McKesson Corporation

Ladies and gentlemen, welcome to McKesson's second quarter fiscal 2025 earnings conference call. Please be advised that today's conference is being recorded. At this time, I'd like to turn the conference over to Rachel Rodriguez, vice president of investor relations. Please go ahead, ma'am.

Thank you, operator. Good afternoon and welcome everyone to McKesson's second quarter fiscal 2025 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 discussions 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 most recent annual report and other SEC filings for additional information concerning risk factors that could cause our actual results to 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. 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. Thank you. Appreciate you joining our call. Today, McKesson reported solid performance in our second quarter, generating record quarterly revenue of $93.7 billion. Adjusted operating profit increased 7% to $1.3 billion, and adjusted earnings per diluted share increased 13% to $7.07. We generated strong cash flows in the quarter, allowing us to return more capital to shareholders and to make strategic investments to support the future growth of the business. We're pleased with the continued progress in our differentiated oncology and biopharma services platforms and in the strength of the pharmaceutical distribution business. Our company priorities remain the cornerstone of our enterprise strategy and a foundation for the positive impact we're driving as a diversified healthcare services company. The second quarter results in our improved outlook for the full year led us to increase our fiscal 2025 guidance for adjusted earnings for diluted share from the previous range of $31.75 to $32.55 to an updated range of $32.40 to $33. Before we jump into the discussion of the business, I thought it appropriate to just acknowledge the news that's probably top of mind for everyone. 2024 presidential and congressional elections. Like many of you, we've been watching closely, including and evaluating the views and potential implications for healthcare policy. And I would just say at this point that consistent with our longstanding bipartisan pragmatic approach to this, we look forward to engaging and working with the new administration and the new Congress on these important health policy issues. We feel we have a unique responsibility to leverage our resources and tools to educate and advocate for the policies that are most in line with our purpose of advancing health outcomes for all. Public policy is an element of the ever-evolving landscape in which we operate. Healthcare has been and will continue to be a dynamic market. I thought it appropriate to share a few observations about the key market trends that have been impacting our business. First, we've seen consistent and stable pharmaceutical utilization trends, which support the growth of our distribution business. Through Claris One, our generic sourcing operation, we drive value to customers through competitive pricing and stable supply. And on the brand side, we're continuously engaged with suppliers to ensure that we deliver the highest quality of services and are fairly compensated for those services that we provide. Continued biopharmaceutical innovation, be it GLP-1 medication, cell and gene, or cancer therapies, or other scientific breakthroughs, bring really exciting opportunities for our solutions in oncology and biopharma services. Within the oncology platform, patient visits have grown steadily across the U.S. oncology network. Patient enrollment through Sarah Cannon Research Institute is increasing consistently as well, expanding availability and access to groundbreaking clinical trials. This growth enables us to empower more community-based providers and importantly to drive better patient outcomes. Within the biopharma services platform, we continue to see strong market demand for our commercialization services. Our growth is supported by the launch of new brand and specialty drugs, and we're strategically expanding our services to high-growth therapeutic areas. The growth of GLP-1 medications and related prior authorization services is just one example of the scale of our capabilities and how we can support biopharma in the commercialization process. Within the medical segment, We have built a strong presence across the alternate sites of care. The fundamentals of the market remain solid. We believe care will continue to shift to the alternate site spectrum. However, in the past two quarters, we have seen instances of weakness in the primary care markets as demand for certain categories of products have normalized in the post-COVID environment. In response to those recent trends, We've taken effective actions to drive operational efficiencies and to enhance our distribution capabilities and support of our customers. As we look across the business, we have built scaled assets that drive value for our customers, address the challenges in our healthcare system, and help shape the future of care. Regardless of the external environment, we're confident that our portfolio of services and solutions are highly differentiated in the market and provide unique value propositions to our customers and that they will continue to support long-term sustainable growth for the company. Let's shift gears a bit now. I thought I'd provide an update on our company priorities and strategy, and then I'll turn it over to Britt to provide more details on the financial aspects of the quarter. So as always, let me start with the focus on people and culture. Our talent is at the center of everything we do, and we care deeply about the development and the wellness of our team members. In October, employees across McKesson celebrated our annual Wellness Day, which we call Your Day, Your Way. This is a company-sponsored day off. It's our way to show appreciation for the hard work and dedication of our employees, giving them an opportunity to unplug, recharge, and take care of their physical and mental wellbeing. An important element of our culture is also to create an inclusive workplace where everyone can do their very best work and feel comfortable being themselves. Recently, we were named one of the best places to work for disability inclusion for the ninth consecutive year, earning a top-ranked score of 100. It's very satisfying to see our efforts to uphold an inclusive culture being recognized. Let's move on to our next priority, driving sustainable growth in our core distribution businesses. Within the U.S. pharmaceutical segment, we successfully onboarded a new strategic partner in the quarter, which contributed to the strong growth year over year. segment's results also reflect the breadth of our distribution capabilities and our commitment to drive operational excellence. In October, we launched a dedicated business focused on supporting the commercialization of cell and gene therapies called InspiroGene by McKesson. We've been building this business around cell and gene therapy within the U.S. pharmaceutical segment over the last few years, and the solution includes things like third-party logistics, specialty pharmacy services, tailored access and support services. This launch, though, marks a significant step in our efforts to address the complex challenges of bringing cell and gene therapies to market. InspiroGene will help leverage our unique capabilities across the oncology platform, too, ranging from clinical trial research to care delivery in the community setting. We are committed to improving patients' access to these life-changing cell and gene therapies. Moving on to our two strategic pillars of oncology and biopharma services. Within the oncology platform, we continue to grow the U.S. Oncology Network. In September, we were excited to announce that we signed an agreement to acquire a controlling interest in Community Oncology Revitalization Enterprise Ventures, or CORE Ventures. It's an internal business and an administrative service organization that was established by Florida Cancer Specialists and Research Institute which itself is a leading physician-owned community oncology practice. The transaction is subject to customary closing conditions, including required regulatory clearance. Following the close of the transaction, McKesson will own 70% of Core Ventures, and Florida Cancer Specialists will join the U.S. Oncology Network, bringing over 530 community providers across the state of Florida. They will have access to our drug purchasing services, our clinical trial services, as well as our InoMed electronic health records and all the other services available through our network. In the past quarter, we also welcomed the Illinois Cancer Care and Tennessee Cancer Specialist Group, adding 118 providers to the U.S. Oncology Network. The growth of the U.S. Oncology Network brings exciting opportunities for us to accelerate our oncology strategy, expanding and strengthening our services across the platform. On the close of CORE Ventures, we anticipate the U.S. Oncology Network will grow to approximately 3,300 providers across 740 sites of care in 31 states. Now let's move to the biopharma services platform. We have a portfolio of technology-driven solutions focused on improving access and affordability of prescription drugs. These are complex challenges faced by many patients and could directly impact their healthcare outcomes. I know most of you are familiar with our prior authorization service, which is an example of solutions targeted at improving patient access to medication. Our solutions allow providers to initiate electronic prior authorizations at the point of prescribing, which helps patients access their medications on average 13 days sooner than they otherwise would have. We also provide integrated tech-driven hub services that are designed to improve access to complex specialty therapeutics. As an example, once a patient's approved for the medication, our technology services can seamlessly enroll them in a hub program that would provide them with a range of supporting services, including fulfilling insurance requirements, coordinating financial assistance, and others. Our solutions integrate a streamlined electronic platform with human intervention, ensuring patients' needs are supported in a timely and efficient manner. Within the affordability portfolio, our automatic coupon programs help apply co-pay savings at the point of dispensing. We also provide an electronic prescription service that eliminates paper prescriptions and faxes, which increases the efficiency, safety, and quality of the prescription medication process. These solutions provide price transparency and empower providers to make the best prescription decisions, helping biopharma address cost barriers proactively, and most importantly, bringing more affordable options to patients. During the second quarter alone, our affordability programs enabled patient savings of over $2 billion in out-of-pocket costs. Moving on to our next priority of modernizing and accelerating the enterprise, we deeply believe that driving sustainable growth requires continuous improvement in how we operate the business and in how we interact with customers. In the past quarter, we launched a series of company-wide strategic initiatives to help us strengthen the business platform, improve operational efficiency, and better serve our customers. Some examples include modernizing our cloud services, leveraging AI and automation to enhance the customer experience. The continued focus on investments in technology application led us to a collaboration between Ontada and Microsoft. Together, we'll utilize Azure AI, help efficiently process more than 150 million unstructured oncology documents, significantly improving the ability of Ontada to extract valuable clinical information. I think this project is a good illustration of the value of the actions we're taking, which will not only generate short-term savings, but we believe further differentiate our capabilities and accelerate the growth outlook of the business. During the second quarter, we also announced an agreement to sell our Rexall and Well.ca business in Canada. This transaction will enable us to focus and prioritize investments to further expand and grow on our two strategic pillars. Meanwhile, we remain fully committed to and competent in the strength of our Canadian distribution and biopharma businesses. Let me wrap things up before handing it over to Britt. McKesson reported a solid fiscal second quarter, underpinned by focused and disciplined execution across the enterprise. I'm extremely proud of what Team McKesson has achieved in advancing these important company priorities. We delivered strong growth in the pharmaceutical distribution business, made impactful investments in our strategic growth pillars, and took effective actions to modernize and accelerate the enterprise. We're confident that these actions will strengthen our business and continue to support our sustainable long-term growth. And with that, I'm going to hand it to you, Britt, for additional insights into the Q2 financials.