McKesson - Q1 2024

Transcript

Operator (participant)

Welcome to McKesson's Q1 fiscal 2024 Earnings Conference Call. Please be advised that today's conference is being recorded. At this time, I would like to turn the call over to Rachel Rodriguez, VP of Investor Relations. Please go ahead.

Rachel Rodriguez (VP of Investor Relations)

Thank you, operator. Good afternoon, and welcome everyone to McKesson's Q1 fiscal 2024 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'll 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 most recent annual and 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. With that, let me turn it over to Brian.

Brian Tyler (CEO)

Thank you, Rachel. Good afternoon, everybody. We appreciate you joining us on our call today. McKesson reported a strong fiscal Q1, driven by really broad-based momentum across the businesses. We delivered $74.5 billion in total revenues and $7.27 in adjusted earnings per diluted share, both exceeding our expectations. The performance in the quarter included a favorable timing impact from a discrete tax item, but the thing we're most, most importantly focused on and pleased with is the strong operational performance of the underlying business, which gives us the confidence to raise our guidance range for fiscal 2024 adjusted earnings per diluted share from $26.10-$26.90 to an updated range of $26.55-$27.35.

Before I review our business performance in the quarter, I want to provide an update on the utilization trends that we've been observing. In the Q1, we saw solid growth in prescription volumes and patient visits. In US Oncology, same-store patient visits grew at a good pace while we continued to expand the reach of the network. The solid growth in prescription volume trends, particularly in weight loss or GLP-1 drugs, contributed to the strong revenue growth in the Q1. As we closely monitor the trends going forward, we're well positioned to deliver products and services to support the evolving needs of our customers and patients.

Now, let me move on to our business review, and I want to focus my remarks today on the progress we've made in executing on our company priorities and our differentiated market positions in the key growth areas of oncology and biopharma services. I'll also discuss some of the key growth drivers for the quarter, and as always, Britt will provide additional details about our financial results. Let's start with our priority of driving sustainable core growth. In the Q1, we saw strong performance in the pharmaceutical distribution business, as reflected in the growth of the U.S. Pharmaceutical segment, where revenue increased 18%, and adjusted operating profit grew 14% when excluding the contribution from COVID-19 related items in the prior year.

We're pleased with the broad-based momentum across all customer channels, really, including higher volumes from retail national accounts and good growth in our health system segment. We also have a long history of supporting and investing in the growth of community pharmacies. In May, we launched Pinpoint Community Solutions, a new inventory management system powered by our proprietary SupplyLogix software that's designed to help independent pharmacies improve cash flow, increase inventory efficiency, and to maximize their operational performance. In June, we were proud to host the annual ideaShare Conference, a nationwide community pharmacy event that brought together more than 2,800 attendees. Through this forum of discussion and education, we helped pharmacists foster deeper community connections, strengthen their collective voice, and discover ways to innovate and thrive using McKesson products and services.

To support the sustainable growth of the core distribution businesses within U.S. Pharmaceutical, we're also investing in our infrastructure to enhance automation and improve efficiency. In the past quarter, we opened a new distribution center dedicated to specialty pharmaceuticals. This new facility incorporates the latest innovations in supply chain automation and technology, and it'll allow us to better serve our customers with increased productivity. In the Medical-Surgical segment, we're dedicated to serving customers across alternate sites of care, and we continue to look for opportunities for new partnerships. In the past two years, we've partnered closely with the U.S. government on important public health initiatives, and we're really quite proud of the relationships we've built at both the state and the federal level through these close collaborations. Since then, we've grown our state government business through participation in cooperative purchasing programs.

We've also built a dedicated government solutions team stacked with experienced sales, customer service, sales administration, and legal teams, with a shared goal of supporting successful government procurement and providing best-in-class fulfillment and service at every level of the government. As we expand our customer relationships, we're also strategically managing relationships with manufacturers to ensure supply chain diversity. We serve a broad portfolio of national brand and private label medical surgical products, and we're enhancing our procurement tools and processes to better track domestic and international sourcing. Last year, our sourcing team traveled to more than 10 countries, representing our continued effort to expand our manufacturing relationships and diversify our geographic presence. Let me move on to the next company priority, and that is expanding our oncology and biopharma platforms.

In July, we were excited to welcome the Cancer Center of Kansas to The US Oncology Network, growing the total number of providers in the network to over 2,400. The continued growth is a strong testament to the value proposition of the network and an example of how we continue to evolve and grow our portfolio of differentiated assets. With over 20 years of oncology practice management experience, the network brings significant value beyond just drug purchase savings. The practices in the network have access to substantial expertise and ample resources, including clinical and business services, innovative technologies that support high-quality patient care, efficient drug management, and revenue cycle optimization. As one of the largest organizations of its kind, The US Oncology Network is dedicated to advancing cancer care and enabling better patient outcomes.

Since its initial participation in the Oncology Care Model, more than 120,000 patients have been enrolled in the program across the network. Participating practices delivered high-quality care to patients while generating significant savings for Medicare. Recently, we announced the network's participation in the Enhancing Oncology Model, which includes representation from over 70% of the physicians in the network. The US Oncology Network continues to lead at the forefront of value-based care. In biopharma services, the success of our innovative products and solutions is reflected in the growth we delivered in the Q1. Prescription Technology Solutions segment saw a 17% revenue increase and 35% increase in adjusted operating profit. We continue to receive positive feedback on our products, enabling us to further penetrate the market and expand our channel reach.

The solid prescription trends, particularly the commercial success of the weight loss GLP-1 drugs, as I mentioned earlier, also led to higher demand for our prior authorization solutions and contributed to the strong performance in the quarter. We remain committed and focused on expanding the biopharma services platform as one of our strategic growth pillars. We continue to strengthen the relationships with biopharma companies who are the primary sponsor of this business. We're also creating comprehensive value proposition for each of the stakeholders in the continuum of care. For providers, our industry-leading technology platforms help them understand the patient's progression along their treatment journey and help the patients access their therapies faster. Through our electronic payer connections, we support payers who represent 94% of prescription volumes in the U.S. and offer real-time decisions and simplified support between providers and health plans.

We're also connected to more than 50,000 pharmacies, and we offer solutions like automatic coupon programs and central fill distribution, helping them improve operational efficiency and ultimately helping their patients lead healthier lives. Recently, we were honored to receive the 2023 Retail Excellence Awards from Drug Store News, recognizing the value of our retail solutions and what they bring to pharmacies. As we continue to make significant progress in our company priorities, I want to highlight our unwavering focus on our people and culture. We at McKesson believe that having the best talent is essential, and it's foundational to our culture and strategies. As a company, we've further defined our employee value proposition. We call it "The Future of Health Starts with You," to demonstrate our commitment to our employees and what makes McKesson a top employer.

Focusing on care, meaning, and belonging, we strive to build a culture that supports the well-being and growth of each individual who works at McKesson. We also offer employees the opportunity to form authentic connections and advocate for advancing the company's culture through employee resource groups. We're pleased to see the ERG membership grew by more than 70% in the past two years. Supported by increased employee participation, these resource groups are becoming an important channel to promote and strengthen our culture of inclusion, belonging, and collaboration. Our focus on people and culture is an important pillar of our company's priorities, and it's also part of our broader initiative focused on enacting positive and lasting impact. We strive to deliver value to our customers and our communities, not only as a diversified healthcare services company, but also as an impact-driven organization.

In June, we published our FY 2022 and FY 2023 impact report that detailed our progress in advancing our strategy and driving meaningful outcomes to build a healthier tomorrow for all future generations. We shared many great initiatives focused on making an impact through our four impact pillars: our people, our partners, our community, and our planet. I'm very, very proud of what the team has achieved, and we'll continue to track, measure, and communicate our progress around these impact pillars. Now, before I hand it over to Britt, let me pull everything together. McKesson delivered a strong Q1, and we're making consistent and meaningful progress with our company priorities. We're pleased with the growth and momentum across the business segments, and the market fundamentals remain solid in support of the positive outlook we've outlined for fiscal 2024. I want to sincerely thank all of the McKesson employees.

We refer to them as Team McKesson. What we have achieved would not be possible without their dedication and the commitment of each and every one of them. I'm tremendously proud to be your leader and grateful for your contributions to advancing our vision.... With that, Britt, I'll hand it over to you for additional insights.

Britt Vitalone (CFO)

Thank you, Brian, and I'm pleased to be here this afternoon to discuss our fiscal Q1 results, which, as you mentioned, are tracking above the full year guidance that we provided in May, and it reflects solid progress against our long-term growth targets. Given the strong start to the year and momentum across the business, we're raising both our top and bottom-line guidance today. I'll first start with a review of our Q1 results and provide an overview of our fiscal 2024 outlook, including our updated adjusted earnings per diluted share range. My comments today will refer to our fiscal 2024 adjusted results, unless I state otherwise. Let me start with a review of our consolidated results.

Consolidated revenues increased 11% to $74.5 billion, which was led by growth in the U.S. Pharmaceutical segment, resulting from increased prescription volumes, including higher volumes from retail national account customers, specialty products, and weight loss from GLP-1 drugs. They were partially offset by lower revenues in the international segment, resulting from completed divestitures within our European business during fiscal 2023. When excluding the impact of our European business operations, including completed divestitures, revenues increased 16%. Gross profit was $2.9 billion for the quarter, a decrease of 2%. When excluding the impact of our European business operations and completed divestitures, gross profit increased 7% in the Q1, primarily a result of growth in the U.S. Pharmaceutical and Prescription Technology Solutions segments. Operating expenses decreased 4% in the quarter.

When excluding the impact of our European business operations, including completed divestitures, operating expenses increased 8% year-over-year. Operating expenses during the quarter included integration costs related to our acquisition of Rx Savings Solutions and a joint venture with Sarah Cannon Research Institute, both of which were completed in the second half of fiscal 2023. Q1 operating profit increased 3% to $1.2 billion, primarily driven by growth in our North American businesses, partially offset by the completed divestitures of our European business operations, which are within our International segment. When excluding the impact of COVID-19 related items in fiscal 2023, and losses associated with McKesson Venture equity investments in fiscal 2023 and 2024, operating profit increased 9% in the quarter. We're pleased with these strong operating results, which are above the long-range growth targets.

We're delivering durable operating performance and sustained momentum, and we're executing against our strategies. Moving below the line, interest expense was $42 million, a year-over-year decrease, driven by transactions within our long-term debt portfolio, which I'll discuss later in my remarks. The effective tax rate was 8.4%, driven by the recognition of a net discrete tax benefit of $147 million in the Q1 of fiscal 2024, related to the repatriation of certain intellectual property between wholly owned legal entities that were based in different tax jurisdictions. As a reminder, the timing of discrete tax items is difficult to predict, and therefore, we do not provide quarterly effective tax rate guidance. Our effective tax rate guidance for the full year remains unchanged.

Q1 diluted weighted average shares outstanding was 136.6 million, a decrease of 6% year-over-year. Adding it all up, Q1 earnings per diluted share of $7.27 represents an increase of 25% over the prior year. When excluding COVID-19 related items in the Q1 of fiscal 2023, and losses within our McKesson Ventures portfolio in fiscal 2023 and 2024, Q1 earnings per diluted share was up 33% over the prior year. Turning to our Q1 segment results, which can be found on slides 7 through 11, I'll start with U.S. Pharmaceutical. Revenue and operating profit results in the quarter exceeded our expectations. Q1 revenues were $67.2 billion, an increase of 18% year-over-year.

Revenue growth reflected increased prescription transaction volumes, including higher volumes from retail national account customers, specialty products, and GLP-1 drugs. These increases were partially offset by branded to generic conversions. The growth of the weight loss or the GLP-1 drug category provided a revenue tailwind in the quarter. We generally recognize lower margin rates for the distribution of GLP-1 drugs. The growth of these products, similar to other new brand launches, led to increased demand for our access and affordability support programs, such as our prior authorization services, which are offered within our RXTS segment. The Q1 also marked further progress against our oncology growth strategy. We're pleased with the growth across all of our oncology assets. We saw growth in the US Oncology Network, supported by the strength of our GPO capabilities.

As Brian mentioned, recently, we added Cancer Center of Kansas to The US Oncology Network, expanding the total number of providers in our network to over 2,400. During the quarter, we delivered solid performance and contribution from The US Oncology Network. Q1 fiscal 2024, total patient visits were 19% above the prior year, and on a same practice basis, US Oncology patient visits grew approximately 7% above the prior year. The joint venture with Sarah Cannon Research Institute is progressing well as we support the expansion and the advancement of clinical trials and clinical trial research, and we continue to invest in and progress our data and insights business, Ontada. These oncology assets and capabilities are important pieces to the long-term development of this segment, and we're excited about the growth and the continued progress that we're seeing.

1st quarter U.S. Pharmaceutical operating profit increased 8% to $771 million, driven by growth in the distribution of specialty products to providers and health systems, and increased contributions from our generics programs, which included new product launches within the quarter. When excluding the impact of COVID-19 vaccine distribution in the 1st quarter of fiscal 2023, the U.S. Pharmaceutical segment delivered operating profit growth of 14% year-over-year, ahead of the segment's long-term growth target. U.S. Pharmaceutical operating profit growth reflects increased prescription volumes and the breadth of capabilities that we provide, including solid generic volumes and sourcing contributions, operating discipline, and the continued momentum from our oncology platform. Let me move now to Prescription Technology Solutions.

Q1 revenues were $1.2 billion, an increase of 17% year-over-year, driven by growth in our third-party logistics and technology services businesses due to increased prescription volumes. Operating profit increased 35% to $223 million, driven by increasing demand for our access, adherence, and affordability solutions. As I mentioned earlier in my remarks, prescription transaction volumes showed solid improvement in the quarter. The increased transaction volume drove higher demand for our access programs, including our prior authorization products. During the quarter, we noted strong new brand prescription volumes, which included the GLP-1 drug category. The strength of our program supporting access and affordability solutions positions us to capture the demand driven by the strong prescription utilization trends. Our products continue to receive positive feedback and recognition for the value that they deliver to our partners.

One example of this is CoverMyMeds' electronic prior authorization solutions. Historically, the prior authorization process was a tedious and time-consuming task for providers. Through the technology solutions that McKesson has, we automate this process, providing a faster and easier way to review, complete, and track prior authorization requests. CoverMyMeds is delivering value and returns for our partners by increasing connectivity between pharmacies, providers, payers, and biopharma manufacturers through next generation access, affordability, and adherence solutions that are automated and integrated into provider workflows. Q1 results exemplify the success of our broad range of technology programs and support services. In Medical-Surgical Solutions, our Q1 performance was in line with our expectations. Our core business demonstrated revenue and operating profit growth.

Revenues were $2.6 billion in the quarter, an increase of 1% year-over-year, and operating profit was $235 million, a decrease of 12%. Q1 results were impacted by anticipated lower contributions from the kitting, storage, and distribution of ancillary supplies for the U.S. government's COVID-19 vaccine program and lower illness season testing, including flu and COVID-19 tests, when compared to the prior year. As a reminder, the Q1 of fiscal 2023 saw an extension of the 2022 illness season, driving higher levels of illness testing and related products. When excluding the impact of COVID-19 related items from the Q1 of fiscal 2023, the segment delivered operating profit growth of 7%, driven by growth in the extended and primary care businesses, partially offset by a non-recurring expense of $12 million.

Within the primary care market, we saw growth in lab solutions, equipment, and specialty pharmaceuticals. In the extended care market, growth was led by sales to new customers, which included increased volumes of nutritional supplements. We are pleased with the continued solid results, which are in line with our expectations. Our leadership position, combined with operating execution, positions us for continued growth across the ultimate sites of care. Next, let me address our international results. Revenues in the Q1 were $3.5 billion, a decrease of 47% year-over-year, and operating profit was $90 million, a decrease of 35%. On an FX adjusted basis, Q1 revenues were $3.7 billion, a decrease of 44%, and operating profit was $95 million, a decrease of 31%.

Q1 results reflect the year-over-year effects from the combined divestitures within our European businesses. Let me wrap up our segment review. Corporate expenses were $149 million in the quarter, an increase of 3% year-over-year. As a reminder, in the Q1 of fiscal 2023, corporate expenses included the receipt of a payment relating to a prior tax receivable agreement in our previous joint venture with Change Healthcare. During the quarter, we had losses of $7 million or $0.04 per share related to equity investments within the McKesson Ventures portfolio, compared to losses of approximately $22 million or $0.11 per share in the Q1 of fiscal 2023. As a reminder, the McKesson Ventures portfolio holds equity investments in several growth stage digital health and services companies.

We're pleased with the insights and the results that we've obtained through this portfolio.... The impacts on our consolidated financials can be influenced by the performance of each individual investment quarter to quarter, and as a result, the customer's investments may result in gains or losses, the timing and magnitude of which can vary for each investment. Turning now to our cash position, balance sheet, and capital deployment on Slide 12. We ended the quarter with $2.6 billion in cash and cash equivalents. We made $124 million of capital expenditures, which includes investments in new and existing distribution centers, as well as investments in technology, data, and analytics to support our growth priorities. For the Q1, we had negative free cash flow of $1.2 billion.

As a reminder, our cash position, our working capital metrics, and the resulting cash flows can each be impacted by timing, which includes the day of the week that a quarter ends on, and therefore, can vary from quarter to quarter. We returned $770 million of cash to shareholders, which included $696 million of share repurchases and $74 million in dividend payments. During the quarter, we successfully completed a public offering for $1 billion of notes with 5- and 10-year tenors. Concurrently, we retired approximately $900 million of notes that were due March 2024. These transactions reduced our interest expense, and they further support our strong credit profile, as evidenced by our recent credit rating upgrades. Our board of directors approved two actions in July.

First, a 15% increase to our quarterly dividend to $0.62 per share. Second, the board approved an additional $6 billion of share repurchase authorization, bringing the total remaining share repurchase authorization to approximately $9 billion. These actions demonstrate the confidence that the board of directors and management have in the execution of our strategic priorities. Now let me discuss our updated outlook. The guidance I'm providing today relates to fiscal 2024. As a reminder, we do not provide forward-looking guidance on a GAAP basis. The following metrics are provided on an adjusted, non-GAAP basis. I'll discuss the key items, beginning with additional details of our consolidated guidance, and a full list of our assumptions can be found on Slides 13 through 17 in our supplemental slide presentation.

As we've talked about already today, we are encouraged by the strong performance in the Q1 of fiscal 2024. As a result, we're increasing our earnings per diluted share outlook to a new range of $26.55-$27.35. As a result of this, we now anticipate earnings per diluted share to increase 13%-16% when excluding certain items. As a reminder of what the certain items include, net gains and losses associated with McKesson Ventures equity investments in fiscal 2023 and 2024, a $0.65 benefit related to the early termination of the tax receivable agreement with Change Healthcare in fiscal 2023, $1.90 related to COVID-19 related items in our U.S. Pharmaceutical and Medical-Surgical segments in fiscal 2023.

We anticipate the impact of COVID-19 related items to be immaterial to fiscal 2024. We anticipate operating profit will be flat to 4% decline compared to the prior year. When excluding certain items, we anticipate operating profit to increase by 6%-10% year-over-year. Let me discuss the outlook for our segments. Our core distribution business within the U.S. Pharmaceutical segment continues to demonstrate its strong value proposition to our customers, and we anticipate further growth in specialty distribution, including our differentiated plasma and biologics business, where our customers can access an expansive portfolio of plasma-derived products, biologics, oncology treatments, and other specialty drugs at competitive prices from a single source. During the Q1, we experienced a revenue tailwind from higher volumes related to weight loss or GLP-1 drugs.

Our full-year outlook assumes that volumes related to GLP-1 drugs will remain elevated compared to the prior year and may vary quarter-to-quarter. We anticipate this class of drugs will continue to be a revenue tailwind for U.S. Pharmaceutical as we support our customers through our distribution services. As I discussed earlier, these drugs have a lower distribution margin rate profile. For the full year, we now anticipate U.S. Pharmaceutical revenues to increase 13%-15% and operating profit to increase 3%-5% year-over-year. Excluding the impact of COVID-19 vaccine distribution in fiscal 2023, we anticipate operating profit to increase 8%-11%. The full-year performance includes continued investment in our oncology platform and increased technology spend to support the growth of the segment.

In the Prescription Technology Solutions segment, we anticipate revenue growth of 7%-13% and operating profit growth of 15%-19%, which reflects increased utilization and new brand prescription transaction volumes, including the GLP-1 drugs, and strong demand for the access, adherence, and affordability products and programs that we offer. We anticipate that we may continue to see quarter-to-quarter variability in this segment, driven by transaction volumes, the pace and trajectory of new product drug launches, and the annual verification programs that we provide for our customers that occur in our fiscal fourth quarter. In the Medical-Surgical Solutions segment, we anticipate revenues to be approximately a 1% decline to 3% growth and operating profit to decrease 5%-11%.

the full year, we anticipate volumes of COVID-19 tests to continue to decline compared to fiscal 2023, and the impact from the COVID-19 related items will remain immaterial to fiscal 2024 results. Excluding the impact of COVID-19 related items from fiscal 2023 results, we anticipate operating profit to increase 11%-15% year-over-year. Finally, in the international segment, we anticipate revenues to decline by 30%-34% and operating profit to decline by 23%-29%. This year-over-year decrease includes a loss of operating profit contribution from European businesses and transactions that we closed during fiscal 2023. As I've previously discussed, we intend to deploy capital through share repurchases to offset the dilution resulting from the European divestitures.

In the corporate segment, we anticipate expenses to be in the range of $580 million-$640 million, which includes losses associated with McKesson Ventures equity investments recorded in the Q1, as well as elevated technology spend to support the growth of our businesses. Moving below the line. As a result of the debt transactions that I discussed earlier in my remarks, we anticipate lower interest expense in the range of $205 million-$225 million. Let me now turn to cash flow and capital deployment. We anticipate free cash flow of approximately $3.7 billion-$4.1 billion, net of property acquisitions and capitalized software expense. Our outlook incorporates plans to repurchase approximately $3.5 billion of shares.

As a result of this share repurchase activity, we estimate weighted average diluted shares outstanding to be in the range of approximately 133 million-134 million. Our portfolio continues to generate strong free cash flow. We remain committed to operating profit growth and efficient capital deployment, our 24% return on invested capital illustrates our focus on shareholder value creation. In summary, our strong start to fiscal 2024 and our outlook for the remainder of the year results in an increase to adjusted earnings per diluted share to a new range of $26.55-$27.35. Excluding the impact of certain items and the contribution from our European operations, we anticipate earnings per diluted share growth of 16%-20% in fiscal 2024.

Our outlook further demonstrates the shareholder value creation framework that we've discussed previously. We continue to be focused on sustainable growth and efficient deployment of capital. We're pleased with the strong start to the fiscal year. Our 50,000 Team McKesson associates continue to deliver exceptional performance. Our Q1 financial performance reflects their dedication, as well as the strength of our portfolio. Through our expansive oncology and biopharma platforms, we're supporting customers and patients by advancing health outcomes for all. We're delivering faster time to therapy for patients, and we're accelerating the discovery, development, and manufacturing of new therapies. Our services and solutions are at the forefront of improving patient outcomes and ensuring more patients have access to quality care.

With our strong underlying momentum from the Q1 of fiscal 2024 and our aligned focus on our growth strategies, we remain confident that we'll continue to deliver long-term successful growth and value creation for our shareholders. With that, let me turn it back over to the operator for your questions.

Operator (participant)

Thank you. If you would like to signal with questions, please press star one on your telephone, touch-tone telephone, excuse me. If you are joining us today using a speakerphone, please make sure the mute function is turned off to allow the signal to reach our equipment. Again, that's star one if you'd like to ask questions. Our first question will come from Lisa Gill with J.P. Morgan. Please go ahead.

Lisa Gill (Managing Director)

Thanks very much. Good afternoon. Thank you for all the detail. I just want to go back and just better understand a few things around GLP-1. Britt, you, you gave us a lot of data, but when I think about the increase in the revenue from 9 to 11 to 13 to 15, can you talk about specifically how much is coming from GLP-1? Then I understand that between cold chain and some other things, that the gross profit is less on GLP-1, but how do I think about some of the other areas that potentially can offset this? We're hearing stabilization in generic pricing right now. You talked about growth in specialty, which I also think is generally lower margin, but, you know, some of the, the other areas, you've talked about procurement opportunities. I just wanted to understand 2 things.

One, when we think about GLP-1s and think about the contribution to the revenue side, and then secondly, how do we try to bifurcate some of these things on the margin side, so we can have an idea of how to think about really modeling the margin going forward?

Britt Vitalone (CFO)

Well, thanks, Lisa, for the questions. There's a lot to unpack there. Let me see if I can try to answer some of those questions for you. As we talked about, the revenue growth was very broad-based across the company, but in particular, within U.S. Pharmaceutical. Certainly, we're benefiting from stronger utilization trends overall, and that does include GLP-1. As I mentioned, they do provide a tailwind. Just generally speaking, though, utilization trends continue to be solid growth and improvement. We're certainly, as I mentioned, from a margin rate profile, GLP-1 have a lower distribution margin rate profile. Also, as I mentioned, the, you know, the breadth of the portfolio that we have, we also offer affordability and access solutions within our technology segment. Those programs, like prior authorization, have been very well received.

They're providing a lot of value to our customers, and so there's a secondary component to the services that we provide on behalf of those drugs. Just generally speaking, I think that the utilization environment has been continued to be solid. The pricing environment continues to be competitive but stable. Our generic programs continue to perform quite well, particularly our sourcing programs. We're benefiting from just broad-based performance across, you know, all of the channels that we provide services to.

Operator (participant)

Next question, please. We will take our next question from Michael Cherny . Michael Cherny with Bank of America. Please go ahead.

Michael Cherny (Equity Research Analyst)

Good afternoon, and thanks so much for taking the question. Maybe if I can spend a little time on RXTS. You know, last year was almost like a discovery year in terms of the moving pieces that we saw over the course of the year. This year, really coming out of the gate strong in terms of profit growth, and I know you mentioned some of the prior authorizations. Given the noise and moving pieces we've had in prior authorizations broadly against the backdrop of GLP-1 and other areas, is that the biggest driver of growth that you see in the RXTS business? How should we think about the, I guess, lumpiness or lack thereof, that we could see over the course of this year relative to the fact that last year was a little bit more volatile than I think we would have all expected?

Brian Tyler (CEO)

Thanks, Michael. I'll, I'll, I'll start and talk about the RXTS business a little bit. You know, we've talked in the past about the importance of mix in this business, the, the, the different financial profiles of the 3PL business, which had good growth in the quarter versus the more technologically oriented solutions that we have. That mix will always be important and did introduce some fluctuations quarter to quarter over, over our prior fiscal year. You know, I would say in general, though, this, this business is gonna benefit from the utilization trends that that Britt talked about. You know, specifically as prescription volumes go up, as the need for prior authorization services go up, and that's, that's health for our business.

We're gonna win by winning more of these manufacturer relationships, extending our relationships to the places where we have them today, and just more penetration, if you will. We're gonna benefit from those kinds of volume-related things over time. You know, as new drugs launch, as they go through their life cycles, there can be some variation to the demands and needs of the services we offer, and that's just a natural part of the business.

Britt Vitalone (CFO)

Mike, maybe just one other thing that I would add. As we continue to develop this, this segment, one of the things that we're doing is continue to add capabilities and programs within it. As time goes on, we're offering more services, which is certainly taking advantage of the utilization trends. We added Rx Savings Solutions last year, so another capability with a whole other set of, of economics available to us and our, and our customers. I think what you're seeing is the investments that we're making within this segment and the additional programs and capabilities that we're adding, and certainly the acquisition of Rx Savings Solutions is just adding to the growth that we're seeing on a year-over-year basis.

Brian Tyler (CEO)

We also continue to make investments into this segment, and that, you know, the timing of those investments isn't always linear.

Rachel Rodriguez (VP of Investor Relations)

Next question, please.

Operator (participant)

Next will be Eric Coldwell with Baird. Please go ahead.

Eric Coldwell (Managing Director)

Hey, thanks very much. Congrats on a nice report. During the quarter, the health of one of your known customers, I'll leave the name out, was very much in debate, and I'm just larger, bigger picture here, curious if you could talk about, in general, when you see possible challenges at an account, what kind of protections do you put in place, whether it be just-in-time inventories, collection practices, things of that sort? Also, if a formal restructuring were to occur, such as a Chapter 11, what protections do you have then in terms of things like, you know, critical vendor status or other, other items? Just a lot of debate from the, from the investor base in terms of what actually happens if a, if a larger account has more pronounced challenges. Thank you very much.

Britt Vitalone (CFO)

Eric, thanks for the question, and I appreciate where you're coming from on this. For probably obvious reasons, we don't get into the, the health or the economics or, or the situation of our customers. We do stay very close to our customers. We're always trying to find ways to help them to grow and find additional services and capabilities for them. You know, I, I feel good about the, the, you know, customer contacts that we have and our, our ability to understand their strategies and their growth, what they're trying to do from a growth perspective. I think the broad-based set of customers that we have across each of our segments, I feel comfortable with how we manage, you know, our relationships.

Beyond that, I, you know, I really can't get into the specifics of our contracts that we have with each customer. I, I... Hopefully, you can understand that.

Rachel Rodriguez (VP of Investor Relations)

Next question, please.

Operator (participant)

Next will be Kevin Caliendo with UBS. Please go ahead.

Kevin Caliendo (Managing Director and Senior Equity Research Analyst)

Hi, thanks for taking my question. I guess on the GLP-1s, I have to ask, just because it's obviously such a big driver, but do you think that your share of the market corresponds to your typical share within, within a category or a drug? Meaning, have you been able to secure more supply, or do you have any means is your distribution channel such that you have a, a greater % share of that market than you might normally, for whatever reason, whether it's contractually or just, just the way your mix is set up?

Brian Tyler (CEO)

I would think that our mix would be fairly representative of our business mix overall. We probably have, you know, our appropriate share in health systems, our appropriate share in independents, our appropriate share in large retail national accounts. You know, there have been points in time where supply has been less than demand. We work closely with all of our vendors to make sure we get our representative and fair share, and that we can coordinate with them and communicate effectively with our customers. Overall, I'd say we would have the mix you would expect.

Britt Vitalone (CFO)

Yeah, I would say that it's a fair question. As we talked about, GLP-1s did provide a revenue tailwind for our distribution business. I would just remind you that the growth in the segment was very broad-based. It was across specialty products, it was across our generics business, and it was really across each of the segments outside of GLP-1s, and that reflects the utilization trends. It also reflects the services and capabilities that we have, that we provide to our broad customer base. Certainly, GLP-1s are topical and have provided a tailwind, but the business is performing quite well across really all categories and our customer base.

Rachel Rodriguez (VP of Investor Relations)

Thank you. Next question, please.

Operator (participant)

Next will be Eric Percher with Nephron Research. Please go ahead.

Eric Percher (Senior Research Analyst)

Thank you. I wanna ask a RxTS question that is somewhat GLP-1 related, which is: as you see products go from tightly managed to more open access, how does RxTS's offering change? Have you seen success moving from early restricted access, assistance to adherence or other offerings?

Brian Tyler (CEO)

Well, the... I mean, the, the nature of what we offer to support a drug is often different at different points in its life cycle. I mean, what, what you might want at launch will be a lot different than what you are at maturity and, and can depend on how other competitors come into the class. We like to try to think about supporting the products over over the course of their lifetime. Obviously, you know, payer and employer decisions around how they want to treat certain classes of drugs can dictate the services that, that we might offer.

As these drugs are relatively new to market, I, you know, speaking as an employer, I can tell you employers out there are thinking about how they want to handle them, and that's gonna be different, you know, for, for each of the employers. Generally, it's, it's positive momentum for the business.

Rachel Rodriguez (VP of Investor Relations)

Next question, please. Operator, next question, please.

Operator (participant)

Next will be AJ Rice with Credit Suisse. Please go ahead. AJ Rice, are you on the line? Please check your mute button.

AJ Rice (Managing Director)

Yeah, sorry. Hi, everybody. I just wanted to delve a little bit into the oncology ecosystem. I think Sarah Cannon and Ontada are still in an investment mode. Is that meaningfully different from quarter to quarter as you lay out this year's numbers? Is it meaningfully different than the investment level from last year? Obviously, as you're putting this in place, you're expecting it to have a benefit on its own, but I wondered if you could comment on the sort of flywheel benefit to the rest of the businesses from making this push in oncology that you expect to realize.

Britt Vitalone (CFO)

Hey, AJ, thanks for the question. Let me try to answer that for you. I'll start, Brian can add on. You know, we have been investing principally in our Ontada business, where we're developing data and insights. I would say that on a year-to-year basis, the, the overall investment is probably not varied too much on a year-to-year basis. Now, quarter-to-quarter, you know, that can certainly vary, but on a year-to-year basis, our investment has been pretty, pretty constant. Sarah Cannon Research is really in the integration phase, I talked about some of the integration costs for both the Sarah Cannon and the acquisition of Rx Savings Solutions. The investment that we've principally been making in to develop our Ontada business on an annual basis has been pretty, pretty constant year-over-year. Quarter-to-quarter, it would vary.

Rachel Rodriguez (VP of Investor Relations)

Next question, please.

Operator (participant)

Next will be Daniel Grosslight with Citigroup. Please go ahead.

Daniel Grosslight (Senior Research Analyst)

Hi, thanks for taking the question. I want to go back to the generics environment. You've mentioned this a few times as a tailwind. If you look at third-party data, it seems to point to a much more benign generic pricing environment. So I'm just curious, what, in your view, is, is driving this better pricing environment? How are you managing potential shortages that have gotten some press recently? And then for the remainder of the year, how should we think about the generics environment and that impact on, on your revised guidance?

Britt Vitalone (CFO)

Yeah, thanks for the question. Here's what I would say. In terms of our, our generics program, it is a combination of the sourcing activities that we have, which, really reflects the relationships that we have across, you know, hundreds of manufacturing partners. It reflects the discipline that we have on the sell side, and the combination of that has led to some really good results. Now, we've also had some new brand, or I should say, some new generic launches, and we certainly participate in those new, generic launches as well, and we had a few in the quarter that we benefited from.

The combination of our sourcing operations, the stability that we're seeing in a competitive marketplace, has provided us the ability to create spread at the same time as providing competitive pricing for our customers with a stable supply. You mentioned shortages, and we have seen shortages for as long as I've been with the company. From time to time, they will, they will spike up like we had with some of the cold and flu products or the illness season products last year. Generally speaking, I would think that I would say that what we're seeing now from a supply perspective is more in line with what we've seen historically. Every now and then, you'll have a product that will be more challenged.

You know, the broad base of partners that we have in our sourcing program allows us to manage through that quite well. You know, the performance that we're seeing in the Q1, which is continued momentum from last year, that's included in the guidance that we have for the full year.

Rachel Rodriguez (VP of Investor Relations)

Next question, please.

Operator (participant)

Next will be George Hill with Deutsche Bank. Please go ahead.

George Hill (Equity Research Analyst)

Yeah. Good morning, guys. Britt, I want to come back to oncology as well and talk about US Oncology. You said visits were up 19% in total, and same store was up 7. I'll assume drug pricing was positive, so we're talking, like, 20% growth in US Oncology in the quarter. I guess, can you give us a little bit more detail on McKesson's kind of exposure to oncology, kind of like the practices versus the drugs versus the GPO? Is that type of growth profile kind of in line with what we're seeing in all segments of the, of McKesson's oncology exposure? Thank you.

Britt Vitalone (CFO)

Hi, George. Thanks for the question. Let me, let me be clear on what I provided. I provided some insight into patient visits metrics, and I thought that would be insightful. We had 19% increase year-over-year in total patient visits and 7% on a same practice basis. Thought that would be insightful, and it, it also reflects the, you know, some of the acquisitions that we've done or, or some of the new practices that we've added over the last year. Again, the numbers that I provided you were patient visit metrics only, and I didn't indicate anything else besides that. Brian, if you want to comment on the other-

Brian Tyler (CEO)

I just... On the other side, I would just say, you know, we've, we have often referred to this as an ecosystem because we think about the very broad and diverse set of solutions that we offer here. It's not just the practice management, it's the iKnowMed EMR, it's the GPO services, it's the revenue cycle management services, it's the contributions of those systems to managing the, the clinical practice of oncology effectively. We've complemented that in recent years with Ontada, the data analytics insight business, and our joint venture with Sarah Cannon, and I think, you know, and then there's the distribution business. I think when you put those all together, you know, that's why we call it an ecosystem, 'cause we think in many ways they self-reinforce. You've seen in the last several years, pretty good growth in the, in the network.

You know, I think that's in part to that expansive value proposition and the attractiveness we represent to these practices as a partner to help them both provide, you know, the best patient care possible and to manage their business as well as they can.

Rachel Rodriguez (VP of Investor Relations)

We have time for one more question. Last question, please.

Operator (participant)

Certainly. That question will come from Elizabeth Anderson with Evercore ISI.

Elizabeth Anderson (Senior Managing Director)

Hi, guys. Thanks so much for the question. I know this doesn't impact you from a reimbursement perspective, but I was wondering if you could speak to sort of, 340B and the, and the impact on potentially on your PTS business. Is that something that, you know, sort of helps? Does it have a volume fluctuation part in it, or is it just something that as we kind of get fewer of these 340B prescriptions, potentially as the market changes, you know, that could have a modest impact, but is unlikely to, to really be a real driver there? Thank you.

Brian Tyler (CEO)

I think you asked 340B relative to our Prescription Technology business, and I would say I would characterize 340B as not a particular driver of that business. You know, just flat out. I'd say the impacts of 340B would much more be in our U.S. Pharmaceutical distribution business, and obviously, we've talked a lot over the past quarters about evolutions in 340B, whether those be regulatory or, or commercial actions and reactions. Our best view of all that is reflected in the guidance that Britt and I have provided this afternoon.

Britt Vitalone (CFO)

Okay. Well, thank you, everybody. Thank you for joining the call. Appreciate the thoughtful questions and your interest in McKesson. Thank you, Cynthia, for facilitating the call. I'll just wrap up by saying, you know, McKesson delivered strong first-quarter results. Our financial strength is really a testament to the significant progress we've made in advancing McKesson as a diversified healthcare services company. We're confident in our differentiated market position and our ability to execute and continue to create long-term shareholder value. Thanks again for joining us. I hope you all have a terrific evening.

Operator (participant)

Thank you for joining today's conference call. You may now disconnect.