Good morning, and good afternoon, everyone, and welcome to the AmerisourceBergen's Q2 Fiscal Year 2023 Earnings Call. My name is Emily, and I'll be coordinating your call today. After the prepared remarks there will be opportunity to ask questions. I will now turn the call over to our host, Bennett Murphy. Please go ahead.

Thank you. Good morning, good afternoon, and thank you all for joining us for this conference call to discuss AmerisourceBergen's fiscal 2023 second quarter results. I am Bennett Murphy, Senior Vice President, Head of Investor Relations and Treasury. 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 Form 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. With that, I will turn the call over to Steve.

Thank you, Bennett. Good morning and good afternoon to everyone on the call. Today, we will discuss AmerisourceBergen's fiscal 2023 second quarter results and how our execution against our strategic imperatives and thoughtful capital deployment position us to continue delivering long-term sustainable growth. In the second quarter, we delivered strong financial performance with revenue growth of nearly 10% and adjusted EPS growth of 9%. Our performance reflects our team members' focus on execution and ability to deliver differentiated solutions to our customers and partners. Additionally, we continue to leverage our infrastructure and scale to increase efficiency and align our capabilities to our customers' needs. This continued emphasis, along with the fundamental strength of our business and balance sheet, power our ability to continue investing internally and externally to drive our future growth. As part of our work to bolster productivity and efficiency, we are leveraging our robust infrastructure to align our capabilities to commercial needs and optimize our organizational structure. Across the company, our leaders and team members continue emphasizing collaboration to capitalize on our collective power as we adapt to an ever-changing landscape with a focus on preparing for future opportunities and growth, while delivering on our goals of today. Continuously pursuing efficiency is vital in our business. And in parallel, AmerisourceBergen is executing and delivering strong performance. The fundamentals of our business remain strong, as we continue to capitalize on opportunities provided by our pharmaceutical-centric strategy and capabilities. Our results continue to demonstrate the value of our pharmaceutical-centric strategy key strategic partnerships, leadership in specialty and comprehensive global commercialization services. Our leadership in specialty distribution is a key differentiator for AmerisourceBergen, both with pharma manufacturers and with our downstream provider customers. Through our scale, commercial expertise and deep understanding of the challenges providers face, we are able to…

Thanks, Steve. Good morning and good afternoon, everyone. In our second quarter, AmerisourceBergen delivered strong financial performance as our businesses continued executing and delivering a differentiated value proposition to our customers and partners. Operationally, we are focused on increasing efficiency throughout the organization, while continuing to prioritize growth and ensuring that we are innovating to support the needs of our customers across our business. Additionally, we continue to be focused on making thoughtful and strategic investments to power our long-term growth, supported by our strong balance sheet and free cash flow generation. Before I turn to our second quarter results, as a reminder, my remarks today will focus on our adjusted non-GAAP financial results, unless otherwise stated. For a detailed discussion of our GAAP results, please refer to our earnings press release. Turning now to our second quarter results. AmerisourceBergen finished the quarter with adjusted diluted EPS of $3.50, an increase of nearly 9% over the prior year quarter. This solid growth was driven by strong performance in our U.S. Healthcare Solutions segment, which more than offset the gross profit headwind from lapping the peak of COVID-19 therapy contributions in the prior year; good operating performance in our International Healthcare Solutions segment, which helped to offset some of the foreign exchange rate pressure; and a lower share count due to our opportunistic share repurchases during the past year. Our consolidated revenue was $63.5 billion, up 10%, driven by growth in our U.S. Healthcare Solutions segment and offset by a slight decline in our International Healthcare Solutions segment, which was negatively impacted by foreign exchange rates and the divestiture of Profarma Specialty in June 2022. On a constant currency basis, consolidated revenue grew 11%. Consolidated gross profit was $2.4 billion, up 6% due to growth in both segments. Consolidated gross profit…

Our first question today comes from Lisa Gill with JPMorgan. Lisa, please go ahead.

First, Steve, I want to say congratulations on this OneOncology deal. I think it's a great deal for AmerisourceBergen, but I want to focus my question on an area that we've been writing about. And that's really about the changes in the diabetes and insulin market. Can you remind us how the change or the price cut on insulin will impact you as a drug distributor? And then how do I think about new drug classes like GLP-1s that are substantially more expensive? Are they creating an opportunity? And are you seeing that come through your numbers that we saw that were so strong in the U.S. distribution component?

Yes. Lisa, and thanks for the question. So let me start off with the insulin pricing. So AmerisourceBergen and our industry will be in the forefront of discussions with manufacturers and stakeholders. The current fee-for-service model obviously is based off the list price or the WAC price, and it provides the transparency for the industry, including manufacturers and distributors. So as these products change the pricing, and we understand that there've probably been no products that are more high profile, that are more important to patient care in terms of the chronic nature of the diabetes condition. And with the high list price and the heavily rebated products, we anticipated that there could be changes. For us, we will try preserve our economics. We do have an ability to negotiate on a fee-for-service basis with the manufacturers. And I think everyone in the industry recognizes that the requirements and the expectations for distributors are becoming even more profound, if you look at the drug security and pedigree changes that are coming into place, the high inventory demands, a much more difficult environment in terms of interest rates. I think our role has never been clearer. I was at NACDS last week, got to meet with all sorts of customers. And we should never take for granted the basic financing, inventory and shipping functions that we do. Those are incredibly important to the health of our customers and our patients. The second part of your question was on the new class of products, sometimes called the GLP-1 drugs, as I noticed the category we're talking about. I think it's just really important for us to follow the prescription dollar. We have done that, whether it's cell and gene therapies or on specialty oncology drugs or ophthalmology drugs. And this category is the class or trade is mainly retail. We're well represented in that class, through both mail-order customers and even more specifically through large customers like Walgreens. So we will keep our market share, which is very impressive, somewhere in north of 30% region on these products. And it's just another example of how innovation in health care and new products are going to help drive AmerisourceBergen's growth and fundamentals. So thanks for the question.

Our next question comes from Elizabeth Anderson with Evercore. Please go ahead, Elizabeth.

I guess my question would be just in terms of as we think about the back half of the year, is that the reason that you guys are currently forecasting that you wouldn't see the typical step-up in utilization and sort of revenue growth that you tend to see as you move into the third and the fourth quarter? The reason I asked because given your sort of year-to-date performance, it seems like you guys might be tracking ahead of that. So I just wanted to make sure I understood that. And then secondly, can you just talk about sort of any of your early learnings from the PharmaLex acquisition now that had sort of closed, and you guys have had it under -- owned it for a few months now?

Yes. Great. I will start off, and I'll talk about the back half of the year, and then I'm sure Steve will want to talk about our positive experience we've had thus far with the PharmaLex acquisition. We -- in our guidance, we're implying strong performance in the back half of the year. And as we talked about during the call, during the prepared remarks, we increased our adjusted operating income guidance in the U.S. ex COVID from a 5% to 7% growth to 6% to 8% growth for the year. And really, what's driving the back half is the same sort of things that drove this recent quarter where we performed very well. We're seeing strong U.S. core growth, particularly ex COVID. We're seeing utilization trends that continue to be strong. We're seeing broad-based growth across our customer base, including sales to our largest customers and sales of specialty products to physician practices and health systems. We also saw good results in our Animal Health business this most recent quarter. And so it's those sorts of things that are driving the continued good performance in the second half. We're also -- as we said during the prepared remarks, we're expecting for OpEx growth to slow during the second half. And we're also expecting some better FX in the second half, where it was a headwind in the first half, we're expecting it to be a slight tailwind in the second half. So those are some of the things that are driving the good performance and the increase in guidance. And with that, I'll turn it over to Steve to talk about PharmaLex.

Yes. Thank you for the question on PharmaLex. We're very proud of this acquisition. I think it really highlights AmerisourceBergen, a commitment to being in the markets we serve, a global commercialization solutions provider. And we really -- I think the leadership under Bob Mauch, that is really focus on the integration of this acquisition, are doing an outstanding job. Most recently, there were a continuation of the planning meetings with both the U.K. and German teams to incredible markets, important markets for that team. I think just getting to know AmerisourceBergen, getting to know our different offerings, getting to understand what World Courier does and extended does, for example, has been key learnings for their team. And we are impressed with the quality of the teams and their positioning within the channels and are very interested in helping them grow and develop the business. Initially, I think organically and in future, perhaps if you're looking at expansions of both lines of service as well as geographic lines. Just to remind the audience that services that PharmaLex provide fall under four main segments: development, consulting, regulatory affairs, pharmacovigilance, quality management and compliance. These are areas that we think will be critically important to the future of the small and medium companies, of course, the larger companies as well. But as we highlighted in the scripts, we are focused on providing additional services to that category of customers. And that's traditionally where PharmaLex has been highly successful, and we expect to only invest and grow behind that team. And we're just so far, so good. I'm proud of the way that our team has really embraced this acquisition. And I think it's also part of the reason why Cencora is going to be a very good strategic name change for the company as we look to the quarters ahead.

Our next question comes from Eric Percher with Nephron Research. Eric, please go ahead.

I wanted to follow up on the question that rent insulin and GLP-1. And my question is a little bit on the give and take. First, on the insulin or any other products that we see lower prices in front of the AMT cap sunset, I know you've got experience with manufacturers in having renegotiated over the last three or four years and earning a fair fee. So I'd love to hear any analogues that you could provide on the ability to ensure that you continue to receive similar economics. And then on the GLP-1s, our understanding is that a lot of the pharmacies are -- tend to be low or no margin products. Do you need to give a little there and to help the independents, in particular, as they see increases in volumes of GLP-1?

Yes. Thanks for the question, Eric. As we don't really get into individual product economics. I think one of the things that I think has worked for our industry over time is that we really do provide a portfolio of customers. There's no customer that I'm proud of that we're providing one or two single products to. We like to provide all the products. And I think that's also the value proposition we offer to manufacturers is the knowledge that we have of all classes of trade and truly unique to the U.S. market, as you know. And probably to me, one of the strongest fundamental drivers are of the U.S. market. Having said that, our current fee for service, as I said, provides transparency. We have got certain rights in the event that there's a change in economics to negotiate with those manufacturers. And I think these are some of the manufacturers that we work with literally for decades. We're in the first fee-for-service generation of contracts. And I think they understand that our economics need to be strong and solid, and we need to offer good returns to our investors. And so these are respectful discussions with changes in business conditions. We expect we're not new to reimbursement change of affecting market prices. And again, we think that overall, this is a benefit to patients. And at the end of the day, if it's benefiting our constituencies, that will benefit AmerisourceBergen. So I don't have a tremendous amount of concern on any of these themes. Jim, anything you'd add?

Steve, I would just emphasize the point that you were making earlier that the value we provide in the supply chain and the services we provide are just highly justifiable.

Our next question comes from Erin Wright with Morgan Stanley. Please go ahead.

So on the international side of the business, can you speak a little bit more about what you're seeing in terms of underlying demand trends, underlying utilization across that wholesaling business? And then on World Courier, can you give us an update on fundamental demand to across that customer base? Have you seen any volatility there? And where are we at now in terms of integration across Alliance and its ability to work with the higher growth areas, such as World Courier?

I can start off, and maybe Jim can add in some trends. I just would say that in Europe, it's been very resilient. There's nothing that I would report as surprising. Of course, Turkey is a big market for Alliance, and that's got a little bit more economic dependencies based on the economy and inflation. But our core European markets are very stable. I'm actually looking forward. I'm going next week to visit a bunch of the countries for the first time and very much looking forward to that trip and learning more. But demand remains solid. As you know, the winter was better than expected in terms of the energy shortfalls and deficits that were anticipated. And our markets have been performing very well. We continue to engage with regulators. For example, in France, we're looking at how do we help with a switch to doing more specialty in pharmacies in the community setting. Those are the sort of initiatives that really get us excited. How to do more at the retail setting and how do we even service some of the hospital settings through changes in manufacturer contracting, et cetera, looking at our logo business, those are key initiatives for us. World Courier is just a tremendously high-performing asset. We continue to, I think, lift the bar on innovation. Literally, I'd say, and I try to be fairly modest then, but I am incredibly proud of the work that our companies do in World Courier, just foremost amongst that. Every time I get on the phone with them, I'm so impressed with the dedication, the professionalism, the innovation mindset. And this was truly the best of an acquisition that we have completed. This week took a very good private company that was well resourced in a way that had a great footprint. And we've just made it, I think, so much better, professionalized management, really invested in the systems. And this is a sort of thesis that drove also, I'd say, our Alliance investments. So we're tremendously proud of the World Courier. And of course, it's been part of AmerisourceBergen for 11 years now. Jim, anything you'd add on pricing trends?

Sure. I'll just say that we had very good operational performance internationally during the quarter. Revenue was down 0.2% on an as-reported basis, but up 11.9% on a constant currency basis. And operating income was down 5.9% on an as-reported basis, but up 7.3% on a constant currency basis. And please keep in mind that in this quarter last year, we had Profarma Specialty in the numbers also, which has since been divested, which contributed 3% of the segment operating income last year. As Steve said, one of the key drivers this quarter was performance at World Courier. And we are seeing, as Steve was saying, like good, workings and synergies between World Courier and Alloga at Alliance, and now PharmaLex is getting involved with that, and so there's good opportunities there. And we're also, from an administrative standpoint, seeing good shared services opportunities between the business. And of course, as we've called out before, some very good tax synergies between the businesses as we become a more global company. So thank you for the question.

Our next question comes from Charles Rhyee with TD Cowen. Charles, please go ahead.

Yes. I just wanted to follow up on PharmaLex real quick. You talked about the opportunities to work with small and medium biotech companies. There's been obviously a lot of discussions regarding sort of the biotech funding ideal. Any comments on what you're seeing in the market right now? And what kind of feedback you're receiving from your clients as it relates to this? And then just a follow-up on OneOncology. You mentioned before the potential for value-based contracting. Can you go into that a little bit more? Is that something where you're looking to take risks in certain situations? And how would that look at that?

Yes, let me quickly do the OneOncology question first because it's -- I appreciate getting that opportunity. Look, we are not -- first of all, they will be an independent business entity. Our point is that we have a lot of experience, particularly through our IR network or managing analytics and helping aggregate data on behalf of members. OneOncology really will take it a step further. And we're saying that the future, the professional and clinical requirements to be in the community and to be serving cancer patients is only going to be increased. The bar is going to be lifted. So investing in this new model, we think, can benefit, of course, OneOncology and the two partners, that's TPG, AmerisourceBergen, but also the physicians who run the business, many of whom we've known for over two decades. These are very successful professional and business people. And we want to help use that expertise to deepen our relationships with community oncologists. So if you think about AmerisourceBergen right now, we have the distribution business. We have the ION business. And potentially, this is a third way for us to be involved and participate in the market. So I would say that. On the biotech and the funding, our business gets really impacted by long-term trends. I am convinced, and I think everyone in the Life Sciences business should be, that there are incredible investment thesis that makes sense for a venture capital and all other forms of capital to invest behind. We're only getting smarter. I think areas like ChatGPT are going to enhance artificial intelligence, are really going to enhance the drug discovery process. It's going to enhance the ability to share information. I think there are trends of cooperation between a lot of the countries that AmerisourceBergen serves that could help also facilitate launching of drugs. And I just think it's a tremendous time to be in this industry. And we've talked a lot on this call about the GLP-1 class of drugs. I mean, could be incredibly promising. Of course, we all know some good stories here about people who've been prediabetic and have been literally -- the clinical pathway has been altered by this. So tremendously excited to be a part of this. And I think AmerisourceBergen is really of the scale, sophistication and knowledge base that we can help truly make a difference in patients' lives, which is part of our purpose. Jim, anything you'd add?

I think that covers it, Steve. Thanks.

Yes. And just one thing. If we look at AmerisourceBergen, a lot of the work we do, even at companies like PharmaLex, it really doesn't start in Phase I and II. It's -- fortunately, we're more in the Phase III side. So I think that's just another point that Bennett wanted me to make. Got to give the investor guy some credit here.

Our next question comes from Michael Cherny with Bank of America. Please go ahead.

Jim or Steve, in the press release, you noted how some of the strength in the quarter is from your two largest customers. I guess maybe juxtapose that. Can you give us an update on what you're seeing on the smaller customer side? Where your independents are focused with you? And if at this point in time, given macro worries, if there are any other services that you've either started to provide or other opportunities where you can help and support them as they work to sustain and manage their businesses.

Go ahead, Jim.

Yes. I would say kind of a key thing about the quarter and is just how broad based the results were particularly in the U.S. business. And we called out sales to largest customers, and we provide details on that in the Q. And we did see our two largest customers have quite good growth in sales. We also called out, as we frequently do, increase in sales of specialty products to both physician practices and health systems. But just -- those are just 2 of the things that we called out. I think probably the kind of the key thing on this quarter in the U.S. is just how broad-based it was, and that would include strong performance in independent -- excuse me, independent pharmacies also. And then as I said earlier, a very good quarter in the Animal Health business. And I think Steve has a couple of things he wants to follow up on.

Yes. I mean it's -- the community pharmacists, it's quite incredible how well they hold up. And I think in a way, that sure in the initial days of COVID, I think there was a trend towards people and may or having more market share. But this marketplace really supports all sorts of pharmacy solutions. Definitely, I think the role of the vaccinations in the pharmacies has been a good example of our pharmacists practicing at the top of their scale. And we continue to see our pharmacy customers gain inroads and preserve their market share. And that, in fact, I think most of our payer customers, when we look at our Elevate Network, recognize that they have an important role to play. We try to get, as we pointed out in the script, community pharmacists to play even a role in looking for clinical trial participants, patients that could participate, particularly in disaffected communities, communities that don't often participate in trials. So it's just an exciting time to do this kind of work. It's an exciting time for our customers. We have our trade show coming up over the summer. And I know that engaging with those folks always just makes us excited about how they're looking at their patients, their communities and what they can do to serve. Also, I would say, our oncology business, which is comprised largely of independent oncology practices, continues to thrive. And I think it will only be strengthened by the continued commitment that we show to the sector. And I think that's the message to our customers on why we're investing in OneOncology as one of the lead investors. Thank you.

Our next question comes from Steven Valiquette with Barclays. Please go ahead, Steven.

So I also have just a couple of questions here on OneOncology. I guess, first, just to confirm a couple of things on the structure. I guess it's not clear. Will the new JV with TPG consolidate the total practice revenues generated from the 900 affiliated providers? Or is the revenue in the JV more derived from some sort of adviser fees or just some cut of the practice rate? Just want to get a sense for how much of a true ownership there is of the affiliated providers. And then question two, just thinking about the synergy potential, it wasn't clear. Is ABC currently the primary drug distributor to the majority of the roughly 900 affiliated practices? Or do your competitors have a large -- or a material share of that distribution that under your ownership, you could theoretically shift to yourselves? Just want to get a sense for that, too.

Yes. OneOncology is technically an MSO, so they get management fees and then they offer some benefits of centralization. They have focused on leading practices across -- either they're in several geographies. And oncology supply has been the lead distributor for almost -- for all the practices. It's possible that some of the practices may not be fully integrated and using one of our competitors. But as you know, if you exclude OneOncology, AmerisourceBergen's share of Immuno-oncology is pretty high. So really would anticipate that as they bring new practices in that we would benefit from that. But no, we are the primary distributor to OneOncology. Jim, add something?

Yes, Steve, I'll just follow up. And the deal is structured as a joint venture, and we do not own the practices nor consolidate the revenue, as Steve was saying. And of course, it's a JV between AmerisourceBergen, TPG and OneOncology's affiliated practices and physicians. And upon closing the deal, we'd expect to have an initial ownership stake of approximately 35% in the joint venture with TPG, and the OneOncology practices and physicians owning the remaining 65%. And we currently intend to account for the investment after closing under the equity method of accounting, and our share of the joint venture's income or loss would be recorded in other income and included in our adjusted operating results.

Our next question comes from Daniel Grosslight with Citi. Please go ahead.

I'm sure we'll get more details in the Q on this. But apart from the expected normalization what drove Animal Health strength this quarter? And how is companion versus production trending?

Yes, it was a good quarter for the Animal Health business. And we signaled three months ago during our earnings call, but that's what we expected as a normalization of the business. And there was 6% revenue growth, and it was a good revenue growth in both companion animal and production animal during the quarter. We feel there probably are still some staffing pressures at that clinics weighing on visits, but we felt good about the 6% growth, and it was comparable growth rates in both companion animal and production animal. And I think importantly, we saw solid trends exiting March.

Thank you. I will now take the final question, please.

Our next question comes from George Hill with Deutsche Bank. Please go ahead, George.

Just a quick one on 340B. There's been a lot of manufacturer pullback in the 340B space. I'm wondering if you guys have seen that impact, either yourselves directly through your relationships with health system providers? Or even though you called out the strength in your largest customers, kind of any impact on your largest customers? And Jim, I thought maybe you might just remind us kind of what percentage of the core drug business is exposed to kind of doctors and health system providers as opposed to pharmacies and other, what we would consider regular way retail locations?

We don't really comment on it. I mean, obviously, the general trend is that 340B is growing. AmerisourceBergen is growing in our health systems business. It's an important customer segment for us. I think a couple of years ago, we were lagging a bit in market share. We've really been able to enhance the team in the Health System segment of growing with market leaders. We have, I think, good relationships with the hospital GPOs and with other key providers and continue to participate where it makes sense in RFPs. Probably this is a sector where there's more RFPs because of the contractual relationships. And a lot of the hospitals are in the 500 million range in annual volume, which wouldn't be big enough for us to comment on an individual basis, but there's pretty -- every few months, we participate in a large hospital where it makes sense for us to participate. I would say on 340B, we follow the market obviously, some of this historically had hurt some of our Part B car business as it went into health systems. I think we've been very effective at servicing both classes of trade and being objective providers. I think often this channel -- the thoughts of channel conflict can largely be dismissed and objectively by being a fair provider and really being transparent about what your different strategies are. And so we don't really over focus on this and just follow that prescription dollar, and I think that's been the best strategy for us, George. So I see we're a little bit past 9:30. So I just want to say how proud Jim and Bennett and I were to report this quarter. It's a tremendously strong second quarter for AB. I think really enhances the theme of us making the right sort of capital deployments. Our acquisitions that we've made recently continued to track very well. And I think it adds hopefully to our reputation of solid execution and building on our strengths. We are excited to have OneOncology join our family of companies in a way through the investment that we've made. And just in summary, I would say that AmerisourceBergen as a purpose-driven company and future as Cencora is very well positioned for long-term growth, and we'll offer our shareholders a differentiated return. Thank you very much.

Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines