Cencora, Inc. (COR) Q4 2022 Earnings Call Transcript

Ladies and gentlemen, welcome to the AmerisourceBergen Q4 FY 2022 Earnings Call. My name is Glenn, and I will be coordinating your call today. I will now hand you over to your host, Bennett Murphy, to begin. Please go ahead.

Thank you. Good morning, good afternoon, and thank you all for joining us for this conference call to discuss AmerisourceBergen's Fiscal 2022 Fourth Quarter and Full Year Results. I am Bennett 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, which is available on our website at investor.amerisourcebergen.com. We have 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 taxes. Forward-looking statements are based on management's current expectations and are subject to uncertainty and change. For a discussion of key risks and assumptions, we refer you to today's press release and our SEC filings, including our most recent 10-K. AmerisourceBergen assumes no obligation to update any forward-looking statements, and this call cannot be broadcast without the express permission of the company. You have an opportunity to ask questions after today's remarks by management. With that, I'll turn it over to Steve.

Thank you, Bennett. Good morning and good afternoon to everyone on the call. Today, my remarks will focus on the successes of the 2022 fiscal year and the ways in which our leading distribution and pharmaceutical solution capabilities are core to advancing global pharmaceutical innovation and access, ultimately driving significant value creation for all our stakeholders. AmerisourceBergen delivered another strong fiscal year, driven by the resilience and strength of our business as our team continues to execute to advance our strategic priorities and build on our foundation for future growth. First, we leveraged the strength of our leading pharmaceutical distribution businesses. During fiscal 2022, we were proud to continue to support the continued global response to the COVID-19 pandemic as the exclusive distributor of emergency use authorization treatments in the U.S. and by supporting the distribution of vaccines and test kits internationally. Guided by our purpose, and empowered by our commercial strengths and execution, we played an important role in supporting public health. This also presented an opportunity to enhance relationships with key stakeholders worldwide, including governments, public health agencies, and providers and pharmacies. Importantly, we also continue to support our community provider customers from pharmacies to physicians to veterinarians all of whom are integral to ensuring patient access and care in our communities around the world. Second, we solidified our global capabilities to further enhance our customer experience. In the nearly 18 months since our acquisition of Alliance Healthcare, we have continued to integrate the business and facilitate collaboration across teams. As we look forward to the next phase of our integration, we are focused on streamlining our solutions under one commercial leader. Group President, Bob Mauch, will now also oversee Alliance Healthcare and assume the role of Chief Operating Officer. By uniting and simplifying our commercial operations, we will engage with our partners as a truly integrated healthcare solutions leader, fortifying our position at the core of the global pharmaceutical supply chain. Third, we advanced our legacy of responsible corporate stewardship with our ESG commitments, engagement and reporting, including further aligning our ESG work with recognized international standards, frameworks and initiatives. One important area where we continue to evolve our programs and policies is in diversity, equity and inclusion. And as a sign of progress, I'm pleased to say that our most recent gender pay data in the United States indicates that for every dollar male employees are paid, female employees in AmerisourceBergen are paid $0.998, an increase from our previous ratio of $0.994. Furthermore, to extend our work in DEI, we are making important investments to support health equity in our communities. These efforts include our disparities in cancer care task force, which is focused on addressing disparities and analyzing social determinants of health for oncology patients at the community level. In August, we held our first-ever disparities in Cancer Care Summit, where we brought together researchers, community physicians, patient advocates, payers and healthcare leaders to collaborate and share information. By uniting thought leaders and industry leaders, we hope to stimulate innovative partnerships that will address the disparities in cancer care today. We are also focused on supporting our people. Based on feedback we have solicited from our team members, we have evolved our workforce policies to address post-pandemic labor trends, reinforce the strength of our culture, invest in our talent and align their development with our goal for the business. We recognize that our people are our most important asset and that's the strength of our performance, thanks to the tremendous efforts of our team members around the globe. With purpose-driven dedication, commitment and expertise, our teams are executing against our strategic pillars to maintain a leading share of pharmaceutical distribution and best-in-class efficiency while growing our higher-margin and higher-growth businesses. Looking to the year ahead and beyond, we have strong momentum, and the importance of pharmaceutical care and the opportunities provided by continued pharmaceutical innovation bolster our strategy and fortify our ability to create additional stakeholder value. To advance our foundational pharmaceutical distribution business, we lead with market leaders around the world. It's no coincidence that customers are our first strategic pillar because they are at the center of everything we do. Our key anchor customers range from upstream emerging biotechs and large pharma manufacturers to downstream providers across the spectrum of care delivery, including physicians, community and specialty pharmacies, health systems, veterinarians and government agencies. We form long-term strategic partnerships to solve for the current and future needs of our customers. And with our expanded footprint and capabilities, we are now able to partner with them on a truly global scale. This includes supporting them with a technologically advanced standard setting infrastructure. For a distributor, maintaining infrastructure is table stakes, and we are proud that our historical investments have enabled us to be a leader in adopting new technologies and innovations to fulfill our purpose of being united in our responsibility to create healthier futures. In particular, our footprint efficiency and capabilities in data and analytics have enabled us to support the COVID-19 pandemic response globally. Today, we are proud to be supporting the response to monkeypox, and we stand ready to facilitate patient access to life-changing and life-sustaining medication to advance public health around the world. To ensure future readiness, AmerisourceBergen is enhancing our capabilities to grow our higher-margin, higher-growth businesses to support the rapidly evolving and global nature of pharmaceutical innovation, at the center of which is specialty medical care. Our team members, customers, suppliers and investors have known and appreciated AmerisourceBergen as the leader in specialty. Our specialty business is nearly 30 years old, and the tremendous investments we've made in our specialty capabilities have helped build us into the leader we are today and have laid a strong foundation for us to lead in the specialty of the future. Cell and gene therapies, for example, are one area with a combination of scientific breakthroughs, regulatory support and industry developments by accelerating product pipelines and patient access. To support this cutting-edge innovation in patient care, we deploy our broad and expanding platform of capabilities in distribution, commercialization and specialty logistics. This includes assets such as World Courier, Alloga and Innomar, which we are able to leverage to provide pharma manufacturers with the expertise needed to solve their most complex problems now and plan for the solutions of tomorrow. Specialty medicines play a key role in future pharmaceutical innovation. And with our continued innovation and investments, we further strengthened our leadership and capture this growth opportunity. AmerisourceBergen is also well positioned to benefit from high and increasing demand for outsourced manufacturing consulting and logistics services as we solidify our role as partner of choice for global pharmaceutical manufacturers. Through our various investments and partnerships, we offer a differentiated portfolio of commercialization solutions to support pharmaceutical innovation. Our recently announced acquisition of PharmaLex, for example, enhances our portfolio of solutions across our footprint and represents our ability to support clients at every stage of the commercialization journey, from providing market access strategies and early-stage clinical development consulting services to leveraging our pharmaceutical distribution reach and specialty distribution leadership to bring innovative products to market. We are differentiating and getting closer to our pharma partners by expanding our solution set, advancing our core capabilities and leveraging our existing commercial strength, ultimately contributing to positive pharmaceutical outcomes. We further drive our differentiation by investing in innovation to both advance our foundation and enhance our capabilities. Our investment strategy prioritizes continually improving and building on our strengths, supporting customer needs and ensuring our continued leadership in core capabilities such as supply chain excellence, clinical practice efficiency and patient access and adherence. We are also next-minded and focused on areas where we see trends leading to future growth such as clinical trial service, digital commerce, and home health. In clinical trial services, for example, we continue to play a leading role with direct-to-patient capabilities, helping our customers manage complexities as they increasingly adopt decentralized and hybrid models. Through this capability, we leverage our capabilities and reach to support pharmaceutical innovation and facilitate patient access. And to create the next generation of solutions to power our success long into the future, we continuously innovate through a combination of internal investments, capability building, strategic partnerships and venture capital. We remain committed to creating differentiated value for our stakeholders. Our long-term sustainable growth is supported by investments in our people and culture and our commitment to ESG. Our people drive our business forward, and we are committed to investing in and supporting them with a culture that unites, cultivates, and empowers them. Underpinned by our purpose and guiding principles, we are advancing our talent and culture to support our strategy and innovation to create an energized, diverse and inclusive workplace that helps our talent be action-biased, credibly resourceful, and next-minded. Our business is supported by the right people, including at the top of the organization. We recently had the pleasure of welcoming to our Board of Directors, Dr. Lorence Kim, whose business acumen and knowledge of healthcare and pharmaceutical innovation will serve AmerisourceBergen well in his new capacity as an independent Director. We are focused on adding key skill sets and diverse perspectives to help support our business and strategy as we continue our process of Board succession planning. Just as we invest in our people, we also invest in our communities, which have grown in scale and geography. With this in mind, we continue to evolve our environmental, social, and governance initiatives to create healthier futures around the world, which includes adapting to a change in climate, promoting health equity, and embracing a culture of transparency, ethics, and integrity. We take very seriously our leading role in healthcare, and we are committed to being a sustainable and responsible business. We are pleased with the progress we are making towards our long-term vision of expanding our leadership in pharmaceutical distribution and growing our higher-margin, higher-growth businesses. We have the right strategy in place to do so. By advancing our foundation, enhancing our capabilities, and investing in innovation to further drive our differentiation, we are solidifying our position at the core of global pharmaceutical innovation and access. Our leadership and growth are further supported by our strong financial foundation and value-enhancing capital allocation strategy, which Jim will discuss shortly. Just as importantly, we live our purpose of being united in our responsibility to create healthier futures with a focus on creating a better future for all of our stakeholders. Now I will turn the call over to Jim for a more in-depth review of our fourth quarter and fiscal year 2022 results and to discuss our expectations for fiscal 2023.

Thanks, Steve. Good morning and good afternoon, everyone. Reflecting on fiscal 2022, I am proud of the strong execution and performance by our teams as we advanced our company commercially and strategically, playing our central role in connecting pharma manufacturers with providers and patients as a leading healthcare solutions provider. Throughout the year, our teams navigated exceptionally well through a complex environment to ensure the delivery of crucial medications and services around the globe. Before I turn to our results, as a reminder, my remarks today will focus on our adjusted non-GAAP financial results unless otherwise stated. Growth rates and comparisons are made against the prior year September quarter and fiscal year. For a detailed discussion of our GAAP results, please refer to our earnings press release. Beginning with our fourth quarter results. We finished the quarter with adjusted diluted EPS of $2.60, an increase of 8.8%, which was driven by strong performance in our U.S. Healthcare Solutions segment. Our consolidated revenue was $61.2 billion, up approximately 4%, driven by growth in our U.S. healthcare solutions segment, offsetting weaker sales in the International healthcare solutions segment as a result of foreign currency translation pressure due to the historically strong dollar. Consolidated gross profit was $2.1 billion, up 5% due to growth in the U.S. healthcare solutions segment. Consolidated gross profit margin expanded by 4 basis points in the quarter to 3.44% driven by growth in the U.S. healthcare solutions segment. Consolidated operating income was $741 million, up 7% compared to the prior year quarter. This growth was driven by a strong performance in the U.S. healthcare solutions segment, more than offsetting the decline in the International healthcare solutions segment, which I will discuss in more detail when I review segment level performance. Moving now to our net interest expense and effective tax rate for the fourth quarter. Net interest expense was $52 million, down 5.6% as a result of higher interest income. Our effective income tax rate was 19.8% compared to 20.3% in the prior year quarter. Our diluted share count was 210 million shares, a 0.4% decrease compared to the fourth quarter of fiscal 2021, driven by opportunistic share repurchases in the second half of our fiscal year. This completes the review of our consolidated results. Now I'll turn to our segment results for the fourth quarter. U.S. healthcare solutions segment revenue was $54.8 billion, up 5% for the quarter as we continue to see broad-based solid performance and utilization trends across our portfolio. Revenue growth was impacted by lower sales of commercial COVID-19 treatments that have traditional commercial revenue associated with them, unlike the government-owned products that contributed more meaningfully to operating income in both the quarter and full fiscal year 2022. U.S. Healthcare Solutions segment operating income increased by 14% to $578 million. In the quarter, our specialty physician services business delivered strong growth across specialty classes. We also continue to benefit from strong biosimilar utilization in both specialty physician practices and health systems. Operating income margin increased by 9 basis points to 1.06% due to the distribution of COVID-19 treatments and growth in specialty physician services. Also, again, as a reminder, in the fourth quarter of fiscal 2021, we had elevated operating expenses as we made investments in our talent and growth initiatives. This impacts the year-over-year comparison for the segment in the quarter as we benefited from lapping those prior year expenses. I will now turn to our international healthcare solutions segment. In the quarter, international healthcare solutions revenue was $6.4 billion, down 3% on a reported basis. International healthcare solutions operating income was $163 million, down 13% on an as-reported basis driven by the impact of foreign currency translation and the divestiture of Profarma Specialty, which occurred in June 2022 and contributed $6 million in operating income during the fourth quarter of fiscal 2021. When looking at the segment on a constant currency basis, we believe the underlying business fundamentals are solid. In the quarter, we continued to have strong performances at World Courier, and Alliance Healthcare continued to execute well as we navigate inflation in the local economies. While the strong dollar continues to be a headwind on an as-reported basis, our teams throughout the segment have delivered good operational performance with solid trends across the businesses. As we look to 2023, we are excited to continue our progress on integrating Alliance Healthcare and to expand our global pharmaceutical solutions platform with the previously announced pending acquisition of PharmaLex. That concludes our fiscal fourth quarter discussion. Now I will turn to a discussion of our full year fiscal 2022 results. Our consolidated revenue was $239 billion, up 12%, driven by growth in both segments and benefiting from the full year contribution of Alliance Healthcare. Excluding Alliance Healthcare, our consolidated revenue was up 5%. As we have indicated throughout the year, we had lower revenue recognized from COVID-19 treatment in the United States due to much of the volume associated with COVID treatments this year being associated with government-owned emergency use authorization treatments. In the prior year fiscal 2021, we had approximately $3.7 billion of sales related to COVID-19 treatments versus $1.7 billion in fiscal 2022. Consolidated operating income grew 20% to $3.2 billion driven by the full year contribution of Alliance Healthcare and solid performance across our portfolio, including sales to specialty physician practices. From a segment perspective, U.S. Healthcare Solutions had operating income growth of 9%, while international healthcare solutions operating income grew 81% year-over-year to $706 million. In fiscal 2022, we had $0.72 of contribution related to COVID treatment, test kits, and vaccine distribution, with $0.62 in the U.S. Healthcare Solutions segment and $0.10 in the international healthcare solutions segment. Turning now to interest expense. In fiscal 2022, net interest expense was $211 million, an increase of 21% as a result of debt related to the Alliance Healthcare acquisition. In fiscal 2022, we repaid $1.1 billion of debt and expect to repay the remaining $675 million in short-term Alliance Healthcare-related debt by March 2023, delivering on our commitment to the rating agencies to repay 2/3 of the debt related to the Alliance Healthcare acquisition. While we project that our total corporate debt will be lower in 2023, we expect our interest expense to increase somewhat in fiscal 2023 due to local country-level subsidiary borrowings at higher interest rates. Regarding taxes, our adjusted effective tax rate for fiscal 2022 was 20.6% compared to 21.3% in fiscal 2021, as we began to realize tax synergies related to the Alliance Healthcare acquisition. Turning now to EPS. Our full year adjusted diluted EPS grew 19% to $11.03, driven by the incremental 8-month contribution from Alliance Healthcare and solid growth across our businesses. Adjusted free cash flow for the year was $3 billion, and we ended the year with a cash balance of $3.4 billion. As a result of our better-than-expected cash flow generation and our strong balance sheet, we opportunistically returned capital to shareholders through the repurchase of $500 million in shares in the back half of the fiscal year during a time of equity market fluctuations. After these repurchases, we have approximately $900 million remaining on our current share repurchase authorization. That completes the review of our fiscal 2022 results. I will now discuss our fiscal 2023 guidance expectations. As a reminder, we do not provide forward-looking guidance on a GAAP basis. So the following metrics are provided on an adjusted non-GAAP basis. I will also provide certain guidance metrics on a constant currency basis. We have also provided a detailed overview of guidance metrics on Slides 9 and 10 of our earnings presentation. Starting with revenue. We expect consolidated revenue to grow in the 5% to 7% range on a reported basis, and in the 6% to 8% range on a constant currency basis. On a segment level, we expect U.S. healthcare solutions revenue to grow in the 6% to 8% range and international healthcare solutions, on a reported basis, we expect revenue to decline in the 1% to 5% range. On a constant currency basis, we expect the international segment's revenue to grow in the 8% to 12% range. Moving to operating income. We expect consolidated operating income to grow in the 0% to 3% range or 3% to 6% on a constant currency basis. Excluding COVID contributions, we expect consolidated operating income growth to be in the 3% to 5% range or 6% to 8% on a constant currency basis. On a segment level, we expect U.S. healthcare solutions' operating income growth to be in the 2% to 4% range. As we've called out throughout the year, in fiscal 2022, we had a significant tailwind related to the work we did to distribute COVID-19 treatments across the U.S. In the fourth quarter, the COVID treatment contribution came in slightly stronger than expected, bringing our total COVID treatment contribution for the segment to $0.62 for the year. In our fiscal 2023 guidance, we have embedded approximately $0.30 of contribution in the U.S. segment related to COVID treatment distribution. Excluding the contributions from COVID-related operating income, we expect U.S. segment operating income growth to be in the 5% to 7% range in fiscal 2023, generally in line with the long-term guidance we introduced at our Investor Day in June. Turning now to our International healthcare solutions segment fiscal 2023 operating income guidance. We expect international healthcare solutions segment operating income to decline in the 3% to 7% range on an as-reported basis or 5% to 9% growth on a constant currency basis. In fiscal 2022, the international segment had a $0.10 contribution related to COVID vaccine and test kit distribution. In fiscal 2023, we expect a few cents of contribution from COVID-related business in the segment. On an ex-COVID as-reported basis, we expect the international healthcare solutions segment operating income decline to be in the 1% to 5% range or operating income growth of 7% to 11% on a constant currency basis. As you turn to your models, there are a few items impacting the international segment from fiscal 2022 to fiscal 2023. First, we completed the sale of Profarma Specialty in June, which represented 2% of segment operating income in fiscal 2022. Second, the historically strong dollar created pressure in the segment during fiscal 2022, largely in the second half of the fiscal year. While FX pressure impacts the translation of income for our business, there are some elements of our business that mitigate FX risks, including that we operate and source in the local countries where we generate sales. While we expect an FX headwind in 2023 over 2022 using rates as of late October, the impact is fully reflected in our 2023 guidance and would largely be front-half weighted as the dollar did not significantly strengthen until the back half of fiscal 2022. Third, as we said in the September announcement of our intent to acquire PharmaLex, we anticipate closing the acquisition by March and expect the business to contribute approximately $0.15 in the last 7 months of our fiscal year. Our teams are making good progress and are on track to close the acquisition on schedule. The acquisition is accretive and adds to our higher-margin, higher-growth pharma manufacturer services platform for long-term value creation. Despite FX and inflationary pressures, our International Healthcare Solutions segment has delivered solid operational performance in the businesses and the segment, our core component of our strategic vision. With our distribution scale and portfolio of manufactured services, we're uniquely positioned to support pharmaceutical innovation and access across our footprint. Moving on to tax rate and share count. We expect our tax rate to be approximately 20% to 21% for fiscal 2023. We expect that our share count will be approximately 207 million to 209 million shares, as we will continue to opportunistically repurchase shares in fiscal 2023. Given these expectations, we are guiding for adjusted diluted EPS to be in the range of $11.30 to $11.60 on an as-reported basis, reflecting year-over-year growth of 2% to 5% or 4% to 7% on a constant currency basis. Excluding both the COVID-19 contribution of $0.72 in fiscal '22 and the expectation for approximately $0.30 to $0.35 of contribution in fiscal 2023, EPS growth would be in the 7% to 9% range or 9% to 11% on a constant currency basis. There are still many variables that make it difficult to predict the timing and realization of COVID treatment contribution. While this is our current estimate of COVID treatment contribution, we will continue to review trends over the coming months and make adjustments to our expectations as necessary. Turning now to capital expenditures and cash flow expectations. CapEx is expected to be approximately $500 million as we continue to invest to advance our business and support future growth opportunities. For adjusted free cash flow, we expect adjusted free cash flow to be approximately $2 billion. Since the opioid settlement agreement has been agreed to and annual payments are now predictable, the cash payments associated with the settlement are now included in our adjusted free cash flow guidance, which is the driver of lower adjusted free cash flow guidance in fiscal 2023 relative to fiscal 2022. As a reminder, in fiscal 2022, we made 2 payments related to the settlement, both at 2021 and the 2022 payments that totaled approximately $775 million. Before I make my closing remarks, while we do not provide guidance on a quarterly basis, I would like to provide some color on our quarterly cadence as you turn to your models. First, the dollar did not substantially strengthen until the second half of our fiscal year 2022. As a result, in fiscal 2023, we expect to see a more significant FX-related headwind in the first half. Second, in fiscal 2022, inflationary pressures in the business were largely in the last 7 to 8 months of the year, resulting in a tougher comparison for the first quarter of fiscal 2023 as we continue to carry those higher costs sequentially. While we feel very good about our growth rates in our full year fiscal 2023 guidance, these 2 factors create a tougher comparison in the first half of our fiscal year, particularly in the first quarter. To conclude, fiscal 2022 was a successful year for AmerisourceBergen, as our purpose-driven team members delivered exceptional execution and performance. We entered fiscal 2023 with strong momentum, and our increasingly united teams are creating differentiated value for our customers, partners and the patients they serve. We are well positioned to continue to drive value for our stakeholders by continuing to leverage our commercial strengths to create efficiency, investing in innovation to enhance our capabilities, and deploying capital thoughtfully and strategically.

Great. And thanks for all the comments and color today. Steve, I want to start with a bigger strategy question, and that's really around specialty. One, we hear about a number of different JVs and relationships in the marketplace. I'm just curious as to how your Board is feeling in the current market, one, from a competitive landscape perspective. And then two, biosimilars is an area that we've really been focused on. You did highlight that in your commentary as an opportunity. So maybe if you could talk about those 2 things. And then secondly, if I could ask, Jim, can you just talk about the upper and lower end of the COVID range? What's in there?

Thank you for the question, Lisa. I am extremely proud of our specialty distribution and services business, which we started nearly 30 years ago. Originally, ION oncology supply was a foundational part of this business, and we've significantly expanded our capabilities in distribution through acquisitions like Besse, and importantly, Lash and Xcenda introduced us to the services sector. Now, with ICS, World Courier, and PharmaLex, we continue to thoughtfully enhance our portfolio for both our upstream and downstream customers. Regarding our legacy specialty business, we've always tailored our offerings to meet the needs of both large and small clients. Despite a significant portion of the community oncology market in the U.S. being inaccessible to us, our market share remains impressive, supported by long-standing relationships grounded in exceptional service and pricing. Additionally, our development of services like ION, clinical pathways, and essential data for manufacturers helps practices perform better in today's environment. We're also responding to ongoing needs in areas where AmerisourceBergen has recently engaged, such as ESG initiatives and increasing diversity in clinical trials, which showcases our strong market presence. Currently, one of the key drivers in our oncology business is collaborating with the three largest aggregators, allowing us to serve them as their primary distributor while also catering to smaller customers. We're experiencing growth in institutional accounts as they enter the market. Our investment in services enhances our market presence and supports our international growth and differentiation strategies. It also improves outcomes for both our customers and pharmaceutical partners. Concerning biosimilars, we remain committed to facilitating profitable access for our customers in both Europe and the U.S., and our focus is particularly sharp on the 2 to 4 player markets, which have been historically successful for us. We recognize the shifts in clinical and economic dynamics that benefit our customers, and we believe this creates significant opportunities for our suppliers and for drug spending, which is vital for efficient healthcare. Lastly, we've recently opened a new hub for our specialty services on the West Coast, which signifies the growth in distributing specialty products, including biosimilars and innovative therapies. Now, I'll hand it over to Jim.

Sure. Lisa, you had asked about COVID therapies and our contribution from COVID therapies. In fiscal year '23, as we indicated, we're expecting $0.30 to $0.35 with approximately $0.30 being in the U.S. and a few cents international. And that's down, of course, from the contribution in fiscal year '22, which was $0.72. And we said we were a little bit ahead of expectations in the fourth quarter. We had a contribution from COVID therapies of $0.17. And so this is something that is hard to predict, and so we'll be very transparent, and we will indicate what our COVID therapy contribution in each quarter, as people will see in their earnings presentation that we posted this morning. This is why we provided guidance both including and excluding COVID therapies. And I will note that in the month of October, it was a little bit lighter than we expected. But we are providing the guidance for the year of this $0.30 to $0.35, and we will be transparent and update on it every quarter. And I'll just finish by saying, of course, we're very proud of the role that we served as the distributor of a number of these COVID therapies, Lisa.

Maybe if we could drill down a little bit more on the U.S. health care business and especially the segment EBIT, as you think about the puts and takes heading into next year, script growth, pricing, other areas of the business thinking like MWI, how do you think about the variability within that guidance, call it, the 5% to 7% ex-COVID range? And what are the areas, if we can, that you think are most point in the right direction versus areas that potentially have some level of overhang or slower growth versus what you would typically expect to see?

Yes, I'll begin my remarks there. As you mentioned, our guidance for adjusted operating income growth in the U.S. segment, excluding COVID, is between 5% and 7%. This growth is supported by consistently strong operational performance across multiple businesses. We continue to execute effectively, particularly seeing robust growth in our specialty business, and we expect that trend to persist. Additionally, while COVID therapies are a factor to consider, focusing on the ex-COVID aspect, we observe strong utilization trends without unexpected surprises. Utilization trends remain solid, leading to strong performance across various businesses that contributed to the growth rates in 2022, which we anticipate will continue into 2023.

Yes. I'll try to add two points. Jim, just to confirm what I heard, regarding PharmaLex, you are predicting AOI to increase by 7%, excluding any unusual factors. So, when we consider PharmaLex, is the core actually increasing by 11 to 15 times relative to PharmaLex? Or should we view it as increasing 11 to 15 times including PharmaLex, acknowledging that it's a back-end weighted figure? I just didn't quite catch the explanation of the calculations clearly.

Yes. I recommend looking at Page 10 of the earnings presentation we posted on our website earlier today, which details the growth rates of our International Health Care Solutions segment. We report these on an as-reported basis, a constant currency basis, and also excluding COVID on both bases. Additionally, we include the impact of the acquisition. For PharmaLex, we anticipate closing on March 1, and expect it to contribute $0.15 to fiscal year '23. Looking at the international healthcare solutions segment, our growth rate in constant currency, excluding COVID, is projected to be between 7% and 11%. If we exclude the impact of the acquisition, we would reduce both the lower and upper ends of that range by about 4 percentage points, which I believe addresses your question.

Yes. Looking at the guidance again, you're indicating very strong growth when excluding COVID on a constant currency basis. During your Investor Day, you mentioned a long-term outlook of about 5% adjusted operating income growth, with a range of 5% to 7%. However, it seems you're projecting higher growth than previously indicated. Is there anything this year that might provide a near-term advantage which won't continue indefinitely? Or could there be potential for the long-term adjusted operating income growth to exceed your earlier forecasts from the Analyst Day?

Yes. I would say that this is in line with the guidance that we provided at Investor Day, where we talked about 5% operating income growth and 8% EPS growth in fiscal year '23. And then we talked about 5% to 8% operating income growth over the long term and then an additional 3% to 4% from capital deployment. And I think, feel like these results and guidance that we're talking about today are very much in line with what we indicated back on Investor Day, and it's really kind of driven by our leading presence in distribution, both in the U.S. and internationally and then our ability to supplement that with higher margin, higher growth businesses that are able to contribute to our operating income growth and then deliver the capital deployment, both through acquisitions like the PharmaLex acquisition in fiscal year '23 and share repurchases, as we've demonstrated over the last 6 months with about $500 million of share repurchases.

Yes, I would like to add that we conclude the fiscal year with significant momentum, which underscores the resilience and core demand for our services. We truly appreciate this exceptional industry we are part of.

Question on free cash flow trajectory. In the last 5 years, we're not seeing our profit growth and free cash flow. I know there's some obvious factors around investment and the opioid settlement. But I'd welcome your view on underlying growth in fiscal year '23 and the opportunity to see free cash flow expansion post settlement?

Yes. And so first of all, I'd say we were really pleased with our free cash flow in fiscal year '22. Our adjusted free cash flow of $3 billion in fiscal year '22. And as I look forward, Eric, I'd just kind of see the free cash flow metrics kind of being about the same as they have been. And of course, they've been very favorable, and we've had great performance on free cash flow. But I don't really kind of see anything that would kind of change those metrics. Of course, as I commented in the prepared remarks in fiscal year '23, now that the settlement is known, we will be subtracting the settlement out of free cash flow, not adding it back. But in terms of the metrics, I view our working capital as one of the very positive things about our business and kind of seeing those free cash metrics being kind of consistent.

That last question touched on my follow-up regarding free cash flow. However, I have a distinct inquiry about MWI. I'm interested in your thoughts on its current performance and future outlook. It seems to me that the companion side may be past the peak of the COVID pet boom. Historically, during times of economic downturns and global difficulties, support for production animals tends to decline, leading to decreased animal consumption. I would appreciate any updates on MWI and your expectations for the upcoming year.

Yes. And so it has been a lower growth year for MWI and the animal health market in '22. I think for the year at MWI, it's about 3% growth and a little bit higher than that in companion animal and a little bit lower than that but still growth in the production animal market. And of course, it's comping over some very strong years in the animal health market, where there are a lot of pet adoptions during COVID, and that really drove the market for a period of time. And then I think what's been happening this year is there have been some staffing issues. Of course, as the labor market has been tight, there's been staffing issues in veterinary clinics. So it's a little bit harder to get an appointment. And so that's impacted the market, but it's a very strong market and a very strong business for the long term. And in both good economies and bad economies, that market has performed well. And I think we would continue to see that over the long term.

I have two international questions combined into one. Do you anticipate any future recurrence of the Turkish FX remeasurement expense related to inventory? Additionally, were there any excess fuel energy costs in the U.K.? Did that represent a significant challenge for you? This has certainly come to our attention as a potential issue.

Yes. Regarding Turkey, there is a mechanism in the market that allows for an annual price increase, which helps protect us against currency devaluation. We expect this annual price increase to continue in the coming years, as it has in the past. In fiscal year '22, the price increase effectively countered the impact of currency devaluation, and our guidance anticipates a similar scenario in '23, although the price increase may be lower. As for fuel in the U.K., we have experienced inflationary pressures, especially in the latter half of fiscal year '22, and we expect these to persist in fiscal year '23, which is fully accounted for in our results and guidance. I must emphasize that our team at Alliance is very skilled at managing costs, but we are indeed facing headwinds from inflation, which is reflected in our guidance.

Great. With the growth in the U.S. healthcare solutions segment expected to be between 5% and 7% excluding COVID, could you clarify if there has been any significant negative effect from customer contract renewal pricing factored into that growth estimate? If it has, that's positive since you still achieve the growth, but I'm interested to know if this has been a consideration, perhaps in basis points or otherwise.

Yes. Yes. No, we have no call-outs there. And of course, we're very proud of our ability to be able to renew with customers, and very pleased with our success there. And what we're seeing really in the U.S. is just continued broad-based growth and performance across a number of businesses.

Just want to ask about capital deployment, and 3 aspects to it really. By March '23, you're saying you'll be done with the need to pay down the debt that you committed to the rating agencies for the Alliance deal. Does that impact your priorities and where you think your capital deployment will go? You've also got the strong dollar, which I know is impacting on the translation side, but you've got 2 businesses doing very well, World Courier and Alliance. Any thought about using the strong dollar for other acquisitions internationally? And then, I guess, finally, just the Walgreens stake, does that affect your capital priorities in any way? Do you need to hold reserve in case you have an opportunity to buy your shares back through anything they do?

Yes. So thank you very much for that question. Of course, our capital deployment priorities remain consistent and continuing to invest in the business, strategic M&A, opportunistic share repurchases and maintaining a reasonable growing dividend. And with regard to parts of the question that you asked, we obviously will continue to look at strategic acquisition opportunities. We feel really good about the PharmaLex acquisition and the opportunity that, that creates for us in the global biopharma market. And then with regard to the Walgreens question you asked, if Walgreens does decide to sell additional shares, of course, we'll view that as an opportunity to collaborate with them and be a repurchaser of some of the shares. And I think through our actions over the last 6 months, we've demonstrated our interest in opportunistically repurchasing shares. And this is all enabled by our very strong free cash flow. We really exceeded our guidance on adjusted free cash flow for fiscal year '23, and we're fully meeting our commitments, of course, as you mentioned, to pay down the Alliance debt.

We have no more further questions. I will now hand the call over back to Steve for closing remarks.

Thank you, everybody, for your participation today. I hope that Jim and Bennett and myself were very clear that we are tremendously proud of AmerisourceBergen's performance in fiscal year 2022. We enter fiscal year 2023 with tremendous confidence, which is only enhanced by the flexibility, our strong balance sheet affords us. AmerisourceBergen is making the right strategic, human and operational investments to continue to grow our franchise in ways that will enhance value for all of our stakeholders. Thank you for your time today.

Thank you, everyone, for joining the call today. Have a lovely day. You may now disconnect your lines.