McKesson Corporation

Welcome to McKesson's first quarter fiscal 2023 earnings conference call. Please be advised that today's conference is being recorded. At this time, I'd like to turn the call over to Rachel Rodriguez, VP of Investor Relations. Please go ahead.

Thank you, operator. Good afternoon and welcome everyone to McKesson's first quarter fiscal 2023 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 earnings release and presentation slides available on our website at investor.mckesson.com. 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. Information about non-GAAP financial measures that we will discuss during this webcast, including a reconciliation of those measures to GAAP results, can be found in today's earnings release and presentation slides. The presentation slides also include a summary of our results for the quarter and updated guidance assumptions With that, let me turn it over to Brian.

Thanks, Rachel, and thanks to everyone joining us on our call this afternoon. Earlier today, we announced our first quarter fiscal 2023 results with strong growth in total company revenue and adjusted operating profit across the North American businesses. As a result of our first quarter performance and McKesson's continued role in the COVID-19 response efforts, We're raising our guidance range for fiscal 2023 adjusted earnings per diluted share from $22.90 to $23.60 to a new range of $23.95 to $24.65. Successful execution against our company's priorities, priorities of people and culture, sustainable core growth, streamlining the portfolio, and expanding the oncology and biopharma services ecosystems are really what underpin our fiscal 2023 outlook and our long-term growth framework. So I wanted to center my remarks today around those themes. And I thought I would start maybe with a highlight of the progress we've made against our company priorities. And then I will wrap up with a few brief comments on the performance in the business itself. Foundational to our company, foundational to our company's history, quite frankly, and our strategy are really the core pharmaceutical and medical distribution businesses. As we expand the reach of our services, we remain focused on generating sustainable growth in these core businesses. Our operational excellence and ability to leverage our scale with global suppliers is one of the many reasons why McKesson continues to be a partner of choice for our customers. Over the past two years, you're well aware we've been working closely with the U.S. government to distribute the COVID-19 vaccine and ancillary kits. As requested by the U.S. government, our contract to serve as the centralized distributor for COVID-19 vaccines was extended through July of 2023. Similarly, the contract for ancillary kits and storage was extended through January of 2023. We continue to be honored and privileged to be able to leverage our distribution scale and expertise and to continue to support this important public health effort. Brent will comment a little more specifically on the financial impacts of these contract extensions, but we continue to look forward to serving the U.S. government for several more months in this capacity. Building upon the success of the core distribution businesses, we like to say we're tackling some of the most complicated problems in healthcare through the expansion of our oncology and our biopharma services ecosystems. In the first quarter, we were really excited to announce the formation of a joint venture between McKesson's U.S. Oncology Research and HCA Healthcare's Sarah Cannon Research Institute. This transaction marks a really important alliance between these two companies, and we expect it will accelerate our strategic advancement of the oncology ecosystem. By combining the resources and the expertise of these two organizations, we're creating an expanded clinical research network, and that really means a broader portfolio of clinical trial offerings, expanded patient reach, access to a broader set of data, and more advanced analytics capabilities to better match patients with clinical trials. The new joint venture will really also aim at accelerating drug development and increasing availability and access to clinical trials for community oncology providers and patients, including those patients in underserved communities. This transaction enhances our proposition to biopharma companies and further advances our differentiated offerings across the entire pharmaceutical life cycle. It is also purposeful. It reinforces our commitment as a company to advance health outcomes for all. We expect to close the transaction by the end of calendar year 2022, and we look forward to the partnership, the collaboration, and greater outcomes we can bring to the patients we collectively serve. We're also making meaningful progress on expanding our biopharma services ecosystem. Through years of intentional investment, we've built a suite of innovative biopharma solutions that supports really every phase of the medication lifecycle across nearly all therapeutic categories. We're reinventing how biopharma companies, providers, and payers can connect to each other through technology with the ultimate goal of really helping patients access, afford, and adhere to their medications. Today, I thought I might share a few examples around our affordability efforts and how these efforts fit into our biopharma ecosystem. A key piece of our innovative medication affordability product suite is our automatic couponing program. This automatic couponing program really applies copay offsets or savings for qualified medications right at the point of dispensing. Using our technologies, it's seamlessly integrated into the pharmacy workflow. We further help patients stay on their trusted brands through multi-channel support options like activity-informed messaging about other discounts, real-time support, and educational materials. We also facilitate patient assistance programs. which are a critical financial safety net for millions of patients. We implement and administer comprehensive patient assistance programs through program pharmacies, which enable access to free medication programs to eligible patients treated at hospitals, in community care settings, and sometimes even at home. Both of these solutions leverage the reach of our technology network, and in fiscal year 2022, our solutions enabled patients to save more than $6 billion on brand and specialty medications, and importantly, we prevented more than 9 million prescriptions from being abandoned. By improving affordability of prescriptions, in many instances, these solutions also improve adherence, helping patients stay on the treatment longer, which leads to better health outcomes. As we look ahead, we continue to be proud of our differentiated assets and capabilities, and we're excited to bring innovative solutions to more partners and patients. Oncology and biopharma services both represent large, complex, and growing markets for McKesson, and we're strategically positioned to continue to enhance value in these areas. I want to talk a bit about our next priority, which is streamline the portfolio. You know, it's absolutely imperative that we continue to focus our human and our financial capital into the highest growth and highest margin areas of the company. And part of that is a continual assessment of our portfolio for strategic alignment. This includes the progress we're making towards fully exiting the European region. We recently entered into an agreement to sell Denmark, and the transaction was closed on July 29, 2022. The pending transaction with the Phoenix Group is progressing well. We characterize it as on track and has an expected close in the second half of our fiscal 2023. Norway really remains the only country that we have not yet announced an agreement to sell. So now one year after we announced McKesson's strategic intent to exit the European region, we've entered into agreements to sell or we have completed divestitures of the business operations in 11 of the 12 countries in Europe. So I'm really pleased with the execution of this important initiative. I think the teams have got after it with remarkable speed and efficiency. I want to wrap up my review of our company's priorities by reaffirming our focus on people and culture. In fact, it's typically the first priority we mention. We believe that talent can truly be differentiating, and we continue to invest in the development of our employees. We provide our employees not only competitive compensation and competitive benefits, but also the resources and support they need to grow into the next generation of leaders for McKesson. As an organization, we're committed to advancing diversity, equity, and inclusion, and we continue to increase leadership representation for women in North America and people of color in the U.S. In fact, just recently McKesson was recognized by Forbes as one of the best employers for women, achieving an industry-leading ranking. This is a demonstration of our outstanding progress in promoting equity and diversity in the workplace. And really, in my view, reflects our deep commitment to support all employees at McKesson, all employees at McKesson. Additionally, for the seventh consecutive year, McKesson was named the best place to work for disability inclusion, which includes earning a top ranking score of 100 on the 2022 Disability Equality Index. I'm proud of the progress that we've made on all our company's priorities, and we can clearly see at helping advance our long-term growth. Before I turn my attention to our first quarter results, I did want to just provide everyone a quick update on the progress of the opioid-related litigations. This past quarter, we reached agreements in principle with the state of Washington and the state of Oklahoma. With the recent developments, we have settled, or we've reached agreements to settle, the opioid-related claims of all 50 states, the District of Columbia, and all eligible territories. The majority of the payments that we'll fund as part of these settlements will be used on opioid relief programs. We're particularly proud of that. And we'll support a wide variety of strategies in local communities to help fight opioid crisis. In July, after a full trial, a federal judge ruled that McKesson, along with two other distributors, could not be held liable to two West Virginia subdivisions for contributing to the opioid crisis. This ruling is significant as the court confirmed that McKesson did not cause an oversupply of opioids in these communities. As we move forward, our role in combating opioid abuse is not over. McKesson will remain part of the solution when it comes to relief across the country and in preventing opioid diversion within the pharmaceutical supply chain. Let's move on to business performance. I want to start by just providing a few comments on the macroeconomic trends and environment that we're seeing and what the potential impacts are on McKesson's business. In the past quarter, we have observed positive prescription volumes and positive patient utilization trends. Additionally, as the macroeconomic environment continues to evolve, our business model has remained resilient to the pressures from cost inflation and supply chain disruption. The impact from these macroeconomic factors was immaterial in Q1, and we do not anticipate any incremental impact in addition to what was already contemplated in our fiscal 23 outlook. We remain confident in our ability to navigate a dynamic economic environment. We have a diverse set of products and solutions that allow us to follow the market demands and capture evolving opportunities. And we remain committed to supporting our customers and partners by delivering innovative products and solutions and making quality care more accessible and affordable. Let me quickly summarize the first quarter performance, and then I'm going to turn it over to Britt, who will provide additional financial details. I want to start with U.S. Pharmaceutical. We delivered solid first quarter performance in core pharmaceutical distribution, led really by our differentiated value proposition and exceptional service to our customers. Throughout the quarter, we saw year-over-year growth in prescription volume with positive trends in both branded and generic drugs. Our distribution expertise is reflected in the breadth of product offering, delivery accuracy, and reliability of our service. We also remain focused on expanding the oncology ecosystem to strengthen our already differentiated market position. The advancement not only reflected in financial performance and its increasing contribution to the segment growth, but also demonstrated by the research we published, the insights we generated, and the partnerships we formed, all focused on empowering innovation and advancing cancer care. Our oncology business has proven to be resilient throughout the pandemic, and we saw stable demand in patient visit trends within our U.S. oncology practices. In prescription technology solutions, we're pleased with the growth momentum in the first quarter driven by access, affordability, and adherence solutions. The market demand for our products and solutions remains strong, contributing to the organic growth in the core product categories. The strong financial performance also allows us to reinvest into the business and to expand the reach of our biopharma services ecosystem. The continued investment in innovation is critical to the long-term growth of the business. In the medical surgical solution segment, we again had strong performance, led by strength in the primary care marketplace. The demand for COVID tests during the quarter was higher than anticipated. but I would also say generally in line with the COVID case counts. We continue to expand the breadth of our products and services to strengthen our leading capabilities in the alternate site market. And in the international segment, we're progressing well with the divestiture of our European assets. As it relates to our Canadian business, we remain committed to our strategy in the Canadian market, where we have scale and a diverse set of assets. The distribution and retail businesses remain stable, and the team is doing great work driving growth through improved sourcing economics and expanded customer relationships. All right, let me try to pull everything together. The Kessin reported solid first quarter in fiscal 2023. The fundamentals of our business are stable, and I'm excited about the meaningful progress we've made against our company priorities. Our updated outlook for fiscal 2023 aligns with the long-term growth targets of the business and demonstrates our commitment to deliver sustainable growth across all segments. Last, I want to be sure to thank my teammates and the employees of McKesson. I'm proud to lead this amazing team. You're all innovative problem solvers that bring positive change to our customers and partners. It's the dedication, and the execution from each and every one of our employees that's driving McKesson forward and ultimately helping advance health outcomes for all. With that, Britt, why don't you provide some additional color and comments?