美源伯根 (ABC) 2021 Q2 法說會逐字稿

Good day, and welcome to AmerisourceBergen's Second Quarter Fiscal Year 2021 Earnings Conference Call.

(Operator Instructions) Please note that today's event is being recorded.

I would now like to turn the conference over to Mr. Bennett Murphy, Head of Investor Relations.

Please go ahead, sir. .

Thank you.

Good morning, and thank you all for joining us today's conference call to discuss AmerisourceBergen's fiscal 2021 second quarter results.

I am Ben Murphy, Senior Vice President, Investor Relations.

Joining me today are Steve Collis, Chairman, President and CEO; and Jim Cleary, Executive Vice President and CFO.

On today's call, we will be discussing non-GAAP financial measures.

Reconciliations of these measures to GAAP are provided in today's press release and are also available on our website at investor.amerisourcebergen.com.

We've also posted a slide presentation to accompany today's press release on our investor website.

During this conference call, we will make forward-looking statements about our business and financial expectations on an adjusted non-GAAP basis, including, but not limited to, EPS, operating income and income tax.

Forward-looking statements are based on management's current expectations that are subject to uncertainty and change.

For a discussion of the periods and assumptions, we refer to today's press release in our SEC filings, including our most recent Form 10-K.

Management further assumes no obligation to update any forward-looking statements, and this call cannot be rebroadcast without the express permission of the company.

If you have an opportunity to ask questions after today's remarks by management, we ask that you limit your question to one per participant.

(Operator Instructions)

With that, I'll turn the call over to Steve.

Thank you, Ben, and good morning to everyone joining us today.

It's hard to believe that 1 year ago on this call, I braced for the first time how AmerisourceBergen was responding to global COVID-19 pandemic.

There were many uncertainties said about how COVID-19 will impact our lives, our families and our communities.

Part of our purpose of being united in our responsibility to create healthier futures, AmerisourceBergen enacted decisively to protect and support our associates, maintain business continuity and help our customers navigate increased complexity.

Our people and businesses prove resilient and the pharmaceutical distribution industry demonstrated its vital role as a key for that in the health care system.

I remain incredibly proud and inspired by where our associates and teams have adapted and innovated to support our (inaudible) needs and facilitate patient exit.

Powered by our talent and culture, enabled by a robust infrastructure and technology, AmerisourceBergen is providing value-added data-driven solutions to empower our partners with channel awareness and solutions.

Importantly, our differentiated capability enable us to continue to support pharmaceutical innovation and the pandemic response both in the U.S. and increasingly abroad.

This role is important for our people, our communities and our partners and embodies our purpose by operating value for all our stakeholders.

Turning now to our quarterly financial results.

As we announced earlier this morning, AmerisourceBergen delivered year-over-year growth for the second quarter of fiscal 2021.

Revenues were $49 billion, representing growth of 4% from the same period last year, and our adjusted EPS grew 5% year-over-year.

These results were driven by strong customer relationships, leadership in specialty, innovative services and solutions, our purpose-driven culture that unites us in our responsibility to create healthier futures.

One way that we are living our purpose is our leading role though providing COVID-19 support going.

In the U.S., we continue to distribute the antiviral and antibody therapies to health systems across the country.

Through our work with the strategic national stockpile, we are supporting government preparedness for current and future potential pharmaceutical needs.

Members of our Good Neighbor Pharmacy network are providing vaccine access in their communities as we facilitate their participation in the federal retail pharmacy program.

The efforts are especially important in the nationwide inoculation movement because their role as highly trusted medical professionals in the communities enables them to quickly, efficiently and definitively serve local hard-to-reach priority populations.

Outside the United States, we continue to play an active role in global vaccination efforts.

In Canada, for example, our [NMR] business is working in partnership with FedEx to distribute the COVID-19 backseat on behalf of the Canadian government.

As I mentioned earlier, AmerisourceBergen is focused on providing value-added services and innovative customer-centric solutions.

And that focus has only been amplified throughout the COVID-19 pandemic.

Our associates are facilitating an efficient and resilient supply chain to ensure patients have access to the critical medication (inaudible).

In support of pharmaceutical innovation, we are providing key commercialization and distribution solutions for our partners to help them adapt to the current dynamic environment.

We are leveraging our leadership in specialty distribution and services to further enhance our differentiated value proposition for our partners.

Those includes expanding our robust suite of specialty capability and data and analytic solutions to further solidify our position as a partner of choice and essential for supporting pharmaceutical innovation and access.

Just so fastly, we are able to leverage the full, breadth of AmerisourceBergen's capabilities, including our logistical expertise and efficient execution to be a solution provider for public and private partners.

Working with the U.S. government and our manufacturer partner, we were able to facilitate the transportation of antiviral therapies to India.

I am both honored and humbled that we were able to build our purpose in this part of need around the world.

The standard would not have been possible with our World Courier business, a key global specialty logistics partner.

World Korea continues to support the innovation of manufacturers as they now navigate logistical foundations.

The importance of World Courier expertise has never been (inaudible) and over the past year as our partner shifted to perform more clinical trials at patient homes through our industry-leading direct-to-patient capabilities, given the challenges of interfacing with patients and traditional (inaudible).

World Courier's unparalleled logistical services, combined with partnerships have enabled a broad network of field-based services and proven invaluable keeping clinical trials moving forward.

Our teams have been adaptable and creative as they provide solutions to facilitate better outcomes for the communities and patients that our partners serve.

Our MWI Animal Health business also continued its strong performance this quarter, thanks to its strong manufacturer and provider relationships as well as its ability to facilitate better help for both companion and production animals.

To support the continued growth of the MWI business and further our operational efficiency, we recently opened a new standard (inaudible) animal health distribution center in the U.S. This new facility bolsters our animal health distribution network and enhances our service capabilities for veterinarians and other animal health care providers nationwide.

AmerisourceBergen's continued ability to provide differentiated value to our customers and partners and deliver on our promise of being united in our responsibility to create healthier futures is enhanced by our ability to execute on our core growth strategies.

First, we remain focused on our customers, one of our core differentiators with our portfolio of key anchor customers across each segment of our business.

This customer base enables us to lead with market leaders and facilitate patient access wherever prescription is needed.

We intend to continue to strengthen our key customer relationships and enhance our customer-centric solutions globally.

Second, we will continue to build upon our leadership concessions.

We have the strongest portfolio of customer relationships and value-added services in the industry, which enables us to advance and benefit on pharmaceutical innovation, enhancing our capabilities in specialty to support both our upstream partners and downstream customers, makes an important area of focus for AmerisourceBergen.

Third, we continue to focus on delivering best-in-class service and developing innovative approaches to better service our customers.

By embracing advanced technology data and analytics, we provide solution-oriented and value-added innovations and enable all our customers to grow, this time into our first growth strategies because when our customers grow, we grow.

Fourth, we seek to enable positive prescription pharmaceutical outcomes globally by facilitating market access and supporting pharmaceutical innovation by providing value-added services that facilitate commercialization as well as innovative solutions to facilitate patient access on top of our unparalleled scale and expertise, we are able to get therapies to small and large patient populations.

This approach enables partnerships that unlock our potential and move health forward.

Our associates remain key to our success, and our focus on diversity, equity and inclusion as well as investments in our deepening culture have long been pivotal in advancing these growth strategies and positioning AmerisourceBergen for long-term success.

Our strategy and culture are foundational to reinforcing our legacy of strong corporate (inaudible), which focuses on bringing people first and ensuring the continued financial health of our businesses by creating long-term value for all our stakeholders.

To ensure that the value we create is sustainable, we are embedding ESG principles into our culture, businesses and processes (inaudible) to our overall growth strategy.

Our environmental strategy focuses on adapting to a change in climate and advancing a resilient and responsible supply chain.

We are leveraging our infrastructure and technology to create an efficient and secure pharmaceutical supply chain that also allows us to reduce waste, lower our global carbon footprint and prepare for unexpected events.

For example, we collaborate with our partners and customers to create packaging and transportation efficiencies that result in significant process, cost and environmental improvements.

We also understand our climate-related physical risks and have a robust business continuity plan in place to ensure we can continue to deliver life-saving medications.

On the social side, our strategy is centered around corporate responsibility and focused on investing in our people and communities to inspire our team members and foster healthy communities.

We continue now, as we have throughout the pandemic, to ensure we protect and assist our associates and their families with enhanced (inaudible) additional bonuses, physical and mental health resources and childcare and medicare benefits as part of our strong benefit programs, which now include extended paid parental leave.

For our frontline associates, we have remained an additional important (inaudible) such as enhanced cleaning protocols, social distancing protections and providing them with PPE.

For the long term, we advanced our talent and culture by investing in the development of our people.

By these investments is a new leadership competency model and development programs, supported by world class learning technology.

Added then by our purpose and.

guiding principles, the program focuses our leaders on creating an energized, diverse and inclusive workplace, leveraging collaboration to create and realize new opportunities, innovating and executing to prepare for the future with creative resourcefulness and being action-based to rapidly adapt to our dynamic landscape.

To help all our associates unlock their full potential and empower them to reach their career goals, we've also launched a new enterprise learning model that offers a modern intuitive and tailored learning experience that is also consistent to what we expect and develop in our leaders.

By aligning our people strategy with our business strategy, we create value now and for the long term.

Another way to inspire team members is through promoting diversity, equity and inclusion.

and ensuring that the collective voices and perspectives are heard -- and I remain the key focus of our investment in our workplace culture, and we encourage our associates to participating in employee resource groups.

In the past 12 months, we have introduced 3 new ERGs and participation in ERGs has grown 88%.

To further our community impact, we have elevated and strengthened our focus on supply diversity with a collaborative, data-driven and [thoughtful] approach to ensure the diversity of our supplier partners and aligned with this function with our broader ESG efforts.

Additionally, AmerisourceBergen empowers our associates to participate in and need conversations that help shape the future they want to see.

For example, our associates on (inaudible) and our social justice, and AmerisourceBergen Foundation has elevated their impact by matching donation at a 2:1 ratio for organizations focused on diversity, inclusion and empowerment.

I am proud that the foundation has taken new steps because I personally believe that equality is a fundamental right and that it is important to support social justice.

Health equity has also been raised over the past year as one of the many social issues facing our societies.

And here, I want to highlight the work that our Good Neighbor Pharmacy innovate provider network members on doing faster healthy communities.

As transient health providers with well-established relationships in their communities, they promote health equity on a daily basis and play a major role in ensuring positive outcomes [locally].

Their credible work advances the national COVID-19 vaccination effort to reach all parts of the country's population quickly and efficiently.

Separately, AmerisourceBergen Foundation recently made a donation to the Boys & Girls Clubs of America to support COVID-19 vaccine education and awareness, in an effort to remove barriers to vital health care access and improve the health of our communities.

We are grateful and proud to have the opportunity to support healthy communities across the U.S. by partnering with nonprofit independent pharmacies.

Finally, the government element of our ESG strategy is embracing a culture of transparency, ethics and integrity, which informs everything that we do and which ensures the highest standards of government.

Our commitment to do the right thing is core to AmerisourceBergen's purpose and principles.

By advancing environmental, social and governance initiatives, AmerisourceBergen aims to create healthier futures around the world.

This is not only the right thing to do but it also enables us to further enhance the value we create for all AmerisourceBergen stakeholders.

In closing, we remain confident in our ability to provide differentiated value to our stakeholders, leverage our leadership in specialty distribution, capitalize on our innovative mindset and benefit from our focus on strong corporate stewardship.

Looking ahead, we have strong confidence in our business and are focused on closing the acquisition of Alliance Healthcare, which will extend our distribution capabilities into key markets and further strengthen our global platform of manufacturing services.

We look forward to building upon our strong talent base with the onboarding of the Alliance health team, treating their fantastic management team, and we are excited to begin the next evolution of enhancing our ability to provide innovative and global healthy solutions.

We are well-positioned to create long-term stakeholder value and remain united in our responsibility to create healthier futures.

Now I will turn the call over to Jim for a more in-depth review of our results.

Jim?

Thanks, Steve, and good morning, everyone.

As Steve mentioned, it's hard to believe that over a year has passed since we publicly addressed the COVID-19 pandemic and AmerisourceBergen's response.

Reflecting on the past year, I have been moved by the diligence our teams have shown in supporting our partners during these complex times.

Our associates have lived our purpose of being united in our responsibility to create healthier futures and, there, the foundation of our continued performance.

I am appreciative of the hard work of our associates over the past year, and I'm proud that AmerisourceBergen continues to focus on cultivating and advancing our talent and culture.

While the pandemic presented new challenges, our long-term commitment to investing in our businesses allowed us to successfully manage through them and demonstrate the strength and resilience of our business model.

As I said on the call this time last year, we have been able to leverage significant internal resources and capabilities to meet the evolving needs of our upstream and downstream partners.

As we sit here today, with our eyes on the future, AmerisourceBergen is continuing to invest internally in our businesses and talent to ensure that AmerisourceBergen is not only delivering strong results this fiscal year but will continue to do so over the long term for differentiated value from our innovative services and solutions.

Turning now to discuss our second quarter results.

I will review our adjusted quarterly consolidated results, our segment performance and the updated elements of our fiscal 2021 guidance, including the increase to our EPS guidance.

I will note that this updated financial guidance still does not include any contribution from the proposed Alliance Healthcare acquisition announced in January 2021.

My remarks today will focus on our adjusted non-GAAP financial results unless otherwise stated both -- and comparisons are made against the prior year March quarter.

For a detailed discussion of our GAAP results, please refer to our earnings release.

We finished the quarter with adjusted diluted EPS of $2.53, an increase of 5%, primarily due to solid operating income growth across our businesses.

To reflect our continued strong performance, we are raising the bottom end of our full fiscal year EPS guidance, bringing it to a range of $8.45 to $8.60, up from a range of $8.40 to $8.60.

Our consolidated revenue was $49.2 billion, up 4%, driven by revenue growth in both the Pharmaceutical Distribution Services segment and Other, which includes our Global Commercialization Services and Animal Health group of businesses.

Consolidated gross profit increased 7% to $1.5 billion, driven by increases in gross profit in each operating segment.

In the quarter, gross profit margin increased 9 basis points from the prior year quarter.

This gross margin improvement is due to continued growth in the sale of specialty products, including COVID-19 therapies, and growth in some of our higher-margin businesses such as World Courier and MWI Animal Health.

Regarding consolidated operating expenses, operating expenses grew 8% year-over-year due to a number of payroll-related costs to operate in the current environment and investments, and internal initiatives being made throughout fiscal 2021, with a focus on continuing to differentiate our value proposition for future growth.

We are narrowing our operating expense guidance for the year from growth in the mid- to high single-digit range to growth in the high single digits.

As a reminder, last year, the second half of fiscal 2020 benefited from an OpEx tailwind from lower corporate and administrative costs, notably lower travel and lower health care expenses.

Turning now to consolidated operating income.

Our operating income was $707 million, up 5% compared to the prior year quarter.

This increase was driven by the increased gross profit in both the Pharmaceutical Distribution Services segment and our Global Commercialization and Animal Health businesses, which I will discuss in more detail when I review segment level performance.

Operating income margin grew 2 basis points to 1.44% as a result of the continued strong performance by our higher-margin businesses.

Net interest expense was $35 million, roughly flat year-over-year.

During the quarter, we issued $2.5 billion of new debt ahead of closing the Alliance Healthcare acquisition.

The new debt is comprised of approximately $1.5 billion of senior notes due 2023, which have a coupon of 0.737% and $1 billion of senior notes due 2031, which have a coupon of 2.7%.

Though we did not (inaudible) interest expense, I will note that due to the interest and fees associated with the debt raise, net interest expense will likely be up roughly 15% for the full fiscal year.

Our updated fiscal 2021 adjusted EPS guidance includes this incremental interest expense but does not include Alliance Healthcare operating income, which, of course, would be included in our future consolidated P&L after the transaction closes.

Moving now to our effective income tax rate for the second quarter.

Our tax rate was 21.9%, up from 21.5% in the second quarter of fiscal 2020.

Our diluted share count was 207.3 million shares, roughly flat compared to last year's share count.

We now expect our average share count for the fiscal year to be approximately 207 million to 208 million shares, up from approximately 207 million shares.

The revised guidance range [for testing] impact of dilution from stock comp and does not reflect a share count impact of the 2 million shares that we will deliver at the close of the Alliance Healthcare transaction.

As you begin to revisit your model, I will remind you that when we announced the Alliance acquisition, we noted that we would immediately get a period of deleveraging following the transaction close.

Accordingly, and through share repurchases, we are committed to paying down over $2 billion in total debt over the next 2 years to ensure AmerisourceBergen maintains a strong investment-grade credit ratings.

Turning now to the adjusted free cash flow.

Our adjusted free cash flow year-to-date was $298 million, keeping us on track with our adjusted free cash flow guidance of approximately $1.5 billion for the fiscal year.

Regarding our cash balance.

We ended the quarter with $6.6 billion in cash, including approximately $2.5 billion of proceeds from the issuance of the senior notes that I just discussed.

This completes the review of our consolidated results.

Now I'll turn to our segment results.

First, regarding the Pharmaceutical Distribution Services segment, it is important to keep in context the environment last year in the month of March.

Last year, we experienced increased pharmaceutical demand as many of our customers increased their purchases at the onset of COVID-19, resulting in higher revenue and gross profit.

This elevated level of sales in the prior year period does have an impact on year-over-year growth rate comparisons for the quarter.

This year, Pharmaceutical Distribution Services segment revenue was $47.1 billion, up 3% for the quarter, driven by increased sales of specialty products, including COVID-19 therapies.

The growth rate may have been negatively impacted by there being 2 less business days in the current year March quarter compared to the prior year period.

Segment operating income increased about 5% to $589 million with operating income margin up 1 basis point to 1.25%.

We saw continued solid performance related to sales of specialty products, including COVID-19 therapies and for our ION Solutions business, which continues to be a differentiator.

As a reminder, the bad debt reserve that we reversed in the fourth quarter of fiscal 2020 was originally recorded in the second quarter.

The reserve and subsequent reversal both happened in fiscal 2020, therefore, resulting in a tailwind to the current quarter operating income growth and will be a headwind to operating income growth in the fourth quarter, but will have no impact when comparing to full fiscal 2021 with fiscal 2020.

Now I will turn to Other, which includes businesses that focus on Global Commercialization Services and Animal Health, including World Courier, AmerisourceBergen Consulting and MWI.

In the quarter, total revenue was $2.1 billion, up 12%, driven by growth across the 3 operating segments, particularly for World Courier.

Operating income for the group was up 14% to $123 million, primarily due to the continued growth and performance of World Courier and MWI.

World Courier's direct-to-patient capabilities differentiate the business and have gained meaningful traction in the market as clinical trials have begun utilizing the in-home setting.

Additionally, our traditional commercial offerings and industry expertise at World Courier continue to be valued by manufacturing partners, resulting in higher volumes and weight, in a time when global logistics continue to be complex.

MWI has maintained its strong growth trajectory, particularly in the companion animal market where pet ownership has been on the rise and pet parents are paying closer attention to their pet's health.

Our investments across our businesses, including the new animal health distribution center and in data analytics technologies, have allowed us to remain a best-in-class provider and offer innovative services and solutions to our partners.

As a result of exceptional performance and strong business fundamentals in other, we are raising our operating income guidance for the group from mid- to high single-digit growth to low double-digit growth for the fiscal year.

I will note that this new guidance range of low double-digit growth implies a 2-year compound annual growth rate of the group in the high single digits, helped by the continued performance of World Courier and MWI.

Turning now to touch on the third quarter to provide some color and reminders that you build in your models.

Given the continued strong performance across our business and a favorable comparison to last year, we expect revenue and gross profit to be strong and the operating expense growth rate to remain elevated.

Below the operating income line, we expect EPS to be up only slightly in the third quarter due to 3 main factors: first, higher tax rate year-over-year as we lap discrete items in the third quarter of fiscal 2020; second, higher interest expense due to the debt raise; and third, higher share counts.

The share repurchase is on hold as a result of the Alliance Healthcare transaction debt.

We expect share count to continue to move up due to stock comp.

At this point of the year, we are happy to have been able to raise our EPS guidance and debt, driven by the strong performance we are seeing across our business.

The new EPS range represents growth of 7% to 9% versus 2020 and is clearly driven by a strong operating income growth expected in both the Pharmaceutical Distribution Services segment and in our Global Commercialization Services and Animal Health Group.

Before I conclude my prepared remarks this morning, I will provide a brief update on the Alliance Healthcare transaction.

We continue to make progress towards closing the transaction and continue to have valuable discussions with the leadership and teams at Alliance in preparation for closing.

We remain on track to close the acquisition by the end of our fiscal year, with the possibility of closing in our fiscal third quarter.

As a reminder, we expect the acquisition to generate high teens percent accretion to adjusted EPS in the first 12 months post close.

This acquisition is an important strategic and financial step into the future as it will enhance our scale and margin profile after free cash flow generation and build on our global pharmaceutical manufacturer service and distribution capabilities.

AmerisourceBergen is well-positioned to create long-term value for our commercial partners through our key differentiators of strong customer relationships, leadership and specialty and our commitment to innovation.

We are also continuing to build on our corporate stewardship to ensure the value we create benefits all of our stakeholders.

As executive co-sponsor of ESG Council, I'm excited by this quarter's release of our fifth annual Global Sustainability and Corporate Responsibility Report, which aligned with Global Sustainability Frameworks, including (inaudible) GRI and the UN Sustainable Development Goals.

For the first time, the report also aligns with TCFD and the World Economic Forum frameworks and is presented on its own sustainability micro site.

As a member of the FASB Standards Advisory Group, AmerisourceBergen's leading ESG reporting approach is featured as a case study in a recent workshop.

I encourage everyone to visit the microsite and look forward to continuing to provide updates on our goals for ESG.

I would be remiss if I did not also take a moment to highlight an important reason acknowledgment that CEO, Steve Collis and AmerisourceBergen, received.

In April, the Anti-Defamation League Philadelphia presented the Americanism Award to Steve and AmerisourceBergen for commitment to fighting locally across the country and the world.

This award is value recognition of Steve and AmerisourceBergen living our purpose.

In closing, AmerisourceBergen remains committed to running our business with the eye to the future and will continue investing in our businesses, people and communities to serve all our stakeholders.

We are building on our strengths, enhancing our differentiation in the marketplace and positioning our business for long-term growth and value creation, driven by our purpose of being united in our responsibility to create healthier futures.

Thank you for your interest in AmerisourceBergen.

Now I will turn the call over to the operator to start our Q&A.

Operator?

(Operator Instructions) Today's first question comes from Glen Santangelo with Guggenheim.

Steve and Jim, I'm guessing you've heard by now, but earlier this earnings season, we've received varied reports from different companies with respect to changes in generic pricing.

Could you maybe comment on what you've been seeing in your generics business, both in terms of pricing and the supply chain?

Any notable changes worth calling out?

Generic pricing are trending relatively in line with our original expectations for the year.

With regard to generic deflation you asked about, overall deflation rates are relatively in line with the last couple of years.

There are currently a few product-specific pockets of pressure.

But overall, the rate is still relatively in line with our expectations for the year.

Supply and demand dynamics remain balanced.

And for the balance of the year, we expect overall deflation to be generally consistent with year-to-date.

And then on the generic sell side when the market continues to be competitive but stable with no significant update.

Thanks for the question.

The next question comes from Eric Coldwell with Baird.

Okay.

And unfortunately, I joined a little bit late, but I thought I heard you mention something about 2 less selling days.

I was hoping to get a little more specificity on that, what that was in relation to.

And a selling day in distribution is obviously a tremendous amount of money, if that's what that was in relation to.

So I'm just curious if that was one of the factors in the revenue update versus The Street, which was a bit higher.

Yes.

Let me comment on that.

Those of us who have been distribution for a long time, which includes about everyone on the call and then exposed to it selling days are sorts of things that we tend to -- and there were 2 less selling days this quarter for AmerisourceBergen versus the same quarter last year.

One was simply due to the calendar.

The other was due to the fact that, this year, we did not operate our distribution centers on MLK Day, which we felt was important.

And so that was why we had a second less selling day during the quarter.

And so on the selling days, we probably have some impact on the revenue during the quarter.

But anyways, I would say, overall, we feel quite good about the revenue growth during the quarter.

We're comping against the quarter last year where there was a real uptick in revenue during the month of March, during the onset of the pandemic.

And so we were pleased with the revenue growth during the quarter and that we were comping against the high revenue growth quarter last year.

And then also, I think, most importantly, that we're keeping our revenue growth guidance the same, which is strong in the high single-digit percent range for the fiscal year.

The next question comes from Lisa Gill with JPMorgan.

Jim, I just want to go back to your comments around the higher interest cost, tax rate and share count.

So by my math, it looks like those 3 things combined would be somewhere in the neighborhood of close to $0.10.

Am I doing the math correctly?

When we think about the fact that you raised your numbers today but the lower end of by $0.05?

Was there -- if everything else were equal, would there have been another incremental upside to your numbers and the guidance?

Yes.

Thank you very much for the question.

And obviously, the jump in quarterly guidance but we thought it was important to give that color.

And what we indicated is that we're expecting for our adjusted EPS to be up only slightly during the third quarter.

And I think really the key thing is we're expecting revenues to continue to be strong, GDP continue strong, and we're expecting very solid operating income growth.

So it's really the below-the-line items that are driving it, the higher tax rate year-over-year because we had a discrete tax item that benefited the third quarter of last year.

We have the higher interest expense during the third quarter because we've done the Alliance acquisition financing before closing the acquisition.

So we have the interest expense related to it in our guidance, but of course, we won't have the Alliance operating income in our guidance until we close the deal.

And then we have a slightly higher share count also.

And so -- yes, so those are the kind of things that are driving what I said in the third quarter.

But I think kind of the key thing is that, from an operating standpoint, in our guidance as we expect the business to continue to perform well.

And we have some operating income guidance overall for the business in the high single-digit percent growth rate.

The next question comes from Robert Jones with Goldman Sachs.

I guess, Jim, maybe just to follow up on that, you talked about 3Q EPS being up slightly.

Just to be clear, is that mostly below the line that would maybe have an EPS growth looking a little bit more subdued?

And then last quarter, you called out the COVID treatment benefit in the quarter specifically.

I was wondering if you'd be willing to share that specific contribution for this quarter as well.

Yes.

So there were 2 things there.

I'll address both of those.

The first one was the detail that we did on the third quarter.

Yes, all of all the things that caused adjusted EPS would be only slightly in the quarter, they are below the line -- just went through.

And we are expecting solid sales and operating income growth and our operating income guidance once the end of the year is some high single-digit percent growth.

And on the COVID treatment benefit during the quarter, it was roughly -- half is large and half is incompatible in our second quarter as it was during the first quarter of our fiscal year.

And so while it still had a positive impact, it was only about half as much during the second quarter, and we do expect it to continue to decline over the balance of the fiscal year.

The next question comes from Ricky Goldwasser with Morgan Stanley.

I wanted to focus on the pharma segment.

You reported about 2.5% revenue growth and 4.5% operating income growth.

So as prescriptions pick up to a more normalized level, should we see more leverage flowing through to the bottom line?

And along these lines, what are you seeing in terms of utilization trends in April and early in May?

Yes.

With regards to utilization, broadly speaking, our sales have been resilient across our businesses during the pandemic.

We begun to lap the onset of the COVID-19 pandemic, of course.

And there's been a lot of external noise around cost hold in blue, which isn't a significant driver of our business.

But that being said, moving forward, the script data will compare against past year.

They had very low cold cough and flu season.

There's been some lower preventative and diagnostic physician activity, but we're optimistic now.

As we look to the current situation and the balance of the year that with vaccines, and a lower incidence of COVID-19 in many parts of the country, people will be scheduling these diagnostic procedures and getting referrals for physicians to treat conditions.

The next question comes from Eric Percher with Nephron Research.

Your comment on supporting pharma innovation and commercialization struck a chord.

And I'm thinking that relative to bring specialty customers upstream and World Courier having an expanded role Is it time to consider kind of the value proposition of working with the CRO a little bit more intently than it was worth a couple of years ago?

And even if not a large-scale combination, are there areas in oncology or regulatory affairs that could fit well with the business?

Yes.

Eric, so we invite our broadly industry commercialization services and helping with particularly specialty physicians with market challenges, which would include patient accruals and helping find those patients that -- post pandemic.

We expect that there will be more resumption of innovation in clinical trials.

Obviously, the FDA, from our understanding, has been very focused on the pandemic and in those therapies approved.

So we always do stand willing to serve.

But we need to feel that our portfolio is very adequately positioned, and we don't have any specific needs or holes right now.

And have had a history of working with our physician customers on analytics and data mining.

So we feel like we're well-positioned, but it's important to keep in mind the benefits that could come from using community oncologists and particularly in clinical trial accruals, so very important.

The next question comes from Charles Rhyee with Cowen.

Yes.

James, I want to talk about a follow-up with the question from Lisa, when you talked about the puts and takes on the rest of the guidance here and with some of the offsets.

I think you talked about a higher expense related to the Alliance financing, et cetera.

But given that in the other segment, you raised the guidance there, World Courier seems to be doing quite well here.

Can you talk a little bit more about the trends that you're seeing here and in the rest of fiscal '21?

And I guess with World Courier, you've built this great infrastructure.

Have you guys thought about adding more capabilities to support pharma manufacturers in the clinical trial process itself?

Would you be at -- can you see yourself adding more different capabilities besides maybe the logistics piece?

Yes.

Sure.

So I think the first part of your question was about kind of some of the moving pieces in guidance in general and then second part, more specifically on World Courier.

And I think one of the key thing is that we are seeing positive trends across our businesses, particularly in our higher-margin businesses.

We're also seeing the really strong execution across our businesses, both in pharmaceuticals, distribution and in the debt commercialization and Animal Health businesses.

It's a combination of all these positive trends we're seeing is, of course, and continued very good performance in specialty physician services.

We're seeing strong performance also in health systems.

And then as you've called out in Other, we're seeing strong growth in both the World Courier business and the MWI businesses.

And we expect to see positive trends there in those businesses for the rest of the year.

And beyond these overall positive trends, there are a number of moving pieces that we talked about in the prepared remarks and on this call.

We're beginning to lap some significant year-over-year growth rates related to biosimilar utilization.

And so the operating income from biosimilars will continue to grow probably not at the same percentage growth rates that we saw as utilization was really increasing during the last 3 quarters of last year and the first quarter of this fiscal year.

Our guidance, as I said, does assume that COVID therapy sales will be lower in the second half than they were in the first half.

And of course, we're very proud of what we're doing there.

And it is good that we do feel that.

Of course, utilization of COVID therapies we do feel will be lower in the second half.

And then we're lapping part of the fiscal year that had very low expense growth at the back half of last year.

We had, in fact, out of last year, we had less than 1% operating expense growth, so we're lapping that operating expense growth.

We also have a 6 months of interest associated with the Alliance Healthcare transaction.

And so those are some of the things that are impacting our guidance.

But overall, we feel very good about the positive trends and execution across our businesses.

And Steve, is there anything that you want to add there?

No, I just want to say that we run (inaudible) for majors so now, and I think it's continued to surprise the management team and -- how resilient and innovative they are.

We've talked a lot about that clinical trials.

But we keep on finding new ways for this business to be importantly relevant to our stakeholders.

An example we give you is just what it turns with India, where we were able to facilitate the shipment of important and invested products for India really using the capabilities of World Courier because there is such a high capability, highly targeted niche area that we continue to find uses for.

I also do believe that part of our synergy thesis is looking at the combination of World Courier and Alliance Healthcare in different markets, just having more of a footprint, more presence.

I do believe that there, of course, is going to be another strong additive around characteristic for World Courier's opportunities in the future.

The next question is from Steven Valiquette with Barclays.

Jim, it seemed at the first 10 or 15 seconds of your answer on the first generic pricing question might have been cut off a little bit.

Maybe you mentioned the pockets of pressure on generic pricing on the buy side.

Guess I was just curious whether or not the dynamics in relation to that are such that those pockets will convert.

Or is that just more of a permanent reduction, but just in your guidance range?

The other quick question on, just given the COVID surge in India (inaudible) exports.

Is there any early signal at often generic suppliers in India, there could be disruption to supply engineering to the U.S., especially under radar screen?

Or are you now (inaudible) ?

Yes.

What I'll do is I'll handle the first part of that.

And then Steve will take the second part of that.

And I say it's a really important question, and you can say that I cut out during part of the question.

So let me kind of go for the answer again because, obviously, it is such an important topic.

And so while we don't have specific guidance and metrics, broadly speaking, both brand and generic pricing are trending relatively in line with our original expectations for the year.

Overall, the deflation rates are relatively in line with the last couple of years regarding generic deflation.

And as I said, and as you noted, there have been a few product-specific pockets of pressure, but overall, the rate is still relatively in line with our expectations for the year.

Supply and demand dynamics remain balanced.

And the balance of the year, we expect overall deflation to be generally consistent with year-to-date.

And with that, I'll turn it over to Steve.

Yes.

As far as -- the situation in India is obviously, heartbreaking.

Of course, most of the media's attention would be focused on the high outbreak areas, and we've seen this unfortunately play out in other areas.

Now just to point to a few mitigating factors here.

First of all, we believe that manufacturers have had some business continuity plans and the expectation that there could be outbreaks and they're prepared for it.

So we don't expect any very large interruptions in the supply chain.

(inaudible) is continuing to be transported as usual, operations continue.

China's currently functioning, was also very important to have normal levels, which is especially important for raw materials.

And AmerisourceBergen has, throughout this crisis, worked very closely with our supply chain.

We've been able to cover the solutions in almost all situations.

So we feel that we can get through it but are very cognizant and in the (inaudible) for what's going on.

And we were just tremendously proud as an organization about the work we were able to do just this week to get this very unique product into India so.

And we'll support that (inaudible) throughout our foundation and corporate brands as well.

The next question comes from Kevin Caliendo with UBS.

You mentioned you're going to start to lap some of the COVID therapies and also some of the biosimilar benefit.

We're seeing biosimilar uptake continue to increase every month.

So I'm wondering why that still wouldn't be a little bit of a tailwind for you guys?

And if you could, in any way, shape or form, sort of size the benefit you've gotten from biosimilars?

I know you've always sort of given us some heads up around the COVID therapy sales.

But if we can also include biosimilars, that would be really helpful as we think about modeling going forward.

Yes.

Thanks.

And so with regard to biosimilar sale, we absolutely believe in our guidance that they'll continue to -- we'll continue to grow the operating income dollars from biosimilars.

So we do expect to have continued meaningful growth there.

The point that we were making into the growth percentage rate will not be as high as it was last year, when biosimilar utilization was growing from a much smaller base.

But we absolutely do expect the operating income dollars from biosimilars to continue to grow in our specialty business.

And we haven't specifically sized the dollar figure but it has been a meaningful contributor to both the dollar growth and the gross profit percentage improvement.

Yes.

We continue to see positive trends in biosimilars, including the high (inaudible) systems.

And we've begun to see significant utilization of biosimilars in the second quarter in health systems, but also in oncology, where some therapies, we're seeing 40% utilization for biosimilars.

So very important -- important more so as mentioned before, to create room for other innovative therapies to come up.

And in other specialties, that hasn't been as [relevant], the adoption has not been quite as quick.

But oncology, when it comes to community and when it comes to specialty and trials tends to be on the cutting edge.

So we believe that the strength will be led by oncology, but will continue into other specialties as well.

So we think (inaudible) is off, are and will continue to be very important for our future.

With that, we have time for one more question, please.

The next question is from George Hill with Deutsche Bank.

I guess, Jim, if I could just ask a follow-up kind of as it relates to volumes.

I was wondering if you could talk about the outperformance of specialty versus kind of the regular rate business in the quarter.

You mentioned the 2 fewer days in the quarter, which I think explains a lot of the revenue numbers coming in a little bit below expectations.

But I'd kind of love to hear commentary around how things like oncology performed during the quarter.

Yes.

I'd be happy to address that.

We saw continued strong performance in our specialty physician services business in oncology supply and in other parts of the business, including our ION GPO.

We also saw very strong performance, as we noted during the quarter during health systems.

I will say, if we look overall at the company, we have really strong performance in execution across many of our businesses and focusing in on the revenue growth rate during the quarter.

Of course, once again, we were coming against a quarter last year where there was a real surge in business during the month of March during the onset of COVID.

So we [were] quite pleased by our performance during the March quarter and the trends that we're seeing for the balance of the year, which is included in our guidance.

Okay.

I'm going to wrap up by just thanking everyone for their attention today.

In preparing for this call, I was consulting with Bennett and his people, and they were telling me how many more -- how many you're all typically covering.

So we really appreciate your attention as we focus on a tremendous future ahead for AmerisourceBergen.

As we said many times ever, our purpose has been more clear during this pandemic.

And during a pandemic and I'm incredibly proud of the role that our industry has played and we're staying in that industry.

We're very confident in our business and value proposition.

We're looking forward in the months ahead to closing the Alliance transaction, which is a key, key development in AmerisourceBergen's history.

And we're looking forward to our 20-year anniversary coming up as an this fiscal year and to broadening our distribution and global footprint as we are all united in our responsibility to create healthier futures.

Thank you for your time today.

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