Q3 2024 McKesson Corp Earnings Call

Rachel Rodriguez VP of Investor Relations. Please go ahead.

Thank you operator, good afternoon, and welcome everyone to Mckesson's third quarter fiscal 2024 earnings call.

Today, I'm joined by Brian Tyler, Our Chief Executive Officer, and Brent crude alone our Chief Financial Officer.

Brian will lead off followed by Britt and then we will move to question and answer session.

Today's discussion will include forward looking statements such as forecasts about mckesson's operations and future results.

Please refer to the cautionary statements in today's earnings release and presentation slides available on our website at Investor Mckesson Dot com.

And to the risk factors section of our most recent annual and periodic SEC filings for additional information concerning risk factors that could cause our actual results to materially differ from those in our forward looking statements.

Yeah.

Please standby.

Welcome to Mckesson's third quarter fiscal 2024 earnings conference call. Please be advised that today's conference is being recorded at this time I would like to turn the conference over to Rachel Rodriguez VP of Investor Relations. Please go ahead.

Information about non-GAAP financial measures, we will discuss during this webcast, including a reconciliation of those measures to GAAP results.

Found in today's earnings release and presentation slides.

Rachel Rodriguez: Thank you operator, good afternoon, and welcome everyone to Mckesson's third quarter fiscal 2024 earnings call.

The presentation slides also includes summary of our results for the quarter and updated guidance with that let me turn it over to Brian. Thank you Rachel and good afternoon to everybody. Thanks for joining our call.

Rachel Rodriguez: Today, I'm joined by Brian Tyler, Our Chief Executive Officer, and Brexit alone, our Chief Financial Officer.

<unk> reported a really solid fiscal third quarter, highlighting the continued momentum across the business. We delivered total revenues of $80 9 billion and adjusted earnings per diluted share of $7 74.

Brian Scott Tyler: Brian will lead off followed by Britt and then we will move to question and answer session.

Speaker Change: Today's discussion will include forward looking statements such as forecasts about mckesson's operations and future results.

Speaker Change: Please refer to the cautionary statements in today's earnings release and presentation slides available water website at Investor Mckesson Dotcom.

Both of which grew by double digits when compared to the prior year.

As a result of the recent performance on our latest outlook, we are raising and narrowing our guidance range for fiscal 2024 adjusted earnings per diluted share from $26 80.

Speaker Change: And to the risk factors section of our most recent annual and periodic SEC filings for additional information concerning risk factors that could cause our actual results to materially differ from those in our forward looking statements.

To $27 42, an updated range of $27 25 to $27 65.

Speaker Change: Information about non-GAAP financial measures, we will discuss during this webcast, including a reconciliation of those measures to GAAP results.

Speaker Change: Found in today's earnings release and presentation slides.

This solid financial performance is driven by the focused execution against our company priorities as a diversified health care services company, we are uniquely positioned to improve health care. In every setting. This includes the areas of oncology and Biopharma services, we continue to make significant progress in advancing our strategy and priorities.

Speaker Change: The presentation slides also includes summary of our results for the quarter and updated guidance with that let me turn it over to Brian. Thank you Rachel and good afternoon to everybody. Thanks for joining our call.

Brian Scott Tyler: <unk> reported a really solid fiscal third quarter, highlighting the continued momentum across the business. We delivered total revenues of $80 9 billion and adjusted earnings per diluted share of $7 74.

I'm pleased to share some of the updates with you today.

Let me start where I always like to start and that's with our focus on people and culture I start here because it is foundational to everything we do at Mckesson.

Brian Scott Tyler: Both of which grew by double digits when compared to the prior year.

In January our board of Directors welcome Kevin Ozanne, as a new independent director as the former Chief Financial Officer of Mcdonald's Corporation. Mr. Ozanne has over two decades of experience in both strategy and finance and we will continue a valuable perspective to our boardroom. We look forward to his leadership as we work together to deliver.

Brian Scott Tyler: As a result of the recent performance and our latest outlook, we are raising and narrowing our guidance range for fiscal 2024 adjusted earnings per diluted share from $26 80.

Brian Scott Tyler: To $27 42, an updated range of $27 25 to $27 65.

Liver on our growth initiatives.

<unk> the growth of our company requires a talented and diverse leadership team and equally important a diverse workforce, where each individual has empowered to bring their own opinions their own ideas and perspectives, our commitment to best talent and inclusion is reflected in every aspect of our operations. It's how we build a support network for our employees and how we eat.

Brian Scott Tyler: This solid financial performance is driven by the focused execution against our company priorities as a diversified health care services company, we are uniquely positioned to improve health care. In every setting. This includes the areas of oncology and Biopharma services, we continue to make significant progress in advancing our strategy and priorities.

Live these values through everyday interactions and I am pleased to see our efforts being recognized for the 11th consecutive year Mckesson was named as a military friendly employer.

Speaker Change: I'm pleased to share some of the updates with you today.

Speaker Change: Let me start where I always like to start and that's with our focus on people and culture I start here because it is foundational to everything we do at Mckesson.

We were also recognized by Newsweek as one of America's greatest workplaces for diversity and at a quality 100 award winner by the human rights campaign.

Speaker Change: In January our board of Directors welcome Kevin Ozanne, as a new independent director as the former Chief Financial Officer of Mcdonald's Corporation. Mr. Ozanne has over two decades of experience in both strategy and finance and will contribute a valuable perspective to our boardroom. We look forward to his leadership as we work together to <unk>.

Proud of what we've achieved as a team and I'm truly grateful to the Mckesson employees were upholding our culture values and delivering for all of our stakeholders our patients our customers our partners our shareholders and importantly, each other.

Speaker Change: Liver on our growth initiatives.

Speaker Change: <unk> the growth of our company requires a talented and diverse leadership team and equally important a diverse workforce, where each individual has empowered to bring their own opinion their own ideas and perspectives, our commitment to best talent and inclusion is reflected in every aspect of our operations. It's how we build a support network for our employees and how we eat.

Moving on to our next priority of driving sustainable core growth in the fiscal third quarter. We saw good performance in our distribution businesses.

In U S. Pharmaceutical adjusted operating profit grew 6%, reflecting broad based momentum within this segment, we continue to enhance our scaled distribution network improving efficiency through investments in automation and technology over the past year. We opened two new distribution centers in the U S that are equipped with innovative technology and employee friendly design.

Speaker Change: Live these values through everyday interactions and I am pleased to see our efforts being recognized for the 11th consecutive year Mckesson was named as a military friendly employer. We were also recognized by Newsweek as one of America's greatest workplaces for diversity and at a quality 100 award winner by the human rights campaign.

These enhancements will enable our facilities to pick pack and ship medications to customers faster, while simultaneously, helping to optimize employee productivity levels by reducing redundant tasks the investments in our foundation.

Speaker Change: I am proud of what we've achieved as a team and I'm truly grateful to the Mckesson employees were upholding our culture values and delivering for all of our stakeholders our patients our customers our partners our shareholders and importantly, each other.

Foundational distribution assets continue to support the growth of our business and the success of our customers. During the third quarter, we saw solid volume increases across customer channels, which includes distribution to retail national accounts customers at the consolidated level prescription volume growth remained stable certain product categories, including specialty farm.

Speaker Change: Moving on to our next priority of driving sustainable core growth in the fiscal third quarter. We saw good performance in our distribution businesses.

<unk> and <unk> medications continue to grow at a faster pace and contribute as a tailwind to our revenue growth. As a reminder, we anticipate the growth from <unk> medications to slow in our fiscal fourth quarter, reflecting the inflection in volumes for these medications in the fourth quarter of fiscal 2023.

Speaker Change: In U S. Pharmaceutical adjusted operating profit grew 6%, reflecting broad based momentum within this segment, we continue to enhance our scaled distribution network improving efficiency through investments in automation and technology over the past year. We opened two new distribution centers in the U S that are equipped with innovative technology and employee friendly design.

In the medical surgical segment primary care visits showed modest improvement on a sequential basis. After we observed general market moderation last quarter. The improvement was partially driven by overall increase in primary care visits however, when compared to the prior year patient visit volumes in the medical segment remained a headwind to this quarter's performance.

Speaker Change: These enhancements will enable our facilities to pick pack and ship medications to customers faster, while simultaneously, helping to optimize employee productivity levels by reducing redundant tasks the investments in our foundation.

Speaker Change: Additional distribution assets continue to support the growth of our business and the success of our customers. During the third quarter, we saw solid volume increases across customer channels, which includes distribution to retail national accounts customers at the consolidated level prescription volume growth remained stable certain product categories, including specialty pharma.

In the international segment, our Canadian business continues to perform well it has a valuable portfolio of assets, including pharmaceutical distribution retail pharmacies digital offerings, we're committed to strengthen and grow the business there and as a part of that commitment. We are executing on a multi year initiative that will modernize the distribution centers.

Speaker Change: <unk> and <unk> medications continue to grow at a faster pace and contribute as a tailwind to our revenue growth. As a reminder, we anticipate the growth from <unk> medications to slow in our fiscal fourth quarter, reflecting the inflection in volumes for these medications in the fourth quarter of fiscal 2023.

Across Canada, and deliver significant value to our employees and customers.

Let me now continue on.

To talk about our oncology and Biopharma platforms.

We continue to build on the foundation of core distribution capabilities, but we are strategically assembled a differentiated set of assets in oncology and Biopharma services within the oncology business. The Yuan U S oncology network expanded its footprint by entering the state of Tennessee.

Speaker Change: In the medical surgical segment primary care visits showed modest improvement on a sequential basis. After we observed general market moderation last quarter. The improvement was partially driven by overall increase in primary care visits however, when compared to the prior year patient visit volumes in the medical segment remained a headwind to this quarter's performance.

Over the past quarter, we welcome two new practices, Nashville, oncology associates, and SPRI oncology partners to the network.

Through the combination of Onboarding, new practices and organic growth. The U S. Oncology network has grown its provider base to over 2500 spreading across nearly 600 sites in 30 states. The expansion of the network strengthened our unique market position in community based oncology practices and demonstrates our strong value proposition to.

Speaker Change: In the international segment, our Canadian business continues to perform well it has a valuable portfolio of assets, including pharmaceutical distribution retail pharmacies digital offerings, we're committed to strengthen and grow the business there and as a part of that commitment. We are executing on a multi year initiative that will modernize the distribution centers.

Riders.

Speaker Change: <unk>, Canada, and deliver significant value to our employees and customers.

Through the U S oncology network, we provide a range of comprehensive solutions to ease the administrative and operational burden and to help enable that.

Speaker Change: Let me now continue on.

Speaker Change: To talk about our oncology and Biopharma platforms.

Success of these community practices.

Speaker Change: We continue to build on the foundation software distribution capabilities that we've strategically assembled a differentiated set of assets in oncology and Biopharma services within the oncology business.

In the past quarter, we started integrating new artificial intelligence capabilities into the network assisting providers with revenue cycle management and evaluating clinical solutions with the help of AI and machine learning technologies practices will be able to navigate complex insurance coverage and reimbursement processes more efficiently, allowing providers to spend more.

Speaker Change: Oncology network expanded its footprint by entering the state of Tennessee.

Speaker Change: Over the past quarter, we welcome two new practices, Nashville, oncology associates, and SPRI oncology partners to the network.

Time focused on their patients.

Speaker Change: Through the combination of Onboarding, new practices and organic growth. The U S. Oncology network has grown its provider base to over 2500 spreading across nearly 600 sites in 30 states. The expansion of the network strengthened our unique market position in community based oncology practices and demonstrates our strong value proposition to <unk>.

Within the Biopharma services business, we continue to see strong market demand for our differentiated solutions that help improve access affordability and adherence to medications.

In the third quarter of this fiscal third quarter. The prescription technology solutions segment delivered strong performance, primarily driven by the growth that access solutions, including prior authorization solutions for branded pharmaceuticals, such as <unk> medications.

Speaker Change: <unk>.

Speaker Change: The U S oncology network, we provide a range of comprehensive solutions to ease the administrative and operational burden and to help enable the success of these community practices.

Today, we provide provided prior authorization services for the vast majority of the <unk> medications in the market our integrated technology streamlines. The prior authorization process and helps overcome medication access challenges that patients are facing.

Speaker Change: In the past quarter, we started integrating new artificial intelligence capabilities into the network assisting providers with revenue cycle management and evaluating clinical solutions with the help of AI and machine learning technologies practices will be able to navigate complex insurance coverage and reimbursement processes more efficiently, allowing providers to spend more.

Main customers customers, we serve our biopharma companies and through our scaled network connection we can electronically process requests both at the pharmacy counter and the providers offices.

Speaker Change: Time focused on their patients.

The prior authorization solution as an example of the power of our capabilities and as part of a broader portfolio of patient support services. We provide we believe our solutions are highly differentiated and provide value to all stakeholders through a patient's journey.

Speaker Change: Within the Biopharma services business, we continue to see strong market demand for our differentiated solutions that help improve access affordability and adherence to medications in the third quarter of this fiscal third quarter. The prescription technology solutions segment delivered strong performance, primarily driven by the growth that access solutions, including prior off.

We're connected to over 50000 pharmacies and approximately 900000 providers. The scale of our network provides a strong foundation that enables us to reach key stakeholders effectively and seamlessly the integrated solutions. We offer can often be access through a single digital entry point for our Biopharma customers the integration helped <unk>.

Speaker Change: Authorization solutions for branded pharmaceuticals, such as <unk> medications.

Speaker Change: Today, we provide provided prior authorization services for the vast majority of the <unk> medications in the market our integrated technology streamlines. The prior authorization process and helps overcome medication access challenges that patients are facing.

<unk> workflows and increase transparency and to how programs work together.

In the past quarter, our teams have been working diligently to prepare for what we call. The blizzard season for the prescription technology solutions segment, our fiscal fourth quarter is usually the busiest time of year due to customer annual verification activities. The annual reset of insurance policies typically drives a large influx of seasonal volumes for many of our.

Speaker Change: The main customers customers, we serve our biopharma companies and through our scaled network connection we can electronically process requests both at the pharmacy counter and the providers offices.

Speaker Change: The prior authorization solution as an example of the power of our capabilities and as part of a broader portfolio of patient support services. We provide we believe our solutions are highly differentiated and provide value to all stakeholders through a patient's journey.

Our programs each year, our teams come together to tackle the challenge of these significant volume increases I am pleased to report that we're on track to deliver another successful blizzard season that is in line with our expectations are.

Speaker Change: We're connected to over 50000 pharmacies and approximately 900000 providers. The scale of our network provides a strong foundation that enables us to reach key stakeholders effectively and seamlessly integrated solutions. We offer can often be access through a single digital entry point for our biopharma customers the integration helped <unk>.

Our products and solutions in both oncology and Biopharma services provide significant value to our customers as reflected in the continued growth of these businesses. We're excited about the market opportunities in both areas and we're confident in the scale and depth of our assets and expertise, we will continue to invest and innovate to support the evolving needs of our customers.

Speaker Change: <unk> workflows and increase transparency into how programs work together.

Their patients.

Speaker Change: In the past quarter, our team has been working diligently to prepare for what we call. The blizzard season for the prescription technology solutions segment, our fiscal fourth quarter is usually the busiest time of year due to customer annual verification activities. The annual reset of insurance policies typically drives a large influx of seasonal volumes for many of our.

So let me pull it altogether Mckesson reported another solid quarter in fiscal 2024 that allowed us to raise and narrow our full year guidance for adjusted earnings per diluted share were committed to our shareholders to delivering long term sustainable growth and this quarter's results reflect the continued progress and delivering on our commitment healthcare.

Speaker Change: Programs each year, our teams come together to tackle the challenge of the significant volume increases I am pleased to report that we're on track to deliver another successful blizzard season and that is in line with our expectations are.

Is an ever evolving market, but thanks to the hard work and dedication of our employees, we never stopped finding new ways to drive positive impacts on our customers and their patients I want to thank the over 50000 Mckesson employees, who are working so tirelessly to advance our mission and with that I'll hand, it over to Bret for some additional insight and comments.

Speaker Change: Our products and solutions in both oncology and Biopharma services provides significant value to our customers as reflected in the continued growth of these businesses. We're excited about the market opportunities in both areas and we're confident in the scale and depth of our assets and expertise, we will continue to invest and innovate to support the evolving needs of our customers.

Thank you, Brian and good afternoon, we're pleased with our fiscal third quarter 2024 results, which reflect another quarter of solid momentum with growth across our north American businesses, our results exceeded expectations, demonstrating our ability to consistently execute against company priorities and create long term sustainable value.

Speaker Change: Their patients.

Speaker Change: So let me pull it altogether Mckesson reported another solid quarter in fiscal 2024 that allowed us to raise and narrow our full year guidance for adjusted earnings per diluted share were committed to our shareholders to delivering long term sustainable growth and this quarter's results reflect the continued progress and delivering on our commitment healthcare.

And for our shareholders.

Before I turn to our consolidated results I want to highlight one item that impacted our third quarter GAAP only results.

We recorded an additional pre tax GAAP provision for bad debts of $515 million or $381 million after tax within the U S. Pharmaceutical segment. This provision is for uncollected trade accounts receivable from sales to Rite aid in October of 2023 prior to its bankruptcy petition filing.

Speaker Change: Is an ever evolving market, but thanks to the hard work and dedication of our employees, we never stopped finding new ways to drive positive impacts on our customers and their patients I want to thank the over 50000 Mckesson employees, who are working so tirelessly to advance our mission and with that I'll hand, it over to Bret for some additional insight and comments.

We continue to provide distribution services to rite aid through an interim distribution agreement, providing the same efficiency and operational excellence as we have for over 20 years.

Bret: Thank you, Brian and good afternoon, we're pleased with our fiscal third quarter 2024 results, which reflect another quarter of solid momentum with growth across our north American businesses, our results exceeded expectations, demonstrating our ability to consistently execute against company priorities and create long term sustainable value.

Mostly monitoring developments Rite aid's bankruptcy will not have a material impact on our fiscal 2024 adjusted earnings per diluted share results.

Sure.

The remainder of my comments will refer to our fiscal 2024 adjusted results. Let me start with a review of the fiscal third quarter.

Bret: And for our shareholders.

Speaker Change: Before I turn to our consolidated results I want to highlight one item that impacted our third quarter GAAP only results.

Which hasn't delivered solid growth in the third quarter led by sustained strong performance in the U S pharmaceutical and prescription technology solutions segments. This year over year growth underscores operating execution across our diversified and differentiated portfolio, including investments in oncology and Biopharma services.

Speaker Change: We recorded an additional pre tax GAAP provision for bad debts of $515 million or $381 million after tax within the U S. Pharmaceutical segment. This provision is for uncollected trade accounts receivable from sales to Rite aid in October of 2023 prior to its bankruptcy petition filing.

As a result of the third quarter operating performance and our confidence in the business, we're increasing and narrowing our full year outlook for fiscal 2024 adjusted earnings per diluted share to a new range of $27 25 to $27 and 65.

Speaker Change: We continue to provide distribution services the rite aid through an interim distribution agreement, providing the same efficiency and operational excellence as we have for over 20 years.

Speaker Change: Closely monitoring developments Rite Aid's bankruptcy will not have a material impact on our fiscal 2024 adjusted earnings per diluted share results.

Let me move to our consolidated results.

Revenues increased 15% to $80 9 billion led by continued strong utilization trends.

Speaker Change: Sure.

In the U S pharmaceutical segment, including higher volumes from specialty products retail national account customers and DLP one medications.

Speaker Change: The remainder of my comments will refer to our fiscal 2024 adjusted results. Let me start with a review of the fiscal third quarter.

Partially offset by lower revenues in the international segment, resulting from fiscal 2023 divestitures within Mckesson's European business.

Speaker Change: Which hasn't delivered solid growth in the third quarter led by sustained strong performance in the U S pharmaceutical and prescription technology solutions segments. This year over year growth underscores operating execution across our diversified and differentiated portfolio, including investments in oncology and Biopharma services.

Excluding the impact of our European business operations, including completed divestitures revenues increased 16%.

Gross profit was $3 $1 billion for the quarter, an increase of 3%.

Speaker Change: As a result of the third quarter operating performance and our confidence in the business, we're increasing and narrowing our full year outlook for fiscal 2024 adjusted earnings per diluted share to a new range of $27 25 to $27 and 65.

When excluding the impact of our European business operations, including completed divestitures and the impact from U S. Government COVID-19 programs in fiscal 2023 gross profit increased 10%.

Operating expenses increased 4% in the quarter due to higher costs to support growth in the U S pharmaceutical and prescription technology solutions segments.

Speaker Change: Let me move to our consolidated results.

Speaker Change: Revenues increased 15% to $80 9 billion led by continued strong utilization trends growth in the U S pharmaceutical segment, including higher volumes from specialty products retail national account customers and <unk> medications.

Excluding the impact of our European business operations, including the completed divestitures operating expenses increased 6% year over year.

Third quarter operating profit decreased 9% to $1 3 billion.

Speaker Change: Partially offset by lower revenues in the international segment, resulting from fiscal 2023 divestitures within Mckesson's European business.

Fiscal 2023 results included a pre tax benefit of $126 million.

Speaker Change: Excluding the impact of our European business operations, including completed divestitures revenues increased 16%.

Related to the early termination of the tax receivable agreement or TRA with change healthcare.

Year over year results were also impacted by anticipated lower contributions from U S. Government COVID-19 programs, which were mitigated by contributions from commercial COVID-19 distribution.

Speaker Change: Gross profit was $3 1 billion for the quarter, an increase of 3%.

Speaker Change: When excluding the impact of our European business operations, including completed divestitures and the impact from U S. Government COVID-19 programs in fiscal 2023 gross profit increased 10%.

And a nonrecurring $30 million charge in our U S pharmaceutical segment.

These items were partially offset by growth in the U S pharmaceutical and prescription technology solutions segments.

Speaker Change: Operating expenses increased 4% in the quarter due to higher costs to support growth in the U S pharmaceutical and prescription technology solutions segments.

When adjusting for these items, including a 126 million or <unk> 65 benefit from the early termination of the TRA in fiscal 2023 and gains and losses associated with Mckesson ventures equity investments in fiscal 2023, and 2020 for operating profit increased 7% in the quarter.

Speaker Change: Excluding the impact of our European business operations, including the completed divestitures operating expenses increased 6% year over year.

Speaker Change: Third quarter operating profit decreased 9% to $1 3 billion.

Speaker Change: Fiscal 2023 results included a pre tax benefit of $126 million.

Moving below the line interest expense was $58 million, a decrease of 16% year over year, driven by effective management of our loan portfolio.

Speaker Change: Related to the early termination of the tax receivable agreement or TRA with change healthcare.

Speaker Change: Year over year results were also impacted by anticipated lower contributions from U S. Government COVID-19 programs, which were mitigated by contributions from commercial COVID-19 distribution.

The effective tax rate for the quarter was 10, 6%, resulting from the recognition of a discrete tax benefit in the quarter.

As a reminder, our effective tax rate can vary quarter to quarter, driven by our mix of income and the timing of discrete tax items.

Speaker Change: And a nonrecurring $30 million charge in our U S pharmaceutical segment.

Third quarter diluted weighted average shares outstanding was $133 3 million a decrease of 5% year over year.

Speaker Change: These items were partially offset by growth in the U S pharmaceutical and prescription technology solutions segment.

Speaker Change: When adjusting for these items, including a $126 million or <unk> 65 benefit from the early termination of the TRA in fiscal 2023 and gains and losses associated with Mckesson ventures equity investments in fiscal 2023, and 2020 for operating profit increased 7% in the quarter.

Consolidated third quarter earnings per diluted share was $7 74.

Which represents an increase of 12% over the prior year.

This increase includes the impacts of approximately 63 related to the U S government COVID-19 programs and the 65 benefit from the termination of the TRA in fiscal 2023.

Speaker Change: Moving below the line interest expense was $58 million.

And increased commercial COVID-19 vaccine distribution and the nonrecurring charge in our U S pharmaceutical segment in fiscal 2024.

Speaker Change: A decrease of 16% year over year, driven by effective management of our loan portfolio.

Turning to our third quarter segment results, which can be found on slide seven through 11, and starting with U S. Pharmaceutical.

Speaker Change: The effective tax rate for the quarter was 10, 6%, resulting from the recognition of a discrete tax benefit in the quarter.

During the quarter, we experienced volume increases across all product categories and customer channels.

Speaker Change: As a reminder, our effective tax rate can vary quarter to quarter, driven by our mix of income and the timing of discrete tax items.

Specialty pharmaceuticals, and <unk> medication continued to grow at a faster pace compared to the prior year.

Speaker Change: Third quarter diluted weighted average shares outstanding was $133 3 million a decrease of 5% year over year.

Third quarter revenues were 73 billion, an increase of 18% year over year, driven by increased prescription volumes, including higher volumes from specialty products retail national account customers and GOP one medications in.

Speaker Change: Consolidated third quarter earnings per diluted share was $7 74.

Speaker Change: Which represents an increase of 12% over the prior year.

Speaker Change: This increase includes the impacts of approximately 63 related to the U S government COVID-19 programs and the 65 benefit from the termination of the TRA in fiscal 2023.

In the quarter <unk> revenues were $7 5 billion.

An increase of approximately $2 8 billion or 60% compared to fiscal 2023.

Speaker Change: And increased commercial COVID-19 vaccine distribution and a nonrecurring charge in our U S pharmaceutical segment in fiscal 2024.

During the quarter. We also noted increased contributions from commercial COVID-19 vaccine distribution.

Our fiscal third quarter commercial COVID-19 vaccine distribution peaked in October then declined significantly in November and December we do not anticipate material contributions from commercial COVID-19 vaccine distribution in our fiscal fourth quarter.

Speaker Change: Turning to our third quarter segment results, which can be found on slide seven through 11, and starting with U S. Pharmaceutical.

Speaker Change: During the quarter, we experienced volume increases across all product categories and customer channels.

Speaker Change: <unk> pharmaceuticals, and <unk> medications continue to grow at a faster pace compared to the prior year.

For the third quarter operating profit increased 6% to $828 million driven by growth in the distribution of specialty products to providers and health systems.

Speaker Change: Third quarter revenues were $73 billion.

Speaker Change: An increase of 18% year over year, driven by increased prescription volumes, including higher volumes from specialty products retail national account customers and <unk> medications in.

Adjusting for the impact of the U S government COVID-19 vaccine distribution in fiscal 2023.

Commercial COVID-19 distribution in fiscal 2024, and $30 million nonrecurring charge in the U S pharmaceutical segment.

Speaker Change: In the quarter <unk> revenues were $7 5 billion.

Speaker Change: An increase of approximately $2 8 billion or 60% compared to fiscal 2023.

Delivered operating profit growth of 8% year over year.

In our prescription technology solutions segment, the growth of <unk> medications and new brand launches led to increased demand for our access solutions such as prior authorization services.

Speaker Change: During the quarter. We also noted increased contributions from commercial COVID-19 vaccine distribution.

Speaker Change: In our fiscal third quarter commercial COVID-19 vaccine distribution peaked in October then declined significantly in November and December we do not anticipate material contributions from commercial COVID-19 vaccine distribution in our fiscal fourth quarter.

For the third quarter revenues increased 7% year over year to $1 2 billion.

And operating profit increased 25% to $193 million.

Third quarter results reflect increased prescription transaction volumes, which drove higher demand for our access solutions, principally prior authorization services and growth in our third party logistics business.

Speaker Change: For the third quarter operating profit increased 6% to $828 million driven by growth in the distribution of specialty products to providers and health systems.

In addition to the strength of prior authorization services year over year growth was also supported by increased sales to new customers and programs across our access and affordability solutions.

Speaker Change: Adjusting for the impact of the U S government COVID-19 vaccine distribution in fiscal 2023.

Speaker Change: Commercial COVID-19 distribution in fiscal 2024, and $30 million nonrecurring charge in the U S pharmaceutical segment.

Turning to medical surgical solutions.

Revenues were $3 billion in the quarter, an increase of 2% primarily driven by growth in primary care and extended care businesses, partially offset by anticipated lower contributions, indicating storage and distribution of ancillary supplies for the U S. Government's COVID-19 vaccine program compared to the prior year.

Speaker Change: Delivered operating profit growth of 8% year over year.

Speaker Change: In our prescription technology solutions segment, the growth of <unk> medications and new brand launches led to increased demand for our access solutions such as prior authorization services.

Speaker Change: For the third quarter revenues increased 7% year over year to $1 2 billion.

In the third quarter primary care patient visits moderately increased on a sequential basis demand for commercialized COVID-19 vaccine distribution across the alternate sites of care that we serve was also modestly higher compared to prior expectations.

Speaker Change: And operating profit increased 25% to $193 million.

Speaker Change: Third quarter results reflect increased prescription transaction volumes, which drove higher demand for access solutions, principally prior authorization services and growth in our third party logistics business.

The overall illness season dynamics, including vaccinations and testing continue to be an operating profit headwind in the quarter when compared to the prior year.

Speaker Change: In addition to the strength of prior authorization services year over year growth was also supported by increased sales to new customers and programs across our access and affordability solutions.

As a reminder, each illness season is unique depending on the onset and severity of various respiratory illnesses during that particular year.

Speaker Change: Turning to medical surgical solutions.

Operating profit was $282 million, a decrease of 16% driven by anticipated lower contributions from the kitting storage and distribution of ancillary supplies for the U S. Government's COVID-19 vaccine program and a softer illness season as compared to fiscal 2023.

Speaker Change: Revenues were $3 billion in the quarter, an increase of 2% primarily driven by growth in primary care and extended care businesses, partially offset by anticipated lower contributions, indicating storage and distribution of ancillary supplies for the U S. Government's COVID-19 vaccine program compared to the prior year.

When excluding the impact of COVID-19 related items from the third quarter of fiscal 2023. The segment delivered operating profit growth of 7% driven by growth in the primary care and extended care businesses.

Speaker Change: In the third quarter primary care patient visits moderately increased on a sequential basis demand for commercialized COVID-19 vaccine distribution across the alternate sites of care that we serve was also modestly higher compared to prior expectations.

Next let me address our international results.

Revenues in the third quarter were $3 6 billion, a decrease of 18% year over year, driven by divestitures within mckesson's European business, partially offset by higher pharmaceutical distribution volumes in Canada.

Speaker Change: The overall illness season dynamics, including vaccinations and testing continue to be an operating profit headwind in the quarter when compared to the prior year.

Speaker Change: As a reminder, each illness season is unique depending on the onset and severity of various respiratory illnesses during that particular year.

Operating profit was $105 million, a decrease of 27% driven by divestitures within Mckesson's European business.

Speaker Change: Operating profit was $282 million, a decrease of 16% driven by anticipated lower contributions from the kitting storage and distribution of ancillary supplies for the U S. Government's COVID-19 vaccine program and a softer illness season as compared to fiscal 2023.

Wrapping up our segment review corporate.

Corporate expenses were $147 million in the quarter, which included losses of $8 million or <unk> <unk> per share related to equity investments within our Mckesson ventures portfolio.

Mckesson venture's impact on consolidated financials can be influenced by the performance of each individual investment quarter to quarter.

Speaker Change: When excluding the impact of COVID-19 related items from the third quarter of fiscal 2023. The segment delivered operating profit growth of 7% driven by growth in the primary care and extended care businesses.

As a result, mckesson's investments may result in gains or losses, the timing and magnitude, which can vary for each investment.

Speaker Change: Next let me address our international results.

We remain pleased with the insights and the results that we're obtaining through this portfolio.

Speaker Change: Revenues in the third quarter were $3 6 billion, a decrease of 18% year over year, driven by divestitures within mckesson's European business, partially offset by higher pharmaceutical distribution volumes in Canada.

Excluding the benefit from the early termination of the tax receivable agreement in fiscal 2023 and gains and losses within our Mckesson ventures portfolio in fiscal 2023 and 2024.

Operating profit was $105 million, a decrease of 27% driven by divestitures within the Mckesson's European business.

Corporate expenses in the third quarter decreased 5% year over year.

Turning now to cash flows and capital deployment, which can be found on slide 12.

Speaker Change: Wrapping up our segment review.

Speaker Change: Corporate expenses were $147 million in the quarter, which included losses of $8 million or <unk> <unk> per share related to equity investments within our Mckesson ventures portfolio.

We ended the quarter with $2 billion in cash and cash equivalents, we delivered free cash flow of $100 million in the third quarter and $2 $9 billion for the trailing 12 months.

Speaker Change: Mckesson venture's impact on consolidated financials can be influenced by the performance of each individual investment quarter to quarter.

Third quarter free cash flow was impacted by the rating bankruptcy in October and its associated $725 million provision for bad debts.

Speaker Change: As a result, mckesson's investment spending result in gains or losses, the timing and magnitude, which can vary for each investment.

As a reminder, our cash position working capital metrics and resulting cash flows can each be impacted by timing, which includes the day of the week that a quarter enzyme and therefore can vary from quarter to quarter.

Speaker Change: We remain pleased with the insights and the results that we're obtaining through this portfolio.

Speaker Change: Excluding the benefit from the early termination of the tax receivable agreement in fiscal 2023 and gains and losses within our Mckesson ventures portfolio in fiscal 2023 and 2020 for corporate.

During the first nine months of the fiscal year, we made capital expenditure investments of $418 million, which included new and existing distribution centers as well as investments in technology data and analytics to support our growth priorities.

Speaker Change: Corporate expenses in the third quarter decreased 5% year over year.

Year to date, we returned $2 6 billion of cash to shareholders, which included $2 3 billion of share repurchases and $232 million in dividend payments.

Speaker Change: Turning now to cash flows and capital deployment, which can be found on slide 12, we.

Speaker Change: We ended the quarter with $2 billion in cash and cash equivalents, we delivered free cash flow of $100 million in the third quarter and $2 $9 billion for the trailing 12 months.

Now, let me turn to our updated fiscal 2020 for outlook.

As a reminder, we do not provide forward looking guidance on a GAAP basis. The following metrics are provided on an adjusted non-GAAP basis, a full list of our assumptions can be found on slides 13 through 17 of our supplemental slide presentation.

Third quarter free cash flow was impacted by the <unk> bankruptcy in October and its associated $725 million provision for bad debts.

Speaker Change: As a reminder, our cash position working capital metrics and resulting cash flows can be impacted by timing, which includes the day of the week that a quarter enzyme and therefore can vary from quarter to quarter.

Let me start with the fiscal 2020 for outlook for our segments.

For the full year, we now anticipate U S pharmaceutical revenues to increase 16% to 18% and operating profit increased 6% to 8% year over year, excluding the.

Speaker Change: During the first nine months of the fiscal year, we made capital expenditure investments of $418 million, which included new and existing distribution centers as well as investments in technology data and analytics to support our growth priorities.

The impact of COVID-19 vaccine distribution for the U S government in fiscal 2023.

We anticipate operating profit to increase 11% to 14%.

Speaker Change: Year to date, we returned $2 $6 billion of cash to shareholders, which included $2 3 billion of share repurchases and $232 million in dividend payments.

The impact of elevated commercial COVID-19 distribution in the third quarter net of the $30 million nonrecurring charge also in the third quarter of fiscal 2024 accounts for approximately 2% of segment growth.

Speaker Change: Now, let me turn to our updated fiscal 2020 for outlook.

Speaker Change: As a reminder, we do not provide forward looking guidance on a GAAP basis. The following metrics are provided on an adjusted non-GAAP basis, a full list of our assumptions can be found on slides 13 through 17 in our supplemental slide presentation.

The updated segment revenue outlook incorporates the strong third quarter performance and continued growth in specialty distribution supported by stable utilization trends.

Revenue growth assumes the <unk> medication volumes will continue to be robust.

Speaker Change: Let me start with the fiscal 2020 for outlook for our segments.

Though the rate of growth will moderate in our fiscal fourth quarter.

Speaker Change: For the full year, we now anticipate U S pharmaceutical revenues increased 16% to 18% and operating profit increased 6% to 8% year over year.

These medications are lower margin and represent a headwind to year over year operating profit growth.

Our full year operating profit growth also reflects our leading generics program, which continues to deliver on the dual mandate of lower cost and product availability.

Speaker Change: Excluding the impact of COVID-19 vaccine distribution for the U S government in fiscal 2023.

Speaker Change: We anticipate operating profit to increase 11% to 14%.

And we continue to be pleased with the strength of our scaled and broadened <unk> platform.

Speaker Change: The impact of elevated commercial COVID-19 distribution in the third quarter net of the $30 million nonrecurring charge also in the third quarter of fiscal 2024 accounts for approximately 2% of segment growth.

This quarter as Brian mentioned, we expanded into Tennessee with the addition of <unk> practices with these additions and organic growth U S. Oncology is now over 2500 providers.

In our prescription technology solutions segment, we anticipate revenue growth of 9% to 13% and we've increased our operating profit growth outlook to 24% to 28%, reflecting strong third quarter performance continued organic growth and higher transaction volumes across our access and affordability solutions.

Speaker Change: The updated segment revenue outlook incorporates the strong third quarter performance and continued growth in specialty distribution supported by stable utilization trends rep.

Speaker Change: Revenue growth assumes the <unk> medication volumes will continue to be robust, although the rate of growth will moderate in our fiscal fourth quarter. These.

Yes.

Quarter to quarter variability in this segment is driven by prescription and transaction volumes, the timing pace and trajectory of new product drug launches the.

Speaker Change: These medications are lower margin and represent a headwind to year over year operating profit growth.

Speaker Change: Our full year operating profit growth also reflects our leading generics program, which continues to deliver on the dual mandate of lower cost and product availability.

The timing and size of investments to support and expand our product portfolio and the annual verification programs that we provide for our customers that occur in our fiscal fourth quarter.

Speaker Change: And we continue to be pleased with the strength of our scaled and broad oncology platform. This quarter as Brian mentioned, we expanded into Tennessee with the addition of <unk> practices with these additions and organic growth U S. Oncology is now over 2500 providers.

Our medical surgical solutions segment continues to be a leader across all the alternate sites of care, we anticipate revenues to be approximately flat to 4% growth in operating profit to decrease 11% to 15%.

When excluding the impact of COVID-19 related items from fiscal 2023 results, we anticipate operating profit to increase 6% to 8% year over year.

Speaker Change: In our prescription technology solutions segment, we anticipate revenue growth of 9% to 13% and we've increased our operating profit growth outlook to 24% to 28%, reflecting strong third quarter performance continued organic growth and higher transaction volumes across our access and affordability solutions.

Our updated outlook incorporates the third quarter results that I discussed earlier, which reflect a modest improvement in sequential primary care traffic.

Finally in the International segment, we anticipate revenues to decline by 29% to 33% and operating profit to decline by 21% to 26%, reflecting divestitures within mckesson's European business that closed during fiscal 2023.

Speaker Change: Quarter to quarter variability in this segment is driven by prescription and transaction volumes, the timing pace and trajectory of new product drug launches the.

Speaker Change: The timing and size of investments to support and expand our product portfolio and the annual verification programs that we provide for our customers that occur in our fiscal fourth quarter.

In the corporate segment, we anticipate expenses to be in the range of $615 million to $655 million, which includes losses associated with Mckesson ventures equity investment recorded in the first nine months of the year and elevated technology spend to support the growth of our business.

Speaker Change: Our medical surgical solutions segment continues to be a leader across all the alternate sites of care, we anticipate revenues to be approximately flat to 4% growth in operating profit to decrease 11% to 15%.

Moving below the line, we anticipate interest expense to be approximately $220 million to $230 million and income attributable to noncontrolling interests to be in the range of $155 million to $165 million.

Speaker Change: When excluding the impact of COVID-19 related items from fiscal 2023 results, we anticipate operating profit to increase 6% to 8% year over year.

Speaker Change: Our updated outlook incorporates the third quarter results that I discussed earlier, which reflect a modest improvement in sequential primary care traffic.

We anticipate no change to the full year effective tax rate of approximately 18% to 19%.

Speaker Change: Finally in the International segment, we anticipate revenues to decline by 29% to 33% and operating profit to decline by 21% to 26%, reflecting divestitures within caissons European business that closed during fiscal 2023.

The timing of discrete tax item is difficult to predict and therefore, we do not provide quarterly effective tax rate guidance.

Turning to cash flow and capital deployment.

We now anticipate free cash flow of approximately $3 two to $3 6 billion.

Speaker Change: In the corporate segment, we anticipate expenses to be in the range of $615 million to $655 million, which includes losses associated with Mckesson ventures equity investment recorded in the first nine months of the year and elevated technology spend to support the growth of our business.

Our working capital metrics, and resulting free cash flow.

Very from quarter to quarter impacted by timing, including the day of the week that marks the close of the quarter. Our outlook also incorporates the impact of the out of the October <unk> bankruptcy.

Our guidance reflects plans to repurchase approximately $3 to $3 5 billion of shares.

Speaker Change: Moving below the line, we anticipate interest expense to be approximately $220 million to $230 million and income attributable to noncontrolling interests to be in the range of $155 million to $165 million.

As a result of the share repurchase activity, we estimate weighted average diluted shares outstanding to be in the range of approximately $134 million.

Wrapping up fiscal 2024 guidance as a result of solid performance in the third quarter of fiscal 2024, combined with our momentum and confidence moving forward, we are increasing and narrowing our earnings per diluted share outlook for fiscal 2024 to a new range of $27 25 to $27 65.

Speaker Change: We anticipate no change to the full year effective tax rate of approximately 18% to 19%.

Speaker Change: Timing of discrete tax item is difficult to predict and therefore, we do not provide quarterly effective tax rate guidance.

Speaker Change: Turning to cash flow and capital deployment.

Speaker Change: Now anticipate free cash flow of approximately three two to $3 6 billion.

We anticipate operating profit will be a 2% decline to 1% growth compared to the prior year.

Speaker Change: Our working capital metrics, and resulting free cash flow will vary from quarter to quarter impacted by timing, including the day of the week that marks the close of the quarter. Our outlook also incorporates the impact of the out of the October redeemed bankruptcy.

Excluding certain items, we anticipate operating profit to increase by approximately 8% to 11% year over year.

Above the long term target range.

As a reminder, certain items include the following.

Speaker Change: Our guidance reflects plans to repurchase approximately $3 to $3 5 billion of shares.

$1.90 related to fiscal 2023 U S government COVID-19 program in COVID-19 tests in our U S pharmaceutical unmet medical surgical segments.

Speaker Change: As a result of the share repurchase activity, we estimate weighted average diluted shares outstanding to be in the range of approximately $134 million.

Ah 60, <unk> benefit related to the early termination of the tax receivable agreement with change healthcare in fiscal 2023 and.

Speaker Change: Wrapping up fiscal 2024 guidance as a result of solid performance in the third quarter of fiscal 2024, combined with our momentum and confidence moving forward, we are increasing and narrowing our earnings per diluted share outlook for fiscal 2024 to a new range of $27 25 to $27 65.

And gains and losses associated with Mckesson ventures equity investments in fiscal 2023 and 2024 <unk>.

The increase to our outlook for adjusted earnings per diluted share indicates growth of 16% to 18% when excluding these certain items.

Speaker Change: We anticipate operating profit will be a 2% decline to 1% growth compared to the prior year.

Before I close I'd like to share some initial thoughts on fiscal 2025.

The momentum we've seen across our business over the past several years is expected to continue in fiscal 2025.

Speaker Change: Excluding certain items, we anticipate operating profit to increase by approximately 8% to 11% year over year.

We anticipate the U S pharmaceutical and medical surgical solutions segment will be more closely aligned to long term growth targets that we've previously provided for these segments demonstrating.

Speaker Change: Above the long term target range.

Speaker Change: As a reminder, certain items include the following.

Speaker Change: $1.90 related to fiscal 2023 U S government COVID-19 program in COVID-19 tests in our U S pharmaceutical unmet medical surgical segments.

Our leading market positions in stable financial performance.

We anticipate that the strength, we're seeing across our solution set and prescription technology solutions will lead to growth at the top end or slightly above the long term target.

Speaker Change: Ah 65 benefit related to the early termination of the tax receivable agreement with change healthcare in fiscal 2023 and.

Speaker Change: And gains and losses associated with Mckesson ventures equity investments in fiscal 2023 and 2024 <unk>.

And U S. Pharmaceutical we remain confident in our long term target of 5% to 7% growth supported by sustainable momentum in the core distribution business and across our oncology platform. The U S oncology network on charter and the joint venture with Sarah Cannon Research Institute.

Speaker Change: The increase to our outlook for adjusted earnings per diluted share indicates growth of 16% to 18% when excluding these certain items.

Speaker Change: Before I close I'd like to share some initial thoughts on fiscal 2025.

As the leader in the alternate site market, we believe that the medical surgical solutions segment is well positioned as care continues to move across the alternate site settings are.

Speaker Change: The momentum we've seen across our business over the past several years is expected to continue in fiscal 2025.

Speaker Change: We anticipate U S pharmaceutical and medical surgical solutions segments will be more closely aligned to long term growth targets that we've previously provided for these segments, demonstrating our leading market positions in stable financial performance.

And our relationships in every channel and setting of the alternate site markets enable us to capture the growth opportunity in the years ahead.

We anticipate that the prescription technology solutions segment may perform modestly above our long term growth target of 11% to 12% driven by organic growth as we expand our higher margin Biopharma services platform.

Speaker Change: We anticipate that the strength, we're seeing across our solution set and prescription technology solutions will lead to growth at the top end or slightly above the long term target.

For the International segment, we anticipate continued growth in our Canadian operations.

Speaker Change: And U S. Pharmaceutical we remain confident in our long term target of 5% to 7% growth supported by sustainable momentum in the core distribution business and across our oncology platform. The U S oncology network on charter and the joint venture with Sarah Cannon Research Institute.

And throughout fiscal 2023, we completed divestitures of the business operations in 11 of the 12 countries that we operated in Europe.

As a reminder, Norway remains the only country that we have not entered into an agreement to sell and we intend to exit Norway as part of the completion of our European exits.

Speaker Change: As the leader in the alternate site market, we believe that the medical surgical solutions segment is well positioned as care continues to move across the alternate site settings, our experience and our relationships in every channel and setting of the alternate site markets enable us to capture the growth opportunity in the years ahead.

Finally, we will continue to materially invest in the business on multiple fronts.

We will sustain the pace and cadence of investment in product development and enhancements and cross across our oncology and Biopharma services platforms. These investments will further our differentiated capabilities and market leading positions.

Speaker Change: We anticipate that the prescription technology solutions segment may perform modestly above our long term growth target of 11% to 12% driven by organic growth as we expand our higher margin Biopharma services platform.

We will also continue to invest in adding capacity and capabilities to our north American distribution footprint. These investments include increased capacity automation and regular regulatory excellence capabilities.

Speaker Change: For the International segment, we anticipate continued growth in our Canadian operations.

And we will continue to invest in data and analytics, including the acceleration of several investments in artificial intelligence we.

Speaker Change: And throughout fiscal 2023, we completed divestitures of the business operations in 11 of the 12 countries that we operated in Europe.

We see AI as unlocking the potential to deliver customer and foundational enhancements.

Speaker Change: As a reminder, Norway remains the only country that we have not entered into an agreement to sell and we intend to exit Norway as part of the completion of our European exits.

Although in the early stages, we're using AI to improve patient intake and workflow improve productivity throughout throughout the system, including automatic clinical note generation and several supply chain use cases, including supply supply chain disruption predictions.

Speaker Change: Finally, we will continue to materially invest in the business on multiple fronts.

Speaker Change: We will sustain the pace and cadence of investment in product development and enhancements and cross across our oncology and Biopharma services platforms. These investments will further our differentiated capabilities and market leading positions.

Forecast accuracy algorithms and fraud detection.

Although we are in the early stages of our AI development and implementation.

We're committed to increased investment to further extend our leadership positions and deliver value to our partners and stakeholders.

Speaker Change: We will also continue to invest in adding capacity and capabilities to our north American distribution footprint. These investments include increased capacity automation and regular regulatory excellence capabilities.

To sum up we see strength and stability in the underlying fundamentals of the business. We're pleased with our strong fiscal 2020 for performance and we remain optimistic about the outlook Mckesson is well positioned to continue to deliver strong results as we successfully execute against our strategic and financial framework.

Speaker Change: And we will continue to invest in data and analytics, including the acceleration of several investments in artificial intelligence we.

Speaker Change: We see AI as unlocking the potential to deliver customer and foundational enhancements.

To drive long term sustainable growth for all stakeholders.

Speaker Change: Although in the early stages, we're using AI to improve patient intake and workflow improve productivity throughout throughout the system, including automatic clinical note generation and several supply chain use cases, including supply supply chain disruption predictions.

That lets move to our Q&A session.

Okay.

Thank you.

I would like to signal with question. Please press star one on your Touchtone telephone if you are joining us today using a speaker phone. Please make sure. The mute function is turned off to allow your signal to reach our equipment again that is star one if you'd like to ask questions.

Speaker Change: Forecast accuracy algorithms and fraud detection.

Speaker Change: Although we are in the early stages of our AI development and implementation.

Speaker Change: We're committed to increased investment to further extend our leadership positions and deliver value to our partners and stakeholders.

And our first question will come from Charles <unk> with TD Cowen.

Please go ahead.

Speaker Change: To sum up we see strength and stability in the underlying fundamentals of the business. We're pleased with our strong fiscal 2020 for performance and we remain optimistic about the outlook for <unk>.

Yes, thanks for taking the questions.

Obviously strong performance in an Rx TFS.

As implied in the guidance, maybe you can kind of give us a feel for the mix between.

Speaker Change: <unk> is well positioned to continue to deliver strong results as we successfully execute against our strategic and financial framework to drive long term sustainable growth for all stakeholders and with that let's move to our Q&A session.

Authorizations versus new.

Prior offs in that mix and as we think about through the course of the year as kind of a new category. Like this is sort of a category that has kind of grown significantly over the last year or so, particularly and then if we think about the launch of <unk> as well from Lilly can you give us a sense of what the lifecycle typically gets for a prior off.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: I would like to signal with question. Please press star one on your Touchtone telephone if you are joining us today using a speaker phone. Please make sure. The mute function is turned off to allow your signal to reach our equipment again that is star one if you'd like to ask questions.

<unk>.

Overtime as products mature, what does that activity looks like and and maybe give us a sense for what you kind of expect right now.

Particularly in this <unk> category.

Thanks, Charles I'll start and Bret as always feel free to add on first off we're very pleased with the solutions that we have in this segment, we think the growth over the last several quarters demonstrates the value that they bring to providers just as a reminder.

This this segment new brand launches are particularly high cost drugs are drivers for this segment. They typically require profit prior authorization, we have automated solutions. There. So as those volumes grow that's generally good for good for this business the <unk> or a strong contributor in the.

Current quarter.

How the programs evolve will largely be dependent on payer decisions in terms of how frequently they require an authorization or a reauthorization.

But certainly it's been a good tailwind for us and add to the Blizzard season.

I am pleased to say we have it.

It played out.

In accordance to how we expected it to.

A lot of work the team really put their head down had a good plan and is pushing through that work and we're very confident we will end. This blizzard season, more or less in line with our expectations at the outset of the year.

Next question please.

And next will be Eric Percher with Nephron research. Please go ahead.

Thank you I appreciate the 25 initial commentary and I wanted to focus in on specialty.

Coming out of the pandemic, we saw elevated growth and you're calling out higher growth this year.

I'd like to understand how much of that is organic growth versus gaining share.

And beyond oncology and increase of share and multi specialty and then finally I'd ask for those practices. You are acquiring now I assume you've known them for quite some time what is it that's driving them.

I'm joined today.

Let me start I guess I'll start where you ended with.

The practices first thing I think I would say is.

We're very pleased with the solid growth in our same store or we can obviously grow our U S oncology network in multiple ways. We can add we could add oncologists or providers to an existing practice that we have.

We could greenfield of new practice, we can onboard new practices that really we've been benefiting over the last few years from from all three of those.

<unk>.

We have been very pleased with our ability to attract new members to the U S oncology network.

We've added five or 600 providers over the over the last couple of years, we've entered into.

Six nuke, we added six new practices in eight new geographies.

Over the calendar year of 2023.

Why are we able to do that we think it's not just great practice management when we've been at this for 15 years. So we've got a leading EMR <unk> got leading technology Britt talked about investments, we're making to extend that lead but I think we also have thus broad ecosystem that includes an <unk>.

<unk> provide insights to our providers that includes SPRI, which brings in clinics.

Clinical research.

And trial capabilities and so we think it's that really broad value proposition, Eric which allows us to to compel the growth we're seeing in the U S oncology network today.

And Eric maybe I'll just add on when we think about specialty product growth, we're certainly seeing specialty product growth across not only our largest customers, but across as I mentioned health systems and.

And certainly as we continue to grow in the U S oncology network and oncology in general and we're certainly seeing more growth in that area as well. So we're seeing growth in specialty products, we're seeing growth across the specialty providers that we service and as I mentioned, we're also seeing significant growth from <unk> medications.

So we've got a leading EMR, we've got leading technologies Britt talked about investments, we're making to extend that lead but I think we also have this broad ecosystem that includes on top of it which helps us provide insights to our providers that includes SPRI, which brings them click.

We're really winning across the entirety of our scaled business.

And of course, as our customers continue to win and Thats reflected in the volume increases also.

Clinical research.

And trial capabilities and so we think it's that really broad value proposition, Eric which allows us to to compel the growth we're seeing in the U S oncology network today.

Next question please.

And next will be Lisa Gill with Jpmorgan. Please go ahead.

Great. Thanks, and good afternoon, I just want to go to your international business and you talked about how strong candidates but.

And Eric maybe I'll just add on when we think about specialty product growth, we're certainly seeing specialty product growth across not only our largest customers, but across as I mentioned health systems and certainly as we continue to grow in the U S oncology network and oncology in general, we're certainly seeing more growth.

There's been some speculation in the marketplace around racks. All can you talk about the strategy in Canada and specific to owning a drug retail.

Well I will I won't comment obviously on on rumors.

In that area as well, so we're seeing growth in specialty products.

Let me say this about Canada.

Seeing growth across the specialty providers that we service.

Berry scale broad and impactful healthcare services business. There, it's obviously anchored in our distribution assets, but it includes specialty distribution capabilities that includes retail pharmacies. It includes.

As I mentioned, we're also seeing significant growth from <unk> medications, so we're really winning across.

The entirety of our scaled business.

Of course, as our customers continue to win and Thats reflected in the volume increases also.

One of the best online brands and well that CA includes infusion clinics and it includes a growing biopharma manufacturer services business. So we're very very broad in our capabilities and and really one of the leading players in the Canadian health care landscape in general.

Next question please.

And next will be Lisa Gill with Jpmorgan. Please go ahead.

Great Thanks, and good afternoon.

I just want to go to your international business and you talked about how strong candidates but.

There's been some speculation in the marketplace around Rex Al can you talk about the strategy in Canada and specific to owning a drug retail.

We've been very pleased with the performance of the business Britt talked about some of the investments we continue to make into that business to keep to keep our growth trajectory going and I'd say, we just.

Well I will I won't comment obviously on on rumors.

Very pleased with the performance and very committed to the current strategy only thing I would add is similar to our U S business in Canada, we have very strong strategic sourcing capabilities, as well, which our customers benefit from and it's helping our customers win in helping us drive increased distribution volume so very similar to <unk>.

Let me say this about Canada.

Very scaled broad and impactful healthcare services business. There, it's obviously anchored in our distribution assets, but it includes specialty distribution capabilities. It includes retail pharmacies. It includes.

The U S. We utilize our strong.

One of the best online brands and well that CA includes infusion clinics.

Scaled strategic sourcing capabilities to help our customers win.

Includes a growing biopharma manufacturer services business. So we're very very broad in our capabilities and and really one of the leading players in the Canadian health care landscape in general we've been very pleased with the performance of the business Britt talked about some of the investments we continue to make into.

Next question please.

And next will be Allen Lutz with Bank of America. Please go ahead.

Good afternoon, and thanks for taking the question Greg You mentioned core operating expense growth was about 6% excluding divestitures as we think about the current growth across your different businesses is that 6% growth rate the right way to think about operating expense growth from here and then is there any reason why that would take.

That business to keep to keep our growth trajectory going and I'd say, we just.

Are you pleased with the performance and very committed to the current strategy.

Higher or lower versus that 6%.

I would add is similar to our U S business.

In Canada, we have very strong strategic sourcing capabilities, as well, which our customers benefit from and it's helping our customers win in helping us drive increased distribution volume so very similar to the U S. We utilize our strong.

Thanks for the question Alan I think when you when you look at our operating expenses, what we tried to do and what we've been able to do over a long period of time is gaining leverage on our gross gross profit.

So what we strive to do we've demonstrated that.

Scaled strategic sourcing capabilities to help our customers win.

Operating expenses typically will grow.

Slower paced than gross profit now we've been investing back in the business and so as we've been investing not only in distribution capabilities data and analytics and now an accelerated investment in artificial intelligence new.

Next question please.

And next will be Allen Lutz with Bank of America. Please go ahead.

Rachel Rodriguez: Good afternoon, and thanks for taking the question Greg You mentioned core operating expense growth was about 6% excluding divestitures as we think about the current growth across your different businesses is that 6% growth rate the right way to think about operating expense growth from here and then is there any reason why there.

Quarter of quarterly variability in that operating expense number you can expect to see that but generally speaking you will see us generate operating leverage on our gross margin.

Next question please.

Speaker Change: It would take higher or lower versus that 6%.

And next will be Brian <unk> with Jefferies. Please go ahead.

Brian Scott Tyler: Thanks for the question Alan I think when you look at our operating expenses, what we tried to do and what we've been able to do over a long period of time is gaining leverage on our gross gross profit right.

Hey, good afternoon guys.

And Brent just curious what youre seeing on the generic pricing front and what opportunities we should be thinking about as we think about.

A combination of a drug shortages and just broader inflation trends in generic.

And so what we strive to do more we have demonstrated that.

Speaker Change: Our operating expenses typically will grow.

Yeah. Thanks for the question Brian in generics, we continue to have a very scaled.

Speaker Change: In a slower pace than gross profit now we've been investing back in the business.

Sourcing operation in Claris, one claris one continues to partner very closely with our broad set of customers is generating good sourcing benefits I talked about the dual mandate that we focus on which is driving low cost capability low cost positions for our customers at the same time as driving the highest.

Speaker Change: So as we've been investing not only in distribution capabilities data and analytics and now an accelerated investment in artificial intelligence.

<unk> quarterly variability in that operating expense number you can expect to see that but generally speaking you will see us generate operating leverage on our gross margin.

Availability of supply, we've been able to do that over a long period of time.

Speaker Change: Next question please.

Our generics business continues to grow.

Speaker Change: And next will be Brian <unk> with Jefferies. Please go ahead.

We're quite pleased with the the <unk>.

Sourcing spread that we're able to generate from our sourcing.

Brian Scott Tyler: Hey, good afternoon guys.

Brian Scott Tyler: And Brent just curious what youre seeing on the generic pricing front and what opportunities we should be thinking about as we think about.

Buy side capabilities, and we think that our customers are benefiting as well and we see that in high compliance rates. So it's been a competitive but stable.

Brian Scott Tyler: Combination of drug shortages, and just broader inflation trends in generic.

<unk> placed in the generic space, but the capabilities that we have on sourcing the ability for us to drive lower cost and high availability of product and generate spread for our customers in a disciplined way that has proven to be a good formula for us over a long period of time.

Brian Scott Tyler: Okay.

Brent: Yes. Thanks for the question Brian in generics, we continue to have a very scaled.

Brian Scott Tyler: Sourcing operation in Claris, one claris one continues to partner very closely with our.

Next question please.

And next will be Kevin Kelly Endo with UBS. Please go ahead.

Thanks, Thanks for taking my question.

I appreciate the color on the Rite aid impact I'm guessing Mike. My question is I know, we don't know exactly what's going to happen with the rest of Rite aid, we should hopefully know soon but what are the assumptions built in for fiscal 'twenty five around the potential impact.

From whatever happens with Rite aid from.

From here like is it built in your comments and how meaningful can it be.

I appreciate the question obviously.

Obviously can't.

And not in a position to comment a lot on <unk>. What I can tell you is what we've talked about for fiscal 2024 and Rite aid is not going to have a material impact on our financial results.

I would leave it at that and then in terms of 2025, we will learn more over the next few months.

I'll give you more information as we can give you further information on all of our fiscal 2025 assumptions, but rite aid is not material to our financial results and fiscal 2024.

Next question please.

And next will be Eric Coldwell with Baird. Please go ahead.

Thank you good afternoon, this way I think.

Fairly obvious some fairly simple, but I just wanted to make sure of the free cash flow reduction.

Prior guide is that specifically and only due to the rite aid impact and if so I.

I guess the question is why you didn't take that last quarter, perhaps win.

I guess, maybe that's not a fair question given the timing, but I just wanted to make sure thats. The only topic there and then on the on the repo activity as well as slightly lower outlook here $3 to $3 5 billion versus prior three five is that also the rite aid impact or perhaps due to valuation in the market or some other topic.

Those are my only two thank you very much.

Yes, I appreciate the question Derik and Youll note that in our free cash flow guide for the rest of the year the reduction versus the prior guidance that we gave you is not the full impact of of the Rite aid.

Provision for bad debt. So it is a key driver to that.

So to answer your question very simply Us Rite aid and the bankruptcy is a driver on the free cash flow reduction in terms of share repo I'd say that theres two things that are driving that clearly we are taking a look at our free cash flow guide, but going back to our principles of how we deploy capital one of the.

Things that we've talked about is a we will buy back shares when cash there's excess cash on hand that we can't.

Deploy in a growth format.

Secondly, we're going to be looking at the intrinsic value of the stock we want to be in the market and we want to return capital to our shareholders through share repurchases, but those two factors are going to be important to us and so we're going to continue to be disciplined.

So a portion of that is reflected in the lower share buyback.

Next question please.

And next will be Stephanie Davis with Barclays. Please go ahead.

Hey, guys. Thanks for taking my question I was I know you've given a lot of great color on that that's something they get paid a little bit more into the strong U S pharmaceutical costs and how to think about and the lighter flipped into margin is there anything beyond <unk> kind of doing that and you made a comment on commercial COVID-19 net of 30 million nonrecurring accounting.

First on the growth that we thought could you clarify kind of any impact that would have on the margin front there.

Yes, So let me comment on a couple of things, we're really pleased with our U S. Pharmaceutical results. They delivered another strong quarter included in that obviously, we are lapping the effects of the government program with Covid last year.

This year, we do have commercial Covid vaccine that peaked in October and then really fell off and we did have a onetime nonrecurring charge in the quarter when you net.

The commercial Covid vaccine contribution in that charge roughly offsets the government program contribution from last year. So the performance within the.

This segment is just strong continued utilization that we're seeing in the marketplace continued strong growth of specialty across all of our customer channels and the continued growth in our oncology business as well as as I mentioned I provided a number on the revenue impact from <unk>.

<unk> ones, which again come at a lower margin rate than had been a headwind to year over year. So just sort of sum up. It's just continued strong utilization in the marketplace. In general continued good growth of our customers and channels and continued growth within our oncology business.

Next question please.

And next will be Erin Wright with Morgan Stanley. Please go ahead.

Great. Thanks, So I think about 2025, why is 5% to 7% still the right target target for U S. Farmer, Mac, just given specialty contributions and growth there and favorable generics environment and do you think kind of the long term growth that reflected higher at this point for longer or.

What are some of those assets that we should be thinking about in 2025.

I appreciate the question, let me just start by stating in the beginning of the year. When we gave guidance for long term growth rate for the segment was 4% to 6% given the performance that we've seen this year, we increased that target that long term target rate to five to seven what I am trying to provide you know as an early view into <unk>.

Some of the qualitative factors that we're looking at something.

Some of the momentum that we see going forward in indicating that that long term range that we increase this year, we still see that as being the right number today now we'll continue to do some analysis and work and we come forward with our full year assumptions.

Give you more insight into that but just as a reminder, we have already increased the long term target range. This year from 4% to six to five to seven and we're certainly pleased with the momentum that we're seeing in the segment.

Next question please.

And next will be Daniel gross like with Citi. Please go ahead.

Thanks for taking the question one of your competitors mentioned that there may be an ability to renegotiate.

<unk> contracts as they come due to potentially extract a bit more margin for the drug supply chain. I was wondering if you could comment on your views of contract negotiations as those contracts renew and if there may be an ability to boost the margin profile of <unk> going forward.

Well I would say this I think we've talked many times on these calls that the first most important thing for us to do is make sure we get fair value for the services that we provide and then obviously we want to provide as many services as we can in support of those products and that philosophy is no different for the <unk>.

<unk> than it is frankly for all.

The products that we distribute.

We are always in a close contact and communication with our with our Biopharma partners can you talk about the value that we deliver to talk about maybe the ancillary services that we could offer in support of those programs and to find ways that we can both support the growth of our respective businesses and thats exactly the lens will bring to this.

Product class and it's really no different than the way we run the business day to day.

Next question please.

And next will be Elizabeth Anderson with Evercore ISI. Please go ahead.

Hi, guys. Thanks, so much for the question you guys talked about continuing to invest in some of the longer term drivers of that.

Pharma growth in terms of oncology Biopharma services et cetera, I was hoping you could unpack that a little bit more and just talk a bit more about what are you sort of see the most attractive opportunities versus the assets that you already have.

<unk>.

Sure I'll start and then Ken can tack on first thing I would say is.

Really pleased over the last several years, we have been very.

Discipline, and making sure that we made organic investment or reinvestment back into the business and we view that as part of good portfolio management I mean, our goal is to continue to extend.

The growth that we see in our markets and to innovate innovating new solutions as part of that so yeah.

Now when we allocate that investment capital certainly some goes into the core where we think we can get efficiency better services extend our base value proposition, but a lot will go into our we call our growth pillars and that would be oncology. So in one instance, we've talked a lot it's about.

Green fielding our entire business, our our data and analytics business, obviously, we've gone inorganic with cri and extended into clinical trials and research.

Talk about a quarter or two ago about some innovations that we've made in Rx TX segment with enhancing some of our solutions.

And frankly building in innovating and bringing new solutions. So it is much like our inorganic investment we.

We are tied to our strategy.

And committed the business cases that we think will deliver more returns I think the one area that we probably highlighted more this quarter than we have in the past is investments in technology.

Our machine learning, obviously that the developments and advancements in that field thats come on fast and when you think about a business that operates at our kind of scale.

We're very excited about the opportunities we see there and when you think about like the U S. Oncology Britt highlighted several places where we think we can use this.

This kind of technology to make a better patient experience make our provider experience better and to continue to drive efficiencies through that business. So.

We will continue to be.

Committed to investing back in the business, where we see good financial returns tied to our strategy.

Next question please.

And next will be George Hill with Deutsche Bank. Please go ahead.

Hey, good afternoon, guys and thanks for taking the question first.

First one is just kind of a.

A point of clarification, when you say GOP ones as an EBIT headwind you mean to margins not to dollars and then for Brian I have a follow up question on oncology I guess could you just kind of talk about the greenfield opportunity that remains in the <unk> business and do you think more about the opportunity to add providers kind of add reagents or AD service.

It is into the installed base, that's kind of a way to continue to grow that business. Thank you.

I'll start with your second question and then.

They come on so I talked about three ways to drive.

U S oncology business on is to acquire a practice in a geography, we're not obviously to add providers to an existing geography and in instances where.

Our criteria are met meaning we think we can attract the right level of scale, we can find oncologists that want our practice consistent with the way the way we practice oncology.

And our network.

We are not afraid to greenfield, obviously, adding to an existing is faster acquiring an established practice that we feel fits our criteria is probably second and greenfield will be third, but but we have all of those avenues open to us and so we look at the criteria of the population that growth. The payer mix is all kind of go into our <unk>.

Formula as we identify which of those three avenues as the most viable.

And the answer to your first question as we've talked about GOP ones previously.

Today, we are talking about margin rate that usually come at a lower margin rate and other products that we distribute.

And as I mentioned, they have been a an operating profit headwind year over year.

Okay.

And we've time for one more question. Please.

Certainly that question will come from Stephen Baxter with Wells Fargo. Please go ahead.

Hi, This is carol.

Just a follow up on the prescription technology segment of <unk>. One is now that we're starting to come up against them harder Tom just how should we think about growth, but it does not touching more preference for new prescription and what are some of the other categories. We should be focused on its growth drivers outside of gel one wholesale.

Well I think as we think about <unk>, obviously four quarters ago was a big growth quarter, we're going to start to lap that I think.

My characterization is there will continue to be growth that growth may or may not be linear depending on product launches uptake.

How commercial government and other payers.

<unk> policy is to manage these products. So I think it's going to be growth, it's going to be slowed compared to what it has been historically and that's probably going to be a little bit lumpier than we would typically expect just because of the size of the class.

I would just remind you that while the growth has been robust and we do expect the rate of growth to moderate as we go into future quarters, beginning in the fourth quarter. We did increase the guide for the operating profit for the segment.

The momentum in that segment is really good.

Prior authorizations in general <unk>, one specifically, but also seeing good growth across other access and affordability solutions within the segment.

Well. Thank you again, everyone for joining our call I appreciate as always the great questions.

I want to thank you Cynthia for facilitating the call and Navy just concluding comment Mckesson continues to make really.

Meaningful progress in advancing our strategy and our mission.

Couldnt be more pleased with the consistent solid performance, we're delivering and we remain confident in our ability to continue to deliver sustainable long term growth I want to make sure I acknowledge the contribution of the Mckesson employees across really all our teams all of our business. It is it is one team executing this enterprise strategy and I'm proud of.

What we've been able to achieve as a team and I look forward to sharing more updates and more of our progress with you next quarter. Thanks again, everybody I hope everyone has a terrific evening.

Thank you for joining today's conference call you may now disconnect and have a great day.

Yeah.