Hello, and welcome to today's AmerisourceBergen Q3 Fiscal '23 Earnings Call. My name is Jordan, and I'll be coordinating your call today. [Operator Instructions] I'm now going to hand over to Bennett Murphy, the Senior VP and Head of Investor Relations and Treasury, to begin. Bennett, please go ahead.

Thank you. Good morning, good afternoon, and thank you all for joining us for this conference call to discuss AmerisourceBergen fiscal 2023 Third 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 have 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 broadcast as an express permission of the company. You have an opportunity to ask questions after today's remarks by management. We ask that you limit your questions to one per participant in order for us to get to as many participants as possible in the hour. With that, I will turn the call over to Steve.

Thank you, Bennett. Good morning and good afternoon to everyone on the call. Today, I am pleased to discuss our AmerisourceBergen's pharmaceutical centric businesses, the strength of our balance sheet and execution by our team members have continued driving our strong performance in fiscal 2023. In the quarter, we saw continued momentum across our businesses, delivering revenue growth of 11% and adjusted EPS growth of 11%. We are once again raising our fiscal 2023 guidance as we continue to benefit from good underlying business fundamentals and our focus on operating more efficiently. As I said last quarter, we are leveraging our commercial and organizational strength to find ways to better collaborate with a focus on enhancing the way we go to market with our customers. Operating efficiently is critical to our role in the supply chain, and to our ability to invest as we seek to drive further differentiation in our business. Guided by our pharmaceutical-centric strategy, we advanced our business by focusing on 4 key areas: community providers, specialty medicine and services, global access and opportunity and customer partnerships. We leverage our robust commercial strengths to provide solutions and forge deep relationships with customers and partners globally. Community providers from specialty physicians and local health centers to pharmacies and veterinarians are the cornerstone of access and care in their communities. We work closely with our customers to provide solutions to support their operational needs and strategic initiatives, as they enhance their patient impact. By leveraging our scale and expertise we offer a broad range of solutions to our community provider customers from those designed to help them solve for everyday challenges like marketing and contracting to those designs to help evolve and broaden their reach. One example of this is our [ Fegan ] network of community pharmacies across…

Thanks, Steve. Good morning and good afternoon, everyone. AmerisourceBergen delivered another quarter of strong results as our team members' execution continues to create significant value for all our stakeholders. Our results speak to the strength of our business and our continued work to drive efficiencies. In the quarter, we also strategically deployed capital closing our minority investment in OneOncology, an example of investing to further our strengths and we continue to opportunistically repurchase shares to also return capital to our shareholders. Before I turn to our third 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 third quarter results. AmerisourceBergen had adjusted diluted EPS of $2.92 and an increase of 11% over the prior year quarter, driven by growth in both segments, and a lower share count due to opportunistic share repurchases over the past year. Our consolidated revenue was $66.9 billion, up 11.5%, driven by growth in both segments, particularly in the U.S. Healthcare Solutions segment, which had broad-based growth across our customer base, including growth in sales of products labeled for diabetes and weight loss in the GLP-1 class. Without this increase in GLP-1 products, our consolidated revenue growth would have been more in line with our consolidated gross profit growth. Consolidated gross profit was $2.2 billion, up 8% due to growth in both segments. Consolidated gross profit margin was 3.33% and a decline of 11 basis points due primarily to lower contribution from COVID treatments, which have higher gross profit margins and continued volume growth in GLP-1s, which have lower gross profit margins. Both these margin impacts are to be expected given the unique characteristics of each of…

[Operator Instructions] Our first question comes from Elizabeth Anderson of Evercore ISI.

Congrats on the quarter. One that was particularly impressive as we think about the performance in the quarter was obviously the improvement in the OpEx. Can you help us sort of think about the sustainability of that improvement as we think about maybe the fourth quarter and then maybe conceptually beyond that?

Yes, thanks so much for asking that question, Elizabeth. One thing we were really pleased about -- there's obviously so many things we were pleased about during this quarter. But one of the things we were pleased with is that our OpEx growth was slower than our gross profit growth. So as I'm sure you saw our gross profit growth during the quarter was 8.0% and our OpEx growth was 7.6%. And really where we saw the improvement was in the U.S. Healthcare Solutions segment where our operating expense margin declined by 11 basis points. And we really were able to achieve this by focusing on aligning our internal capabilities to our customers' needs and creating a more efficient organizational structure. And we had talked about that on the May call. And that's something that we were very focused on. And then we also benefited from lapping inflationary pressure that had started in the March quarter of fiscal year '22. And so we lapped that pressure, and so we had less cost pressure during the quarter. And so as we look towards the fourth quarter and we look towards fiscal year '24, this is something that our company is very focused on. We're very focused on efficiency, so we can really align our capabilities to our customers' needs and have an efficient organization. So thanks a lot for asking that.

Our next question comes from Lisa Gill of JPMorgan.

Just want to understand a couple of things better on the margin side. So first, in your prepared comments, you talked about exclusive distribution relationships on cell gene therapies. And then you talked a little bit about the growth in GLP-1s, which I understand, high dollar value when we think about it branded, but probably a lower margin as we think about your book of business. How do I think about like the progression of margin, especially in the U.S. distribution component of the business as we think about; one, exclusive distribution relationships; two, the continued growth in GLP-1; three, biosimilars, how that plays a role. And then just lastly, like anything else that I should keep in mind, whether it's generic price deflation, which seems to have moderated as we start to think about not just the fourth quarter, but thinking about '24 as well.

Yes. There's a lot there. And so let me start out by talking about GLP-1s because they were such a driver of revenue growth during the quarter. And I mentioned during my prepared remarks that we had about 11.5% revenue growth in the quarter and that if we backed out GLP-1s, our revenue growth would have been more in line with our GP growth of 8.0%. And so GLP-1s really are a driver of top line revenue growth. But from an operating income standpoint, they are minimally profitable. And so they really are a driver of top line, but minimally profitable at the operating income line. And this is caused by the fact that the gross profit margins on them are low. And then, the operating expenses are a little higher because of the cold chain nature of the product. And then with regard to things like exclusive cell and gene relationships, of course, those sorts of things are very positive for the company and very strategically important. But in terms of dollars, small at this point in time. Biosimilars, you asked about, they continue to be in a really kind of key and a growth opportunity and margin opportunity for AmerisourceBergen. You asked about generic deflation. And during the last few months, we have seen some moderation of generic deflation in certain pockets. This is too early to call a trend. But of course, if it were to broaden beyond a few pockets into a broader range of generics, it certainly would become a tailwind for the company. But you mentioned, in particular the U.S., and I think probably the thing that I'll point out -- and I talked about this in the prepared remarks on a consolidated basis. But in the U.S. segment, the gross profit margin decline during the quarter was 13 basis points, and that was really driven by 2 things. One is less sales of COVID therapies, which are high margin and then greater sales of GLP-1s, which are lower-margin products and minimally profitable. But -- and so I think that addresses your questions, but I just want to finish by saying, we were really pleased by results we had during the quarter, in particular, the operating income growth that was driven by several things, including strong, broad-based results across many businesses, good utilization trends we saw in the U.S. and then the good performance we made on the OpEx front that I had earlier talked about.

Our next question comes from Eric Percher of Nephron Research.

Thank you for the commentary on GLP-1. I want to stay on that subject and it's good to hear they're minimally profitable for Amerisource, but what we're hearing from pharmacies, particularly independence is that they're not profitable. And it sounds like maybe even the same for chains. So given the importance of independents, have you had to help them offset that? Or is that the role of the manufacturer and others in the supply chain?

Yes. So Eric, thanks. As you know, we price more on product category, so this would fit into a branded and indeed, oral category that's dispensed mainly in the retail sector. A fairly significant amount of this is going through mail order. So it's -- we don't discount on a particular product category, even as significant as this product category is. But we do regard ourselves as a liaison. So of course, we'll be talking on behalf of Good Neighbor Pharmacies in particular, you look at the Elevate network, we discussed this as a key product category that is affecting profitability, reimbursement stability in the community pharmacy. But it's not anything that we are discounting on a particular art on a particularly category basis. So it just fits into that broader category. Of course, these products are extremely important, a good example of innovation and there is a lot of product, a lot of positives about the product as well. I think we shouldn't only look at this in terms of the negatives. I mean, I think there will be a whole lot of benefits to the pharmacy industry as this category evolves including the monitoring of side effects, potentially anything else that pharmacists can do to help manage the health of their patients and AmerisourceBergen will, of course, be there to assist.

Our next question comes from Daniel Grosslight of Citi.

Congrats on another strong quarter here. I just had a quick question on the adjusted operating income guidance for the rest of this year and how we should think about that going into '24. So if you back out the COVID impact and assume that you're going to be at the high end of the range for the fiscal year. It implies around a 2% sequential step-down from 3Q. I'm curious if there was any pull-through from 4Q into 3Q that may be causing that sequential decline? Or is that kind of the normal seasonality now? And then going forward, is kind of a like low teens, high double -- high single-digit growth rate in that segment reasonable?

Yes. Thank you for asking the question. And let me say, of course, we were really pleased with the results during the quarter. And as -- and due to that, we did really kind of across the board raised our narrowing of guidance for fiscal year '23. And we have a lot of confidence in our updated fiscal year '23 guidance, and we have a lot of confidence in our long-term guidance, which is, of course, 5% to 8% organic operating income growth. And then including capital deployment, it's double-digit compound annual growth rate for adjusted EPS at the midpoint of the range. Of course, both those exclude COVID and exclude CapEx, but we -- there are, of course, a number of things that can impact results quarter-to-quarter and timing and those sorts of things. But rather than kind of get into the details there. I just want to say that as we are starting into fiscal -- excuse me, the fiscal fourth quarter, we've got a lot of good momentum in our business. We're seeing strong utilization trends in the U.S. We're seeing good performance in just a number of areas of the business, and that's what gives us a lot of confidence in both our fiscal year '23 full year guide and our long-term guidance that I talked about. And of course, we're just in the middle of our fiscal year planning process now, and we'll look forward to providing our fiscal year '24 guidance on the November call.

Our next question comes from Charles Rhyee of TD Cowen.

Congrats on the quarter. I wanted to go back talking about sort of the services that you're looking to do that you are providing for pharma manufacturers here. You talked about more commercial support, the cell and gene therapy hub, et cetera. Can you talk about a little bit maybe how maybe OneOncology fits into this? You look at some of your peers and some of the efforts that they're making in terms of sort of upward facing services to manufacturers. I know you have a lot of that when we think about World Courier as well. What is the broader strategy? And what are the services that many manufacturers are starting to ask from folks like you? And what's the unique position that you have here in -- and I guess, ultimately, how much share of a business do you think this will be when we think of Cencora going forward?

Yes. Charles, thanks for the question. That's -- I'll try to cover all the elements you asked. Of course, one of the ways at AmerisourceBergen has a differentiated value proposition is our strong portfolio of distribution capabilities and key strategic relationships are really -- we juxtapose and relate those into our upstream relationships and try to provide more services to manufacturers. So key themes that you should keep in mind is our presence in specialty distribution, where we've been the leading community oncology. And this will only be enhanced by the OneOncology acquisition, where we expect to have learnings. There's been a lot of activity, for example, recently in urology. But -- so that could be a future area of interest for us. As any of these physician dispensing capabilities, we come up in areas that we're already active in, including urology and rheumatology, ophthalmology, that will be of interest, and neurology could be one that we are very interested in as well. Aligned with our distribution capabilities to the dispensing physician and what we often call the Part B market is our GPO capabilities. And then I'd have to say AmerisourceBergen has really focused and invested in the development and the breadth and depth of our commercialization services. The customer is the biopharmaceutical manufacturer who will actually be billing for a lot of these services. And I think if you look at the various businesses that we've been invested in, go back to [ '98 ] when we invested in Lash. We started our ICS business for pre-wholesale third-party logistics. We have always been a leader in this area as well. And our goal is to provide an end-to-end suite of solutions and support our partners at every stage of the commercialization journey. So of course, as you have new more complex therapies, none more so than more intriguing than cell and gene therapies and you have -- when you launch them, you have cost issues, you have access issues, you have, of course, the distribution and storage issues, transportation issues. AmerisourceBergen is really creating a lot of services around this. And you've heard how we even -- for a unique product. Now we're doing some kitting and different sorts of handling for cell and gene product. So we will continue to evolve our business. There's a lot we can do. We can track outcomes on a therapy-specific level. In some cases, we've done that in the past. So we will be responsive to the needs of the market and continue to add value to -- for patients on the access front and to manufacturers on taking those different distribution and other points we have to get their products into the market and efficiently and effectively.

Our next question comes from Andrea Alfonso of UBS.

It's Kevin Caliendo for Andrea. Yes, on the International segment, you've discussed pricing visibility. And on World Courier, there's been a benefit from higher weight per shipment. Is that dynamic what increases pricing organically on a go-forward basis? I guess what I'm really trying to -- try to understand here is what -- how should we think about what drives margin improvement here and internationally besides operating cost, headwinds easing for the -- just for the whole international segment. Is that one of the big drivers? Or is there anything else we should think about in terms of the international margin or the potential for margin improvement in that business?

Thanks for asking that question. And as we look at the international business, you asked about World Courier, and there has been some benefit from price. But I think as we look forward there, probably a good deal of the benefit we'll see from World Courier will be in volume growth. As we look at margins overall in the international business, probably what will impact it more than anything else is a mix. And as we deploy capital like we did in PharmaLex, those will be in higher margin, higher growth businesses. And that will -- over a period of time, it should positively impact margin percentage growth in the international business. And I think that will be the key driver.

Our next question comes from Eric Coldwell of Baird.

I'm going to shift topics here a little bit. We're seeing aging of receivables and weaker cash collections in certain of our health care services coverage. Biopharma clients simply trying to hold on to cash as long as possible to take advantage of interest rates. I know payments really never seen as a risk here, but at least on the pharma side. But I'm just curious, what are you seeing in contract renewals, client negotiations when it comes to payment terms? And are you seeing any of your upstream or downstream accounts trying to hold on to cash longer than they have in the past?

Yes. I can start out. It's an interesting question given the interest rate environment and the different -- the sort of near recession we've had, I'm not the economist on this call, but the terms in our business are very stable. There are longer terms often given to the physician segment, but we are not seeing anything discernible, noticeable on changes in terms. Certainly, there's a tighter funding environment for biopharma manufacturers and especially start-up innovative products. But that's a cycle we think we may be seeing some sort of signs of optimism there. And we, of course, follow very closely some of the World Courier peers, larger life sciences type services companies and note their pronouncements, the comments on this. But nothing specific, I'd call Jim out on. When we actually negotiating fee-for-service and clauses, I mean, the terms are pretty well established. And the last thing I would say is that with nearly 30 years in the business, the resiliency of the balance sheet that we have, the inventory, the overall majority of the manufacturers we have are -- and I'd say the vast majority of, we've had some few smaller manufacturers have run into financial problems in the last couple of quarters. But it's -- if you look at the gross business of AmerisourceBergen, it's fairly negligible. And very stable. Jim, you want to add something?

Yes. So this is, of course, something that we monitor and something that we manage very closely and constantly, and there's no meaningful change to call out. Of course, in a working capital management and ROIC and free cash flow are such key value drivers for us over the long term. This is something that we really stay on top of. And I said there's -- as I said, there's no major change to call out.

Our next question comes from A.J. Rice of Credit Suisse.

It's Jonathan Yong on for A.J. Just going back to the generic pricing commentary, and I appreciate that the improvement is in the pockets of products. I guess how are you thinking about this from a competitive landscape? Is the increased pricing perhaps providing an opportunity to gain share in the market if your purchasing might be better than others? Just curious to get your thoughts there.

So yes, like I said earlier, this is -- what we're seeing is the last few months is a moderation of deflation. And again, as you said, it's in pockets. So too early to call a trend. And -- but of course, but [ we're ] a trend, it would be a benefit for us. And then on the sell side, which you talked about, what I'll say on the sell side is it's a competitive market, and it's a stable market also.

Our next question comes from Michael Cherny of Bank of America.

This is Dan Clark on for Mike. Are you seeing any impacts to sterile injectable pricing margins or supply after the Pfizer plant was disrupted a little earlier this month or last month? And if so, how does that impact factored in the guidance?

It's very quick. It's very soon. Obviously, that was a plant that manufactured a couple of injectable products. We've actually worked closely with Pfizer in this particular instance to see if we could help, we had a distribution center closed by the impacted manufacturer plant. But nothing to report yet. It's -- we're keeping our eye on this. Our supply chain group does a fantastic job, has managed through COVID has managed through all sorts of setback. We had the farmer nationalism that we had on one of the calls. We had a lot of concerns about that. I don't think that one manufacturer plant will impact us. And also you're talking about one of the most well-established resilient manufacturers. I would imagine they have their contingency plans and business continuity plan. So I think we did -- Jim and I and Bob Mauch, our COO. We did have a call with our supply chain people to understand and nothing alarming yet, but we will keep a close eye on the situation, and we feel confident we can manage through this as we have a lot of the setbacks and -- not overall material to what AmerisourceBergen does.

Our next question comes from George Hill of Deutsche Bank.

And James, I want to come back to Eric's question talking about GLP-1s and generics. And I guess has the growth of the GLP-1 kind of changed the generic mix and kind of compliance hurdles in the independent channels? And I guess has this led to the independence kind of like artificially hitting generic compliance numbers with you guys to kind of offset the brand into generic mix. I would just kind of love to hear you delve into that dynamic a little bit more.

George, it's a good question. I mean the growth of these products have been producing headlines, and it has altered. But we are -- far from a rigid organization. We have discussions with our customers. We stay very close to the customers. I think -- in fact, I think one of the things that I've been really proud about the teams in the last few years is we don't just do all customers when it comes to RFPs, the large and the small customers. We're trying to stay very close to them and we have a whole lot of new resources, including the telehealth attributes that we're trying to help with our venture capital funds, but also just the general communication tools that we have with customers and the coverage we have in the market. As Jim said, is competitive but stable. So we know our customers well, we know what's going on. And if we have issues, we help with them. And certainly, the growth of this product category is something that will be discussed and potentially could be adjusted for. But no clear trend yet, but it's definitely a good thought and we have our big retail trade show this weekend. And I'm sure that this is going to come up because we have -- Bennett uses the term headline grabbing products and they are. I mean since the hepatitis drugs, we've never seen anything market, but this is definitely more sustainable and even much bigger than that. So -- and of course, much different payer mixes, et cetera. But we want to make sure that our partners, community pharmacies in particular, are stable for the long term, and this would include the management of these products, which are important for their patients. So last question?

That was the last...

Okay. Well, thank you today. Thank you. We are kind of a little bit emotional here as we report our last quarter as AmerisourceBergen. And I know Dave [ Yost ] is going to be turning over. He doesn't like that we haven't changed us. But we are very, very excited to be talking in the future about Cencora. Cencora is a name that I think really resonates with myself and the team as we look towards a future where we're even more of a United Global Health Solutions leader. This name has been studied very well by AmerisourceBergen, and we really believe that it resonates with our team and who we are. What's also extremely important, and I cannot understate this enough, is who we are, what we do and how we do it will not change. We will continue to be a purpose-driven pharmaceutical-centric leader powered by our team members and driven to provide differentiated solutions to our pharma partners and provider customers. We will continue to build on our foundation in pharmaceutical distribution, further our leadership in specialty distribution and services and carry forward our long track record of execution and creating value for all our stakeholders as Cencora. Thank you for your time and attention today.

Thank you. This concludes today's event. You may now disconnect your lines.