncology practices have been, in many cases, our customers for a long time. And one or two cases came back just as a really intensive extension of growth plans. We should definitely mention Biosimilars, which has been helpful for our customers' mix, our mix, and our important creative headroom for new products to come to market. And certainly have been very influential. ION has been very influential in helping a physician adopt it and patient adoption of those products. So, you know, we also are expecting our part B business to keep growing. It's not only in oncology, but in our basic medical, which does the non-oncology physician-administered products. There's strong growth trends in all those segments. Jim, anything you'd add? I think that covers it well, Steve. Okay. Thank you.

The next question is from Eric Parcher from NAFRA Research. Eric, your line is open.

Thank you. I want to expand on the question relative to COVID ongoing benefits. And so I appreciate that you're giving us exact detail on the impact. Are you giving that in part because the expectation is that the impact going forward is likely to head toward zero? Or what are your thoughts on, you know, post an emergency period, if we see products perhaps that you've represented moving back into the channel and vaccines becoming part of the channel, what is the COVID impact potentially material moving forward?

Yeah. So let me take a first crack at that. The reason why we're being so transparent, Eric, is because to a large extent it's beyond our control. Of course, we play a really important part in the supply chain and doing the logistics and providing the access. That's certainly under our control. But in terms of the operating income contribution, it's something that is more difficult to predict than many aspects of our business that we've been planning for years. And so we've provided the 70 cent benefit, 60 cents, which is the treatments in the U.S. specifically because it is a number that is kind of harder to predict for next year. And so we want to be very specific in calling it out. I would expect that in all aspects of COVID, it's going to be something that has an impact and we're going to be playing an important role for many years to come. But it's just a little bit difficult to predict what the profitability is going to be from it, for instance,

in fiscal year 2023. The next question is from Eric Coblo from BED. Eric, please go ahead. Thank you very

much. My question, I feel like I'm already going to stumble over it before I start. There's a fair number of moving pieces with international, but I just want to confirm you have an incremental 80 million profit headwind from international due to FX. You're going to sell pro-pharma, which will have an additional modest headwind to profit at some point in the second half. At the same time, there was a one-time favorable manufacturer adjustment that partially offset those headwinds. And overall, you're maintaining guidance. What I'm trying to get to is what is the net EBIT headwind you're eating between the three items, FX, manufacturer price increase, one-timer, and pro-pharma sell? What is the net headwind you're eating to maintain the annual guidance for the full year?

And so again, let me give you some of the component parts. As I said, our assumption in guidance is that the April FX rates hold for the balance of the year. And that's, if we look at that on a constant currency basis, it would have an impact that's worth of $80 million on a constant currency basis. And so that causes us to indicate that while we're maintaining guidance range, that causes us to be at the low end of our guidance range. The manufacturer price increase, which was in Turkey, the impact that that has for the full year is that that price adjustment fully offsets the decline in the value of the local currency. And then specifically with regard to pro-pharma, that contributed about $0.04 in the first half of fiscal year 22. And we expect that transaction to close this month, Eric. And so those are some of the component pieces. The fact that if we're not for FX, we would be increasing guidance in our international segment, and that the international segment is performing better than initially budgeted expectations at initially budgeted FX rates.

The next question is from George Hill from Deutsche Bank. George, your line is open. Please go ahead.

Good morning, guys. And I'm going to follow up Eric's question on another question from International. I guess particularly in manufacturer solutions, could you talk about what specifically is driving growth in international manufacturer solutions? And I'd be interested if you could comment on how the profit mix has changed between the core regular way wholesaling business in Europe, which we think continues to be under pressure versus profit streams that are derived from providing services to manufacturers. Thank you.

Yeah, sure. So that's one of the things

that really attracted us to Alliance is the high-margin, higher-growth businesses. For instance, the Aloha business is a very strong free PL business in many parts of Europe. And so just like Amerisworth, Oregon, kind of our largest business is the wholesale distribution, and we have market leadership there, but it's really strengthened by these higher-margin, higher-growth businesses. And also in international, of course, we have the World Courier business, which is a very strong business doing logistics for drug trials. So we do see very good opportunities, and that's one of the kind of synergy work streams that we're actively working on, is, for instance, World Courier and Aloha and things we can do together to make our offering even stronger. So I guess probably kind of the key point to make is these higher-margin, higher-growth manufacturer solutions businesses. They're a key part of our international strategy and something that we would expect to continue to grow. And that's one of the things that, you know, if you look at our recent performance, as we've been focusing on that, and after we've made the Alliance acquisition, it's one of the things that's been enhancing our gross profit margin and our operating income margin.

And just generally, I would add that Alliance Healthcare is performing well. We continue to be very impressed and I think are very compatible culturally with their management team. And, you know, we're getting to know all the countries well. We're slowly getting to visit all the countries or at least meet with the management teams. So, and as Jim mentioned, some of the greatest energy opportunities we have are looking at the manufacturer services area. Obviously, Amerisource Bergen has a lot of interest in health systems and especially products. So, and also, I think in Europe, you're going to see some changes in where products get administered, and sometimes we can help facilitate that change. You'll also see us be very involved in lobbying, looking at advancing the role of community pharmacy and advancing the role of wholesalers like Alliance Healthcare in the communities where we're serving, in the countries where we're serving. So, it's been a great add from, for our overall portfolio. I think, you know, a lot of the staff people that you don't get to speak to on these sort of calls, other than, you know, Jim and myself, are tremendously engaged in the cultural integration and looking at all sorts of benefits to streamline and make the business even stronger within Amerisource Bergen, which is already a strong business, as I said.

The next question is from Michael Chaney from Bank of America. Michael, your line is open. Please go ahead.

Good morning, and thanks for the questions. I know you had touched base, sir, there's some questions around the pricing dynamic. You mentioned the comments relative to drugs and inflation. I'm curious what you're seeing on some of the cost sides on inflation, whether it's your own wage employees or, in particular, some of the dynamics on the shipping side and freight. Is there anything either that you saw in the quarter or vacants the guidance outside the norm of expectations relative to wage inflation, wage pressure, logistics, pricing, inflation pressure, anything that you can point out to us?

Yes, you know, what I'll say is that higher labor and transportation costs, they continue to be embedded in our guidance, and they have been embedded in our results the last couple quarters. Amerisource Bergen is impacted by higher labor and transportation costs, but less so than most businesses because of the value density of our products. And so, you know, we are certainly seeing it and experiencing it, as all businesses do now, but it's something that we're able to manage, and it's fully reflected in our guidance, and I think that our teams are doing a terrific job of managing these costs.

So that will wrap up our Q&A for today. We are very proud to reflect these results, to report these results, which reflect our strong momentum as we finish half of our fiscal year 22. Amerisource Bergen is really relishing our role as a global healthcare solutions leader that is clearly leveraging our commercial strength and intellectual confidence to continue to deliver on our promise and on our purpose and to continue to create long-term value for all of our stakeholders. Thank you for your attention today, and we'll look forward to further discussions with many of you.

That is intense, but this concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.