Q1 2023 Amerisourcebergen Corp Earnings Call
Yeah.
Hello, everyone.
Welcome to the Amerisourcebergen Q1.
For 'twenty two earnings conference call.
My name is Bruno and I will be operating your call today.
During the presentation you can register to ask a question by pressing star one on your telephone keypad.
I will now hand over to your host Mr. Bennett Murphy Mr. Bennett. Please go ahead.
Thank you good morning, good afternoon, and thank you all for joining US for this conference call to discuss the Meritorious Burger in fiscal 'twenty to 'twenty three first quarter results I Am Bennett Murphy Senior Vice President head of Investor Relations and Treasury. Joining me today are Steve Collis, Chairman, President and CEO and Jim Cleary Executive Vice.
And CFO on today's call, we'll be discussing non-GAAP financial measures reconciliation of these measures to GAAP are provided in today's press release, which is available on our website at investor Amerisourcebergen Dot Com. We've also posted a slide presentation to accompany today's press release on our Investor website.
During the 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 forward 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 10-K.
Amerisourcebergen assumes no obligation to update any forward looking statements in this call cannot be rebroadcast without the express permission of the company you'll 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 <unk> good morning, and good afternoon to everyone on the call today, we will discuss Amerisourcebergen fiscal 2023 first quarter results.
Our future under a new unified identity, and our impact from our position at the center of global pharmaceutical innovation and access.
In the first quarter of fiscal 'twenty to 'twenty three we delivered solid financial results with revenue up nearly $63 billion, representing 5% growth on a year over year basis, along with adjusted EPS growth of 5%.
These results reflect the resilience of our business as we focus on execution excellence provided value added solutions to our customers and benefited from a strong market position.
We also acted on opportunities to utilize our strong balance sheet to employ a value creating approach to capital allocation.
Our business continues to have strong fundamentals as we maintained our focus on providing a differentiated value proposition to our customers and partners up and down the health care value chain.
Importantly, our performance underscores the strength of our pharmaceutical centric strategy as we leverage our expertise capabilities and scale to drive a long term sustainable growth.
As we announced last week, our future includes operating under a new unified identity as St. Cora.
Our new name resonates with customers and team members across geographies reflects who we are as a purpose driven organization and better represents our impact across pharmaceutical K C.
St Colorado salons without growth strategy and long term vision of building on our leadership in pharmaceutical distribution and growing our high margin high growth businesses.
Importantly, while our name will be changing our purpose and who we are as an organization remains the same we remain United in our responsibility to create healthier futures as we focus on advancing our core business enhancing our capabilities and growth and innovating to further drive Ah.
<unk>.
We continue to advance our coal business by providing a market leading customers with a leading distribution network throughout our history. We have invested in our infrastructure to ensure that critical medications reach their destinations efficiently reliably and securely we also seek to be.
Next Monday, and our investments and we have further enhanced our specialty distribution infrastructure with a new state of the art facility on the West Coast, which we set up right and opening during the quarter.
We are now even better positioned to support our customers and partners with a unique logistical needs and Bob facilitating patient access to the especially medicines. We promote the continued rapid growth of specialty pharmaceuticals in the market now and in the pipeline for the future.
To strengthen our role as the partner of choice for global Pharma and biotech companies. We continue to plan for the future of health care delivery and enhance our capabilities accordingly.
This includes bolting on a legacy of leadership in specialty medicines to support our customers' growing needs across a broad range of categories. We have recently expanded our portfolio of specialty solutions with the acquisition of pharma licks are.
A leading provider of pharmaceutical services, ranging from clinical development consulting to market authorization.
<unk> enhances our capabilities with additional regulatory affairs development consulting and scientific affairs, Pharmacovigilance and quality management and compliance services in both the U S and internationally.
With these enhancements the acquisition not only advances our strategic imperative of expanding on our leadership in specialty, but also I'm investing in innovation to further drive our differentiation.
With assets, such as pharma legs, a comprehensive portfolio of specialty distribution and commercialization solutions is uniquely positioned to serve pharma and biotechs across the product lifecycle meet specific logistical and market access needs and ultimately deliver the most innovative and Prague.
Missing treatments to the patients who need them.
As we continue to support pharmaceutical innovation and access we are focused on enhancing our differentiation by investing in our business to support our partners and bringing the latest scientific advancements to patients worldwide.
In the area of cell and gene therapy. For example, we have many capabilities to serve our customers' current and future needs.
This includes our technology centric partnerships such as our integrated technology platform designed to accelerate patient access to prescribe cell and gene therapies and to deliver complete visibility throughout their treatment journey.
It also includes investing in our global specialty logistics capabilities, which range from facilitating decentralized clinical trials, she providing white glove distribution of the most time and temperature sensitive therapies with capabilities that ensure a life sustaining pharmaceuticals are consistently.
On schedules at the right temperature and through the most complex situation. We have gained the trust of pharma and biotechs worldwide to be their partner of choice.
This trust is both individually partner by partner and behind each success story is unparalleled dedication and talent of our team members. Now include the team from <unk>. Our people are the foundation that drives our business forward and I'm humbled every day by the impact we make.
As we all got it button unwavering pursuit of our purpose.
United in our responsibility to create healthier futures, we embrace our role as a responsible business from a foundation of ethics integrity and transparency, we are committed to advancing our environmental social and governance initiatives to foster a positive impact on the.
Planet and people, while improving access and equity in health care.
Last week, we published our seventh annual environmental social and governance report, which highlights the progress we made in fiscal 'twenty to 'twenty two.
I'm, particularly proud of the progress we've made to create a more diverse equitable and inclusive culture.
In fiscal 2022 we established a center for excellence that overseas governance of D I, including a D. I Global Council and employee resource groups established channels through which teams across the organization can better partner collaborate and consults and improve the way we measure.
Our progress using a data driven approach and.
In a similar fashion a supplier diversity program has made great progress investing in minority owned enterprises.
I'm impressed by their direct indirect and community impacts about one $8 billion spend with small and diverse supplies through our program. We have supported more than 11000 jobs within our supply chain and suppliers communities.
We remain committed to making a positive impact in our communities.
In recent years, our business has been at the forefront of responding to global health care challenges, including the COVID-19, pandemic and the impact public health emergency.
From these experiences we have strengthened our public and private relationships and further evolve our capabilities to increase our agility and resiliency we.
We are well positioned to solve for potential future challenges in particular, those that disproportionately affect vulnerable populations, Zhu Chao footprint reach and strong relationships with governments manufacturers providers and community organizations.
One significant global health issues that we are helping to address is anti microbial resistance, which the world Health organization. The U S government and the European Commission have each initiated action plans around.
We recently led a call to action for healthcare distributors in partnership with chip the umbrella organisation for full service healthcare distributors in Europe to explore public and private multi sector collaborative efforts should drop a global response.
ESG has become increasingly important to our stakeholders and to hold ourselves accountable to making progress in areas that further our business objectives and reinforced our ESG priorities.
We are incorporating an ESG metrics within our executive compensation program for fiscal 'twenty to 'twenty three.
Designed based on feedback we have collected our ESG metrics includes three quantifiable components focused on business resiliency planning.
It's driven events.
E mail representation in leadership roles globally, and employee inclusion and engagement.
As we continue to think about what the future holds for public health pharmaceutical innovation care delivery and more we're also constantly evaluating our leadership to ensure that we have the right team driving our future success.
This includes the individuals guiding our organization from the top and we are pleased to have welcomed doctor redundant Miller to our board of Directors. In January addition of Doctor Miller Who's President of Johns Hopkins Hospital further illustrates our focus on adding key skill sets and diverse.
To help support our business strategy and delivering on our purpose.
We also want to offer our sincere thanks, and appreciation to talk to Jane Haney, and Mark long well Theyre Meritorious service.
Their advice wisdom and counsel have helped shape amerisourcebergen off today.
Looking forward to the rest of the year and beyond we are powered by the resilience of our business and remain confident that our pharmaceutical centric strategy will deliver long term sustainable growth by enabling us to capture exciting opportunities in pharmaceutical innovation, we have a strong foundation in.
Place and all higher margin high growth services reinforce the differentiated value, we provide to our partners and customers, which in turn strengthens our relationships and bolsters our position at the center of global pharmaceutical innovation and access.
As we continue to advance our foundation and enhance our capabilities and invest in innovation to further drive our differentiation, we remain purpose, driven and well positioned to create significant shareholder value now.
Now I will turn the call over to Jim for a more in depth review of our first quarter results and our updated guidance Jim.
Thanks, Steve Good morning, and good afternoon, everyone.
Before I turn to our results I want to join Steve and expressing my excitement on our recent announcement that we intend to change our name to sent Cora in the second half of calendar 2023.
By becoming a cent Cora, we will be able to better connect with our team members customers and other stakeholders on a unified basis across our footprint and sent Cora will better represent our role and impact as a leading health care solutions organization supporting pharmacy.
<unk> innovation and access.
Now turning to our first quarter results and as a reminder, my remarks today will focus on our adjusted non-GAAP financial results unless otherwise stated.
<unk> Bergen delivered solid results in our first quarter that were mostly in line with our expectations. We finished the quarter with adjusted diluted EPS of $2.71, an increase of 5% over the prior year quarter.
Justin EPS benefited from a lower share count as a result of our recent opportunistic share repurchases and strong fundamentals in our business helped offset previously anticipated elevated expenses in the quarter.
Our consolidated revenue was $62 $8 billion up 5% driven by growth in our U S Health care solutions segment, which was offset by foreign currency pressure on the translation of our sales in the international Health care solutions segment.
While the U S dollar weekend from the historically strong levels seen in the fourth quarter of fiscal 2022, the year over year comparisons still created a headwind as expected, which I will discuss in more detail when reviewing segment level results.
Consolidated gross profit was $2 $1 billion up 5% due to growth in the U S Health care solutions segment.
Each segment had better gross profit margins relative to the prior year quarter consolidated gross profit margin was flat year over year as the foreign exchange impact on the higher margin International Health care solutions segment was a drag on margin growth at the consolidated level.
Consolidated operating expenses were $1 $4 billion up nine 8% due to higher distribution selling and administrative expenses to support revenue growth and reflecting inflationary impacts on certain operating expenses as I called out on our November earnings call. We did.
Not begin to see inflationary pressures in our business until towards the end of the March 2022 quarter, the higher expense growth rate in this year's first quarter was driven by a tougher comparison versus the prior year period.
We expect the operating expense growth rate to decline sequentially in the subsequent quarters and to become a more normalized rate for the full year.
Consolidated operating income was $734 million, a decrease of approximately 2% compared to the prior year quarter or up 4% on a constant currency basis.
The as reported decline was driven primarily by the impact of foreign currency translation for the International Health care solutions segment and was partially offset by growth in the U S Health care solutions segment, which I'll discuss in more detail when I review segment level results.
Moving now to our net interest expense for the first quarter net interest expense was $46 million down approximately 14% due to higher interest income, resulting from higher cash balances and interest rates on investments.
Looking ahead, our average cash balances will be lower following the opportunistic share repurchases, we announced in the quarter. The successful early completion of the farm <unk> acquisition and the upcoming March 2023 debt repayment or lower invested cash balances will drive our net interest expense high.
Here in the coming quarters and result in higher interest expense versus fiscal 2022 as I called out in November .
Turning now to income taxes, our effective income tax rate was 19, 1% compared to 21, 2% in the prior year quarter.
The lower tax rate for the quarter was in line with our expectations and we continue to expect our full year effective tax rate to be in the range of approximately 20% to 21%.
Our diluted share count was 206.3 million shares at two 3% decline compared to the first quarter of fiscal 2022 driven by opportunistic share repurchases over the past several months, including $700 million of repurchases completed in November.
In December .
Regarding our cash balance we ended the quarter with approximately one $7 billion of cash.
Due to the timing of holidays around the pharma Lex acquisition closed at the beginning of January we pre funded the acquisition on December 29, which resulted in a prepaid asset on our balance sheet and lower cash balance when we closed the quarter.
In the quarter adjusted free cash flow was $584 million and we remain on track to achieve our adjusted free cash flow guidance of approximately $2 billion for the fiscal year.
This completes the review of our consolidated results now I'll turn to our segment results for the first quarter.
U S health care solutions segment revenue was $56 $2 billion up approximately 6% for the quarter as we continued to see strong specialty sales and broad based solid growth in our human health distribution businesses.
U S health care solutions segment operating income increased by approximately 1% to $572 million.
Sales to specialty physicians and health systems were once again strong in the quarter as our leadership in specialty continued to position us well to deliver growth, including in Biosimilars, where we are seeing good trends in oncology and more recently ophthalmology.
The strength in specialty and broad based good utilization trends and human health distribution helped to offset the previously anticipated higher operating expenses as well as softness in the animal health market.
As has been widely discussed in the animal health industry. There are short term pressures in both the companion and production animal markets from a cadence perspective. However, some of the softness in our animal health business in the quarter is related to timing and will normalize in the second quarter.
I will now turn to our international Health care solutions segment.
In the quarter International Health care solutions revenue was $6 $6 billion down 0.6% on a reported basis or up 17, 7% on a constant currency basis.
As reported decline was driven by the impact of foreign currency translation on revenue for alliance healthcare as the business is more exposed to currency fluctuations.
International Health care solutions operating income was $161 million down approximately 10% on a reported basis driven by the impact of foreign currency translation on income for alliance healthcare and the divestiture of pro forma specialty which represented approximately three.
3% segment operating income in the first quarter of fiscal 2022.
When looking at the segment on a constant currency basis. It delivered 11% operating income growth driven by solid underlying fundamentals and favorable manufacturer price adjustments this quarter in one of our developing market countries.
From a cadence perspective last year this price adjustment occurred in our second fiscal quarter.
This price adjustment activity offset the negative impact of the decline in the value of the local currency.
That completes the review of our segment level results I will now discuss our updated fiscal 2023 guidance expectations. As a reminder, we do not provide forward looking guidance on a GAAP basis. So the following metrics are provided on an adjusted non-GAAP basis I will also provide certain guidance metrics on a constant currency basis.
Full details of our fiscal 2023 guidance can be found on pages eight and nine of our earnings presentation on our Investor Relations website.
We are raising our full year diluted EPS guidance to a range of $11 50 to $11.75 up from our prior range of $11 30 to $11 60.
Representing growth of 4% to 7% on an as reported basis or 6% to 9% on a constant currency basis.
Our increased EPS guidance range is primarily a result of our opportunistic share repurchases in the first quarter, which results in our updated guidance on full year diluted average share count. We now expect our share count to be approximately 206 million shares down from our previous range of 207%.
209 million shares our increased EPS guidance range is also a result of the higher as reported operating income and international Health care solutions, partially offset by the reduced contribution from Covid in the U S.
Next I would like to provide a brief update on COVID-19 treatment distribution contributions in the first quarter COVID-19 treatments contributed 12 cents to our consolidated EPS compared to 14 cents in the first quarter of last year with about nine cents in the U S and <unk> and <unk>.
Our international segment.
Given trends we have seen to date, we now expect the full year contribution from COVID-19 treatment distribution to be in the range of 25 to 30 cents down from our previous range of 30 to 35 that we provided in November for.
For the rest of the year. The majority of the expected Covid contribution is in the U S segment with just a few more pennies of contribution expected in the international segment for the year.
To reflect the lower expected contribution from Covid treatment distribution, we are lowering the bottom end of our U S Health care solutions as reported operating income guidance. We now expect the segment to deliver as reported growth in the range of 1% to 4% growth.
Widened from the prior range of 2% to 4% growth.
Our guidance for the U S Health care solutions segment, excluding Covid contributions remains unchanged at 5% to 7% growth in fiscal 2023.
Now moving to the international Health care solutions updated segment level operating income assumptions.
We are raising our as reported operating income guidance for the international Health care solutions segment to a range of a decline of 3% to growth of 1% from our previous range of a decline of 7% to a decline of 3% driven by the general weakening of the U S dollar and the incremental contribution from farm <unk>.
The accretive and strategic deal. It's another example of how we create incremental value through capital deployment and we are excited to welcome the Barnwell X team to Amerisourcebergen.
Farmer, Lexus, leading solutions build upon our existing capabilities and will allow us to deepen our partnerships with pharma manufacturers as we provide support throughout the cycle from clinical development to regulatory support and access strategies to providing logistics services for additional operating income guidance measures for.
The International Health care solutions segment, I would refer you to our investor presentation deck. These guidance measures also were increased driven by the general weakening of the U S dollar and the incremental contribution from pharma likes.
In summary regarding the updates we have made to guidance. There is no change in our guidance for as reported consolidated adjusted operating income.
And we are raising our adjusted EPS guidance for the full year.
All while lowering our expectations for Covid contributions.
Before I turn to my closing remarks, I would like to briefly discuss a few highlights about how we are working to ensure a resilient supply chain and mitigate our impact on climate change as a crucial member of the global pharmaceutical supply chain, we play a key role in ensuring the safe and reliable.
Both supply of medications, we take this role seriously and have robust plans and teams in place to support supply chain resiliency and fiscal 2022, we advanced these efforts and expanded the scope of our physical risk assessment process to reflect our expanded footprint since we last conducted a physical risk assessor.
<unk> in 2020 in 2022 we included nearly 400 sites across 24 countries up from 100 sites. The updated assessment will inform our business continuity planning process to help ensure the continuity of supply in the event of extreme weather or natural disasters.
While we prepare for and adapt our business to address the impacts of a changing climate. We continue to look at ways, we can reduce our carbon footprint and be good environmental stewards as part of these efforts in May 2022, we submitted a near term target to reduce our greenhouse gas emissions to the science based targets initiative for valley.
<unk> in January we learned the science based targets initiative approved our near term science based emissions reduction target in.
In addition to the items, Steve and I have discussed today. Our recently published ESG report contains additional information on how we are living our purpose and creating healthier futures through our ESG initiatives. The report aligns with a number of leading ESG reporting standards and frameworks and key data points have been externally assured I would encourage you.
To review the report in its entirety on its dedicated microsite at ESG Dot Amerisourcebergen Dot com.
In closing our updated fiscal 2023 guidance reflects our continued strategic use of capital to create value for our stakeholders through a combination of returning capital to shareholders and investing in our business to further our value proposition for our partners.
Powered by the continued resilience and growth of our business.
As we progressed through 2023, we remain focused on executing on our long term strategy and through our foundation in pharmaceutical distribution and complementary higher margin high growth businesses, we are well positioned to create long term sustainable growth now.
Now I will turn the call over to the operator to open the line for questions.
Greater.
Ladies and gentlemen, if you'd like to ask a question. Please press star followed by one on your telephone keypad.
If you'd like to cancel the question press Star two.
Please do also remember too unusual microphone.
Our first question is from Elizabeth Anderson from Evercore.
Elizabeth Your line is now open. Please go ahead.
Hi, guys. Thanks, so much for the question I was wondering if you could talk about a little bit more obviously.
That was nice to see the transaction close early and now that you've had.
Had it been you know a whole month of I was wondering if you could talk a little bit about what some of the early wins are in terms of something like a client perspective and sort of what they're most interested in and what are some of the things that you now have been new to Houston, you know fully taking ownership of the asset.
Yeah, Hi, good morning, Elizabeth and thanks for the question, maybe I could just start with some general comments about our approach to capital deployment I literally there's nothing this management team takes more serious the other than our reputation and capital deployment, it's a key opportunity and we want to make sure.
Sure that we leverage all the available dollars, we have having said that pharma lakes is a continuation of amerisourcebergen strategy of investing to further our leadership in specialty distribution and services.
Portfolio has literally been bolt through decades of significant organic and inorganic strategic investments, including this recently completed acquisition.
This is complementary to our U S existing manufacturer services platform and also you will recall that when we bought the lines business. We focused on the value added services businesses and in fact pointed out that they had a higher percentage over the operating income coming from those services. So we feel that the cigna.
Typically enhances our international capabilities.
Amerisourcebergen is focused on growing.
Oh, a higher margin higher growth businesses.
Particularly we've identified this area as a robust area for US our goal is in the long term to be the first stop for any.
Any any services that manufacturers would like to deploy our businesses like formulation Amerisourcebergen for let me also just say that I was literally two weeks ago with the former <unk> management team, we'd had some calls before it was a pleasure to meet him in person I've been very impressed with the approach that <unk>.
Leadership team have taken with this integration and with the the the merging of our former legacy into our existing businesses and I'm very excited about the opportunities ahead for this acquisition. Thank you.
Our next question is from Michael Cherny from Bank of America, Michael Your line is now open.
Please go ahead.
Perfect. Thank you so much for taking the question maybe if we can dive into the U S segment for a bit.
A number of moving pieces embedded within your reiterated 5% to 7%.
Ex Covid EBIT growth you talked about some of the Opex pressure you have its annualized over the course of the year versus last year, you talked about some of the best.
In animal health.
On the other side, what's allowing you to drive forward with hitting that robust growth metrics breaking through.
Some of the potential upside variability maybe in volume versus price versus mix, just curious to dig a little bit more into some of the good stuff. There thats, putting you basically within the general range that you would typically have as part of your long term guidance from last year's Alastair.
Yeah.
Yeah. Thank you Michael for asking that question and I think really kind of the key point in a key takeaway is that we really have continued strong performance in our U S business and strong performance in specialty and broadly across human health distro.
<unk> and we're seeing continued strong utilization trends and so that's true in the U S and it's really true at Alliance also where we saw an international strong performance and utilization trends during the quarter.
You know.
Called out in my prepared remarks, as you reference that Covid came in below our expectations during the quarter and as I said in the prepared remarks, we had a softer quarter for animal health and higher opex growth rate during the quarter, but we expect that to normalize for the full year and really kind of I think the.
Keith.
Takeaway is just on the strong performance and execution I'm, both in specialty and broadly across human health.
Distribution and that's you know kind of evidenced in our.
Maintaining that.
Our guidance range excluding COVID-19.
5% to 7% in the end.
In the U S segment, and you know as reported excluding COVID-19 on a consolidated basis improving.
Improving our adjusted operating income guidance from three years to 5% to 4% to 6%.
Okay.
Okay.
Our next question is from Erin Wright from Morgan Stanley .
Erinn. Your line is now open. Please go ahead.
Great. Thank you can you speak a little bit more about what you're seeing in terms of underlying utilization trends.
That international Wholesaling business.
And have there been any surprises in the most recent quarter that we should be aware of and how should we be thinking about the quarterly cadence for the balance of the year, there and just more broadly kind of on international and in the next five years or so does your international segment.
Foot print and integration across that business.
Vastly differing to you and just with the name change and just thinking about how you think about the contribution of international over the next five years or so.
Yeah, I'll start with some of the financial aspects.
Aspects to the question Aaron and then ill and then I'm sure Steve will want to comment also and so.
In the international business, we're seeing good utilization trends and performance Alliance I'm had another strong quarter. If we look at our guidance update that we've done in the international segment and as I mentioned during the prepared remarks on an as reported basis, we increased our.
Our guidance by <unk> <unk>.
Four percentage points at the low end of the range and four percentage points at the high end of the range and that's essentially.
Evenly split by the impact.
Impact of FX since the dollar has generally weekend since we put out guidance and also the early close apartment Lex and so each of those things is.
It's worth about two percentage points, but overall in terms of the execution of the business or I should say the performance of the business. We're seeing really good execution by the management team and a good year.
Utilization trends and the one thing I'll comment on and I did mentioned this kinder prepared remarks is there.
There was a price increase and a developing market that happened in the first quarter of this fiscal year that happened in the second quarter of last fiscal year, and so that will impact that cadence just a bit Steve yeah. Thanks, Aaron I, you know I think I think amerisourcebergen has very consistently.
<unk>.
He is trying to really.
<unk> squarely in the prescription drug market.
Our services and distributional anchored around the prescription market I've been impressed with our launch it's now a seven quarter reporting them and they've been very resilient, we have strong market positions in almost every country, we're in and where we've had to we've complemented at some of the smaller markets for example, Norway and Netherlands.
We are in retail we've also got a very strong logo business, which was one of the most interesting aspects of this are integration and acquisition for us.
We are aligning that very closely with our Ics business, which is being more closely aligned with world Korea in the past historically and is focused on the more complex therapies and alliance.
<unk> business has a very strong basis in core pharmaceutical product so.
I'm also excited about what formulary is going to bring to the equation.
We have about two and a half thousand team members that we've added with former legs and about 800 of them have a ph D or equivalent degrees.
I'll go back to my experience in lots of smaller scale, but when we acquired extender when I was at the specialty group that the uplift in talent and intellectual thought around the manufacturer was so important to the development of the specialty group and I think that formula can be analogous to our European and international business broke.
We arrived where are you now I think we just are very well positioned a lot with this acquisition is going to bring to us and Jim just has one more comment you'd like to make yeah. Thanks, just one thing I do want to say thanks very much for the question on International I do want to say of course as you look at our business overall are.
Operating income mix is about 80% in the U S and 20% international.
Our next question next question from Eric Percher from <unk> Research Eric Your line is now open. Please go ahead.
Thank you.
Question on U S health care, ICU pretty consistently called out specialty to physician practices as a growth driver and I noticed the last quarter or two we haven't seen male called out.
Recognizing could be reading too much into the a.
A few words here, but I am curious is there any change to distribution activity or self distribution from the largest mail and specialty clients and I know theres been some discussion that we could see biosimilars source directly as we see larger volumes in the pharmacy benefit any thoughts on those trends.
Okay.
So Eric Thanks for the question No you know we we Amerisourcebergen is focused on following the prescription dollar. So we have a broad segment of customers and I think it's well known that express scripts cigna as our lead customer in that area. They all.
Fast growing customer and.
I'm going to comment too specifically on them, but.
Some of the some of their customers do source part D. More specific the part D products directly.
And you know, we we will we will see that our that trend could continue.
But it's you know just really one segment of our portfolio of customers and are we.
Are we happy with the relationship we are we want to do the best job, we can as a distributor for them and the needs of large complex customers like express scripts are all very different than the needs of some of our smaller customers that tend to use our services more more readily so.
Probably that's all on that Jim anything you'd add I think that covers it. Thanks.
Our next question is from Charles <unk> from Cowen.
Charles Your line is now open. Please go ahead.
Yeah, Thanks for taking the questions.
You mentioned before opportunistic share repurchases over the last few months.
Can you talk about sort of what the capacity you have to continue to do that.
If for example, Walgreens was to continue to.
To take down it's taken the company.
Can you kind of give us a sense for sort of where.
Where you are in terms of that.
Yeah, we.
Obviously, we feel very good about the opportunistic share repurchases, we've done over the past several months and as you know we've successfully collaborated with the Walgreens on there to latest sales repurchasing about $700 million in shares in conjunction.
With those sales and we view these as a good opportunity to repurchase shares and we continue to maintain a collaborative relationship with W. B, a and we would expect to work together on any future planned sales, including potentially repurchasing shares and that's as a result of.
Very strong financial position, which continues of course and our focus on opportunistic share repurchases and so if they do decide to sell additional shares we would view it as an opportunity to repurchase.
Our next question is from George Hill from Deutsche Bank.
George Your line is now open. Please go ahead.
Good morning, guys and thanks for taking the questions and Jim I'm going to take a shot at kind of two numbers related questions. I guess number one is with the closing of formal X can you say, whether or not manufacturer services is now greater than 50% of gross profits in the international segment and my brief follow up would be is that if we look at the macro level specialty drugs.
We are now approaching 50% of total sales in the pharmaceutical segment is it safe to assume that that that mix is kind of reflective of Abc's U S.
Drug sales mix as well thank you.
Okay.
Yeah and so.
There is there was a lot there and we.
Specifically do not break out the percentage of our manufacturer services, but I will say that those sorts of services are a really important part of our international business just like they are in the U S business and I think one kind of key thing to call out as you'll note that our opera.
<unk> margin is significantly.
A significantly higher in the international segment than it is in the U S segment and the reason for that is there was higher margin services businesses are a higher percentage of sales in our international segment than they are in the U S segment, and they're driven historically by things like World Courier.
<unk> of course, but a logo also witches alliances I'm very successful three PL business and some of the alliances other services businesses and now it's you know and even greater percentage of the business given the exciting acquisition of pharma Lex and so that's that's just a <unk>.
Bit of a commentary on the inter.
International market.
And you asked about specialty products in some cases.
The specialty products in the international market R. R.
Our three P. L and so I think you also asked about the U S business and of course specialty continues to be a hum a driver for us in the U S market as you know very well and and where you know.
Leader in the specialty business, both for physician practices and for non physician parts of the business and it's really kind of a.
A leading part of our legacy businesses that are Steve started many years ago, and you know super important part of our future through our key partnerships.
Okay.
That's helpful. Thank you.
Next question.
Our next question is from Steven Valiquette from Barclays. Steven Your line is now open. Please go ahead.
Okay.
Steve are you there.
Steven Your line is now open you can proceed with your question.
Yeah.
Alright, well go to the next question then Bruno.
No problem.
Yeah.
Our next question is from Eric Coldwell from Baird.
Eric Your line is now open. Please go ahead.
Thanks, very much two if I might and they're both somewhat related in terms of.
When you first outlined are the guardrails on fiscal 'twenty three outlook versus the updates today first one humira Ah I know pound for pound its not as important to certain other drugs due to the channel of administration, but have your views changed at all now that we have you now front and center, we have the launch here.
<unk> have you had any change in perspective on the dynamics of that particularly large biosimilar in the market and then second and somewhat correlated on the guidance timing through the through the last seven eight months whatever it is the corporate name change and rebranding maybe a bit of a silly question.
But there.
There will be some expenses associated with it absorbed in guidance or is that incremental I guess when you first laid out the guardrails on fiscal 'twenty, three where you assuming some expenses here or is this a newer topic that you've just subsequently absorbed and if you could quantify that impact.
On the expense and capitalization side it might might be interesting. Thanks, so much.
Okay. Thanks, a good good enough for me Eric So.
I'll start off obviously, we've talked about this for a while and it seems like you know it was never going to be yet but of course.
First Biosimilar Humira launch there this week and it's an important drug for the U S health system by some measures the largest dry gum a in a in the history.
And then the introduction is gonna be and important creator of headroom for for the new innovative therapies that amerisourcebergen is so well positioned to serve all our.
Stakeholders in them so that's important.
First I'm sorry.
So we are interested to see how the trains go and again in July we'll see some more entrants and some of them have different clinical aspects to them as you well know, but we've said consistently that port fees. Our sweet spot. This is very much a part D drug and it will be incrementally better for us in <unk>.
Margins, but it's a it's mostly male mail order and as as was pointed out previously some of our some of our express scripts for example, and other customers in that category could be ordering directly and they they have limited locations and it's a it's a much easier distribution function for manufacturers to fold.
So not it.
It won't change our guidance or anything too much but it is a it is a very serious a milestone in biosimilars and we.
We will look to see how the market to absorb this product Jim anything on the the other gardens aspects, yes, Eric had asked about the.
The name change and some of the costs and whatnot related to the name change and Eric we aren't going to get into a lot of specifics at this time, but I will say that the spend will be spread out over the next three years and it really happens in three phases. The first is planning and preparation and the second just launch and the third is ongoing brand.
Migration and a majority of these costs will be GAAP only as they are nonrecurring in nature and then a portion of the costs will be capitalized and depreciated over time and recorded against our adjusted non-GAAP results I'll also comment.
With regard to amortization of some of our existing trade names there will be an increase in amortization expense and it will be recorded and disclosed beginning in our March quarter and as a reminder, amortization expense relating to trade names is accounted for as a GAAP only expense and.
It's not included in our adjusted results.
Our next question is from Steven Valiquette from Barclays. Steven Your line is now open. Please go ahead.
Great. Thanks, Hi, good morning, Thanks for squeezing me back in here.
Just a general question around Europe , you know there's been some chatter in the marketplace about the possibility of expansion of the ability for entities in certain European countries to be able to potentially source drug inventory from other external European countries that may lead to lower drug costs.
I guess I'm just curious if you have any high level thoughts around this.
Maybe directionally, maybe talk about how this could impact your international operations. Thanks.
Yeah, So I'm not a not a key area of focus for US is there is definitely a parallel trade.
Market in Europe , which is actually highly regulated.
You know I haven't heard that there's any intention I. This is not something we focus on I haven't heard that there's any intention to expand that and I'm. You know, we we we really don't have much for the insight on that.
Jim.
Yes.
Next question please.
Our next question is from Brian <unk> from Jefferies.
Brian Your line is now open. Please go ahead.
Hey, Good morning, just a quick question, Steve how are you thinking about macro.
The U S. It looks like U S business is holding up pretty well, but as I think about your guidance for the year.
How should we be thinking about the assumptions you have baked in in terms of the expected hitting of the recession sometime in the middle of this year. Thanks.
Yeah.
Yeah, you know, we Amerisourcebergen I think if we keep one thing in our industry. In fact is proof that we are pretty resilient and are watching.
What's important to us is that all the patients that we ultimately serve all are able to access products and are they are you know the payer systems, both the commercial and government systems continued to work very well.
And.
I think I've told this story many times that in 2009, which was my first year running the full on drug wholesale business and that job and of course, the whole world was melting down and we had you know.
And for a $5 million in bad debt, so, but key for all of our businesses, whether it's Europe or U. S is continued patient access to care and are you now in many cases, we all working with single payer systems, but I just want to stress that.
You know one of the beauties about amerisourcebergen as we go through many cycles, but the core and the specialty businesses and our manufacturer services, we provide or so fundamental to the health systems and then we also are very good at adapting to whatever changes we need to make so I would say COVID-19 is an extremely.
Applicable application of that.
We really were able to adjust so many of our businesses to go virtual and really had one month of disruption I would say because of just you know so much of the economy moving inside but other than that you know I have to say that amerisourcebergen has proven through all sorts of cycles that we are very resilient.
Carry on producing earnings and cash flow, which is very important.
Jim.
Steve I would just echo that is from my.
Perspective, it's just one of the just one of the wonderful things about our company and our industry is our proven resilience.
Yes.
That wraps it up for today and Jim. Thank you for ending on that keyword resilience I would say that we had an excellent quarter and I'm excited about the same core a name change and whether we're talking about amerisourcebergen or in the future. St. Cora, we are highly differentiated and well positioned for long term growth and couldn't.
Our core distribution and specialty services and also without a very high our potential customer base and we will continue to benefit from growth in the pharmaceutical market driven by patient demographics prescription utilization trends and continued innovation. Thank you for your time.
It's been a pleasure spending this last hour with you.
Ladies and gentlemen. This concludes today's call. Thank you for joining you may now disconnect your lines.
[music].
Yeah.
Yeah.
Okay.
Yeah.
Yeah.
Yeah.
Okay.
Okay.
Okay.
Okay.
Yes.
Yeah.
Okay.
Okay.
Yeah.
Yeah.
Yeah.
Yes.
Yeah.
Okay.