McKesson Corporation

Welcome to McKesson's second quarter fiscal 2023 earnings conference call. Please be advised that today's conference is being recorded. At this time, I would 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 second quarter fiscal 2023 earnings call. Today I'm joined by Brian Tyler, our Chief Executive Officer, and Britt Goodalone, 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 investors.mckesson.com and to the risk factor section of our periodic SEC filing 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 the 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 for joining us on the call. Today McKesson reported another good quarter with total company revenues of $70.2 billion and adjusted earnings per diluted share of $6.06. When excluding the contributions from COVID-19 related items and McKesson ventures, our adjusted earnings per diluted share increased 11% from the prior year. As a result of our second quarter performance, and business outlook, we are raising our guidance range for fiscal 2023 adjusted earnings per diluted share from $23.95 to $24.65 to an updated range of $24.45 to $24.95. We're pleased with the financial performance through the first half of our fiscal 2023, driven by continued execution and momentum across the enterprise. Our core distribution businesses have performed well and shown great resilience in navigating the dynamic macro environment we're all operating in. We continue to strengthen our competitive advantage in oncology and biopharma services through both internal investment and acquisition, as evidenced by the recent RX Saving Solution acquisition and the Sarah Cannon joint venture with HCA. We have established a differentiated position to win in both oncology and biopharma services. And our defined growth strategy, combined with our company vision, is a powerful reflection of how McKesson has transformed into a diversified healthcare services company. Today, I'm going to focus my remarks on our strategy and highlight the significant progress we've been making across our four company priorities. Then I'm going to turn it over to Britt, who's going to go into more detail on the business performance in our second quarter. Let me start where I always start, and that's with our focus on people and culture. We firmly believe that having the best talent is essential to our ability to consistently execute and deliver strong operating results. We continue to invest in our people, which allows us to attract and retain talent in a tight labor market. It's important to us that our employees are provided with the support and flexibility they need to thrive both in work and in their personal lives. Around this time last year, we were really excited to announce a new wellness program at McKesson. We called it Your Day, Your Way. And we celebrated the second anniversary this past Friday. It was a great pleasure to give our employees a company-sponsored day off to promote their mental, physical, and emotional well-being. We're also committed to diversity, equity, and inclusion in the workplace. We have a culture where everyone can bring their true authentic selves to work. In October, I signed the CEO letter on disability inclusion, joining a group of inspiring leaders on creating a more inclusive world. This is an important opportunity for McKesson to demonstrate our values and take actions that support our employees and our communities. Our commitment to diversity is also reflected in our board. Nearly half of our board of directors are women and or people of color. Recently, Kathleen Wilson-Thompson, one of McKesson's independent directors, was presented with the Distinguished Alumni Award by the Direct Women organization, recognizing her contribution to diversity in the boardroom and excellence in board service. We're grateful for Kathleen's leadership and her inspiration. Our second company priority is to drive sustainable growth in our core. Our business is built on a strong foundation of pharmaceutical and medical distribution assets and capabilities across North America. In the U.S., The steady performance of pharmaceutical distribution underpins the operating results of the U.S. pharmaceutical segment. In the second quarter, segment revenues increased by 12% year-over-year with growth across multiple customer channels. We continue to expand our reach and deliver unique value propositions to all customers. In July, we hosted our annual IdeaShare conference that brought together more than 2,100 independent pharmacists It was a great forum that encouraged knowledge sharing and collaboration and really deeper connections across our Healthmark pharmacies. McKesson has a long history of supporting and investing in independent pharmacies who have and continue to play such an important role in the health of our communities. We're also proud of the work our retail pharmacy chain partners play in improving access to care. In September, we announced an agreement in principle to extend our relationship with CVS Health to distribute pharmaceuticals to mail order specialty pharmacies, retail pharmacies, and distribution centers. This agreement goes through June, 2027. We've been partners with CVS for more than 20 years, and we're extremely pleased to further this longstanding relationship. In addition to pharmaceutical distribution, we also have sustainable core distribution assets in the medical surgical segment. In the second quarter, segment adjusted operating profit grew 7% when excluding the impact of COVID-19 related items. The solid performance is primarily driven by our scale and reach across the alternate site market. Through years of intentional investment and expansion, the medical surgical segment has established market leading positions in the primary care and extended care markets. Following the needs of the patients, we're also expanding our services to other channels such as government, consumer, and direct-to-home markets. We continue to build out one of the largest, most tenured sales forces in the industry. These seasoned sales professionals help foster trust and strategic relationships and bring us closer to our customers. I also want to remind you that while we continue to execute on the European exit, our strategy for our Canadian operations remains unchanged. The Canadian business performed well in the second quarter. Aligning with the company strategy, McKesson Canada is expanding its offering to higher growth, higher margin areas, including digital health solutions. Our third company priority is to streamline the portfolio, which includes our continued progress in exiting our business operations in Europe. Today, we announced the completion of the sale to the Phoenix Group, which includes the operations in France, Italy, Ireland, Portugal, Belgium, and Slovenia. We have now successfully exited 11 of the 12 countries in Europe. Norway remains the only country that's not been divested, but we remain committed to exploring strategic alternatives for this business. Streamlining the portfolio is an ongoing process at McKesson. It doesn't end with the European divesters. It's really an ongoing practice for us to continually assess our portfolio for strategic alignment. We have a rigorous evaluation process to ensure that the allocation of resources is optimized to generate shareholder return and support long-term growth for the company. We're also focused on streamlining our businesses internally. We have and will continue to modernize technology, improve levels of automation, and simplify business processes. Taking these actions allows our team to execute with more speed and focus and to make our operational processes less labor-intensive and more efficient to better serve our customers and their patients. Building on the foundation of pharmaceutical and medical distribution, let me now expand on our two strategic growth areas, the biopharma services and the oncology ecosystems. In the biopharma ecosystem, we have a portfolio of differentiated assets that focus on connecting key stakeholders throughout the patient's journey and reducing prescription hurdles around access affordability, and adherence. On our last earnings call, we shared with you examples of the affordability solutions within our biopharma ecosystem. While these solutions can help make prescriptions more affordable for patients, McKesson also has a significant offering of adherence-specific capabilities. We have a powerful network of over 4,000 field-based nurses who help patients manage therapies at home. We also have capabilities for in-office provider education through groups of experienced field nurses. Our adherence services help patients navigate complex medical issues and increase adherence by more than 25%. Leveraging our scaled network and connection to the pharmacies, we continue to explore new solutions and opportunities in the adherence space. To accelerate our growth in biopharma services, we've been assessing strategic opportunities through both internal and external investments. Today, we completed the acquisition of RxSaving Solutions, which is a benefit insights company that reaches more than 17 million patients. McKesson, in fact, has been a customer of RxSaving Solutions for more than a year, and as a result, we've seen significant improvements in medication affordability and adherence for our members or employees. as well as significant savings at the enterprise level. RX Savings Solutions brings a unique portfolio of product and channel access that are complementary to our existing assets. We're excited to leverage our combined resources to create new capabilities around access, affordability, and adherence, as well as new outcome management programs for biopharma and payers. Prescription Technology Solutions segment has been delivering strong performance in the past year. and we continue to support the growth with investment in talent. We usually ramp up staffing to prepare for the anticipated support needed for annual customer programs. In the second quarter, the time and cadence of hiring has led to a slight year-over-year decline in adjusted operating profit in this segment. Looking ahead to the remainder of fiscal 2023 and beyond, biopharma services remains a large and growing opportunity. and we're confident in our differentiated market position that will help us achieve the long-term growth target laid out for this segment. We're also making good progress within our oncology ecosystem. On October 31st, we completed the transaction that brings together McKesson's U.S. Oncology Research and HCA's Sarah Cannon Research Institute in a joint venture. The team is energized to work together on integrating the two businesses, and we're excited by this opportunity to advance the next generation of cancer care by increasing patient access to clinical trials in the community setting. As part of the transaction, we also acquired GenoSpace, a leading innovator in precision medicine and clinical trial matching. It will power oncology data and analytics capabilities for the joint venture and bring enhanced solutions to our provider partners. Also within the oncology ecosystem, Ontata, our data and insights business, continues to partner with biopharma companies to advance cancer research. It was recently announced that Ontata formed a new strategic alliance with Beijing. Together, they will focus on accelerating the development of real-world evidence to improve community education as well as increase patient access to oncology medicines. The oncology ecosystem is expanding and becoming an increasingly important driver for the growth of the U.S. pharmaceutical segment. Our leading market position in community oncology distribution allows us to capture the growing market opportunity driven by a strong pipeline in drug launches. The U.S. oncology network serves approximately 15% of all new cancer patients in the U.S., and we're pleased that the network continues to attract new physicians to expand its reach and impact. The combined effort and progress on our company priorities, our focus on people and culture, on driving sustainable core growth, on streamlining the portfolio, and expanding the oncology and biopharma services ecosystems are the driving force in advancing our growth strategy and generating long-term value for our shareholders. As I review our strategic priorities, I want to make sure I highlight an important part of our enterprise strategy, which is our continued commitment to sustainability and ESG initiatives. As an impact-driven organization, we're dedicated to bringing positive changes to our stakeholders and society. While many impactful projects are happening across the enterprise, our focus has included improving access to healthcare, advancing health equity, and protecting our environment. Two years ago, we created our first-ever global impact organization, bringing all ESG initiatives under a single business function. We're also enhancing the governance structure to ensure visibility and accountability to these important initiatives. With consultation from an executive steering committee and direct oversight from our board of directors, our ESG initiatives are deeply intertwined with how we operate our business, foster our culture, and define our strategy. Before I hand it over to Britt, I wanted to make just a few comments on the macroeconomic trends in the general business environment. In the past quarter, we observed stable prescription volumes and patient utilization trends, which were in line with our expectations. While the general economic environment remains quite fluid, the demand for healthcare proves to be fairly resilient and largely unpacked. And I would say this is similar to what we have observed in past economic cycles. We continue to experience cost inflation and some supply chain disruption impacting different parts of our business in different ways. However, through dedicated and well-planned actions, we've been able to manage the impact of these macroeconomic factors. Through the first half of the fiscal year, the financial impact has not been material to McKesson. We continue to monitor the dynamic environment. At this time, we do not anticipate any incremental impact in addition to what has already been contemplated in our fiscal 2023 outlook. Let me pull it all together. McKesson reported a solid second quarter of fiscal 2023. Excluding the impact from COVID-19 related items and European divestitures, we're pleased with the momentum in the underlying business. We've demonstrated our ability to execute for growth and strategic advancement while navigating a quite dynamic macroeconomic environment. We are confident about our market positions and growth trajectory heading into the second half of the fiscal year. Of course, this isn't possible without a talented team. committed to working together in service of our partners and patients. I want to thank all the McKesson employees. Their dedication, their hard work, their innovation, their spirit of collaboration are truly transformative and enabling positive impact to our partners, customers, and patients. With that, I'll turn it over to Britt for additional comments.