Cencora, Inc.

Good morning and good afternoon everyone and welcome to the Amerisource Bergens Q2 fiscal year 2023 earnings call. My name is Emily and I'll be coordinating your call today. After the prepared remarks there will be the opportunity for any questions which you can ask by pressing start followed by the number one on your telephone keypads. I'll now turn the call over to our host Bennett Murphy. Please go ahead.

Thank you. Good morning, good afternoon and thank you all for joining us for this conference call to discuss Amerisource Bergens fiscal 2023 second quarter results. I am Bennett Murphy, senior vice president, head of investor relations and treasury. Joining me today are Steve Collis, chairman, president, CEO and Jim Cleary, executive vice president and CFO. On today's call we will be discussing non-GAAP financial measures. Reconciliation of these measures to GAAP 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 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 form 10k. Amerisource 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 will turn the call over

to Steve. Thank you Bennett. Good morning and good afternoon to everyone on the call. Today we will discuss Amerisource Bergen's fiscal 2023 second quarter results and how our execution against our strategic imperatives and thoughtful capital deployment position us to continue delivering long-term sustainable growth. In the second quarter we delivered strong financial performance with revenue growth of nearly 10% and adjusted EPS growth of 9%. Our performance reflects our team members focus on execution and ability to deliver differentiated solutions to our customers and partners. Additionally we continue to leverage our infrastructure and scale to increase efficiency and align our capabilities to our customers needs. This continued emphasis along with the fundamental strength of our business and balance sheet power our ability to continue investing internally and externally to drive our future growth. As part of our work to bolster productivity and efficiency we are leveraging our robust infrastructure to align our capabilities to commercial needs and optimize our organizational structure. Across the company our leaders and team members continue emphasizing collaboration to capitalize on our collective power as we adapt to an ever-changing landscape with a focus on preparing for future opportunities and growth while delivering on our goals of today. Continuously pursuing efficiency is vital in our business and in parallel Amerisource Bergen is executing and delivering strong performance. The fundamentals of our business remain strong as we continue to capitalize on opportunities provided by our pharmaceutical-centric strategy and capabilities. Our results continue to demonstrate the value of pharmaceutical-centric strategy, key strategic partnerships, leadership in specialty and comprehensive global commercialization services. Our leadership in specialty distribution is a key differentiator for Amerisource Bergen both with pharma manufacturers and with our downstream provider customers. Through our scale commercial expertise and deep understanding of the challenges providers face we are able to offer a comprehensive range of services including our GPOs, data analytics and technology solutions that help them manage effectively and devote more time to serving their patients. In addition leveraging our position at the center of healthcare we facilitate communication, education and knowledge sharing between providers, pharma manufacturers and key thought leaders through our extensive network. One example of this was our recent ion exchange meeting which brought together hundreds of our ion GPO members to participate in panel discussions addressing the complexities community oncologists face and provided them with valuable opportunities to connect with fellow physicians and other industry partners. Community oncologists are important partners for our business and community care is crucial for efficiency and quality in healthcare. As we continue to invest in and enhance our business we are committed to accelerating our growth and leadership in specialty by advancing oncology-focused practice solutions and services and continuing to lead with market leaders. Most recently we announced our agreement to invest in One Oncology, a network of leading community oncologists with 900 affiliated providers across 14 states. This investment will deepen and enhance our strong ties to community providers and One Oncology's practice management services are complementary to Maris Horsburgans existing capabilities in inventory management, practice analytics and clinical trial support. We know One Oncology and members well with many of the physicians serving as advisors to ion and with Maris Horsburgans having served many of these practices for over two decades. Our future plans for collaboration with One Oncology include opportunities for sharing key insights to enhance the value we are able to provide all our community oncology partners as we look to a future where data analytics and value-based contracting will play an even greater role in community oncology. The trusted relationships and legacy we have built within communities support our ultimate goal to create better patient experiences and outcomes across specialty classes and sites of care. Our commitment to our relationship goes beyond providing high quality dependable services every day. It also means that we are flexible and agile helping our partners navigate complexity to provide reliable access to pharmaceuticals. We invest and innovate to provide our partners with new technologies and resources broadening the scope and scale of our portfolio of capabilities. For example, WorldKorea recently enhanced its wide glove customer experience by adding real-time location monitoring on all multi-use packaging shipments setting a new standard for tracking in the pharmaceutical logistics industry. The ability to track and monitor the precise location of shipments in transit globally allows us to deliver superior service to our customers, proactively anticipate potential risks and ensure the secure and timely distribution of products. This capability further expands Amerisals Bergen's leadership in specialty logistics and positions us to be the partner of choice for innovative products in development and coming to market such as cell and gene therapies that often require the ability to monitor temperature and location in real time. Cell and gene therapies are an exciting new frontier for healthcare and pharmaceutical innovation and Amerisals Bergen is focused on evolving our solutions to help orchestrate services across the treatment development and patient journey. In April, we announced the launch of our cell and gene therapy integration hub, a new platform agnostic system offering cell and gene therapy developers support at every stage of product last cycle from clinical trial to specialty logistics services market access strategies and patient support services. While certainly in its early days, we understand how important it is for Amerisals Bergen to play a vital role in helping to advance innovation and access to these products. As we continue to invest in our business and differentiate our value proposition, we are applying our intellectual confidence to capture new opportunities for emerging trends and future innovation. For our upstream partners, we support a common goal of accelerating treatment time to market and maximizing product success. For partners big and small, we offer a unique comprehensive suite of services that supports customer needs, including deep expertise in specialty pharmaceuticals, an efficient and innovative approach to support products throughout the commercialization journey and a global footprint paired with local expertise including the US and European 3PL and global specialty logistics. Over the last year, we have detailed how we are well positioned to capture growth opportunities in the pharma services market, particularly with small and mid-sized bio-pharma manufacturers who are more likely to outsource key parts of the clinical development and commercialization process. According to a recent Acuvia report, these emerging bio-pharma companies are rapidly gaining share, having originated a little over two-thirds of new drugs in 2022 while representing two-thirds of the innovation pipeline. Importantly, these companies are increasingly launching products independently upon approval. In fact, nearly 70% of drugs originated by emerging bio-pharmaceutical manufacturers were launched independently in 2022. Our recently closed acquisition of PharmaLex enhances our portfolio of solutions to support pharma both large and small as they move through the development process. We are uniquely positioned to provide key solutions, including pharmacovigilance, regulatory affairs consulting, and clinical trial logistics to help accelerate time to market and support ongoing access across geographies. As these players increasingly manage the entire product lifecycle, a global footprint and comprehensive suite of free and post-commercialization services positions us to be their partner of choice. We continue to invest, partner, and build to ensure that we have the right capabilities in place to expand the reach of innovative therapies and transform patient access and support, all while positioning our business for future growth. As a purpose-driven organization, our future will be defined by our impact on our people, the environment, and communities in which we live and work around the world. In February, the earthquakes that impacted Turkey had a devastating humanitarian impact. Following the earthquakes, we committed funds to assist in local underground support and product donations, and the Maris Hulst Bergen Foundation provided a package of relief funds to our strategic nonprofit partners who have extensive experience in supporting disaster response efforts. Our associate assistance fund supported impacted team members based in Turkey by providing resources for shelter immediately following the earthquake, assistance to those who are hospitalized, and longer-term financial assistance for housing and crucial needs. Team members continue to support their colleagues in Turkey by taking advantage of our foundation's -to-one donation matching program, and I am proud of the work our teams have done to help one another in times of need. Our work to support access and equity is key to delivering on our purpose of creating healthier futures, and we are helping to build a community where everyone can thrive. We are collaborating and engaging with team members, partners, customers, and patients in our communities, working together with a shared goal of creating fair and comparable access. This means working to improve health access and equity in the communities in which our team members live and work. One such initiative is our pharmacy recruit solution, which is creating a program for community pharmacists to contact potential qualified patients and refer them to clinical trial sites for enrollment. We hope that this initiative will help reduce representation gaps that can exist in clinical trial research by leveraging the reach and trusted relationships of community pharmacies. These efforts are deeply aligned with our purpose, and we will continue to work to address the systemic barriers that exist within the healthcare ecosystem, reduce the disparities that disproportionately impact vulnerable communities, and empower more equitable health outcomes for patients. Driven by our purpose, powered by our team members, and fueled by the strength and resilience of our business, we continue to deliver value for all our stakeholders. Leveraging our foundation in distribution and our portfolio of complementary pharmaceutical-centric solutions, we create differentiated value for our customers and partners as a key connector at the center of the healthcare system. As we look forward to the remainder of the fiscal year, I continue to be inspired by the thoughtfulness and tenacity of our team members around the world who live our purpose each day. Now, I will turn the call over to Jim for a more in-depth review of our second quarter results and our updated guidance. Jim?

Thanks, Steve. Good morning and good afternoon, everyone. In our second quarter, Amerisource Bergen delivered strong financial performance as our businesses continued executing and delivering a differentiated value proposition to our customers and partners. Operationally, we are focused on increasing efficiency throughout the organization while continuing to prioritize growth and ensuring that we are innovating to support the needs of our customers across our business. Additionally, we continue to be focused on making thoughtful and strategic investments to power our long-term growth, supported by our strong balance sheet and free cash flow generation. Before I turn to our second quarter results, as a reminder, my remarks today will focus on our adjusted non-GAAP financial results, unless otherwise stated. For a detailed discussion of our GAAP results, please refer to our earnings press release. Turning now to our second quarter results, Amerisource Bergen finished the quarter with adjusted diluted EPS of $3.50, an increase of nearly 9% over the prior year quarter. This solid growth was driven by strong performance in our U.S. Healthcare Solutions segment, which more than upset the gross profit headwind from lapping the peak of COVID-19 therapy contributions in the prior year. Good operating performance in our International Healthcare Solutions segment, which helped to offset some of the foreign exchange rate pressure, and a lower share count due to our opportunistic share repurchases during the past year. Our consolidated revenue was $63.5 billion, up 10%, driven by growth in our U.S. Healthcare Solutions segment, and offset by a slight decline in our International Healthcare Solutions segment, which was negatively impacted by foreign exchange rates and the divestiture of pro-pharma specialty in June 2022. On a constant currency basis, consolidated revenue grew 11%. Consolidated gross profit was $2.4 billion, up 6%, due to growth in both segments. Consolidated gross profit margin was 3.71%, a decline of 13 basis points due primarily to lower COVID treatment contributions and mix in the quarter. Consolidated operating expenses were $1.4 billion, up 9%, due to higher distribution selling and administrative expenses. As expected, our -over-year operating expense growth rate slowed sequentially from the first quarter. As we have called out previously, in the second half, we will lap the inflationary pressures that began in the prior year, March quarter. We will see operating expense growth slow significantly, particularly in the fourth quarter, due in part to incremental expense management actions taken, which put us on track to have a more normal growth rate in the -single-digit percent range for the full year. We continue to focus on leveraging our existing capabilities and scale to create efficiencies, while also investing in our talent and growth initiatives to drive long-term sustainable growth and value creation for all our stakeholders. Consolidated operating income was $932 million, an increase of approximately 2% compared to the prior year quarter, or up 4% on a constant currency basis. Our operating income growth was driven by solid performance in the U.S. Healthcare Solutions segment, which offset currency-related pressures in the International Healthcare Solutions segment. I will discuss more detailed segment-level business drivers when reviewing segment-level results. Moving now to our net interest expense. For the second quarter, net interest expense was $64 million, an increase of 21%, which was anticipated and we indicated would occur on our February earnings call. For the remainder of the year, we would expect quarterly net interest expense to be similar to this quarter. Turning now to income taxes. Our effective income tax rate was 19%, compared to 21% in the prior year quarter. We expect our effective income tax rate to be towards the lower end of our range of 20 to 21% for the fiscal year, with higher tax rates in the next two quarters. Turning to diluted share count. Our diluted share count was 204.3 million shares, a .6% decrease compared to the second quarter of fiscal 2022, driven by share repurchases we completed over the last 12 months. Regarding our cash balance and free cash flow, we ended the quarter with approximately $1.5 billion of cash. In the quarter, we repaid the remaining $675 million of short-term debt related to the Alliance healthcare acquisition, fulfilling our commitment to the ratings agencies to pay down two-thirds of the acquisition debt within two years of closing the acquisition. For the first six months of the fiscal year, adjusted free cash flow was $1.1 billion and we remain on track to achieve our adjusted free cash flow guidance of approximately $2 billion for the fiscal year. This completes the review of our consolidated results. Now I'll turn to our segment results for the second quarter. U.S. Healthcare Solutions Segment Revenue was $56.7 billion, up approximately 11% for the quarter, with broad base growth across our customer base, including sales to our largest customers and sales of specialty products to physician practices and health systems. This growth was moderated by a decline in sales of COVID-19 treatments versus the prior year quarter. U.S. Healthcare Solutions Segment Operating Income increased by .6% to $756 million, driven by growth in specialty and across our distribution businesses as utilization trends continued to be strong. Additionally, in the quarter, we had good results in our animal health business, which is in line with the normalization that we foreshadowed on our February earnings call. As a reminder, the U.S. Healthcare Solutions Segment is lapping the March 2022 peak quarter for COVID-19 treatment contributions. Taking a step back, if you look at the segment -to-date, for the six months ended in March, U.S. Segment Operating Income was up .6% to the first half of 2023 versus the first half of 2022, if you exclude COVID-19 treatment contributions from both periods. I will now turn to our International Healthcare Solutions Segment. In the quarter, International Healthcare Solutions Revenue was $6.8 billion, down .2% on a reported basis, or up 12% on a constant currency basis. The as-reported decline reflects the divestiture of pro-pharma specialty and unfavorable foreign exchange rates compared to the prior year quarter. International Healthcare Solutions Operating Income was $176 million, down approximately 6% on a reported basis, driven by a decline at Alliance Healthcare due to the divestiture of pro-pharma specialty, which represented 3% of segment-level operating income in the prior year quarter. The decline was offset in part by strong growth at World's Courier and the contribution from PharmaLex in the quarter. In the quarter, World's Courier continued to perform well as the business saw good trends and demand for international shipments. On a constant currency basis, the International Healthcare Solutions Segment delivered 7% operating income growth. That completes the review of our segment-level results. I will now discuss our updated fiscal 2023 guidance expectations. As a reminder, we do not provide forward-looking guidance on a GAAP basis, so the following metrics are provided on an adjusted non-GAAP basis. I will also provide certain guidance metrics on a constant currency basis. Full details of our fiscal 2023 guidance can be found on pages 8 and 9 of our earnings presentation on our Investor Relations website. Starting with revenue, we are raising our consolidated revenue guidance to a range of 6% to 8% growth to reflect the strong revenue growth we saw in the first half of the year in the U.S. Healthcare Solutions Segment and favorable currency movements in the International Healthcare Solutions Segment relative to our prior guidance. We now expect revenue growth in the U.S. Healthcare Solutions Segment to be approximately 7% to 8% or towards the higher end of our previous range of 6% to 8% growth. In the International Healthcare Solutions Segment, we are raising our as-reported revenue guidance to a range of a 3% decline to flat up from our previous expectation of a 1% to 5% decline. Moving to operating income, we are raising our consolidated operating income guidance to a range of 2% to 4% growth from the previous range of 0% to 3% growth to reflect the strong core performance in the U.S. Healthcare Solutions Segment. In the second quarter, COVID-19 treatments contributed 11 cents to our consolidated EPS with about 9 cents in the U.S. and 2 cents in the International Segment. COVID treatment contributions in the quarter were slightly higher than our expectations, bringing our total contribution to 23 cents for the first half of the year. And we now expect the contribution from COVID-19 treatment distribution for the full fiscal year to be around 30 cents compared to our previous expectation of 25 to 30 cents. We expect the small remaining contribution to be in the U.S. Segment. On an as-reported basis, we are raising our U.S. Segment operating income growth to be in the range of 3% to 5% up from our prior range of 1% to 4% to reflect the continued strength and execution of our core business. Given our expectations for the core U.S. business, we are increasing our guidance for U.S. Healthcare Solutions Segment operating income growth, excluding COVID, to be in the range of 6% to 8% an increase from our previous expectation for growth of 5% to 7%. This metric reflects the core performance of our U.S. Segment, which represents roughly 80% of our consolidated operating income and helps provide visibility beyond the diminishing transitory contributions from distributing COVID treatments. Finally, we now expect weighted average diluted share count to be approximately 205 million shares, down from our prior expectation of approximately 206 million shares due to lower than anticipated dilution to date. As a result of these updates, we are raising our full-year diluted EPS guidance to a range of $11.70 to $11.90, up from our prior range of $11.50 to $11.75, representing growth of 6% to 8% on an as-reported basis, or 11% to 13% excluding COVID-19 treatment contributions. Before I turn to my closing remarks, I would like to provide a brief update on how Amerisource Bergen is working to help advance ESG initiatives across our industry. Recently, we partnered with the International Federation of Pharmaceutical Wholesalers and ICUVIA to develop an industry ESG framework. In this framework, we leveraged our experience, reach, and relationships to help support pharmaceutical wholesalers aligning on and advancing key ESG initiatives. Through this framework, IFPW members share best practices on key topics, including environmental stewardship, human capital management, and health equity. We look forward to continuing to collaborate with the IFPW to move this important initiative forward. In closing, Amerisource Bergen has a strong track record of execution and performance. We have delivered strong performance in the first half of our fiscal year, and our updated fiscal 2023 guidance reflects the continued strength and resilience of our business. We are well positioned to continue deploying capital internally and externally to advance our business while being good stewards of shareholder capital. I want to thank our purpose-driven team members and leaders for their strong execution and commitment to efficiency, growth, collaboration, and innovation to help create differentiated value for all our stakeholders. Now I'll turn the call over to the operator to open the line for questions.

Operator. Thank you. If you would like to ask a question today, please do so now by pressing start followed by the number one on your telephone keypad. If you change your mind and would like to be removed from the queue, please press start and then two. When preparing to ask your question, please ensure that your device is unmuted locally. Our first question today comes from Lisa Gill with JP Morgan. Lisa, please go ahead.

Thanks very much. Good morning. First, Steve, I want to say congratulations on this one oncology deal. I think it's a great deal for Amerisource Bergen, but I want to focus my question on an area that we've been writing about, and that's really about the diabetes and insulin market. Can you remind us how the change or the price cut on insulin will impact you as a drug distributor? And then how do I think about new drug classes like GLP1s that are substantially more expensive? Are they creating an opportunity and are you seeing that come through your numbers that we saw that were so strong in the US distribution component?

Hi, Lisa, and thanks for the question. So let me start off with the insulin pricing. So Amerisource Bergen and our industry will be in the forefront of discussions with manufacturers and stakeholders. The current fee for service model obviously is based off the list price or the WAC price and provides transparency for the industry, including manufacturers and distributors. So as these products change the pricing, and we understand there have probably been no products that are more high profile, that are more important to patient care in terms of the chronic nature of the diabetes condition. And with the high list price and the heavily rebated products, we anticipated that there could be changes. For us, we will try to preserve our economics. We do have an ability to negotiate on the fee for service basis with the manufacturers. And I think everyone in the industry recognizes that the requirements and the expectations for distributors are becoming even more profound. If you look at the drug security and pedigree changes that are coming into place, the high inventory demands, a much more difficult environment in terms of interest rates. I think our role has never been clearer. I was at NACDS last week, got to meet with all sorts of customers. And we should never take for granted the basic financing, inventory and shipping functions that we do. Those are incredibly important to the health of our customers and our patients. The second part of your question was on the new class of products, sometimes called the GLP-1 drugs, as I noticed the category we're talking about. I think it's just really important for us to follow the prescription dollar. We have done that, whether it's selling gene therapies or specialty oncology drugs, ophthalmology drugs. And this category is the class of trade is mainly retail. We're well represented in that class through both retail order customers and even more specifically through large customers like Walgreens. So we will keep our market share, which is very impressive somewhere in north of 30% region on these products. And it's just another example of how innovation in healthcare and new products are going to help drive a marital organs growth and fundamentals. So thanks for the question.

Our next question comes from Elizabeth Anderson with Evercore. Please go ahead, Elizabeth.

Hi guys, thanks so much for the question. I guess my question would be, just in terms of as we think about the back half of the year, is there some reason that you guys are currently forecasting that you wouldn't see the typical step up in utilization and sort of quarter? Other than that, given your sort of year to day performance, it seems like you guys might be tracking ahead of that. So I just wanted to make sure I understood that. And then secondly, can you just talk about sort of any of your early learnings from the Pharma Elect acquisition now that it's sort of closed and you guys have had it under, owned it for a few months now? Thank you.

Yeah, great. I will start off and I'll talk about the back half of the year. And then I'm sure Steve will want to talk about our positive experience we've had thus far with the Pharma Elects acquisition. In our guidance, we're implying strong performance in the back half of the year. And as we talked about during the call, during the prepared remarks, we increased our adjusted operating income guidance in the US ex-COVID from a 5% to 7% growth to 6% to 8% growth for the year. And really what's driving the back half is the same sort of things that drove this recent quarter where we performed very well. We're seeing strong US core growth, particularly ex-COVID. We're seeing utilization trends that continue to be strong. We're seeing broad base growth across our customer base, including sales to our largest customers and sales of specialty products to physician practices and health systems. We also saw good results in our animal health business this most recent quarter. And so it's those sorts of things are driving the continued good performance in the second half. We're also, as we said during the prepared remarks, we're expecting for off-ex growth to slow during the second half. And we're also expecting some better effects in the second half where it was a headwind in the first half. We're expecting it to be a slight tailwind in the second half. So those are some of the things that are driving the good performance and the increase in guidance. And with that, I'll turn it over to Steve to talk about PharmaLex.

Yeah, thank you for the question on PharmaLex. We're very proud of this acquisition. I think it really highlights the Maris Halsberg commitment to being in the markets. We serve a global commercialization solutions provider. And I think the leadership under Bob Mausch that is really focused on the integration of this acquisition are doing an outstanding job. Most recently, there were a continuation of the planning meetings with both the UK and German teams to incredible markets, important markets for that team. I think just getting to know Maris Halsberg and getting to know our different offerings, getting to understand what World Korea does and ExCenda does, for example, has been key learnings for their team. And we are impressed with the quality of the teams and their positioning within the channels and are very interested in helping them grow and develop the business. Initially, I think organically and in future perhaps through looking at expansions of both lines of service as well as geographic lines. Just to remind the audience that services that PharmaLex provide fall under four main segments, development consulting, regulatory affairs, pharmacovigilance, quality management and compliance. These are areas that we think will be critically important to the future of the small and medium companies. Of course, the larger companies as well. But as we highlighted in the scripts, we are focused on providing additional services to that category of customers. And that's traditionally where PharmaLex has been highly successful. And we expect to only invest and behind that theme. And we just so far so good. I'm proud of the way that our team has really embraced this acquisition. And I think it's also part of the reason why Sincora is going to be a very good strategic name change for a company as we look to the quarters ahead.

Our next question comes from Eric Pertsha. Our next question comes from Eric Pertsha with Neffron Research. Eric, please go ahead.

Thank you. Thank you. I wanted to follow up on the question that ran to insulin and GLP ones. And my question is a little bit on the give and take. First, on the insulin or any other products that we see lower prices in front of the AMT cap sunset. I know you've had experience with mass factors in having renegotiated over the last three or four years and earning a fair fee. So I'd love to hear any analogs that you could provide on the ability to ensure that you continue to receive similar economics. And then on the GLP ones, our understanding is that a lot of the pharmacies are going to be low or no margin products. You need to give a little there to help the independents in particular as they see increases in volumes of GLP ones.

Yeah, you know, thanks for the question, Eric. We don't really get into individual product economics. I think one of the things that I think has worked for our industry over time is that we really do provide a portfolio of customers. There's no customer that I'm proud of that we provide in one or two single products to. We like to provide all the products. And I think that's also the value proposition we offer to manufacturers is the knowledge that we have of all classes of trade and truly unique to the U.S. market, as you know, and probably to me, that's one of the strongest fundamental drivers of the U.S. market. Having said that, you know, our current people service, as I said, provides transparency. We've, you know, we have got certain rights in the event that there's a change in economics to negotiate with those manufacturers. And, you know, I think these are some of the manufacturers that we work with literally for decades. We're in the first fee for service generation of contracts. And I think they understand that our economics need to be strong and solid and we need to offer good returns to our investors. And so these are respectful discussions with changes in business conditions. We expect, you know, we're not new to reimbursement change affecting market prices. And, you know, again, we think that overall this is a benefit to patients. And at the end of the day, if it's benefiting our constituencies, it'll benefit Ameriswold's bourbons. So I don't have a tremendous amount of concern about any of these things. Jim, anything you'd add?

Steve, I would just emphasize the point that you were making earlier that, you know, the value we provide in the supply chain and the services we provide are, you know, just highly justifiable.

Thank you. Thanks, Eric. Next question, please.

Our next question comes from Erin Wright with Morgan Stanley. Please go ahead.

Great. Thanks for taking my questions here. So on the international side of the business, can you speak a little bit more about what you're seeing in terms of underlying demand trends, underlying utilization across that wholesaling business? And then on World Courier, can you give us an update on fundamental demand too across that customer base? Have you seen any volatility there and where are we at now in terms of integration across Alliance and its ability to work with the higher growth areas such as World Courier?

Thanks. I can start off and maybe Jim can add in some trends. I just would say that in Europe, you know, it's been very resilient. There's nothing that I would report as surprising. Of course, you know, Turkey is a big market for Alliance and that's got a little bit more economic dependencies based on the economy and inflation. But, you know, our core European markets are very stable. I'm actually looking forward. I'm going next week to visit a bunch of the countries for the first time and very much looking forward to that trip and learning more. You know, but demand remains solid. As you know, the winter was better than expected in terms of the energy, you know, shortfalls and deficits that were anticipated. And our markets have been performing very well. We continue to, you know, engage with regulators. You know, for example, in France, we're looking at how do we help with a switch to doing more specialty in pharmacies in the community setting. Those are the sort of initiatives that really get us excited how to do more at the retail setting and how to even service some of the hospital settings through changes in manufacturer contracting, et cetera, looking at our logo business. Those are key initiatives for us. World Korea is just, you know, is just a tremendously high performing asset. We continue to, I think, lift the bar on innovation. Literally, I'd say, you know, and I've tried to be fairly modest, but I am incredibly proud of the work that, you know, our companies do. And World Korea is just foremost amongst that. You know, they, every time I get on the phone with them, I'm so impressed with the dedication, the professionalism, the innovation and this is truly the best of an acquisition that, you know, we have completed. We took a very good private company that was well resourced in a way that had a great footprint. And we've just made it, I think, so much better professionalized management, really invested in the systems. And, you know, this is a sort of thesis that drove also, I'd say, our large investment. So, we're tremendously proud of the World Korea. And of course, it's been part of Amerisalsburg for 11 years now. Jim, anything you'd add on pricing trends?

Jim Kimmich Sure, I'll just say that we had, you know, very good operational performance internationally during the quarter. You know, revenue was down .2% on an as-reported basis, but up .9% on a constant currency basis. And operating income was down .9% on an as-reported basis, but up .3% on a constant currency basis. And, you know, please keep in mind that in this quarter last year, we had pro-Farma specialty in the numbers also, which has since been divested, which contributed 3% of the segment operating income last year. As Steve said, one of the key drivers this quarter was performance at World Korea. And we are seeing, you know, as Steve was saying, you know, like good workings and synergies between World Korea and Loga at Alliance. And now, PharmaLex is getting involved with that. And so there's good opportunities there. And we're also, from an administrative standpoint, seeing good shared services opportunities between the business. And of course, as we've called out before, some very good tax synergies between the businesses as we become a more global company. So thank you for the question.

Ours next question comes from Charles Rhee with TV Cohen. Charles, please go ahead.

Yeah, thanks for taking the questions. Just wanted to follow up on PharmaLex real quick. You see, you talked about the, you know, the opportunities to work with small and medium biotech companies. There's been obviously a lot of discussions regarding sort of the biotech funding window. Any comments on, you know, what you're seeing in the market right now and what kind of feedback you're receiving from your clients as it relates to this? And just to follow up on one oncology, you mentioned before the potential for value-based contracting. Can you go into that a little bit more? Is that something where you're looking to take risks in certain situations? And how would that look exactly? Thanks.

Yeah, yeah, let me quickly do the one oncology question first, because it's, I appreciate getting that opportunity. Look, we are not, first of all, they will be an independent business entity. Our point is that we have a lot of experience, particularly through our ION network, of managing analytics and helping aggregate data on behalf of members. One oncology really will take it a step further. And we're saying that the future, the professional and, you know, clinical requirements to be in the community and to be serving cancer patients is only going to be increased. The bar is going to be lifted. So, you know, investing in this new model, we think can benefit, of course, one oncology and the two partners. That's TPG and Marisol's Bergen, but also the physicians who run the business, many of whom we've known for over two decades. These are very successful professional and business people. And we want to help use that expertise to deepen our relationships with community oncologists. So if you think about a Marisol's Bergen right now, we have the distribution business, we have the ION business, and potentially this is a third way for us to be involved and participate in the market. So, I would say that on the biotech and the funding, you know, our business gets really impacted by long term trends. I am convinced and I think everyone in the life sciences business should be that there are incredible investment pieces that make sense for, you know, venture capital and all other forms of capital to invest behind. We're only getting smarter. I think areas like, chat GPT are going to enhance, artificial intelligence are really going to enhance the drug discovery process. It's going to enhance the ability to share information. I think there are trends of cooperation between a lot of the countries that Marisol's Bergen serves that could help also facilitate launching of drugs. And, you know, I just think it's a tremendous time to be in this industry. And we've talked a lot on this call about the GLP-1 class of drugs. I mean, could be incredibly promising. Of course, we all know, you know, some good stories here about people who've been pre-diabetic and have been literally, you know, their clinical pathway has been altered by this. So, you know, tremendously excited to be a part of this. And I think Marisol's Bergen is really of the scale, sophistication and knowledge base that we can help truly make a difference in patients' lives, which is part of our purpose. Jim, anything you'd add?

I think that covers it, Steve. Thanks.

Yeah. And, you know, just one thing, if we look at Marisol's Bergen, a lot of the work we do, even at companies like Formlex, it really doesn't start in phase one and two. You know, fortunately, we're more in the phase three side. So, I think that's just another point that Bennett wanted me to make. Got to give the investor guys some credit here. Next question, please.

Our next question comes from Michael Cherney with Bank of America. Please go ahead.

Good morning. Thanks for taking the question. Jim or Steve, in the press release, you noted how some of the strength in the quarter was from your two largest customers. I guess maybe it juxtaposed that. Can you give us an update on what you're seeing on the smaller customer side, where your dependents are focused with you? And if at this point in time, given macro worries, if there are any other services that you've either started to provide or other opportunities where you can help and support them as they work to sustain and manage their businesses?

Yeah.

You know, I would say kind of a key thing about the quarter and is just how broad-based the results were, particularly in the U.S. business. And we called out sales to largest customers and we provide details on that in the queue. And we did see our two largest customers have quite good growth in sales. We also called out, as we frequently do, increase in sales of specialty products to both physician practices and health systems. But just those are just two things that we called out. I think probably the key thing on this quarter in the U.S. is just how broad-based it was. And that would include strong performance in independent pharmacies also. And then, as I said earlier, a very good quarter in the animal health business. And I think Steve has a couple of things he wants to follow up on. Yeah.

I mean, the community pharmacists, it's quite incredible how well they hold up. And I think in a way that, sure, in the initial days of COVID, I think there was a trend towards people and may all have more market share. But this marketplace really supports all sorts of pharmacy solutions. Definitely, I think the role of the vaccinations in the pharmacies has been a good example of pharmacists practicing at the top of their scale. And we continue to see our pharmacy customers gain inroads and preserve their market share. And in fact, I think most of our payer customers, when we look at our elevate network, recognize that they have an important role to play. We try to get, as we pointed out in the script, community pharmacists to play even a role looking for clinical trial participants, patients that could participate, particularly in disaffected communities, communities that don't often participate in trials. So it's just an exciting time to do this kind of work. It's an exciting time for our customers. We have our trade show coming up over the summer. And I know that engaging with those folks always just makes us excited about how they're looking at their patients, their communities and what they can do to serve. Also, I would say our oncology business, which is comprised largely of independent oncology practices, continues to thrive and I think will only be strengthened by the continued commitment that we show to the sector. And I think that's the message to our customers on why we're investing in One Oncology as one of the lead investors. Thank you. Next

question, please. Our next question comes from Steven Valakett with Barclays. Please go ahead, Steven.

Thanks. Good morning, everybody. So I also have just a couple of questions here on One Oncology. Yeah, I guess first just to confirm a couple of things on the structure. I guess it's not clear. Will the new JV with TPG consolidate the total practice revenues generated from the 900 affiliated providers, whereas the revenue in the JV more derived from some sort of advisor fees or just some cut of the practice where I just want to get a sense for how much of true ownership there is of the affiliated providers? And then question two, just thinking about the synergy potential, it wasn't clear, is ABC currently the primary drug distributor to the majority of the roughly 900 affiliated practices? Or do your competitors have a large or material share of that distribution that under your ownership you could theoretically shift to yourself? I just want to get a sense for that too.

Thanks. Yeah, One Oncology is technically an MSO, so they get management fees and then they offer some benefits of centralization. They have focused on leading practices across, you know, they're in several geographies. And Oncology Supply has been the lead distributor for almost all the practices. It's possible that some of the practices may not be fully integrated and using one of our competitors. But as you know, if you exclude One Oncology, the Maris Bergen share of community oncology is pretty high. So, you know, we would anticipate that as they bring new practices in that we would, you know, benefit from that. But no, we are the primary distributor to One Oncology. Jim, add something.

Yeah, Steve, I'll just follow up. And, you know, the deal is structured as a joint venture. And we do not own the practices nor consolidate the revenue, as Steve was saying. And of course, it's a JV between Maris-Orsberg and TPG and One Oncology's affiliated practices and positions. And upon closing the deal, we'd expect to have an initial ownership stake of approximately 35% in the joint venture with TPG and the One Oncology practices and positions, owning the remaining 65%. And we currently intend to account for the investment after closing under the equity method of accounting and our share of the joint venture's income or loss would be recorded in other income and included on our adjusted operating results. Thank you.

Next question, please.

Our next question comes from Daniel Grosslight with Citi. Please go ahead.

Hi, thanks for taking the question. I'm sure we'll get more details in the queue on this, but apart from the expected normalization, what drove animal health strength this quarter? And how is companion versus production trending?

Yeah, it was a good quarter for the animal health business. And, you know, we signaled three months ago during our earnings call, but that's what we expected is a normalization of the business. And there was 6% revenue growth and it was a good revenue growth in both companion animal and production animal during the quarter. You know, we feel there probably are still some staffing pressures at vet clinics weighing on visits, but we felt good about the 6% growth and it was comparable growth rates in both companion animal and production animal. And I think importantly, we saw solid trends exiting March.

Thank you. I will now take the final question,

please. Thank you. Our next question comes from George Hill with Deutsche Bank. Please go ahead, George.

Hey, good morning, guys, and thanks for sneaking me in. Just a quick one on 340B. There's been a lot of manufacturer pullback in the 340B space. I'm wondering if you guys have seen impacts either yourselves directly through your relationships with health system providers or even though you caught up the strength in your largest customers, kind of any impact on your largest customers. And Jim, I thought maybe you might just remind us kind of what percentage of the core drug business is exposed to kind of doctors and health system providers as opposed to pharmacies and other what we would consider regular retail locations.

You know, we don't really comment on it. I mean, obviously, the general trend is that 340B is growing. Amerisource Burgundy is growing in our health systems business. It's an important customer segment for us. I think, you know, a couple of years ago, we were, you know, lagging a bit in market share and we've really been able to enhance the theme in the health system segment of growing market leaders. We have, you know, I think good relationships with the hospital GPOs and with other, you know, key providers and continue to participate where it makes sense in RFPs. Probably this is the sector where there's more RFPs because of the contractual relationships. And, you know, a lot of hospitals are in the $500 to $400 to $700 million range per annual volume, which wouldn't be big enough for us to comment on an individual basis. But there's pretty, you know, every few months we participate in a large hospital where it makes sense for us to participate. I would say on 340B, you know, we follow the market. Obviously, some of this historically had hurt some of our part B business as it went into health systems. I think we've been very effective at servicing, you know, both classes of trade and being objective providers. I think often, you know, this channel, you know, the source of channel conflict can largely be dismissed and, you know, objectively by being a fair provider and really being transparent about what your different strategies are. And so we don't really over-focus on this and just follow that prescription dollar. And I think that's been the best strategy for us, George. So I see we're a little bit past 930. So I just want to say how proud Jim and Bennett and I were to record this quarter. It's a tremendously strong second quarter for AB. I think really enhances the theme of us making the right sort of capital deployments. Our acquisitions that we've made recently continue to track very well. And I think it adds hopefully to our reputation of solid execution and building on our strengths. We are excited to have One Oncology join our family of companies in a way, through the investment that we've made. And, you know, just in summary, I would say that Amerisource Bergen as a purpose-driven company and futurely as Encora is very well positioned for long-term growth and will offer our shareholders a differentiated term. Thank you very much.

Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.