Good morning, everyone. Welcome to day three of the Bank of America Healthcare Conference. I'm Michael Cherny, the healthcare tech distribution analyst at B of A. It's my pleasure to kick off the day with McKesson, fresh off of a very newsworthy earnings and guidance update. We have Brian Tyler, the CEO, Britt Vitalone, CFO. They brought no slides, which is what I'm thrilled with because it allows us to keep this a little more informal. Maybe just to kick things off, especially because I know it's been a busy week with earnings and our conference going on, maybe just level set on some of the key highlights you had from the quarter, and the guidance earlier this week before we jump in. Sure. I'll start. you know, we wrapped up a very strong Q4, and I think a really good, fiscal 2023. We were pleased that the growth in the business was really across all of our segments, each of our segments, outperforming the long run growth targets that we had established for them. It's really kind of broad-based success. We saw good growth in PSaS, including our oncology business. We had a terrific year in The US Oncology Network, adding over 450 providers. Q4 was a big, big quarter for our, technology solutions business. Our so-called blizzard season, we set records for number of patients that we helped and assisted. Medical business continued to go well. We think we feel good about kinda where volumes are overall in terms of just healthcare overall. It was a really good balanced year for us and, you know, one that, one that I'm really proud of what the teams were able to accomplish. Yeah. Maybe I'll just add on to that. You know, we generated record cash flow this year, continue to invest in our business, but continue to have strong cash flow generation out of our core businesses. You know, that continues to allow us to have a lot of flexibility. We have a very strong balance sheet, and with strong cash flow generation, we have plenty of flexibility to invest in the business and to return capital to shareholders. Before we get into recent trends and short term, one of the highlights as well was you updated long-term targets. You tweaked up the MedSurg target, tweaked up Prescription Technology Solutions, the pharma business went from, I think, the official was 4+, to 5%-7%. Maybe, especially given timing and where you've been growing, talk about some of the recent drivers that allow you to have the confidence to take up those numbers that were first given, I believe, in December of 2021. Yeah. Well, you know, I think first of all, what we try to do is be as transparent as we can. You know, I think it was important for us, the momentum that we're seeing, the growth that we're seeing in our, you know, our core installed bases, whether that be the scale distribution platform on oncology, like Brian talked about, we're seeing a lot of momentum, consistent, stable momentum. There's good utilization underlying that. We're adding a lot of providers and a lot of scale to network. As you put all of that together and we think about the performance and the execution that we've had against our strategies, we thought it was incumbent upon us to increase our targets, based on our optimism and our outlook, and to be very transparent about that. You know, we could have waited till another Investor Day, certainly could have done that. We felt, given the momentum and the outlook that we have in the business, that it was appropriate for us to do that. I know it's still three days old at this point, but as you think, especially about the pharma side, which is obviously the biggest part of the EBIT, 5%-7%, you know, is pretty decent range when it comes to EBIT dollars. Maybe talk about the characteristics and the dynamics that would get you to, on a long-term basis, the 5% versus the 7%. You want me to start? Sure. Yeah, I'd start. Again, some of the building blocks on that are we've had good, strong, stable utilization. If we look at the second half of the year, the second half of the year utilization was even a little bit better than the first half of the year. That, for us, you know, gives us confidence that we do have stable utilization going into the future. We're also seeing, you know, good transaction and patient volume in our oncology business as well, and that supports the growth that we're seeing there. Strong generics, platform and program, very scaled, very strong sourcing operations. Those are the building blocks for us that allow us to feel good about the execution and the momentum that we have. Along those lines, I mean, maybe we'll pick a little further into oncology. It's something you talked about plenty for years, but it seems like, correct me if I'm wrong here, the US Oncology's got a bit more focus, a bit more kinda primetime spotlight, recently. You talked about the 450 providers. How do we think about the growth of that business and the potential for the new trend line of provider ads, especially given that obviously there's other competition in the market that's looking to grow as well? Sure. Look, we've been at this oncology business for 12 or 15 years, it's, you know, been part of the underlying strategy. I think what we've tried to do the last few years, looking at the market that we play in, you know, we would size the opportunity in oncology as like a $50 billion-plus market opportunity, considering all elements of it, from distribution all the way to data services. What we're really trying to do is lever off some pretty differentiated assets, one being The US Oncology Network itself, which is now approaching 2,400 providers, the largest oncology practice management group in the country. You know, we complement that with things that extract value from the insights we get running a practice like that. Whether that's our Sarah Cannon Research Institute joint venture in clinical trials or the Ontada business that we've been building out, investing in and building out over the last several years, to take those insights and package them so that they're really actionable for our biopharma partners that are developing these products. We used to call it an ecosystem. You could call it an environment, but the idea being that each of these reinforce each other. As we scale The US Oncology Network, that gives us more dataAnd it gives us more access points for clinical trial recruitment and things of that nature. It's this element of this virtual cycle to it. Now we're in 25 or 27 states today. you know, we have a network that, it acts like a network. That's a really important element to us, that if you join the US Oncology Network, that you're gonna operate the same way, and we can move together. There's a lot of value in that. Including part of that is you have to be on our EHR, which is iKnowMed. We've got standardization. That lets us move with speed. As we build out the US Oncology Network, as you probably know, we have a really big unaffiliated oncology distribution business as well. Yeah. We've got practices, we have business relationships we support with distribution, GPO services, we may sell them some à la carte services. As we grow and learn those practices, it's sort of a natural pipeline to help us identify who fits into this ecosystem that we're building. How do you think about that dynamic of the de novo build-out? You've had two notable press releases this year adding new groups versus the individual hires within your network already. What should we consider as a new run rate? Should we be expecting like monthly press releases now on new partner groups? Maybe I'm getting ahead of myself. You are getting excited, I like that. We do both. You know, in an existing practice, we are constantly looking to add individual docs or smaller practices as long as they fit our model and our culture and the way we operate. Clearly, as you've seen this past year, we will look to new geographies where we think the landscape fits us. You know, it's a combination of patient demographics, payer landscape, competitive landscape, but where we think we can bring our model to a new geography. They will in turn begin to add local practitioners to their practice. We grow both ways. You mentioned Ontada, and I know it's been a big focus from a build perspective. How should we think about the contribution to McKesson? I think about the internal value it provides versus the potential external revenue and profitability. Which do you see as the more important component of what Ontada is becoming? Well, I think they're both very important. I mean, don't forget, the backbone of Ontada is iKnowMed. It is the oncology EMR. It's a leading oncology EMR. It's how we manage our practices. It's how we make our oncologists more efficient, get better patient throughput, and then extract the data out of that. That's really. We talked more recently about Ontada, the data analytics insights, but it's all based off of this core engine that's called iKnowMed. We're really pleased with the traction that we've been having. You know, we've got large strategic partnerships with Amgen and BeiGene and Merck. Merck. We have a long-term project called the MYLUNG Consortium with seven leading oncology partners. We've launched our first couple of products. I would characterize Ontada as, you know, we're still investing, we still see opportunity. We're gonna expand up the product offering and portfolio over time. Again, as that network continues to build and scale, that's just more data and insight and breadth for Ontada to leverage off of. Okay. We'll probably come back to oncology. Sure. I wanna make sure I hit on a bunch of other topics. Sure. Before we run out of time. Maybe on the core pharma distribution side. It seems like you and your peers are seeing very stable performance. Feel like if there's one theme in this conference, it's utilization is strong and feels like it's continued to be strong. Maybe give us a sense on the push and pull of utilization and also just general broad-based pricing. 'Cause your business tends to work best when utilization is growing and pricing is stable, at least in the time I've covered your stock. Maybe give us an update on what you're seeing now and how that factors in, especially to the 2024 guidance. Maybe I'll just, We've talked about utilization, so I won't hit that one again. I mean, it's important, and it has been consistent and stable. In the pricing environment, what we've seen over the last several years now, and I'd say not just several quarters, several years, is a pretty stable market backdrop. In the branded pricing world, for the last several years, we've seen branded price increases or inflation in that mid-single digit range. It was a little bit stronger this year, but not something that we think is gonna repeat. In that mid-single digit range, that's a very stable backdrop. You combine that with, you know, how we've gone and evolved the contracts that we have with branded manufacturers, such that, you know, 95% or more of the branded compensation we get is fixed fee for service. You combine those elements, that's a stable backdrop for us to operate in. In the generics world, you know, we've had a stable market backdrop for many years, a very competitive environment, but a stable environment. You combine that with our ClarusONE sourcing engine, again, it's a scaled sourcing engine. We think that we source as well as anybody in the marketplace today. We provide stability of supply and low cost for our customer base. On the, on the sell side of that, we are very disciplined in terms of how we go about doing that, providing value to our customers and a disciplined approach to that. That's a very stable backdrop for us. It's a scaled operation. We're well positioned across many different channels. I think that's one that is adding to the performance and the execution that we have. On both the buy side and the sell side for generics, you're constantly going through recontracting phases because obviously no one is all cliffed at one time. Are you seeing any changes in the dynamics that you're being asked for, either on the buy side or the sell side qualitatively as in terms of how you contract, you know, maybe, you know, volume for price trade-offs, anything like that that's evolved over the last couple of years, especially now that ClarusONE has become such a mature business? You know, I wouldn't say there's anything unusual, as time evolves, there are things that you listen to from your customers. As we've gone through the last few years, one of the things that's important to customers is that stability of supply. We factor that in. It's part of the sourcing engine that we have anyways, but we factor that in. There may be specific molecules that customers are looking at versus another. There's nothing unusual about that. As we think about the market and how it's evolving, we work with our manufacturers. We have hundreds of manufacturers within ClarusONE. That allows us to really continue to focus on stability of supply and low cost for our customers. The results have been stable and consistent, and we're really pleased with it. It is ongoing discussion, to your point. Yeah. It's not like there's an annual event. I mean, we're in dialogue with all these manufacturers continuously throughout the year, helping understand what their issues are for access and growth and finding ways we can use our tools to help support them. With regards to ClarusONE, obviously there's the iterative process of just the generic sourcing side, but especially now, this business has been around almost eight, nine years, I think. I've lost track of time. What other opportunities are there to further expand ClarusONE, either with additional customers or additional services purchasing capabilities? We're always looking at that. We're looking at opportunities within generics. There's opportunities with injectables, as an example. There's other product categories within generics that we're looking at. Again, we're working with our customers. We're working with our supplier partners. What is the need? ClarusONE is a strong base now that we can do a lot of different things in that. We've looked at some OTC capabilities and opportunities. It's a, it's a very mature, stable operation that continues to scale and perform well. There's lots of things that we can do, but we wanna focus on what our customers' needs are. Sticking on the manufacturer side, you touched on this a little bit when going through the piece of Ontada, but the whole dynamics of manufacturer services going more upstream, I think has become a big theme. Maybe you could just remind us and level set how broad-based your manufacturer services portfolio is and what you do versus don't need to do, don't wanna do, for those manufacturer partners? Well, we talked a lot earlier about oncology. Exactly, yeah. A nd how we use the assets we have, the network, the clinical trial business, the Ontada business, the reach and breadth. We've organized that way because we have such uniqueness in our capabilities in oncology. There is an element of selling to biopharma services to oncology development companies there. Put that aside for a second, though, and talk about the other part of our biopharma services business, which is our Prescription Technology Solutions segment. There, we're really focused on things that enable access, affordability, and adherence to medications. In that business, which sort of in parallel to oncology, we've been at for, you know, 10-plus years, starting with our RelayHealth Network, which connects to 50,000-plus pharmacies. We added the CoverMyMeds business itself, which is connected to over 700,000 providers, connected into workflow. Then we take traditional hub services and the clinical depth we've had across multiple therapeutic areas. As we've brought that business together, we're just continually looking for ways to leverage that access to workflow to get insights, to find patients that should be on therapy that would benefit from therapy, remove the barriers to get them started on that therapy, and then support them through the patient journey to keep them on that therapy. That's highly valued to manufacturers. I guess along those lines, what I'm hearing is mostly doing work on the commercialization side. That's right. Y ou're really focused once you get drugs to market and the best way to get right drug, right person, right time. How do you think about the evolution of that piece of the business and how much more on that front manufacturers may or may not want you to do, including getting involved earlier in the process, launch strategies, et cetera? Yeah. In the core markets, I talked about access, adherence and affordability. We've got a really strong set of solutions. We do see many near-term adjacencies or additional markets or opportunities for us to either internally invest to develop and innovate into, or, as we did with Rx Savings Solutions, acquire a capability that we can add to the set of assets. We like tools that leverage the network connectivity we have. You can think of us as a distribution channel in some ways. If we can find a value-added widget and bolt it into our networks, we can blast that out quickly. We think there are outcomes, you know, there are near adjacencies to the markets that we're in today that is what gives us confidence over a long trajectory. We've got a lot of headroom for growth. You know, I'd just remind you, as we talked about our Investor Day, access, affordability, and adherence solutions is a big market. There's a lot of opportunity within those three categories. There's the opportunity for us versus a lot of, you know, what I would call spot players. We have a spot solution. We can stitch together solutions within those three capabilities that I think really will make a difference. Again, given the size of those capabilities, there's a lot for us to do. Within that, sticking within RXTS, you know, a little bit of a strange year, I guess, from a reporting perspective. You know, obviously, you know, not every business can be, you know, easily modeled back and forth, but, you know, maybe some disappointment on your front in some early hiring earlier in the year, followed by a very strong 4Q, strong guide, long-term guidance update. You also had a restructuring that I know you discussed on the earnings call. Maybe balance where you are from the growth investments right now in that dynamic of spending some time hiring earlier in the year versus restructuring later in the year and where that puts you going forward. Maybe let me start. You know, we did talk about this advanced hiring for the annual verification season. As Brian just mentioned, that was a record season for us. We may have been off by a month or two, but we were preparing for what ended up being a record season. You know, 24 million patients accessed their medications during that season. You know, we, as we gave guidance at the beginning of the year, we said that the guidance was gonna be in that 11%-15% growth range, and it came out to be in that range. Quarter by quarter, given the size of the business and given the number of assets that we have across that business, you know, we're gonna have some movements because we have an annual season. We staff up for that annual season. We feel good about the business. It's performed consistently on an annual basis. We manage the business for the long term, and we feel good about that. We've raised our long-term guidance rates for that. I think that, you know, if you look quarter to quarter, you may have some lumpiness just given the assets that are within that segment and given the fact that there are some seasonality components to it. Over the long haul, you know, we've seen consistent growth, and we continue to expect consistent growth. Thanks. It's helpful context on that front. You referenced Rx Savings Solutions, it's a company I've known for a long time. It was one of those interesting ones where you talked about, I think, modest dilution was the official term upfront, a couple percent of contribution as it ramps. What does Rx Solutions give you that, especially with your broad base of solutions you had before that you weren't already doing or able to do yourself? We really like the business. We like the tech backbone of the business. I mean, the technology, it's using, you know, really advanced AI and those types of tools. We like the fact that it's tied to our mission to improve health outcomes for all. I mean, it's dealing with patients, it's finding them savings on their prescriptions they have today, so that's very aligned to the things we do with access, affordability, and adherence. It opens a new channel for us into the payer. You know, we've got 18, 17, 18 million lives now with payers, so that's, we view that as a bit of a greenfield opportunity as we look at the breadth of the assets we have there and ask ourselves how we combine them to solve new problems and find new growth trajectories. Business is off to a good start, and we're really excited about the capabilities, both from technology and accessing new channels, and then the ability to just have more reach and more tools we can more creatively bring together to innovate and solve new problems. I guess over time, what are your intentions or desires to go further down that payer partnership route? What, what else can having that introduction bring you in terms of your current capabilities and what you could do for payers that you didn't already have the ability to do? I would say I'm not, I'm not sure. Right now, the long-term guidance we've provided is really focused on the biopharma and. Okay C ore bits of the business. Think of this as planting seeds for future growth. That works. Maybe turning to MedSurg. This has been a business that grew well before COVID, grew a lot during COVID. I think you've been helpful and transparent in giving us the COVID contribution so we can understand the underlying growth rate. Seems like this has been a consistent low double-digit grower and should continue to be. How much of that do you see in terms of the breakdown of market share versus site of care versus utilization? You know, how do we break down those building blocks on the MedSurg side? I think what the medical business has been really successful over the last decades is really following where the patient is gonna present. You know, at one time, we were mainly physician office and nursing home or elder care facilities. Over the years, we've expanded. We followed the patient into urgent care clinics and retail-based clinics and ambulatory surgery centers and even now home delivery. That's been one avenue of growth, and we think we can continue to pursue the, you know, this low unit of measured distribution, which is what we do, to where patients present and where they need the products. The second thing we've been really effective at doing is just continuing to find how we capture incrementally bigger and bigger share of wallet. We go from commodity medical products to commodity medical products and a little higher tech medical products, and then you add lab and reagents, and then you add equipment and setups, and then you add pharmaceuticals and specialty pharmaceuticals. On top of expanding those channels, you're also expanding your share of wallet, so to speak, or the breadth of the products that you offer. We think that there's a lot of runway left in that playbook. The other thing that I would say is that another example of being disciplined about what your portfolio and strategy is. If you wind the clock back to beginning of my career, go back 17 years I guess now, we were an acute care-focused Medical-Surgical company. As we set the strategy, the acute care setting was not the place for us to win. We have followed the patient, as Brian said, and we've been very disciplined about adding things to the portfolio, capabilities around lab, capabilities around pharmaceutical. It's just another example of, as we think about what is the market need, what do our customers need, being focused on what our assets are and what our right to win is, that has served us very well over a long period of time. The work you did for the U.S. government on the kitting side, I assume has to have opened you up to a lot of provider groups that probably were not McKesson customers before. What does that do to your ability to go out and continue to establish share in the market when you are servicing non-traditional customers because you were the exclusive provider of kits? Look, we're very proud of the work we did for the US government. I do think it was helpful for our brand, so to speak. I mean, certainly, it created a lot of new relationships with government entities and agencies itself. I do think that, you know, it's broadly recognized, the accomplishment that setting up that distribution operation in, you know, several months and then successfully fulfilling it, I think it's been a halo effect, quite honestly for us, and one that we'll look to continue to build off of. Just one last question on this topic is you mentioned a bit about commodity products, and obviously, there's a McKesson Brand. Yeah P ortfolio. Where do you feel you are in terms of the broadness of that portfolio? Is that something that makes sense to invest in in terms of broadening out what you offer from a McKesson brand going forward? Yeah, I mean, we've been investing in McKesson Brands for, again, for well over 15 years. Again, it's a response to what our customers need, whatever the site of care is, and we've continued to expand that. We have done it in a very thoughtful way. There are opportunities to expand within a category or add a category to McKesson Brands, but we just don't make everything a McKesson Brands item. We're very thoughtful about where, again, we have the right to do that or where it's better to partner with a national brand. It's something that has grown in a very consistent way and one that we've continued to invest in and one that our customers have benefited from. Thinking a bit more about the guidance and maybe turning to capital deployment. Britt, you mentioned, I think you beat your free cash guidance by $1.2 billion at the midpoint for the year. You're guiding to a healthy amount of repurchase, which I know is part of the 6% non-operational long-term guidance. How do you think now about that balance, given every CFO likes to have more cash than not? How do you think about that balance, especially on a near-term basis, when there might be other companies out there that look like adjacencies to you that, thanks to credit conditions, they may be struggling to have financial capabilities that companies like yourselves and others can provide? Yeah. Well, look, every CFO likes to have strong cash flow generation. We wanna be very efficient with our cash. We think about capital deployment in really three pillars. The first is we wanna grow the company. I think we've done a nice job of that, but we wanna grow the company on the strategy that Brian's talked about here today, where we have the right to win, where we have differentiated assets and capabilities. We can do that organically, or we can accelerate that inorganically. You've seen us do the Sarah Cannon Research Institute JV, which has been an accelerant to our oncology, and then we talked about Rx Savings Solutions. Growing the company is a priority for us. At the same time, we wanna continue to return capital to shareholders. We've been very consistent about that. I've talked about being in the market, to repurchase shares, you know, every quarter if we can to be consistent, so long as that we have excess capital that can't be deployed elsewhere, so long as that we're buying back shares below intrinsic value, which again, the company continues to grow, and we feel good about the future outlook, obviously. That's an opportunity for us. Underpinning all of that, and the, and the last part of returning capital is a growing dividend. We're committed to continuing to grow the dividend. I've talked about the fact that we wanna grow the dividend in relation to earnings growth. You can see, you know, how that plays out in the future. Last July, we increased our dividend 15%. While the yield on that, you can do the math of what the yield is, we are continuing to invest in the dividend and growing it in relation to earnings, which are healthy. Underpinning all of that for us is the importance of maintaining investment-grade rating, and we've done a nice job with that. Our balance sheet is very strong. We have plenty of liquidity. We have plenty of capital from a flexibility perspective, and our credit metrics are strong. When you put all of that together, we have, you know, a lot of opportunity to continue to invest in the business, at the same time, returning capital back to our shareholders. I'm glad you brought back up the Sarah Cannon Research Institute JV 'cause it's not your only JV, but it's a unique and newer one. As you think about that partner versus buy mentality, given you have a long history, especially of adjacencies, I think of, like, the $500 million-$3 billion acquisitions that you can list, a dozen plus that I can remember just off the top of my head. How do you think about that partnering and working with other, you know, dynamic companies in the market versus wanting to have full control of assets and what makes the most sense given your portfolio? first thing I'd say is Sarah Cannon Research Institute specifically, we own 51%. Yeah. We have operating control. Okay. Right. You know, I'll be honest, we probably have a bias to acquire and just own outright where we can. When you get an opportunity to partner with a great organization like HCA, you know, we spent a lot of time upfront thinking about governance and how we would manage this together. We just got really comfortable with them, and we think the combined, you know, having McKesson and HCA behind this thing just, you know, opens up a lot of strategic possibility for that, for that venture. Look, we've gotta be flexible in this world. I mean, you know, the key is making sure you get the operating model right, that you have clarity of what you're going after on the front end as you get into these things. In some instances, it'll be outright acquisition. Some instances, it's build and innovate internals. Some, it's take advantage of a great chance to partner with a, with another organization. I think what we try to do is just bring logic and rationality and look at each opportunity individually when we think about how best to structure them. I guess one last big-picture question, which we've been asking a bunch of companies here. Who knows if we're gonna be in a recession or recessionary-like environment as we go through this year into next. Looking back to 2008 and 2009, the core pharma distribution businesses seem to be as resilient as anything in healthcare. How do you think about positioning, especially now with three large entities, not that the other two didn't exist before, but into what could be an uncertain macro environment? I think the consumption of healthcare is not gonna stop because there's a recession. There could be, you know, some outpatient therapy may vary over time. Generally speaking, healthcare is very resilient. We expect it to continue to be resilient and we're well positioned to take advantage of that with the services that we provide. I think history is a good benchmark. We've performed well through all types of cycles, and I think we're well positioned to do that again. I see the red light down below. Brian. Thank you. Thank you so much for being here. Thanks for the time. Thanks for having us, Mike. Appreciate it. Yeah. Thanks, everybody. Thank you.