McKesson Corporation

Good day and welcome to the McKesson Q4 earnings call. Today's call is being recorded. At this time, I would like to turn the call over to Holly Weiss. Please go ahead, ma'am.

Thank you, Ebony. Good morning and welcome everyone to McKesson's fourth quarter fiscal 2019 earnings call. Today, I'm joined by Brian Tyler, our Chief Executive Officer, and Britt Vitilone, our Chief Financial Officer. Brian will lead off, followed by Britt, and then we will move to a question and answer session. Today's discussion will include forward-looking statements such as forecasts about McKesson's operations and future results. Please refer to the cautionary statements in today's press release and our slide presentation and to the risk factor section of our periodic SEC filings for additional information concerning risk factors that could cause our actual results to materially differ from those in our forward-looking statements. During this call, we will discuss non-GAAP financial measures, additional information about our non-GAAP financial measures, including a reconciliation of those measures to GAAP results, is included in today's press release and presentation slides and is also available on our website at investor.mckesson.com. With that, let me turn it over to Brian.

Thank you, Holly, and thanks, everyone, for joining us on our call. Today we're going to focus on our fiscal 2019 results and our outlook for fiscal 2020. Britt will cover our financial performance in greater detail, But first, let me take a couple of minutes to discuss some of our important accomplishments and why we are so confident in McKesson's future. During our fiscal 19, we saw increasing momentum in our strategic growth initiative, including priority areas that focused on manufacturer value proposition, specialty pharmaceuticals or biopharma services, and the expanding role of retail pharmacy in community health services. all this supported by our ongoing investments in data and analytics. We also continued to optimize our operating model to improve our cost position and the overall speed and effectiveness of the organization. We recently renewed our CVS agreement. This follows a renewal of our Rite Aid agreement and a two-year extension of our Veterans Affairs agreement earlier in the year. We believe our strong value proposition and superior service quality were critical to allow us to continue supporting the success of these customers, and we are very pleased to continue these longstanding partnerships. We made several changes to strengthen our leadership team, including the promotion of Kirk Kaminsky as president of our U.S. Pharmaceutical and Specialty Solutions segment, the promotion of Kevin Kettler as the president of our Europe segment, and the hiring of a new leader for our U.K. business. More recently, we appointed Tracy Faber as our Chief Human Resource Officer to succeed George Figueredo upon his retirement later this year. In our medical business, we acquired Medical Specialties Distributors, or MSD, which has, among other things, expanded our value proposition with manufacturers and brought specialty infusion capabilities and services. It is progressing in line with its business case. and Change Healthcare filed its S-1 with an intention to complete an IPO, market conditions permitting. In terms of overall performance for the quarter, I'm pleased with our adjusted EPS of $3.69, up 6% versus the prior year, driven by solid execution across multiple businesses. And for the year, we were able to deliver results that were in line with our expectations outlined at the beginning of the year. Our fiscal 2019 adjusted earnings of $13.57 represents 8% year-over-year growth. Despite the challenging industry environment we faced in fiscal 2019, as a company, I'm pleased with our results. We have scaled businesses in many good markets, and we're a critical resource to providers in the community care setting. Through our 80,000 associates acting together, we successfully delivered for our customers executed and took decisive action to position McKesson for success over the long haul. Looking forward now to fiscal 2020. Our fiscal 2020 outlook for adjusted earnings of $13.85 to $14.45 per diluted share represents low to mid-single-digit percentage year-over-year growth. This outlook reflects solid growth across our operating segments, a continuation of disciplined, efficient capital deployment, investments in the business, increased costs for opioid litigation, and modestly improved UK results. I would remind you that this guidance is inclusive of our organic growth and our strategic growth initiatives. Britt will cover this in more detail. I'll now touch on developments in each of our businesses during the past year, which provide the platform to delivering on our expectations. which provide the platform to delivering on our expectations. In our European pharmaceutical segment, we experienced sizable U.K. government reimbursement cuts, which we have previously discussed. and we took additional actions this quarter to further rationalize our footprint and back office operations in Europe. Overall for Europe, we anticipate revenue to be growing by low to mid-single digits, driven by market growth with no incremental U.K. cuts contemplated in our Fiscal 20 Guide. In medical-surgical, we delivered another year of solid growth across all of our customer channels, and we are well positioned to support the growing alternate site markets. The acquisition of MSD and our investments in home delivery help us meet the needs of the patient wherever it suits them and further supports our growth in this segment. For the medical segment, we expect to deliver revenue growth in the high single-digit range for fiscal 2020. Now, turning to other, which primarily comprises McKesson Prescription Technology Solutions, or MRXTS, Canada, and our investment in Change Healthcare. MR-XTS is a fundamental part of our strategy to improve health care, one patient, one prescription, one partner at a time. We're excited by innovative solutions like RX Benefit Clarity, which provides transparency around prescription pricing at the point of prescribing for any medication and all payers. Physicians and patients are excited about this tool, and a fast-growing number of them, currently over 100,000, benefit from information provided they can really use to make timely decisions. We believe we can do much more to improve transparency for patients and to improve adherence by enhancing the ability of patients, pharmacists to collaborate with their prescribing physicians. In Canada, we made significant progress to mitigate the impact of government actions as we move through fiscal 2019. Our Canadian retail presence, combined with Well.ca, which by the way was recognized by Forrester as the number one digital retailer in Canada in 2018, provides patients with another channel to connect with us, and we've been piloting our future retail pharmacy concept that evolves the patient experience, which is currently being expanded to more sites. We also announced a collaboration with Google Cloud that will enable us to accelerate how we leverage our data to develop insights and predictive capabilities that that will support better patient outcomes and reduce waste. In combination, we expect other to deliver flat to low single-digit revenue decline for fiscal 2020. We remain confident in McKesson's path forward, the critical role of the services we provide to the healthcare industry today, and our ability to identify and apply solutions to address the most pressing challenges to healthcare systems globally. In particular, we have a scaled presence across important community care settings, including community pharmacies, specialty providers, oncology, alternate sites, which are all critical to addressing the nation's cost, quality, and access challenges. Before I wrap up, I want to take a moment to share a perspective on the evolving drug pricing reform landscape and opioid litigation. Given our broad capabilities and the multitude of customers and channels that we serve, our sometimes referred to 360-degree view of the supply chain. We've been actively engaged with the administration, Congress, and industry stakeholders to provide thought leadership on a range of proposed policy changes. The breadth and depth of our enterprise-wide assets provide the platform for developing new solutions that can help the industry adapt. Our MRXTS, or our pharmacy technology business, has been investing in real-time benefits tools and cost transparency solutions for patients, prescribers, and pharmacies so they can make informed choices about the cost of therapy. As we move towards a world potentially without rebates, our manufacturer partners and pharmacy customers are interested in exploring new and innovative operating models. We're committed to being part of that solution. We have differentiated technology capabilities that can help move a solution forward, leveraging our retail health pharmacy switch and the assets and capabilities like our chargeback platform in our wholesale business. Our unique experience and value-based programs, such as the oncology care model, optimally position us to support the evolving needs of providers as they adapt to new care delivery models and value-based payment programs. With respect to opioid litigation, you are all well aware of the scope and complexity of litigations facing McKesson and many members of the pharmaceutical supply chain. Last week, we announced a settlement with the state of West Virginia. The settlement resolved all the state's past claims regarding McKesson's operations in West Virginia. While we deny wrongdoing, it's important to us that the settlement provides funding towards initiatives intended to address the opioid epidemic itself. We remain committed to resolving other claims and, more importantly, to being part of the solution to this public health crisis. For example, we have contributed $100 million to a foundation focused on combating the crisis. We've been educating our customers to comply with regulations and identify warning signs of prescription abuse and potential diversion. We've advocated for solutions identified in our white paper, Call to Action executes solutions today to combat the opioid epidemic. These solutions in our white paper include the Support for Patients and Communities Act, which was signed into law last year, and the Alert Act, which, if passed, would establish a prescription safety alert system to help identify patients at risk for opioid abuse. Finally, I'd like to take this opportunity to thank our employees for their continuing dedication leadership, and consistent focus on a safe and secure supply chain as we strive to improve care in every setting, one product, one partner, one patient at a time. I am continually inspired by the letters I receive from patients who tell us about our associates consistently going the extra mile to ensure great health outcomes. With that, I'll turn the call over to Britt.