McKesson Corporation

Third Quarter Fiscal 2024 Earnings Conference Call. Please be advised that today's conference is being recorded. At this time, I would like to turn the conference 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 2024 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 at our website at investor.mckesson.com and to the risk factor section of our most recent annual and 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, may 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. With that, let me turn it over to Brian.

Thank you, Rachel, and good afternoon to everybody. Thanks for joining our call. McKesson reported a really solid fiscal third quarter, highlighting the continued momentum across the business. We delivered total revenues of $80.9 billion and adjusted earnings per diluted share of $7.74, both of which grew by double digits when compared to the prior year. As a result of the recent performance and our latest outlook, we are raising and narrowing our guidance range for fiscal 2024 adjusted earnings per diluted share from $26.80 to $27.40 to an updated range of $27.25 to $27.65. This solid financial performance is driven by the focused execution against our company priorities. As a diversified healthcare services company, we are uniquely positioned to improve healthcare in every setting. This includes the areas of oncology and biopharma services. We continue to make significant progress in advancing our strategy and priorities, and I'm pleased to share some of the updates with you today. Let me start where I always like to start, and that's with our focus on people and culture. I start here because it's foundational to everything we do at McKesson. In January, our board of directors welcomed Kevin Ozan as a new independent director. As the former chief financial officer of McDonald's Corporation, Mr. Ozan has over two decades of experience in both strategy and finance, and will contribute a valuable perspective to our boardroom. We look forward to his leadership as we work together to deliver on our growth initiatives. Driving the growth of our company requires a talented and diverse leadership team, and equally important, a diverse workforce where each individual is empowered to bring their own opinions, their own ideas, and perspectives. Our commitment to best talent and inclusion is reflected in every aspect of our operations. It's how we build a support network for our employees and how we each live these values through everyday interactions. And I'm pleased to see our efforts being recognized. For the 11th consecutive year, McKesson was named as a military-friendly employer. We were also recognized by Newsweek as one of America's greatest workplaces for diversity and a Quality 100 award winner by the Human Rights Campaign. I'm proud of what we've achieved as a team, and I'm truly grateful to the McKesson employees for upholding our culture, values, and delivering for all of our stakeholders, our patients, our customers, our partners, our shareholders, and importantly, each other. Moving on to our next priority of driving sustainable core growth, in the fiscal third quarter, we saw good performance in our distribution businesses. In U.S. pharmaceutical, adjusted operating profit grew 6%, reflecting broad-based momentum within the segment. We continue to enhance our scale distribution network, improving efficiency through investments in automation and technology. Over the past year, we opened two new distribution centers in the US that are equipped with innovative technology and employee-friendly design. These enhancements will enable our facilities to pick, pack, and ship medications to customers faster, while simultaneously helping to optimize employee productivity levels by reducing redundant tasks. The investments in our foundation Foundational distribution assets continue to support the growth of our business and the success of our customers. During the third quarter, we saw solid volume increases across customer channels, which includes distribution to retail national accounts customers. At the consolidated level, prescription volume growth remains stable. Certain product categories, including specialty pharmaceuticals and GLP-1 medications, continue to grow at a faster pace and contribute as a tailwind to our revenue growth. As a reminder, we anticipate the growth from GLP-1 medications to slow in our fiscal fourth quarter, reflecting the inflection in volumes for these medications in the fourth quarter of fiscal 2023. In the medical surgical segment, primary care visits showed modest improvement on a sequential basis after we observed general market moderations last quarter. The improvement was partially driven by overall increase in primary care visits. However, when compared to the prior year, patient visit volumes in the medical segment remain a headwind to this quarter's performance. In the international segment, our Canadian business continues to perform well. It has a valuable portfolio of assets, including pharmaceutical distribution, retail pharmacies, digital offerings. We're committed to strengthen and grow the business there. And as a part of that commitment, we're executing on a multi-year initiative that will modernize the distribution centers across Canada and deliver significant value to our employees and customers. Let me now continue on to talk about our oncology and biopharma platforms. We continue to build on the foundation of core distribution capabilities, but we have strategically assembled a differentiated set of assets in oncology and biopharma services. Within the oncology business, the U.S. Oncology Network expanded its footprint by entering the state of Tennessee. Over the past quarter, we welcomed two new practices. Nashville Oncology Associates, and SCRI Oncology Partners to the network. Through the combination of onboarding new practices and organic growth, the U.S. Oncology Network has grown its provider base to over 2,500, spreading across nearly 600 sites in 30 states. The expansion of the network strengthened our unique market position in community-based oncology practices and demonstrates our strong value proposition to providers. Through the US Oncology Network, we provide a range of comprehensive solutions to ease the administrative and operational burden and to help enable the success of these community practices. In the past quarter, we started integrating new artificial intelligence capabilities into the network, assisting providers with revenue cycle management and evaluating clinical solutions. With the help of AI and machine learning technologies, practices will be able to navigate complex insurance coverage and reimbursement processes more efficiently. allowing providers to spend more time focused on their patients. Within the biopharma services business, we continue to see strong market demand for our differentiated solutions that help improve access, affordability, and adherence to medications. In this fiscal third quarter, the prescription technology solution segment delivered strong performance, primarily driven by the growth in access solutions, including prior authorization solutions for branded pharmaceuticals, such as GLP-1 medications. Today, we provide prior authorization services for the vast majority of the GLP-1 medications in the market. Our integrated technology streamlines the prior authorization process and helps overcome medication access challenges that patients are facing. The main customers we serve are biopharma companies, and through our scaled network connection, we can electronically process requests both at the pharmacy counter and the provider's offices. The prior authorization solution is an example of the power of our capabilities and is part of a broader portfolio of patient support services we provide. We believe our solutions are highly differentiated and provide value to all stakeholders through a patient's journey. We're connected to over 50,000 pharmacies and approximately 900,000 providers. The scale of our network provides a strong foundation that enables us to reach key stakeholders effectively and seamlessly. The integrated solutions we offer can often be accessed through a single digital entry point. For our biopharma customers, the integration helps streamline workflows and increase transparency into how programs work together. In the past quarter, our team has been working diligently to prepare for what we call the blizzard season. For the prescription technology solution segment, our fiscal fourth quarter is usually the busiest time of year due to customer annual verification activities. The annual reset of insurance policies typically drives a large influx of seasonal volumes for many of our programs. Each year our teams come together to tackle the challenge of these significant volume increases. I'm pleased to report that we're on track to deliver another successful blizzard season that is in line with our expectations. Our products and solutions in both oncology and biopharma services provide significant value to our customers as reflected in the continued growth of these businesses. We're excited about the market opportunities in both areas, and we're confident in the scale and depth of our assets and expertise. We will continue to invest and innovate to support the evolving needs of our customers and their patients. So let me pull it all together. McKesson reported another solid quarter in fiscal 2024 that allowed us to raise and narrow our full-year guidance for adjusted earnings for diluted share. We're committed to our shareholders to delivering long-term sustainable growth. And this quarter's results reflect the continued progress in delivering on our commitment. Healthcare is an ever-evolving market, but thanks to the hard work and dedication of our employees, we never stopped finding new ways to drive positive impacts on our customers and their patients. I want to thank the over 50,000 McKesson employees who are working so tirelessly to advance our mission. And with that, I'll hand it over to Britt for some additional insights and comments.