McKesson Corporation

Welcome to McKesson's Q4 earnings call. Today's conference is being recorded. At this time, I'd like to turn a call over to Holly Weiss. Please go ahead.

Thank you, LaShonna. Good morning and welcome everyone to McKesson's fourth quarter fiscal 2020 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-information about our of those measures to GAAP results is included in today's press release and presentation slides, which are available on our website at investor.mckesson.com. With that, let me turn it over to Brian.

Thank you, Holly, and good morning, everybody. Appreciate you being with us on the call today. I sincerely hope that you and your families and your communities are staying healthy and safe as we navigate through these Really extraordinary times. Today we reported a strong finish to our fiscal 2020 with the trends we saw in the fourth quarter prior to the COVID-19 pandemic, reflecting a continuation of the momentum we experienced coming into and really throughout our fiscal year. Throughout McKesson's 187 year history, we've demonstrated time and time again our ability to adapt and swiftly respond to the evolving needs of our customers. particularly in trying times, and the resiliency and the long-term strength of our business model. Today, my remarks will echo similar themes. I want to walk you through McKesson's response to the COVID-19 pandemic and the essential role we play in the healthcare supply chain, the progress we've made this year against our strategic priorities, and our FY20 results, including the impact COVID-19 had on our fiscal fourth quarter. I also want to talk about why I'm confident that McKesson remains well positioned now and especially over the longer term. Before I begin, I want to acknowledge and really sincerely thank all of those who are working so tirelessly to keep us healthy and safe during this crisis, including our customers and all frontline healthcare professionals, nurses, physicians, first responders, literally around the world. thank you to each and every one of our 80,000 McKesson associates for their passion, their energy, in many cases courage these past several months, working around the clock to maintain McKesson's operations and support our customers and frontline caregivers during these challenging times. I want to particularly recognize our colleagues who are on our frontlines, like those in our distribution centers, in our pharmacies in Canada and Europe, supporting community practices and our transportation, making it happen, going the extra mile for our customers. In these times, it's well, it's just what makes McKesson's culture so special. It makes me incredibly proud to be part of team McKesson. As one of the largest healthcare companies in the world, we have, and we will continue to play an essential role in addressing the COVID-19 pandemic. Our response has been guided by the key principles of protecting health and safety for the healthcare supply chain, for our customers, and for our employees and the communities in which we all live. Early on, we enacted our business continuity and disaster recovery plans across the organization in order to maintain high functioning operations around the globe. We assembled a critical care drug task force comprised of our sourcing specialists and individuals with clinical backgrounds in health systems pharmacy to review guidelines and protocols and to forecast changing pharmaceutical and medical product demand. This task force, in conjunction with guidance from our government partners, is working to predict, allocate, and extend supply availability to serve the rapidly changing needs of our customers. In addition, Our CLARIS-1 and our global sourcing teams in London are working closely plans and to create new capacity or scale up production so that act as a supply chain in the coming weeks, months, and years ahead. McKesson is partnering with government agencies at the federal, state, and local level, along with other industry leaders. to creatively solve for the most complex and pressing issues this crisis presents. As demand surges for personal protective equipment, or PPE, McKesson is doing everything within our power to identify new sources, manufacturers, and markets for these critically needed products. We are very proud of our partnership with Walmart to produce and deliver medical gowns to the US. Our two companies have collaborated in an entirely new way by bringing and moving with remarkable speed, which has led to 2 million additional medical gowns in our country's supply to date, and we expect roughly 10 million will be added by the end of June. In Europe and Canada, our retail pharmacies have remained open, providing the essential community-based care that our customers rely on. We implemented several changes in our retail pharmacies to ensure our customers feel comfortable and safe including limiting the number of customers in stores, installing protective shields at pharmacy counters, dedicating shopping times for seniors and for first responders, and regularly disinfecting all high touch areas. We're also expanding our pharmacy services to include virtual health offerings, home delivery in certain markets, and increased online pharmacy capabilities. We've undertaken multiple measures to protect and promote the well-being of our employees, These include comprehensive sanitation protocols for our distribution centers and office facilities, work-from-home technology for our office-based employees, enhanced medical benefits including telemedicine and wellness offerings, and emergency paid sick leave. Some of our very first actions were to recognize the stress that this situation would put on our frontline workers and our communities. So we made special payments to reward the hard work of our associates on the front line and to bring some comfort and sense of calm to their families. We increased funding to take care of our own fund to help with expenses such as childcare, groceries, housing, and utilities. And we increased our foundation funding to support our communities in their time of great need. including donations to support local food banks in communities where McKesson distribution centers are located around the U.S. Our approach to address the pandemic underscores our value system and how we carry out our vision to improve care in every setting, one product, one partner, one patient at a time. Turning now to our financial performance. We're going to review our fiscal 2020 results our fiscal 2021 outlook, and why we're so confident in McKesson's long-term future, despite the near-term uncertainties that are really... In fiscal 2020, McKesson delivered strong revenue and adjusted operating profit growth across 20 adjusted earnings per diluted share result of $14.95 versus the prior year, reflecting flex continuing momentum and transformation within our business. Coming into the CEO role a little over a year ago, I focused the organization around three strategic priorities, which I shared during our analyst meeting in December. I'd remind you these priorities were growing our core U.S. pharma business, investing in the areas where we have differentiated capability and growth prospects, and simplifying the business and better aligning the organization. I'm extremely pleased with the meaningful progress we made in executing against these strategic priorities in fiscal 20. In our U.S. pharmaceutical specialty and solution segment, we finished the year with the highest level of adjusted operating profit growth in our last four fiscal years. And we again this year successfully renewed large customers while being disciplined in our approach to the market. Most recently, having been selected by the VA to continue to serve as their prime pharmaceutical vendor. We believe our strong value proposition and superior customer service quality are foundational to this success. Our cost and working capital efficiencies underpin this growth and further fuel the strategic investments we're making in the business. We view our investments in data and analytics as investments in foundational capability. leveraging our scale to deliver greater value for our customers. We're also making investments into areas where we believe we have differentiated capability and opportunity for growth. In alignment with our strategic growth initiatives, we're expanding our manufacturer value proposition to drive more innovation, better patient outcomes, and additional uptake for our manufacturer partners. We're harnessing our decades of experience in patient access and adherence programs and combining it with the connectivity and reach of CoverMyMeds within our MR-XTS business to deliver new capabilities at accelerated speed. And we continue to prioritize specialty as a key area of future growth and investment. We have been building and investing in our portfolio of differentiated specialty assets for more than a decade, which gives us great expertise in areas like oncology. Our third strategy is identifying the business and aligning the organization. We're becoming a more focused, more aligned, and more agile organization that served us well during our COVID-19 pandemic response. In fiscal 20, we transformed our operating model through initiatives like our Spend Smart program and centralizing functional services across North America and in Europe. Evidence of our success in rationalizing costs and streamlining back office functions is also reflected in our positive European segment fiscal 20 results. Our Canadian business successfully streamlined its organization structure to better serve our retail and wholesale operations customers. This strategic change, combined with the continued execution of actions taken in the prior year, translated into good profit growth for the Canadian business this year. We also invested a significant amount of time in our culture transformation and leveraged our corporate headquarters relocation to Texas to strengthen our management team. Five new members have joined my management team this year, and I could not be more pleased with how quickly the team has united together to execute our strategic and cultural priorities. One of the most visible accomplishments we made in fiscal 20 towards simplifying the business was the completion of our exit of Change Healthcare. This is a significant milestone in our company's history that was nearly four years in the making. And we're pleased to deliver on our commitment to create shareholder value through a tax efficient exit. Let me turn now to the trends that we're currently seeing on our business and how we're planning ahead for fiscal 2021 in light of these near-term macro uncertainties. I'll discuss these trends Really in kind of more real-time granularity than we typically would. And then Britt will further elaborate on my comments. We really want to help you understand how the rapidly evolving environment impacted not just our FY20 results, but also our FY21 outlook. I'll start in the U.S. and specialty solutions segment. We saw increased demand in pharmaceutical sales during the month of March as consumers prepared for an extended stay at home. In turn, pharmaceutical sales declined below pre-pandemic levels in April, coinciding with the start of our fiscal year. More pronounced was the decline in specialty provider volumes, primarily in the non-oncology markets. In oncology, as evidenced by U.S. oncology practices, despite a decline in routine office visits such as consults and follow-ups, we are seeing relative signs of stability in oncology volumes as patients remain on their treatment regimens. In our medical business, our alternate site customers are facing significant headwinds, with providers and surgery centers seeing sharp declines in office visits due to shelter-in-place guidelines that have taken effect. In our technology, our MRXTS business, we're seeing lower prior authorization volumes as a result of provider office closures and relaxed and sometimes extended requirements from payers. And in Canada and Europe, our retail pharmacy operations are navigating how to adapt to changing consumer needs as retail traffic is impacted by social distancing guidelines. While it is still early in the quarter, we are currently seeing positive indicators and encouraging signs across all of our businesses that activities are beginning to pick up in the communities where shelter in place guidelines are being relaxed. With this as our environmental backdrop, we carefully and thoughtfully constructed our fiscal 2021 outlook based on what we know today. Our fiscal 2021 outlook of 1395 to 1475 of adjusted earnings per diluted share factors in several macroeconomic and business specific assumptions. Brett is going to take you through the detailed assumptions of our outlook, but let me comment on why I remain confident now more than ever in McKesson's future. We have proven our resiliency and natural ability to lead during times of crisis, such as H1N1, SARS, the recession of 08-09. I think the lessons we've learned and the expertise we've gained continue to serve us well. We operate from a position of financial strength. A strong balance sheet, access to capital markets, strong credit ratings provide us great financial flexibility. Our fiscal 2020 results reinforced the operational momentum we're generating in our business, and we have repeatedly demonstrated our willingness and commitment to make the right, not always easy, but right decisions to best position the business for long-term growth. Despite the near-term challenges, we remain focused on executing against our priorities and investing in our strategic growth initiatives. The positive energy, dedication, commitment and togetherness of Team McKesson is unmatched, and I do believe our future is bright. Again, thank you for your time and let me now turn it over to Britt.