Good afternoon and welcome to the McKesson Corporation quarterly earnings call. All participants are in a listen-only mode. Today's call is being recorded. If you have any objections, you may disconnect at this time. I would now like to introduce Ms. Erin Lampert, Senior Vice President, Investor Relations. Please go ahead.

Thank you, Solari. Good afternoon and welcome to the McKesson fiscal 2016 first quarter earnings call. I'm 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 will then introduce James, who 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 6:00 PM Eastern Time. Before we begin, I'd remind listeners that during the course of this call we will make forward-looking statements within the meaning of 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 which we exclude from our GAAP financial results: amortization of acquisition-related intangible assets; acquisition expenses and related adjustments; certain claim and litigation reserve adjustments; and LIFO-related adjustments. We believe these non-GAAP measures will provide useful information for investors. Please refer to our press release announcing first quarter fiscal 2016 results, available on our website, for a reconciliation of the non-GAAP performance measures to the GAAP financial results. Please also note that on today's call, we will refer to certain measures calculated on a constant currency basis. Additional information on constant currency effects is available in our SEC filings. Thank you. And here is John Hammergren. John H. Hammergren - Chairman, President & Chief Executive Officer: Thanks, Erin. And thanks, everyone, for joining us…

Thank you. We'll take our first question from Ricky Goldwasser with Morgan Stanley. Ricky Goldwasser - Morgan Stanley & Co. LLC: Yeah, hi. Good afternoon. A couple of questions here. First of all, obviously, generic inflation is a big focus area for investors, so thank you for your comments on that. But can you just help us understand, how should we think about generic inflation trending within the context of your guidance range? James A. Beer - Chief Financial Officer & Executive Vice President: Certainly, as we've mentioned, we did see generic price increase activity below the levels of the last fiscal year and below our original expectations. Now, that said, obviously our guide that we issued a few months back has a variety of variables that are key to it, and we list those out for you. So the width of the range allows us some flexibility to take into account variables of one driver that's up versus another driver down. So we're comfortable with the range that we've articulated this afternoon. That reflects the addition of the care management nurse triage gain. And of course we'll keep everyone updated as we proceed through the fiscal year. Ricky Goldwasser - Morgan Stanley & Co. LLC: Okay. And then just as a follow up, very strong top-line growth for distribution solutions, up 15% despite some impressive year-over-year comps you're anniversarying. So when you think about the environment and branded inflation that you've seen in the quarter, do you expect similar trends for the remainder of the year? It seems just the growth is stronger than what you guys implied in the Analysts Day. John H. Hammergren - Chairman, President & Chief Executive Officer: I think we've had good success in growing our business across the board. And I think the interesting part of the base of business that we have in our mix is that we have some customers that are growing we think more rapidly than the market. And that growth is clearly seen in our business. That comes with it better revenue growth, but it does put a little pressure on our mix as a result of the scale of those customers. We're certainly pleased with the performance in the quarter and we expect that revenue momentum to continue throughout the fiscal year. James A. Beer - Chief Financial Officer & Executive Vice President: And one of the other drivers of the revenue strength in Q1 was the acceleration of some of the branded price increases that occurred in the first quarter that we were originally expecting to occur later in the year. Next question?

We'll move next to Steven Valiquette with UBS.

Thanks. Good afternoon. I think we all understand the comments about generic inflation being difficult to predict. There's definitely no question about that. But I guess I'm just curious, with your privilege of daily conversations with generic suppliers, with some 20/20 hindsight now, do you have any thoughts or any opinions on what you think may have just led to that temporary slowdown of generic inflation in the June quarter? Or do you just attribute that to randomness and obviously some tough comps year over year that we saw for the June quarter in particular? Thanks. John H. Hammergren - Chairman, President & Chief Executive Officer: Thanks for the question, Steve. I think the comps are clearly one of the challenges when we think about the strength of the price increases in the prior year. I think that although we have close working relationships with the generic manufacturers, they don't always share with us their plans related to price increases. Clearly their view of product launches, their merger and acquisition activity, there are lots of things moving around in the market that may also be distracting them from some the things that they may be doing on a short-term basis or could have done on a short-term basis. I think our view is that we believe that generic pricing power will remain a part of the strategy generic companies will employ. And that balanced with the scheduled generic launches, et cetera, are part of the things that drive their P&Ls. I would say following on to what James said earlier, there are lots of variables in the way our quarters flow. And one of the positive things in the quarter was the fact that our brand price inflation work was a little stronger than we'd seen on a compare basis. So there are always puts and takes as you move along. And I think the most important thing is that we continue to find ways to move the business. And we're obviously also very pleased with the performance of our Specialty business and Celesio had a very good quarter. So both Specialty and Celesio performed above what we would have expected, even though our generic price part of our business may have been a little bit behind.

Okay, all right. That's helpful. Thanks.

We'll take next Eric Percher with Barclays.

Thank you. So on the topic of growth at large customers, do you think that growth is coming at the expense of smaller customers? Or is it that the larger customers are getting a greater share of where we do see outsized market growth? John H. Hammergren - Chairman, President & Chief Executive Officer: Clearly I think the Specialty business is more inclined to go through the larger customer, particularly in the PBM channel. We obviously have seen some market shifts in PBMs as well. And I would imagine on the edge, our larger customers are taking some incremental share in the market. But I would say that at least the base of independents that McKesson is involved and closely working with, we've seen good strength in that business, both in the growth of Health Mart stores but also in terms of their revenue growth. So I think the most important thing for us to do is to continue to focus on bringing our scale and our capabilities to the smaller customers to help them continue to level the playing field relative to the larger customers. And on the larger customer side, we have to find ways to add more value so that our margin impact isn't as negative as it can be when the mix changes.

Even absent the growth at the top line, operating expense seemed to come in quite a bit below where we expected on the Distribution side where you didn't have the impact. Could you speak to some of the activity and how it felt relative to your own expectation? John H. Hammergren - Chairman, President & Chief Executive Officer: We are very focused on, as you know, Eric, in being efficient and productive in our operations. I think we have over 3,000 – closer to 6,000 black belts if you include Celesio around the world. And those folks are designed to help us drive efficiency in our operations. I also think it's important for to us maintain discipline around pricing. Albeit the mix thing is hard for to us control, our pricing decisions are within our control and we have to stay disciplined on that. James, there might be color you want to add on expenses. I think our interest expense was down a little bit. James A. Beer - Chief Financial Officer & Executive Vice President: The operating expense line, really the focus ongoing right across the company, as John is referring to there, including Technology Solutions, and part of the business we've really been able to build our margins quite nicely. So directionally in line with what we were expecting, but we're certainly very pleased by the ongoing progress around our cost structure and our productivity.

Thank you.

Next we have Lisa Gill with JPMorgan.

Thanks very much. John, when you called out North America and some of the things you talked about, you did talk a little bit about Specialty in your prepared remarks. Can you maybe just give us a little more detail as far as what you saw for revenue growth there in the quarter, especially versus your expectations? John H. Hammergren - Chairman, President & Chief Executive Officer: We expected our Specialty business to grow above market levels. And I think not only did it grow above market levels, it grew more than we had expected. And I think our strength in particular in our community-based oncology business was very strong. Clearly, U.S. oncology continues to perform well. Albeit off of a slightly smaller base, our multi-specialty business is growing very rapidly as we create value-differentiating capabilities in that market.

Okay, great. And then just on the follow-up side for the small acquisition that was made for Sainsbury, can you give us any indication as to what the earnings or financial impact will potentially be from that acquisition? John H. Hammergren - Chairman, President & Chief Executive Officer: It's obviously a very important strategic move for us. It significantly expands the presence of Lloyd's Pharmacies in the UK, and it's an endorsement of the strength of the Lloyd's brand and operating model. I think that's an important aspect to what this win signifies to our team and to the markets. James, you might want to comment on the timing and margin impact. James A. Beer - Chief Financial Officer & Executive Vice President: Just based on our expected normal regulatory review process, we're expecting the transaction to close toward the end of February of this coming year, so I wouldn't expect it to have any material impact on fiscal 2016.

Okay, thank you.

Next we have Glen Santangelo with Credit Suisse. Glen Santangelo - Credit Suisse Securities (USA) LLC (Broker): Thanks and good evening. James, I just want to follow up on the gross margins a little bit. This was probably – the gross margins are probably a little bit lower than what we had thought and maybe the lowest gross margin we've seen in five or six quarters, and I'm curious. Can you maybe give us a little bit more color in terms of what impacted that gross margin? I don't know if that was tied into the generic inflation comments or if there's something related to the purchasing synergies from Celesio having kicked in or Rite Aid or Omnicare. Can you give us a little bit better sense of what's go on there? James A. Beer - Chief Financial Officer & Executive Vice President: Really I would point you to two comments that we made during our prepared remarks. First of all, very strong growth from our largest customers and therefore an impact on the mix and the margin, the gross profit margin profile. So that's number one; and then secondarily, the lesser effect around generic price increases than we were originally expecting in our plan. Glen Santangelo - Credit Suisse Securities (USA) LLC (Broker): Okay, maybe I can just follow up on that. John, for those who have been following the company for a while, you may recall we always used to talk about branded price inflation every quarter. And we went through a long period where we didn't talk about it, and now it feels like we're talking about it every quarter again. Has anything changed with respect to your relationship with the manufacturers and the IMAs [Inventory Management Agreements] that you've historically had in place? And how do…

We'll move now to Robert Jones with Goldman Sachs. Robert Patrick Jones - Goldman Sachs & Co.: Thanks for the questions. Sorry to go back to this again, but it does seem like the biggest change relative to the update we got from you guys at your Analyst Day. You're pointing out a mid-single-digit margin expansion in the Distribution Solutions business. And I'm just curious if there's any more detail you can give around how much of that lower margin expectation is just from revenue mix versus the less generic inflation that you guys have called out. And I guess the bigger picture question, John, would just be given where Specialty is growing and the growth there, is margin expansion as we think about this business going forward, is it something that we should think about in a more tempered manner? John H. Hammergren - Chairman, President & Chief Executive Officer: I think the point on margin is a good one. We clearly didn't anticipate our revenues to be growing as rapidly as they have. And that has, as James mentioned, had a depressing effect on op margin. But if you actually look at operating profit growth, it's still very strong. And our objective is to satisfy the needs of our customers. And as you know, we have long-term contracts with many of them. So as they grow, the bigger ones will put some pressure on the mix. But the most important dimension here is I think our focus on making sure that we are driving efficiency in our operations as revenue grows, and that was pointed out earlier from an expense perspective. And we're disciplined in the way we approach the market. The comment about Specialty is an important one. That's a very high-growth area. Each company I think…

Next we'll go to Ross Muken with Evercore ISI.

Good afternoon, guys. So maybe on the Tech Solutions business. Obviously the reformation of that asset continues. It seems like the margin outlook for the year is good. If my math is right, is this going to be a year where we actually see EBIT growth and, not only that, but maybe get back to some of the higher levels of EBIT we saw historically? And secondarily, when do you actually think we can see some of the transactional businesses come through to where we could actually see the division grow again? John H. Hammergren - Chairman, President & Chief Executive Officer: I appreciate the question, Ross. We have been, as you know, working diligently for the last several years to reposition the business in the areas where we think we are strong or market leading and where the markets are actually growing and are favorable to McKesson. We have extremely strong franchises inside of our Technology Solutions business. And we have been struggling with our hospital IT business, where we have been reinvesting in the go-forward products and deinvesting in the products that we've already announced that we plan to sunset. And so it's difficult as an investor to see the positive momentum in the business through some the drag that's present as a result of, as you described, the reformation of the business as we position it for growth going forward. And I think we are optimistic that we continue to make the right decisions to get the momentum back in the business. As to margins, I'll turn it over to James to talk a little bit about what you should think about there. James A. Beer - Chief Financial Officer & Executive Vice President: As we track towards that high-teens goal for fiscal 2016, I would say that right now we're looking at an increase in operating profit year over year, and that's excluding the $51 million benefit from the gain around the nurse triage business. So we're on track for some operating profit growth this year.

And maybe, James, there's been some momentum in DC on a tax holiday or the ability to repatriate some cash. I think you guys have roughly $2 billion or so offshore. How would that change your more medium-term capital allocation priorities? I know you have some of the debt maturities and you have the Celesio put. One, is that something you've been thinking about? And, two, would that free you up maybe to do a little more repurchase if it happened? James A. Beer - Chief Financial Officer & Executive Vice President: We feel as though we have a very nice mix in terms of our cash balance between what's domestically and what's held offshore. And we have spoken a few times about – obviously, yes, we have the upcoming debt maturities to take care of. Those are U.S. dollar denominated. But beyond that, our priorities for capital allocation are, first of all, internal investment and, second, looking at value creating M&A opportunities. And given the international breadth of our business now, we feel as though we have a nice balance in terms of the flexibility of the offshore cash that we have available for deployment as well as the domestic cash available for deployment. So we'll see how the tax discussions in Washington DC play out, but we already like the balance of cash that we have available to us, so we feel as though we have the degrees of freedom that we need.

Thanks so much.

We'll take Garen Sarafian with Citi Research.

Good afternoon. Thanks for taking the questions. A couple follow-up questions at this point. First, sorry to harp on this again, but regarding moderating generic inflation, could you characterize that a bit more? Was it across the board, in certain therapeutic classes, vendor, anything? James A. Beer - Chief Financial Officer & Executive Vice President: I would just observe that we saw fewer manufacturers taking increases on fewer drugs. So both of those variables we saw less activity than we had certainly seen last year during our first quarter and less than what we were assuming we would see when we put our plans together.

Okay. And you mentioned Celesio performed better than expected. Maybe I missed it, but could you comment on what area of Celesio specifically exceeded your expectation thus far? Was it on the synergy front, top line? James A. Beer - Chief Financial Officer & Executive Vice President: I'd say the revenue was really right on track on a constant currency basis with what we were expecting during the first year. We continued to see strong performance out of the United Kingdom businesses. And we're seeing some modest improvements in the German environment, where obviously we've had something of a history of market discounting. We're seeing a little improvement in that discounting environment in Germany. Offsetting that, the French market is still looking like a challenging one. But net-net, we're pleased with the progress that we made at Celesio in Q1, and we feel as though we have more opportunities for the balance of the year.

All right, great. Thanks.

We'll take David Larsen with Leerink.

Hi. Can you comment on the Teva and Allergan transaction? Is that material or not with respect to generic inflation? Our objection is that as the generic industry consolidates, sometimes manufacturers raise price because they can. Just any thoughts there would be helpful. Thanks. John H. Hammergren - Chairman, President & Chief Executive Officer: We clearly have a very strong working relationship with both Teva and Allergan. And I think that we see, as do you, that the question of generic inflation is sometimes driven by the ability for the price to actually benefit the generic manufacturers or otherwise stick in the marketplace. And so to the extent that the consolidation provides some of that opportunity, that would be a positive. I think that the market remains competitive, and I think these consolidations will help eliminate costs. But I also think that McKesson's position in the market will continue to afford us an opportunity to work with these very large companies in a very positive way for both parties.

Great. And just any general thoughts around PCSK9 and how material that might be going forward? Maybe you can characterize the (47:07) benefit. John H. Hammergren - Chairman, President & Chief Executive Officer: I think it's difficult to tell. It's a little too early for to us comment on the characteristics of that product, albeit it is a positive, and the continued innovation that comes out in these categories of products will be extremely important to us going forward. And as I mentioned a few moments ago, our footprint in Specialty continues to grow. And I think that as people launch with some of these more unique products, it will help the patients, but it also will help McKesson.

Great, thanks a lot. John H. Hammergren - Chairman, President & Chief Executive Officer: Yes.

We'll take George Hill with Deutsche Bank.

Good morning. John, first a quick one, are there any situations where generic drug prices inflate where you guys don't benefit? John H. Hammergren - Chairman, President & Chief Executive Officer: George, I think drug price inflation and the benefit is in the eye of the beholder. I think all of us in the supply chain have different characteristics with manufacturers and with customers that are highly variable, including the relationships of both in terms of the way the business models work, but also the way the contractual relationships might work. So I think it's probably better said that we try to optimize our value to the generic companies in a way where we benefit and may benefit. But at the same time, we have to stay extremely disciplined and diligent around making sure that our customers are also benefiting through our action in the supply chain. And that's been our priority and will remain our priority.

Okay, that's helpful, and maybe a quick follow-up on the Sainsbury transaction. It's interesting that this the second deal like this that's occurred in a little over a month. And as you see global payer consolidation, do you foresee global pharmacy consolidation? And how do you guys feel like you're positioned if global retail pharmacy consolidation steps up? Thanks. John H. Hammergren - Chairman, President & Chief Executive Officer: I think it's a good question. Obviously, we've seen tremendous consolidation across healthcare in the last 90 days alone. There has been all kinds of activity. I think the way we think about consolidation is clearly we want to be positioned with winners, but that doesn't necessarily mean that we have to be always positioned with only scaled players. In fact, we think our Health Mart customers, for example, are winners and are able to consolidate in their own space with other independent pharmacies because of the scale we bring to them and the value we can deliver. In fact, that's why I continue to focus on the footprint of owned and banner pharmacies, provide us the ability to help our customers would are perhaps not all owned by the same enterprise, continue to benefit through their relationship at McKesson and may be able to stay as independent operators. Even though they may appear on the surface to be subscale in terms of store count, they may improve their efficiencies through their partnership with us and clearly improve their margin structure through some of the value-added services that we help them deliver into the marketplace on behalf of payers and consumers. So our focus is to help our customers be more successful across the board. And to the extent that people consolidate and we consolidate into our customers, we win or at least break even from a revenue perspective. And our objective is to continue to be more and more efficient with these larger customers so that we can earn the privilege of continuing to serve them.

Okay, thank you. John H. Hammergren - Chairman, President & Chief Executive Officer: Yes.

We'll move next to Dave Francis with RBC Capital Markets.

Good evening. John, let me take that answer and go a little bit further with it. To the extent that we are seeing consolidation among many players in the supply chain, including payers and obviously some on the retail side, do you foresee the need strategically or otherwise to potentially further consolidate and own additional assets within the supply chain, or are there inherent conflicts in that which will keep you from doing that? How do you best position the company to be most advantageously positioned going forward? John H. Hammergren - Chairman, President & Chief Executive Officer: I think it's a very good question. In fact, all of these questions are good questions. I think the industry is changing significantly. And I think it's incumbent upon us as it relates to our customers and our shareholders to remain open to any strategy that we think is sustainable and can create value. Having said that, it's always been our position that we don't compete with our customers. And so the challenge in some the conceived combinations would either have us competing with people that are on the partner/supply side of our business or perhaps on the partner/customer side of our business, and that makes it difficult to conceive of some of those types of combinations. So I think that we remain open to everything. We'll be very cautious before we ever cross the line of competing with our customers.

Great, thank you. John H. Hammergren - Chairman, President & Chief Executive Officer: Yes.

That does conclude our question and answer session. At this time, I'll turn it over to the speakers for any closing or additional remark. John H. Hammergren - Chairman, President & Chief Executive Officer: Great, thank you, operator, and thanks to all of you on the call today for your time. McKesson is off to a good start for fiscal 2016, and I'm excited about the opportunities that lie ahead. 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 hand the call over to Erin for her review of upcoming events in the financial community.

Thank you, John. On September 16 we will present at the Morgan Stanley Global Healthcare conference in New York. And on November 10 we will present at the Credit Suisse Healthcare Conference in Scottsdale, Arizona. We'll release second quarter earnings results in late October. Thank you and goodbye.

Thank you for joining today's conference call, everyone. You may now disconnect. Have a good day.