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Text: I am Bennett Murphy, Senior Vice President, Investor Relations.
You'll have an opportunity to ask questions after today's remarks by management.
We ask that you limit your question to one per participant in order for us to get to as many participants as possible within the hour.
Today, we will focus our remarks on the exceptional progress that AmerisourceBergen team has made on our strategic priorities during fiscal 2021, and how we will capitalize on that momentum to continue executing and innovating in fiscal 2022.
Before I begin, I want to take a moment to comment on the distribution industry's recent milestone regarding the proposed settlement agreement to address opioid-related claims of U.S. State Attorney Generals and political scout divisions in participating states.
Throughout the litigation process, we have been consistent in stating our desire to addressing the enormity of the opioid challenge by bringing solutions to the table.
If the industry's proposed agreement and settlement process leads to a final settlement, it would collectively provide thousands of communities across the United States with substantial financial support.
Clearly, the process is in an advanced stage, and we will not comment deeply at this time.
We take our role in the supply chain seriously and continue to work closely with stakeholders concerning these complex matters.
AmerisourceBergen will continue to work diligently and alongside partners to combat drug diversion while supporting real solutions to help address the crisis in the communities where we live, work and serve.
In fiscal 2021, AmerisourceBergen advanced its role as a key pillar of pharmaceutical innovation and access, as we look at our purpose of being united in our responsibility to create healthier futures by supporting our partners, customers and our own team members through challenging times.
As the pandemic persists, the importance of our purpose in an evolving environment and an efficient global pharmaceutical supply chain is being felt by all our stakeholders.
We are proud to be able to offer our expertise, capabilities and infrastructure as part of the solution on facilitating the national distribution of COVID-19 therapies, to supporting the distribution of more than 75 million vaccines to patients in over 30 countries through our expanded global footprint.
Our business has leveraged its position of market strength to become an increasingly vital partner of choice through differentiated solutions for our upstream and downstream customers.
Our continuous investments and ongoing focus on being a strategic partner for our customers have deepened our relationships with all our stakeholders during this time of increased focus on the pharmaceutical supply chain, enhancing our position as a provider of key solutions for our customers, both big and small.
We also leverage our core capabilities as a leader in pharmaceutical distribution and a differentiated provider of unique solutions for manufacturers globally and healthcare providers locally.
In the U.S., we are a key partner for our community pharmacies, veterinarians and physician practices.
In community pharmacy, we are particularly proud to support our Good Neighbor Pharmacy members trusted role through our innovative tools and programs that allow independent pharmacists to optimize their operations and spend the most possible time serving their patients and communities.
In July, for the fifth year in a row and for the tenth year of the past 12 years, Good Neighbor Pharmacy network was ranked highest among brick-and-mortar chain drug store pharmacies by JD Colin.
In our Animal Health business, we support veterinarian practices in similar ways to help them manage their practices as they continue to experience increased demand for its services due to growth in pet ownership.
The cherished role of pets within families and increased importance based on ensuring health and well-being of all family members.
We also continue to differentiate ourselves as the leader in specialty distribution and commercialization services.
This fiscal year, we launched a variety of new services and solutions, bolting upon our historic investments to further drive our leadership in specialty with our customers and orders.
For example, through our ION and other value-added solutions, we form new partnerships that offer industry-leading technologies to specialty physician services customer practices, enabling them to be even more efficient on enhancing their ability to improve the patient experience and ultimately, outcomes.
We are also pleased to continue to support the growing adoption of biosimilar products in physician offices and community hospitals and health systems, facilitating patient access to important treatment choices, to improve their health and well-being.
Internationally, we remain a leading provider of global pharmaceutical distribution services and differentiated solutions in key markets across the globe.
Earlier, I mentioned the distribution of tens of millions of doses of the COVID-19 vaccines to patients in more than 30 countries.
Through our market-leading manufacturer solutions, including our global specialty logistics and commercialization offerings, we're also facilitating direct-to-patient clinical trials and helping manufacturers around the world navigate the ever-increasing complexities of global logistics.
Furthermore, we are leveraging our now expanded portfolio of international relationships, partnerships and solutions to facilitate patient access to the rapidly evolving landscape of new pharmaceutical technologies.
As we continue to differentiate our business, we remain focused on being strategic partners with our customers as we help them achieve operational efficiencies and support growth in their businesses with innovative solutions.
In fiscal 2021, we completed a significant technology investment by bringing the specialty distribution business onto the SAP platform, which will help improve efficiency, increase flexibility and support continuity.
As a global healthcare company, we understand and appreciate the importance of ensuring our businesses have the technology they need to support their operations and enhance their capabilities.
Importantly, an increasingly critical part of our global role and responsibility is being strong corporate stewards, that is ensuring our financial health, investing in our people culture and ensuring long-term and sustainable value creation.
In terms of our financial health, we continue to take a thoughtful and strategic approach to capital deployment that focuses on value creation and maintaining financial strength.
This includes our focus on maintaining our strong investment-grade credit ratings, and we remain on track to delivering on our commitments to the rating agencies.
Notably, our financial and strategic position has enabled the continued enhancement of our healthcare capabilities, including the acquisition of Alliance Healthcare, which we completed in June.
Since then, our culturally aligned teams have worked diligently to integrate our teams and businesses, conducting deep dive into strategically optimizing our operational and business development synergies to exploring ways to enhance the value we grade to our partners.
Our financial strength also enables us to continue to invest in our people and culture.
At AmerisourceBergen, we know our team members are our most valuable asset, and we are committed to inspiring them to achieve their fullest potential.
Our efforts go well beyond the table space of offering market align pay, and we understand the long-term advantage of being a fair and equitable employer, who offers competitive wages at all levels.
We have surveyed our team members to find out what's most valuable to them and have invested in attractive benefit programs, such as increased paid parental leave, child and dependent care, and enhanced mental health and wellness programs.
Our team members also value a culture of flexibility, and we responded with a thoughtfully designed, new way of working that provides options for flexibility while balancing the need for in-person connection and innovation.
On ensuring the safety of themselves and their loved ones during the pandemic to investing in world-class learning technology and models, we understand that it is absolutely critical that our talent is cultivated and empowered to help drive our long-term growth.
Our efforts have been recognized, and we have once again been certified as a great place to work company and named a best place to work for LGBTQ equality by the Human Rights Campaign.
Meaningful value can also be unlocked when individuals are empowered to bring their whole selves to work, and we embrace our collective differences.
This year, we furthered our diversity, equity inclusion efforts with the rollout of new employee resource groups and new diverse candidate slate objectives.
To further align our people strategy with our business strategy, we also introduced a new leadership competency model that will be embedded throughout all of our talent programs.
Based on the collective feedback from team members across AmerisourceBergen, the new model focuses on developing the initial competencies aligned to four key business and cultural poles, diversity, equity and inclusion, collaboration, innovation and executional excellence and purpose.
As a foundation for how we will recruit, engage and develop our people, this new model and the principles behind them will enable us to create value now and for the long term.
Another aspect of our culture, one which helps ensure sustainable value creation, is our dedication to operating in a sustainable and responsible manner and to supporting healthy and resilient communities, where we live and work.
During the quarter, we are proud to have become a participant of the UN Global Compact, the world's largest corporate sustainability initiative.
We also held our third annual AmerisourceBergen Foundation Conference, which helps Foundation grantees connect and learn from each other and the Foundation team to help them become even more effective in their work to positively impact local communities around the world.
Our continued progress in areas like ESG, diversity, equity inclusion and strategic planning are made possible by the expert oversight and guidance to our board as well as the ability of our management team to drive execution and operational excellence.
Looking ahead, our key growth pillars enable us to maintain our leading market position and to solidify our differentiated value proposition in fiscal '22 and beyond.
First, we are focused on our customers.
Through our unique partnership model, we formed long-term lasting relationships and integrate us operationally and enable us to provide value-added solutions that help further strengthen our ability to lead with market leaders.
Second, we are focused on expanding on our leadership in specialty by leveraging our global reach, market-leading capabilities and ability to support rapidly accelerating and global pharmaceutical innovation, we strengthened our capabilities to support both upstream partners and downstream customers.
Third, we are focused on execution excellence.
This includes continuously investing in our business, which increases our flexibility, expands our suite of capabilities and enhances our customer experience.
Fourth, we are focused on supporting pharmaceutical innovation around the world.
With a global manufacturer services platform, we aim to be the strategic partner of choice to global manufacturers as we help them innovate, solve the complex challenges of global logistics and market access, and capture the opportunities of rapidly accelerating pharmaceutical innovation.
Downstream, we provide data-driven insights, efficiency solutions and our unmatched scale to help optimize customer operations and support access for patients in the -- on the smallest to largest populations across all sites of care and across all classes of trade.
And finally, our growth is supported by investments in our people, culture and all dimensions at ESG.
By investing in our people and culture, we advance our most important resource.
By committing to ESG, we create healthier futures around the world and unlock the added value of being a responsible and impact for enterprise, which ultimately enables a strong and healthy financial position to achieve long-term sustainable value creation for all of our stakeholders.
AmerisourceBergen has made exceptional progress on our strategic priorities, further enhancing our differentiated value proposition and driving consistent outperformance throughout the year as we continue to capitalize on our positive momentum into fiscal 2022.
We remain driven by our purpose of being united in our responsibility to create healthier futures.
Now powered by 42,000 team members globally, we remain confident in our pharmaceutical-centric strategy and capabilities as a leader in pharmaceutical distribution services and differentiated manufacturer solutions.
For AmerisourceBergen, fiscal 2021 was a momentous year as we celebrated the 20th anniversary of the Amerisource and Bergen Brunswick merger completed, both the acquisition of Alliance Healthcare and the extension of the Walgreens contract through 2029, and our teams delivered another year of strong performance, driven by our continued execution and strategic decisioning.
Our pharmaceutical-centric business, robust customer relationships and leadership in specialty distribution and services position us to be a partner in supporting pharmaceutical innovation and access on a global scale.
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.
Beginning with our fourth quarter results, we finished the quarter with adjusted diluted earnings per share of $2.39, an increase of 26.5%, which was driven by both a full quarter's worth of contribution from Alliance Healthcare and the strong performance in our Pharmaceutical Distribution Services segment.
Our consolidated revenue was $58.9 million, up approximately 20%, reflecting growth in Pharmaceutical Distribution and Other.
Excluding Alliance Healthcare, our consolidated revenue would have been up 9% from the prior year quarter.
Consolidated gross profit was $2 billion, up 51%, driven by increases in gross profit in both Pharmaceutical Distribution and other, which benefited from the inclusion of Alliance Healthcare.
This quarter's gross profit margin of 3.4% is 71 basis points higher than the prior year quarter as we had a full quarter of Alliance Healthcare in our consolidated results.
Consolidated operating expenses were $1.3 billion versus $795 million in the prior year period, primarily due to the addition of Alliance Healthcare as well as investments in our talent and initiatives to support the company's current and future growth.
This quarter's operating expense margin of 2.23% is 61 basis points higher than the prior year quarter, primarily reflecting the full quarter impact of Alliance Healthcare in our consolidated results.
Also as a reminder, in the fourth quarter of fiscal 2020, we had a bad debt reversal of $13 million that impacts the year-over-year comparison of operating expenses.
Turning now to consolidated operating income.
Our operating income was $694 million, up 31% compared to the prior year quarter.
This growth was driven by increases in both the Pharmaceutical Distribution Services segment and Other, which I will discuss in more detail when I review segment level performance.
Operating income margin was 1.18%, an increase of 10 basis points as a result of the contribution from Alliance Healthcare and the continued benefit from some of our higher-margin businesses.
Moving now to our net interest expense and effective tax rate for the fourth quarter.
Net interest expense was $55 million, up 57% due to debt related to Alliance Healthcare.
Our effective income tax rate was 20.3% compared to 21.7% in the prior year quarter.
The lower effective tax rate was due to a change in the mix of domestic and international income from the prior year quarter.
Our diluted share count was 210.8 million shares, a 2.2% increase due to the impact of the issuance accumulated shares delivered to Walgreens as part of the Alliance Healthcare acquisition and dilution related to employee stock compensation.
This completes the review of our consolidated results.
Now I'll turn to our segment results for the fourth quarter.
Pharmaceutical Distribution Services segment revenue was $51.2 billion, up 8% in the quarter, driven by increased sales of specialty products, strong execution across our Pharmaceutical Distribution businesses and overall positive prescription utilization trends.
Pharmaceutical Distribution Services segment operating income increased by 11% to $472 million.
Operating income margin expanded by two basis points to 0.92% in the quarter.
AmerisourceBergen's continued leadership in specialty distribution allowed us to capture the benefits of strong utilization trends during the quarter.
I will now turn to Other, which includes Alliance Healthcare, MWI, World Courier and AmerisourceBergen Consulting.
In the quarter, Other revenue was $7.7 billion, up from $2 billion in the fourth quarter of fiscal 2020, driven by a full quarter's worth of contribution from Alliance Healthcare as well as growth in the global commercialization services and Animal Health businesses.
Other operating income was $223 million, up from $105 million in the fourth quarter of fiscal 2020 due to the inclusion of Alliance Healthcare.
That concludes our fiscal fourth quarter discussion.
Now I will turn to a discussion of our full year fiscal 2021 results.
Our consolidated revenue was $214 million, up 13%, driven by growth in Pharmaceutical Distribution and Other, which includes four months of contribution from Alliance Healthcare.
Excluding Alliance Healthcare, our consolidated revenue was up 9% from the prior year.
Consolidated operating income grew 20% for the year to $2.6 billion, driven by strong performance across our businesses and the four-month contribution of Alliance Healthcare.
Excluding Alliance Healthcare, our consolidated operating income increased by an exceptional 12% from the prior year, driven by growth in our higher-margin businesses, strong fundamentals across our business and the important work our team has done to support the COVID therapy distribution for hospitalized patients.
From a segment perspective, Pharmaceutical Distribution Services had operating income growth of 13% due to strong performance across our portfolio of businesses and customers.
In fiscal 2021, we continue to capitalize on our leadership in specialty distribution, both in the physician space and health systems.
We saw a significant contribution from health systems as our differentiated solution set was leveraged by manufacturers to meet their complex logistics for the distribution of COVID-19 antivirals and therapies to hospitals across the country.
Additionally, we continue to have strong performance in Specialty Division Services this fiscal year as the healthcare system has become more accustomed to operating in the current environment.
This supported physician diagnosis and related testing and screening processes, resulting in more normal levels of new patient starts.
In Other, operating income grew 54% year-over-year to $615 million.
Other meaningfully benefited from the four months of contribution from Alliance Healthcare results, while World Courier and MWI also delivered strong results.
As global logistics continue to be challenged by the pandemic, World Courier provided its expertise and innovative solutions to manufacture partners around the world, facilitating the movement of temperature-sensitive and other high-priority shipments.
World Courier's direct-to-patient in home clinical trials continue to be a differentiator as patients and manufacturers saw alternative lower acuity care sites.
MWI continued to experience strong performance in the companion animal market as pet parents maintain their focus on their pet health and the production animal market, the reopening of restaurants and return of travel boosted protein demand.
Turning now to tax rates.
Our adjusted effective tax rate for fiscal 2021 was 21.3% compared to 20.8% in the prior fiscal year, which has benefited from discrete tax items.
Turning now to EPS.
Our full year adjusted diluted earnings per share grew 17% and $9.26, primarily due to strong growth and execution across our business, including continued leadership and outperformance in specialty and the four-month contribution from Alliance Healthcare.
Adjusted free cash flow for the year was $2.1 billion, which was better than our expectations due primarily to the timing of certain customer payments in September, a benefit that will reverse in the December quarter due to the higher supplier payables.
There was also better-than-expected cash flow at Alliance Healthcare.
If you normalize for the timing-related benefit, our adjusted free cash flow for the year would have been roughly $1.7 million.
We ended the year with a cash balance of $2.5 billion, excluding restricted cash of approximately $500 million.
That completes the review of our fiscal 2021 results.
I will now discuss updates to our segment reporting, which will go into effect in fiscal 2022.
Following the acquisition of Alliance Healthcare and the subsequent change to the geography of our business, we undertook a strategic evaluation of how we report our segments in order to provide alignment with business operations.
Following this review, which concluded in October, we will begin reporting our results in two new segments in the first quarter of fiscal 2022, U.S. Health Care Solutions and International Health Care Solutions.
The U.S. Healthcare Solutions segment will consist of our legacy Pharmaceutical Distribution Services segment, excluding Profarma Distribution plus the following businesses, which had previously been reported in Other, MWI Animal Health, Xcenda, Lash Group, and ICS 3PL.
The International Healthcare Solutions segment will consist of our non-U.S.-based Pharmaceutical Distribution and Services solutions, including Alliance Healthcare, World Courier, Innomar and Profarma Distribution and Profarma Specialty.
As a reminder, we consolidate Profarma's results due to our ownership interest and governance of the publicly traded entity.
Profarma Specialty was previously reported in Other.
Our new reporting segments, like AmerisourceBergen, are built on the foundation of leading in pharmaceutical distribution and differentiated by complementary higher-margin businesses offering value-added solutions in key markets.
Turning now to discuss our fiscal 2022 guidance.
So all of the following metrics are provided on an adjusted non-GAAP basis.
We expect consolidated revenue to grow in the high single-digit to low double-digit percent range.
On a segment level, we expect U.S. Healthcare Solutions revenue to be approximately $207 billion to $212 billion, representing growth of 2% to 5% year-over-year.
In International Healthcare Solutions, we expect revenue of approximately $26 billion to $27 billion.
Moving on to operating income.
We expect consolidated operating income to grow in the mid- to high teens percent range.
On a segment level, we expect U.S. Healthcare Solutions operating income to be between $2.325 billion and $2.4 billion, representing growth of 3% to 6% on a year-over-year basis.
The only business that was included in Pharmaceutical Distribution services that is not going into U.S. Health Care Solutions is Profarma Distribution, which contributed less than 1% of revenues for Pharmaceutical Distribution Services in fiscal 2021 and roughly 1% of segment operating income.
As a reminder, as I said back in February and again in August, we had a significant tailwind in fiscal 2021 related to the financial contribution from sales of COVID-19 therapies.
We did have higher-than-expected COVID therapy sales in the fourth quarter, primarily driven by sales in the month of August with a subsequent substantial decline in September.
The final earnings per share benefit from COVID therapy sales for full year fiscal 2021 was $0.30, $0.14 of which was in the first quarter.
If you estimate the first quarter of fiscal 2022 based on even lower October trends, the contribution from COVID therapy sales would be $0.03, which means the first quarter would have an $0.11 headwind for U.S. Healthcare Solutions segment.
While this reduces the segment's growth rate in the first fiscal quarter, we expect full year operating income growth of 3% to 6% in U.S. Health Care Solutions.
We expect International Healthcare Solutions have operating income between $685 million and $715 million.
Alliance Healthcare represents a little over 2/3 of operating income in the segment, with World Courier making up the majority of the remainder of segment operating income.
As you think about your first quarter models, we expect about 25% of the International segment's operating income to occur in the first quarter.
As you look at fiscal 2022 for the International segments, there are a couple of things to keep in mind.
First, we have agreed to sell Profarma Specialty as we focus on our core operating assets.
The transaction is under regulatory review and is expected to be completed in the first half of fiscal 2022.
Successful completion of the divestiture is factored into our guidance and represents a 2% headwind to our International Healthcare Solutions segment's operating income.
Second, in fiscal 2022, we will have a step up in expenses at Alliance Healthcare that was fully contemplated when we announced the acquisition and is generally related to IT modernization.
As Steve said earlier, we view technology and systems as fundamental to our operations and business continuity, and this step-up in fiscal 2022 expense will help align Alliance Healthcare's business technology, operability and infrastructure with AmerisourceBergen.
Alliance Healthcare continues to deliver on our expectations for the business, and we expect Alliance to be high teens accretive to our stand-alone adjusted diluted earnings per share in fiscal 2022.
Since closing the transaction, our teams have engaged both in person and virtually and have furthered our strong relationships.
Most recently, we held a deep dive with leaders across AmerisourceBergen and Alliance Healthcare, focused on Alliance Healthcare's manufacturer services businesses.
I continue to be impressed by the strong and efficient business and team at Alliance and appreciate the collective thoughtfulness around creating long-term value for stakeholders through our innovative solutions.
Moving on to interest expense, tax rate and share count.
We expect interest expense to grow in the mid-teens percent range as a result of debt related to the Alliance Healthcare acquisition.
We expect our tax rate to be approximately 21% to 22% for fiscal 2022, based on current tax rates in effect for fiscal 2022.
Without the tax rate benefit from Alliance Healthcare's operations, our range would have been 1% higher on both the top and bottom end of the range.
Finally, we expect that our share count will increase to approximately 212 million shares as a result of the full year impact of the two million shares delivered to Walgreens as part of the closing of the Alliance Healthcare acquisition and normal dilution from stock compensation expense.
As a reminder, as part of our commitment to maintain our strong investment grade credit rating, we are committed to paying down $2 billion in total debt over the next two years in lieu of share repurchases.
We currently expect to pay down roughly half that amount toward the end of fiscal 2022.
As a result of these expectations, reflecting the strength of our business, we are guiding for adjusted diluted earnings per share to be in the range of $10.50 to $10.80, reflecting year-over-year growth of 13% to 17%.
Turning now to capital expenditures and cash flow expectations.
capex is expected to be in the range of $500 million as we continue to invest to further advance our business or to buy Alliance Healthcare's IT infrastructure and support additional growth opportunities.
For adjusted free cash flow, we expect adjusted free cash flow to be in the range of $2 billion to $2.5 billion, which includes the benefit of Alliance Healthcare in our results for the entire fiscal year.
In closing, fiscal 2021 was another successful year for AmerisourceBergen as we continue to execute on our strategic priorities while the pandemic persisted.
I am proud of our 42,000 team members, who worked tirelessly to support our customers, partners and patients and drove our strong financial results.
Given the steps we took in 2021 to advance our business, I'm excited about our 2022 fiscal year as we continue to deliver stakeholder value.
As we continue to drive our business forward, we will maintain our focus on our differentiated capabilities supported by our dedicated team members.
AmerisourceBergen is guided by our purpose of being united in our responsibility to create healthier futures, built on a foundation of leadership in Pharmaceutical Distribution and differentiated by complementary higher-margin businesses that leverage our pharmaceutical scale and expertise to create unparalleled value for our manufacturer partners and healthcare provider customers.

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q4 adjusted non-gaap earnings per share $2.39 excluding items.

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