McKesson Corporation

Welcome to McKesson's fourth 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 call over to Jenny Dominguez, VP of Investor Relations. Please go ahead.

Good afternoon and welcome everyone to McKesson's fourth 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'll move into 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 and periodic SEC filings for more 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. Presentation slides also include a summary of our results for the quarter and guidance assumptions. With that, let me turn it over to Brian.

Thank you, Jenny. Good afternoon, everyone. Thanks for joining our call. Today, we reported fiscal fourth quarter results, marking a strong finish to fiscal 2025. Thanks to the collective efforts of our 45,000 employees, Team McKesson delivered on a really tremendous year. We continued significant momentum in advancing our strategy as reflected in the fiscal fourth quarter and full year financial results. Full year consolidated revenues grew 16% from the prior year, reaching a record level of $359 billion. Adjusted earnings per diluted share was $33.05, exceeding our expectations. We delivered year-over-year EPS growth of 20%, which is above long-term growth targets of 12% to 14% EPS growth. We also generated strong cash flow and returned $3.5 billion of cash to shareholders. Underpinning the strong financial performance is our successful execution of our company priorities. I want to take a few minutes and highlight some examples of the incredible work Team McKesson has achieved this year. First, we made strategic acquisitions that will accelerate our strategy in oncology and other specialties, including the completed acquisition of a controlling interest in PRISM Vision and the pending acquisition of a controlling interest in Community Oncology Revitalization Enterprise Ventures, or CORE Ventures. These additions mark an important step as we continue our efforts to empower community-based providers and improve care experiences for patients. I'll share more about these acquisitions in just a moment. Secondly, we strengthen our core distribution capabilities through targeted investments in technology and infrastructure. Our team continues to deliver on operational excellence and quality customer service. Our differentiated customer value proposition is reflected in the successful onboarding of several new customers including a new strategic partner during fiscal 2025. The last thing I'll mention is initiatives that we launched that will accelerate and modernize the enterprise. Throughout the company, our teams are identifying and capturing opportunities, including the use of technology, automation, and AI that will allow us to strengthen the business platform, improve operational efficiencies, and enhance our financial profile, all while better serving our customers. This exceptional execution and growth are a testament to the hard work of our employees, and I'm grateful for their dedication, their passion, and their unwavering focus to advance our mission. The continuous advancement and successful execution of our strategy, along with our strong performance in fiscal 25, has ensured a foundation for success as we look forward. Today, we initiated our fiscal 2026 guidance, reflecting our confidence to extend the momentum further enhance our differentiated capabilities, execute on our strategy, and ultimately advance health outcomes for all. I want to focus my comments today on the strategies that have been and we believe will continue to be the center of our company's focus. And then I'm going to turn it over to Britt for more of the financial details, including the fiscal 2026 outlook itself. As always, let me start with our focus on people and culture, which underpins all of our success. We operate in an ever-evolving health care landscape where Our change, quite frankly, happens fast. It's important to me that we empower our employees with the right tools and the resources to drive innovation and improve efficiency. We provide training and skill development designed for employees at all levels of the organization, individual contributors, frontline managers, people leaders. We cover a range of skills from managing and leading teams to performance development to technology and AI. Developing our talent creates an environment where our teams can better serve our customers our customers' patients, and each other. We will continue this investment in our people as we invest to grow our future. Moving on to our two strategic growth pillars, oncology and biopharma services. We continue to enhance our differentiated capabilities in our oncology platform. In the past year, the U.S. Oncology Network welcomed two new practices, Illinois Cancer Center and Tennessee Cancer Specialists, growing the total provider count to over 2,700 across 645 sites in 31 states. Through these community-based oncology sites, more than 1.4 million patients receive high-quality care close to home every year. This past year, we announced an agreement to acquire a controlling interest in Core Ventures, a business and administrative services organization established by Florida Cancer Specialists and Research Institute. I'm pleased to share that we have cleared regulatory approval and expect to complete the acquisition on June 2, 2025, subject to customary closing conditions. After completion, Florida Cancer Specialists, along with its 530 providers, will become a member of the U.S. Oncology Network. One of the rising challenges of the cancer care experience is managing the sustainability of health care costs. In the past decade, we've invested in and we've supported the community-based oncology providers. We believe the community-based setting is an important channel that provides high-quality and lower-cost options to patients, including those in underserved communities. We have been a proponent of policies and reforms that will improve access to treatment in local communities and increase financial sustainability for patients. A good example of this is our participation in value-based care programs. The practices within the U.S. Oncology Network are leading the way in finding opportunities to reduce the treatment costs and enhance quality in oncology. Seventy percent of the physicians in the U.S. Oncology Network participate in the enhancing oncology model. At the network level, we support practices with the necessary resources and transformational strategies to excel in this initiative. In the recently reported first performance period, over 90% of the participating practices reduced cost versus benchmark, driving meaningful savings to patients and advancing the cancer care experience. Beyond opportunities in oncology, we're also building capabilities in other specialties where we see the opportunity for us to create differentiated platforms as we have done in oncology over the past decade. In April, we closed the acquisition of a controlling interest in Prism Vision, a provider of general ophthalmology and retina management services. This is a quite logical expansion for us when we think about community-based care. We'll be able to build on the recent capabilities we've developed around the GPO and other value-added services in the ophthalmology and retina space. Our team is working diligently on integrating the business, and we look forward to this new growth opportunity for McKesson and supporting more practices to provide world-class eye care. Moving on to our biopharma services platform, the prescription technology solution segment delivered a strong year with double-digit growth and adjusted operating profit. Business growth was supported by continued strong demand for our access and affordability solutions, new business wins, and a growing network of digital connections to providers and pharmacies. In the past year alone, we helped patients save more than $10 billion on branded specialty medications. We helped to prevent an estimated 12 million prescriptions from being abandoned due to affordability challenges. And we helped patients access their medicine more than 100 million times. Fiscal fourth quarter is typically the busiest time of year as we support patients with their annual verifications. This year, we delivered a particularly strong season, supporting a record number of 3 million patients in their journey to access the medicines they need. Our team achieved high levels of efficiency by leveraging technology to optimize processes and streamline the operation. As an example, in this past season, we were able to leverage our CoverMyMeds virtual assistant to automate more than 20% of chats within the patient support center, while importantly maintaining customer satisfaction scores equivalent to those of live agent interactions. As I reflect on our progress in enhancing our oncology and biopharma platforms, it's hard not to be proud of what Team McKesson has achieved. These two strategic growth pillars continue to represent attractive market opportunities, and we will continue to drive our mission forward with innovation, speed, and focus. Now, let me move on to our next strategic priority centered around disciplined portfolio management. We have a portfolio of differentiated assets, and as part of our continuous practice to evaluate the businesses for strategic alignment, which enables us, in turn, to have more focus and investment in our growth pillars and allows us to efficiently deploy capital. In the past, this has led to several actions like the spinoff of Change Healthcare, the divestiture of our European businesses, and most recently, the divestiture of the Canadian retail business. These actions have unlocked value for the business and created significant value for our shareholders. Today, we are announcing our intent to separate the medical surgical segment into an independent company. Over these past years, we have built a really great medical business focused on what we think are the most attractive markets in the alternate sites of care. We have a dedicated and experienced team that works closely with customers to provide the best quality of service. Since we started reporting this segment in fiscal 19, the business has delivered consistent and solid growth. We continue to enhance our strategic focus. A separation transaction is an important step to focus capital deployment on opportunities that align with the long-term enterprise strategies and further invest in strategic growth areas like oncology and biopharma services. We believe this action will unlock significant value for the medical business and for McKesson. It will result in two well-capitalized, at-scale, world-class companies that are well-positioned to pursue their respective strategies and growth priorities. We expect the medical surgical business will continue to deliver exceptional value to its customers and patients as a differentiated medical surgical supply and solutions company. We have started the process to explore the right transactions. We anticipate providing you with additional information, including timeline and structure when appropriate. Britt will also share more details with you on the assumptions in the fiscal 2026 guidance. Moving on to our core distribution businesses, the U.S. pharmaceutical segment delivered strong performance with double-digit growth in revenue and adjusted operating profits. Our team demonstrated exceptional execution to support the significant growth of the business. We saw broad-based strength across the segment and stable market fundamentals, including solid pharmaceutical utilization trends. Our scaled capabilities and specialty distribution and our deep channel expertise continue to position us well to support this fast-growing category of pharmaceuticals. The strength of our business is also a reflection of the strength of our customers. They are at the center of everything we do, and we're pleased to serve them as a pharmaceutical distributor and long-term strategic partner in enabling quality patient care. Our Canadian business, which makes up the majority of our international segment, also had a year of strong operational growth led by the pharmaceutical distribution business. In the medical surgical segment, we finished the year in line with our expectations. We took effective actions to better align our service model and our capabilities with customer needs and the market demand. These actions delivered meaningful savings in fiscal 2025 and positions this business for sustainable growth in the years ahead. As we look out and we look forward, We face the dynamic market environment with uncertainties and policies and the macroeconomic conditions. We continue to evaluate any potential impact to our company and make business planning decisions based on current policy and regulation. We're positioned with a strong sourcing program through a broad supplier base across the pharmaceutical and medical surgical businesses. The discipline execution of our sourcing programs has delivered great value to our customers and allows us to remain focused on driving cost efficiencies and maintaining consistent product availability. Let me sum things up before I hand it over to Britt. We delivered a strong fiscal year results with record revenue growth and meaningful strategic advancements. We have a large and diversified portfolio of assets, and driving 20% adjusted earnings per diluted share growth at the enterprise level takes tremendous focus, dedication, and disciplined execution. Thanks to the commitment of each and every member of Team McKesson, we're making remarkable progress in advancing our strategy and improving healthcare in every setting. Looking out, we have strong conviction in our strategy and our ability to consistently execute and deliver long-term value. Team McKesson is excited and committed to fulfill our mission and continue that momentum in fiscal 26 and beyond. With that, Britt, I'll hand it to you.