Good day, and welcome to the AmerisourceBergen Fourth Quarter Fiscal Year '21 Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Bennett Murphy, Senior Vice President, Investor Relations. Please go ahead.

Thank you. Good morning, and thank you all for joining us for this conference call to discuss AmerisourceBergen's Fourth Quarter and Fiscal Year 2021 results. I am Bennett Murphy, Senior Vice President, Investor Relations. Joining me today are Steve Collis, Chairman, President and CEO; and Jim Cleary, Executive Vice President and CFO. On today's call, we'll be discussing non-GAAP financial measures. Reconciliations of these measures to GAAP are provided in today's press release, which is available on our website at investors.amerisourcebergen.com. We've also posted a slide presentation to accompany today's press release on our investor website. During the conference call, we will make forward-looking statements about our business and financial expectations on an adjusted non-GAAP basis, including, but not limited to, EPS, operating income and income taxes. Forward-looking statements are based on management's current expectations and are subject to uncertainty and change. For a discussion of key risks and assumptions, we refer you to today's press release and our SEC filings, including our most recent 10-K. AmerisourceBergen assumes no obligation to update any forward-looking statements, and this call cannot be rebroadcast without the expressed permission of the company. You'll have an opportunity to ask questions after today's remarks by management. We ask that you limit your question to 1 per participant in order for us to get to as many participants as possible within the hour. With that, I'll turn the call over to Steve.

Thank you, Bennett, and good morning to everyone on the call. Today, we will focus our remarks on the exceptional progress that AmerisourceBergen team has made on our strategic priorities during fiscal 2021, and how we will capitalize on that momentum to continue executing and innovating in fiscal 2022. Before I begin, I want to take a moment to comment on the distribution industry's recent milestone regarding the proposed settlement agreement to address opioid-related claims of U.S. State Attorney Generals and political scout divisions in participating states. Throughout the litigation process, we have been consistent in stating our desire to addressing the enormity of the opioid challenge by bringing solutions to the table. If the industry's proposed agreement and settlement process leads to a final settlement, it would collectively provide thousands of communities across the United States with substantial financial support. Clearly, the process is in an advanced stage, and we will not comment deeply at this time. We take our role in the supply chain seriously and continue to work closely with stakeholders concerning these complex matters. AmerisourceBergen will continue to work diligently and alongside partners to combat drug diversion while supporting real solutions to help address the crisis in the communities where we live, work and serve. In fiscal 2021, AmerisourceBergen advanced its role as a key pillar of pharmaceutical innovation and access, as we look at our purpose of being united in our responsibility to create healthier futures by supporting our partners, customers and our own team members through challenging times. As the pandemic persists, the importance of our purpose in an evolving environment and an efficient global pharmaceutical supply chain is being felt by all our stakeholders. We are proud to be able to offer our expertise, capabilities and infrastructure as part of the solution on…

Thanks, Steve, and good morning, everyone. For AmerisourceBergen, fiscal 2021 was a momentous year as we celebrated the 20th anniversary of the Amerisource and Bergen Brunswick merger completed, both the acquisition of Alliance Healthcare and the extension of the Walgreens contract through 2029, and our teams delivered another year of strong performance, driven by our continued execution and strategic decisioning. Our pharmaceutical-centric business, robust customer relationships and leadership in specialty distribution and services position us to be a partner in supporting pharmaceutical innovation and access on a global scale. Before I turn to our results, as a reminder, my remarks today will focus on our adjusted non-GAAP financial results unless otherwise stated. Growth rates and comparisons are made against the prior year September quarter. For a detailed discussion of our GAAP results, please refer to our earnings release. I will provide commentary in 3 main areas this morning: first, I will review our consolidated results and segment performance in fiscal 2021, and then we will discuss our new reporting segments beginning in fiscal 2022 and will conclude with fiscal 2022 guidance. Beginning with our fourth quarter results, we finished the quarter with adjusted diluted EPS of $2.39, an increase of 26.5%, which was driven by both a full quarter's worth of contribution from Alliance Healthcare and the strong performance in our Pharmaceutical Distribution Services segment. Our consolidated revenue was $58.9 million, up approximately 20%, reflecting growth in Pharmaceutical Distribution and Other. Excluding Alliance Healthcare, our consolidated revenue would have been up 9% from the prior year quarter. Consolidated gross profit was $2 billion, up 51%, driven by increases in gross profit in both Pharmaceutical Distribution and other, which benefited from the inclusion of Alliance Healthcare. This quarter's gross profit margin of 3.4% is 71 basis points higher than the prior…

[Operator Instructions]. And the first question will be from Lisa Gill from JPMorgan.

Jim, I just want to go back to your comments around the U.S. drug distribution. I understand that there's a number of incremental businesses that are now within that segment, but you made a comment about COVID-19 therapies. So when we think about 2022, one, is there nothing built into your expectation around that? And two, just given the number of new therapies that are coming to market, for example, I think about the new Merck therapy that's just been announced, is it not reasonable to think that there's going to be some benefit as we go into 2022 for COVID therapies, would be my first question. And then secondly, can you just help us to understand the underlying trends? So for example, what are your expectations around utilization trends? What's your expectation around cough, cold, flu, acute scripts kind of coming back and people visiting the office -- the physician office again, et cetera. If you can just help us to better understand that, that would be great.

Lisa, thank you. Great question. I'll answer that question from a financial perspective, and then I think Steve will want to add in and talk a little bit more about the business. But as you know, our guidance for this year for our U.S. Healthcare Solutions segment, revenue growth of 2% to 5% and adjusted operating income growth of 3% to 6%. And it's based on continued strong performance really across the business, where we continue to benefit from our differentiated position. Now with regard to your question on COVID therapies, we don't expect to repeat the benefit that we had in fiscal year '21 from our exclusivity on the distribution of the main commercial COVID therapy. The benefit we got from COVID therapies in fiscal year '21, as I said in my prepared remarks, was $0.30. And kind of let me give you some of the breakdown there. During the first quarter, it was $0.14, second quarter was $0.07, third quarter was $0.03 and fourth quarter was $0.06. So I'm sure that will help you in your modeling. And as we're looking at fiscal year '22, we expect the benefit that we get in the first quarter of fiscal year '22 to be $0.03. So we have an $0.11 headwind in the first quarter of fiscal year '22. And so we do expect to have lower operating income growth in U.S. Health Care Solutions in the first quarter of fiscal year '20, but we -- of course, as I said, expect 3% to 6% operating income growth for the full year, which includes, of course, Q1. Now you asked about other COVID therapies. And of course, it's early, but we may very well get some benefit from other COVID therapies. And that's exactly why we have -- one of the reasons why we have a range, and we have a $0.30 range in our EPS between $10.50 and $10.80. We don't expect a lot of incremental benefit in the first quarter, but it could come later on in the year. Now you also asked about utilization friends, which is a great question. And we are seeing strong utilization trends across our business, which has improved sequentially from the positive trends that we noted in our third fiscal quarter. And prescription trends are strong and have returned to pre-COVID-19 levels. And we did see -- have seen strong utilization improvement trends across the business in the second half and expect that to continue to benefit us in fiscal year '22 across our businesses and customers. And I see that Steve would like to just add a couple of things on the overall business.

We're entering '22 with all of our businesses performing very well, Lisa, and benefiting from a somewhat normal environment, but it is the innovation factor that remains. And I saw that the Merck [indiscernible], while we're on the call, the Merck got approved in the U.K., an oral. So continued innovation and it's possible that we could be working with some therapies in the future, as we have in the past, particularly in the emergency use authorization phase is where we've been successful in working on an exclusive basis. So we're happy and very -- if I look back on '21, I think of it is a year that the last deal got done and the year that we responded so well to assisting with the need for corresponding to the COVID pandemic and including keeping our people safe. So that's what I think would be the highlights. But Jim, I think you gave an exhaustive answer. So we'll probably move on to the next question, please.

The next question will come from Charles Rhyee from Cowen.

Jim, I just wanted to follow up on the guidance, particularly in the International Health Care segment here. You said, you were planning to sell the Profarma Specialty business and said there was a 2% headwind. That's 2% headwind to the full year operating income, but it's not going to sell until -- so it's really double that for the back half of fiscal '22. And did you give a revenue impact as well?

Yes. No, we haven't given revenue impact, but you are right, it is a 2% headwind for the whole year. And we're assuming we're going to sell that business during the first half of the year. And of course, our International Healthcare Solutions segment is really driven by Alliance Healthcare being the largest part of the segment, and we feel very good about the performance of Alliance. It's operating at or above our deal model. And then the next biggest piece of the International Healthcare Solutions segment is, of course, our World Courier business, which is also performing well.

And the next question will be from Steven Valiquette from Barclays.

Basically, a lot of the discussion points around freight costs, the ability for drug distributors to pass some of that through or have to absorb that. There's a lot of components to that. It can be higher labor costs. It could just be higher fuel costs, et cetera. But just curious to hear about how you guys are handling that? And whether there's any impact in your business one way or the other? Or can you fully either pass that through or just not have that be as a material impact to the company?

Yes. I think really in the summary that it is fully reflected in our guidance. And in fiscal year '22, and we do expect to continue to have higher expenses associated with picking, packing, shipping. There are some offsets from certain other FY '21 expenses that are not planned to repeat in FY '22. But of course, we keep a close eye on economic trends that can impact our business, and we have seen wage and transportation inflation across our business. During the summer, we moved quickly to adjust wages to ensure that they remain competitive and market aligned, and that's reflected in our fourth quarter results. And these things, like higher labor and transportation costs, they're fully contemplated in our fiscal year '22 guidance, and we'll manage these expenses as we do each year and work with our partners and customers to ensure that we're diligent in maintaining our fair compensation for the services we provide.

The next question is from Eric Percher from Nephron Research.

I want to take the other side of the U.S. question asked earlier. So this also includes MWI animal, Xcenda. Is it fair to assume that that's growing more than the 3% to 6% for the total segment? Are there any headwinds coming out of fiscal year '21 we should be aware of? And then relative to the resegmentation, when we look at 3% to 6%, is that apples and apples? Are there any changes in corporate expense now allocated to the EU segment or the global service entity in Switzerland that would impact the 3% to 6%?

Yes. And so there aren't any changes in the corporate allocation, and when we add businesses like MWI Animal Health and the consulting businesses to U.S. Health Care Solutions, MWI has had a stronger growth rate, particularly in fiscal year '21, the Animal Health business really benefited from the pandemic and the increase in debt ownership. And so that has been a higher growth business in fiscal year '21, whereas the consulting business has been a lower growth business. And so I think that gives you a little bit of additional color there. And then one thing that we are doing today is, as I said in my prepared remarks, we are filing an 8-K where we'll show the segments. The 2 new segments will show that on a historical basis for fiscal year '21, and how they look in the fiscal year '21. And I think probably a key thing is that when we look at the U.S. segment for this upcoming year, we're expecting 3% to 6% growth, which is largely apples to apples because of the size of the legacy business that are going into the new segment.

And the next question will be from Jailendra Singh from Credit Suisse.

I was wondering if you could comment on the potential impacts from the recent changes coming out of Washington around Medicare, negotiating drug prices, among other components. With your leading presence in specialty products, how do you think about the implications as Medicare ramps up a number of drugs it is negotiating?

Yes. Thank you for the question. So U.S. is -- I think somewhat over fixated on the cost of medications relative to overall health care spending. We've been very interested in benefit design, and we also prefer when the market creates their own solutions for problems, such as high copays for adherence products that are so detrimental to the system when a diabetic patient doesn't take the insulin. So we see some real strong benefits if we can remove some barriers that have been officially created on products like that. On specialty, it's a little bit too early to tell. I think we've been through many changes in reimbursement, including the change to ASP, a tremendous growth in the hospital outpatient market for specialty drugs. And the wholesalers are very resilient, and we also do believe that [indiscernible] understand the health care, pharmaceuticals are the most efficient form of health care. So there's nothing that tremendously concerns us as a business. Our concern is always with preserving innovation and making sure that our providers have a stable reimbursement environment that they can get, continue to run their businesses and take care of patients. But definitely, I think we spend a lot of time, and I'm not very interested in. Thanks for the question.

And the next question will come from Kevin Caliendo from UBS.

Just in terms of the -- in the guidance, I just want to understand the capital deployment expectations. You gave us the share count, we understand that. Should we just assume that the vast majority of the free cash flow then will be to pay down debt? Or how should we think about it?

Yes. And so as we've said before, we do plan to take down about 2/3 of the Alliance Healthcare acquisition debt by the end of fiscal year '23. We've started that process, so it's about $2 billion that we'll be paying down during that time frame. We expect to pay down about half of that in fiscal year '22. And so that is kind of one of the key parts of our capital deployment. We'll also, of course, continue to invest in the business and invest in current future growth in fiscal year '22.

And the next question is from Elizabeth Anderson from Evercore.

This is [ Eduardo ] on for Elizabeth. Just maybe given the Walgreens' new expansion toward becoming a provider of health care services, how do you envision your relationship within them evolving? And what can you do to support their new strategy?

Yes. Thank you. We're tremendously proud of the benefits we're getting from the recently announced Alliance transaction, including that we have a contract with Boots, who's become a very significant customer with -- of our Alliance division through 2031. And most importantly, we extended our Walgreens contract in the U.S. through 2029. And this is such a fundamental customer for us that helps us establish such a strong base of scale and efficiency. And I think the teams are at a very good state where we're looking to how can we help with one and other priorities. We have these discussions with all our large customers and the need for the very large customers like Walgreens are very different than say, the independent veterinarians, the community pharmacists. But yes, for example, we're supporting WBA with their central fill initiatives, and we're looking to understand better how we can help with their strategies on the institutional side. So I just would say that the relationship is in a good place, and we still go back to that 2013 agreement as being very fundamental to the success of AmerisourceBergen over the last decade.

And the next question will come from Michael Cherny from Bank of America.

So if I could just circle back a bit on the Americas growth in the U.S. Health Care segment. As you think about the moving pieces -- and I appreciate the color, Jim, you gave so far relative to the market improvement, but in terms of the upside, downside of the range, what are the macro factors have to look like to get to those numbers? And I'm more just curious because on an all-in basis, you have obviously been tracking higher than that and outpacing the rest of the market. And so whether -- antivirals are one component, but what else are the moving pieces that you think about in terms of what encapsulates the range on the U.S. segment?

Sure. And so one of the key things is something that I've talked about in the prepared remarks and then also in an earlier answer, but I'll just quickly cover it again given the scale. And that's the impact that COVID therapies could have. So that really impacts the range. And again, it was a $0.30 of benefit in fiscal year '21 and $0.14 of that came in the first quarter of fiscal year '21, and we're expecting that the benefit will be significantly less in fiscal year '22. But Steve talked about some of the innovation that's occurring, it could be higher. And so that's something that certainly could impact the range, and that would be one of the larger things. And then, of course, there's always a number of moving pieces in our businesses. We have very strong performing businesses, but they're moving pieces within the businesses in terms of growth rates. And then there's sorts of things that I've also mentioned, like some higher labor and transportation costs and how those trend. And so those are some of the things that impact us within the range. But I do want to say that we have a lot of confidence in the business, and we are expecting continued strong performance across the business because of our differentiated physician and our strength, both within Pharmaceutical Distribution and Manufacturer solutions.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Steven Collis for any closing remarks.

Thank you, operator. It's truly been an honor to spend this hour with you, highlighting a very successful 2021, which the management team is extremely proud of. We're also really proud of and appreciate of the tremendous efforts of our associates. We enter fiscal year '22 with all of our businesses performing well, and we look forward to building on the success and momentum in fiscal year '22. Thank you.

Thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.