Ladies and gentlemen, welcome to the AmerisourceBergen Q4 FY 2022 Earnings Call. My name is Glenn, and I will be coordinating your call today. [Operator Instructions] I will now hand you over to your host, Bennett Murphy, to begin. 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 2022 Fourth Quarter and Full Year 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 have 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 broadcasted without the express permission of the company. You have an opportunity to ask questions after today's remarks by management. [Operator Instructions] With that, I'll turn the over to Steve.

Thank you, Bennett. Good morning and good afternoon to everyone on the call. Today, my remarks will focus on the successes about 2022 fiscal year and the ways in which our leading distribution and pharmaceutical solution capabilities are core to advancing global pharmaceutical innovation and access, ultimately driving significant value creation for all our stakeholders. AmerisourceBergen delivered another strong fiscal year, driven by the resilience and strength of our business as our team continue to execute to advance our strategic priorities and build on our foundation for future growth. First, we leveraged the strength of our leading pharmaceutical distribution businesses. During fiscal 2022, we were proud to continue to support the continued global response to the COVID-19 pandemic as the exclusive distributor of emergency use authorization treatments in the U.S. and by supporting the distribution of vaccines and test kits internationally. Guided by our purpose, and empowered by our commercial strengths and execution, we played an important role in supporting public health. This also presented an opportunity to enhance relationships with key stakeholders worldwide, including governments, public health agencies, and providers and pharmacies. Importantly, we also continue to support our community provider customers from pharmacies to physicians to veterinarians all of whom are integral to ensuring patient access and care in our communities around the world. Second, we solidified our global capabilities to further enhance our customer experience. In the nearly 18 months since our acquisition of Alliance Healthcare, we have continued to integrate the business and facilitate collaboration across teams. As we look forward to the next phase of our integration, we are focused on streamlining our solutions under one commercial leader. Group President, Bob Mauch, will now also oversee Alliance Healthcare and assumed the role of Chief Operating Officer. By uniting and simplifying our commercial operations, we will…

Thanks, Steve. Good morning and good afternoon, everyone. Reflecting on fiscal 2022, I am proud of the strong execution and performance by our teams as we advanced our company commercially and strategically, playing our central role in connecting pharma manufacturers with providers and patients as a leading healthcare solutions provider. Throughout the year, our teams navigated exceptionally well through a complex environment to ensure the delivery of crucial medications and services around the globe. Before I turn to our results, as a reminder, my remarks today will focus on our adjusted non-GAAP financial results unless otherwise stated. Growth rates and comparisons are made against the prior year September quarter and fiscal year. For a detailed discussion of our GAAP results, please refer to our earnings press release. Beginning with our fourth quarter results. We finished the quarter with adjusted diluted EPS of $2.60, an increase of 8.8%, which was driven by strong performance in our U.S. Healthcare Solutions segment. Our consolidated revenue was $61.2 billion, up approximately 4%, driven by growth in our U.S. healthcare solutions segment, offsetting weaker sales in the International healthcare solutions segment as a result of foreign currency translation pressure due to the historically strong dollar. Consolidated gross profit was $2.1 billion, up 5% due to growth in the U.S. healthcare solutions segment. Consolidated gross profit margin expanded by 4 basis points in the quarter to 3.44% driven by growth in the U.S. healthcare solutions segment. Consolidated operating income was $741 million, up 7% compared to the prior year quarter. This growth was driven by a strong performance in the U.S. healthcare solutions segment, more than offsetting the decline in the International healthcare solutions segment, which I will discuss in more detail when I review segment level performance. Moving now to our net interest expense and…

[Operator Instructions] We have our first question, comes from Lisa Gill from JPM.

Great. And thanks for all the comments and color today. Steve, I want to start with a bigger strategy question, and that's really around specialty. One, we hear about a number of different JVs and relationships in the marketplace. I'm just curious as to how you're Board feeling in the current market, one, from a competitive landscape perspective. And then two, biosimilars is an area that we've really been focused on. You did highlight that in your commentary as an opportunity. So maybe if you could talk about those 2 things. And then secondly, if I could ask, Jim, can you just talk about upper and lower end of the COVID range? What's in there?

Okay. Lisa, good to hear from you, and thank you for the question. Yes, I could not be more proud to speak about our specialty distribution and services business. We started the business, as you know, almost 30 years ago. And it's interesting because ION oncology supply, of course, were the formative businesses and we've added a lot of capabilities, of course, on the distribution side with companies like Besse and then most importantly, Lash and Xcenda got us into the services area. And we now with the ICS and World Courier and PharmaLex, we continue to build out our portfolio in ways that are very thoughtful to both our up and downstream customers. But on the legacy specialty business, let me just say, we've always adapted the business for the needs of both large and small customers. If you look at the market shares we have considering that a good portion of the market in community oncology in the U.S. which is where our biggest business is, is not available to us. The market shares we have are pretty impressive, and we've maintained them those relationships for a long time. And we do that with exceptional service, pricing and strong relationships on the ground. Then you look at the development of services like ION and the clinical pathways and the information and data that manufacturers require, and that help our practices better perform in this current environment and the ongoing needs to enhance that and then refine that and increase it, including areas that AmerisourceBergen hasn't until recently been active in like ESG, like clinical trial -- diversity in clinical trials, like more and more longitudinal information, and we really have a tremendous presence. One of the drivers right now in oncology business is the aggregators, and AmerisourceBergen is…

Sure. Lisa, you had asked about COVID therapies and our contribution from COVID therapies. In fiscal year '23, as we indicated, we're expecting $0.30 to $0.35 with approximately $0.30 being in the U.S. and a few cents international. And that's down, of course, from the contribution in fiscal year '22, which was $0.72. And we said we were a little bit ahead of expectations in the fourth quarter. We had a contribution from COVID therapies of $0.17. And so this is something that is hard to predict, and so we'll be very transparent, and we will indicate what our COVID therapy contribution in each quarter, as people will see in their earnings presentation that we posted this morning, this is why we provided guidance both including and excluding COVID therapies. And I will note that in the month of October, it was a little bit lighter than we expected. But we are providing the guidance for the year of this $0.30 to $0.35, and we will be transparent and update on it every quarter. And I'll just finish by saying, of course, we're very proud of the role that we served as the distributor of a number of these COVID therapies, Lisa.

We have our next question comes from Michael Cherny from Bank of America.

Maybe if we could drill down a little bit more on the U.S. health care business and especially the segment EBIT, as you think about the puts and takes heading into next year, script growth, pricing, other areas of the business thinking like MWI, how do you think about the variability within that guidance, call it, the 5% to 7% ex-COVID range? And what are the areas, if we can, that you think are most point in the right direction versus areas that potentially have some level of overhang or slower growth versus what you would typically expect to see?

Yes, I'll start the comment there. And as you commented on, our guidance for adjusted operating income growth in the U.S. segment ex-COVID is 5% to 7%, and of course, that's driven by continued strong operational performance really across multiple businesses. We continue to really execute very well and have -- and a particularly strong growth in our specialty business. And of course, we would continue to expect to see strong growth there. As I commented before, one of the other moving pieces in the business is COVID therapies. But of course, if we kind of focus on the ex-COVID. I just think, Michael, we're seeing strong utilization trends, and so we haven't seen any surprises there as we would expect utilization trends are strong. And then just really good performance across just multiple businesses that drove the growth rates in '22 that we would expect to see to continue in '23.

We have our next question comes from George Hill from Deutsche Bank.

Yes. I'll try to sneak 2 in. Jim, just to make sure I heard you correctly, on PharmaLex, as we think about '23, you guys are calling for AOI up, call it, 7% ex the noise. So with the inclusion of PharmaLex, is the core actually up kind of 11x to 15x PharmaLex? Or should we be thinking up 11x to 15x inclusive of PharmaLex, it's a back-end weighted number? I just -- I kind of didn't hear the math clearly on that.

Yes. And so what I would draw people to take a look at is Page 10 of the earnings presentation that we posted to our website earlier today, which shows the growth rates of our International Health Care Solutions segment. And it really kind of report that we show it on an as-reported basis, a constant currency basis, as reported, excluding COVID constant currency, excluding COVID, then we also show what the impact of the acquisition is. And for PharmaLex, we're expecting a March 1 close. We are expecting it to contribute $0.15 to fiscal year '23. And what I'd say is if you look at international healthcare solutions segment, our growth rate, constant currency, excluding COVID, is 7% to 11%. And if we were to back out the impact of the acquisition, that would take about 4 percentage points off the -- both the bottom end and the top end of that range, which I think answers your question.

We have our next question comes from Charles Rhyee from Cowen & Company.

Yes. And maybe just to look at the guidance again here. You're obviously guiding to very strong growth if we look at excluding COVID on a constant currency basis. Back at your Investor Day, you talked about sort of a long-term guide of about 5%; adjusted operating income growth, 5% to 7%. It looks like here, though, you're kind of guiding better than what you were kind of indicating on a long-term basis. Anything coming up in this year that you would kind of call out to say maybe is sort of a near-term benefit that you might not see going on sort of indefinitely? Or is there an opportunity to -- where sort of the long-term adjusted operating income growth could be better than what you were kind of indicating back to -- at the Analyst Day?

Yes. I would say that this is in line with the guidance that we provided with at Investor Day, where we talked about 5% operating income growth and 8% EPS growth in fiscal year '23. And then we talked about 5% to 8% operating income growth over the long term and then an additional 3% to 4% from capital deployment. And I think, feel like these results and guidance that we're talking about today are very much in line with what we indicated back on Investor Day, and it's really kind of driven by our leading presence in distribution, both in the U.S. and internationally and then our ability to supplement that with higher margin, higher growth businesses that are able to contribute to our operating income growth and then deliver the capital deployment, both through acquisitions like the PharmaLex acquisition in fiscal year '23 and share repurchases, as we've demonstrated over the last 6 months with about $500 million of share repurchases.

Yes, just one comment, Jim, too. I would say we end the fiscal year with a lot of momentum, and it highlights the resiliency and just core demand for our services. We really -- we should never -- appreciate this tremendous industry we're in.

We have our next question comes from Eric Percher from Nephron Research.

Question on free cash flow trajectory. In the last 5 years, we're not seeing our profit growth and free cash flow. I know there's some obvious factors around investment and the opioid settlement. But I'd welcome your view on underlying growth in fiscal year '23 and the opportunity to see free cash flow expansion post settlement?

Yes. And so first of all, I'd say we were really pleased with our free cash flow in fiscal year '22. Our adjusted free cash flow of $3 billion in fiscal year '22. And as I look forward, Eric, I'd just kind of see the free cash flow metrics kind of being about the same as they have been. And of course, they've been very favorable, and we've had great performance on free cash flow. But I don't really kind of see anything that would kind of change those metrics. Of course, as I commented in the prepared remarks in fiscal year '23, now that the settlement is known, we will be subtracting the settlement out of free cash flow, not adding it back. But in terms of the metrics, I view kind of our working capital is one of the very positive things about our business and kind of seeing those free cash metrics being kind of consistent.

We have our next question comes from Eric Coldwell from Baird.

That last Q&A kind of covered my FX follow-up -- or sorry, free cash follow-up. But I did have a separate question on MWI. I'm just curious. What are you thinking about the performance of that business currently in the outlook? My thought process is the companion side is perhaps on the back half of the COVID pet boom. And then at least historically in periods of weaker economies and global challenges, maybe production animal support goes down a bit, less animal consumption, et cetera. So just hoping we could get an update on MWI and your outlook for next year.

Yes. And so it has been a lower growth year for MWI and the animal health market in '22. I think for the year at MWI, it's about 3% growth and a little bit higher than that in companion animal and a little bit lower than that but still growth in the production animal market. And of course, it's comping over some very strong years in the animal health market, where there are a lot of pet adoptions during COVID, and that really drove the market for a period of time. And then I think what's been happening this year is there have been some staffing issues. Of course, as the labor market has been tight, there's been staffing issues in veterinary clinics. So it's a little bit harder to get an appointment. And so that's impacted the market, but it's a very strong market and a very strong business for the long term. And in both good economies and bad economies, that market has performed well. And I think we would continue to see that over the long term.

We have our next question comes from Kevin Caliendo from UBS.

I had 2 international questions tied into one. Is -- do you expect there to be any future recurrence of the Turkish FX remeasurement expense on inventory? And also, were there any excess fuel energy costs in the U.K.? Was that an incremental headwind to you -- a material headwind to you? Because it's certainly something that's popped up on our radar screens, it's being potentially a problem.

Yes. And so with regard to Turkey, there is a mechanism in that market so that -- each year, there is a price increase, which really protects us for many devaluation in the currency. And so we would expect that annual price increase to be recurring in future years, like it has been in past years. And so in fiscal year '22, the price increase really offset the currency devaluation, and our guidance assumes that the same thing happens in '23, although the level of price increase may be lower. And then with regard to fuel and the U.K., yes, I mean, we have had inflationary pressures, particularly in the second half of fiscal year '22 in the U.K., and we would expect those to continue in fiscal year '23, and it's fully reflected in our results and our guidance. And I would say that our team at Alliance is just very good at controlling costs. But we absolutely do have a headwind from inflation that's reflected in our guidance.

We have our next question comes from Stephen Valiquette from Barclays.

Great. So with the U.S. healthcare solutions segment operating growth, 5% to 7% ex-COVID, can you just remind us at a high level whether or not there's any notable call-out just on negative impact from customer contract renewal pricing being absorbed within that 5% to 7% growth assumption? If there is, obviously, it's positive, you still get there. But just curious if that was a factor not just -- either measured in basis points, et cetera, just within that.

Yes. Yes. No, we have no call-outs there. And of course, we're very proud of our ability to be able to renew with customers, and very pleased with our success there. And what we're seeing really in the U.S. is just continued broad-based growth and performance across a number of businesses.

We have our next question comes from A.J. Rice from Credit Suisse.

Just want to ask about capital deployment, and 3 aspects to it really. By March '23, you're saying you'll be done with the need to pay down the debt that you committed to the rating agencies for the Alliance deal. Does that impact your priorities and where you think your capital deployment will go? You've also got the strong dollar, which I know is impacting on the translation side, but you've got 2 businesses doing very well, World Courier and Alliance. Any thought about using the strong dollar for other acquisitions internationally? And then, I guess, finally, just the Walgreens stake, does that affect your capital priorities in anyway? Do you need to hold reserve in case you have an opportunity to buy your shares back through -- in anything they do?

Yes. So thank you very much for that question. Of course, our capital deployment priorities remain consistent and continuing to invest in the business, strategic M&A, opportunistic share repurchases and maintaining a reasonable growing dividend. And with regard to parts of the question that you asked, we obviously will continue to look at strategic acquisition opportunities. We feel really good about the PharmaLex acquisition and the opportunity that, that creates for us in the global biopharma market. And then with regard to the Walgreens question you asked, if Walgreens does decide to sell additional shares, of course, we'll view that as an opportunity to collaborate with them and be a repurchaser of some of the shares. And I think through our actions over the last 6 months, we've demonstrated our interest in opportunistically repurchasing shares. And this is all enabled by our very strong free cash flow. We really exceeded our guidance on adjusted free cash flow for fiscal year '23 and we're fully -- are fully meeting our commitments, of course, as you mentioned, to pay down the Alliance debt.

We have no more further questions. I will now hand the call over back to Steve for closing remarks.

Thank you, everybody, for your participation today. I hope that Jim and Bennett and myself were very clear that we are tremendously proud of AmerisourceBergen's performance in fiscal year 2022. We enter fiscal year 2023 with tremendous confidence, which is only enhanced by the flexibility, our strong balance sheet affords us. AmerisourceBergen is making the right strategic, human and operational investments to continue to grow our franchise in ways that will enhance value for all of our stakeholders. Thank you for your time today.

Thank you, everyone, for joining the call today. Have a lovely day. You may now disconnect your lines.