Thank you, operator. Good afternoon, and welcome, everyone, to McKesson's first quarter fiscal 2023 earnings call. Today I'm joined by Brian Tyler, our Chief Executive Officer; and Britt Vitalone, our Chief Financial Officer. Brian will lead off, followed by Britt, and then we will move to a question-and-answer session. Today's discussion will include forward-looking statements such as forecasts about McKesson's operations and future results. Please refer to the cautionary statements in today's earnings release and presentation slides available on our website at investor.mckesson.com, and to the Risk Factors section of our periodic SEC filings for additional information concerning risk factors that could cause our actual results to materially differ from those in our forward-looking statements. Information about non-GAAP financial measures that we will discuss during this webcast, including a reconciliation of those measures to GAAP results, can be found in today's earnings release and presentation slides. The presentation slides also include a summary of our results for the quarter and updated guidance assumptions. With that, let me turn it over to Brian.

Thanks, Rachel, and thanks to everyone joining us on our call this afternoon. Earlier today, we announced our first quarter fiscal 2023 results with strong growth in total company revenue and adjusted operating profit across the North American businesses. As a result of our first quarter performance and McKesson's continued role in the COVID-19 response efforts, we are raising our guidance range for fiscal 2023 adjusted earnings per diluted share from $22.90 to $23.60 to a new range of $23.95 to $24.65. Successful execution against our company's priorities—priorities of people and culture, sustainable core growth, streamlining the portfolio, and expanding the oncology and biopharma services ecosystems—are really what underpin our fiscal 2023 outlook and our long-term growth framework. I wanted to center my remarks today around those themes, starting with a highlight of the progress we've made against our company priorities. Foundational to our company's history and our strategy are the core pharmaceutical and medical distribution businesses. As we expand the reach of our services, we remain focused on generating sustainable growth in these core businesses. Our operational excellence and ability to leverage our scale with global suppliers is one of the many reasons why McKesson continues to be a partner of choice for our customers. Over the past two years, we've been working closely with the U.S. government to distribute the COVID-19 vaccine and ancillary kits. As requested by the U.S. government, our contract to serve as the centralized distributor for COVID-19 vaccines was extended through July of 2023. Similarly, the contract for ancillary kits and storage was extended through January of 2023. We continue to be honored and privileged to leverage our distribution scale and expertise to support this important public health effort. Britt will comment a little more specifically on the financial impacts of these contract extensions, but we are looking forward to serving the U.S. government for several more months in this capacity. Building upon the success of the core distribution businesses, we're tackling some of the most complicated problems in healthcare through the expansion of our oncology and biopharma services ecosystems. In the first quarter, we were excited to announce the formation of a joint venture between McKesson's U.S. Oncology Research and HCA Healthcare's Sarah Cannon Research Institute. This transaction marks a significant alliance between these two organizations and we expect it will accelerate our strategic advancement of the oncology ecosystem. By combining the resources and the expertise of these two organizations, we're creating an expanded clinical research network, which means a broader portfolio of clinical trial offerings, expanded patient reach, access to a broader set of data, and more advanced analytics capabilities to better match patients with clinical trials. This new joint venture will aim at accelerating drug development and increasing availability and access to clinical trials for community oncology providers and patients, including those in underserved communities. This transaction enhances our proposition to biopharma companies and further advances our differentiated offerings across the entire pharmaceutical life cycle. It reinforces our commitment to advance health outcomes for all. We expect to close this transaction by the end of calendar year 2022 and look forward to the partnership and collaboration that can bring greater outcomes to the patients we collectively serve. We're also making meaningful progress on expanding our biopharma services ecosystem. Through years of intentional investment, we've built a suite of innovative biopharma solutions that support every phase of the medication life cycle across therapeutic categories. We're reinventing how biopharma companies, providers, and payers can connect with each other through technology, with the ultimate goal of helping patients access, afford, and adhere to their medications. In light of that, I'd like to share a few examples around our affordability efforts and how these efforts fit into our biopharma ecosystem. A key piece of our innovative medication affordability product suite is our automatic couponing program, which applies co-pay offsets or savings for qualified medications right at the point of dispensing. Using our technologies, it's seamlessly integrated into the pharmacy workflow. We further help patients stay on their trusted brands through multichannel support options, including informing messages about discounts, real-time support, and educational materials. We also facilitate patient assistance programs, which serve as a critical financial safety net for millions of patients. We implement and administer comprehensive patient assistant programs through program pharmacies, enabling access to free medication programs for eligible patients treated at hospitals, community care settings, and sometimes even at home. Both of these solutions leverage the reach of our technology network. In fiscal year 2022, our solutions enabled patients to save more than $6 billion on brand and specialty medications, preventing over 9 million prescriptions from being abandoned. By improving affordability, these solutions also enhance adherence, helping patients stay on their treatment longer, which leads to better health outcomes. Looking ahead, we're proud of our differentiated assets and capabilities, and excited to bring innovative solutions to more partners and patients. Oncology and biopharma services represent large, complex, and growing markets for McKesson and we're strategically positioned to continue enhancing value in these areas. Next, I want to discuss our priority of streamlining the portfolio. It's crucial that we continue to focus our human and financial capital on the highest growth and margin areas of the company. This includes continually assessing our portfolio for strategic alignment. We are making progress toward fully exiting the European region. We recently entered into an agreement to sell Denmark and the transaction closed on July 29, 2022. The pending transaction with the PHOENIX Group is progressing and is on track, with an expected close in the second half of fiscal 2023. Norway remains the only country yet to have an agreement announced for sale. One year after we announced McKesson's strategic intent to exit the European region, we've entered into agreements to sell, or have completed divestitures of, the business operations in 11 of the 12 countries in Europe. I'm pleased with the execution of this important initiative as the teams have demonstrated remarkable speed and efficiency. I reaffirm our commitment to people and culture as our first priority. Talent can be a differentiating factor for us, and we continue investing in the development of our employees by providing competitive compensation, benefits, and the necessary resources and support for their growth into the next generation of leaders at McKesson. Our commitment to advancing diversity, equity, and inclusion continues, with increased leadership representation for women and people of color in the U.S. McKesson was recently recognized by Forbes as one of the best employers for women, achieving an industry-leading ranking. This highlights our progress in promoting equity and diversity in the workplace and reflects our deep commitment to supporting our employees. For the seventh consecutive year, McKesson has been named one of the Best Places to Work for Disability Inclusion, scoring 100 on the 2022 Disability Equality Index. I'm proud of the progress we've achieved across all company priorities, demonstrating its positive impact on our long-term growth. Before I discuss our first quarter results, I want to provide a quick update on the progress of the opioid-related litigations. We reached agreements in principle with the State of Washington and the State of Oklahoma this past quarter. With these developments, we have reached agreements to settle opioid-related claims in all 50 states, the District of Columbia, and eligible territories. The majority of the payments from these settlements will fund opioid relief programs in local communities. We are proud of that and will support various strategies to combat the opioid crisis. In July, after a full trial, a federal judge ruled that McKesson, along with two other distributors, could not be held liable for contributing to the opioid crisis in two West Virginia subdivisions. This ruling is significant as it confirmed that McKesson did not cause an oversupply of opioids in those communities. While our role in addressing opioid abuse continues, McKesson will remain committed to helping provide relief throughout the country and preventing opioid diversion in the pharmaceutical supply chain. Now, focusing on business performance, I want to start with macroeconomic trends and their potential impacts on McKesson's business. In the past quarter, we've observed positive prescription volumes and patient utilization trends. Additionally, our business model has remained resilient against pressures from cost inflation and supply chain disruption. The impact of these macroeconomic factors was immaterial in Q1, and we don't anticipate any additional impact beyond what we've already factored into our fiscal 2023 outlook. We are confident in our ability to navigate a dynamic economic environment, with a diverse set of products and solutions enabling us to meet market demands and seize evolving opportunities. We're committed to delivering innovative products and solutions that make quality care more accessible and affordable. Let me summarize the first quarter performance before handing it over to Britt for additional financial details. Starting with U.S. Pharmaceutical, we delivered solid first-quarter performance in core pharmaceutical distribution, driven by our differentiated value proposition and exceptional customer service. Throughout the quarter, we saw year-over-year growth in prescription volume, with positive trends for both branded and generic drugs. Our distribution expertise is reflected in our product breadth, delivery accuracy, and reliability of service. We also focused on expanding the oncology ecosystem to strengthen our differentiated market position, evidenced not only in financial performance but also through the research we published, insights generated, and partnerships formed that empower innovation in cancer care. Our oncology business has been resilient throughout the pandemic, and we observed stable patient visit trends within our U.S. oncology practices. In Prescription Technology Solutions, we're pleased with the growth momentum in the first quarter, driven by access, affordability, and adherence solutions. The market demand for our products and solutions remains strong, contributing to organic growth in core product categories. This solid financial performance allows us to reinvest in expanding the reach of our biopharma services ecosystem. Continued investment and innovation are critical to our long-term growth. In the Medical-Surgical Solutions segment, we again delivered strong performance led by strength in primary care. Higher demand for COVID tests during the quarter was anticipated and aligned with COVID case counts. We continue to expand our products and services breadth to enhance our leading capabilities in the alternate site market. In the International segment, we're making progress on divesting our European assets. Concerning our Canadian business, we remain committed to our strategy, where we have scale and a diverse asset portfolio. Distribution and retail operations remain stable, and the team is driving growth through improved sourcing economics and expanded customer relationships. Overall, McKesson reported a solid first quarter for fiscal 2023, with stable business fundamentals and meaningful progress against our company priorities. Our updated outlook for fiscal 2023 aligns with our long-term growth targets and illustrates our commitment to sustainable growth across all segments. I want to thank my teammates and employees of McKesson for their hard work. I'm proud to lead this exceptional team. Every innovative problem solver here is driving McKesson forward and ultimately helps advance health outcomes for all. With that, Britt, why don't you provide additional comments?

Well, thank you, Brian. And good afternoon. We are pleased to report June quarter financial results that continue to demonstrate our ability to grow our businesses and effectively execute as a diversified healthcare services company. Our fiscal first-quarter results exceed our expectations, reflecting progress against our strategic priorities and showcasing the continued strength of our operations. I'll start today with a few company updates before reviewing our first-quarter results. First, I want to address Europe and our ongoing focus to streamline our portfolio. Over the past few years, we've taken deliberate actions to streamline the business and redeploy capital effectively, ensuring the organization is operationally efficient in solving our customers’ biggest challenges. This effort is exemplified by our actions to exit the European region, announced in July 2021. Since then, we've divested or entered into agreements to sell business operations in 11 of the 12 countries where we operate. To date, we've successfully completed notable transactions including our Austrian business and the remaining shares of our German joint venture, our UK retail and wholesale operations, and our Denmark business. The transaction with the PHOENIX Group to sell operations in other specific European countries is also progressing well. We expect to close in the second half of fiscal 2023, pending regulatory reviews. We continue exploring strategic alternatives to exit remaining operations in Norway, as that is the only country without an agreement announced for sale. For fiscal 2023, we project that our remaining European operations will contribute adjusted operating profit of about $0.85 to $1.15 per diluted share, including accretion resulting from held-for-sale accounting related to the PHOENIX Group transaction. As discussed at our December Investor Day, we intend to use share repurchases to offset dilution resulting from the European divestitures. Exiting operations in Europe also allows us to concentrate on our significant strategic priority, expanding our Oncology and Biopharma services ecosystems. We took a major step this quarter in our oncology ecosystem. In June, we announced an agreement to form a joint venture that combines McKesson’s U.S. Oncology Research and HCA Healthcare’s Sarah Cannon Research Institute, including the acquisition of Genospace, Sarah Cannon's personalized medicine platform. This combination aligns with our strategic growth priorities and complements our existing operations, supporting our vision of improving care in every setting. The transaction is projected to close by the end of calendar year 2022, pending regulatory review and approval. We do not anticipate a material impact on our fiscal 2023 adjusted earnings per share outlook from this transaction. Next, as Brian mentioned earlier, our contract with the U.S. government to act as a centralized distributor for COVID-19 vaccines was recently extended through July of 2023. The contract for kitting and storage of ancillary supplies was also extended through January of 2023. I’ll discuss the impact on fiscal 2023 guidance later in my remarks. One additional item impacting our fiscal second quarter GAAP-only results, in July 2022, we exited an investment in equity securities for proceeds of $179 million. We'll recognize a GAAP-only gain within other income in the second quarter. Now let’s review our first-quarter fiscal 2023 results. My comments today will refer to our adjusted results, year-over-year, unless I state otherwise. Consolidated revenues amounted to $67.2 billion, marking a 7% increase fueled by growth in the U.S. Pharmaceutical segment, partially offset by lower revenues in the International segment as a result of the European divestiture process. Gross profit was $3 billion for the quarter, a 4% decrease. Excluding the impact of our European business operations and completed divestitures, gross profit increased 9%, resulting from organic growth in our Medical-Surgical Solutions segment and an increase in specialty product volume in our U.S. Pharmaceutical segment, along with growth in the Prescription Technology Solution segment. Operating expenses decreased by 10% for the quarter due to completed divestitures in the International segment. Consequently, operating profit was $1.1 billion for the quarter, achieving a 4% increase driven by growth in U.S. Pharmaceutical and improved prescription transaction volumes in the Prescription Technology Solution segment. Excluding the impact related to the distribution of COVID-19 products and services and gains and losses related to McKesson Ventures' equity investments, operating profit grew by 13%. Interest expense for the quarter was $45 million, down 8% due to a year-over-year net reduction in debt. The effective tax rate was 18.4% for the quarter. Concluding our consolidated results, first-quarter diluted weighted average shares outstanding were 145.9 million, an 8% decrease year-over-year, stemming from share repurchases throughout fiscal 2022 and in the first quarter of fiscal 2023. Overall, first-quarter adjusted earnings per diluted share stood at $5.83, marking a 5% increase compared to the prior year. Now, let's review our first-quarter segment results, starting with U.S. Pharmaceutical. Revenues were reported at $56.9 billion, reflecting a 14% increase year-over-year, resulting from increased specialty product volumes, led by retail national account customers and market growth, although partially offset by the conversion from branded to generic products. Operating profit rose by 4% to $711 million, driven by growth in specialty product distribution to providers and health systems, new generic launches, and improved performance of Ontada. This was partially offset by declines in COVID-19 vaccine distribution volumes. The contributions from our contract with the U.S. government for COVID-19 vaccine distribution resulted in an approximate benefit of $0.18 per share for the quarter, down from $0.30 in the first quarter of fiscal 2022. Excluding the impact of COVID-19 vaccine distribution, the U.S. Pharmaceutical segment achieved a 9% growth in operating profit. Results in the quarter were bolstered by the timing of generic launches and enhanced performance of Ontada. Operating margins for the quarter were marginally lower, reflecting product mix shifts, as growth from health systems and multi-specialty providers was offset by strong growth from retail national accounts, contributing to 7% of the overall 14% year-over-year top-line growth. Next, as noted earlier, our Prescription Technology Solutions segment delivered another strong quarter. The response to our access, affordability, and adherence solutions continues to be robust across biopharma providers and payers. Our scale and expanded suite of offerings support stakeholders, including patients. Revenues totaled $1.1 billion, a 21% year-over-year increase driven by growth in biopharma services, which includes third-party logistics, and increased technology service revenues. Operating profit grew by 19% to $165 million, reflecting favorable market acceptance of our growing access, affordability, and adherence solutions. Regarding Medical-Surgical Solutions, revenues equaled $2.6 billion, a 3% year-over-year increase, primarily driven by the strength of our primary care business, although partially offset by anticipated lower sales for COVID-19 testing and contributions from kitting, storage, and distribution of ancillary supplies for the U.S. government's COVID-19 vaccine program. Operating profit increased by 4% to $268 million, thanks to strength within the primary care business; higher volumes and incidences of respiratory illnesses and flu contributed to increased testing and patient visits within primary care. The contribution from COVID-19 testing, along with our contract with the U.S. government for kitting, storage, and distribution of ancillary supplies, provided a total benefit of approximately $0.25 per share for the quarter compared to $0.35 in the first quarter of fiscal 2022. Excluding the impact of these COVID-related items, the Medical-Surgical Solutions segment recorded operating profit growth of 20%. Moving on to our International results, revenues were flagged at $6.5 billion with a corresponding operating profit of $138 million, which marked a 19% decrease. On an FX-adjusted basis, revenues amounted to $7.1 billion, down 23%. Our first-quarter results were affected by the divestitures of the McKesson UK and Austrian businesses. Shifting to Corporate, our Corporate expenses were $145 million, reflecting a 6% decrease year-over-year. In the quarter, we recognized a tax receivable gain associated with our previous change healthcare investment and lower opioid-related litigation expenses. We incurred opioid-related litigation expenses of $19 million in the first quarter, which we anticipate to reach approximately $45 million for fiscal 2023. During the quarter, we faced net losses of $22 million tied to equity investments within the McKesson Ventures portfolio, contrasting with net gains of around $7 million in the first quarter of fiscal 2022. Note that the impacts on our consolidated results can be influenced by the performance of individual investments from quarter to quarter. Our practice has been, and will continue to be, not to incorporate McKesson Ventures portfolio estimates in our guidance. Now turning to our cash position, we ended the quarter with $2.2 billion in cash and cash equivalents. Throughout the quarter, we executed $100 million in capital expenditures aimed at technology investments, data, and analytics to support our growth priorities, including oncology and biopharma services ecosystems. We also returned $1.1 billion to shareholders during the June quarter, which comprised $1 billion in share repurchases and $71 million in dividends. In July, our Board of Directors authorized a 15% increase to our quarterly dividend, raising it to $0.54 per share. The board also approved a new $4 billion share repurchase authorization, bringing the total remaining share repurchase authorization to $6.3 billion. Our fiscal 2023 guidance concerning share repurchases remains unchanged, demonstrating the confidence of our Board and management in executing our strategic priorities. We continue to prioritize growth through internal investments and M&A, focusing on oncology and biopharma services, including strategies for expansion of access, affordability, and adherence solutions. In summary, our fiscal 2023 consolidated guidance anticipates a reported revenue growth of 3% to 7% and flat to 6% decline in operating profit compared to fiscal 2022. When excluding impacts tied to the U.S. government’s centralized COVID-19 vaccine and kitting distribution programs, COVID-19 tests, and gains or losses related to McKesson Ventures equity investments, we expect adjusted operating profit to rise by 4% to 10%. Our anticipated corporate expenses will range from $550 million to $620 million, inclusive of the impact from net losses associated with McKesson Ventures equity investments in Q1. Based on our strong first-quarter results and solid operating performance across segments, coupled with contract extensions with the U.S. government for COVID-19 vaccine distribution and ancillary supply storage, we are increasing our fiscal 2023 guidance range to $23.95 to $24.65 from the previous range of $22.90 to $23.60. Our outlook aligns with previously communicated long-term growth targets, reinforcing our commitment to sustainable growth. This revised guidance incorporates approximately $0.99 to $1.29 from several items, including $0.35 to $0.45 from the U.S. government’s vaccine distribution in our U.S. Pharmaceutical segment and $0.75 to $0.95 for COVID-19 tests and kitting in our Medical-Surgical Solutions segment. We also anticipate $0.11 from net losses associated with McKesson Ventures equity investments. Excluding COVID-related impacts and McKesson Ventures gains and losses from both fiscal 2023 guidance and fiscal 2022 results, we indicate about 10% to 15% growth in fiscal 2023. Our U.S. Pharmaceutical segment outlook reflects solid Q1 performance, resilience in our core distribution platform, and continued development of our oncology ecosystem. We expect reported revenue growth in U.S. Pharmaceutical to be between 11% to 14%, with operating profit declining approximately 1% to 3% year-over-year. Excluding COVID vaccine distribution for the U.S. government, we anticipate 4% to 6% operating profit growth, slightly above our long-term growth target. In Prescription Technology Solutions, we project revenue growth of 15% to 21% and operating profit growth of 16% to 22%, reflecting increased affordability solution volumes. For Medical-Surgical Solutions, we anticipate reported revenues to grow by 3% to 7%, while operating profit declines may be between 5% to 10%. Operating profit growth of 11% to 17% is expected when excluding impacts from COVID-related activities in this segment. Finally, in our International segment, we project revenue declines of 34% to 38% and operating profit declines of 22% to 28%. These decreases consider the loss of operating profit contribution from previous transactions and upcoming closures during fiscal 2023. We anticipate free cash flow for fiscal 2023 to be around $3.2 billion to $3.6 billion, factoring in property acquisitions and capitalized software expenses. Our fiscal 2023 outlook includes repurchases of approximately $3.5 billion in shares, mainly to mitigate the year-over-year effects of the European divestiture. We estimate the weighted average diluted shares outstanding for fiscal 2023 to be approximately 142 million to 144 million. To conclude, we are pleased with our solid start to the fiscal year. We continue to deliver on our growth strategy as a diversified healthcare services company, and our dedicated associates have driven exceptional performance. Our first-quarter financial performance reflects their diligence and navigating a dynamic operational environment. Looking ahead, the combination of our strong first-quarter results, growth strategy, and continued execution positions McKesson for sustainable long-term performance and shareholder value creation.

Next question, please.

Thank you. And our first question comes from Lisa Gill with J.P. Morgan.

Thanks very much and good afternoon. Thanks, Britt, for all of the color. I just wanted to go back and make sure I understand a couple of things. One, the comment around macroeconomic trends being immaterial. I know last year you had some wage inflation or gave people bonuses. I'm curious as to what you're seeing right now around wages? And then secondly, I want to ensure I understand how POA works. Is that just a pass-through? So as we've seen rising oil and gas prices, is that something that you can simply pass along to your customer, and that's why it's immaterial to you?

Well, Lisa, I'll start with the wage component. You'll recall last year as we monitored the markets, both nationally and locally, we decided mid-year to implement some wage actions. This was likely a $0.10 to $0.20 impact in each of the segments. We brought this perspective into our fiscal 2023 guidance, and at this point, we still believe that our outlook for labor markets aligns with our guidance. It's something we'll keep monitoring. People are crucial to our value delivery mechanism, and we need to stay on top of it. Looking at key metrics like turnover and service outputs, we are still comfortable that our assumptions for fiscal 2023 stand relevant. As for fuel specifically, it's a nuanced answer. I think Britt adequately characterized it as immaterial for this fiscal year. In some cases, we can pass through costs, while in others, we can set the price. We certainly monitor operations for efficiency to continually offset any expenses like that.

Next question, please.

Next will be Michael Cherny with Bank of America.

Good afternoon and congratulations on a really nice quarter. As I think about the OpEx management in the quarter, it clearly stood out relative to the outperformance. Aside from some dynamics on wage investments, what push and pulls are you seeing in the OpEx line compared to last year? How should we perceive the trajectory of OpEx in terms of percentage of revenue considering what you can both manage and how you will benefit from faster growth and those incremental revenue upside pull-throughs?

Hey, Mike, thanks for the question. The most significant factor for our consolidated operations was the divestitures in Europe that drove the operating expense decline year-over-year. We are also continuing to execute a lot of our cost initiatives that we began three years ago, focusing not only on efficiencies but also on driving automation within the company. Additionally, I want to point out a reduction in opioid litigation expenses, compared to the prior year. We referenced this in our guidance earlier this year, but it was lower in the first quarter and affects our corporate line. Overall, our efficiencies and cost programs that we've targeted over the past several years are driving productivity gains.

Next question, please.

Thank you! Our next question comes from Steven Valiquette with Barclays.

Yes, thanks. Good afternoon, everyone. If we refer back to the analyst day in December, you mentioned 12% to 14% EPS growth, excluding COVID and European dilution. How is that tracking for fiscal 2023, excluding those items? I believe on Slide 19, or Slide 15 rather, you indicated a 10% to 15% growth excluding those items. Is this the closest proxy for how this fiscal year is aligning with that 12% to 14% metric that you provided previously?

Hey Steven, thanks for the question. What we aimed to show with that slide was to illustrate the progression, excluding some of the factors we're addressing here, specifically related to COVID test kits and vaccines. The guidance we provided aligns more on a long-term basis and also excludes the programs currently in place. As noted for each segment today, our segments have actually performed slightly ahead of the growth rates we provided at Investor Day. We're currently working through the European divestitures and managing the dilution through share repurchases. In assessing our operating profit growth, excluding our government programs, you can observe that each of our segments aligns closely with the long-term growth rates discussed at Investor Day, while our consolidated 10% to 15% guidance also echoes that long-term outlook. Overall, we are very pleased with how we are tracking against the growth rates discussed previously.

Next question, please.

Next is Eric Percher with Nephron Research.

Thank you. I have a question regarding the contract extension with the government. Are there any changes in the scope of operations, and will you potentially support Novavax or Pfizer? Additionally, I'm interested in your thoughts on the normalization of vaccine distribution and COVID therapies over time. Are you seeing some of that through your channels?

Regarding the scope of the agreement, neither agreement has really changed concerning the services we’re providing. We are not expanding to distribute Pfizer, but we are committed to distributing all other U.S. government-approved vaccines, including Novavax, as directed by the U.S. government. Our facilities are ready to support this. As for kitting, it has likely shifted towards more storage than extensive kitting compared to the program's earlier phases. Regarding your second question about normalizing vaccine distribution, these vaccines are still running through the centralized government model. To be frank, two and a half years ago, it would have seemed unimaginable we'd still be in this situation regarding public health and the ongoing prevalence of disease. We remain dedicated to leveraging our assets to support public health responses in any way we can. While we appreciate having the facility to support the government program, we'll likely all be relieved when there's no longer a need for these services.

Next question, please.

Next will be Ricky Goldwasser with Morgan Stanley.

Yes. Hi, good afternoon and congratulations on a great quarter. I have a question regarding the COVID vaccines. In light of your increase in guidance regarding vaccines and kitting, how much of that was already captured in the $0.54 beat in the quarter, and how do you expect this to play out going forward? Additionally, Moderna indicated today they foresee a commercial market for vaccines in 2023. How should we think about this? Would this be in addition to the contract with the U.S. government or would that replace it?

Yes, thank you for the question, Ricky. If you examine our slide presentation, you’ll see we’ve identified the main changes in our guidance. Clearly, a portion of our first quarter performance arose from both vaccine distributions and kitting, as we indicated would contribute to our first-quarter results. Relative to test kits, we forecast a decline from FY 2022, and this forecast has held true although it slightly exceeded our internal expectations. We still expect a marked decrease compared to the previous year. Overall, some COVID-related items and programs did contribute to the upside observed, but our operating performance was also robust. You can see that in the slide discussing our guidance increase, which highlights a significant portion attributed to COVID programs, alongside a strong commitment to operational performance.

In relation to the distribution of the vaccine, I think we should focus on the facts. Our agreement with the U.S. government has been extended until July 2023. Thus, as long as the U.S. government continues to acquire vaccines, we will act as the centralized distributor. Should a new model develop where a distributor opts to rely on commercial markets, McKesson maintains a robust capacity to distribute vaccines commercially. We are the leading distributor for seasonal flu vaccines, supporting national immunization programs. Our established relationships with community providers throughout the U.S. position us well to support any relevant commercial initiatives.

Next question, please.

Next is Kevin Caliendo with UBS.

Thank you. Thanks for taking my question. As I analyze the growth in revenue for both the pharmaceutical and medical-surgical segments, I am attempting to adjust for the COVID contributions. Given that your guidance suggests you're expanding faster than market growth and raising expectations, do you attribute this largely to macro factors, or is it rooted in competitive dynamics? Are you realizing market share gains, or is the expansion of ASCs driving this growth in the medical-surgical segment?

Thanks for the question. I’ll break it down because there are differences between the two segments. In pharmaceuticals, we’ve noted improved utilization year-over-year. IQVIA numbers indicate a comprehensive 7% growth in prescription transaction volume from the prior year. That’s significant compared to previous years. Furthermore, our national retail account customers are growing faster than the market—a trend we've observed for the last several quarters. This robust growth translates to increased pharmaceutical revenues. In the medical side, our primary care business continues to perform strongly. We've also noted what I would describe as an extended flu season, which saw heightened illness levels leading to increased flu sales in the quarter, contributing to growth. Overall, our primary care business remains resilient and growing well.

Next question, please.

Next is Eric Coldwell with Baird.

Thanks. Can you hear me? Hello?

Yes, we can hear you.

Yes, sorry. Thank you. Following up on the operating expenses and SG&A control, there seems to be a substantial upside in that number. However, I’ve noticed gross margins are markedly lower. There appears to be significant variance in the P&L each quarter, which suggests that the street may have underrated one number and overrated another. Could you provide more color on why gross margin might be lower than consensus expectations? What are other significant factors we should consider moving forward?

Thanks for the question, Eric. I won’t venture to speculate on the street’s expectations, but I will highlight a few elements that could contribute to the observed disconnect, particularly this quarter. The timing and cadence of our European divestitures are likely significant. We completed the sale of our UK retail and wholesale operations in April of 2022, affecting gross profit and operating expenses. Excluding European divestitures, our gross profit actually increased 9%, which I mentioned earlier. Additionally, in the U.S. pharmaceutical segment, we are witnessing faster growth from our retail national account customers. As expected, those customers generally have lower margins than our broader portfolio, which could tilt margins. The result of the European divestiture timelines significantly impacts our overall financial performance.

Next question, please.

Next will be Charles Rhyee with Cowen.

Yes, thanks for taking the question. I wanted to ask about the Prescription Technology Solutions. I recall the comments regarding strong demand, and you are ready to invest. However, despite the guidance looking like it's trending down, can you clarify what the dynamics are here? Additionally, while the income guidance has increased, can you explain why? What's happening?

Yes, I'm happy to elaborate. We are certainly pleased with performance in this segment. Brian mentioned our affordability solutions experiencing significant growth. However, the revenue guidance appears slightly lower when compared to our first-quarter results. This is primarily attributable to the existing product mix. As the year progresses, we expect that mix to improve. In summary, while overall revenues might present a slight decline, our focus is on higher-margin products and higher growth opportunities.

The key takeaway is that the margin profile remains stable across our products and services; however, the shifts in mix are influencing the outcomes. The third-party logistics (3PL) model typically produces high revenue but relatively lower margins in this sector.

We have time for one more question, please.

Certainly, and that question will come from Brian Tanquilut with Jefferies.

Hey, good afternoon, and congratulations on the quarter. Brian, since you touched on the Sarah Cannon partnership, could you walk us through how you envision this driving growth and fit strategically going forward? Are there additional opportunities to expand this relationship with Sarah Cannon, considering they are among the largest cancer groups in the country?

We're genuinely excited about this partnership. There are two components to the acquisition. First, the joint venture with HCA connects the U.S. Oncology Research and Sarah Cannon organizations, both of which primarily focus on community providers involved in clinical research. Enhancing community oncology participation in clinical trials and developing new medications is crucial for health outcomes. We see tremendous potential for synergy across brands and the teams involved, and both have historically invested in community-focused initiatives, a promising convergence of interests. The second part of this is acquiring Genospace, which serves as a beneficial data and analytics tool to enhance capabilities like Ontada. This will aid us in trial matching, recruitment, and clinical decision support, adding another layer to our oncology ecosystem. Our focus is on regulatory approvals, but we are eager about this step in enhancing our community-based oncology ecosystem. Thank you to everyone for taking the time to join our call. I genuinely appreciate the insightful questions. I must also thank Justin for facilitating today’s discussion. I want to reiterate that our first quarter was strong, indicating total company revenue and adjusted EPS exceeded our expectations laid out in May. I remain confident in our resilient business model and McKesson's ability to offer sustainable growth and generate attractive shareholder returns in FY 2023 and beyond. Lastly, I want to thank Team McKesson for their unwavering commitment and dedication to our vision, strategy, and each other. The strength of a dedicated team propels McKesson towards a diversified healthcare services provider, significantly impacting the patients we serve. Thank you, and I wish you all a wonderful evening.

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