Q3 2021 Amerisourcebergen Corp Earnings Call
Good morning, and welcome to the mayor of source Bergen third quarter of fiscal year 2021, The earnings conference call all.
All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After todays presentation, there will be and opportunity to ask questions.
Please note this event is being recorded.
I would now like to turn the conference over to Bennett Murphy head 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 2021 third quarter results I'm bedroom or the senior Vice President Investor Relations. Joining me today are Steve Collis, Chairman, President and CEO, and Jim Cleary Executive Vice President and CFO of today's call, we'll be discussing non.
Non-GAAP financial measures reconciliations of these measures. The GAAP are provided in today's press release, which is available on our website at Investor day at Amerisourcebergen Dotcom.
We have also posted the slide presentation to accompany today's press release on our Investor website. During the conference call will be forward looking statements about our business and financial expectations on the adjusted non-GAAP basis, including but not limited to EPS and operating income and income taxes forward looking statements are based on management's current expectations and are subject to uncertainty and.
James Byrne discussion of a few rest of it does and to refer to today's press release, and our SEC filings, including our most recent 10-K Americans Bergen assumes no obligation to update any forward looking statements and this call cannot be rebroadcast without the express permission of the company.
You'll have an average you to ask questions. After today's remarks by management and we ask that you limit your questions to 1 per participant in order for us to get to as many participants as possible within the hour with that I'll turn the call over to Steve.
Thank you Bennett and good morning to everyone joining us today before we discuss our results for the quarter I wanted to comment on the distribution industry. The recent milestone regarding the proposed settlement agreement.
Opioid related claims of UA.
The state attorneys generals and.
Political subdivisions and participating.
Throughout the litigation process, we have been consistent and steady our desire to address the enormity of the opioid challenge by bringing solutions to the title the.
Industries proposed agreement and settlement process leads to a final settlements and would collectively provide thousands of communities across the United States with substantial financial support.
Many of the process.
And advanced stage, and we will not coming and deeply at this time.
We take our role and the supply chain seriously and continue to work closely with stakeholders concerning the complex matters.
The Amerisourcebergen will continue to work diligently and alongside partners to combat drug diversion, while supporting real solutions to help address of the process and the communities, where we live work and so.
Turning now to our results for the third quarter of fiscal 2020.1.
Amerisourcebergen and delivered yet another quarter of exceptional results driven by a high level of execution purpose minded team members and continued focus on delivering differentiated value and.
As we announced earlier this morning, we had revenues of over.
The $53 billion representing growth of 18% from the same period last year and we grew adjusted EPS by <unk> 17 per se.
Over the year.
These results reflect continued strong performance across amerisourcebergen businesses as we capitalize on our differentiated pharmaceutical centric value proposition and as our team successfully execute on our key strategic initiatives.
The strength and execution continue to create value for our shareholders and today, we are again, raising our fiscal 2021 full year guidance, which Jim will discuss later in greater detail.
I will focus my remarks today on the key strategic pillars that are driving our strong performance as well as how with the addition of alliance healthcare Amerisourcebergen continues to be well positioned to great value for all our stakeholders and.
<unk> Bergen remains nascent market.
And we are focused on continuing to enhance our ability to provide global health care solutions as we support pharmaceutical innovation and access both in the United States and internationally.
And the United States of pharmaceutical distribution business continues to benefit from our industry, leading customer relationships, our leadership and specialty distribution and commercialization services and strong and market trends, including an early and any space of return to pre COVID-19 and prescription.
The nation trains and the June quarter.
Our leading customer base includes our good neighbor pharmacy, and elevate provided the input Memphis and they are proving day and community pharmacies are at the forefront of providing quality and equitable.
And maintaining deep levels of trust with the of patients and communities.
In fact for the fifth year in a row. Good neighbor pharmacy was ranked the highest amongst brick and mortar chain drugstore pharmacies by J D. Power. This is the <unk> com, we have received debt on that and the past 12 years and it is a testament to community awareness of the value of the quanta.
The U K and experienced patients receive at GMP member pharmacies.
We held our annual and fourth spot conference last week, and I was attached and inspired by the stories that our members share it.
Through the entrepreneurship expertise and deep community roots community pharmacies crude and they do more than just bolt prescriptions and they are critical promoters of health equity across the U S often going above and beyond to provide the holistic Kay and health education and.
At the local level, particularly in and the resource communities.
Since the beginning of the pandemic community pharmacies have Steven plc to meet the unprecedented challenges of the global health crisis and show the World what community pharmacies are integral to our communities.
The value proposition of community based case has never been clearer.
And now the relevant example is on the animal side and the growth and paint ownership has increased demand for our basic nearing customers as pets are of cherish part of the family and the care of a bit and the area and provides ease value and.
This positive trend over the last year has long term benefits for our business and.
And Wi is well positioned with key anchor customers and services.
On the human health side access to local and trusted expertise K remains vital, particularly for the always dealing with complex health challenges that bring them into the care of specialty physician providers.
And as I've said from the onset of the pandemic, we are conscious of the negative impact that the restrictive measures have on patients when they have less access to screenings and tastes and health doctors identify serious health issues.
This is particularly impacted patients who are new to a doctor or health campus and Eddie but now the customers have the guidance you see a normalization and new patient trends and as a result patients on more effectively being diagnosed and gaining access to treatment.
This is the air positive for patient day.
As the leading provider of specialty distribution and commercialization and services. We will continue to play our role in supporting pharmaceutical innovation and access as patients visit volume is continues to normalize.
Our specialty physician services business had strong performance this quarter and continues to differentiate amerisourcebergen with leading value added services, such as those free opposition GP OS and.
Additionally, biased and this continue to be of positive for our customers and our business and the health care system overall and as they provide room for new innovative products to come to market the.
Innovations in car T and cell and gene therapies and the potential applications of the new am RNA technology offer the medical community new potential tools and the treatment of serious diseases and previously alluded truly effective kit.
Amerisourcebergen is well positioned to support all of these innovations through our specialty distribution and manufacturer services offerings.
Our unique ability to provide value added expertise in conjunction with innovative solutions and quantity of service enhanced our partnerships and grow our business.
With strong partnership.
Licensure and of leading portfolio of solutions to support a wide path line of practices and products Amerisourcebergen is uniquely positioned to capitalize on the market opportunities provided by global pharmaceutical innovation as we drive growth and our business and help our part.
And the tackle some of the most critical challenges facing health care.
We have a strong foundation in place across our businesses and in June and we took another significant step forward by closing the line healthcare transaction and welcoming the talented team to the Amerisourcebergen the family.
The acquisition of Alliance healthcare is the next evolution of enhancing our ability to provide innovative and global health care solutions and ease of critical components chalk future second phase.
Alliance healthcare is a strong and diversified pharmaceutical distribution and manufacturer services company with leading market positions across an attractive portfolio of both the established European markets and high growth emerging markets.
In addition to the traditional wholesale business.
And health care operates a range of leading higher margin innovation businesses, serving both upstream partners and downstream customers.
The acquisition of alliance healthcare and extend our distribution reach and bolt on our market, leading services capabilities and expands on our key differentiators and specifically amerisourcebergen and leading portfolio of key anchor customers now and creates a long term.
And relationship with boots in the UK and the network of independent pharmacies across Europe through the al failure Pharmacy network.
Since the completion of the transaction, we have gotten the chance to know about the business and the people and a line health came back and we remain very positive about the opportunity that does that Mark achievement provides amerisourcebergen as we are positioned for a differentiated global growth.
Tackle.
This includes our dedication to further strengthening our portfolio of solutions and customer relationships to lead with market leaders in every segment and to supporting patient access where ever of prescription is needed.
Second Amerisourcebergen to leadership and specialty is further enhanced with key commercialization services and new markets.
By leveraging the expertise and capabilities of our world Courier business, along with the lines is a lager and alterra, we elevate our ability to be a differentiated solution provider.
Global manufacturers as they develop and commercialize pharmaceuticals around the world.
This is complementary to the solutions that we provide at world Courier, which continues to play a key role and providing global specialty logistics true growth traditional commercial offerings and direct to patient clinical trial capabilities.
We remain dedicated to expanding on our leadership in specialty and to enhancing our capabilities to support global pharmaceutical innovation.
And third Amerisourcebergen and focuses on delivering based and cloud services and efficiency and this transaction enhances our ability to divert innovation solutions that are fundamental to our success operationally and commercially.
Our innovative mindset means that we embrace advanced technologies data and analytics and now we can further support positive outcomes through our expanded global platform.
This fiscal quarter, we were selected as the industry. Neither award winner and the 2021 day safety Innovation awards for our work and developing a safety advanced track and trace for pharmaceuticals.
This technology tracks of millions of daily shipments at the back of stable and further strengthens the pharmaceutical supply chain and the U S.
The value of a resilient and sustainable global pharmaceutical supply chain is vital and the ability to support pharmaceutical and innovation through our global footprint with broad leadership and local expertise provides differentiated value for our partners and.
<unk> Bergen and stakeholders recognize the value we create the importance of our purpose and the critical nature of the service and the infrastructure that we provide.
Fourth of.
Amerisourcebergen continues to bulk of upon our history of corporate stewardship, which focuses on advancing our people and culture protecting the company's financial health and ensuring the long term sustainable value creation.
Well the line is healthcare.
And even more global and diverse company and we are committed more than ever to advancing the value of our talent and culture.
Over the past year, we have invested in enhancing our tenants and diversity and inclusion strategy to enable more growth opportunities within our increasingly inclusive workplace.
We recently launched our executive leadership initiative to extend range and board Smith and ongoing success of high potential black Hispanic and Latin ex team members at the <unk>.
Net and senior enables addressing the most pronounced leadership and representation gaps identified over the last several months following based and clause of the surge based approaches and.
And the future we plan to provide dedicated development opportunities for high potential employees of additional underrepresented groups investing in our leadership development and talent and culture is important to our long term sustainable growth, which is supported by the booth and increase of teams.
This focus is important to ensuring we capture the value of oxalate the differences and reflects our social commitment as we continue to strategically focus on delivering on all the elements of ESG.
Our ESG strategy is foundational to Amerisourcebergen and our leadership, our board and our people reason.
The recently Amerisourcebergen joined the science based targets initiative as we continue to la and our business with best practice organizations around the world.
At the local level, we continue to be deeply committed to our communities. This past year, we launched my community impact and matching gifts and dollar per Jewish program, and we recently made it available to all global employees.
Our philanthropic efforts have been recognized by diversity and Grand class 8 and the annual 50 day and philanthropy break.
As I close my prepared remarks today I remain truly inspired by the commitment and performance of our team members, who are now numbering 41 thousands.
The unwavering passion and support of Amerisourcebergen is well positioned to capitalize on our global footprint to provide leading pharmaceutical distribution services and to leverage our expertise and innovative commercialization and services provider internationally.
We remain confident and our pharmaceutical centric strategy and our capabilities as a partner of choice with market, leading manufacturer services and our ROE and continuing the acceleration of pharmaceutical innovation by providing differentiated value trough stakeholders focusing on our customers.
Expanding on our leadership in specialty and executing innovating and supporting the pharmaceutical innovation globally, we are well positioned to create long term stakeholder value as we remain United in our responsibility to create healthier futures now I will turn the call over to Jim for.
More in depth review of our results updated financial guidance Jim.
Thanks, Steve and good morning, everyone.
Before I discuss our third quarter results I want to comment on the pharmaceutical distribution and industries continued progress towards reaching and negotiated resolution to substantially address the nationwide opioid litigation the.
The proposed settlement agreement represents an important step towards achieving a broad resolution of the governmental Ob like claims and aligns with the legal approval the company recorded and the fourth quarter of its fiscal year ended September 32020.
The Amerisourcebergen appreciates the enormity of the opioid epidemic.
And this broad interest screen resolution is an important step towards delivering meaningful relief to communities across the United States.
Turning now to our business Amerisourcebergen remains focused on our differentiated and innovative value proposition to deliver long term growth and value creation to our stakeholders powered by our purpose driven team members, we will continue to execute on our pharmaceutical centric strategy.
On an enhanced global platform to serve both upstream partners and downstream customers.
As we recently completed the acquisition of Alliance healthcare and the corner I would like to welcome the alliance healthcare team to Amerisourcebergen, having joined the Amerisourcebergen myself through an acquisition and experienced several acquisitions. During my tenure I've seen firsthand the thoughtful and strategic approach of <unk>.
Horsburgh and it takes to successfully integrate acquired companies, we enjoy working with our incredibly talented new team members and learning more not only about their businesses, but also about how much we culturally have in common.
As we have said and since announcing the acquisition of alliance healthcare is the strong and efficient business and we look forward to working together to continue to provide innovative solutions to our customers and stakeholders.
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 June quarter and for a detailed discussion of our GAAP results. Please refer to our earnings release.
I will provide commentary and 2 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 2020.1 guidance.
Turning now to discuss our third quarter results. We finished the quarter with adjusted diluted EPS of $2.16.
And increase of 17%, which was driven by the continued strong performance across Amerisourcebergen businesses and also benefited from the 1 month contribution from the alliance healthcare acquisition.
Our consolidated revenue was $53.4 billion up 18% driven by revenue growth and both the pharmaceutical distribution services segment and other which includes alliance healthcare and our global commercialization services and animal health businesses Consol.
Consolidated gross profit increased 32% to $1.6 billion driven by increases in gross profit and each operating segment in the quarter gross profit margin increased 33 basis points from the prior year quarter to 3.
Zero of 5%. This was primarily due to the acquisition of alliance healthcare, which has a higher gross profit margin.
And increase in sales of specialty products, and pharmaceutical distribution services and growth and some of our higher margin businesses.
Regarding the consolidated operating expenses operating expenses were $996 million up 38% year over year due to the addition of the alliance health care business and also includes the internal investments, we are making across our business with a focus on.
Continuing to offer innovative services and solutions to our partners. These investments are important as they ensure we continue to create differentiated value and support our long term growth.
Turning now to consolidated operating income our operating income was $631 million up 24% compared to the prior year quarter. This increase was driven by increases in both the pharmaceutical distribution services segment and other.
Which I will discuss in more detail when I review segment level performance.
Operating income margin grew 60 basis points to 118% and as a result of the contribution from the alliance healthcare acquisition and growth and higher margin businesses.
Moving now to our net interest expense and effective tax rate and the third quarter net interest expense was $51 million up 36% due to get related to the alliance healthcare acquisition.
Our effective income tax rate was 21% up from 18, 8% and the third quarter of fiscal 2020, which benefited from a discrete tax items.
Our diluted share count was $208.9 million shares of 1.6% increase due to the dilution related to employee stock comp and the weighted average daily impact of the June issuance of 2 million shares delivered to Walgreens as a part of the alliance healthcare acquisition.
Turning now to adjusted free cash flow and cash and our adjusted free cash flow was strong and our fiscal third quarter, bringing our year to date and free cash flow number to $1.2 billion, while our cash balance was $2.6 billion. This completes the review of.
Of our consolidated results now I will turn to our segment results.
Pharmaceutical distribution services segment revenue was $49.3 billion up 13% for the quarter driven by increased sales of specialty products and solid performance broadly across our pharmaceutical distribution businesses.
Across our distribution businesses, we are seeing better and earlier than expected utilization trends as there has been more normalized physician interaction patterns, leading to new patient starts.
Pharmaceutical distribution services segment operating income increased about 13% to $484 million Amerisourcebergen.
<unk> Bergen continues to benefit and the quarter from our leadership and specialty where there has been and notable returned to pre COVID-19 strain and continued positive biosimilar trends.
I will now turn to other which includes a line health care and Wi world's career and Amerisourcebergen consulting.
The <unk> health care is and our results for the month of June and had strong performance out of the gate.
In the quarter. Other segment revenue was $4.1 billion up 128% driven by the Allied healthcare acquisition and growth across the remaining operating segments.
Excluding the impact of the lines healthcare global commercialization services and animal health revenue was up 22% of.
Segment operating income was $147 million up 77%, primarily due to the alliance healthcare acquisition and strong performance at both <unk> and World Courier <unk>.
Excluding the impact of alliance healthcare global commercialization services and animal health operating income was up 21%, reflecting the solid fundamentals of the businesses.
World Courier has continued its exceptional performance, providing high touch and specialty logistics around the globe, Despite challenges and global logistics due to limited international cargo space. The team has delivered industry, leading solutions and expertise to support our customers and partners.
Looking ahead of the business is highly complementary to the lines health Care's of Logan and Algeria businesses, and we are excited to offer and integrated suite of solutions on our enhanced global platform to serve our manufacturer customers.
Turning now to him and Wi.
The pandemic has truly encouraged all of us to focus on the health and wellbeing of our communities and families and this includes our animal companions over 12 million families and the U S have gained the pets since the pandemic began and since pet owners view of their pets as family members the <unk>.
Focus on health and wellbeing is a positive market trend for our Wi companion business.
And the production animal market, our investments and technology solutions and unique offering of value added services position the business to support long term global demand for protein.
And the Wi strong execution and customer relationships have allowed the business to remain best in class provider that is well positioned to capture these positive market trends.
That concludes our segment level of discussion and I will now turn to our 2021 guidance.
Following the closing of the alliance healthcare acquisition back in June we updated our 2020, 1 guidance for revenue and adjusted diluted EPS and weighted average shares to reflect the expected contribution from the lines health care and the weighted average share count impact of the 2.
2 million shares of stock that we can deliver to Walgreens.
Given the continued strong performance of Amerisourcebergen businesses, we arent and skin raising our EPS guidance from a range of $8.90 to $9.10 up to a range of $9 and 15 to $9.30.
Reflecting growth of 16% to 18% from the previous fiscal year.
We are also updating other financial guidance metrics for fiscal 2021, including a meaningful increase to our expectations for consolidated and segment adjusted operating income.
First I'll begin with operating expenses operating expenses are now expected to be approximately $3.9 billion due to the alliance healthcare acquisition.
As a reminder, when you consider your models Alliance healthcare has higher margins, our gross profit operating expenses and operating income as evidenced by the update to our fiscal 2020.1 guidance for consolidated operating expenses to reflect the 4 months of alliance healthcare.
Next turning to operating income, we now expect operating income to be approximately $2.6 billion.
This is the result of racing our pharmaceutical distribution operating income guidance to the low double digit growth range given the strong trends, we have continued to see and our business, including specialty which was further bolstered by patient referral.
The activity this quarter.
This range also reflects our expectation for operating income and other of approximately $610 million to $620 million. Excluding the contribution from alliance healthcare operating income growth of our global commercialization services and animal Health group.
And it's expected to be in the low double digit range for fiscal 2021, driven by the strong performance of the World Courier and MSW line.
Finally, turning to free cash flow, we have raised our free cash flow guidance to be approximately $1.7 billion up from approximately $1.5 billion.
As it pertains to fiscal 2020.2.
Corporate planning process remains unchanged, we will provide comprehensive financial guidance at the end of our current fiscal year. This approach allows for guidance to be fully informed by the output of our year and business planning process.
That being said, we wanted to remind you of free important items from fiscal 2020..1 as you can set of your models.
First through the end of June the financial contribution from sales of COVID-19 therapies has declined in line with the expectations, we have share since the first quarter.
Covid therapy distribution, who contributes roughly 25 cents.
Through our fiscal 2021 of adjusted EPS guidance and the benefit from that exclusivity is not expected to repeat in fiscal 2022.
Second we will have higher interest expense and fiscal 2022, driven by the debt related to the alliance healthcare acquisition.
Third the.
And the fourth quarter of fiscal 2020, 1 we expect our weighted average shares to be almost 211 million shares due primarily to the pulling weight and the impact of the 2 million shares of our stock delivered to Walgreens and the close of the alliance healthcare acquisition, our share counts will continue to tick higher in 2020.
2 did and normal employee stock comp related dilution and the fact that we have committed to prioritize paying down $2 billion and total debt over the next 2 years and those share repurchases.
Moving past these modeling reminders.
The strength of Amerisourcebergen is undeniable and as exemplified by our continued exceptional results quarter after quarter.
This is the sixth quarter since the pandemic began and our results demonstrate the resilience and strength of our company.
I'm thoroughly impressed by the execution and performance across our businesses that has positioned us for continued success, our pharmaceutical centric foundation market, leading talent and competitive positioning and enable us to capitalize on market trends and continued to deliver strong results.
Before I conclude my prepared remarks. This morning, I would like to touch on our ESP and diversity and inclusion efforts Amerisourcebergen remains focused on creating long term financial value and we continue to work diligently to build our corporate stewardship initiatives to ensure the work we are doing.
And it benefits all stakeholders, we are focused on continuing to build robust talent development programs. So that all of our team members feel they have opportunities to grow and Martin and our communities. We're supporting nonprofit partners through our foundation to expand access to quality healthcare for mental health equity.
And provide resources to ensure prescription drug safety and.
In addition, we aim to be environmental stewards, and the communities, where we live and work through initiatives like our commitment to using sustainable packaging to reduce the use of the single use plastics and working closely with our partners to optimize delivery routes to minimise our greenhouse.
Gas emissions footprint.
Look forward to providing further updates on our ESG progress as we continue to find ways to make a positive impact on the people planet and communities, where we live and work and.
We closed and on the end of our fiscal year with strong momentum and continued outperformance across our business. It is important to take the moment to reflect on the important accomplishments we have already had this year.
First our teams continue to execute and leverage our capabilities to create differentiated value for our stakeholders.
And our future growth has been further solidified fire and acquisition of alliance healthcare <unk>.
Third our purpose driven culture continues to empower our team members to think plan and act decisively to do what is right for our people partners and communities and finally, we continue our long term commitment to strategically invest and our businesses and talent to ensure that amerisourcebergen.
We will continue to deliver long term sustainable value for all our stakeholders.
As we look to the future I am proud of the resilient Foundation, we have built while they facilitate pharmaceutical innovation and remains United and our responsibility to create healthier futures. Thank you for your interest and Amerisourcebergen now I will turn the call over to the operator to start our Q&A operator.
Thank you we will now begin the question and answer session to ask a question you May Press Star then 1 on your Touchtone telephone.
And if youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then 2.
At this time, we will pause momentarily to assemble our roster.
Okay.
And the first question will be from Charles <unk> with Cowen. Please go ahead.
Yeah. Thanks, guys congrats on the quarter and thanks for taking the question.
Wanted to ask are you know last quarter. There was a lot of concerns around generic deflation and the impact it might be having on you and the and the other distributors.
Given the given the performance of the quarter or how should we think about the issue of generic deflation you know really in the context here of the.
Strong results and and distribution of both from a top line and an operating profit perspective.
Yes, Charles this is Jim and thanks, a lot and for that question Joe.
Generic deflation is trending relatively in line with our expectations and <unk>.
Overall, the generic deflation rates are relatively in line with the last couple of years, but I think the key point I'd like to make and answering the question. The you asked is that and are looking at our business model. Our business model is not as reliant on generic pricing and then once was in the past and.
Several years ago leadership of the company recognized the need to have more balanced profitability across the portfolio of pharmaceuticals, and the rebalancing insurers that amerisourcebergen receive fair compensation for the value, we provide and across brand and generics and specialty, especially as the.
It continues to shift to include more specialty and so our alignment with the cheesecake key anchor customers and our leadership in specialty and continue to serve as positive differentiators for our positioning and results and.
Like you were saying and asking and your question, it's really the high net evidenced and the.
The desk quarter's results and sweep and talked about in our prepared remarks. This quarter adjusted operating income was up 24% year over year, but if we really in particular look at pharmaceutical distribution and pharmaceutical distribution operating income was up.
13% and our year over year, and we increased our guidance for the full year for pharmaceutical distribution operating income.
And from high single digits to low double digits and this is just 1 of the many drivers that enabled us to and have the increase in EPS guidance of 20 to 25.
Thank you and the next question will be from Lisa Gill with J P. Morgan. Please go ahead.
Hi, Thanks, very much good morning, everyone and congratulations on a great quarter.
Just want to understand a couple of things 1 would be the comments around utilization and did you have any pent up demand or do you feel like this is back tomorrow.
And when we think about utilization and then secondly, Tim when we think about the alliance the original guidance.
Guidance that you gave around the accretion and you know.
What we saw in the quarter I know its the only a partial quarter impact for alliance, but how did that come in the first is versus your expectation.
Yes.
And yes, yes range and so I will answer.
Both of those and so as we said and our remarks, we're seeing better and earlier than expected utilization trends. We're seeing patients are returning to physicians' offices, which is resulting and patient referrals to specialists and new patient starts when we look at.
Year over year.
Retail Rx trends, we see that and on the year over year growth rates are higher and our third quarter compared to the year over year growth rates and of the first half and so we think that's the combination of.
The pent up demand and.
And returned to normal and with regard to the alliance question that you asked.
<unk> added.
<unk> start out of the gate when we initially and announced the completion of the acquisition in early June we updated our EPS guidance.
The 2 include of $45 to $50 and contribution from the business. During the last 4 months of our fiscal year and we now expect that alliance will contribute approximately 50 cents and those 4 months of fiscal 2021.
Thanks.
And the next question will be from Ricky Goldwasser with Morgan Stanley. Please go ahead.
Yes, hi, good morning, Thanks for all of the details.
From everything we are hearing to day fundamentals are stable to positive.
And you have the increase.
Visibility you have the sort of the building blocks across all of our portfolios and and you know again.
And you are correct to the very balanced portfolio sales.
My first question is with with all of this kind of like now in place.
And the increased visibility.
1 how should we think about sort of steady state EBITDA.
E Bay or EPS growth.
Beyond sort of the 2022 and kind of like hit with the talent and then my second question relates to that sort of long term Alto and we just recently.
Saw biosimilar approval with and interchangeable status I think that's something that we've been waiting for the industry and waiting for for a very long time.
So how do you see this as kind of like long kind of implication of this approval and and what areas do you think the interchange ability could impact biosimilar adoption the most.
Yeah, Great I'll start off and then as.
As we kind of think about the.
Longer term I think.
And just kind of key to look at what we've been seeing and our businesses over the last quarter and several quarters were really saying.
Ron based performance.
Across our businesses.
And we've been talking some about some time of about specialty physician services and health system as we're continuing to see really good performance, there and also and the community and specialty pharmacy and World Courier and W line and some of the things that has benefited us and will continue to benefit us are and just.
Free leading customers.
Really a differentiator for Amerisourcebergen and we.
It's really across most of our businesses that we have the industry, leading customers the health with our long term growth and.
The leadership and specialty.
And it was really benefiting us has been benefiting us and will continue to benefit us as we look at market trends the biosimilar trends.
The improvements and the.
The utilization, but really just kind of a strong and market trends, whether it be and oncology biosimilars.
Canyon animals, and those are the sorts of things, which will really continue to benefit us over the longer term Ricky.
Ricky Hi, So biosimilars Amerisourcebergen is proud of the role that we played and being a really early promoter of biosimilars for patient choice and affordability.
It's a clear opportunity for us.
The part D is the most impactful for us, especially in oncology with the now 40% share for vast and that affected and my other key products.
What's interesting of course, and oncology is the well developed portfolio of <unk>.
Services, we have 3 of our ion GPO and the strong access we have to community oncology practices and leaders.
The biased of and as we pointed out as a positive driver for our services businesses, including Lash and <unk> seen that where we focus on patient AG sales volume.
And my economics and adherence solutions.
Box and there is also becoming more positive and the health systems area.
So I.
And I just I just noticed you talked about the first interchangeable product that is and a part D product.
And and important therapeutic area <unk> area, which is diabetes.
And.
And of course into Changeability will be more important for us with its more than 1 product, but it's a positive developments and we are and press star 1 take note of the fda's flexibility and willingness to consider considering the changes, but I think and we think that it bodes well for the efficacy and the role of <unk>.
Biosimilars will play and pharmaceuticals, and the future so.
Again bad part D. By some of those are all sweet spots of things.
Yes.
And the next question will be from Steven Valiquette with Barclays. Please go ahead.
Alright, great. Thanks, good morning.
So what's the updated our free cash flow guidance from 1.5 billion and 1.7 billion do you have any color on how much of that is stemming from the alliance healthcare assets versus the core operation and so I might have missed that and also when thinking about the annual run rates.
And remind us of the approximate annualized operating cash flow contribution and also just the any capex you expect tie it to the just the acquired Hawaiians health care assets on the go forward basis once all of the dust settles.
Yeah.
So with regard to of free cash flow, yes, we are very pleased debt.
<unk> guidance on so many fronts and 1 of them is of course, an adjusted free cash flow, which is.
Which is just the.
And really important metric and value driver for us and the increase of 1.5 billion to 1.7 billion and.
We're seeing good performance at both Amerisourcebergen and alliance, but most of that increase is due to amerisourcebergen because if you look at alliance during the 4 months, we have nice contribution of free cash flow, but that's really largely offset by and deal fees and expenses and 2 of them.
The extent.
Offset the line free cash flow during the 4 months.
And so most of that increase is attributable to Amerisourcebergen and as we look at alliance long term on the free cash flow of front.
The statement that we made at the closing of the deal is that we expect our combined.
And free.
Free cash flow to be 1.25 times, what it would have been standalone for Amerisourcebergen.
And then on the cost.
And you had asked about debt Capex and our Capex guidance for the year remains.
And approximately $400 million.
Okay.
Thanks.
And the next question will be from Joel Indra Singh with Credit Suisse. Please go ahead.
Yeah, Thanks, and congrats on a good quarter.
Last quarter, and you guys called out seeing up to 40 per cent installation for biosimilars on the oncology side and <unk>.
And how that trended in the current quarter.
And watch some of your near to medium term expectations are for the utilization trend.
Yes, we.
And we expect that the trends will continue.
And I just out of the constitute Ricky's question, we talked about the same 40% market share for 2 of the most example, most prominent oncology products and.
And we believe this will continue to be a positive trend and.
The innovative products continue to play a role and through contracting and that's the way organizations lockout of Ireland GPO are very important but there is no doubt that the train for a biosimilar adoption is intact and physicians are accepting.
Some of the key patient opportunity and most of our financial opportunity to lower costs.
Okay.
Thank you and the next question will be from Eric Percher with Nephron Research. Please go ahead.
Thank you I appreciate the initial commentary on fiscal year, 'twenty, 2 and the fiscal year 'twenty 1 considerations.
And I'm curious when you look at.
'twenty, 1 and think about core growth and core growth as you come out of the pandemic and so.
Some of the puts and takes around generics and Biosimilars do you believe that core growth is actually higher as we look into 'twenty 2 than it was pre pandemic and my follow up there would be when we look at the other business and MW line certainly our world Courier certainly world Courier benefited during the Pan.
<unk> does is there a headwind going forward or does that begin to.
And where does that sustain.
Okay.
Yes, so with regard to the growth rates and with regard to fiscal year 'twenty 2 Eric will provide comprehensive guidance at the end of our fiscal year. After we.
Completed our year and business planning process.
And that we won't be getting into that and any sort of detail today.
Went through some puts and takes and my prepared remarks, and I won't go through those again and I will just comment that we're seeing good strength and momentum.
Across our businesses and really kind of debt the.
Special thing of just how broad based it is across our businesses.
Both and pharmaceutical distribution and and other being driven by the industry, leading customers leadership and specialty Biosimilar is improvements, we're seeing and utilization and that will all informed the guidance that we put out of the.
At the end of the bar.
Fiscal year the.
And I'll talk a little bit about other and then I'm sure Steve will want to get into more detail and 1.
And of the businesses and the other is our <unk> business and I think.
Some of the benefits that we've seen there during the pandemic of increased pet ownership I mean, that's going to have legs and continue to enable.
Growth and that business over the longer term, Steve Yeah, Yeah, Eric Thanks for the question on World Korea, We cannot underscore enough what a fabulous job day doing the environment for them is really challenging if you think about.
The global context that they operate in and all of the different pandemic restrictions and the.
1 of the business that we do the is based on the international break and which is not is the.
Not as easy to obtain as it used to be so.
We recently visited with the team and debt. There was we had a short visit to the U K when the restrictions were lifted.
It's wonderful to broaden and meet the launch team, but also the World Korea leadership team and really give them a pat on the back because they have done a fabulous job.
Growing the business and meeting the needs of the global clients throughout the throughout this very difficult period and in many cases shifting the business model 2 and home.
And we've owned the business for 8.9 years now and I have to tell you. This is a wonderful part of that.
And that keeps on growing and I think keeps on finding new ways to maximize the expertise and clinical trial logistics and helped the global pharma partners and meet the innovation needs and yes.
The last thing I'll say is it's a wonderful opportunity to share knowledge between the lines healthcare and will Korea. So.
And we very positive on that business.
Thank you and the next question of will be from Kevin Kelly Endo with UBS. Please go ahead.
Sure.
First I was we've got a lot of questions about freight and shipping costs and the.
Those increasing wondering if you're seeing any impact from that.
And any way shape or form or how that might impact guidance going forward.
And just the sort of a follow on to the Biosimilar question are you seeing any change and the spreads or the profitability on biosimilars going forward or are you expecting that to happen. Thank you.
I can pack and take part of it on the on.
On the Biosimilars part honestly.
We have.
And we've said that and somewhere between brand and generic pricing and of course.
Every single product is different depending on the number of competitors the same thing and once the product and its debt. So it's a large category, that's becoming a larger and deeper and more interesting category for us and.
Jim can give you more comments about debt.
But as expected.
And we use case that the positive trends will continue and this is becoming an important driver for patients and for physicians and for Amerisourcebergen.
Yes, and yes.
Asked about some of the input cost and yes, there is inflation and things like labor and transportation and Thats I think evidenced throughout the economy and something that all businesses are experiencing and we certainly see it but I think it's.
And really important and say that that's something that we've been experiencing this past quarter and of course this past quarter.
And we saw the 24% increase and operating income of 13% and pharmaceutical distribution and if we.
Exclude alliance.
Commercialization and animal health, which is the labor intensive group and the.
The 21%.
<unk> operating income and those sorts of input costs are all <unk>.
And into account and our guidance increase debt that we get good day.
Thank you and the next question is from George Hill with Deutsche Bank. Please go ahead.
Yeah. Good morning, guys and thanks for taking the question Steve I was just hoping that you could talk a little bit more about the opportunities you're seeing and the manufacturer services business and kind of where do you think about the white spaces, they're all post the close of the alliance acquisition.
You know and thank you George.
We are tremendously excited because just meeting with the team off the spending so much time free free because I always and negotiations.
And we get together the the intense discussions we have about opportunities and how do we take all of the combinations of businesses that we have and really make 1 and 1 equals 3 I mean, that's all the fashion, but ex essentially what we try and do and there's tremendous knowledge. If you look at our corporate team is focused and and weighbridge.
And the U K.
And the.
And that is the headquarters of the UK is also the headquarters for World of Korea, but if you look at how Amerisourcebergen is positioning ourselves with the lives. We have a good mixture of of developed European markets and higher growth emerging markets.
Very important priority for us to develop the services and innovative launch in those markets. Our World Korea has a small expertise and a small presence and almost all of the markets that that alliances iridium.
We set up a lot of our commercialization and businesses to help smaller companies launch products globally and I sincerely feel that this acquisition is kind of give us the opportunity to really have the presence have the boots on the ground and local market knowledge to look at both the innovative side the distribution side and the commercial launch.
And the Asian side to benefit the patients we serve and the manufacturers that 1 global partners with the expertise of Amerisourcebergen.
Okay.
Thank you ladies and gentlemen, this concludes our question and answer session and I would like to turn the conference back over to Steve Collis for any closing remarks.
So thank you for your time today Amerisourcebergen is a purpose driven leading global healthcare company with the foundation and distribution and we continue to advance our role as a key pillar of pharmaceutical innovation and access.
Expanding reach and solutions and pharmaceutical distribution and added breadth and depth and manufacturer services further strengthens our ability to provide innovative and global health care solutions for our partners.
Our results and guidance clearly exemplify outperformance the execution and how we continue to benefit from leading with market leaders and our company is well positioned for long term growth. Thanks again for your time today and great job to our worldwide associates.
And thank you Sir the conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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