McKesson Corporation

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 third quarter fiscal 2025 earnings call. Today, I'm joined by Brian Tyler, our chief executive officer, and Britt Bidelone, 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 most recent annual report and other FTC 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 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. With that, let me turn it over to Brian.

Thank you, Rachel, and good afternoon, everybody. Thanks for joining the call. Earlier today, McKesson reported strong third quarter results, delivering another quarter of double-digit growth in operating profits. Our team executed against our company priorities with focus and unwavering dedication. Thanks to their commitment, we are expanding our differentiated capabilities, driving operational efficiencies, and creating real value for our partners and shareholders. Yesterday, we were excited to announce the signing to acquire a controlling interest in Prison Vision, which is a provider of general ophthalmology and retina management services. This marks an important step as we continue to enhance our specialty services platform and capabilities. I'll share additional details about the transaction a little later in my comments. Let's move on to the third quarter results. During the quarter, revenue grew 18% to $95.3 billion, and adjusted operating profit grew 16% to $1.5 billion. Adjusted operating profit grew across all segments, led by strong double-digit growth in U.S. pharmaceutical and prescription technology solution segments. In a medical-surgical, growth was lower than anticipated, primarily driven by the late start of a softer illness season. The strength of the enterprise and the scale of our assets gave us the confidence to increase and narrow our full-year guidance for adjusted earnings per diluted share from $32.40 to $33 to a new range $32.55 to $32.95, which represents 19% to 20% year-over-year adjusted EPS growth. Today, I'm excited to share with you the great progress we've made in the past quarter, which is key to the financial results we delivered today, and more importantly, to the long-run growth of the business. Then I'll turn it over to Britt for more details in the financial review. I want to start with our focus on talent and culture, which is foundational to our company strategy and everything we do here at McKesson. We value the breadth of backgrounds, experiences, and skills of our team members, and that includes our board of directors. Earlier this week, our board of directors elected two new members to our board, Lynn Doty and Dr. Julie Gerberding. Ms. Doty brings accounting and finance expertise from the board from her experience as the former chair and chief executive officer of KPMG. Dr. Gerber-Ding brings extensive executive experience in the healthcare industry and public policy arena. She was formerly the chief executive officer, or is currently the chief executive officer at the Foundation for National Institutes of Health, and formerly the executive vice president and chief patent officer at Merck and a former director of the CDC. Ms. Doty will serve on our audit committee and finance committee, and Dr. Gerber-Ding will serve on our compliance committee and the compensation and talent committee. These additions are yet another example of our best talent philosophy at work. We look forward to their leadership as we work together to continue to drive the growth of the company. Let's move on to our second priority at strengthening the distribution capabilities and performance in North America. Within the U.S. pharmaceutical segment, the utilization trends remain stable, leading to solid volume growth in the underlying business. The strong performance in the quarter is underpinned by our scale distribution capabilities across multiple therapeutic areas and our ability to provide exceptional services to our customers. One of the channels we serve is community pharmacies, which play a critical role in bringing accessible care to patients. Recently, we launched a strategic initiative to help protect critical pharmacy services and to elevate the pharmacy professions. We will provide funding support to eligible community pharmacy associations across all 50 states to help meet their advocacy goals and strengthen their voice in the community and the role of the community pharmacy industry. Within the medical surgical segment, we've strategically positioned this business to be focused on the alternate site markets. One of the market dynamics that impacts this segment is the annual illness, flu, or respiratory season. Each illness season is unique, including its onset, its severity, and how long it lasts. During the quarter, we observed lower than anticipated volumes related to the illness season, which impacted the third quarter results. Market data shows that the number of flu-like illness cases was lower than the average of the last five non-COVID years and below the prior season. The softer illness season impacted demand of seasonal vaccines, illness, testing, and foot traffic in primary care sites. This development, coupled with the general market weakness in the primary care channel we've called out for the prior two previous quarters, posed a challenging market backdrop for the segment. Despite the impact of the market trends, we remain confident in our strategy in the alternate site market and the strength of the underlying business. We continue to take immediate and effective actions to better align our service model and capabilities with our customer needs and the market demand. In the past quarter, we made important progress in the business rationalization initiatives that were previously announced. Thanks to the focus from our team, we're on track to complete the rationalization plan by the first half of fiscal 2026 and deliver meaningful savings as expected. Moving on to our two strategic growth pillars, oncology and biopharma services platforms. Over the years, we've continually invested and expanded our oncology assets in alignment with our stated strategy. The oncology market continues to be the largest growing therapeutic category and is one reason we continue to invest in this area. We've built a portfolio of assets that include distribution of oncology drugs and value-added services that improve the cancer care journey. Through the U.S. Oncology Network, we empower the delivery of advanced and integrated cancer care in the community setting, which is often closer to home and more cost effective for the patient. We're pleased to see the continued expansion growing to over 2,750 providers across 640 sites of care in 31 different states. We provide resources and support to these community oncology practices to empower their growth and ultimately improve the patient experience and the outcomes of cancer care. We also provide clinical trial services to community-based practices through the Sarah Cannon Research Institute Joint Venture, which we often refer to as SCRI. Last year, the patient accruals through clinical trials increased 25% within SCRI. It participated in the development of 33 of the 47 therapies approved by the FDA. We're excited to bring more innovative and life-changing therapies to community-based practices and their patients. As we continue to advance our strategy on oncology and other specialties, we've also been evaluating opportunities in other therapeutic areas. Last year, we acquired certain assets from U.S. Retina and launched a new GPO program called OnMark Vision. We also have RetinaOS, a clinical workflow and inventory management technology that streamlines inventory revenue and payments management. All of these assets are building blocks for the acquisition that we announced yesterday. We're excited to sign an agreement to acquire a controlling interest in Prism Vision. Its affiliated practices include 180 providers, 91 office locations, and seven ambulatory surgery centers. Similar to our strategy on oncology, we see an exciting opportunity in retina and ophthalmology given its attractive drug pipeline speed and innovation, and practitioners' needs for additional support and services. We have a great track record of building and growing the oncology platform over the past several years. We're taking a similar approach to the expansion in retina. We are strategic and thoughtful in building these platforms and creating a portfolio of assets that complement each other and reinforce each other. The transaction is subject to customary closing conditions, including necessary regulatory clearances, We look forward to advancing retina and ophthalmology patient care through a meaningful platform of distribution and other value-added services. On to our biopharma services platform. We offer a portfolio of solutions that connect biopharma companies, providers, pharmacies, and payers to improve the access, affordability, and adherence of medications. In the third quarter, the prescription technology solution segment delivered strong performance in line with our expectations. Growth accelerated in the quarter, reflecting strong demand across our product solutions. One of our value-add solutions is prior authorizations, which automate the process and give patients access to their prescriptions faster. But in addition to prior authorizations, we're seeing continued growth from many other solutions. In the fiscal third quarter, we added access and affordability support for pharma brands that span across 30 indications and more than 12 therapeutic areas. We're pleased to support a diversified portfolio of brands with their unique needs and ultimately make these medications more accessible and affordable to providers and patients. Biopharma services is a strategic growth pillar for us, and we continue to invest strategically to support its growth. In the past few quarters, we've updated the user interface of our key customer systems, enhanced the core technical infrastructures, and improved the overall user experience. These updates help us support customers and a more efficient manager as we ramp up the annual verification program in our fiscal fourth quarter. Looking across our business segments, we've built a large and a diversified portfolio of assets. It is part of our continuous practice to assess this portfolio for strategic alignment. In December, we completed the divestiture of the Rexall and Well.ca businesses. This allows us to focus and prioritize investments in other strategic areas. As Canada's largest pharmaceutical distributor, we continue to invest and modernize our distribution network, introducing automation and technology to improve efficiency. We're also growing a set of biopharma solutions that include third-party logistics, patient care services, and data insights. So let me try to sum up the quarter. McKesson delivered strong quarterly results in fiscal 2025. Three of our four business segments grew adjusted operating profit at double-digit rates in the quarter. That represents over 80% of our business growing AOP in double digits and highlights the strong momentum across the enterprise. The fundamentals of our business remain strong and we're taking strategic actions to enhance our differentiated portfolio, to drive operational efficiencies, and to modernize the enterprise. We're confident in our market positions and pleased with the momentum we're building across the business. Looking ahead, we're focused on delivering a strong finish to fiscal 2025 and driving sustainable long-term growth in the years ahead. With that, I'll hand it over to Britt for some additional insights and comments.