Good afternoon, and welcome to the McKesson Corporation Quarterly Earnings Call. Today's call is being recorded. If you have any objections, you may disconnect at this time. I would now like to introduce Mr. Craig Mercer, Senior Vice President, Investor Relations.

Thank you, Justin. Good afternoon, and welcome to the McKesson Fiscal 2017 First Quarter Earnings Call. I am joined today by John Hammergren, McKesson's Chairman and CEO, and James Beer, McKesson's Executive Vice President and Chief Financial Officer. John will first provide a business update and then James will review the financial results for the quarter. After James's comments, we will open the call for your questions. We plan to end the call promptly after one hour at 6 p.m. Eastern Time. Before we begin, I remind listeners that during the course of this call, we will make forward-looking statements within the meaning of the federal securities laws. These forward-looking statements involve risks and uncertainties regarding the operations and future results of McKesson. In addition to the company's periodic, current and annual reports filed with the Securities and Exchange Commission, please refer to the text of our press release for a discussion of the risks associated with such forward-looking statements. Finally, please note that on today's call, we will refer to certain non-GAAP financial measures. In particular, John and James will reference items excluding cost alignment plan charges and foreign currency exchange effects. In addition, I would call to your attention the supplemental slides which we will reference on today's call and can be found on the investors page of our website. We believe the supplemental slides, which include non-GAAP measures, will provide useful information for investors with regard to the company's operating performance and comparability of financial results period over period. Please refer to our press release announcing first quarter fiscal 2017 results and the supplemental slides for further information and a reconciliation of the non-GAAP performance measures to the GAAP financial results. Thank you, and here is John Hammergren. John H. Hammergren - Chairman, President & Chief Executive…

Thank you. And our first question comes from Eric Coldwell with Baird. Eric W. Coldwell - Robert W. Baird & Co., Inc. (Broker): Thanks and good afternoon. In the 10-Q tonight I noticed that there was a comment on Distribution Solutions gross margin being impacted by lower compensation from a branded pharmaceutical manufacturer. I'm sure that's a fairly obvious item, I can guess at what manufacturer that might be, but I'd love any commentary you have on that, and just want to make sure it's not more of a sector theme as opposed to a one-off situation. John H. Hammergren - Chairman, President & Chief Executive Officer: Well, thanks, Eric, for the question. I think your perspective is probably correct, and I would like to just further by saying our relationship with the branded manufacturers remains pretty consistent across the board. Our contracts renew on a regular basis with very minor modifications to the terms typically. And what you see here is just basically a difference in the yield year on year from an existing agreement with an existing supplier. Eric W. Coldwell - Robert W. Baird & Co., Inc. (Broker): And again, John, you think that's clearly a one-time item with this one manufacturer? John H. Hammergren - Chairman, President & Chief Executive Officer: Well certainly the magnitude of it is. If you think about the year on year change in pricing behavior, that's really what's the driver behind it. Eric W. Coldwell - Robert W. Baird & Co., Inc. (Broker): Got it. Thanks very much. John H. Hammergren - Chairman, President & Chief Executive Officer: Yeah.

And our next question will come from Garen Sarafian with Citi Research.

Good afternoon. First I guess I'll take the obligatory generic inflation moderation question. In your prepared remarks, you sort of reiterated your expectation of nominal contributions to earnings. But could you just elaborate a little bit further as to what you've seen since last quarter, just to give us more insight? James A. Beer - Chief Financial Officer & Executive Vice President: Yeah. Really, it's been a very similar theme in recent months, so it wouldn't likely point to any particularly notable change quarter over quarter.

Okay. And then on implementing Walmart, congratulations on that deal, but could you discuss the timeline of when this will occur? You mentioned it being operational by the end of fiscal 2017, but I'm wondering what are the critical steps that are preventing some of the benefits from occurring earlier? So for example, wouldn't at least some of your current contracts be tiered for additional volume so that you could benefit from incremental scale sooner? John H. Hammergren - Chairman, President & Chief Executive Officer: Well our agreements, as you point out, are in place today, and one of the things we will be doing as we go to market with the new Walmart relationship will be modifying those agreements to reflect some of the incremental volume delivered by Walmart. But really a combination of the terms and other features of these contracts exist with both organizations. And I do think there clearly is some nominal value that may be delivered in FY 2017. We really think that the preponderance of the value will be delivered in FY 2018, and I think that's consistent with what we've said before, and that's still what we think, Garen.

Okay. Fair enough. James A. Beer - Chief Financial Officer & Executive Vice President: I'd just add to that, that it does take some months to ramp up the physical side of these relationships, and that was very much the case when we implemented the broader relationship with Rite Aid, for example.

All right. Got it. Thanks again.

And moving on to Charles Rhyee with Cowen. Charles Rhyee - Cowen & Co. LLC: Yeah. Thanks for taking the question. John, obviously you're closing on the, you have the Rexall business in Canada. You are running retail operations in the UK, and with Health Mart you have obviously kind of a franchise business. Any reason at some point in the future with the way the retail market is consolidating in the US, does that ever create an option for you to branch back into the domestic side, on the US side of the business, into a retail pharmacy? John H. Hammergren - Chairman, President & Chief Executive Officer: Well I think we've been asked the question before, obviously, and our chosen path in the US is to partner with our customers. And as you mentioned, independents in particular have been great partners and a growing base of our business, particularly the transition of our customer base from just buying wholesale services from us to being partners in the Health Mart business. And that really is a much more intimate relationship and one where the customer benefits significantly from our involvement, and clearly we do as well because they buy more and more of their product and service requirements from us. We have lots of other customers that are very successful in competing in this market, and frankly we just don't see it, an alternative for us to enter the market directly, both that would benefit us, but also at the same time allow us to provide additional benefit to our customers. So I just don't see us entering the retail space directly in the US, but we'll continue to support our customers as we have in the past. Charles Rhyee - Cowen & Co. LLC: Appreciated. And then as…

And next will be Ricky Goldwasser with Morgan Stanley. Ricky R. Goldwasser - Morgan Stanley & Co. LLC: Yeah, hi. Good evening. A couple of questions here. First of all, John, can you comment on the discussions, the ongoing discussions with manufacturers on specialty pricing models? John H. Hammergren - Chairman, President & Chief Executive Officer: Well, we're very excited about the growth in our specialty business overall. We've made significant strides in building out our value proposition for the customers. You heard us talk about oncology in particular, but in several of the specialties, I think we're very well positioned and the business continues to grow at rates that would be at or above market level. So we are well positioned and we're pleased with the array of services that we provide. Clearly the manufacturer and the customer are both important aspects of driving profitability in that business, and we are continuing to expand the relationships in both directions, and we do believe that the manufacturers benefit significantly by using our services and are willing to pay for those services, because it certainly reduces a lot of the financial and logistics workloads that they have on their laps. So I hesitate to speak universally about a class of customers, but I think our relationships with the manufacturers are very sound and those relationships continue to build. Ricky R. Goldwasser - Morgan Stanley & Co. LLC: Okay. And then a follow-up question on the numbers, just because of the moving parts here. So first of all, James, was the $0.38 in litigation benefit that you talked about on the Analyst Day, did you assume that it will all be captured in the June quarter? James A. Beer - Chief Financial Officer & Executive Vice President: Yeah. That was our assumption…

And next will be Steven Valiquette with Bank of America Merrill Lynch.

Thanks. Good afternoon, John and James. Yeah, so I guess for us there's been obviously some discussion in the pharma supply channel this year about lower penetration rates at some of the more recent individual first-time generic launches relative to the brand. Could you just remind us again your observations on that subject and really just specifically, it seems to us that maybe some of those key generics that were in question have now actually achieved some much higher penetration rates with the passage of some additional time this year. Just curious to get your latest thoughts on that subject. Thank you. James A. Beer - Chief Financial Officer & Executive Vice President: Well, in terms of brand to generic conversions, we went into the year believing that we'd see a lower overall profit contribution than had been the case in the prior fiscal year. And obviously, Crestor has been a big launch early in the year, and based on what we've seen there, we don't have any change in our point of view. We would continue to believe that we'll see a lower profit contribution from these brand to generic conversions. John H. Hammergren - Chairman, President & Chief Executive Officer: Yeah, there really isn't much of a change in our past experience based on what we're seeing today. And I think there's the best way to sum it up, Steven.

Okay. Well and a quick one just on the cost alignment plan progress. I guess that you've dug deeper into your operations. Have you found any new or additional sources of savings, or is everything about as expected with that whole program? James A. Beer - Chief Financial Officer & Executive Vice President: No, that's moving along as I expected it to, again, at the point where we last talked about our guidance. So no, it's very much on track as expected. John H. Hammergren - Chairman, President & Chief Executive Officer: I think the charges you're seeing or will see this year are charges we anticipated when we launched the program last year. They just had to be recognized when they were realized, and some of them were going to be realized this year. So it's not a new cost alignment plan, it's a continuation of the one that has already been completed and the financial impact of some of those charges rolled into this year. James A. Beer - Chief Financial Officer & Executive Vice President: Yeah, that's right. Some of the charges have to be taken in fiscal 2017 versus the bulk that we took in fiscal 2016.

Okay. Great. Okay. Thanks.

And moving on to Lisa Gill with JPMorgan.

Thanks very much. John, I just wanted to follow up on an earlier comment that you made around the branded manufacturer. I'm just curious, as we think about inventory management agreements on your branded business, I think in the past you've talked about 85% to 90% are under inventory management agreements. Are you seeing any changes in that other 10% to 15% as some of those manufacturers come under pressure to have a more firm relationship with the distributor, or a more defined relationship like some of the larger manufacturers do? John H. Hammergren - Chairman, President & Chief Executive Officer: Well, I think we have not seen much of a change in the big relationships. They remain pretty consistent, and I'd just sort of remind people that even in some of the larger relationships, there is exposure that remains both positive and negative depending on how you look at it relative to their price increase activities. And so when we talk about the year over year change, you can imagine that with that particular manufacturer, we benefited from their previous price increase patterns and in this quarter have benefited to a lesser degree, and that's why we call it out. But if you step back from that specific individual company, we're not really seeing any change to the character of our relationships.

Okay. That's helpful. And then secondly, just looking at the technology side of your business coming in better than at least our expectations in the quarter. I'm just wondering if it beat your expectations and if there's anything notable to call out within that business in the quarter? James A. Beer - Chief Financial Officer & Executive Vice President: Well, we ran through some of the drivers. Obviously, we're very pleased with the progress of the results there, very much a focus on the higher margin businesses, very much lower expenses as a result of the cost alignment plan and so forth. But at the same, there are also some timing items that benefited Q1 that I would expect to revert out in Q2. So I'd just temper the situation with that last thought.

Okay. John H. Hammergren - Chairman, President & Chief Executive Officer: And you heard us in our prepared remarks talk about the low 20% type of margin, which is slightly below obviously what we recorded in the first quarter, which is reflective of us going back to a more normal run rate. But I would agree with you that we see the business performing very well, and it sets us up nice as we think about the completion of our transaction with Change Healthcare. And we think customers in particular and investors will benefit significantly from the combination.

That's helpful. Thank you. John H. Hammergren - Chairman, President & Chief Executive Officer: Yeah.

And moving on to Ross Muken with Evercore ISI.

Hi. Good afternoon, guys. So lot of confusion I can sense from my inbox on sort of the implied 2Q guide, and I realize you guys don't typically give a ton of sequential commentary, but I think some of the issue is just sort of off of what base to think about the 48% in the first half. So I just, one, want to make sure we're all talking about the same numbers in terms of which of the two sort of annual forecasts, with or without the CAP we're speaking to, and that we've got clarity. And then, if you could just help us, other than the sequential sort of shift obviously in the anti-trust plus tax, how to think about the progression aside from those two factors. James A. Beer - Chief Financial Officer & Executive Vice President: Yeah, so the base from which I'm making that 48% first half comment is very much from our guide of $13.43 to $13.93, which is excluding $0.12 to $0.15 of CAP charges. So that's the base from which you should start. In terms of Q1 versus Q2 items, I just mentioned to Lisa the point that I would expect there will be some timing items around the Technology Solutions business. And then obviously, Q1 benefited substantially from the anti-trust settlement, that roughly $0.38 in the quarter, equivalent to a year over year impact of $83 million. And then in terms of the change in accounting around share-based compensation, as we discussed at Analyst Day, that was going to be $0.16 benefit for Q1. And then only another incremental $0.04 over the balance of the year, so just directionally about a $0.01 or so benefit in Q2. So I think those are the important drivers, if you will, of the Q1/Q2 split.

Okay, that was helpful. And maybe just quickly for John, was there anything in either of the two lead candidates for president, the platforms, that you thought was sort of notably relevant for the business? I mean obviously more recently, a lot of was made on Part B and a few other things. But I'm curious if anything stuck out to you that was notable? John H. Hammergren - Chairman, President & Chief Executive Officer: Well, I think the thing that's most notable is that in both platforms, you hear a discussion about cost and quality at some level. And clearly we believe the healthcare industry is headed on a continued improvement front on both of those dimensions. We need to take cost out of the healthcare system, and we need better visibility to quality, and people are increasingly going to be paid in a way that reflects the value they deliver on those two dimensions. So I think regardless of the candidate that wins, or the party platform that gets adopted, we're trying to help our customers prepare for that environment of more cost pressure, and more inspection of their ability to deliver value. And part of that is also going to require them to collaborate and connect across the boundaries of their individual businesses. So I would say that that theme is the thing that stuck out the most, is that I think the issues that have been raised in the previous administration around these issues, or I should say the interest raised around these issues in the previous administration will continue.

Thank you. John H. Hammergren - Chairman, President & Chief Executive Officer: Sure.

And next question will come from David Larsen with Leerink.

Hi. Can you talk about your ability to move share with biosimilars please and how that may differ from some of your competitors? Thanks. John H. Hammergren - Chairman, President & Chief Executive Officer: Well we're pleased with our position in specialties. I mentioned it a few moments ago, and I think that our business has continued to focus heavily on our ability to add value to our customers and deliver through our scale and knowledge a product at an improved value. Clearly, biosimilars produce an opportunity for us to reduce cost and deliver quality to our customers, and in places where we can influence the selection of the biosimilar, we believe we will benefit and our customers will benefit. Clearly part of the challenge biosimilars face in the market is their ability to prove the equivalence of their product compared to the originator. And we think in particular, our US Oncology Network is prepared to work with manufacturers to do the type of work that will be necessary, not only to prove to us that the product produces a similar result at a lower cost, but also provide a beachhead or a benchmark from which other customers can be convinced given the rigor and discipline that our network uses to evaluate these types of opportunities. So I think in some categories we may not have much influence, but clearly in products that are used in clinics or in oncology practices in particular, we're very well positioned to create value for the manufacturers and as a result deliver value to our customers through that relationship with the manufacturers.

Great, and then regarding Omnicare, Optum and Target, we're completely through all of those as of this quarter. Is that correct? James A. Beer - Chief Financial Officer & Executive Vice President: No. I wouldn't put it that way. I think it's important to note that the year over year headwinds from both generic pricing effects and customer consolidation, the cash grow you're just referring to are very much weighted to our first half of the fiscal year. So once we get into the second half, they're significantly less, but they're very relevant in the first half of fiscal 2017 year over year.

Great. Thank you.

And the next question comes from Robert Jones with Goldman Sachs. Robert Patrick Jones - Goldman Sachs & Co.: Great. Thanks for the questions. John, you mentioned the change in reimbursement in the UK. Any chance you could give us a sense or quantify the headwind that that creates in fiscal 2017 versus your previous expectations? And then within international, I know the original guidance was for low double digit constant currency revenue growth. Does that still hold true in light of these reimbursement changes? John H. Hammergren - Chairman, President & Chief Executive Officer: Well I'll let (50:19) first question a little bit. The second question you may have to repeat so I make sure I fully understand what it was. On the first one, I think that the second change the UK – the first change we understood and we saw it coming, and we had prepared our organization to make moves to offset it and to grow through it. And I think the second change was almost equal in its magnitude related to the first change, which was not insignificant, and so the second change is going to be more problematic for us. And that's I think what we're preparing to deal with as we go through this fiscal year. If you step back from those two issues, the Celesio businesses are performing quite well, and in fact, we're making progress in almost every country to improve our market position, our operational efficiency, getting our product service levels up and so on, the technology that's necessary to support the business including moving into areas hopefully like specialty and the hospital business, et cetera, over time. So I think we're quite pleased with the progress of the businesses. I think that the second hit in the UK was…

And moving on to George Hill with Deutsche Bank.

Hey. Good afternoon guys, and thanks for taking the questions. James, I think if we think about the gross margin pressure, the gross margin erosion, if you were to just kind of bucket it by order of magnitude if we think about the tough comps on generics, how much of it is mix, brand versus generic versus specialty? And how much of it is just kind of the changing of the business mix given the M&A that's going on, I guess? How should we think about kind of the leading drivers of generic pressure, I'm sorry, of margin pressure? James A. Beer - Chief Financial Officer & Executive Vice President: Well, if you think about the gross profit margin, I would really point you back to the impact on a year over year basis, the impact of generic price increase activity and the customer consolidation issue, particularly on the Care and the Target pharmacies. That's really the most significant pairing that's driving the gross profit margin line. And then the other thing that we've spoken about this afternoon is that branded manufacturer, and the compensation that we happen to have driven from them in this particular quarter. John H. Hammergren - Chairman, President & Chief Executive Officer: Compared to prior year.

Okay, I guess then maybe if I step back and I back all this out, if I back out the items in Q1 of last year, and the items of Q1 of this year, would gross margin actually have been up, ex the generic drug pricing impact? Like would margins have actually expanded? James A. Beer - Chief Financial Officer & Executive Vice President: No. I would say the effect of those customer consolidations had a significant impact on the gross profit line in Q1, and again that factor and the generic pricing increase factor will be significant in the first half of our fiscal year, so in Q 2 as well.

Okay, and maybe just last quick follow-up. John, I know it's early in the process, but any interest in EIS yet, and has that process kind of started to get rolling yet? Thank you. John H. Hammergren - Chairman, President & Chief Executive Officer: It's probably too early to talk about EIS. Clearly, we're focused on making sure we maintain that customer base and continue to develop the product and retain the people, and as we have news to update you guys on, we'll certainly bring it to you.

Thank you. John H. Hammergren - Chairman, President & Chief Executive Officer: Yeah.

And we have a question from Greg Bolan with Avondale Partners.

Thanks guys. So just going back to Ross's question, because we're definitely getting pinged as well here. So, I just want to make sure we're kind of all on the same page as we think about – so if we kind of use $3.17 in 2Q of last year, just backing out the benefits from ZEE Medical, and what the implied is for the second quarter, it looks like potentially down year on-year just in terms of earnings growth in 2Q. Is that just kind of the remainder of the residual impact from this negative comp, if you will, and generic pricing and then we kind of start to lap that to some degree as we get into the third and the fourth quarter? Is that kind of another way to think about it as well? James A. Beer - Chief Financial Officer & Executive Vice President: Yeah, actually yeah. I'd just emphasize again, the impact in both Q1 and we expect in Q2 of the twin effects of the generic pricing environment, the lack of price increases relative to the prior year, and the effect for us of the move of Omnicare and Target away from us. So those are both going to be significant drivers in both Q1 and Q2.

Okay. Perfect. Thanks, James. James A. Beer - Chief Financial Officer & Executive Vice President: Okay. John H. Hammergren - Chairman, President & Chief Executive Officer: Well thank you, Justin, for helping us out today, and thanks to all of you on the call for your time today. McKesson is off to a good start for fiscal 2017 and I'm excited about the opportunities ahead of us. I want to recognize the outstanding performance of our employees and their contributions to driving better business health for our customers every day. I'll now turn the call back to Craig for his review of upcoming events for the financial community. Craig?

Thank you, John. Our preview of upcoming events for the financial community. On September 13, we will present at the Morgan Stanley Global Health Care Conference in New York. On November 8, we will present at the Credit Suisse Health Care Conference in Scottsdale, Arizona. We will release second quarter earning results in late October. Thank you and goodbye.

Thank you. That does conclude today's conference call. We do thank you for your participation today, and have a great day.