McKesson Corporation

Welcome to McKesson's Q2 fiscal 2022 earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Rachel Rodriguez. Please go ahead.

Thank you, Sarah. Good afternoon and welcome everyone to McKesson's second quarter fiscal 2022 earnings call. Today, I'm joined by Brian Tyler, our chief executive officer, and Britt Vidalone, 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 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, Rachel, and good afternoon, everyone. Thank you for joining us on our second quarter call today. We are happy to report another strong quarter for McKesson driven by continued market improvements and underlying fundamentals of our businesses. We achieved double digit adjusted operating profit growth in all four segments based on a strong operating performance and alignment across the enterprise. As a result of our second quarter performance, our confidence in the second half of the fiscal year and McKesson's continued role in the COVID-19 response efforts We are raising our guidance range for fiscal 2022 adjusted earnings per diluted share from $19.80 to $20.40 to a new range of $21.95 to $22.55. We continue to believe we will see a return to pre-COVID pharmaceutical prescription and patient engagement levels in the second half of our current fiscal year. We're encouraged by the trends we continue to see across primary care, specialty, and oncology patient visits, in addition to overall prescription volumes. We are pleased to see our markets are recovering in line with our original expectations. Our enterprise-wide focus on our company priorities is driving operating performance and furthering the advancement of our long-term growth. I would like to take the time today to talk about each of our company's priorities. We have a focus on our people and the culture, which is guided by our eye care and eye lead values. These values include a commitment to both our local and global communities, our customers, and the healthcare industry to innovate and deliver opportunities that make our customers more successful, all for the better health of patients. Along with these values, we're committed to fostering an inclusive workplace that celebrates our differences and respects the diverse world in which we live and work. As an organization, we continue to be committed to diversity, equity, and inclusion. Through a more diverse and inclusive workplace, we're a stronger, a more creative, and a more productive team. At McKesson, our priority has been the health and safety of our employees, and we're deeply committed to supporting our team members across the organization, which is why I'm incredibly pleased to have announced McKesson's first-ever Day of Wellness, which we call Your Day, Your Way. This will take place this Friday, November 5th. We understand that mental, physical, and emotional wellbeing are of the most importance to our team. So we made the decision to set aside a special day to help ensure our employees can rest, recharge, and take time for themselves. We're so grateful for all the contributions from the team over the last 19 months. McKesson employees continue to be in the center of the fight against COVID-19, and we want to make sure everyone gets a chance to take a well-deserved break. Our second priority is to strengthen our core pharmaceutical and medical supply chain businesses. Across North America, we have a best-in-class pharmaceutical supply chain. As a reminder, in the U.S., we have a scaled distribution presence that delivers roughly one-third of prescription medicines each day. Our operational excellence and our ability to leverage our scale with global suppliers is one of the many reasons why McKesson continues to be the partner of choice for hospitals, health systems, and pharmacies of all size. We strengthen our business when we strengthen our customers and partners. This past quarter, we held our annual McKesson IdeaShare educational event, which brought together independent pharmacy operators to help them learn new skills, how to grow strategically, and how to operate efficiently. The virtual experience helped 2,000 independent pharmacies prioritize education and networking, which we believe will shape the future of community pharmacy and strengthen the independent business for the better. In Canada, we've been the leader in healthcare-related logistics and distribution for 100 years, and we support hospitals, community, and retail pharmacies to ensure that medication is always available. We're a leader in medical distribution to alternate site markets, and our footprint in U.S. healthcare is underpinned by our strong sourcing and supply chain capabilities. We deliver medical and surgical supplies and services to over 250,000 customers. Our pharmaceutical and medical distribution businesses continue to play an integral role in the pandemic response efforts, and our capabilities have been highlighted through our evolving partnership with the U.S. government's COVID-19 vaccine distribution, kitting, and storage programs. I'm glad to say that the fundamentals in our core business remain solid and our execution has continued to improve as we accelerate our growth and work to deliver high-quality, resilient supply chains to our customers. Our third company priority is to simplify and streamline the business. We're prioritizing the areas where we have deep expertise and are central to our long-term growth strategies, largely within the North American market. As a result, we made the decision to fully exit McKesson's businesses in the European region. In July, we announced that we have entered into an agreement to sell our European businesses in France, Italy, Ireland, Portugal, Belgium, and Slovenia to the Phoenix Group. Today, we're announcing that McKesson has made the decision to sell our UK retail and distribution businesses as a whole. The transaction is expected to close in Q4 of fiscal 2022, subject to customary closing conditions, including receipt of required regulatory approvals. We believe this step toward a full exit of our European business is an important milestone in our strategy as a streamlined, efficient, focused organization. Building upon the foundation of a strong company culture and a stable business, the last company priority encompasses our two strategic growth pillars. We're investing to advance our oncology and biopharma services, which includes building integrated ecosystems that leverage our differentiated assets and capabilities. And our strategic focus on these two pillars is important as both of these areas have good inherent growth opportunities. McKesson's oncology ecosystem supports over 14,000 specialty physicians through distribution and GPO services, and we are the leading distributor in the community oncology space. We have over 1,400 physicians in the U.S. oncology network spread over approximately 600 sites of care in the U.S. Within our oncology ecosystem, Oncata generates insights at the intersection of technology and data, and supports community providers with precise cancer care by improving patient outcomes and delivering evidence and insights to help accelerate life sciences research. The ecosystem helps the clinicians to provide better care in an increasingly complicated oncology care landscape by helping them grow their businesses, attract more patients, and produce better health outcomes. We can then leverage interconnected technology and real-world insights to feed data back upstream to manufacturers which can help them think about identifying new products, innovations, and new markets. Within the biopharma ecosystem, the prescription technology solutions businesses leverage technology networks and access to provider workflows to serve biopharma and life sciences partners and patients. We have built this ecosystem over many years as it includes assets like Relay Health Pharmacy, Cover My Meds, and RxCrossroads. It allows us to connect providers, payers, and patients together to focus on access, adherence, and affordability solutions. Our two strategic pillars of oncology and biopharma services are not just businesses or products, but fundamentally a suite of solutions that solve long-standing problems in ways that bring more speed, impact, and efficiency. We will continue to invest and accelerate the execution against those strategies which support the long-term growth for McKesson. I'm confident in the progress against our company's priorities that they will enable the advancement of our growth. Before I turn to our second quarter results, just a brief update on our board of directors. In September, our board of directors welcomed Dr. Richard Carmona as a new independent director. Dr. Carmona has a strong focus on improving public health care and extensive experience in clinical sciences, health care management, and emergency preparedness, which led to his nomination and unanimous Senate confirmation as the 17th Surgeon General of the United States from 2002 until 2006. Currently, Dr. Carmona is Chief of Health Innovations at Canyon Ranch and a Professor of Public Health at the University of Arizona. His hands-on healthcare experience will be invaluable for McKesson's Board of Directors. Now, I want to turn to the business performance within the second quarter. We are pleased with our strong second quarter performance and we remain encouraged by the underlying fundamentals in our business. Let me start with U.S. Pharmaceutical, where our solid results for the second quarter reflected continued improvement of prescription trends, which were in line with our expectations. Within specialty oncology visits, we saw an exit rate of pre-COVID levels, which again was in line with our expectations. The U.S. Pharmaceutical segment saw 12% adjusted operating profit growth, which was underpinned by the distribution of specialty products to providers and health systems, and the contribution from our successful COVID-19 vaccine distribution operations. We're in a strong position to continue to support the government and private enterprise in the future for distributing COVID and flu vaccines. And our investments in the distribution business continue to be showcased through our successful vaccine response. Through October 28, Our U.S. pharmaceutical business has successfully distributed over 311 million Moderna and Johnson & Johnson COVID-19 vaccines to administration sites across the United States and to support the U.S. government's international donation mission. In prescription technology solutions, the business continued to perform well this quarter as our technology and service offerings have accelerated the support and growth of our biopharma customers, and we've been successful in adding new brands to our platforms. The segment had excellent momentum and delivered a 38% increase to adjusted operating profit growth during the second quarter. In addition to the operational strength, I'm proud to say that we are helping patients get access to the therapies through our market-leading technology offerings in this segment. In medical-surgical, we saw an increase in COVID-19 tests and improvement in patient care visits. and we announced we are expanding our work with the U.S. government through a new kitting and storage contract. Our medical surgical business remains well positioned to continue to support the government as needed. The growth in our medical surgical segment is reflective of strong top line performance and underlying business improvement. As it relates to international, the segment had solid adjusted operating profit growth benefiting from both local COVID programs and a new partnership with one of Canada's largest retailers. We are partnering with local governments to distribute and administer COVID-19 vaccines, and through September, we've distributed over 58 million vaccines to administration sites in select markets across our international geographies. As a reminder, excluding our planned divestitures in Europe, we have businesses in Norway, Austria, Denmark, and Canada in our international segment. For our remaining European businesses, we are exploring strategic alternatives as we align future investments to our growth strategies. Before I close, I'd like to update you on the status of the proposed opioid settlement. Recently, we announced that enough states have agreed to settle to proceed to the next phase, which is the subdivision sign-on period. During this phase, each participating state will offer its political subdivisions, including those that have not sued, the opportunity to participate in the settlement for an additional 120-day period, which ends January 2, 2022. We are pleased with this important step, and we believe the settlement framework will allow us to focus our attention and resources on the safe and secure delivery of medications and therapies while expediting the delivery of meaningful relief to the affected communities. In closing, I'm encouraged as we continue to make progress and accelerate growth as we advance our company priorities. Our underlying distribution business have stable fundamentals, great teams, and strong execution. We're investing in what we believe are two good growth markets where we have differentiated capabilities, and we look forward to sharing more of those successes and proof points with you at our upcoming Investor Day. Thank you for your time, and with that, I'm going to turn it over to Britt for a few additional comments.