Q1 2021 Amerisourcebergen Corp Earnings Call
Good day and welcome to the Amerisourcebergen fiscal 2021 first quarter earnings Conference call.
All participants will be in a listen only mode.
After todays presentation, there will be an opportunity to ask questions should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
Please note this event is being recorded.
I would now like to turn the conference over to Bennett Murphy Senior Vice President Investor Relations. Please go ahead.
Good morning, and thank you all for joining US for this conference call to discuss the Amerisourcebergen fiscal 2021 first quarter results I Am Bennett Murphy Senior Vice President Investor Relations and joining me today are Steve Collis, Chairman, President and CEO, and Jim Cleary Executive Vice President and CFO on today's call, we will be discussing non-GAAP financial measures.
Reconciliations of these measures to GAAP.
Today's press release and are also available on our website at Investor Day, Amerisourcebergen Dot com.
We have also posted a slide presentation to accompany today's press release on our Investor website during.
During this conference call, we will make forward looking statements about our business and financial expectations on an adjusted non-GAAP basis, including but not limited to EPS operating income and income taxes.
We're looking statements are based on management's current expectations and are subject to uncertainty and change for a discussion of key risks and assumptions. We refer you to today's press release, and our SEC filings, including our most recent Chinese cash.
Americans Bergen assumes no obligation to update any forward looking statements and this call cannot be rebroadcast without the express permission of the company.
I have an opportunity to ask questions. After today's remarks by management, we ask that you limit your questions to one 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.
Thank you Beth and good morning to everyone on the call.
<unk> Bergen has had a strong start chart fiscal 'twenty one.
We delivered exceptional results driven by differentiated from medical solutions with revenues of 52, and a half billion dollars for the first fiscal quarter, representing growth of 10% euro per year at all.
Adjusted EPS, increasing 24 per se versus the prior year quarter.
Building upon our business resilience, our teams executed and leverage our capabilities to create value throughout the supply chain.
Purpose, driven culture continues to empower our associates to think and act decisively.
All of our partners and to facilitate patient access to critical medical treatments.
In addition to these results as we announced in January we entered into a strategic transaction with Walgreens Boots Alliance to acquire the majority of it the largest health care business.
Dan and expand our existing distribution agreements.
As we have said these agreements are part of the next evolution of enhancing amerisourcebergen ability to deliver innovative solutions for our partners further bolt them on our platform to deliver key distribution capabilities and value added services to support patient access to new geographies.
Amerisourcebergen ongoing focus on patient access means providing innovative services and solutions to support our manufacturer partners and provide customers with a differentiated value proposition.
Well Korea for example is a highly sought after for its expertise in helping manufacturing partners navigate complexity on a global scale.
During the pandemic World Courier has proven track record as an international leader in specialty logistics have enabled us to support our customers worldwide.
The backdrop changing local restrictions limited air traffic and additional operational challenges.
We have been able to facilitate direct to patient services and global clinical trials and a time line both demand and complex. The all these services was understandably at its peak.
Similarly, we continue to support patient access to vital treatments for COVID-19.
Thanks to our robust suite of specialty distribution capabilities and our deep industry expertise, we are uniquely positioned to support our public and private partners at Amerisourcebergen is both honored and proud to be able to be part of the solution to help them preserve public health.
In the U S. We continue to be the distributor of antiviral and anti body therapies, which are playing an increasingly important role as more and more hospitalized patients are receiving these treatments to help them recover from COVID-19.
In Canada in the mall business is partnering with Fedex as a primary distributor for the Covid vaccine.
Our team at anymore is safely and securely storing the vaccines and as storage facilities across Canada and packaging them to support the temperature requirements specified by the manufacturer.
Amerisourcebergen scale and expertise in specialty as well as our culture of delivery collaborative and innovative solutions enable this important work.
We have spent years building on and enhancing our leadership in specialty distribution.
This continued investment in and focus on an important part of the pharmaceutical market continues to benefit both amerisourcebergen and our partners.
And over the last several months the ability of our sourcing and commercial teams to leverage our expertise in data analytics capability is foundational to our ability to play an important role in providing the specialty distribution solutions for Covid.
Related treatments.
We deliver there and differentiated value proposition for our partners in the U S health care system and continue to focus on building on our strength in specialty distribution as those capabilities continue to be even more important to all our customers.
Amerisourcebergen strong portfolio of customers is another important differentiator for us as it is an important driver of gross across our businesses.
Over the years Amerisourcebergen has made it a priority to have long term strategic relationships with manufacturers and providers that embrace and appreciate collaboration.
As we announced last month, we have agreed to strengthen our strategic partnership with Walgreens by extending and expanding our commercial agreements.
This extended and expanded partnership in the U S will allow us to create incremental growth and efficiency opportunities, enabling each of our enterprises to better serve our respective customers.
Teams from both our companies have already identified new opportunities for enhanced growth and efficiency in the areas of logistics transportation and distribution.
As we continue to realize improved capabilities derived from this partnership these initiatives will enhance our ability to create differentiated value for all of Amerisourcebergen customers.
One customer crude for whom we have consistently created new incremental value is our independent pharmacy customers, including a more than 5000, good neighbor pharmacy and elevate provided in the equip Memphis.
These independent pharmacies provide critical care for their communities and a fearless ness and adaptability as entrepreneurs have enabled them to rise to the challenges of the pandemic.
We are proud to have been able to support them with the tools they have needed to connect with their patients and keep them healthy.
We look forward to working as a network administrator on behalf of qualified eligible pharmacy network partners to support vaccination efforts in their communities. When we entered the broader inoculation phase you are in the United States.
In the animal health segment, our MW, our business has moved swiftly to deliver innovative solutions to help our customers succeed in the current environment.
These include ensuring that MW, our associates are accessible to our customers 24, seven and bolstering our customers' abilities to offer virtual services today, PRA clients, including innovative cloud communication solutions and home delivery services quality Medicaid.
Pet care products.
Amerisourcebergen long term focus on strong customer relationships leadership, especially distribution and manufacturer services and our continued ability to support innovation has solidified our market leadership and business strength over the years.
From this position of strength, we recently took a significant step to empower the next evolution of enhancing our ability to provide innovative and global health care solutions.
As we announced last month, we entered into a strategic agreement with Walgreens Boots Alliance to acquire the majority of its alive healthcare business.
Through this acquisition, we will extend our distribution capability.
New markets, adding debt rate and reach and strengthening our global platform manufacturer other value added services.
With expanded scale and added services, our combined business will be able to better support pharmaceutical innovation through our global footprint of broad leadership and local expertise, which further positions amerisourcebergen as the partner of choice.
The pandemic is high from both public and private partners awareness of the value of a strong and capable pharmaceutical supply chain and alliance healthcare's better positions amerisourcebergen to meet increasingly low nature as well.
As a global footprint expands so too does the importance of corporate stewardship, amerisourcebergen understands and appreciates the value of being a responsible enterprise and our recent initiatives, including continued to advance our talent and culture accelerating workforce diversity inclusion and free.
Good day, investing and supporting our associates.
We remain vigilant in our <unk>.
To protect the safety and wellbeing of our associates as the COVID-19 waves affect various regions and fees and the importance of the work we're doing remains unwavering.
Driven by our purpose, we are maintaining our enhanced protection and safety protocols and appropriately compensating front line associates.
Remote work is sold to providing policy for all suitable roles. We are watching the situation closely as I'm sure. If one of you are doing and will continue to prioritize the health and safety of our associates.
Underscoring our efforts to support and empower our associates around the world.
<unk> Bergen was recently certified as a great place to work company following their survey of employees around the world.
The survey revealed that our associates reported a consistently positive experiences with peers of mine leaders and in job responsibilities.
So high scores for all indicators and our overall score was significantly higher than the typical U S base Capex.
Additionally for the fourth year in a row the human rights campaign, it's great to have Amerisourcebergen as a best place to work for LGBTQ equality.
Warning.
<unk> score on the corporate equality index G, which are non discrimination policies equitable benefits supportive and inclusive culture and focus on corporate social responsibility.
Amerisourcebergen recognizes that business and personal importance of having a culture that is inclusive equitable regardless of race gender sexual orientation or gender identity and for veterans and people with disabilities as well.
Judas and we are accelerating our diversity and inclusion strategy should become even more diverse and equitable company over.
Over the past months, we have conducted a comprehensive DNI organizational assessment initiated a global D and our strategy to support a more measured and engaged work force.
Formed as Eni household they bought senior suite C suite executive and signed the CEO pledge for diversity and inclusion.
Which is a commitment to increase diversity and support more inclusive work environments.
Amerisourcebergen strives to ensure that our associates feel about part of a fair increase in transparent workplace a diverse inclusive equitable culture is a proven enhancer of business value and these initiatives will ensure that free has the rights programs and tools in place.
In the short term so that we can become a leader in this area in the longer term.
Our success in advancing our progressive culture, one that is fueled by the passion pride and dedication of our purpose driven associates is visually embodies our new brands, which we unveiled last week.
The new brand embodies the spirit of innovation with a design that is energizing confident and its foray well I'd also just like our unity as an enterprise when we go to market.
As we continue to move our business forward, we remain committed to advancing a differentiated culture that inspires our associates.
Sam and helps them develop and achieve full potential.
Our business strength is a direct result of having engaged passionate passionate and dedicated associates and our focus on advancing our talent and culture remains a key strategic priority.
In closing I wanted to take this path do you think all associates, we have continued to execute across our business to help us deliver innovative solutions to our partners.
As Amerisourcebergen continues to evolve we are empowered by our purpose and we will build upon our strengths to drive growth across a N a pos.
We will further strengthen our portfolio of solutions and customer relationships and enhance our specialty capabilities to support our upstream partners and downstream customers.
We continue to focus on execution and supporting innovation.
And enable positive outcomes cloudy for facilitating market access and supporting pharmaceutical innovation.
I continue to be inspired by proud off and confidence in us right.
Who rise to the many challenges and complexities that we face with courage and effectiveness.
Being United in our responsibility to create healthier futures amerisourcebergen purpose, driven and well positioned to create long term sustainable growth.
Now I'll turn the call over to Jim for a more in depth review of our financials Jim.
Thanks, Dean and good morning, everyone. My remarks today will focus on our adjusted non-GAAP financial results unless otherwise stated.
Growth rates and comparisons are made against the prior year December quarter for a detailed discussion of our GAAP results. Please refer to our earnings release.
As Steve mentioned, we clearly had a strong start to our 2021 fiscal year with growth across our businesses as I said back in November we entered fiscal 2021 with strong momentum and that clearly accelerated in the quarter as our teams executed.
<unk> the entire portfolio of Amerisourcebergen businesses.
Guided by our purpose our teams worked diligently to support pharmaceutical innovation and facilitate patient access to vital medications.
<unk> per against key Differentiators continue to provide a platform for value creation for all our stakeholders, helping provide key solutions for our partners, both upstream and down to ultimately ensure patient health and wellbeing throughout my tenure with Amerisourcebergen I have shared my price.
And being part of a company that is driven by purpose focused on execution and unwavering in our efforts to strengthen our associate experience our associates power our success and Amerisourcebergen continues to protect support and investing in our talent.
Turning now to discuss our first quarter results I will provide commentary in two main areas. This morning first I will review, our adjusted quarterly consolidated results and our segment performance second I will cover the upward revision to our fiscal 2021 guidance.
Beginning with our first quarter results, we finished the quarter with adjusted diluted EPS of $2.18, an increase of 24% primarily due to exceptional operating income growth across our businesses.
Our consolidated revenue was $52 $5 billion up 10% driven by revenue growth in both the pharmaceutical distribution services segment and other which includes our global commercialization services and animal health group of businesses.
Gross profit increased 15% to $1 $4 billion driven by increases in gross profit in each operating segment in.
In the quarter gross profit margin increased 12 basis points from the prior year quarter. This gross margin improvement is due to growth in a number of our higher margin businesses and in particular, a significant increase in sales of specialty products the margin improvement.
Also due to the gross profit portion of the tailwind related to exiting the <unk> business and Additionally, a reversal of reserves taken in the back half of fiscal 2020 associated with forecasted inventory value write downs that did not materialize.
If our medium comparison and the inventory write down reversal contributed one third of that 12 basis points gross profit margin improvement.
Consolidated operating income was $617 million up $122 million or 25% compared to the prior year quarter.
This increase was driven by the increased gross profit in both the pharmaceutical distribution services segment, and our global commercialization and animal Health group, which I will discuss in more detail when I review segment level performance.
To support our revenue growth, while protecting supporting and appropriately compensating our frontline associates operating expenses grew 8% to $810 million operating expenses as a percent of revenue was 1.54%, which is a two basis point decline.
From the prior year quarter.
Moving now to net interest expense, which increased $3 million at $34 million, primarily due to a decrease in interest income, resulting from a decline in investment interest rates.
Our effective tax rate was 22% up from 21% in the first quarter of fiscal 2020.
Our diluted share count declined modestly to $206 8 million shares.
Regarding free cash flow and cash balance our adjusted free cash flow was $838 million in the first quarter. This strong start to the year on cash flow.
<unk> well after the first quarter and we are on track with our adjusted free cash flow guidance for the year.
We ended the quarter with $4.9 billion of cash of which $1 1 billion was held offshore.
This completes the review of our consolidated results now I will turn to our segment results.
Beginning with pharmaceutical distribution services segment revenue was $50 $5 billion up 10% driven by increased specialty product sales, including COVID-19 therapies as well as growth in some of our largest customers and broadly across our businesses.
Segment operating income increased about 27% to $496 million with operating income margin up 13 basis points.
As a reminder, the exit of our many investments represented a $20 million tailwind to the segment's operating income roughly half of what you think gross profit and the other half an operating expense.
Excluding the foreign medium tailwind segment operating income growth would have been up 20% net.
Strong operating income performance was driven by continued positive trends across our robust portfolio of customers and broadly across our businesses and in particular, a significant increase in sales of specialty products.
Amerisourcebergen leadership in specialty distribution led by the specialty physician services group and our capabilities in supporting specialty sales into health systems continues to provide us the platform to deliver differentiated value for our partners through our scale reach and expertise.
In the quarter, our specialty physician services group continued its strong growth as practices are prepared operationally to continue to treat their patients throughout COVID-19 challenges.
Additionally, our health systems business.
Significant growth as we're helping to facilitate vital access to anti viral and antibody therapies for COVID-19 patients.
The fundamentals of our health systems business overall continues to be strong, particularly as we are now also seeing increased biosimilar utilization in this customer segment.
While the Biosimilar utilization continues to be strongest and most impactful on the specialty physician side, we are encouraged to see growing adoption trends and health systems.
I will now turn to the other segment, which includes businesses that focus on global commercialization services and animal health, including World Courier, Amerisourcebergen consulting and M. Wi.
In the quarter total revenue was $2 $1 billion up 11% driven by growth across the three operating segments.
Operating income for the group was up $17 million or 16%, primarily due to growth at MW line World Courier and <unk>.
W. I S benefiting from ongoing process initiatives and the strength of its customer relationships, particularly in the companion business, where veterinarians are benefiting from increased pet ownership, increasing standards of care and adapting well to virtual engagement and limited physical interaction.
World Courier has continued to differentiate itself as the provider of choice and global specialty logistics as they are commercial customers navigate increased complexity.
Need for cell and gene solutions gross and there is an increased utilization of direct to patient capabilities.
Additionally, I would note the world Courier's growth rate in the quarter was augmented by foreign currency exchange rates.
This completes the review of our segment results. So I will now turn to our fiscal 'twenty 'twenty one guidance.
This updated financial guidance does not include any contribution from the proposed alliance healthcare acquisition announced in January 2021.
As I've just outlined Amerisourcebergen delivered exceptional growth in the first quarter and continues to expect positive trends across our business as we move further into fiscal 2021.
Therefore, as we said in this morning's press release, we are raising our fiscal 2021 adjusted EPS guidance.
From a range of 825 to 852, our new guidance range of $8 40 to $8 60.
Reflecting growth of 6% to 9%.
We are also updating other financial guidance metrics for fiscal 2021.
Revenue is now expected to be in the high single digit percent growth range as we have seen better than expected growth in both pharmaceutical distribution services and other net.
Net operating expenses, we now expect operating expenses to grow in the mid to high single digit percent range, we remain committed to investing in protecting and ensuring the safety and wellbeing of our associates, especially those on the front lines.
Turning now to operating income.
<unk> now expect to grow operating income in the high single digit percent range. This is a result of raising our pharmaceutical distribution operating income guidance to the high single digit range given the significant operating income growth in the first quarter and continued overall positive trends across.
The business.
It also reflects our improved expectation for operating income and other which we now believe will grow in the mid to high single digit range.
As a result of positive trends in our global commercialization and animal health businesses.
Lastly regarding shares outstanding given the cash needs associated with the alliance acquisition, we are narrowing our guidance from a range of 206 $207 million and we now expect to finish the year around 207 million shares outstanding.
All other financial guidance metrics for fiscal 2021 remain unchanged.
Regarding our fiscal second quarter EPS expectations, while we.
We did not provide quarterly guidance I will note that the March 2021 quarter will be impacted by a tough comparison to the March 2020 quarter, which had a significant pull forward of sales associated with increased customer purchases at the onset of COVID-19.
In closing.
Our strong customer relationships.
Cash on execution excellence and commitment to innovation will continue to drive our business forward, while enhancing our capabilities to serve our partners and their patients Amerisourcebergen is well positioned by our key Differentiators and we are excited for housing Alliance healthcare acquisition.
Well build on our pharmaceutical centric strategy, expanding our reach and further strengthening our global platform for value added services and solutions.
Our work around the acquisition remains on track and we look forward to welcoming the alliance health care team.
These past several quarters have proved the importance of pharmaceutical innovation and access and I have spoken in great detail about the resilience of Amerisourcebergen business.
Clearly our results and expectations show that the word resilience understates the strength of our business as our purpose driven teams are leveraging our capabilities and expertise to provide important value added solutions to help contribute to positive patient outcomes globally.
We are making positive contributions to the people planet and communities, where we live and work by being a responsible business and in our upcoming global sustainability and corporate responsibility report, we will be providing an update on our commitments in these areas to show how our business practices are line.
With many of the leading global sustainability frameworks.
We know that by doing business thoughtfully and with long term perspective, Amerisourcebergen can drive sustainable growth, while creating value for all our stakeholders and fulfilling our purpose of being United in our responsibility to create healthier futures.
Thank you for your interest in Amerisourcebergen now I will turn the call over to the operator to start our Q&A.
Operator.
We will now begin the question and answer session. You ask a question you May Press Star then one on your Touchstone zone.
You are using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
The first question today comes from Glenn Chin Tangela at Guggenheim Securities. Please go ahead.
Oh, yeah, Thanks, and good morning, and thanks for taking my question Tim.
Tim I just wanted to follow up with you on the guidance, it's kind of hard to reconcile all the moving pieces in the fiscal 'twenty one guidance raise.
Raised the guidance last month, when the company announced the Alliance Health care acquisition and now you're raising it again today with these better than expected <unk> results. So could you maybe help us think about maybe what has changed from the beginning of the fiscal year.
Into consideration some of the incremental COVID-19 related benefits you called out standard release in your prepared remarks.
Glen Thanks, a lot force for the question, Yeah, I'd be happy to talk about guidance and some of the moving pieces and first of all I will say that of course, it's early in our year and at this stage I'm. After the completion of our first fiscal quarter, we've done a healthy increase to guidance versus our original guidance in November were up.
20, <unk> at the lower end of guidance and up 15 cents at the higher end of guidance and this is really due to the fact that we're seeing positive trends across our businesses and really strong execution across the business, both in pharmaceutical distribution and commercialization and animal health and some of them.
Positive trends that we're continuing to see and pharmaceutical distribution include continue.
Continued very good performance in specialty physician services.
Very strong performance also and health systems, including the distribution of Covid treatments, we're seeing strong biosimilar growth in Q1 in both specialty physician services and the health systems and very good growth at some of our largest customers and broadly across our businesses and then commercialization services and animal health.
We're seeing strong growth in <unk> and World Courier with continued positive trends and so as we think about guidance beyond. These overall positive trends that I've mentioned, just now and in my prepared remarks. There are also some noteworthy moving pieces to callout related first of all to the exit of <unk>.
And we had our final tailwind in Q1 of $20 million tailwind related to the exit of farm income in Q1, which of course doesn't repeat in future quarters. We also had which I mentioned in my prepared remarks, the inventory write down recovery in Q1 and that was a 10 million dollar benefits to GP in Q1, which of course doesn't repeat.
In future quarters, and then also in <unk>.
Q2, we began to lap the significant year over year growth rates related to biosimilar utilization and so the contribution to operating income while continuing to grow from biosimilars, but not at the same rates. We saw in the last three quarters of fiscal 'twenty or the first quarter of fiscal 'twenty one.
And then also a key point with regard to our guidance assumptions and our guidance assumes that our sales have COVID-19 therapies will be significantly lower for the balance of the year than they were in the first quarter and.
Particularly during the second half of fiscal year.
Regarding opex, we are starting to compare to the part of the fiscal year that had notably low expenses, particularly in the second half of the fiscal year and as Youll recall, we called out in fiscal 'twenty, particularly in the back half of the year that last year, we benefited from lower opex growth associated with lower health care costs.
And travel and then finally Glenn.
Glenn there's a couple of things below the operating income line, we assume in our guidance that at the acquisition debt for the <unk> acquisition has issued a few months before closing the acquisition and we have associated carrying cost and then also importantly, there is no share repurchases in our guidance as we pair prepay.
For the acquisition so.
Overall, I would say that we.
We feel very good about the increase in guidance the fundamentals in our business are strong as evidenced by the excellent Q1 results.
Done a good increase in guidance, particularly given the fact that it's early in the fiscal year.
Your next question comes from Eric Coldwell of Baird. Please go ahead.
Thanks, Jim first before my question I, just have to say you've you've raised guidance here for the second time in a month and and then you tell us a seven things that are headwinds. So I'm I'm sure. The underlying performance has to be pretty fantastic. If that's the case or at least headwinds for the rest of the year I guess, we would call it I am.
I'm really interested you've talked a lot about patient access and our manufacturer services and I think in the past the street, perhaps thought that was maybe a bit more lip service than it really is I mean, we're seeing it with these $2 billion revenue beat in a quarter with low scripts and low cough cold flu season, you've talked a lot about COVID-19 therapies and I know.
<unk> had several exclusive deals with manufacturers.
I'm curious if you could possibly quantify the revenue impact and maybe even the margin impact if youre willing to go that far on.
The antiviral and antibody distribution to health systems that you've highlighted a few times today.
Sure.
Absolutely and first of all thank you for your positive comments on the quarter, yet the fundamentals of our business and the execution and the performance of our businesses have been.
Strong with regard to the impact of Covid therapies.
Approximately 12 cents of EPS in the first quarter is due to the net impact of Covid and this reflects the important work we're doing distributing COVID-19 therapies.
It also includes elevated expenses associated with things like associate bonuses for frontline associates kind of cleaning costs are payroll ramp, which represents things like <unk> pay overtime and temporary help and that the expenses that I, just described where a couple of pennies.
During the quarter and are included.
And the 12 cents of net benefit to EPS during the quarter that I just mentioned.
And I think one important thing to call out is that our guidance does assume that our sales of COVID-19 therapies will be significantly lower for the balance of the year, particularly in the second half of the year, but.
But in summary, the net net debt during the quarter was 12 cents of EPS.
Yes.
Our next question comes from Lisa Gill of Jpmorgan. Please go ahead.
Hi, Thanks, very much and good morning.
Great quarter, as well and debt.
We think about just a couple of moving parts.
I just wanted to stand.
The relationship with Walgreens.
Generally when you have a contract that renews.
And then you extend the length of that day.
Some amount of pricing or get something else up.
Is there anything attached to this new extended relationship with Walgreens as we think about what the margin structure of the overall business what look like going forward.
Question, and then secondly, I just want to understand underlying.
<unk> trends you talked about.
Selling into the March quarter that there were some things that were pulled forward a year ago, but but what have you seen here.
The first months of the March quarter around general utilization and how do we think about cough cold and flu impact on your business.
I'm Amit.
Thanks for your comments I'll take the first question on wind I won't get a question if I don't answer this time.
Given all that.
Got it.
Right.
I just think.
We should go back to the 2013 deal and it was really a remarkable deal that in many ways changed our industry.
That of course was a key feature in that there was a big change in our industry and we were able to get much more competitive pricing for a generic but also the way we structured the distribution agreement with taking on the generics of Walgreens, which I think it's been a terrific benefit to not only walgreens to ourselves it off our scale and leverage and also.
Broad again more competitive pricing to our customers. So the way we see it that up was really brilliant thinker and vary.
Stood the test of time and.
The agreement has self regulating mechanisms.
It's still working through 2029, which this next phase of our contract will go through we took into account changes in brand mix. Many areas like that so we you know we didn't really have to make the adjustments because the market mechanisms already in price.
And then the second part of your question I believe Jim was going to answer yes.
Part of the question was on utilization.
I will say on the with regard to the Walgreens relationship. We are really excited also about expanding the agreement and all the initiatives that we are going to be working on with Walgreens with regard to growth and efficiency.
Things like sourcing logistics and distribution and the potential synergy that we have targeted there and then on utilization.
Not really calling out anything on January at this point, we're still in the first few days of February but.
Comment then on the first quarter and the.
And the first part of the year, we really really saw.
Very strong fundamental trends throughout our businesses many of which we talked about in the prepared remarks, and that's what I'm really focused on and we've really focused on at the company is.
The sales data and sales trends in our businesses and probably given R. R.
Our strengthened specialty you know clearly we've seen them.
Strong trends in specialty physician services and strong trends in our health systems, but I'll also say just broadly across our businesses. We saw good volume and profitability trends across our businesses in both pharmaceutical distribution and our global commercialization services and Anna.
Ill health businesses.
Yeah. Thanks.
Your next question comes from Robert Jones of Goldman Sachs. Please go ahead.
Hey, this is Kevin on for Bob This morning, Thanks for taking the question.
I just wanted to in the other segment growth was obviously pretty strong they're coming around like 17% I think year over year.
I know you guys talked about the overall COVID-19 impacted fault zone wanted to know if any of that can be attributed to the other segment and then just as we're looking out over the balance of the year guidance is calling for growth somewhere south of that I know you have a somewhat easy comp in fiscal <unk>. So anything just on the cadence over the course of the year and what might drive that sequential deceleration.
So it would be helpful.
Sure So with regard to the other segment, yes, we did have.
Very strong quarter with revenues up 11%.
Operating income up 16% and <unk>.
You'd asked about the impact.
But on the other segment is really call. It probably the one thing I'll call out is that it's been an opportunity from world Courier really to prove its value to our manufacturer partners.
With things like direct to patient capability and with things like Jetstar and best in class solutions from being able to help manufacturers navigate.
Navigate the complex environment for global logistics that has become more complex and the COVID-19 environment and so COVID-19 has enabled world courier tip to really show.
Yes.
Yes.
Value and then I think the second part of your question had.
It has to do with the guidance and we've really kind of gone through.
Our guidance in our prepared remarks, and the first question, but I guess, you've talked about cadence and so the one thing that I'd just re emphasize is so if we look at cadence for the year, we had a particularly strong quarter in the March quarter.
Fiscal 'twenty as there was a.
Pull forward of sales during the month of March with the onset of Covid and so that makes the March quarter of 'twenty, one a little bit tougher comp.
Your next question comes from Ricky Goldwasser of Morgan Stanley.
Yes.
Yeah, Hi, good morning, and congrats on the quarter.
So I'm thinking about kind of like a vaccine and I understand that youre doing kind of like outside the U S. Not yet in the U S, but well how do you think the market is going to evolve and what could be the opportunities for you, especially as the thing we're waiting for the J&J vaccine approval.
Could change some of the access point.
In the marketplace. So how do you think about your potential role there.
Yeah, Hi, Ricky Thanks for the question.
So.
I actually was on a couple of calls out her doctor fashion speak loss not we had Dr. Gottlieb has a case that being cloud commercialization summit and of course, we are all fixated on this end.
I do believe that the U S is going to get tremendous amounts of supply in the next couple of months.
And the pharmaceutical distribution is highly efficient and sophisticated kind of risks of debt when people point to.
Any any impediment to vaccination is distribution and it's just such a misnomer.
We believe that people will get.
Are there patients.
The project will not be a problem as the U S. This quarter.
Procreate infrastructure to ensure accurate tammi delivery outlets as you appreciate that and then the U S. We have seen that this really enhances erode a distribution and supply chain.
As the whole Covid pandemic has really slows the importance and we like to talk about companies like Amerisourcebergen being invisible pillar of innovation and I think thats very true without us getting the products to market and the excess that we talk about so much has been will not be as efficient as it is we are doing the distribution in Canada.
Of course candidate sourcing product from Europe.
We are proud of that role and also proud that out.
We'll Korea business is doing some very complex logistics.
We heard again at the Big Cloud Summit Harrowing story of Norway, where we had to charter a boat to get us from products to remote island before it expired. So this terrific story as I am sure that everyone involved in this unique logistics and distribution challenges has got great stories to tell.
Moreover, I would just say our future a large company and of course, we'll let them talk about it is also playing a role in vaccine distribution. So a b C. As.
It is well positioned to be an essential provider for logistics and distribution.
Thanks.
The next question is from Eric Percher Nephron Research. Please go ahead.
Thank you, Steve maybe I'll ask you for some insight on distribution to the hospital channel has the gross been dominated by the Gilead and Lilly products, where you had.
Talked about exclusive publicly or are you seeing additional products and I think it's hard it's hard to track product demand in the hospital channel, but we certainly can track the number of hospitalizations for Covid. So has this been more therapies adopted or has it been simply about the number of hospitalized.
No.
They had to have been about five or six EUA products payment dropped.
And we are playing a prominent role in almost all of them because of the unique capabilities that amerisourcebergen has on data reporting.
We have every hospital in the U S. Just about registered as a customer and you know in the licensing and then just stability with limited supply.
I'm president of demand and really waves of demand.
Two quota share them at our competitor they use the non linear and so.
Just based on patient inputs and.
So it's been it's been a quad.
Jordan Reed the role that we played in.
You will see that of course fluctuates from quarter to quarter and Jim has spent a lot of time exciting day.
But you know the therapies are important and we hope that we hope that there won't be as much in demand as they were in the first quarter. So thanks.
The next question is from George Hill of Deutsche Bank. Please go ahead.
Hi, This is Charlie on for George Thanks for taking my question can you expand more on what drove the gross profit margin expansion in the core drug segment, given the growth, especially in branded generic conversions, we would've expected margin expansion. So if you could just provide any color there.
Yes, sure, Yes, we did see.
See very good.
Margin performance during the during the quarter and as I said margins were up.
15% or.
Or 12 basis points, and let me kind of go through some of the things that drove that one was.
Increased specialty product sales at both specialty physician services and health systems are really in both specialty physician services and health systems debt, including Biosimilars, but as we've talked a lot about and health systems that also included.
COVID-19 treatment and so really kind of zone that was one of the drivers of bar.
Increased gross margin during the quarter and we continue to see the positive trends and Biosimilars, but of course as we commented on.
We began to see significant utilization of Biosimilars in the second quarter of fiscal 2020, we.
We start to lap that significant year over year comparison difference now in sales will continue to see growth in biosimilars, but perhaps at a lower rate and other things that helped our margin getting back to your question and we are seeing growth overall in our higher margin businesses sales specialty physician services, we've talked about <unk>.
<unk> and World Courier are also higher margin businesses growth in those higher margin businesses.
Adding to our gross profit and then the other thing that I called out.
Exiting the farm medium business helps our helped our gross profit about half of net benefit within GP and the other half in Opex. So that helped our gross profit and then the reversal of the inventory write down reserve that I mentioned that also helped our gross profit during the quarter. So they were in.
Number of different things, but really the debt.
The performance of our businesses was excellent and our performance.
Of our higher margin businesses was particularly strong during the quarter.
The next question is from Charles <unk> Cowen. Please go ahead.
Hi, This is James on for Charles.
You know you've noted strong performance in M, Wi and World Courier, which drove other operating profit growth.
But can you talk more about maybe how the consulting services business is performing in the quarter and some of the dynamics that you're seeing in that business.
Yeah.
Consulting business.
Continues to perform well, it's an important part of our business our last business and our extended business at the last business for instance, we're really kind of fully into <unk>.
Rolling out fusion and rolling out fusion is going well and we view that to be a nice a nice competitive advantage for us and so our consulting business is are are very important businesses to us.
Really important manufacturer services thinks that they will have good synergies with some alliances manufacturer services business. So we look forward to that.
Collaboration and and.
And so over overall.
Our performance there.
Yes.
As expected.
<unk> continues to be Super important part of the company just didn't grow as fast during the quarter as the Mwr World Courier businesses.
As I said think low commercialization summit was held this week, it's the first virtual Wan and really all we took our core businesses and focus on emerging trends like cell and gene therapies.
And reimbursement issues co pay accumulators.
Service issues at all foremost day manufacturers minds and I have to tell you I I had to stop this thing to the other drag myself away from this thing because it was such compelling content that we were able to provide.
We have such excellent people that understand the manufacturer side and understand that the commercialization process product life cycles emerging trends on innovation.
Really just I couldnt be more proud of the way that our people showed up in this conference and I look forward to seeing the rest of it because.
It really amerisourcebergen expertise you think of the work that we will Korea does its remarkably complex.
And we do it so well and we have such outstanding people and we've displayed leadership in this area for many years as we have at lash and so many of our other commercialization businesses.
Thanks for the question.
The next question is from Steven Valiquette of Barclays. Please go ahead.
Hi, Thanks, Good morning, everyone. So just wanted to check the box just on the brand pricing and generic price thing in early calendar 'twenty one.
Guessing that brand pricing, maybe it's been in line with our expectations on the generic side and a little bit of a bump up in actual price increase activity a bit curious if that's something that caught your attention or you would also characterize just overall generic pricing is kind of in line with your prior views just a little more color there would be great. Thanks.
Yes.
Sales for both in line with our expectations brand and generic pricing are trending.
In line with the original expectations, we had for the year you add.
Asked about generics we saw.
Generic deflation.
Moderator, Ed and fiscal 2020, and there was a leveling off at the end of the fourth quarter, but still in general range that we experienced throughout the year and debt, we're expecting similar levels of generic deflation in 'twenty, one that we sign.
2020, so I think that both are trending in line with our expectations.
Our next question is from Joe and Jonathan of Credit Suisse. Please go ahead.
I actually wanted to build a dollar per bit more into Europe, and the Blue Eyed business, maybe can you parse out some of the trends you saw in the quarter as well as more recently and when it comes to both production and companion market. What are your expectations for the remainder of fiscal 'twenty. One in terms of getting back to pre COVID-19 levels from production bucket and the degree of spin.
So do you expect in companion help us to give more color there. Please.
Yes first of all I'll save it correctly that the execution of our animal health business was just excellent during the quarter, whether it be revenues GP Opex part banks, just really strong execution and customer service and customer focus by the team.
The gross in the quarter really came from the companion animal market, which is which is very strong right now.
Production animal market has been more impacted by the Covid environment, but we feel very optimistic about the underlying strength and future of both the companion animal and production animal market.
The next question is from Kevin Caliendo of UBS. Please go ahead.
Hi, Thanks for taking my call.
I hate to bring up opioids, but just wanted to given that one of your competitors also reserved it does seem like we are very close to the end here.
Not going to ask you for specific timing or anything like that but how.
How should we expect given what you know now a settlement to look like in terms of.
How you would pay out lump sum or extended over the 18 years sort of what's your expectation of how a settlement if and when it's done we would hit your balance sheet and cash flows.
Yeah.
Continue to see progress in our discussion with the various parties. We did record an accrual at the end of our fiscal year September year end.
As we believe the liabilities estimable unprofitable.
Even ongoing discussions we really are limited in the comments. Unfortunately, we can make.
Thanks My understanding.
And with that I'm going to close out today's call I couldnt be more proud of the execution in the last quarter.
Proof that Amerisourcebergen continues to utilize our scale capabilities and expertise to deliver differentiated solutions for our partners our strategic focus on pharmaceuticals long history of leadership in investment in specialty and strategic partnerships with customers and manufacturers continues to be.
Foundational to our success.
As we look ahead with excitement for the opportunity to build on our differentiated platform with the large transaction I continue to be inspired by internal focus on advancing our talent culture and workplace. We are powered by our associates and guided by our responsibility to create healthier future futures.
Thank you for your common attention today.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.