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, ma'am.

Thank you, Vicki. Good afternoon and welcome to the McKesson fiscal 2016 fourth 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 then James will review the financial results for the quarter and the full year. After James's comments, we will open the call for your questions. We plan to end the call promptly after one hour at 6 PM 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 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 addition, I would call your attention to 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 core operating performance and comparability of financial results period over period. Please refer to our press release announcing fourth quarter fiscal 2016 results and the supplemental slides for further information and a reconciliation of the non-GAAP performance measures to the GAAP financial results. Thanks and here's John Hammergren. John H. Hammergren - Chairman, President & Chief Executive Officer: Thanks, Erin, and thanks, everyone, for joining us on our call. I am pleased with our fourth…

Thank you. And we'll take our first question from Ricky Goldwasser with Morgan Stanley. Ricky Goldwasser - Morgan Stanley & Co. LLC: Yeah. Hi, good evening and thank you very much for all the details in the supplemental slides. It's very, very helpful, so two questions here. So first of all, when we think about all the headwinds and tailwinds, what do you guys think of for the normalized EBIT growth going forward in absence of benefit from generic inflation excluding M&A? Is the baseline EBIT growth of about 5% that you delivered in the quarter for the Distribution segment, is that a good way for us to think of what a normalized EBIT growth rate should look like? John H. Hammergren - Chairman, President & Chief Executive Officer: Thanks, Ricky, for the question. I think the best way for us to think about this is really related to post the challenges we faced this year from the lapping of the generic price phenomena we experienced last year as well as the customer consolidations and the negative mix change associated with those customers. We think once we lap those changes and we get through this fiscal year, you should begin to see us perform at a level that's very similar to the level we performed at in the past. We don't really see anything structural in our business or in our business model that would cause us to be concerned about our ability to grow organically in a way that's very similar to the way we've grown in the past. Now clearly in FY 2018, we also have the transition with Rite Aid, and obviously you see us making lots of moves now to prepare to grow through those challenges. But we'll talk about that more as the time approaches. But other than that additional headwind that we'll face in that fiscal year, I think the business continues to perform as it has in the past. Ricky Goldwasser - Morgan Stanley & Co. LLC: Okay. And then one follow-up question that we're getting is really about how you think about branded inflation and how you factor that into your guidance. Obviously, we've heard a lot and we talked a lot about the generic pricing impact. But it happens to be that in the summer manufacturers don't take the same level of price increases that they have in the past. Is that somewhat factored within your guidance range? Thank you. James A. Beer - Chief Financial Officer & Executive Vice President: As we've thought about branded price increases, we've assumed that they would be modestly below the levels that occurred in fiscal 2016. So we feel as though we've made a prudent assumption in that regard as well. Ricky Goldwasser - Morgan Stanley & Co. LLC: Okay, great. Thank you very much. John H. Hammergren - Chairman, President & Chief Executive Officer: Yes.

We'll go next to Lisa Gill with JPMorgan.

Thank you. John, I just want to follow up to a comment that you just made. You said fiscal 2018 you plan to grow through the Rite Aid challenge. As we think about the acquisitions that you've made and you think about the cost cuts that you're doing, et cetera, is it fair to say – and I know you're going to say it's really early to think about 2018. But is it fair to say that you think that you've set this up so that even with the challenge of Rite Aid you'll be able to grow in 2018? John H. Hammergren - Chairman, President & Chief Executive Officer: It is early to talk about 2018. I would say that we talked a lot about the cost reduction programs we've put in place and the quick action we've taken to streamline the organization and to make sure we maintain our efficiencies. We don't really see any structural changes in our business that cause us great concern. And obviously, the one unusual event is the pending sale of Rite Aid. And it's our objective certainly to find a way to grow through that. But I hesitate to provide any forward guidance into FY 2018, but I can tell you that certainly is our intent, and we're working hard to make sure that that happens.

That's very helpful. And then I guess my follow-up would just be around the incremental cash flow you saw towards the end of this fiscal year and the cash flow going into next year. Is there something unusual in the business or anything that's changing that's really providing this nice tailwind around cash flow? John H. Hammergren - Chairman, President & Chief Executive Officer: I'll let James jump in here in just a minute, but we clearly have the organization focused on doing what's right and balancing our objective to grow our earnings but also to manage our cash and to grow our cash flow along the way. So I think the team is very focused, and you're seeing some results from that focus. And, James, you might want to talk... James A. Beer - Chief Financial Officer & Executive Vice President: I was obviously pleased with the cash flow growth in fiscal 2016, very much driven both by the profit growth as well as this ongoing focus that we've had right across our businesses, both distribution and technology around working capital management. And we think there's more opportunity to continue to build this level in fiscal 2017, as we indicated in our guide. It is important to remember, though, that the guide that I was referring to excluded that $270 million of cash outflows that we would expect to incur in fiscal 2017, driven by two things, the cost alignment plan and then the DEA payment.

Okay, great. Thank you for the comments.

We'll go next to Charles Rhyee with Cowen. Charles Rhyee - Cowen & Co. LLC: Thanks for taking the questions. John, if we can go back to the earlier question around actually the brand inflation, I think you made the comment that you take some assumptions for it. But can you talk about that actually in relation to your fee-for-service contracts, in terms of what's embedded on how much changes in inflation can affect how your fee-for-service contracts may work, or actually how you get paid for in terms of fee-for-service? Thanks. John H. Hammergren - Chairman, President & Chief Executive Officer: Thanks for the question, Charles. We have a longstanding tradition of building value with our manufacturing partners, both on the generic as well as on the branded and specialty sides of our business. Our relationship with the branded manufacturers has remained pretty consistent for a long time now. And I would say that our proportion of earnings that comes through price change in the branded portfolios has remained relatively constant as well, and it is a small portion of our overall branded profit arrangement. Most of our profits are covered under a more fixed arrangement that is pretty reliable regardless of what happens with price inflation, and there's a small portion that we talked about in that 20% plus or minus range that has some price inflation effect on it. Charles Rhyee - Cowen & Co. LLC: And just to follow up, would you – when you talk about when you embed your assumptions around it, do you guys also take into the political climate? Obviously, we're in an election year. Do you try to factor some of that into your assumptions as well as we think about the coming year? John H. Hammergren - Chairman, President & Chief Executive Officer: Sure, we're not oblivious to the conversations that are going on in the media and with the current political activity, and we're certainly not oblivious to the investigations and conversations that have been going on from a Congressional perspective into these areas. I think our assumptions are reasonable and they're based on our historical work with the manufacturers. They're certainly buffered by what we see as the current climate. So I would say that as we stated them today, we believe these assumptions are realistic and are likely to occur in the way we've laid them out in our fiscal 2017 guidance. Charles Rhyee - Cowen & Co. LLC: Great, thank you.

We'll go next to Eric Percher with Barclays.

Thank you. I'd like to return to cash flow. So given the increase in cash flow that we see, maybe a little bit of focus on what your plans are for that cash. James, I'd love to hear your view of leverage and where you'll be post-financing, maybe some of the maturities that come up this year, minimal cash balance in the EU and U.S., and how you're looking to put cash to work this year? James A. Beer - Chief Financial Officer & Executive Vice President: Eric, certainly we remain committed to our portfolio approach to capital deployment. I think you know that well. That's the four elements of internal capital spending, M&A, dividends, and share buybacks. And one of the themes of this past fiscal year was that we deployed all four levers of that portfolio approach. Now that said, we've also indicated in the past and maintain a preference for value-creating M&A, if we can find good alternatives versus share buybacks. And so clearly, we've made some nice progress on that recently. Yes, in terms of overall leverage, we've made significant progress in the last 12 months with debt maturities, bringing down the gross debt level that we entered into to finance the Celesio acquisition a couple of years ago. So we've brought ourselves an additional level of financial flexibility as a result of doing that, and I think that's been very important. But I also indicated in my script that as we think about closing on some of the acquisitions in the coming several months or so, expect us to be raising some additional debt in order to be able to accomplish those closings as well. So you'll see us I think using our debt capacity in a way very much consistent with our investment-grade credit rating and sticking with our portfolio approach to capital deployment, with an emphasis on looking for strong acquisitions as we've done in recent months that we think can continue to grow our cash flow and earnings over time.

And at this point, we had talked about 3% to 4% earnings growth from capital deployment. It appears that has perhaps been achieved already. Is that a fair statement? James A. Beer - Chief Financial Officer & Executive Vice President: I think it's a fair statement. I'd say we're modestly above the top end of that range that we indicated preliminarily back in January.

Thank you.

We'll go next to Robert Jones with Goldman Sachs. Robert Patrick Jones - Goldman Sachs & Co.: Great, thanks for the questions. It feels a little unnatural to be asking so many around branded – on the branded side over the generic side, but here goes. It seems, like you guys are assuming, you had mentioned less inflation of the branded side in 2017 than you saw at 2016. Just to be clear, is that because you're already seeing less price increases in the market to date, or is this just more conservatism that you're baking into fiscal 2017? And I guess just within that, anything specifically you're seeing around specialty pricing trends today than what you're assuming within specialty would be helpful. James A. Beer - Chief Financial Officer & Executive Vice President: On the branded side, I just wanted to emphasize that our assumption is a prudent one. It's not based on anything that we've seen. Obviously, we're very early in the year. But as John was indicating in his last answer, we're obviously watchful of the political environment and so forth. So that would be how I would address the branded price. The other part of your question was? Robert Patrick Jones - Goldman Sachs & Co.: Specialty? James A. Beer - Chief Financial Officer & Executive Vice President: In terms of pricing there? Robert Patrick Jones - Goldman Sachs & Co.: In terms of pricing, yes. James A. Beer - Chief Financial Officer & Executive Vice President: I'd say that has a relatively modest effect on our business plan. And so that's mostly a fixed-like fee-for-service type of agreement on that side of the business. So I wouldn't draw particular attention to the pricing there. Robert Patrick Jones - Goldman Sachs & Co.: Got it. And…

We'll go next to George Hill with Deutsche Bank.

Hey. Good afternoon, guys, two quick questions. First, an easy one for James. Any chance you would quantify the EPS impact or the step down of generic introductions in fiscal 2017 versus fiscal 2016? James A. Beer - Chief Financial Officer & Executive Vice President: We're assuming that that would be a relatively modest figure. Again, I wouldn't want to overdo that point.

Okay, and then one for John. John, I'm just interested how you think about the Specialty business as it relates to oncology evolves. You guys have made quite a big bet on oncology, especially with the two most recent acquisitions. And you've got the Medicare Part D demonstration project that's out there that seems to have everybody upset. I guess do you guys feel like that you're protected around the business investments that you've made in specialty? And I would just love your thoughts on how you think the oncology business evolves, both from a benefit perspective and from a business perspective. John H. Hammergren - Chairman, President & Chief Executive Officer: I think clearly there are two parts to that question, the evolution of the oncology business and how we feel about our position in oncology. And the second part of the question was really related to the demonstration project that has some people concerned. As to the demonstration project, it really has no material effect on our business as a demonstration. And frankly, even if it's rolled out in its current form, which we don't think necessarily is in the best interest of patients or oncologists in this country, it would still be relatively immaterial to our corporation. Clearly, we are very focused on helping our oncology practice partners, whether they're in our network or they are customers of ours, become more efficient, improve the profitability of their practices. But the fundamental strategy for us is to be well positioned as a corporation for what we believe is a continued significant launch cycle for new oncology treatments, including drugs and other protocols, the increase in the rate of cancer patients in this country, and to be positioned to help our community oncology practices thrive in an environment where they can demonstrate already a lower cost, equal or better outcomes, and clearly better flexibility for the patients that they serve. And so when you see us combine our efforts in not only our existing businesses but with these new acquisitions, we're really focused on making sure that we have a wide variety of offerings for the clinician to use when they're making decisions about the appropriate patient care. And I might also mention that CMS has other programs underway, and McKesson participates very heavily in those pilot programs to make sure that we're helping to demonstrate new ways to treat patients, new ways to develop value-based cost and quality-oriented outcomes. And we're excited to be working with all the payers in those areas because we think we can do a great job in the community and that, frankly, we're in a better position to deliver better cost and better value and better outcomes than many other constituents.

Okay, thank you.

We'll go next to Garen Sarafian with Citigroup.

Thanks for taking the questions. The first one is a follow-up to the prior question, so a bit different way of asking it. So in terms of the generic launches for your upcoming year, you made a similar statement a year ago. So I was more interested in the relative difference from the step-down last year versus the step-down this year. So on a relative basis, does it turn from a tailwind to a headwind type of a question? James A. Beer - Chief Financial Officer & Executive Vice President: I'm not sure that there's very much I can add at this point. One observation I would make is that the launches that we see in fiscal 2017 have more of a profile that will drive a lesser profit contribution for us. And that's because we see the likelihood that there would be more exclusive type launches than has been the case in some other years. So that's really the driver of the 2017 over 2016 effect.

Got it, okay. And then second question is one of your peers mentioned reimbursement pressures of clients. Could you maybe discuss what you're seeing from your various customer segments within distribution, any recent trends? And if so, what does guidance assume for the upcoming 12 months? James A. Beer - Chief Financial Officer & Executive Vice President: In terms of our guide, I wouldn't point to anything material in terms of our logic around changes in reimbursement. We feel comfortable with overall sets of puts and takes that go around any guided range. And we feel as though we've got the ability to be able to execute against that range based on a variety of different types of business conditions that may or may not arise.

Fair enough, thank you.

We'll go next to Ross Muken with Evercore ISI.

Good morning – good afternoon, sorry. So I guess as we think about your strategy on the pharmacy side, obviously you've made again some acquisitions there internationally. I guess as we think about your experience so far with Lloyds and what you've learned and how you think about that as a long-term vehicle of driving value at McKesson as one of the key pillars, what are the key things you've learned that are maybe different than your perception, even though obviously, you service them in the U.S., about how the international pharmacy markets differ? And then how do you view that business model relative to your overall mix? John H. Hammergren - Chairman, President & Chief Executive Officer: We're excited about the performance that we've achieved with Lloyds and the evolution of the pharmacy business in Europe in particular, given that it is extremely well positioned to be a big part of the healthcare system in many of those countries, in particular in the UK, where healthcare demand outstrips supply and where governments and other payers are looking for lower cost alternatives and vehicles to serve their populations and certainly ways to reduce the queueing that goes on in the larger health systems by using a pharmacist as another expert, as a provider in the healthcare system. And so we're excited about Lloyds being positioned as a destination for healthcare services. We are trying to carve a position with our pharmacy strategy, frankly, around the world that is more focused on being in the care process as opposed to some of the other avenues that some of these retail stores can take. And so I think we're pleased with where we're positioned in Europe, and we're also pleased with where we're headed in Canada, and we're excited to bring many of these benefits to our independent pharmacy customers, either through our banner programs or just through close partnerships.

Great. Thanks, John. John H. Hammergren - Chairman, President & Chief Executive Officer: Sure.

We'll go next to David Larsen with Leerink Partners.

Hi. Expanding on that last question a bit, can you talk about some of the organic growth opportunities that you see for Celesio over in Europe potentially becoming an intermediary between hospitals or manufacturers, or anything along those lines? Thanks. John H. Hammergren - Chairman, President & Chief Executive Officer: Clearly, I just talked about Lloyds and how we think Lloyds both in our own stores and also in our banner stores in many different markets is well positioned to participate in the care process in a broader way and more comprehensive way. Now clearly, the hospital business and the specialty business in many markets in Europe is managed directly between the manufacturers and the large health systems. We believe that both the manufacturers and the governments and others that operate these enterprises would be much better off if McKesson was in the middle through Celesio trying to provide the streamlined supply chain and information stream that we do here in the United States. And we continue to make acquisitions in Europe that better position us in adjacencies outside of retail pharmacy. So we think that there are opportunities for us to grow our footprint, and you see us continue to invest in our infrastructure of Celesio so that we're prepared to do that. I think we have time for one last question.

We'll take our last question from Dave Francis with RBC Capital Markets.

Hi, John. Thanks for squeezing me in. Real quick on the strategic front, can you talk a little bit about how the Rexall transaction reflects any change in your acquisition or business development philosophy as it relates to the retail footprint for McKesson in North America? Thanks. John H. Hammergren - Chairman, President & Chief Executive Officer: We try to be leaders in the businesses that we are participating in, and that's our objective. And so when we see an opportunity for us to lead in the market with a business, that becomes attractive to us. We believe both in Canada as well as in parts of Europe, we have an opportunity to be number one or number two in the retail market. And we have the ability to bring that expertise to the rest of our customers when we partner closely with them, sometimes through ownership and sometimes not, in a way that builds value. As it relates to the U.S., which is where some of these questions sometimes go, we don't see a real vertical opportunity in the U.S. that would allow us to create that leadership position as being number one or number two in the U.S. marketplace. So clearly, our strategy here in retail is to align very closely with people that we believe are great business partners that are also winning in their sections of the market and stand clearly with independent pharmacies and other chains that are focused on having us help them in a more material way. So I think that that captures our strategy as it relates to retail. Thank you for that question, Dave. John H. Hammergren - Chairman, President & Chief Executive Officer: And I want to thank you, Vicki, for your help with the call. I want to thank also all of you for your time today. I do think we presented a very solid operating plan for fiscal 2017. I'm excited about the growth opportunities that I see across all of McKesson. And I'm certainly proud of our track record at delivering value to our customers and strong financial returns for our shareholders. And once again, I want to thank all of our employees for a very strong fiscal 2016 and a very positive plan for fiscal 2017, and thank you all for your time again. Erin?

Thanks, John. We will participate in the Bank of America Merrill Lynch Healthcare Conference in Las Vegas on May 11. We look forward to seeing you in the new fiscal year. Thank you and goodbye.

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