Cencora Q3 2022 Earnings Call Transcript

Quartr
Provided by Quartr
August 3, 2022

There are 11 speakers on the call.

Operator

Hello, everyone, and welcome to the AmerisourceBergen Third Quarter Fiscal 2022 Earnings Call. My name is Victoria, and I will be calling your call today. I'll now pass over to your host, Bennett Murphy, Head of Investor Relations to begin. Please go ahead.

Speaker 1

Thank you. Good morning, good afternoon, and thank you all for Joining us for this conference call to discuss AmerisourceBergen's fiscal 2022 Q3 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'll be discussing non GAAP Reconciliations of these measures to GAAP are provided in today's press release, which is available on our website at investor.

Speaker 1

Amarisourcebergen.com. We have also posted a slide presentation to accompany today's press release on our investor website. During this conference call, we will make forward looking statements about 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 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 ks.

Speaker 1

AmerisourceBergen assumes no obligation to update any forward looking statements, and this call cannot be rebroadcast without the express permission of the company. You have an opportunity to ask questions after today's remarks by management. We ask that you limit your questions to 1 per participant in order for us to get to as many participants as possible within the hour. With that, I'll turn the call over to Steve.

Speaker 2

Thank you, Bennett. Good morning and good afternoon to everyone on the call. Before we discuss our results for the quarter, I want to provide a brief update on opioid related litigation. As previously disclosed, we have reached an agreement for a settlement with the state of Oklahoma that is consistent with the state's allocations under the comprehensive settlement agreement. That brings the total number of states setting opioid related claims to 48 of 49 eligible states.

Speaker 2

In July, we were pleased to receive a ruling from a federal judge That held that our distribution of FDA approved medications to licensed and registered healthcare providers In Capell County and the City of Huntington was not a public nuisance and we are optimistic the ruling will hold up upon appeal. Additionally, we reached an agreement with the remaining counties and municipalities of the state of West Virginia To resolve opioid related claims, we are encouraged by this continued progress and we will not comment deeply at this time. AmerisourceBergen continues to work diligently with our partners to combat drug diversion while supporting real solutions that help address the crisis in the communities where we live, work and serve. Turning now to our Q3 of fiscal 2022. AmerisourceBergen delivered another quarter of strong results driven by continued high levels of execution across our company and the strength and resilience of our businesses.

Speaker 2

During the quarter, revenue was up 12.5% over the prior year period to $60,000,000,000 Adjusted operating income increased by 20% And adjusted EPS grew by 21%. These strong results and the increase in our full year outlook, Which Jim will discuss in greater detail are driven by our team members' continued strong execution, the resilience of our businesses And our differentiated solutions. Our business is further enhanced by the strength of our foundational pharmaceutical distribution business, Our position in the market and our strategic focus on the four areas of specialty medicine and services, Community Providers, Long Term Customer Partnerships and Providing Global Access and Opportunity. In our first focus area of specialty medicine and services, we continue to benefit from our market leadership and ability to capture growth opportunities as pharmaceutical innovation continues to advance. In the U.

Speaker 2

S, we are benefiting from demographic trends, Increasing biosimilar utilization and the downstream services we are able to provide to support specialty physician practices as they continue to grow along with the market. We continue to support the growth of biosimilars with services both upstream From helping biopharma manufacturers with clinical development, commercialization and launch to downstream, Supporting provider education and patient access. We also continue to see good growth across specialties From oncology to ophthalmology and rheumatology, driven by GPO, data and analytics and additional value added capabilities. Looking to the future, the specialty market is driven by exciting scientific developments that enable increasingly precise and personalized treatments for diseases that were once thought of as uncreatable. And we are positioning ourselves to support this innovation and capture these global growth opportunities.

Speaker 2

In our Specialty Physician Services business, we are well positioned to continue to support successful product access and utilization. In the quarter, we continue to benefit from our scale, creating value for our downstream positioned customers, Both around the innovative products in the market and also on the biosimilar front in oncology and seeing early stage positive signs in the ophthalmology side. On the logistics side, World Courier remains the market leading solution for its expertise in specialty logistics And I stepped up to help our customers navigate global complexities. World Courier's capabilities, including expert execution, Next generation thermal packaging and advanced tracking technology enables safe and secure deliveries to their most remote communities and extreme climates. We continue to enhance our global logistics capabilities Through World Courier, Eloga, Inamar and our other specialty focused businesses to offer robust Clinical and commercial support such as direct to patient logistics and temperature controlled transport and storage solutions.

Speaker 2

Recent investments include opening or expanding our facilities in strategic markets worldwide to add more cold chain capabilities And especially cryogenic storage to meet increasing demand. With enhanced capabilities and expertise, We strive to further strengthen our market leadership to capture the opportunities ahead and facilitate pharmaceutical innovation. Our second focus area is community providers. Globally, community providers are integral to supporting the health of the local communities with key healthcare services and our critical providers in underserved areas. Community pharmacies for example play a key role in helping healthcare systems both in the U.

Speaker 2

S. And abroad to reach communities of all types, Reinforcing the value of independent pharmacies. 2 weeks ago, we hosted our annual ThoughtSpot conference For our Good Neighbor Pharmacy Network, which coincided with the network's 40th anniversary. After hosting ThoughtSpot remotely during recent years, it was energizing to once again spend time with local community pharmacists in person to collaborate and to celebrate their impact In their communities. This conference was even more special as we were joined by Alliance Healthcare team members That serve its Alfaiga independent pharmacy network in Europe as part of the best practice sharing we are conducting across our business.

Speaker 2

Coming out of ThoughtSpot, I remain amazed and inspired by the resilience, passion, connection and ability of independent pharmacies to tailor their services to match patient needs and patients are responding with high praise. Our own Good Neighbor Pharmacy Network Was ranked highest in customer satisfaction with Chain Drugstore Pharmacies in JD Power's 2022 U. S. Pharmacy Study. Incredibly, this is the 11th time that GMP has earned this recognition in the last 13 years and the network's 6th consecutive wins.

Speaker 2

AmerisourceBergen is focused on assisting the professional pharmacy to increase its role in patient care In ways where the pharmacist has proved they can assist in providing expert patient care in an accessible setting. We are pleased to see that the pharmacist role continues to be more elevated. And importantly, we were pleased to see the U. S. FDA's revision To the PAXLOVID EUA authorizing state licensed pharmacists to prescribe the COVID-nineteen antiviral to eligible patients.

Speaker 2

This action by the FDA reflects the value that can be gained by the U. S. Healthcare system if the role of pharmacists can be expanded. Americans rate pharmacies as the most accessible amongst healthcare destinations, including emergency departments and primary care physicians offices And many now have a pharmacy first mentality when looking to improve their well-being. Pharmacies are providing 2 out Every 3 COVID-nineteen vaccine doses administered in America and 45% of pharmacy COVID-nineteen vaccination sites Are reported to be in areas with moderate to severe social vulnerability.

Speaker 2

Clearly, community pharmacies are a critical extension of our public healthcare system and an essential access point for those who need care the most. AmerisourceBergen is proud of our work to support independent pharmacies, including by advocating on their behalf for health equity policies that ensure access to their critical services. The 3rd focus area for AmerisourceBergen is our long term customer relationships. From upstream biopharma manufacturers to downstream pharmacies, veterinarians, physicians, health systems And government agencies, we leverage our strong core pharmaceutical distribution capabilities to support patient access Wherever a prescription is needed, the strength and reach of our distribution capabilities have helped us continue to enhance our relationship with healthcare providers, big and small. And our relationship with stakeholders worldwide have been further reinforced throughout the pandemic.

Speaker 2

We continue to see strong prescription utilization trends across our core distribution business and benefit from our broad portfolio of anchor customers. These long term partnerships position us well to continue to benefit from the well documented resiliency of the pharmaceutical supply chain. As partners, we also support our customers by making next minded investments to help them stay ahead of an ever evolving healthcare landscape. Digital therapeutics, for example, is an area of opportunity for future growth And to help innovators commercialize treatments and reach patients, we are preparing to launch DTX Connect, A platform that will integrate with EMRs and simplify the prescription and non prescription digital therapeutics process. Similarly, we are partnering to provide digital and e commerce solutions so that veterinary practices can communicate more effectively With the increasingly digital savvy clients and operate more efficiently.

Speaker 2

With our knowledge base across all sites of care and geographies, AmerisourceBergen is creating increasingly more opportunities with our customers by problem solving and focusing on building enduring long term Our 4th focus area is providing global access and opportunity. Earlier, I mentioned the key role that World Courier plays in the global pharmaceutical supply chain with its expertise in specialty logistics. This quarter, we also celebrated the 1 year anniversary of our Alliance Healthcare Acquisition. And as I reflect on the past year, the word that comes to mind is unity. Our teams have made great progress on integration and we are more aligned than ever to our shared purpose I'll be united in our responsibility to create healthier futures.

Speaker 2

We are already beginning to realize the benefits of operating in a shared environment That allowed teams to glean knowledge and best practices from colleagues in other areas of the business and in other markets. One example is a recent exchange of visits between our distribution center leaders in which our European team members Visited our U. S. Human and animal health distribution centers and our U. S.

Speaker 2

Team members subsequently visited distribution centers in the UK. Through these visits, the team has been able to share best practices around supply management, automation, Performance Tracking and Productivity Management and Operational Planning and Design. While we recognize the differences that exist between international markets, We are ready to identify, adopt and invest in proven best in class technology, supply chain commercialization and services solutions. We've also had the chance to unite around our manufacturer partners. Recently teams from both the U.

Speaker 2

S. And Europe Met with one of our global partners to hold joint workshops looking at how we can work together to achieve shared successes. That manufacturer shared with me at our ThoughtSpot conference their desire to be our first truly global partner. There's no doubt in my mind that we are establishing the right culture and methodologies to capitalize on AmerisourceBergen's assets in ways that will differentiate us by taking advantage of our global reach and unique knowledge, scale and expertise in all the markets where we operate. The progress we've made so far to integrate our business and teams is as a result of the tireless effort of all of our global team members.

Speaker 2

I've mentioned in the past the strength of the Lions Healthcare team and they continue to impress with their resilience and their ability to execute and deliver strong operational We look forward to finding more opportunities to further strengthen our operations and to partner with our customers to offer truly global solutions that help them stay ahead of a continuously evolving environment. Our team members are a fundamental driver of our long term sustainable growth. At AmerisourceBergen, we firmly believe That our people are our most important asset and our benefits and talent development programs are data driven and based on employee input. During the quarter, we conducted our 2022 employee experience survey, which showed that our team members feel connected to our purpose, The managers and each other in making a positive impact on our customers and the healthcare supply chain. The valuable insights we have gained through the survey around cultural inclusion, team member satisfaction and engagement will help guide us as we build the United culture.

Speaker 2

Our Board and executive management team are committed to being a company that is transparent, Ethical and a fair employer. We take our responsibilities to our 42,000 team members very seriously and our goal is for them To always not only respect the company, but also to be inspired by the work we do in fulfilling our purpose. In addition to Unity, we value a diverse, equal and inclusive culture. Our goal is to foster a global workplace That values all cultural, experiential and philosophical perspectives, creates pathways for every team member to thrive, Make a positive impact on our communities through equitable access to healthcare and is transparent and accountable for progress. To further our goals, we published our 1st DEI summary report, which shows where we stand today and how we're going to hold ourselves accountable We're making progress as we move forward.

Speaker 2

An important part of AmerisourceBergen's DE and I strategy As well as our broader ESG strategy is having a positive impact on our communities through equitable access to healthcare. One of the key channels through which we support healthy communities worldwide is our AmerisourceBergen Foundation, Which recently committed funds to the United Nations Foundation's, SHOP at Life campaign. The campaign is instrumental in supporting global vaccine and protecting the world's most vulnerable children from devastating diseases. The funding will be used towards vaccine interventions in marginalized populations Such as refugee communities and will specifically support vaccine delivery, transportation, logistics and community engagement. We are proud to support such important work that truly reflects the global impact we have when we live our purpose of being united in our responsibility to create healthier futures.

Speaker 2

Today's strong results reflect the value of our core global pharmaceutical centric businesses and the value created by the execution and intellectual confidence of our team members. Driven by our purpose and supported by proven resilience, we remain confident in AmerisourceBergen's ability to deliver long term sustainable growth while maintaining a leading share of pharmaceutical distribution and best in class efficiency, while growing our higher margin, higher growth businesses. Our strong position enables us to achieve this vision as we deliver on our strategic imperatives and focus on specialty medications and services, Community Providers, Customer Partnerships and Ensuring Access and Opportunity for Patients Around the World. Now I will turn the call over to Jim for a more in-depth review of our Q3 2022 results and to discuss our updated financial guidance. Jim?

Speaker 3

Thank you, Steve, and thank you all for joining us on today's call. Before I turn to our results, as usual, my comments will focus primarily on our adjusted non GAAP financial results. Growth rates and comparisons are made against the prior year June quarter. For more details on our GAAP results, please refer to our earnings press release. In our Q3, AmerisourceBergen continued to deliver strong results as our teams executed on our strategic imperatives.

Speaker 3

Our core foundation in pharmaceutical distribution and suite of complementary higher margin, higher growth services around the world Position us well to deliver differentiated long term value creation supported by our commitment to talent, Diversity, Equity and Inclusion and ESG. As Steve mentioned, in June, we passed The 1 year anniversary of the Alliance Healthcare acquisition. Our purpose driven teams have worked diligently On integration and execution, and we are pleased that the acquisition has delivered high teens EPS accretion in its 1st year as expected. Turning now to our Q3 results. AmerisourceBergen finished the quarter with adjusted diluted earnings per share of $2.62 A 21% increase with solid operating income growth in both segments.

Speaker 3

Our consolidated revenue Grew approximately 13% to $60,100,000,000 driven by revenue growth in both segments. Consolidated gross profit increased 27 percent to $2,100,000,000 as a result of increases in gross profit in both segments. Gross profit margin grew by 39 basis points to 3.44 percent driven by the Alliance Healthcare acquisition, Consolidated operating expenses were $1,300,000,000 up from $996,000,000 as a result of higher distribution, selling and administrative expenses as well as depreciation expense primarily due to the Alliance Health Care acquisition. Consolidated operating income was $756,000,000 up 20%. The increase was driven by operating income growth in both segments, which I will discuss in more detail when reviewing segment level results.

Speaker 3

Turning now to interest expense and the income tax rate. Net interest expense was $53,000,000 in the quarter, An increase of 3% due to an increase in debt related to the Alliance Healthcare acquisition and partially offset by higher interest Income on invested cash. Our effective income tax rate was 20.2% compared to 21.0 percent in the prior year quarter. As it relates to our full year fiscal 2022 Tax rate guidance of approximately 21% to 22%, we would expect our full year tax rate to be at the lower end Our diluted share count increased 1.4% to 211,700,000 shares As a result of dilution related to employee compensation and the June 2021 issuance of 2,000,000 shares to Walgreens Boots Alliance in connection with our acquisition of Alliance Healthcare, offset in part by share repurchases in the quarter. Regarding free cash flow and cash balance, fiscal year to date adjusted free cash flow was $1,550,000,000 For the 9 months ended June 30, we ended the quarter with $3,300,000,000 in cash, Including approximately $270,000,000 of restricted cash on our balance sheet.

Speaker 3

In the quarter, We repaid $500,000,000 in senior notes due March 2023 as we continue to make progress in paying down debt Issued to acquire Alliance Healthcare. The remaining balance on the senior notes due March 2023 is $1,000,000,000 This completes the review of our consolidated results. Now I'll turn to our Q3 segment level results. Starting with our U. S.

Speaker 3

Healthcare Solutions segment. Segment revenue increased by 6% to approximately $53,400,000,000 driven by an increase in sales across our portfolio, including increased volumes in mail order And growth in sales to specialty physician practices. Segment operating income was $580,000,000 Representing growth of 9.5% versus the Q3 of fiscal 2021. In the quarter, specialty physician services experienced strong broad based growth to oncologists and other specialists as our industry leading solution set continues to drive growth. U.

Speaker 3

S. Healthcare Solutions segment operating income margin Increased 3 basis points in the quarter due to fees earned from the distribution of government owned COVID treatments. As a reminder, we distribute both commercial COVID-nineteen therapies and government owned COVID-nineteen therapies. The contribution from government owned COVID therapies is not a meaningful revenue driver given the fee based nature of the business. As it relates to COVID therapy earnings impact, COVID therapies contributed $0.14 to the June quarter, exactly half Of the $0.28 contribution we called out on our May earnings call as remaining for the balance of our fiscal year in the U.

Speaker 3

S. Healthcare Solutions segment. As a reminder, our full year estimate for COVID therapy contribution in the U. S. Healthcare Solutions segment is still approximately 0 point 6 $0.46 of which we have realized in the segment through our Q3.

Speaker 3

If COVID therapy volume trends in July Were to continue through August September, we would expect to see a couple of pennies worth of decline in COVID therapy contribution sequentially, but clearly in that $0.60 full year ballpark. I will now turn to our International Healthcare Solutions segment. In the quarter, International Healthcare Solutions revenue was $6,700,000,000 including $5,500,000,000 in revenue from Alliance Healthcare. Segment operating income for the Q3 was $176,000,000 up 75%, Driven by the 2 months incremental contribution from Alliance Healthcare and strong operating performance at World Courier, Both of which had good performance despite higher than expected foreign exchange pressure related to the strong dollar. Alliance Healthcare continued to have resilient volume trends that were in line or better than expectations, Demonstrating the strong fundamentals of its pharmaceutical centric business.

Speaker 3

At World Courier, we had better than expected performance Driven by increased weights per shipment. The World Courier team also ensured that we are getting good value for the Incredibly important logistics service we offer for these high priority shipments. I will also note that in early June, as expected, We closed on our sale of the ProPharma Specialty Business. This business contributed approximately $0.05 to EPS for the International Healthcare Solutions segment for the 1st 8 months of fiscal 2022. This completes the review of our segment level results.

Speaker 3

Now I will turn to our updated fiscal 2022 guidance. We are raising our fiscal 2022 adjusted EPS Guidance from a range of $10.80 to $11.05 to a new guidance range of $10.90 to $11.10 representing growth of approximately 18% to 20% from the prior fiscal year. The increased guidance reflects stronger than expected performance in several businesses and a lower than expected average diluted share count. Turning now to operating income. There is no change in our expectation for consolidated operating income growth, Which we expect to be at least in the high teens percent range.

Speaker 3

In our U. S. Healthcare Solutions segment, We are raising the lower end of our operating income guidance. We now expect U. S.

Speaker 3

Healthcare Solutions operating income to be in the range Of $2,440,000,000 to $2,480,000,000 representing growth of 8% to 10%. The guidance range reflects the strong performance the segment has shown to date and continued strength and execution in the 4th quarter. As a reminder, in the Q4 of fiscal 2021, we had elevated operating expenses As we made investments in our talent and growth initiatives, this impacts the year over year comparison for the segment in the quarter as we benefit from lapping those prior year expenses. Turning now to International Healthcare Solutions. There is no change in our full year guidance, but I would like to discuss the impact of foreign currency fluctuations on the segment.

Speaker 3

The International Healthcare Solutions segment has faced significant foreign exchange headwinds as a result of the strong dollar. Since our Q2 earnings call in May, the dollar has continued to strengthen, Increasing the expected foreign exchange impact on our actual dollar results for the fiscal year to approximately $130,000,000 versus constant currency, up from our prior estimate of $80,000,000 Despite this headwind, our businesses have been performing well, And we are impressed with our team's strong execution. While a strong dollar has been a translation headwind for our reported results, There are some items that mitigate the impact. In May, I called out the larger than normal annual manufacturer price adjustment In the March quarter in a developing market that offset the negative impact of the decline in value of its local currency. Now, given the continued depreciation of that country's local currency, an unusual second price adjustment was announced in July, Which will offset currency pressure in our Q4.

Speaker 3

As I said in May, these price adjustments have historically been on an annual basis, But now given the significant decline in the value of the local currency, a second unexpected price adjustment occurred, which will support our full year results. Turning now to share count. We now expect average diluted shares outstanding for the fiscal year to be in the range of 211 to $211,500,000 down from approximately $212,000,000 as a result of the resumption of our share repurchase program in May. In the June quarter, we repurchased $249,000,000 of our shares And have approximately $1,100,000,000 remaining on our current Board approved share repurchase authorizations. Lastly, we now expect adjusted free cash flow to be in the range of $2,300,000,000 to $2,500,000,000 And have raised the lower end of the previous range of $2,000,000,000 as we continue to have good cash flow trends in the business.

Speaker 3

That concludes the updates to our fiscal 2022 guidance. While we are in the middle of our planning process for fiscal 2023, I want to repeat the earlier commentary that I gave at our Investor Day in June about our expected organic Consolidated adjusted operating income and adjusted diluted EPS growth for fiscal 2023. If you exclude the contribution from COVID treatment distribution, our operating income growth should be in the 5% range And EPS growth in the 8% range, again, ex COVID. As it relates to the potential COVID contribution, Trends and treatment utilization remain difficult to predict too far out, but we continue to believe the contribution from COVID treatment distribution in 2023 Could easily be less than half of the approximately $0.70 contribution included in our 2022 guidance. Our segment level COVID contribution expectations remain unchanged for fiscal 2022.

Speaker 3

As a reminder, we expect about $0.60 of contribution in the U. S. Segment and around $0.10 in the International segment. As usual, we will provide our full detailed fiscal 2023 guidance that is fully informed by our comprehensive planning process when we announce our Q4 results. Before I conclude my prepared remarks today, I would like to provide a brief update on our ESG efforts and progress.

Speaker 3

In June, AmerisourceBergen was honored to be invited to the White House as signatories of the administration's Health Sector Climate Pledge, alongside many of our peers in the healthcare industry. Signatories of the pledge commit to reducing greenhouse gas emissions, While producing detailed plans to prepare their facilities and communities for climate impacts. These commitments align with our ESG strategy, With one of the core pillars of our strategy being resilient and sustainable operations. Other related efforts Include our commitment to a set of science based emissions reduction target. And in May, we submitted our draft target to the science based targets initiative for official validation.

Speaker 3

As I mentioned last quarter, we've also conducted physical risk of our top 100 locations to inform our business strategy and continuity planning process. By having strong business resiliency plans and reducing our emissions footprint, we can help mitigate the impact of climate change and advance health equity, Particularly in communities most vulnerable to climate change. While my comments today focus on our environmental efforts, AmerisourceBergen embraces all aspects of ESG, and in doing so, we live our purpose and help create healthier futures. To close, AmerisourceBergen has proven its ability to deliver strong results throughout each phase of the pandemic, Driven by the talent and execution of our 42,000 team members, the resilience of our pharmaceutical centric businesses And supported by the strength of our balance sheet, as we look ahead in the complex economic environment globally, AmerisourceBergen is well positioned Strategically, operationally and financially to continue to deliver sustainable earnings, strong cash flow And long term value for all our stakeholders. Thank you all for your interest in AmerisourceBergen.

Speaker 3

And now I will turn the call over to the operator to begin our Q and A. Operator?

Operator

Thank you. We will now start our Q and A session. And our first question comes from Elizabeth Anderson at Evercore. Please go ahead. Your line is open.

Speaker 4

Hi, guys. Thanks so much for the question and thanks for all the details on the back half guidance. I was wondering, given all the And takes that you've been talking about and sort of trying to establish, as you said, sort of like whatever phase we are in the pandemic, like run rate trends. Can you talk about the underlying volume growth assumptions in not only your What happened in the Q3 and then sort of underlying your guidance in the Q4? I'm just trying to sort of parse out like where you're seeing Strength in those and relative areas of weakness in both the sort of visits and sort of core retail scripts versus maybe The mail acceleration that you talked about in both the U.

Speaker 4

S. And Europe. Thank you.

Speaker 3

Yes. So thanks a lot for that question, Elizabeth, and I'd say overall, what we're seeing across our business is resilience and And of course, those are words we used a lot in the prepared remarks. But getting kind of a little bit more into the detail, we are seeing strong Underlying fundamentals, we're seeing good utilization trends and we're seeing good volumes, both in the U. S. And International and I describe this as being in line or somewhat ahead of our expectations.

Speaker 3

We're definitely aided by our leadership in specialty distribution and that's allowed us to capture The strong trends there, the benefits of the strong specialty utilization trends, which we would expect to Continue. And so that's one area where we've seen strong trends and you did comment as we did in our prepared remarks that we did see some increased Volumes in mail also during the quarter. But overall, I think that we've just continued to demonstrate Resilience and strength in the various spaces of the pandemic as we look over the last 2.25 years or so, The fundamentals and the utilization trends have really been quite good and we're seeing really the same thing in the various Phases of the economic cycle, we're continuing to see strong fundamentals and utilization trends really across our businesses in the U. S. And international, which is largely due of course to the Pharmaceutical centric nature of our businesses.

Operator

Thank you. Our next question comes from Lisa Jill at JPMorgan. Please go ahead.

Speaker 5

Good morning and thanks for the questions. First, I just want to start, Jim, with your comments initially around 2023 and just get your thoughts on how you're thinking about foreign exchange. You talked about the dollar being stronger and you didn't specifically call that out as we think about 2023. So that would be my first question. And then second, more broadly speaking, just given your position of how strong you are in the specialty side and given what we're seeing on the biosimilar side, Can you talk about was there any impact in the quarter from biosimilars?

Speaker 5

And how do you think about biosimilars over the next couple of years as we have a number of drugs that will lose Patent Protection.

Speaker 3

Okay. Well, I'll start out and talk about 2023. And importantly, There's really no change from what we indicated during our Investor Day. On a consolidated basis, what we would expect is Organic operating income growth of 5% and then an incremental 3% from capital deployment, whether that be share repurchases or M and A, so we'd expect EPS growth of 8% on a consolidated basis. Of course, that's ex COVID, so you'd have to start by taking 2022 and Subtracting out the $0.70 expected benefit from COVID and then grow 8% from there and then Add back in whatever the assumption would be for COVID in 2023.

Speaker 3

And we're seeing a lot of the drivers in 2022 continues to be drivers in 2023, continued strength in our U. S. Businesses. Clearly, our Leadership and Specialty will continue to benefit us. And then when it comes to International, as I said, we're seeing the business is performing well with good fundamentals.

Speaker 3

Now two things that we are monitoring in international, of course, our FX, which you mentioned and inflation also. And both those things will impact Fiscal year 2023. And there have been some offsets to FX in fiscal year 2022, Including the price adjustments that we saw in the developing country Turkey, which have helped to offset some of the FX Impacts in fiscal year 2022. And when we report fiscal year 2023 results and when we're discussing international, Well, I'm disgusted on a constant currency basis in addition to a as reported basis. But Overall, we feel very good about 2023 as we're done doing our planning.

Speaker 3

We're going through a detailed planning process now and we feel very good about 2023 and feel very good about the fundamentals And as I said before, there's really kind of no change to our initial thinking that we talked about at Investor Day. Ex COVID operating income organic growth of 5% and incremental 3% from capital deployments for EPS growth of

Speaker 2

8%. Yes. Hi, Lisa. On the biosimilars, we continue to see positive trends in biosimilars. In fact, There was a recent announcement in the ophthalmology space, which is our sweet spot, the Part B side, and we'll see how that goes.

Speaker 2

We'll certainly keep you updated. Therapeutic comparability and good contracting support are helping enable physician utilization and taking cost out of the system, which will make More room for innovation and we are very encouraged by some of that. We don't specifically call it out, but as part of the general growth of our strong specialty position in health systems and in physician practices, including oncology. But As we just had noted in ophthalmology, we're going to see an important launch as well. So we also are noting Regulatory enhancements including interchangeability on some of the molecules.

Speaker 2

So this is about very dynamic space in which AmerisourceBergen was clearly an early adopter and we expect to strongly participate in the system and In the launch of these drugs, particularly on the Part B side. Thanks.

Operator

Thank you. Our next question comes from Eric Percher at Nifran Research. Please go ahead.

Speaker 6

Thank you. I'd like to drill into Turkey just a little bit more and I know that operators that you have long experience in the international. So Question 1 would be what you're seeing in Turkey with hyperinflation and the price adjustment, have you seen this in other Countries before and maybe I'll ask you if you can just once more help us on the mechanics on the P and L. And then on the balance sheet, am I right And seeing the adjustment this quarter as completely related to the balance sheet, the $28,000,000 and is that a revaluation Owing to the hyperinflation?

Speaker 3

Yes, sure. I'd be happy to take that And thank you for asking it. And first of all, I think you're absolutely right. We've been very pleased with the management team at Alliance and of course they have a lot of experience in their markets and really just shown a lot of Expertise in managing the business. With regard to your question on the Turkey high inflation accounting, which was covered in our press release today.

Speaker 3

Very importantly, there's No change in how we translate the P and L of Alliance Healthcare's Turkish subsidiary in our adjusted results. Just as you were saying, when you asked the question, the GAAP to non GAAP adjustments relate to the accounting impact They're remeasuring various components of their balance sheet. And of course, on a consolidated basis on Turkey, it's a very small part of our overall results, but I will get into a little bit more Detail here, the GAAP accounting items driven by Turkey becoming a highly inflationary economy is defined under U. S. GAAP.

Speaker 3

And the result is remeasurement of lira denominated assets and liabilities at each balance sheet date Using the U. S. Dollar exchange rate then in effect and that impacts recorded in our P and L. And previously that translation was Recorded as an adjustment to equity on our balance sheet. And there's a detailed discussion of this in our 10 Q, but I think very importantly, There's no change in how we translate the P and L of Alliance's Turkish subsidiary and our adjusted results.

Speaker 6

And with respect to the P and L, it sounds like the adjustment being made by the manufacturer, it's in their interest to make that adjustment given hyperinflation. You don't really have a bearing on that, but it helps offset. Is that the right way to think of it?

Speaker 3

Yes. And so the way that it works there is Due to the currency devaluation that's happened, there's an annual price increase that happens And that annual price increase is based on the value of the Turkish lira versus a basket of currencies And that price increase happens every year and this year that price increase was particularly large And there's actually been 2 of them because the devaluation has been higher than typical.

Operator

Thank you. Our next question comes from Charles Rhyee of Cowen. Please go ahead. Your line is open.

Speaker 7

Yes, thanks. Hey, guys. I just wanted to follow-up on international a little bit more and maybe fold into what Eric was asking. But So you maintain the full year Alliance EBIT guide, right, $685,000,000 to $715,000,000 And I think, Jim, you said last quarter, Because of the currency headwind, you expect to kind of come in towards the lower end. It sounds like now you're saying though that currency has gone even worse.

Speaker 7

We're maintaining the guidance. So clearly, you kind of suggest that underlying operating performance has been better. I guess two questions then. When we think about then modeling fiscal 2023, should we be assuming currency stays Glad. Are we actually should be modeling on a constant currency basis, let's say, an EBIT profile that's higher than this 685 to $7.15 range.

Speaker 7

And then secondly, Or is some of this how much of the benefit that keeps us in the range is coming from maybe something like Turkey? Thanks.

Speaker 3

Yes, sure. And so there are really 2 things that keep us in the range. 1 It's the 2nd price increase in Turkey that we talked about. And then really the other thing is just very strong performance out of World Courier. And we're seeing just particularly strong performance there.

Speaker 3

World Courier has had a long history of growth And good margins and what we've seen in the most recent quarter is higher weights of World Courier shipments and also World Courier receiving good value from manufacturers for the services that we provide. And so those are really the Two things that are enabling us to maintain our guidance for the International business and fully offsets what we've seen from a FX standpoint. And like I said, when we Talk about fiscal year 2023 and report fiscal year 2023, we'll do that and talk about it on both a Constant currency basis and a as reported basis.

Speaker 7

Great. And just a follow-up on Will Currier. Obviously, you've been highlighting how strong it's been performing. When you look at some of the CROs that have been reporting, Some have talked about potential slowdown in R and D or just kind of delays or cancellations. Others seem to have reported fine results.

Speaker 7

Just maybe what you're seeing in sort of the clinical trial space as it relates to World Courier? Thanks.

Speaker 2

So thanks. We did have a strong quarter with World Courier as We've got a bunch of high weight shipments, and the team is driving value on incremental services we provide, Including home direct to patient services, which are important for in home trials and there's certainly been a development out of the pandemic. But World Courier's expertise and reputation in helping customers navigate the complexity of Global Logistics is Very well established. We've owned the business for coming on 10 years now. And I'm proud of the investment we have made In allowing us to, World Courier to deliver best in class solutions while seeing a rapid growth.

Speaker 2

And there's been a really long history of growth and good margins, Which we expect to continue into Q4 and hopefully into next year in the future as well.

Operator

Thank you. Our next question comes from Steven Vaninkat at Barclays. Please go ahead.

Speaker 8

Thanks. Good morning, everyone. So just a couple of interrelated questions on generic drug pricing. Yes, just per some of the third party data that's Tried by investors, there was a bit of an inflection in recent months on some moderation of generic drug price deflation. I guess I'm just wondering if you are also seeing any changes from your own viewpoint of the market?

Speaker 8

And then also tied into this, is there any early view that Generic drug manufacturers, maybe looking to raise prices to offset some of the inflation that they're seeing in their own higher cost Generic Drug Manufacturing. Thanks.

Speaker 3

Yes. So with regard to your question On generic deflation, it's been in line with the past few years. It's been In line with our expectations, supply and demand remain in balance. And as we talked about before, Our business is not as reliant on generic pricing as it has been in the past. Our teams have done a very good job of rebalancing contracts and ensuring that we receive fair compensation across brand, Generic and specialty, which is important, especially as more specialty goes through mail and retail.

Speaker 3

And with regard to Potential generic inflation, there certainly are higher input costs for manufacturers and it remains to be seen if They'll be able to pass on the higher costs. We're not currently expecting generic inflation, but if that does occur, Of course, it would be a tailwind for our business. But as a reminder, as I said, due to our contract rebalancing, our business model isn't as Reliant on generic pricing as it once was. Thank you for the question.

Operator

Thank you. Our next question comes from Kevin Caliendo at UBS. Please go ahead.

Speaker 9

Great. Thanks for taking my question. First, I guess on the Animal Health segment, MWI, on a year over year basis, was the contribution Better or worse, what's happening with that business in terms of growth and margin on a year over year basis? And then As a follow-up, you mentioned that ophthalmology, you're seeing encouraging signs in the ophthalmology business. What exactly do you mean by that?

Speaker 9

Is that Biosimilar possibilities or is that just straight supply demand?

Speaker 2

I can start with the ophthalmology business and then we'll let Jim who is the expert of course on MWI talk about it. We are our Specialty Physicians Services business. We have talked a lot about increasing our services to other physicians As the formulary increases, as there's more products available in the administration area, and probably ophthalmology is our 2nd largest area After oncology, that's been an area where we've been very involved, particularly with the launch of Eylea many years ago was Really what got us into that business. And we continue to develop services and as they are biosimilars and as there are more therapies available for in office Administration and physicians have for over a decade become used to administering products. There's more relevance for What we call our IPN network and our Besi Medical distribution, which are fundamental parts of our SBS business.

Speaker 2

So We see growth there, and we see a high market share, which we've always enjoyed in that segment, Consistent with or even higher than our oncology market share rate. So it's just a robust area for us, and particularly, we look forward to the opportunity to assist physicians In adopting biosimilars. So that's really Jim, hand over to you on MWI.

Speaker 3

Yes. So during the quarter, MWI had Growth during the quarter, it had revenue growth during the quarter, but the growth rate was lower than it had been in fiscal year 2020 or 21 and of course as you well know there were a lot of pet adoptions during the pandemic and really good growth in the companion animal business in particular During the first part of the pandemic and so some of the comps were a little bit tougher now for MWI, but it still had growth and it's a very strong business and we have kind of Very good confidence in the long term prospects of both the animal health market And our MWI business.

Operator

Thank you. Our next question comes from George Hill at Deutsche Bank. Please go ahead.

Speaker 6

Yes. Good morning, guys, and thanks for taking the question. And I hopped on a Late, so I apologize if you guys covered this. But Jim,

Speaker 3

maybe could you talk about the outlook for COVID therapies as

Speaker 7

it looks like the COVID market is going

Speaker 6

to prove to be a little

Speaker 7

bit more durable than we might have thought 3 or 5 months ago,

Speaker 6

so maybe kind of the contribution of COVID therapy is the evolution and how you guys are thinking about durability?

Speaker 3

Yes, I'll start out here. We've been really transparent about our contribution from COVID therapies and Q3, our contribution from COVID therapies was $0.14 on an for EPS Versus $0.03 in the same quarter last year as we We're shifting volumes of the government owned emergency use authorization pills. And that's And we're kind of keeping our guidance for the full year in the U. S. Of $0.60 and on a consolidated basis, $0.70 including international.

Speaker 3

And so if we compare it to what we would have thought a year ago, it's certainly been a lot more durable Then we would have thought. And it is something that is hard to predict and estimate. And so that's why when we Talk about our guidance for fiscal year 2023. We say we'll do our guidance ex COVID and that 8% EPS Growth rate that we talked about is ex COVID. So back out COVID growth, 8% and then make an assumption for COVID and add that on top.

Speaker 2

Yes. One other point, we were pleased to see the FDA update a CEUA for paxlovid, Making it easier for patients to access treatments at pharmacies. And we're really proud of the increased role that pharmacists will be playing In patient care, I think that that's as I said in my prepared remarks, that's a tremendous access to consumers and patients As I look to access these treatments conveniently. So when we think about living our purpose during the pandemic, There's nothing more there's nothing that embodies it more than the work we've done with these EUA products and AmerisourceBergen And our associates are tremendously proud of it. So this is definitely something that has been distinguishing us in the last

Operator

Our next question comes from A. J. Rice at Credit Suisse. Please go ahead.

Speaker 10

Hi, everybody. I might just take a second and ask you about the Capital priorities and any updated thoughts on that? I know you called out that you continue to pay down debt that you took on associated with clients and you also highlighted Continued availability for share repurchases, maybe just updated thoughts on priorities looking out over the next 6 to 12 months and anything else that will be a major consumption or Outlay Point for capital deployment?

Speaker 3

Yes. So yes, so our capital deployment Approach, of course, remains similar to what it's been for quite some time, of course, investing in the business where we have Great returns, strategic M and A, share repurchases, of course, having a Reasonable dividend on our stock and we've steadily increased the dividend that we pay. We have been paying down debt, and we will meet or beat our time frame for paying down 2 thirds of the Alliance acquisition debt. And also we started repurchasing shares earlier than we anticipated. We started repurchasing shares in the month of May.

Speaker 3

We saw a good opportunity to do that. We repurchased about $250,000,000 during the quarter. And at a Board meeting after that, our Ford increased our share repurchase authorization to $1,000,000,000 So we have about $1,100,000,000 in Total authorizations now, and we would look forward to any share repurchase opportunities in fiscal year 2023.

Operator

Thank you. This concludes our Q and A session. I'd now like Turn over to CEO, Steve Collins, for any final remarks.

Speaker 2

Thank you, everyone, for your attention on this Busy Wednesday morning. AmerisourceBergen and Gemini and Bennett are pleased and proud to have delivered another strong quarter and another guidance raise. Our business, our talent and our capabilities have we have seen on show throughout this quarter and throughout the pandemic And historically throughout various economic cycles, AmerisourceBergen has demonstrated tremendous resilience. We are well positioned strategically With a strong track record of execution to continue to deliver long term value for all of our stakeholders. This concludes our remarks.

Speaker 2

Thank you for your time.

Operator

Thank you, everyone, for joining today's conference call. You may now

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Cencora Q3 2022
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