Good morning or good afternoon all. Welcome to the AmerisourceBergen Corporation Fiscal 2022 Second Quarter Earnings Call. My name is Rajam , and I’ll be your operator today. . I will now hand over to your host, Bennett Murphy, Head of Investor Relations to begin. So, Bennett please go ahead when you’re ready.

Thank you. Good morning, good afternoon, and thank you all for joining us for this conference call to discuss AmerisourceBergen’s Fiscal 2022 Second Quarter 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 express 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 one per participant in order to for us to get through as many participants as possible within the hour. 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 discuss our results for the quarter, I want to provide a brief update on opioid-related litigation. As previously disclosed on April 2, the comprehensive settlement agreement to settle a substantial majority of opioid lawsuits filed by state and local governmental entities became effective. 46 of 49 eligible states as one of the district of Colombia and all the eligible territories as well as over 98% of eligible subdivisions in the states agreed to participate in the settlement. Additionally, we have reached an agreement for a settlement with the state of Washington that is consistent with the state's allocations under the comprehensive settlement agreement. That brings the total number of states settling opioid-related claims to 47 or 49 eligible states. We are encouraged by this progress and we look forward to providing further updates as they become available. Turning now to our second quarter of fiscal 2022. I am excited to discuss our results and the continued progress we are making on our strategic imperatives. During the quarter, revenue was up 17% over the prior year to $58 billion. Adjusted operating income increased by 30% and adjusted EPS grew by 27%. Our exceptional results reflect continuous positive momentum across our business as we delivered high levels of execution and capitalize on the strength of our differentiated value proposition, including our broad set of leading capabilities, deep customer relationships innovative manufacturer solutions and expanded global footprint. In the US, our leadership in specialty continues to differentiate our own best distribution capabilities, portfolio of preeminent customers and integration of innovative solutions allows us to serve both manufacturers and providers, meeting the unique needs while providing a vital connection to help improve patient outcomes and access. To beneficiate manufacturers…

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 March quarter. For more details on our GAAP results, please refer to our earnings press release. AmerisourceBergen delivered exceptional results in our second quarter, as our pharmaceutical-centric strategy continued to drive strong performance across our business. Our long-term leadership in specialty and commitment to delivering innovative solutions for our partners continue to be key differentiators in our fundamental long-term strategic imperatives. Our purpose-driven team members have worked diligently to support our stakeholders, which has driven our strong results. Turning now to our second quarter results. AmerisourceBergen finished the quarter with adjusted diluted earnings per share of $3.22, a 27% increase with strong operating income growth in both our US Healthcare Solutions segment and International Healthcare Solutions segment. Our consolidated revenue grew 17% to $57.7 billion, driven by revenue growth in both segments. Consolidated gross profit increased 47% to $2.2 billion as a result of increases in gross profit in both segments. Gross profit margin grew by 76 basis points to 3.84% driven by the Alliance Healthcare acquisition and the increase in the US Healthcare Solutions segment. Consolidated operating expenses were $1.3 billion, up from $806 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 $917 million, up 30%. The increase was driven by operating income growth in both segments, which I will touch on in more detail when discussing segment level results. Turning now to interest expense and the income tax rate. Net interest expense was $53 million in the quarter, an…

Thank you. Our first question today comes from Elizabeth Anderson of Evercore. Elizabeth, please go ahead. Your line is open.

Hi, guys. Thanks so much for the question and all the color on the quarter. I guess in terms of -- I heard what you said about the contribution from COVID therapies in the quarter and the unchanged expectations for the full year and you're seeing that as a pull-forward. Can you maybe in a little bit more detail, talk us through the other puts and takes as you see things progressing in the back half of the year? Thanks.

Yeah, sure. Thanks a lot for that question. And I'll start out by saying that we're really pleased that we're able to increase full year guidance of three key metrics: consolidated operating income, and US Healthcare Solutions segment operating income and EPS. And also note, as I said that we would be increasing our operating income guidance for the International Healthcare Solutions segment, if not for the negative impact of foreign exchange. And the reasons for the increase in guidance were the stronger-than-expected performance in several businesses. And as I said, the increase in FY 2022 guidance is not due to the important COVID treatment distribution work that we're doing. It's -- that contribution from COVID products distribution was higher than expected in the second quarter, but we view that as a pull-forward and our full year expectations from COVID product distribution are largely unchanged around $0.60 in the US and $0.10 internationally. So $0.70 on a consolidated basis, which was about what we were expecting three months ago when we provided guidance a few months ago. And so what we're seeing in the US Healthcare Solutions segment is increasing guide due to broad-based performance across several businesses, and we expect that to continue. Notably, specialty physician services, prescription growth across our businesses and the recovery in manufacturer solutions. So those are three key components that enabled us to increase guidance and we'd expect strong performance to continue there. In International Healthcare Solutions, there are a number of moving pieces that I mentioned that impact guidance. Importantly, we talked about the impact of FX and the strong dollar, and we sized that at north of $80 million on a constant currency basis. Our guidance assumes that the April FX rates hold for the balance of the year. And so that's…

The next question comes from Lisa Gill from JPMorgan. Lisa, please go ahead. Lisa Gill of JPMorgan. Your line is open. Please ask your question.

Good morning. Thanks for all the detail Jim. I just want to go in a little bit deeper on a couple of things that you talked about. One, when you talked about specialties to the physician office, are you seeing uptake in biosimilars? And is that helping to drive the profitability? Secondly, we've heard some rumblings around some product shortages on the generic side. Clearly, China shut down once again, are you seeing any type of inflationary environment on the generic side that's helping to drive the numbers at all? And then just lastly, when you call out the $0.70, how do you think about that for 2023? Are you calling that out for us? So -- do you think it repeats itself in years going forward, or should we think about that as a one-time here in 2022?

Okay. So there are, I think, three things there. Biosimilars and then I think drug pricing and then kind of the $0.70 on COVID therapies and what we would expect for the for the future. So on biosimilars, it's clearly -- it's been benefiting us in our specialty businesses and particularly our specialty physician services businesses, and we expect there to be continued growth and benefit there. Biosimilars, as we've mentioned, particularly in that part of the business are profitable part of the business for us with strong margins. And so the trends and benefits that we're seeing there are quite positive and we'd expect it to be enduring. With regard to drug pricing overall, and I think your question was mostly around generics is there's really nothing new to call out. Overall, the deflation rates are relatively in line with the last couple of years. We expect that to continue throughout our fiscal year from a supply and demand standpoint, supply and demand dynamics remain generally in balance. And as we talked about, a really important point is that our business model is not as reliant on generic pricing as it once it was in the past, our leadership team has done a very good job of rebalancing contracts to have balanced profitability process portfolio of pharmaceuticals, including brand, generics and specialty to make sure we receive fair compensation in all those areas. So really nothing new to call out on the pricing side. And then with regard to the $0.70 benefit from COVID products. Of course, $0.60 of that is COVID treatments in the US and $0.10 of that for this fiscal year is international vaccines and other products. We just wanted to be really transparent to call that out and we'll be -- and we'll continue to be transparent in future quarters in 2022, and I would expect in 2023, calling out what our COVID treatment benefits are. And it's something that, as you can imagine, is to a large extent, beyond our control. And so it's hard to predict what the volumes are going to be next year. And so that's one of the reasons, Lisa, why we continue to be transparent in giving the specific numbers.

The next question is from Charles Rhyee from Cowen. Charles, please go ahead. Your line is open.

Yeah. Thanks for taking the question. If I could just follow-up, Jim, on the COVID, at least in US Health, if we think about the remainder of the $0.60, I think you did about $0.10 in the first quarter. We're talking about the $0.22 here. Should we -- are you -- is that more weighted here into the June quarter, or are you thinking about it more evenly through the rest of the year? And was the benefit mostly in January, I think Omicron really peaked in January and then really tailed off. What are you seeing here? And how is that demand given that when you look, testing volumes have been falling even though as cases rise a bit, there's not as much people finding out whether they have COVID or not. How does that impact how you get treatments out to folks? Thanks.

Yeah. Great questions. So you're absolutely right in the numbers. We've made $0.32 in the US from COVID treatments in the first half of the year, which was $0.22 in the most recent quarter and $0.10 in the first quarter, and our expectation is $0.60 for the year. As we look at volumes in the back half of the year, a significant amount of the volume is the government-owned antivirals, which have become increasingly available. And yeah, we did see good volume. You asked about the month of January. We did see good volume during the month of January during omicron, but as the antivirals have increasingly become available, and there's actions that increase access for those products, we would expect to see sales throughout the year. And our current estimates are that -- it's not like it's weighted towards the third quarter or the fourth quarter. It's roughly equal in both the quarters. And I think Steve has a couple of comments he wants to make.

Yeah. Thanks for the question. So as has been well-documented, COVID case counts have fallen since the winter when there was a high number of cases and very limited supply of oral treatments. AmerisourceBergen stands ready to distribute treatments with our most needed. Pharmacies and other care providers have recognized the value of stocking these oral products and their long shelf lives and effectiveness against new variants has been helpful in driving demand and awareness for the products. And we are encouraged by efforts announced by the administration to make it easier for patients to access these treatments, including expanding test and treatment initiatives at pharmacies. And Good Neighbor Pharmacy has been very helpful in assisting their pharmacists and the critical roles in the community. So -- we -- as we said, we've credited to many of our members, and we are very enthusiastic about the role for community pharmacy in combating the next phase of the pandemic. Next question, please.

The next question is from Steven Valiquette from Barclays. Steven, your line is open. Please go ahead.

Thanks, good morning. So just regarding the success over the past year or two of your physician-related GPO operations. Is there any update on the -- or change on the percent share of the per unit economics that are flowing to ABC from the – that specialty drug procurement you're doing for your physician customers, or is it status quo on the profit algorithm? And also has that contribution still growing meaningfully year-over-year? Just want to get a little more color around that. Thanks.

Yes. Steve, we're kind of all scratching our heads here. No. So there's definitely -- there's more oral products, of course, there's more cell and gene therapy treatments. There's, of course, personalized medicine treatments coming in, into oncology. But our proposition for physicians remains very consistent. Our market share, we are with a lot of the leading companies. We have tremendous presence with a lot of these aggregator companies. We've been working with AmerisourceBergen. Often before they became aggregates a formative platform oncology practices have been, in many cases, our customers for a long time or one or two cases came back to us as they really entered into extensive growth plans. We should not -- we should definitely mention biosimilars, which has been helpful for our customers' mix, our mix and our important creative headwind -- headroom for new products to come to market. And certainly have been very influential. ION has been very influential in helping physicians adopt in and patient adoption of those products. So we also are expecting our Part B business to keep growing. It's not only in oncology but in our veterinary medical, which does a non-oncology physician-administered products. There's strong growth trends in all those segments. Jim, anything you'd add?

I think that covers it well, Steve.

Thank you.

The next question is from Eric Percher from Nephron Research. Eric, your line is open.

Thank you. I want to expand on the question relative to COVID ongoing benefits. And so I appreciate that you're giving us exact detail on the impact. Are you getting that in part because the expectation is that the impact going forward is likely to head towards zero, or what are your thoughts on post an emergency period, if we see products perhaps that you represented moving back into the channel and vaccines becoming part of the channel. Is the -- that is the COVID impact potentially material moving forward?

Yeah. And so let me take a first crack at that. The reason why we're being so transparent, Eric, is because to a large extent, it's beyond our control. Of course, we play a really important part in the supply chain and doing the logistics and providing the access, that's certainly under our control. But in terms of the operating income contribution, it's something that is more difficult to predict than many aspects of our business that we've been planning for years. And so we provided the $0.70 benefit, $0.60 of which is the treatments in the US, specifically because it is a number that is harder to predict for next year. And so we want to be very specific in calling it out. I would expect that in all aspects of -- on COVID, it's going to be something that has an impact and we're going to be playing an important role for many years to come, but it's just a little bit difficult to predict what the profitability is going to be from it, for instance, in fiscal year 2023.

The next question is from Eric Coldwell from Baird. Eric, please go ahead.

Thank you very much. My question, I feel like I'm already going to stumble over it before I start. There's a fair number of moving pieces with international. But I just want to confirm, you have a incremental $80 million profit headwind from international due to FX. You're going to sell Profarma, which will have an additional modest headwind to profit at some point in the second half. At the same time, there was a onetime favorable manufacturer adjustment that partially offset those headwinds. And overall, you're maintaining guidance. What I'm trying to get to is what is the net EBIT headwind you're eating between the three items; FX, manufacturer price increase, one-timer and Profarma sell, what is the net headwind you're eating to maintain the annual guidance for the full year?

So again, let me give you some of the component parts. As I've said, our assumption in guidance is that the April FX rates hold for the balance of the year. And that's -- if we look at that on a constant currency basis, it would have an impact that’s north of $80 million on a constant currency basis. And so that causes us to indicate that while we're maintaining guidance range that causes us to be at the low end of our guidance range. The manufacturer price increase, which is in Turkey, the impact that that has for the full year is that that price adjustment fully offsets the decline in the value of the local currency. And then specifically, with regard to Profarma, that contributed about $0.04 in the first half of fiscal year 2022, and we'd expect that transaction to close this month, Eric. And so those are some of the component pieces. As I said, if we're not for FX, we would be increasing guidance in our International segment and that the International segment is performing better than – better than initially budgeted expectations at initially budgeted FX rates.

The next question is from George Hill from Deutsche Bank. George, your line is open. Please go ahead.

Good morning, guys. I'm going to follow up Eric's question on another question on international. I guess, particularly in manufacturer solutions, could you talk about what specifically is driving growth in international manufacturer solutions? And I'd be interested if you could comment on how the profit mix has changed, between the core regular wholesaling business in Europe, which we think continues to be under pressure versus profit streams that are derived from providing services to manufacturers. Thank you

Yes, sure. So the -- that's one of the things that really attracted us to Alliance is the high margin, higher growth businesses. For instance, the Alloga business is a very strong 3PL business in many parts of Europe. And so just like AmerisourceBergen kind of our largest business is the wholesale distribution, but it's and we have market leadership there, but it's really strengthened by these higher-margin, higher-growth businesses. And also in international, of course, we have the World Courier business, which is a very strong business, doing logistics for drug trials. So we do see very good opportunities, and that's one of the kind of synergy work streams that we're actively working on. As for instance, World Courier and Alloga and things we can do together to make our offering even stronger. So I guess, probably kind of the key point to make is the higher-margin higher-growth manufacture solutions businesses and they are a key part of our international strategy and something that we would expect to continue to grow. And that's one of the things that if you look at our recent performance, as we've been focusing on that and after we've made the Alliance acquisition, it's one of the things that's been enhancing our gross profit margin and our operating income margin.

And just generally, I would add that Alliance Healthcare is performing well. We continue to be very impressed and I think are very compatible culturally with their management team. And we're getting to know all the countries well. We're slowly getting to visit all the countries or at least meet with the management teams. So -- and as Jim mentioned, some of the greater synergy opportunities we have are looking at the manufacturer services area. Obviously, AmerisourceBergen has a lot of interest in health systems and specialty products -- so -- and also, I think in Europe, you're going to see some changes in where products get administered and sometimes we can help facilitate that change. You'll also see us be very involved in lobbying, looking at advancing the role of community pharmacy and advancing the role of wholesalers like Alliance Healthcare, in the communities where we're serving in the countries where we're serving. So it's been a great add from -- for our overall portfolio. I think a lot of the staff, people that you don't get to speak to on these sort of calls other than Jim and myself, are tremendously engaged in the cultural integration and looking at all sorts of benefits to streamline and make the business even stronger within AmerisourceBergen, which is already a strong business, as I said.

The next question is from Michael Cherny from Bank of America. Michael, your line is open. Please go ahead.

Good morning, and thanks for the questions. I know you had touch base or are there some questions around the pricing dynamic. You mentioned the comments relative to drugs and inflation. I'm curious what you're seeing on some of the cost sides on inflation, whether it's your own wage employees, or in particular, some of the dynamics on the shipping side and freight, is there anything either that you saw in the quarter baked into the guidance outside the norm of expectations relative to wage inflation, wage pressure, logistics pricing, inflation pressure. Anything that you can point out to us?

Yeah. And what I'll say is that higher labor and transportation costs, they continue to be embedded in our guidance, and they have been embedded in our results the last couple of quarters. AmerisourceBegen is impacted by higher labor and transportation costs, but less so than most businesses because of the value density of our products. And so we are certainly seeing it and experiencing it as all businesses do now, but it's something that we're able to manage, and it's fully reflected in our guidance. And I think that our teams are doing a terrific job of managing these costs.

So then I'll wrap up our Q&A for today. We are very proud to reflect these results -- to report these results, which reflect our strong momentum as we finish half of our fiscal year 2022. AmerisourceBergen is really relishing our role as a global health care solutions leader that is clearly leveraging our commercial strength and intellectual confidence to continue to deliver on our promise and on our purpose, and to continue to create long-term value for all of our stakeholders. Thank you for your attention today, and we look forward to further discussions with many of you.

Ladies and gentlemen, this concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.