McKesson Corporation

To McKesson's Q1 earnings call. Today's conference is being recorded. At this time, I would like to turn the call over to Holly Weiss. Please go ahead.

Thank you, Jenny. Good afternoon and welcome everyone to McKesson's first quarter fiscal 2022 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 in our slide presentation and to the risk factors 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, which are available on our website at investor.mckesson.com. With that, let me turn it over to Brian.

Thank you, Holly, and good afternoon, everybody. Thank you for joining us on our first quarter call today. We are pleased to be reporting a strong start to our fiscal 2022. which reflects continued operating momentum across our businesses, despite the fact that our markets are still recovering from the impacts of COVID-19. We're also making significant progress against our strategic priorities and our commitment to do what's in the best interests of you, our shareholders. Before we get to our first quarter results, I want to provide an update on the progress made towards a broad resolution of governmental opioid-related claims. On July 21st, we announced that McKesson, along with two other distributors, negotiated a comprehensive proposed settlement agreement, which, if all conditions are satisfied, could result in the settlement of a substantial majority of opioid lawsuits filed by state and local governmental entities. If this broad agreement becomes effective, the agreement reached between the distributors and the State of New York and its participating subdivisions to settle opioid-related claims will become part of this broader settlement agreement. Under the negotiated proposed settlement agreement and subject to final state, territorial, and political subdivision participation, McKesson will pay up to $7.9 billion over a period of 18 years. Over the next several months, we will monitor participation of the eligible governmental entities to determine if participation levels are sufficient to proceed. This is an important development, and I am pleased with the progress we've made after years of negotiations. If we're able to reach a final settlement, it would provide immediate relief to thousands of communities across the United States that have been impacted by this public health crisis. While we strongly dispute the allegations made in these lawsuits, we believe that bringing resolution to these outstanding claims is in the best interest of those impacted by this crisis. We also believe resolution is in the best interest of our shareholders and will allow us to further focus on the business and our role in protecting the safety and the integrity of the pharmaceutical supply chain. We remain committed to doing our part to fight against the opioid epidemic. through efforts to continuously enhance our anti-diversion programs and to advocate for reform at the state and national level. If the settlement cannot be finalized or plaintiffs instead choose to pursue their claims in court, we are prepared to litigate against those claims and we remain confident in our defenses. We also recently announced that we entered into an agreement to sell several of our McKesson Europe businesses to the Phoenix Group, who we believe is the right and natural successor to McKesson and the ideal leader of these European businesses going forward. The agreement includes our McKesson Europe businesses in France, Italy, Ireland, Portugal, Belgium, and Slovenia, as well as our German AG headquarters in Stuttgart, our shared service center in Lithuania, our German wound care business, and our equity stake in our joint venture in the Netherlands. This transaction is expected to close in fiscal 2023, subject to customary closing conditions, including the receipt of required regulatory approvals. Our remaining European businesses in the UK, Norway, Austria, and Denmark were not included in this transaction and will continue to be operated by McKesson. However, we are exploring strategic alternatives for these remaining businesses as we align future investments to our growth strategies outside of Europe. We believe fully exiting Europe is another step towards becoming a more streamlined and efficient organization. Let me turn now to our performance in the quarter. We are continuing to see the operating momentum we discussed on our fourth quarter fiscal 2021 earnings call. Today, we're reporting adjusted earnings per diluted share of $5.56, ahead of our original expectations, resulting from the strength across our businesses and our roles in the COVID-19 response efforts across the geographies in which we operate. Our U.S. and international distribution businesses are playing an integral role in the pandemic response and our operational excellence and capabilities continue to be highlighted through our evolving partnership with the U.S. government's COVID-19 vaccine distribution efforts. Through July, our U.S. pharmaceutical business has successfully distributed over 185 million Moderna and J&J COVID-19 vaccines to administration sites across the United States. and our medical business has now assembled enough kits to support the administration of more than 785 million doses for all vaccine types. Also in the quarter, the U.S. government asked McKesson to support their mission of sending millions of COVID-19 vaccines to countries in need all around the globe. We are picking and packing Moderna and Johnson & Johnson COVID-19 vaccines into temperature-controlled coolers and preparing these vaccines for pickup by international partners. all at the direction of the U.S. government. McKesson is not managing the actual shipments of vaccines to other countries. Through July, we successfully prepared over 65 million COVID-19 vaccines for shipment abroad. We are humbled and honored to serve the U.S. government in this expanded role. Our roles in Europe and Canada are also continuing to evolve, and we're partnering with local governments to distribute and administer COVID-19 vaccines there as well. Through July, we've distributed over 45 million vaccines to administration sites in select markets across these geographies. Based on our first quarter results, our evolving roles in the COVID-19 response efforts, and our confidence in our outlook for the remainder of our fiscal 2022, we are raising our adjusted earnings per diluted share guidance to $19.80 to $20.40, from a previous range of $18.85 to $19.45. As I mentioned in my opening remarks, we're making significant progress against our strategic priorities. We're simplifying the portfolio and increasing our focus on areas where we have deep expertise and that are central to our long-term growth strategy. Our progress to date is underpinned by execution against our top company priorities. The first is a focus on the people and the culture. The second is our commitment to strengthen the core pharmaceutical and medical supply chain businesses. The third, our intentional efforts to simplify and streamline the business. And finally, to continue to invest to advance our differentiated oncology and biopharma services ecosystems. Let me now touch briefly on the progress we're making across each of these priorities. First and foremost, we're prioritizing our people and advancing our company's culture as we strive to be recognized as an impact-driven organization and the best place to work in healthcare. We've been hard at work to transform and energize our company's culture. Our eye care and eye-lead values serve as the foundation as we work toward our common goal, advancing health outcomes for all. As an organization, we're committed to advancing diversity, equity, and inclusion. For the sixth consecutive year, McKesson was named a Best Place to Work for Disability Inclusion. McKesson earned a top-ranking score of 100 on the 2021 Disability Equality Index. In addition, we marked progress in diverse representation in the U.S., with female executive representation up 3% over the prior year and a 6% gain over the prior year in executive representation for persons of color. Our second company priority is to strengthen our core distribution businesses where we have market leading scale and capabilities across North America. Success in the core enables strong cash flow generation, which we in turn use to reinvest in the business and to return capital to our shareholders. In addition to our work to help our customers and government partners in their pandemic response efforts, Our pharmaceutical and medical surgical distribution businesses are continuing to improve, and the recovery from the effects of the COVID-19 pandemic has been in line with our expectations. Elective procedures and primary care visits have improved throughout our first quarter, and prescription volume trends are showing signs of improvement as well. Also positive are the trends we've seen across specialty and oncology patient visits. which were at or above pre-COVID baselines in the first quarter. And distribution volumes to our specialty provider customers continue to drive and support our growth. In our Canadian distribution business, our operational excellence and scale was recently recognized through a new partnership with one of Canada's largest retailers as a primary distribution customer. This is a testament to the strength of our supply chain in Canada. A renewed focus on growing the core has been enabled by our commitment to streamline the business over the past several years, efforts that go beyond our recent announcement to exit the European region, which I commented on in my opening remarks. Over the past several years, we've committed to transforming our operating model. We've centralized back office functions across North America and Europe and further rationalized costs through a reduction of our own retail pharmacy footprint and a commitment to lower spend across the organization. Throughout our enterprise, it's an initiative we called Spend Smart, which helped us achieve our three-year cost reduction target of $400 to $500 million of annual cost savings by the end of our fiscal 2021. Over time, we've identified businesses that are not central to McKesson's current strategic priorities or direction, as was the case in our exit of our position in Change Healthcare and the creation of a German wholesale joint venture with Walgreens Boots Alliance. We will continually review our portfolio to ensure tight and focused alignment to our strategy. All of this work has enabled us to focus our time and investments on our strategic growth pillars, where we're working to build connected ecosystems in the growth areas of oncology and biopharma services, which should serve to advance our already differentiated positions. We continue to be confident in the long-term outlook of businesses that operate in these high-growth markets. Starting with oncology, an ecosystem that McKesson has strategically built over a period of nearly 15 years, beginning with our acquisition of Oncology Therapeutics Network all the way back in 2007, which added at that time core specialty distribution capabilities. Ten years ago, we deepened the breadth and the depth of our offering with the acquisition of U.S. Oncology Network, which gave us practice management, site management for research, and the Inomed EHR, which is one of the foundational pieces of Oncata. Fast forward to today, and we're now supporting over 14,000 specialty physicians through distribution and GPO services. We're also the leading distributor in community oncology space and have over 1,400 physicians in the U.S. oncology network spread over approximately 600 sites of care in the U.S. As innovative specialty therapies come to market, our leading position oncology distribution enables us to grow our connected oncology ecosystem in parallel. As we grow our non-affiliated and our U.S. oncology provider bases, we accelerate the growth of our oncology assets, such as GPO services, practice management, site management for clinical research, specialty pharmacy, and our value proposition for Ontata, where we're providing real-world insight to both manufacturers and providers. Although in its infancy, Lantana's value is being recognized through expanded partnerships with manufacturers such as Amgen and its leading role in a large-scale, real-world research study known as MyLung, which aims to improve treatments and outcomes for non-small-cell lung cancer. New therapies coming to market can also provide additional challenges for patients, providers, and our biopharma partners. Our prescription technology solutions business invests in innovation and aims to provide access, adherence, and affordability solutions for over 500 brands across nearly every therapeutic area. Our connectivity to over 50,000 pharmacies, 750,000 providers, and 75% of EHRs in the U.S. helps enable over $5 billion of prescription savings for patients each year. Prescription technology solutions ended fiscal 2021 with solid momentum. And in the first quarter of fiscal 2022, we saw organic growth in the business and encouraging signs that patient engagement levels and prescription volume trends are continuing to improve. Our market-leading technology offerings are helping patients get access to therapies they need more quickly and efficiently and stay on those therapies longer to get better health outcomes. In closing, We believe that we've made significant strides against our strategic priorities of strengthening the core, simplifying the business, and investing in our growth areas of oncology and biopharma services. Announcing the proposed opioid settlement agreement is an important development. In addition, our strategic intent to exit the European region positions us to become a more focused and agile company. We believe both are in the best interest of our employees in the best interest of our customers, and in the best interest of our shareholders. While it's early in the fiscal year and the pandemic continues to present unknowns, I'm confident in the fundamentals of the business and believe we are positioned well for long-term growth and will look to build upon this momentum over the remainder of our fiscal 2022. Thank you for your time, and with that, I'll turn it over to you, Britt, for a few additional comments.