Q1 2020 Earnings Call

Dead dead dead, good morning and welcome to the first quarter 2020 amerisourcebergen earnings conference call. All participants will be in a listen-only mode. Should you need job?

Assistance, please.

Signal a conference specialist by pressing the star key followed by zero after today's presentation. There will be an opportunity to ask questions to ask a question. You may press star eight thousand one on your touchtone phone to withdraw your question, please press * then two, please note this event is being recorded. I would now like to turn the conference over to Bennett, senior vice president of investor relations, please go ahead.

Thank you. Good morning. And thank you all for joining us for this conference call to discuss amerisourcebergen fiscal 2020 first quarter results. I'm Bennett Murphy Senior vice president investor relations and joining me Steve Collins chairman president and CEO and Jim Cleary Executive Vice President and CFO on today's call will be discussing non-GAAP Financial measures reconciliations of these measures to Gap in today's press release and also available on our website an investor. Mary's fish burger. And we've also posted a slide presentation to accompany today's press release on our investor website during this conversation. We make forward-looking statements about our business and financial expectations aren't adjusted non-GAAP basis including but not limited to CPS operating income income tax forward-looking statements are based on Management's expectations and are subject to uncertainty and change for discussion of key risks and assumptions. We refer you to today's press release and our SEC filings including our most recent 10-K marriage says, we're going to suck.

no obligation to update any forward-looking statements in this call cannot

You broadcast without the express permission of the company. Do you have the opportunity to ask questions after today's remarks by management? We have to limit your questions to one per participant in order for us to get to as many participants as possible within the hour that I'll turn the call over to Steve Bennett and good morning to everyone on today's call today. I am pleased to discuss amerisourcebergen strong fiscal 2020 first quarter results. We delivered solid performance across both the pharmaceutical distribution and Global commercialization Services and Animal Health groups each delivering your over your life in the first quarter revenues were up 5% to Twenty Eight billion dollars for the quarter and our adjusted diluted EPS was $1.76 for the first quarter to increase of 10% compared to the previous fiscal year. Before. We provide more details on our first quarter results. I want to take a few moments wage.

discuss the ongoing opioid dedication

And the decision to exit the four medium business amerisourcebergen and had a parties continue the complex process of working towards a global resolution to the dictation while also continuing to prepare for upcoming trials. We are hopeful that the necessary parties understand and see the merits of a global framework as a practical path for Global resolution as we engage in discussions related to the global framework and continue to litigate we are unable to age, deeply on these matters at this time, amerisourcebergen remains committed to transparency and providing shareholders with updates as we are able moving on to pharmedium

At this point last year, we detailed how we had begun a comprehensive strategic and financial review of four medium and engaged in new cgmp expert consulting firm to work with the businesses new season leadership team as we stated that their time we entered this review phase with a focus on the shoeing a thoughtful decisive course of action that was best for amerisourcebergen and our shareholders while respecting both the needs of our customers and other stakeholders.

over the past year

We worked internally to optimize the business continued discussions with regulators and reached an agreement on the terms of a consent decree for for Miriam with the FDA focused on a dating the business despite this progress. We still face considerable challenges in order to successfully move the business forward including ongoing regulatory life has continued operational issues inability to make sufficient progress on remediation and the continued financial burden of running the business page these factors. We made the difficult decision to shut down and exit the four million business. The decision is a difficult one and we are mindful of the impact that has on our soldiers and customers we want to thank all for medium Associates for their dedication and we are appreciative of their efforts.

It's part of the shutdown process. We will provide impacted us.

Associates with the support and services they need we also disappointed at for medium will no longer be able to serve its customers that believe exiting. The business is appropriate. Forward for amerisourcebergen and its shareholders. Jim will provide Financial details including the decisions impact on physical twenty twenty guidance later in the call off turning now to our first quarter results, amerisourcebergen continues to benefit from our unique pharmaceutical Center strategy that positions as well within the US market additionally the wage companies call string and capabilities regarding unravel Talent expertise and ability to provide a comprehensive Solutions continues to differentiate us from our peers. I want to thank our Associates for the dedication executional excellence and focus on consistently creating and delivering value for all of our stakeholders. Yep.

I'm proud to work alongside. Our teams remain Relentless in their pursuit of opportunity.

Please unlock value for pharmaceutical manufacturers Health Care Providers and the patients they serve within pharmaceutical distribution services. The segments just reflects is continued focus on customer experience in addition to our ongoing strength and especially distribution and overall growth and customer volumes. Amerisourcebergen is dead, especially distribution and our strong growth continues to be fueled by a deep expertise and keep customer relationships growing organically growing Market with favorable demographics and increased pharmaceutical utilization resulting from Innovation within specialty particularly in the areas of oncology opthamology and Rheumatology wage in these and other therapeutic categories, amerisourcebergen continues to deliver value and provide differentiated services and solutions to key customer segments such as Arthur's

Unity physician practice Partners the key differentiator for our specialty business r i

Hanji, PR remains a competitive advantage in our suite of offerings to oncology physician practices as the market-leading TPO for community on colleges. I don't provide for Thursday with the Contracting analytics and business practice solutions. They need to run their practices more efficiently and profitably at the same time. We continue to see positive early signs for biosimilar utilization. We believe that the right conditions exist in the US for increasing by a similar commercialization success. We continue to see signs that legislators and Commercial plans are recognizing the potential of by some of those to create better access and affordability for patients with amerisourcebergen marketing positioning specialty strongly positions asked to benefit from biosimilars. We have aligned ourselves with key customers and buy some of the manufacturers. Yep.

The standard value of Contracting with ion as they seek to increase utilization of their products these elements come.

Scale efficiency, state-of-the-art distribution Network and competitive sourcing capabilities position amerisourcebergen to capitalize on Market opportunities. Amerisourcebergen is also well positioned to seize Market opportunities in animal health and pharmaceutical manufacturers Services through our Global commercialization Services and animal health group home businesses that comprise approximately 20% of amerisourcebergen operating income our largest business in the segment. MWI is a market leader an animal Solutions with Iraq strategic Partnerships and capabilities to enhance operational efficiencies and deliver strong customer experience while our portfolio of Global commercialization Services strengthens help a lot comes by supporting pharmaceutical Innovation with data-driven solution that advance and support patient access rep.

And adherence to therapy for example extended Health economics Consulting and field tech team reimbursement support services are helping manufacturers maximum Market access for products while the large groups technology-enabled my patient access and adherence Solutions are helping to reduce barriers for patients to stay home. And stay on therapy.

Thank you, silicone manufacturers ability to commercialize and improve access to Innovative therapies is ability to transport trial products and unique patient treatment life and Gene therapies on time and at the right temperature. Well Korea the global market and Specialty and clinical trial Logistics is attracted Solutions off at Services. These complex needs for manufacturers around the world operating over fifty countries is highly differentiated and innovative business continues to grow and expand this business delivered unparalleled service offerings for his pharmaceutical Partners in clinical trial Logistics and Commercial Services. For example, World careers including offering is the industry's most dependable and cost-effective refrigerated containers solution.

Providing unprecedented reliability and driving strong momentum for the business this year in addition World careers know where technology platform further improves operational excellence scaling to meet the demand and complex requirements of our Global customers looking at here. Will Korea will continue to design and deploy patient-centric and I'm thinking transport services in new areas like in home clinical trials making treatments in patients home possible in virtually every therapeutic area.

I am proud of

Control and the global Healthcare Solutions need and Purpose Driven organization. We are united in our responsibility to create healthier Futures and recognize that there is quite patient connected to every product pharmaceutical care is still the most efficient form of Health Care and medication adherence provides positive health benefits for patience while save lives and the Healthcare Systems hundreds of billions of dollars engineering

adherence should be the goal for which all Health Care stakeholders are striving as an enabler of excess and creator of additional efficiencies. Amerisourcebergen will continue to engage in constructive dialogue around benefit design and Rising out-of-pocket costs for patients and the sustainability and efficiency of the Healthcare System back later in the healthcare supply chain, amerisourcebergen remains. Well positioned to create sustained long-term value execution of our fall key strategic players strong customer base leadership, especially distribution and services Innovative services and solutions and proven corporate stewardship positions as well to benefit from market trends in evolving Market landscape as we move further into fiscal 2020. We will continue to advance our talent and culture and execute on our unique wage.

green shaded business strategy

More than ever. We remain confident in our growth strategy focused on execution and dedicated to delivering long-term value for our Associates shareholders. Our customers in the patients. They serve thank you again for your interest in amerisourcebergen. I will now turn the call over to Jim for a more in-depth review wage the first quarter fiscal 2020 results gym even good morning everyone. My remarks today will focus primarily on our adjusted non-GAAP Financial results wage growth rates and comparisons are made against the prior-year December quarter unless otherwise noted for a discussion of our Gap results. Please refer to our earnings release and Steve mentioned. We had a bath water with solid execution and our pharmaceutical distribution segment and continued growth and our Global commercialization Services and Animal Health Group before I discuss. Yep.

adults in Greater detail this morning

I want to take a moment to discuss the Gap asset impairment charge that we took four or five medium as of December 31st, and the January strategic decision to exit the business office first the Gap asset impairment for for medium. We updated our recover ability assessment of our mediums long-lived assets. As of December Thirty One in made the determination that the Augusta mated undiscounted future cash flows indicated that the assets should have a lower caring value as a result. We calculate in the fair value of our Millions long-lived assets using a discounted cash flow estimates as of December 31st, and determine the asset impairment amount to be $138 million dollars.

Second I'll cover the decision to exit the farm idiom business as Steve said the company has decided to exit the compounding business and as a result will cease all commercial and administrative operations related to the business the decision to exit the farm medium business was not easy but it is undoubtedly the right path forward for amerisourcebergen and our shareholders Steve noted that decision was based on a number of factors notably continuing Regulatory and operational challenges including farmer decision earlier this month to suspend production at its New Jersey facility.

To the December quarter impairment charge as a result of the decision in January to exit the business the company expects to impair the majority of the remaining fifty five million dollars of tangible pharmedium assets and all of the remaining $185 million dollars of Barbadian intangible Assets in the March quarter page. It's a result of the exit we expect to claim an ordinary income tax deduction an estimate that we will realize that cash tax benefit in fiscal 2020 through fiscal 2022, totaling approximately $500 billion to six hundred million dollars. This will benefit our Gap p&l wage tax rate, but will not impact our adjusted tax rate. However, it will have a positive impact on cash flows in the years in which the benefit is realized.

as it pertains to the

Adjusted non-GAAP results for the remainder of the Year. Our decision to exit barndominium will have a positive impact on our outlook for fiscal 2020 which I will offer greater detail on in a few minutes.

Turning down to our first quarter results. I'll provide commentary in two main areas this morning first. I will detail our adjusted quarterly Consolidated and segment performer check-in. I will cover our increased fiscal 2020 guidance reflecting the continued strength of amerisourcebergen business has a lower share count and the removal of birth for the remaining three quarters of fiscal 2020.

We finished the quarter with adjusted diluted EPS of a dollar and $0.76 an increase of 10% primarily due to higher operating income and to lower share, lower net interest expense was offset by an increase in income taxes. Also our December quarter of last year had unfavorable bad debt expense wage, which benefits the current year-over-year comparison by a couple of pennies.

Elevated Revenue was 47.95% driven by strong Revenue growth in both segments gross profit increased 3% or $40,000 to one point four billion dollars Consolidated operating expenses increased 2% to $748. This quarter is an easier comparison than the balance of fiscal 2020 due to a few reasons that we have called out previously first. We had not yet left the health care benefit design change that was implemented for calendar 2019 second much of the operational synergies related to our fiscal 2018 acquisition of HD Smith were captured after the first quarter of fiscal 2019 Dodge. Additionally we executed on delivering better than expected expense management across the business in the quarter most notably within the pharmaceutical distribution segment.

Consolidated operating in

And was 495 million dollars up 5% with our operating margin down 1 basis point as I mentioned earlier. There were some favorable items related to Bath expense comparison Healthcare and the timing of HD Smith's energy capture our businesses with the exception of our medium are executing well in the strength of our business, he continues to show through in our financial results as we posted another solid quarter of growth and operating income.

It's it pertains to pharmedium since the decision to exit the business was made in January for Millions adjusted operating loss for the first quarter of fiscal 2020 will remain in our full-year fiscal 2020 results the adjusted operating loss from pharmedium. And the first quarter was $20 compared to an adjusted operating loss of $14 million in the first quarter of fiscal 2019 moving below the operating income line net interest expense decreased about 6% to Thirty 1 million dollars as a reminder the adoption of the new lease accounting standard in fiscal 2020 has a favorable impact on the interest expense line at certain build-to-suit wage that were previously accounted for its Finance leases are being accounted for its operating leases resulting in an office setting unfavorable impact on operating expenses in there for operating income wage.

in addition to the lower interest

Ben's we continue to benefit from interest income related to our higher average invested cash balance moving now to income taxes are adjusted income tax rate was 21% from 19.9% in the prior year quarter, which benefited from a discreet state income tax item are diluted Share account decreased 3% and 207.5 million shares in the December quarter. We used opportunistic share repurchases to return $135 million dollars of capital to our shareholders while on the topic of returning Capital to shareholders this morning. We also announced that the company's board of directors approved a dividend increase of 5% Amerisourcebergen has a balanced approach to Capital deployment and as evidenced by share repurchases and dividend increase we have exhibited our ongoing commitment to returning Capital to shareholders.

Regarding free cash flow and cash balance in the December quarter. We have free cash flow of $76 billion dollars. That's we experienced normal seasonality in the business and remain on track for him or adjusted free cash flow guidance adjusted free cash flow on the border was $134 as a reminder the company defines adjusted free cash flow that net cash provided by operating activities, excluding significant unpredictable or non-recurring cash payments or receipts relating to Legal settlements minus Capital expenditures.

we ended the

With 3.2 billion dollars in cash of which one point 1 billion was held offshore in the majority was us denominated cash. This completes the review of our Consolidated. It's now I will turn to our segment results.

Beginning with pharmaceutical distribution services segment Revenue was $46 billion dollars up 5% at the segment continues to benefit from continued strength wage specialty distribution of Specialty Products and multiple channels and the growth of our customers over all our segment operating income increased 5% $392 million dollars. We continue to be encouraged by our team's ability to execute and deliver value for our partners both upstream and down particularly in our specialty Physician Services Group as I mentioned earlier. The segment did benefit from favorable bad debt expense compared to the previous year quarter as well as the year-over-year comparison of no longer operating the HD Smith distribution centers that we began transitioning to our existing distribution Network in the second quarter of fiscal 2019.

I will now turn to the

The other segments businesses that focus on Global commercialization Services and Animal Health including World Courier. Amerisourcebergen Consulting and MWI in the quarter. Revenue was one point eight billion dollars up 10% driven by 8% growth for MWI and double-digit growth in Global commercialization Services.

From an operating income standpoint this group had operating income of $104 million dollars up 6% driven by growth and Consulting and World Courier. The group is off a solid start and we are encouraged by the growth expectations for the business this year the Global commercialization Services and animal health group is a positive differentiator phone number Source Berg, and if we look out into the future, we are focused on being leaders in providing key manufacturer services to support pharmaceutical Innovation, and we are suggesting to fortify our strength and overall value proposition through projects like Fusion at last and Nova had World Courier. Additionally. MWI has continued to strengthen its customer relationships and Commercial Partnerships, and it's focused on execution to further enhance efficiency. This completes the review of our segment results living now turn off.

2020 guidance

As we said in this morning's press release. We are raising our fiscal 2020 EPS guidance from a range of $7.30 to $7.60 to an updated range of $7.55 to $7.80 which implies EPS growth of 6 to 10% and reflect the companies continued strong performance opportunistic share repurchases in the first quarter and our exit of the medium business, which represents slightly less than half of the guidance increase regarding operating income. We now expect to grow Consolidated operating income in the mid single-digit percent range to reflect the continued strength of our overall business in the year-over-year favorability of not having fermenting losses in our adjusted operating income results for the balance of the year.

We now expect the operating income in pharmaceutical distribution services segment to grow in the mid single-digit percent range. That's a result of exiting volume business our fiscal second third and fourth quarters will have a favorable comparison to the respective fiscal 2019 quarters in which we recorded just inform idiom operating losses of fourteen million nine million and $18 respectively in total the fiscal 2020 adjusted operating loss from Farm medium is solely what we recorded in q1 twenty million dollars the total adjusted operating loss from pharmedium in fiscal 2019 was fifty-five million dollars there for the exit of farm medium results in a fiscal 2020 operating income Tailwind of $35 versus the prior-year

since we will not be

Revising our previously reported adjusted non-GAAP operating results. We are providing this additional level of detail as part of our focus on being as transparent as possible on the financial impact of the four million exit and providing key information for your modeling purposes regarding share repurchases given the level of share repurchases in the December quarter. We now expect finish the year around $200 million weighted average shares outstanding lastly while we do not have specific guidance metrics broadly speaking both brand and generic pricing on a trending relatively in line with our original expectations for the year.

Regarding our fiscal second-quarter EPS expectations while we do not provide quarterly guidance. I will note that our second quarter EPS growth is likely to be at the low end of the six to 10% EPS guidance growth range for the year is we expect an increase in our operating expense growth in the quarter on our second quarter call last year. I noted that there were some positive generate an administrative expense items that benefited that quarter we do not expect those items to repeat in 2020 enclosing regarding pharmedium our review home and both thoughtful and decisive but there comes a point in time where you have to make a decision that the path you have been on is no longer appropriate and our decision to exit the business as the right password from here despite this strategic change the key differentiators of amerisourcebergen remain unchanged.

We have strong.

Customer relationships and each customer segment start businesses are focused on execution and bringing Innovative services and solutions to our partners. We have leadership in a specialty markets notably specialty distribution and commercialization services and finally amerisourcebergen is Purpose Driven and focused on creating shareholder value through thoughtful corporate stewardship with a balanced and strategic approach to Capital allocation and a clear emphasis on advancing our talent and culture wage Source Bergen is executing very well across the business our value proposition to our partners is undeniable and we are well-positioned to create long-term value for all of our stakeholders. Thank you for your interest in amerisourcebergen. Now, I will turn the call back to the operator to start our Q&A.

Thank you. We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press * then two at this time. We will pause momentarily to assemble our roster.

The first question will come from Robert Jones of Goldman Sachs.

Great. Thanks for the question. I guess just to focus on the pharmacy segment guide and change and and and for medium, I guess Steve first, you know, maybe could you talk a little bit about whether or not there's a sale process around for a medium, you know any discussions maybe with the FDA about the ramifications or potential ramifications from from exiting this business just on on thinking about them just compounding pharmacy business out there and then you gave a lot of detailed gym around the change in the Pharma segment guidance as far as the impact in the quarter and the balance of the year for medium. I guess maybe just to take a step back did any of your other assumptions change outside of the four medium math, you you provided as far as thinking about two Q through 4 a.m.

I'll I'll talk with the phone made him question. Obviously a disappointing day for ABC but I think that Jim script was excellent. And may I apologize to everyone I think the quality of the sound was not quite what we would hope and Will will really give it to do better next time. But you know, I think Jim's comments were excellent. You can see the financial disclosures. We've displayed a lot of perseverance with his business and it's just I think the father 3B changes have made it a very difficult to scale the business and get to a sort of you know, consistent quality that we amerisourcebergen would like to deliver to our customers and we continue to expect ongoing regular few challenges and and and challenges with the remediation program. We put in place, you know, we announced on this call that our New Jersey facility recently had a close and so yep.

We we really went into this year with you know an attitude of wanting to protect our problem.

But you know for our shareholders and other stakeholders and we had a lot of we had a lot of you know, a lot of I think perseverance with this business and you know, I think that we should have reached this decision. And you know, we we think that given where the businesses that would be very difficult to enter into a sales process. We have certainly been in close communication with them APA throughout the consent decree negotiation and the consent decree implementation. We think that we've approached us as a a good stakeholder. We'd certainly regard Regulators as faith and we will work collaboratively and transparently with him and professionally with him through the closure and Jimmy went on to the second part of the wish. Yeah sure the second part of the question and my understanding had to do with guidance impact and other than pharmedium which are really went into a lot of detail on in the call. What were the other things that impacted guidance particularly as well?

It's to wire wrap pharmaceutical distribution business. And as I said during my prepared remarks if you look at our increase in Guidance the exit.

At the farm Betty and business represent slightly less than half of the guidance increase. And so if you look at the $0.20 increase in guidance that the cost end of the range the exes are medium represents slightly less than half the guidance increase the benefit of excluding those losses in Q2 through Q4. And so, that means that the rest of the business is performing quite well and we are seeing really good performance in the core farm and distribution business as we talked about. We're seeing a lot of strength and Specialty distribution in particular our specialty Physician Services business. We're seeing good volume growth in the farmer distribution business. We're seeing 5% volume growth that's through the corsage balanced portfolio of customers. And so we really feel good about our q1 performance and the impact that that that happening on our phone number.

Guidance and of course it relates to our farming distribution business you asked about but also good volumes and good performance in our in our Global commercialization Services and Animal Health business, which had 10% of Revenue growth in the quadrants of that positively impacts our our fiscal year guidance. Also, Bob

great.

Appreciate all the comments.

The next question will come from Eric percher of nephron research.

Thank you continuing with pharmedium. I know over the last two years. It's been pretty clear that hospitals don't particularly want to be in this business. And at one point this was, you know an effort to expand the hospital relationship as you shut her edge. Do you see any impact on the other business that you have focused on the hospital and particularly with respect to the special business. How do you help ensure that those relationships don't see our an impact specialty.

Yeah. Yeah. Hi Eric. I'm it's you know, it's obviously of course, we thought about Associates and our customers and you know, we you know, unfortunately since there's the closure members we've never really been able to deliver the consistent customer experience that in amerisourcebergen company would like to have and and there's a lot of reasons for it and you know in the six years of passage of the 503 be legislation. I think there was you know, a really strong expectation to move to a very high standard, you know immediately and as you pointed out, correct, we were by far the largest so I think you know having that having that leadership position. They were very high expectations. I put on us and I think we we really along with them into the associates Medical Associates. And you know, it's a new leadership team some new outside experts. We we really did it a tremendous effort to meet as a high bar. But yep.

They there's a lot of you know, we do they're all just they're all these a lot of powder products in the marketplace. It's hard to reach.

Scale and this tremendous consequences if something doesn't go, you know, something goes badly like, you know, at least as far as the FDA expectations or off to all so for ABC which you know, we have our purpose. We have our stakeholder value set. We just made the decision that this is not a business that really fits into our portfolio. Our customers have been understanding I think somewhat disappointed but I think it reflects the reality of where we are with regular Thursday. We all with the powder products in this market where we are with economics in the overall health system. And you know again, we don't want to be in a business where we can provide a very reliable exceptional efficient service. So I think that's about all you know, all all we can say there.

Thank you.

The next question will come from Lisa Gill with JPMorgan.

Good morning. Thank you for taking my question Steve. How are you? Thinking about IPI pricing, you know clearly specialty is a sweet spot for for ABC but there's a lot of talk about changes around reinvestment and I'm just curious how you're thinking about that. Do you think anything will change here in your fiscal 2020? What are your conversations with the the actual providers of the marketplace that community based off position just any color you can help us to understand how you're thinking about this would be helpful.

You know.

I'd say this is a number to concerning specialty. Our number one concern is the disposition reimbursement and making sure that you know that those communities often continue to serve patients in the community setting. You know manufacturers are are obviously another key stakeholder, but they large they're sophisticated and I think that there'll be some you know, very legitimate complications. And in fact often, you know, when these conversations start actions change in the marketplace and anticipation of of those changes and I think you see some changes you've seen very moderate inflation. In fact on the Parkview products. There's always been moderate inflation because of the ASP reimbursement. So, you know if I'm International reference pricing, uh, as we discussed in January nice, I hope that it'll be a thoughtful transition that it'll give manufacturers time to adjust. I think they're dead.

A lot of the noise is not actually factual. The price differentials are are not quite as high as one would have you believe in?

Sometimes people take to take a sticker prices and they all a lot of things that go behind are all set acquisition costs and ASP, you know with commercial payers that that aren't always read, you know in one thing as well with with government and single-payer systems the prospect negotiated up front and then there's no changes. So that's one of the nuances that are different in the system. So, you know complex topic you can hear that, you know, even at the level I'm very engaged in this very passionate about it. I saw the head of our government appears office today we talkin about it. I'm very fortunate who heads up. Our opposition Services businesses is in Washington constantly our business ion as you can imagine it's very involved with practice management. So we we we are going to be a long discussion and you know, we look forward to participating in any changes and and hope that they'll you know, sensible and and and and logical in the context of of of birth.

Is it still anticipated that that'll be under some kind of competitive acquisition program? And and so if that's the case, do you see maybe potential incremental opportunity?

For ABC, so I understand what you're saying around, you know, the pricing Dynamic is already starting to change and so, you know, maybe we don't see a huge impact to pricing but is there the potential to either gain or potentially lose some amount of market share around a competitive acquisition program, you know, I feel like we going back to the to the nineties, you know, I'm making what not, you know, and at the time I think they with great anticipation that without without sweet of of of businesses, you know would participate and actually it was mm, of course the Bush Administration but and and and and and there was no economically feasible way for us to participate in our daily. We bring in people especially to evaluate being a cat provider, you know made to ensure that our customers would be able to carry on participating and it was just it was impossible to make the numbers work. We don't believe yep.

Very efficient we've seen, you know, some pulled wat bagging and brown bagging programs, uh, you know, try to be implemented like different payers more on the commercial.

And I just haven't worked and you know, the original cap program didn't work. So, you know, the these potential wastage with these programs. We believe that the current system works very well with the oncologist having a financial responsibility or the preparation of of the fusions and you know, we we all carry on assisting with it if it were to be a new task of a reimbursement and there was differentiated reimbursement or some sort of encouragement to move more towards the cap program. We would love to work with you know, what are some very large much more aggregated Community oncologists. We would we look to work with them to provide solutions to to payers and and regulate us. Thank you for the color. I appreciate it.

The next question will come from Glen santangelo of Guggenheim. Oh, yeah. Thanks for the question Jim. I just wanted to follow up on the guidance question. I appreciate all the details off you seem to suggest that over the next three quarters. They'll be about a $35 million-dollar Tailwind from eliminating the losses from pharmedium, which I understand the EPS impact, but if we could just look at it from an operating income perspective that $35 million seems to be about a 2% Tailwind which seems like it would fully explain the change in your guidance from low to mid-single up to mid-thigh. I'm just trying to understand is there has anything changed with respect to your assumptions around the core distribution business because I just want to try to reconcile that versus the much stronger-than-expected first quarter, which seemed to incorporate a bigger than expected loss from pharmedium. So if you could just sort of reconcile those that be great

yeah, and so

I will cover that and and you're right, you know, we indicated that are medium is a $35 million-dollar Tailwind year-over-year versus last year. And so that's that's kind of the benefit that will see year-over-year compared to last year. And it's we look at guidance, you know, as I said before the taking part of the last three quarters, it's about half the increase to the to guidance and you know, we are seeing strength throughout. This is of course guidance is a range so going from low to mid-single digits are many mm is a big part of that. But we're also seeing some strength throughout the businesses. They've um, they sell impacting our guidance increase also and it's pretty broad-based. We talked about specialty Physician Services, but we're seeing strength throughout the business one thing that I am

If you talked about the first.

Corner during the first quarter one thing we benefited from is low growth and operating expenses are up in the operating expenses grew 2% off during the first quarter and that included some year-over-year benefits, which we don't expect to continue through the rest of the year. And so that was a favorable experience off on that debt expense favorable experience on our internal health care costs that is of benefit design change in calendar year 2019 that we were still benefiting from year-over-year may also the operational synergies unrelated to consolidating the HD Smith distribution centres. And so that's going to one thing which which benefited the first quarter which would continue for the rest of the year. And then it's you know, we said the second quarter of where we're expecting the growth in the second quarter to eat the S growth to be at the lower end of month.

6 to 10% AP

Yes programs because last year we had particularly favorable operating expense experience in the second quarter, which we are expecting to repeat in the second quarter of this year. And so I took over there Glen. Yeah that that's how it really helpful. Thanks. Jim and Steve. I just wanted to follow up with you with one quick question on the balance sheet, you know, as of this quarter you have about nine hundred million in debt and based on your free cash flow assumptions. You're going to be cash, you know have a positive cash on the balance sheet here in the next two to three quarters. And so I'm just kind of wondering with with Farm medium now in the rearview mirror has any have your thoughts changed at all with respect to the balance sheet or Capital deployment priorities? And how should we think about that going forward? We we met a very consistent Capital deployment strategy, you know, I think last year we returned in fiscal year 2019 returned a billion dollars to shareholders of which was approximately 30% dividend 70% share BuyBacks, and yep.

XX approximate numbers

And you know, we we we we like to have Financial flexibility. So our first option is to invest in the business and you know, we bullish about projects like Fusion, for example, when we talked about the strong growth of of the world Korea which in parties because of the Nova and the Cocoon investment so that those those are good Investments and you know in a couple of years ago, we were making tremendous Investments with ABC order and the distribution networks. That was oh very good examples of core business Investments, you know, we remain interesting that we lack of course out our replenishment Center in in Ohio is a good example of another core investment that we're doing so that that's the first priority, you know, we we then you know, we look at the right sort of acquisition. Unfortunately. It's being really a seller's market and and you know, the quality of I think if we found really the right asset and and the management team was convinced that we had, you know, yep.

With a leadership position with the rod sort of a fit for our customers and that the patients and Physicians that we support. I think we could

Be talking to pain, you know a lot, you know significant you more that are multiple because we understand that that's probably you know, it's what's required in this market, but we really haven't seen the sort of asset that took us it's about two years ago since we acquired HD Smith, you know, which close to a billion dollars that worked out really really? Well, there's not really opportunities on the regional side. So we just haven't seen a great opportunities. I think you know where we industry is in the commercialization services expansion of the MWR business that would be you know, something we very interested in we made a couple more investments in our you know, Fazal and Canadian businesses where we have solid presence has management teams that we can invest behind so crazy things and you know, and then of course will continue to be you know, very thoughtful where we increased our dividend. We announced this morning. So you'll continue to see us be very thoughtful about about a return to Chef

I hope that makes sense. Thank you very much.

The next question will come from Charles rid of Colin.

Yeah. Hey, thanks for taking.

Question Steve, you know, I think earlier on you talked you talked about biosimilars and sort of the the the growth there, you know, if you look at the day if we're looking at the data last year, we did see a big truck starting to really see a big uptick in sort of adoption particular when you look at something like new last or or you put in, you know, are you you know, how much are you monitoring here, you know sort of the wage the shifter particularly with the biosimilar insulin, is that an opportunity for you guys? Cuz that looks like we'll be deemed interchangeable. And then you know, if you have any thoughts on you know would when you expect other biologics to become interchangeable and and would that create a market for biosimilars that mimic more of a traditional generic market and and perhaps bring more personally power back towards the office supply chain side.

You know Charles thinks that just in general the the bottom of the numbers are encouraging. You know, I think we talked about at the end of fiscal nineteen just how you know the growth, you know expectations. I would say that that Trend continues the numbers are still small but she has uh, we think an important place to play in the adoption the bystanders with you know, the mom presence we have in in particular in oncology and other specialty markets, you know diabetes is a very important market for our Good Neighbor Pharmacy customers because those sort of you know, running conditions are exactly what we think Community pharmacies very well set up to to play a role in so definitely we'd be interested. You know, I think you know, one of the ways that I'm not proud ABC has developed is on Outsourcing side. We have you know, I'd say over the last, you know decade or so since since I moved up here, we really invest a lot of resources. Yep.

F very proficient people on the manufacturing side that that really all working I think very competently and put positioning as well.

Over the long-term to to to be at the key player in part some of the adoption particularly on the injectable and fusible side. So we we we like what we see and you know, it's something that we monitor very very closely and and all staying close to as you would expect we regarded as one of the the key opportunities that has for the next couple of years, so

Thanks. Thanks for the question. The next question will confirm it Ricky goldwasser of Morgan Stanley .

Yeah, hi. Good morning. So one one Gardens question in in in one just for open for a medium. So under four bedroom side, if we think about from Reading from a performer base and we just kind of like exclude the the losses that you incurred from them last year. What would be the performa ebitda growth for the pharmaceutical distribution said that's on on on them in then? Secondly, if we think about kind of like your guidance for the remainder of the year, it seems that the Top Line guard guidance seems to be back toward an acceleration 2 qt for you, if you think about the midpoint from motor reported in the first quarter. So, where are you seeing that incremental growth coming from a additional volume coming from existing customers? I know the last quarter we talked about the potential of gaining more business from Cigna or anything else that you were seeing in the marketplace may be under special East Side that you can provide wage.

Tyrone that that that drives the acceleration for the rest of the year

Broad-based growth across the business from seeing particularly strong growth and Specialty distribution, but really broad-based growth in many parts of the business. We have called out the signal volume being added to Express Scripts, which is we indicated that that is approximately one-quarter of our Revenue bags and wallets inherently lower-margin business. It is positive for growing revenue and operating income dollars, but we're seeing growth in several business is and as you noted we're seeing particularly good growth in our Global commercialization Services and and Animal Health business. And then you asked about he asked about growth if we exclude Farm medium and you know, I think we've provided Ricky really good detail on that in our home.

remarks that that the impact on for many mm

We're looking year-over-year is a $55 million-dollar adjusted operating loss last year and this year in our adjusted results. We'll be a thousand million dollar adjuster adjusted operating loss. And so if we look year-over-year, it's it is a you know, a $35 million-dollar Tailwind off to the to the business, but we are seeing you know, excluding that good good growth throughout our various businesses in particular our specialty distribution business about that throughout the business.

yeah, and so we're seeing

The next question will come from Stephenville of Barclays.

Thanks gud morning guys. So just a question on the financial hurdle on the sale versus shutdown decision for pharmedium. And I guess in my mind, I feel like any asset that was arguably wage 2.6 billion in the market place is only four years ago. We still have some value today either and they have the private Equity or another strategic buyer. So I'm guessing that the private transaction value for a medium. Today is Thursday. So what I wanted to just sort of dig into quickly here is just you know, generally speaking should we conclude that the you know cash tax benefits of 500 to 600 is received trying to get down is that outweigh the benefits of any after-tax proceeds you might have received in the sale transaction or would you have gotten a received those cash tax benefits even in a loan transaction? I'm just trying to better understand. What was the financial hurdle on the, you know, the cell versus shutdown decision. That was probably something, you know, well above $0, but just wanted, you know understand a little bit better next month.

yeah, you know we

Out that the business was not available due to the ongoing regulatory challenges continued operational issues continued challenges to achieving the remediation timetable was extending and the continued financial burden of of running the business and so due to that we made the decision to shut the business down and not appropriate path forward for amerisourcebergen and our shareholders as you noted. We do have cash tax benefits of five hundred million to six hundred million dollars that will recognize between fiscal year 20 and fiscal year 22 that'll benefit our Gap PML. It will not benefit are off our adjusted p&l, but there will be a benefit to cash flow over that over that time.

The next question will come from George Hill of Deutsche Bank.

Good morning guys, and I appreciate you taking the question. I've got a quick follow-up kind of on the balance sheet Outlook and stiver gym, I guess can you talk about whether or not you guys feel the need to kind of Worcester MA in anticipation of an opioid settlement? Where do you guys feel like you have continued flexibility to put money to work and the opioid settlement that we I guess people expect to occur at some point is kind of in a bucket so to speak.

No, as I said our parties for Capital deployment or you know, I detail them we we don't feel the need to war chest at all because you know, if you look at the framework there was a guy was an eighteen-year-old settlement. So I think that's been anticipation of of you know, the sort of long-term characteristics of the of the industry for not only aspect that our peers are compelling as as well. So, you know then again that you know, the proposed framework, but that's the sort of framework that that we'd be interested in. So it's a sort of you know public radio plays it out of a long-term which also has the benefit of of you know, providing consistent support for the patient services that we think will be needed to to transition wage. You know population Health Management for this crisis. So in a way if you want to call it that so now it's not we don't feel the need at all. You know, it is it is a lot of cash.

In absolute terms in relative terms. It's it's relative to you know, you know.

A hundred million dollars a day in sales. It's it's not that much and some of it is is out the country and you know, it is a tremendous seasonality and our business as well. So we like being in a strong position. But you know again we we we we are mindful of of fear returned our shareholders and and the the internal and external opportunities that there may be in the market wage. Thanks. So with that. I think we we are going to close this first quarter call and we appreciate your your faith in amerisourcebergen. I must say that that is probably the most difficult decision that we have made since since I became almost nine years ago and met the management team is really try to persevere with these business, but it's and it's been a very difficult decision. Then we are of course especially conscious of the impact on our customers and and Arthur's

See it's who we are committed to treating with the utmost of respect and transfer.

Drinks and the key differentiators of amerisourcebergen which remain unchanged as I think Jim commented on so well in his remarks, so as we stand yet today commercially we have extremely strong customer relationships Partnerships and and leadership in key markets and services are culturally. We are a Purpose Driven organization that feels unite responsibility to create healthier Futures and amerisourcebergen are I can assure you as focused on creating long-term growth and value for all its stakeholders. And again, we thank you for your time this morning. I have a good day. Bye. Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day.

Thursday

dead dead dead dead.