Hello, and welcome to the AmerisourceBergen First Quarter Fiscal Year 2022 Earnings Call. My name is Alex, and I’ll be your call operator for today. I will now hand over to your host, Bennett Murphy, Senior Vice President of Investor Relations. Over to you, Bennett.

Thank you. Good morning, good afternoon, and thank you all for joining us for this conference call to discuss AmerisourceBergen’s First Quarter Fiscal Year 2022 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 will 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 investor.amerisourcebergen.com. We’ve also posted a slide presentation to accompany today’s press release on our investor website. During this 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 provision of the company. With that, I’ll turn the call over to Steve.

Thank you, Bennett. Good morning, and good afternoon to everyone on the call. Before we begin our results for the quarter, I want to take a moment to comment on the status of the proposed settlement agreement to address opioid-related claims of state and political subdivisions. Since we announced last September that the proposed settlement agreement would move to the next phase, several more states have announced their intent to sign on to the agreement, increasing the number of participating states to 46. We are encouraged by this progress. And over the next few weeks, we will review the level of participation by subdivisions and determine whether to proceed with the final settlement. We look forward to providing an update once a decision has been made. AmerisourceBergen continues to work diligently with our partners to combat drug diversion while supporting real solutions to help address the crisis in the communities where we live, work and serve. Turning now to discuss our results for the first quarter of fiscal 2022 and continued progress on strategic imperatives. AmerisourceBergen began the fiscal year with solid financial performance. Revenue grew 13% over the prior year to $59 billion. Adjusted operating income increased by 21% and adjusted EPS grew by 18%. Our growth reflected the benefit of our Alliance Healthcare acquisition and solid performances across our businesses. Our results continue to demonstrate the value of our pharmaceutical-centric strategy, strong customer relationships, leadership in specialty and unparalleled global commercialization services. These differentiating factors are key drivers of our long-term growth and enable AmerisourceBergen to create significant value for all our stakeholders as a global health care leader. Our solution-oriented culture and the agility of our teams has allowed us to strengthen our relationships with partners as we help them navigate the increased complexity and challenges that…

Thank you, Steve, and thank you all for joining us on today’s call. Before I turn to our results, as usual, my comments will focus primarily on our adjusted non-GAAP financial results. Growth rates and comparisons are made against the prior year December quarter. For more details on our GAAP results, please refer to our earnings press release. AmerisourceBergen delivered another quarter of solid financial results as our pharmaceutical-centric strategy, strong underlying business fundamentals and the contribution from Alliance Healthcare continued to help drive our company forward. Our differentiated value proposition continues to position us well to create long-term stakeholder value and is supported by our investment in our talent and commitment to ESG and our business practices. Turning now to our results. AmerisourceBergen finished the quarter with adjusted diluted earnings per share of $2.58, an 18% increase with operating income growth in both our U.S. Healthcare Solutions segment and our International Healthcare Solutions segment. Our consolidated revenue grew about 14% to $59.6 billion driven by revenue growth in both segments. Consolidated gross profit increased 41% to $2 billion driven by increases in gross profit in both segments. Gross profit margin grew by 66 basis points to 3.38% driven by the Alliance Healthcare acquisition. Consolidated operating expenses were $1.3 billion up from $810 million as a result of higher distribution, selling and administrative expenses and depreciation expense primarily due to the Alliance Healthcare acquisition. Consolidated operating income was $749 million, up 21%. The increase was driven by operating income growth in both segments, which I will touch on in more detail when discussing the segment level results. Turning now to interest expense and tax rate. Net interest expense was $53 million in the quarter, an increase of 59% due to an increase in debt related to the Alliance Healthcare acquisition.…

Thank you. Our first question for today comes from Charles Rhyee from Cowen. Charles, your line is now open.

Okay, operator. I think Charles is in mute.

My apologies. Our next question for today comes from Ricky Goldwasser from Morgan Stanley. Ricky, your line is now open.

Yes. Hi, good morning. So with Europe becoming a bigger part of the story in earnings, we’re hearing a lot about sort of wage inflation in Europe that’s been picking up. What have you seen ex-U.S. environment in terms of cost structure since you provided the November guidance and sort of what’s included in current guidance?

Yes. And so let me talk about inflation overall. And then let me talk about what we’re seeing with regard to inflation in Europe, Ricky. And so we are seeing higher labor and transportation costs. And let me say that they were embedded in our guidance. So they were included in our guidance, and they’re also included in our last couple of quarters’ actual results. One thing about AmerisourceBergen overall – and we certainly are impacted by higher labor and transportation costs, but less so than most businesses. Pharmaceuticals, as you know, are very value dense, which mitigates freight costs, and then our distribution centers are highly automated, which mitigates labor costs. As we look at some of our businesses, and I’ll use MWI, as an example, and MWI is performing very well and it has very good results. But it’s a little bit more impacted by inflation because it has a broader array of products, including med-surg and nutritional supplements and less automation in the distribution centers. But overall, inflation, it’s included in our guidance, and we’re managing through it very well. We are seeing inflation also in the Alliance business and there are higher labor and freight costs there also. And Alliance is really fully offsetting that by the important work that we’re doing there on COVID therapies, which is benefiting Alliance from an operating income standpoint.

Thank you. Our next question comes from Eric Coldwell from Baird. Eric, your line is now open.

Thanks. Good morning. I was hoping we could get some more details on the role you’re playing with the new COVID antivirals. We’re seeing some states like Georgia, I think Texas and others highlight your role as a network administrator for the HHS COVID-19 therapeutic dispensing program. We saw Merck highlight you as a distributor. But I was hoping, overall, we could get more details on the kind of the back story on what you’re doing, how you’re doing it? Perhaps your role with Pfizer on Paxlovid as well. Just any additional details would be fantastic. Thanks so much.

Hi, Eric. I’ll start off and let Jim comment. We’ve made the comment that never has our purpose become clearer than during the pandemic of being united in our responsibility to create healthier futures. And the role that we’ve done with in COVID therapies distributing over 100 million vaccines worldwide by doing all the lateral flow tests in the UK – well Korea getting early vaccines out in some difficult areas in Europe, but also probably, most pivotally, the role we play in the U.S. with the antiviral therapies and the tremendous data and relationships that we’ve developed, working with the U.S. government and the state and counties to get these therapies out. We also have always been a very upstream centric company as well and have been honored to be selected as a distributor with so many of these critical therapies. It’s a moving target. Supply is often – is really often ramping up – and then you also have different disease rates in various states. And so we – AmerisourceBergen has shown tremendous adaptability, resilience and also incredible informatics and strong relationship skills, which have enabled us to really be the distributor for these important therapies. Jim, I know you have some other comments as well.

Yes, sure. I’ll comment a little bit about it from the financial perspective. And as we indicated in our prepared remarks, the guidance raise is related to updated outlook for COVID therapy contribution. And in particular, within U.S. Healthcare Solutions, we increased the operating income guidance by $50 million at both the low end and the high end of the range, and that’s due to higher COVID-19 therapy sales than we had originally expected. In our initial guidance that we put out a few months ago, COVID therapies were expected to be a headwind to maybe breakeven at the top end of the range, but now we expect them to be a tailwind for fiscal year 2022. And you asked about the different products including the oral pills. And I think one thing that is important to note is you guys do your modeling that the therapy contribution includes both the commercial products that we own and we recognize revenue line and the government-owned therapies that are authorized under emergency use authorizations where we don’t own the product, and we earn a fee. And so COVID therapies, we’re expecting to be a tailwind in the fiscal year from an operating income standpoint. But as you do your modeling, there will be headwind from a revenue standpoint. And I think one thing I’d really like to finish with because there will be a lot of questions on COVID therapies as they are a reason for are increasing our guidance. But overall, the business, even without COVID therapies, is performing as expected with really good outlook, strong fundamentals and continued execution. So, we have a high degree of confidence in our businesses and the way that they’re executing now, Eric.

Thank you. Our next question comes from Lisa Gill of JPMorgan. Lisa, your line is now open.

Great. Thanks very much, and good morning. Steve and Jim, I just want to go back to your comments around specialty, and you talked about new therapies. You talked about the focus on specialty and biosimilars. I know you don’t break out specialty specifically anymore, but can you give us an idea of how specialty is growing and the contribution you are seeing from biosimilars, new therapies? And how do we think about that component of your business?

Lisa the reason – I mean, it’s literally becoming possible to break out, especially because essentially, our brand business has become a specialty business, and we probably think about new areas like precision medicine, cell and gene therapy as the new sort of niche businesses. It would have been almost impossible to conceive just how fundamental specialty products would become to pharmaceutical care as we looked a couple of decades ago when we got started with the specialty businesses. So perhaps I can just give you some comments. Our specialty physician services business, which is a lot of our legacy well-known specialty businesses, including Besse Medical, Oncology Supply and ION are performing extremely well. We’re really proud of the positioning. Like in all our businesses, we focus on long-term partnerships. ION, I left the specialty group about 11 years or 12 years ago. I mean, in terms of closely running it, and we really just had three or four manufacturer contracts. They have several dozen now and continue to grow in the role being the close adviser to the physicians, the practices and the manufacturers. Besse Medical is getting more and more involved in several other physician specialties. They have a key role in ophthalmology. And Oncology Supply is an exemplary business in terms of customer service. I also could not mention what is our legacy. I would be remiss if I didn’t mention what is our legacy hospital specialty business, our ASD business, which continues to really have been the forerunner for a lot of the COVID work we’re doing, a lot of the antiviral therapies because of the limited distribution, the data expertise and the concentrator distribution programs that we’ve learned to do somewhere in ASD. So a little bit of a long answer, but such important work for us. I’m going to just comment on biosimilars, and then I’ll hand over to Jim. So biosimilars has become very important to ourselves, to our customers. The sweet spot for us is Part B drugs. We’ve been encouraged by trends. I think the acceptance of biosimilars is certainly increasing all the time from all elements of the stakeholder system, and we’ve noticed recent interchangeability approvals. Next year will be tremendously interesting from a Part D perspective, which is also important for the system. But for us, the sweet spot is the Part B therapeutic compatibility and the contracting abilities we have through organizations like ION and IPN. Jim?

Well, it’s tough to follow up, Steve, on specialty since he founded that part of our business. But I’ll just say quickly and generally from a financial standpoint, specialty physician services is performing as expected, which is really good because we had high expectations, and we’re seeing very good trends in the business and continue to see good financial trends with biosimilars.

Our next question comes from Eric Percher of Nephron Research. Eric, your line is now open.

Thank you. I want to return to the antivirals. And I think the commercial comment helps us understand the revenue step-down versus strong gross profit. For the – you’ve increased guidance by $50 million, but your comment was that you expect a larger net contribution versus last year. I believe you disclosed $0.18. So is it fair to assume that we’re looking at something above the $0.18 or roughly $80 million for the year and that much of that may come without the full revenue benefit, but more of a gross margin benefit?

Yes. Let me provide some more information there that I think will be helpful. And I think we’ve had a high degree of transparency with regard to impact of the COVID therapies on our bottom line, and we’ll plan to continue to do that. So last year, we – the contribution to the bottom line from COVID therapies was $0.30, and we kind of indicated on a quarterly basis, it was $0.14 in the first quarter, $0.07 in the second quarter, $0.03 in the third and $0.06 in the fourth quarter. What we saw in the first quarter this year was a $0.10 contribution. So it was a $0.04 headwind. What we’d expect to see in the second quarter would be a few cent tailwind, so we made a contribution of $0.07 in the second quarter last year, and we’d expect a few cent tailwind on and then a more substantial tailwind in the back half of the fiscal year as supplies of the product become more available. And so when we originally guided a few months ago, as I said, we were expecting a headwind to maybe breakeven at the high end from COVID therapies. And we increased the guidance as a result of COVID therapies for U.S. health care solutions by $50 million at the low end and the high end of the range. So, I think that gives you a lot to work with there in terms of modeling.

Thank you. Our next question comes from Jailendra Singh from Credit Suisse. Jailendra, your line is now open.

Thank you, and good morning everyone. Now that we are over a month into 2022, I was hoping if you could provide an update on the drug pricing environment and how that has been trending compared to your expectations, both on brand drugs inflation as well as like generic market overall?

Sure. I’ll give you thoughts on drug pricing. And it is in line with our expectations. And we’ll say on brand inflation and I’ll start there, that it’s less important for AmerisourceBergen. We’ve talked about this and that over 95% of our brand buy-side dollars are fee-for-service. But I will say that the initial pricing changes in 2022 have been in line with expectations. And then on generic deflation, there’s nothing major to call out. Overall, deflation rates are relatively in line with the last couple of years. And we’d expect that to continue throughout our fiscal year. Supply and demand dynamics remain generally in balance. And again, this is something that we’ve talked about before, but it’s important that our business model is not as reliant on generic pricing as it once was in the past because several years ago, our business leaders recognize the need to have a more balanced profitability across the portfolio of pharmaceuticals. And so we rebalanced to ensure that we receive fair compensation for the value we provide across brand generics and specialty. And of course, the market continues to shift more towards specialty. But in response to your specific question, it’s what we’re seeing both in brand and generic pricing is in line with our expectations.

Thank you. Our next question comes from George Hill of Deutsche Bank. George, your line is now open.

Yes, good morning guys, and thanks for taking the question. Jim or Steve, I’d ask a quick one on the Express Scripts renewal. I guess any meaningful changes to pricing or economics? Or maybe could you comment on the competitive environment? Because I feel like we haven’t seen one of these big contracts switch hands in a while. And Steve, my quick follow-up would be is, I haven’t heard the train whistle a little while on the earnings call. What have you guys thought about that?

Hi, George. I always remember your little train – could comment after our 20 – little engine that – after our 23 call, so our 13 announcement. So Jim just answered the question about pricing trends. And when you deal with a sophisticated customer like Express Scripts, they understand the business trends as well as we do. And we do a really good job of servicing large customers like that and focus on the long-term relationships. We’re proud because we were a legacy distributor to Medco and went through the Express Scripts transition with Medco and became the distributor for Express Scripts and now of course, are working with the new Cigna management team. So it’s a tremendous example of our focus on long-term partnership with anchor customers. And again, with the understanding and the fact that we reflect the competitive environment that we’re in, there’s no headwind to call out at all. On the train whistle, we are proud to be in new headquarters, which are not as affected by the train whistle, which Jim and I are currently working out of. And we hope that our associates will return to in the next couple of months as things improve.

Our next question – my apology.

Sorry, I just wanted to also say, George, that there’s really no headwind to call out at all on the Express Scripts renewal. So, we’d pleased to afford that. Thank you, Operator.

Thank you. Our next question comes from Mr. Steven Valiquette from Barclays. Steven, your line is now open.

Thanks. Good morning guys. So, I also just had a quick follow-up on Express Scripts as well. As time passes, I forgot just the approximate level of penetration of the generic distribution with Express and whether this is primarily a brand-only contract. Or have you had pretty strong penetration on distributing the generics to them as well. And then also, was there any change in their level of involvement in WBAD with the renewal? Thanks.

Yes. Nothing on WBAD that we can report. This is primarily a brand and specialty contract, as you do recall, Steve. And so I think – Jim, anything else you’d add in Express Scripts? I think we covered it .

Yes.

Next question please.

Our next question comes from Michael Cherny of Bank of America. Michael, your line is now open.

Good morning. Jim, I wanted to go back to the comments you made about the manufacturer services business. I appreciate all the color, especially on the antivirals, and how that flows through the year. You made some quick comment about how we’re off, I think you said a slow start to the year. Can you dive a little bit into what drives that and especially now that manufacturer services post Alliance is a much bigger piece of your business? How should we think about leading indicators to support a return towards the robust growth rate that you’re looking for?

Yes. Yes. Thank you for the question. We do expect the manufacturer services business to normalize in the fiscal year and to have a good fiscal year. I mean these businesses are important differentiators for us, and they are very valued by the manufactures and we build, we have, several strong manufacture services businesses. We have realigned the organization to provide better end-to-end solutions for our customers, and there are opportunities for increased cross-functional collaboration between our manufacturer services businesses. And it’s actually an area with the Alliance acquisition, where there’s opportunities to have offerings of our manufacturer services on a more global scale. And there are also good synergy opportunities between our manufacturer services businesses and the Alliance value-added businesses. And so I do expect the businesses to have a good fiscal year and to be on plan. And that was just one of the things that we called out as one of the many puts and takes during the quarter, but we have good long-term confidence in the businesses.

Our next question comes from Kevin Caliendo from UBS. Kevin, your line is now open.

Great. Thanks. So, I’m still a little confused by the guidance changes. I guess trying to understand, where we are now versus where we were before with the addition of the Pfizer contract. Is there any change at all to the way you’re guiding the base business? Because the increase in the COVID therapy seems to be more than the guidance range – raise. And I’m just wondering if there’s any change to core earnings or if there’s anything below the line interest expense or anything that’s offsetting some of the benefit. Can you just take us through how you bridge it in a way that’s easier for me to understand?

Yes. Yes. Thank you for asking that question. That is a great question, and I think a few things. First of all, and most importantly, the business is performing as expected. The outlook is very good, strong fundamentals, continued execution. We have confidence in the businesses and the guidance. Now to answer your question, the guidance range at the U.S. Healthcare Solutions of $50 million at the low end and the high end of the operating income guidance range. And then the raise at the low end and the high end for EPS was $0.10. And really, the thing to understand there is the raise is related to an updated outlook for COVID therapy contribution, more operating income contribution from COVID therapies, and that’s partially offset by higher interest expense and a stronger dollar. And so the stronger dollar versus what we had in our original guidance, that is part of the bridge. And then the other part of the bridge is higher interest expense that’s related to local country debt, for and Alliance Healthcare non-wholly owned subsidiary. And so those are the two things to bridge. But really kind of the most important thing is that the operating businesses are performing as expected, very, very well, and we’re very pleased by that.

Thank you. Our next question comes from Elizabeth Anderson of Evercore. Elizabeth, your line is now open.

Thank you so much for the question guys. Just a follow up maybe from Kevin’s question. Can you sort of talk us through your expectations around not biosimilar, new biosimilars, but new generic or oral sales this year. Seems like there’s a pretty significant step-up versus prior years. And so I just wanted to understand what was embedded in your expectations from the generic conversion perspective? Thanks.

No, honestly, nothing important to call out from our vantage point. This has really become much less of an area of differentiation. In terms of the way our earnings momentum rolls out, it’s just the whole way that generics have rolled out, it’s much more wider industry participation than just the wholesalers. So I really don’t think there’s anything important to call out, and Jim agrees. So...

Yes.

Next question, please.

Thank you. Our final question for today comes from Charles Rhyee of Cowen. Charles, your line is now open.

Yes, thanks. Can you hear me guys?

Yes. We can hear you well.

Okay. It’s great. Okay, sorry about that earlier. I just wanted to – I know you’ve talked about the antivirals a number of times already. But maybe – I think you mentioned briefly about your role there in Europe. Do you guys have any kind of formal agreements similar to the U.S. for distribution in Europe through Alliance? And then secondly, just on these antivirals, I think there’s a very short time window to get some of these oral therapies to patients for them to really be effective. Does that – I guess, what can you do to really speed these products to get to the patients? And then really part of that is does that kind of limit really the potential of these therapies being contributors long term? Thanks.

Let me just deal with the U.S. part of the question first. We do a tremendous job of working with constrained inventory – of an inventory as it sits coming out of production and is procured and sent to our distribution centers to get it out. In many cases, as is with the oral pills right now, there’s incredible demand way beyond, what – the supplies available. And these products are operating under an emergency use authorization. So AmerisourceBergen, I can assure you, is not a bottleneck in getting these products out as fastly and as efficiently and economically as possible. I think that’s why we’ve continued to be selected as the distributor for almost all these therapies. So, I would say that. But I also will say that we’re always open to new areas of cooperation, both with the manufacturers and the patients that we ultimately serve through their provider models, be it the retail pharmacy or acute care models, infusion centers. Whatever the prescription base that care treatment is we will be there. In Europe, we do various things. Our Spanish business does different things. But there’s nothing that’s really as comparable to the concerted effort and the launches for the therapies that we’ve seen in the U.S. and the government role. It’s – I’d say that it’s – it’s a pretty unique model and the materiality and extent of it. So, we haven’t seen anything comparable in Europe. I have mentioned that we’ve done over 100 million vaccines we’ve distributed. And a large part of that is in Europe where we do about half of the NHS in the UK. We’ve done a lot in Spain, well Korea has done distribution in several countries. We also do the lateral flow test. So, we have a very pivotal role in COVID therapies throughout other countries we serve. And we could not be more proud to do that. So anything, Jim?

Yes, Steve. I would add that in the U.S. for the government-owned emergency use authorization products, the process will be that the government will allocate to the states and then the states will allocate to the providers.

And Jim, I’m going to do some closing comments now as we end our first quarter of fiscal year 2022 call. We felt like this was very strong results, and we’re off to a good start. AmerisourceBergen is, as we often like to say, well positioned with our pharmaceutical-centric strategy. We believe pharmaceuticals are the most efficient source of care, as shown by recent overall health care spending analysis, despite frequent misrepresentation of the public forums in terms of the inflation rates that we experienced. We know at the net pricing level, we are almost flat. We are very proud to be playing such an integral part in this community. As a corporation, I feel like we’ve made tremendous strides to deliver the purpose that we’ve selected. We leverage our own capabilities for the benefit of all the stakeholder sets we serve. We’ve made a strong contribution to our people culture. Our expertise continues to grow. We like to talk a lot about our intellectual confidence. We feel like we’ve made leaps and bounds during the last few years, and we are focused, as always, on creating long-term stakeholder value. Thank you for your time and attention today.

Thank you for joining today’s call. You may now disconnect.