McKesson Corporation

Welcome to McKesson's third 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 third quarter fiscal 2023 earnings call. Today I'm joined by Brian Tyler, our Chief Executive Officer, and Britt Vallone, 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 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. 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.

Thank you, Rachel, and thanks, everyone, for joining us on our call this afternoon. Today, we reported third quarter fiscal 2023 results, another quarter with solid adjusted operating profit growth, underscoring the significant progress we continue to make in our company in terms of our overall company priorities. It also signals the continued strength and stability of our North American businesses. As a result of our third quarter performance and business outlook, we're raising our guidance range for fiscal 2023 adjusted earnings per diluted share from $24.45 to $24.95 to an updated range of $25.75 to $26.15. During today's call, I'm going to highlight the progress we've made across our four strategic priorities. Then I'll ask Britt to provide additional details on the financial performance in our third quarter. As you know, a few years ago we crafted our enterprise strategy and we shared our priorities with our stakeholders. We're evolving our portfolio of capabilities and we've divested businesses that are not aligned with our strategy and we have invested both organically and through acquisition to add to our differentiated capabilities. We're increasing our focus on the areas where we have deep expertise and that are central to our long-term growth strategy. Our progress to date is underpinned by the execution against these important company priorities, a focus on people and culture, intentional efforts to evolve and grow our portfolio of capabilities, to advance and expand our differentiated oncology ecosystem and our biopharma services platform, and our commitment towards sustainable core growth. The strength of our core distribution businesses continue to show solid growth and generate free cash flow, which provides us a strong balance sheet and the ability to invest internally and externally into the business. I'll start with our first priority, our focus on people and culture. Embedded in our daily operations is our purpose, advancing health outcomes for all. McKesson is an impact-driven organization. We recognize that giving back to the community is important to our associates, and we continue to provide engaging and, most importantly, impactful ways for Team McKesson to do exactly that. In the third quarter, we had another successful Community Impact Day. where nearly 13,000 members of Team McKesson across North America volunteered to support nonprofits that provide food to people facing hunger. McKesson also held its annual Giving Tuesday, where Team McKesson's generosity resulted in $1.5 million in employee donations, with a portion of that matched by the McKesson Foundation, which will ultimately be distributed to 1,500 local, national, and global charities. In addition to the progress made by our employees, the McKesson Foundation donated more than $4 million to pharmacy schools to help increase workforce diversity and improve overall health outcomes for vulnerable populations. These grants, which range from one to five years in duration, will support various pharmacy school education and community outreach programs. The innovative student support, professional development, and community outreach that the McKesson Foundation is funding through these pharmacy school partnerships will help transform patient pharmacist interactions, which we believe will lead to improved health equity and patient outcomes for vulnerable populations in their respective areas. I'm proud of our talented team, as their dedication, hard work, and innovation enables our business to positively impact our partners, our customers, and our communities. Our next priority is to evolve and grow the portfolio. We continue to evolve and grow our capabilities, ensuring that our capital deployment is tightly aligned with where we have the best growth opportunities. This led us to our decision to exit the European region, as well as a handful of smaller businesses over the last several years. We're progressing on our plans to exit the European region and have successfully exited 11 of the 12 countries we operated in. We remain committed to exploring strategic alternatives for our business in Norway, which is the only country we have not yet divested. These actions allow us to focus our resources on areas that support our long-term strategy. It's provided us additional flexibility to invest internally or to look externally to expand our oncology and our biopharma ecosystems, which aligns well with our next company priority. We have made meaningful progress expanding our oncology and biopharma ecosystems, as exemplified by the strategic investments made year to date. McKesson recently announced that the U.S. Oncology Network the US's largest oncology practice management organization, has continued to expand its geographic footprint with the addition of two new practices, Epic Care in California and Nexus Health in New Mexico. Both are now part of the US Oncology Network as of January 1st, 2023. These practices offer a wide range of specialties, enabling more comprehensive care that helps ensure patients can conveniently receive the care they need in their local communities. during their entire treatment and healing journey. And we're excited by the new opportunity that our joint venture with Sarah Cannon Research Institute, as well as the acquisition of Genospace, bring to our overall oncology ecosystem. I'm pleased with the substantial progress we've made in the development and expansion of our oncology ecosystem. This progress supports the solid performance of the U.S. pharmaceutical segment as we further our long-term growth strategies. We will continue to evaluate internal and external opportunities to invest, to grow, and to evolve this business. In addition to our ecology assets and capabilities, our biopharma services platform remains another priority area of growth. Over the last several years, we've systematically built and acquired an ecosystem of assets that complement each other and are more valuable together than as separate standalone solutions. Together, these assets leverage our network reach, technology, and clinical expertise to enable better access and affordability of medications, which ultimately improves patient outcomes and impacts real lives. We started building this business in 2006 with the acquisition of Relay Health, which gave us connectivity to over 50,000 pharmacies. We've been able to integrate value-added services right into the workflow so that we can help their processes be more seamless and give the customer the experience they need and deserve. We then acquired CoverMyMed, the long-term partner of McKesson, in 2017. This expanded our network by providing connectivity with over 750,000 providers. The integration of CoverMyMed's automation solution alleviates some of the friction out of the workflow providers, improving overall access for the patient. RxCrossroads brought a scale in the business that we already had, a hub services and patient support program, and they expanded our clinical expertise across many new therapeutic areas. In 2020, recall, we brought these businesses together as prescription technology solutions so we can migrate from providing individual offerings to a more comprehensive end-to-end suite of solutions. This enabled us to enhance our value proposition and to help find and get patients started on appropriate therapy more quickly. Most recently, we acquired RxSaving Solutions, which helps employers and health plans reduce prescription drug costs by utilizing its advanced analytics capabilities. It's more than just price transparency. It really gives members insight and actionable guidance that can drive savings and improve health outcomes for patients. So by bringing these businesses together, Relay, Cover My Med, RxCrossroads, RxSaving Solutions, Our McKesson's prescription technology solutions connects pharmacies, providers, payers, and biopharma manufacturers for really next generation patient access, affordability, and adherence solutions that are automated and integrated into provider workflows. Some of my meds now processes approximately 21 billion pharmacy transactions annually on behalf of patients to support medication access and affordability. We continue to build and invest in innovative products that allow McKesson to provide unique insights and capabilities to our customers. And these investment dollars are reflected in our results in the segment year to date, as well as in our fiscal 2023 outlook. During the third quarter, we continued to organically invest in this segment as we position our products and services for sustainable long-term growth. The investments have enabled us to expand the network and connectivity, develop new solutions, and meet the growing demands of our customers. While we continue to invest and grow the platform, we're also always assessing opportunities to evolve and streamline the portfolio to ensure our resources and investments are focused on the products that bring the most value to patients. This business saw substantial momentum coming out of COVID-19 pandemic as our biopharma manufacturers continue to bring more brands to our platform and prescription utilization trends continue to improve. These factors led to strong adjusted operating profit growth in this segment. in recent fiscal years. We remain confident in the overall trajectory in this segment and our financial target of 11 percent growth, and we will continue to reinvest profit into this business to accelerate this business over the long term. The investments made in oncology and biopharma ecosystems have been possible largely due to the longstanding growth in our sustainable core distribution businesses, which are our fourth company priority. As we exit the European region, we've been able to focus our efforts on our North American businesses. Our teams are continuously evaluating how to drive efficiencies in our core operations, whether that's leveraging a more modernized platform that allows us to act with more speed and agility, or ensuring we have the optimal talent and resources to help these businesses succeed. The fundamentals of our U.S. pharmaceutical and medical surgical solution segment remain strong. The work that Team McKesson has done to streamline process and efficiencies combined with positive prescription volume and patient utilization trends reinforces our confidence in our long-term growth targets for our North American distribution businesses. In the U.S. pharmaceutical business, I'm excited to announce that our contract to extend our pharmaceutical distribution partnership with CVS Health through June of 2027 has been finalized. Our longstanding partnership with CVS further exemplifies the value of our scaled distribution capabilities. The performance of the core operations in our North American distribution business enables strong cash flow generation that's allowed McKesson to continue to innovate and become a leading diversified healthcare services company. We believe we've made significant strides against our strategic priorities to focus on our people and culture, to grow and evolve the business, to invest in our oncology and biopharma services ecosystems underpinned by the sustainable core growth in our distribution businesses. Let me shift gears just a bit. McKesson has also made progress recently to address environmental sustainability. In January, McKesson received approval by the Science-Based Targets Initiative for its near-term climate change targets that contribute to reducing its greenhouse gas emissions. Our SPCI targets serve as another example of our commitment to sustainability and our response to climate change. We look forward to leveraging the advancements in climate-related technologies that will address these environmental challenges while also enhancing our business and helping to fulfill our company purpose of advancing health outcomes for all. We will, of course, continue to provide updates on our progress to stakeholders on these targets as well as our ongoing ESG-related initiatives on future calls. As an organization, we're also committed to advancing diversity, equity, and inclusion. McKesson was recently recognized by Newsweek as one of America's greatest workplaces for diversity in 2023. We're quite honored that Newsweek recognizes McKesson's ongoing efforts to be a more diverse and inclusive employer. All right, let me wrap things up. We are pleased with our solid results in the third quarter as we delivered on our growth strategy and as a diversified healthcare services company. McKesson's talented employees continue to demonstrate exceptional performance. And our third quarter results reflect their dedication and our execution together as a team in a dynamic operating environment. It also highlights the resiliency of our portfolio of businesses and solutions. Thank you all for your time. With that, Britt, I'm going to toss it over to you for additional comments on the financial results.