Please standby. Welcome to McKesson’s Second Quarter 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.

Thank you, operator. Good afternoon, and welcome everyone to McKesson’s second quarter 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 will move to a question-and-answer session. Today’s discussion will include forward-looking statements such as forecast 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 current 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.

Thank you, Rachel, and good afternoon, everybody. We appreciate you joining us on our call today. We are very pleased to report another solid quarter and fiscal 2024 with adjusted results of above expectations demonstrating our ability to consistently execute against company priorities and create sustained value for our shareholders. In the second quarter revenues increased 10% to $77.2 billion. Adjusted earnings per diluted share were $6.23. When excluding certain items, adjusted earnings per diluted share increase 14% from the prior year. Our performance through the first half of the fiscal year combined with the continued momentum in advancing our company strategies gives us the confidence to raise our guidance for fiscal 2024 adjusted earnings per diluted share. Our previous guidance range of $26.55 to $27.35 has been updated to a range of $26.80 to $27.40. McKesson continues to deliver on our mission of improving care in every setting. As a diversified healthcare services company we are making important progress in strengthening our portfolio of differentiated assets and bringing more value to our customers and their patients. Before I turn my attention to our company priorities and the second quarter results, I want to briefly discuss Rite Aid's recent bankruptcy proceedings. We have been supplying Rite Aid with a majority of their pharmaceutical products for more than 20 years. As they navigate through their reorganization process, we are working closely with them to provide continued delivery of products. We are closely monitoring developments, but as Britt will describe in his remarks, we anticipate that Rite Aids bankruptcy filing will not materially impact fiscal 2024 adjusted earnings per diluted share. Now let me move on to our company priorities and I want to start by recognizing our people, including the diverse dedicated and talented team we have built here at McKesson. Investing in people and culture is foundational to our strategy and we offer many engagement programs and initiatives to empower our employees and allow them to express new ideas to contribute their unique perspectives and to care for each other. We firmly believe that we achieve our full potential when our culture is diverse, inclusive and focused on best talent. Our efforts fostering a culture of belonging are well recognized. Recently, we were honored to be named by Forbes as one of America's Best Employers for Women. And for the 8th consecutive year, we were named as one of the best places to work for disability inclusion, earning a top ranking score of 100. We appreciate all the hard work and dedication from Team McKesson and we recognize the importance of helping, respecting, and caring for each other. On October 27th, we celebrated our Annual Wellness Day called Your Day Your Way. This is the third year that we've celebrated this tradition and shown appreciation for our employees by providing them with additional day off work to prioritize their personal health and well-being. Let's take a minute to review the performance of the distribution business and the progress we've made driving sustainable core growth. In the second quarter, we saw strong performance in the U.S. Pharmaceutical segment. Over the past ten quarters, the segment has consistently delivered double digit revenue increases demonstrating our ability to serve and grow with our customers. In the second quarter, we continued to observe solid prescription volume trends, particularly in the category of GLP-1 medications, which contributed to revenue growth in the quarter. And over the past three years, we were honored to support the U.S. Government as a centralized distributor of COVID-19 vaccines. Our team demonstrated incredible agility and dedication and standing up a fit for purpose operation distribute the vaccines across the country. This past September, we started transitioning the COVID-19 vaccine distribution to commercial channels. We're working closely with the manufacturers to bring vaccines to patients in an efficient and timely manner. As one of the largest distributors of flu vaccines in the country, we have scaled channel reach and deep expertise in working with vaccine products. And I'm pleased to say that through October 20th, we have distributed nearly 8 million COVID-19 vaccines through our commercial channels. In the Medical-Surgical segment, we continue to support our customers evolving needs with a diversified portfolio of products and broad experience in medical-surgical and related supplies. As a reminder, while we serve many alternate site providers, the biggest channel within the segment is primary care including physician offices. We closely track market data and during the second quarter we observed general market moderations in primary care foot traffic. We also saw a year-over-year decline in instances of respiratory illness and flu which contributed to lower illness testing and patient visits in the primary care business. These dynamics impacted the segment results in the second quarter and our full year fiscal 2024 outlook. However, we remain confident in the fundamentals of the business and the strength of our scaled assets within the Medical-Surgical segment. InnoMed.:

Moving on to the biopharma services platform, through strategic acquisitions and investments, we've built a set of highly differentiated assets within the Prescription Technology Solutions segment. The combination of these assets creates a powerful and scaled network that includes multiple touch points throughout the patient treatment journey. We are connected to approximately 900,000 providers, enabling solutions that help move barriers to access prescription medications. We're also connected to over 50,000 pharmacies helping patients afford their prescriptions through solutions like cash, copay and digital coupons right at the pharmacy counter. In the second quarter, we were pleased with the strong performance in the segment with double digit growth in both revenue and adjusted operating profit, driven by growth in access solutions including increased volumes and prior authorizations for GLP-1 medications. The year-over-year comparison was also partially impacted by lower prior year results which as we called out in Q2 of our fiscal 2023 included higher operating expenses resulting from the timing of increased headcount to support customer annual verification activities. One of the areas where we saw significant growth in the past two quarters is our access solutions, including prior authorizations for brands like GLP-1 medications. For selected prescription drugs, patients are required to obtain approval from their health plan, which sometimes can be very manual and cumbersome. What we offer is an automated technology solution that is embedded within the provider's workflow. Our technology solution introduces efficiency to the process. More than 40% of our prior authorizations are approved instantly and approximately 65% are approved within one hour. We continue to add new features and functionalities to improve the user experience. The latest feature introduced allows providers to share prior authorization outcomes directly with their patients when a health plan makes a determination. Through improvements like this, we help remove barriers and provide greater patient visibility to the prior authorization process. Solutions like prior authorizations are great examples of the success of our business strategy. It's also a reflection of our efforts to improve medication access and ultimately advance health outcomes for all. As an impact driven organization, we're deeply committed to advancing our strategy and contributing to positive changes in the communities where we live and work. This past quarter we celebrated our Community Impact days, which is McKesson's largest annual company-wide employee volunteer event. Thousands of McKesson employees participated in various community impact projects that aligned with this year's theme, Cancer Awareness, Prevention and Support. This year marked the 25th anniversary of the event and we will continue honoring this tradition and will work to find more ways to enhance the health of those who live in our communities. So let me pull everything together. McKesson delivered a solid second quarter, thanks to the contribution and dedication of over 50,000 McKesson employees, we continue to execute against our company priorities with focus and excellence. Leveraging our differentiated services and solutions, we're well positioned to continue to improve care in every setting. Looking ahead, we're confident in our ability to drive continued growth and strategic advancement in fiscal 2024 and beyond. And with that, I'll turn it over to Britt for additional comments.

Thank you, Brian. We're pleased with our second quarter results which reflect another quarter of solid performance driven by operational execution and meaningful growth in our U.S. Pharmaceutical and Prescription Technology Solutions segments. Before I turn to our consolidated results, I want to highlight one item that impacted our second quarter GAAP only results. We recorded a pretax GAAP provision for bad debts of $210 million or $155 million after tax. Within the U.S. Pharmaceutical segment for uncollected trade accounts receivable related to Rite Aid bankruptcy. We anticipate recording an additional provision for bad debts of $511 million in the third quarter of fiscal 2024. For trade accounts receivable that McKesson recognized from sales to Rite Aid in October 2023 prior to its bankruptcy petition. We continued to provide distribution services to Rite Aid post their bankruptcy filing, providing the same efficiency and operational excellence as we have for over 20 years. We're operating pursuant to an interim agreement for distribution services which is pending final court approval, and includes reduced credit terms of seven days and certain other items as Rite Aid continues to reorganize. We are closely monitoring developments and we anticipate this customer event will not have a material impact to our fiscal 2024, adjusted earnings per diluted share results, our liquidity position and ongoing business operations. The remainder of my comments refer to our fiscal 2024 adjusted results unless I state otherwise. Let me start with a review of our second quarter results. McKesson delivered solid growth in the second quarter, led by strong performance in U.S. Pharmaceutical and Prescription Technology Solutions segments. Our focus and execution against our company priorities positioned us to generate consistent, solid financial results. We'll continue to evolve and grow our diversified portfolio through focused strategic investments in oncology and biopharma services. As a result of our operating performance and outlook for the remainder of the fiscal year, we are increasing and narrowing our full year outlook for fiscal 2024, adjusted earnings per diluted share to a range of $26.80 to $27.40. Moving to our consolidated results, revenues increased 10% to $77.2 billion, 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 GLP-1 medications, partially offset by lower revenues in the International segment resulting from fiscal 2023 divestitures of certain testing European businesses. Excluding the impact of our European business operations and completed divestitures, revenue increased 15%. Gross profit was $3 billion for the quarter, a decrease of 1% and when excluding the impact of our European business operations and completed divestitures, second quarter gross profit increased 8%, primarily a result of growth in the U.S. Pharmaceutical and Prescription Technology Solutions segments. Operating expenses decreased 2% in the quarter. And when we exclude the impact of our European business operations including completed divestitures, operating expenses increased 9% year-over-year, which included approximately 2% from cost related to the second half fiscal 2023 acquisitions of RX Savings Solution and the joint venture with Sarah Cannon Research Institute. Second quarter operating profit increased 1% to $1.2 billion, again primarily driven by growth in our U.S. Pharmaceutical and Prescription Technology Solutions segments. This was partially offset by slower growth in our Medical-Surgical Solutions segment, including lower illness season testing and the completed divestitures of our European business operations within the International segment. If we exclude the impact of COVID-19 related items of fiscal 2023 and losses associated with McKesson Ventures equity investments in fiscal 2023 and 2024, operating profit increased 12% in the quarter. Moving below the line, the effective tax rate was 23.5%, which included the recognition of a net discrete tax expense of $12 million. Second quarter diluted weighted average shares outstanding was $134.8 million, a decrease of 6% year-over-year. Consolidated second quarter earnings per diluted share was $6.23, which represents an increase of 3% over the prior year. Excluding COVID-19 related items during the second quarter of fiscal 2023 and losses within our McKesson Ventures portfolio in fiscal 2023 and 2024, second quarter earnings per diluted share was up 14% over the prior year. Turning to our second quarter segment results, which can be found in Slides 7 through 11 and starting in U.S. Pharmaceutical. The U.S. Pharmaceutical segment delivered continued momentum and strong operating profit growth. Our ability to drive sustainable growth in this segment reflects a few factors. The efficiency of our scale distribution operations, the investments that we're making to unlock new capabilities that will further expand and strengthen our value proposition for our customers and partners, a balanced approach to managing a broad portfolio of pharmaceutical products inclusive of ClarusONE generic sourcing operations bolstering our competitive position and enabling a nimble approach to customer demands, new product launches and market movements and continued investment and expansion in our broad oncology platform. We are pleased with the growth momentum across our oncology assets from provider solutions in the U.S. Oncology Network data and insights through Ontada and expanded clinical trial capabilities through our Sarah Cannon Research Institute joint venture. These assets contributed to revenue and operating profit results in the quarter, which exceeded our expectations. Second quarter revenues were $69.8 billion, an increase of 16% year-over-year. Revenue growth reflected increased prescription volumes, including higher volumes from retail national account customers, specialty products and GLP-1 medications. These increases were partially offset by branded to generic conversions. The growth of GLP-1 medications provided a revenue tailwind in the quarter. As a reminder, we generally recognize lower margin rates for the distribution of GLP-1 medications in the U.S. Pharmaceutical segment. In our Prescription Technology Solutions segment, the growth of GLP-1 medications like other new brand launches has led to increased demand for our access solutions such as prior authorization services. Second quarter U.S. Pharmaceutical operating profit increased 8% to $815 million, driven by growth in the distribution of specialty products and increased contributions from our generic programs. When excluding the impact of COVID-19 vaccine distribution in the second quarter of fiscal 2023, the U.S. Pharmaceutical segment delivered operating profit growth of 15% year-over-year. Moving to Prescription Technology Solutions. The strong results in the second quarter demonstrate the success of our product portfolio and the partnership with biopharma manufacturers that we've developed over the years. The strength of our differentiated capabilities and partnerships positioning testing to capture demand driven by strong prescription utilization trends, including the growth of GLP-1 medications. For the second quarter, revenues increased 12% year-over-year to $1.1 billion and operating profit increased 48% to $209 million. Second quarter results reflect increased subscription transaction volumes, which drove higher demand for our access solutions primarily related to prior authorization services and growth. The year-over-year growth also included higher operating expenses in the second quarter of fiscal 2023, which resulted from the timing of increased headcount to support customer annual verification activities. Medical-Surgical Solutions revenues were $2.8 billion in the quarter, which was flat to the prior year, resulting from anticipated lower sales of COVID-19 tests and lower contribution from kitting, storage and distribution of ancillary supplies for the U.S. Government's COVID-19 vaccine program. The anticipated lower COVID-19 related revenues were partially offset by growth in the extended care business and increased distribution of pharmaceuticals in the primary care business. Operating profit was $254 million, a decrease of 17%, driven by anticipated lower contributions from kitty storage and distribution of ancillary supplies for the U.S. government's COVID-19 vaccine program and lower sales of COVID-19 tests. When excluding the impact of COVID-19 related items in the second quarter of fiscal 2023, segment delivered operating profit growth of 5% driven by increased volumes of nutritional supplements in the extended care business. Based on IQVIA and other market indications, the second quarter exhibited moderating primary care market volumes. The Medical-Surgical Solutions second quarter growth rate reflects these market indications, which was partially related to a slower start to the illness season including illness season testing when compared to the prior year. Next, let me address our International results. Revenues in the second quarter were $3.5 billion, a decrease of 44% year-over-year and operating profit was $89 million, a decrease of 35%. Second quarter results reflect the year-over-year effects of the completed divestitures within our European business. Wrapping up our segment review, corporate expenses were $159 million in the quarter, an increase of 10% year-over-year. During the quarter, we had losses of $10 million or $0.06 per share related to equity investments within the McKesson Ventures portfolio compared to losses of approximately $3 million in the second quarter 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 are obtaining through this portfolio. And as a result, McKesson's investment may result in gains or losses, the timing and magnitude of which can vary for each investment. Turning now to cash flows and capital deployment which can be found on Slide 12. We ended the quarter with $2.5 billion in cash and cash equivalents. We delivered free cash flow of $825 million in the second quarter and $4.3 billion for the trailing 12 months. Our cash balance and free cash flow in the second quarter included payments totaling $529 million associated with settlement agreements for opioid related claims. As a reminder, our cash position, working capital metrics and 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. During the first six months of the fiscal year, we made $264 million of capital expenditures, which included investments in new and existing distribution centers as well as investments in technology, data and analytics to support our growth priorities. Year-to-date, we returned $1.7 billion of cash to shareholders, which included $1.5 billion of share repurchases and $149 million in dividend payments. Now let me discuss our updated outlook. 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. The guidance I'm providing today relates to fiscal 2024. Our outlook assumptions can be found in Slides 13 through 17 and our supplemental slide presentation. Let me start with the outlook for our segments. For the full year, we now anticipate U.S. pharmaceutical revenues to increase 13% to 15%. And operating profit increased 6% to 8% year-over-year. Excluding the impact of COVID-19 vaccine distribution in fiscal 2023, we anticipate operating profit to increase 11% to 14%. This updated segment outlook incorporates the strong second quarter performance as well as further growth in our generic sourcing programs and specialty distribution, including our differentiated plasma and biologics business. Our full year outlook assumes that volumes related to GLP-1 medications will remain elevated compared to the prior year and may vary quarter-to-quarter. We anticipate to consolidate GLP1 medication revenue and operating profit growth compared to prior year will slow in our fiscal fourth quarter reflecting the inflection of volumes for these medications in the fourth quarter of fiscal 2023. We anticipate GLP-1 medications will continue to be a revenue tailwind for U.S. Pharmaceutical. However, distribution of these medications has a lower distribution margin rate profile and represents a headwind to prior year results. In the Prescription Technology Solutions segment, we anticipate revenue growth of 7% to 13%. We have increased our operating profit growth outlook to 18% to 22%, reflecting strong momentum in our Access Solutions and strong first half performance. We may continue to see quarter-to-quarter variability in this segment driven by prescription and transaction volumes, the timing, pace and trajectory of new product drug launches, the timing and size of investments to support and expand our product portfolio and the annual verification programs that we provide for our customers that occur in our fiscal fourth quarter. Our Medical-Surgical Solutions segment remains well positioned across all alternate site channels with unmatched scale, product assortment and capabilities. In the Medical-Surgical Solutions segment, we anticipate revenues to be approximately a 2% decline to 2% growth and operating profit decreased 12% to 16%. For the full year, we anticipate volumes of COVID-19 tests to continue to decline compared to fiscal 2023 and the impact from 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 5% to 7% year-over-year. Our outlook incorporates the second quarter results which I discussed earlier. We anticipate the general market moderations in primary care foot traffic. In part, driven by a modest illness season may persist through the remainder of fiscal 2024. Additionally, first half fiscal 2023 results benefited from an extended illness season, which did not repeat in fiscal 2024. Our outlook includes continued investments in our scale distribution network, adding state-of-the-art automation regulatory capabilities to serve the breadth of our customer base. These distribution network investments support the breadth of our non-acute customers and broader core distribution, for example COVID vaccines for physician offices. We also anticipate further investments in data and analytics to expand the channel reach for our medical supplies, pharmaceuticals and private brand product portfolio. Finally, in the International segment, we anticipate revenues to decline by 30% to 34% and operating profit to decline by 23% to 29%. This year-over-year decrease includes a loss of operating profit contribution from European businesses and transactions that we closed during fiscal 2023. In the Corporate segment, we anticipate expenses to be in the range of $600 million to $660 million, which includes losses associated with McKesson Ventures equity investments recorded in the first half of the year and elevated technology spend to support the growth of our businesses.

Turning to cash flow and capital deployment, we anticipate free cash flow of approximately $3.7 to $4.1 million. Our outlook incorporates plans to repurchase approximately $3.5 million of shares. As a result of the share repurchase activity, we estimate weighted average diluted shares outstanding to be in the range of approximately $134 million. In summary, as a result of solid performance in the second quarter of fiscal 2024, combined with our outlook for the remainder of the fiscal year, we are increasing and narrowing our earnings per diluted share outlook for fiscal 2024 $0.40 [ph]. We anticipate operating profit will be flat to 4% decline compared to the prior year. When excluding certain items, we anticipate operating profit increase by 6% to 10% year-over-year. As a reminder, certain items include the following; 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 would change health care in fiscal 2023 and $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 will be immaterial to fiscal 2024 when compared to fiscal 2023. The increase to our outlook for adjusted earnings per diluted share indicates earnings per diluted share growth of 14% to 17% when excluding these certain items. When further excluding the contribution from the run off of our European operations, earnings per diluted share growth is indicated at 18% to 20% for the full year. We also anticipate the fiscal third quarter to be stronger than the fiscal fourth quarter based on the development of prescription transactions, patient visits, internal investments and the recognition of discrete tax benefit in the third quarter. In closing, we are pleased with our strong first half performance. The momentum across the business, including growth in our oncology and biopharma services platforms, positions us to deliver for our customers and our partners and to create sustainable shareholder value. With that, let's move to the Q&A.

Thank you. [Operator Instructions] And our first question will come from Eric Percher with Nephron Research. Please go ahead.

Thank you. I'd like to focus on RxTS and specifically, Brett, you mentioned that the guidance reflects a strong Q2, but it sounded like there's a range of outcomes for the second half. Can you provide some context on whether revenue upside that you've seen this year on delivering on prior authorization for GLP-1 has been tied to manufactured programs versus the volume of scripts being written? And would it be wrong to assume somewhat conservative or some conservatism here on how second half developed? And last I'll ask, are there particular indicators such as denial rates or new starts that you look for as you're modeling this business?

Yes, Eric, thanks for that question. I'll start and then certainly I'll let Brian add on to that. You really touched on a lot of the factors that we look at when we think about this segment. As I mentioned we've seen continued stable and strong utilization trends that certainly drives transactions which are services benefit from. Secondly, we've seen continued growth in GLP-1 medications as an example and our services primarily prior authorization support those programs that we've seen a growth from that aspect. As I mentioned in my remarks, there are a number of things that can create some variability and certainly can drive the segment from a revenue and operating profit perspective and you touched on a few of those. As I mentioned, prescription utilization is one of those. Certainly the timing and the pace and the trajectory of drug launches, GLP-1 category being one of those drug launch categories and certainly the timing of other programs like the annual verification programs that we do for our customers in the fourth quarter. So we've seen good stable utilization trends. We've seen new drug launches like categories like GLP-1 medications that utilize the successful prior authorization programs that we have and we've certainly seen revenue and operating profit trend in a similar manner to that.

Next please.

Thank you. And next will be Lisa Gill with JPMorgan. Please go ahead.

Thanks very much. Britt, I've got to stick on this area. Just really want to understand if I'd take the numbers that you talked about and the updated guidance for the second half of the year, it looks like the margin in Prescription Technology Solutions, what will come down pretty dramatically versus what we saw in the first half of the year, growth rate will come down. So is this conservatism? Is there incremental programs and expenses that you have? Is it, you know, any changes in the program? I'm just trying to understand how to think about this business on kind of a normalized basis and again, how do we think about first half versus second-half?

The other thing that I would talk about is, I mentioned earlier in my remarks is that GLP-1s are flattening out year-over-year to get to the fourth quarter because that's what we anticipate. We saw a significant inflection in GLP-1 medication volumes in the fourth quarter of last year and certainly we've seen elevated levels of GLP-1 medication volumes through this year, but as you kind of get to a year-over-year begin to lap that fourth quarter inflection point, that's certainly going to be another factor for the year-over-year and a second half component. So I think there's a lot of things going on here, but if you look at the business on an annual basis, I think you'll see very good consistent revenue and operating profit growth.

Yes. The only thing I would add to that Britt is that if you look at the growth in the trajectory the segment has had historically we continue to also reinvest in product extensions, new product enhancements, new products overall. We're excited about this segment. We're excited about the assets that we have and we want to make sure we continue to invest into this segment to protect future growth as well. And all those investments are reflected in our FY '24 outlook.

Next question, please.

And next will be Charles Rhyee with Cowen. Please go ahead.

Yes, thanks for taking the question. I'd like to ask about the Rite Aid on the reserves, I know you kind of reached a settlement with Rite Aid for ongoing supply of the pharmaceuticals for Rite Aid as they reorganize the reserves that you take in, can you talk a little bit about how are you going to approach collections on that and how should we think about that in terms of the way you reserve for it and the way we should think about that the cash flows?

Sure. I appreciate the question. Let me just go back to some of my earlier comments because I think that these are questions. First of all, we continue to provide distribution services to Rite Aid as we have for over 20 years and we're proud to be a distributor for Rite Aid and their customers. We did record a provision in the third quarter for those sales that we considered the uncollected trade accounts receivable as of September 30, that's the $210 million that I referenced. We anticipate an additional provision that will be recorded in our third quarter for those sales up until they're back to their bankruptcy filing and that's the $511 million. We have an interim agreement in place that is still pending final court approval and that interim agreement has different credit terms. They have shorter credit terms of seven days. There are other aspects to the interim agreement, but the key thing for this call for this group is that those credit terms are on 70 terms, which are different than what we had in the previous agreement.

Next question, please.

And next will be Brian Tanquilut with Jefferies. Please go ahead.

Hey, good afternoon guys. Britt Just a quick question from me. As I think about your operating expense line, pretty good level of improvement there especially in the margin side. How should we be thinking about the sustainability of operating expenses and potential gains going forward? Thanks.

Thank you for the question, but I'm not sure what you're referring to, you used the word gains. As we think about our operating expenses, we have great operating expense discipline and the efficiency of our operations allows us to drive operating margin leverage. We've been able to do that for a long period of time. The success that we've seen in many of our segments really has allowed us to continue to reinvest back into the business. Brian just mentioned what we've been doing at Rx Savings Solutions or I should say RxTS where we've been reinvesting to drive additional programs and capabilities for our customers. But as I mentioned in my comments, we've also been investing in distribution network capabilities, additional automation and regulatory capabilities that we're going to benefit not only our operations but our customers. We're also investing in data and analytics. We think that's going to be important to drive the efficiency of our operations, the capabilities for our customers. So you should expect to see us continue to deliver operating margin leverage, but to continue to invest against our programs, our capabilities on behalf of those efficiencies and our customers.

Next question, please.

And next will be Eric Coldwell with Baird. Please go ahead.

Hi, this is Eric. Was that me? I had a beep here.

Hi Eric.

He I'm good. Okay, thanks. Hi guys. I wanted to hit on the Med-Surg segment specifically primary care. I think you're under -- your comments on slow start, low ramp in the illness season is I think well understood. We've seen that elsewhere. I'm curious what else you might have seen in the quarter that could lend some color on the lower primary care volumes. You know, I've heard heavy travel season from some companies. I've heard others talk about vacation schedules, just the timing of the calendar if you will, but I'm curious if you have any more details or thoughts you could add on the primary care trend? And if you could, could you quantify the rate of growth change that you saw during the September quarter? Thank you.

And Eric, I would just also point out that we are extremely well positioned across all ultra-sites of care and the confidence that we have in that position to service our customers, we're continuing to make investments and I talked about some of the investments that we are making not only in distribution capabilities in the network, but also in data and analytics to help support our customers and the product portfolio that we provide to them. So we have a lot of confidence in the position and the capabilities that we have and the investments that we're making are a reflection of that.

And we do think macro trends support the continued migration of care into these alternate sites or these more community based settings. So we are well positioned.

Next question, please.

And next will be Kevin Caliendo with UBS. Please go ahead.

Hi, thanks for taking my question. The Pharma segment growth continues to be really impressive and I'm guessing it's more than just the typical fundamentals of pharma distribution with generic pricing or generic mix and the like. Can you talk about how the mix is evolving? Maybe is it some of your oncology businesses, some of the clinics you purchased recently that are contributing? How is that mix changing currently to drive this sort of outsized EBIT growth that you're seeing?

Next question, please.

And next will be Daniel Grosslight with Citi. Please go ahead.

Hi, thanks for taking the question. I want to go back to the Medical segment and the cadence for the remainder of the year. If I just look at guidance, it implies around a 4% increase in both revenue and AOI from the first half to the second half, so flat margins. You mentioned a less severe flu season and some investments you're making in distribution and data analytics. How should we be thinking about the cadence of AOI for the next two quarters, particularly as we think about some of those larger investments you're making?

Yes, it's a great question, Dan. I think for modeling purposes, I would guide you to model something very similar in terms of growth rates to the second quarter.

Okay. Next question please.

And next will be Allen Lutz with Bank of America. Please go ahead.

Yes, I'll take the second one Brian. As it relates to your question on the restructuring, we did incur certain charges in the fourth quarter of our fiscal 2023. We also incurred additional restructuring charges in the first half of fiscal 2024. And so we're still in the process of finalizing the programs and the savings that we have are contemplated within our guidance. So the fact that we started this program in fiscal fourth quarter of 2023, continued the program really taking charges and organizing and integrating through the first half of 2024 and we certainly haven't seen all of the benefits from those programs to this point in time.

Next question please. Operator And next will be Erin Wright with Morgan Stanley. Please go ahead.

Great. Thanks for taking the questions. Two questions here. I guess, are you seeing the generic or easing generic deflation environment, has that been a material driver for you? Just to follow up on the generic side. And then on M&A, and you outlined the share repurchases, but how are you thinking about the acquisition pipeline from here? Where's the focus? What does the M&A pipeline look like? Thanks.

Britt do you want to take the first part?

Sure, Brian. Thanks for the question Erin. As it relates to generics, our focus continues to be on a strong sourcing program combined with discipline on the sell side. We've been operating in a competitive but stable environment now for a number of years really and we're really not seeing any different in the second quarter from what we've seen in the previous several quarters before that. We're able to procure generics very competitively on behalf of our customers and we focused on stability of supply at the same time. So from a generics perspective, our programs are running very well. We feel very well positioned to continue to procure at a low cost and stable supply for our customers and the environment is conducive to us being able to do that.

And I think the second part of the question was on M&A. Clearly, one of our top priorities for capital deployment is to support the growth and the differentiated capabilities we have in our segments to continue to extend that growth. And so we are and continue to be active on the M&A front. Now we have a very structured and disciplined way we approach that. First is it's got to be aligned to our stated strategy and particularly our growth pillars. And so if you look at recent activities like Rx Saving Solutions or Sarah Cannon joint venture, obviously both very, very tied to our stated growth priorities. And then the second step of that process is to layer over a lens of financial discipline. We have many uses for capital, some internal investment and efficiencies and technologies and tools. Obviously, we have share repurchase hurdles that we can meet. So we bring a lot of financial discipline to the acquisition process to ensure that we're getting good returns for shareholders as we deploy that capital. So it's on strategy and has the appropriate financial return. We're very interested and we continue to develop our business development funnels.

Next question, please.

And next will be Elizabeth Anderson with Evercore ISI. Please go ahead.

Hi guys. Thanks so much for the question. I had two questions. One on the RxTS business, are you seeing any sort of spillover benefit from GLP-1? I'm thinking like either you know an organization that doesn't use you, that does use you because they've heard about this with the GLP-1s or sort of a cross selling across your group of services within the segment? And then secondarily, on the medical side, one of your competitors on the outpatient side has seen some ordering impact because of sort of website and sort of a cyberattack. Has that provided any kind of material change in customer ordering within that segment in the last couple of weeks? Thank you very much.

So the first, I think your first question was as it relates to RxTS and this opening new avenues, I would just remind you RxTS is connected to 900,000 providers today and 50,000 plus pharmacies today. So we've had a long established relationship with them and I think we've been well known for quite a long time in that arena. So I don't think that we'd see anything material there. And then your second question was as relates to a competitor ordering challenges, I'm not really not going to get into the issues a competitor might have. I don't think -- we've spent a little bit of time talking about the trends that we saw in the Medical-Surgical business and reviewed those trends and I think those stand for themselves.

And we have time for one more question, please.

Certainly. That question will come from George Hill with Deutsche Bank. Please go ahead.

Hey, guys, I appreciate you sneaking me and I'll say, Brian and Britt, the oncology business has really been a standout over the last several years. I was wondering if there's a chance that you guys might give us any kind of sense of the scope or scale of the business inside of the U.S. drug segment with any type of number around it? And then Britt as a quick follow up, I guess given the ongoing agreement with Rite Aid, can you tell…

Looks like he dropped off.

Mr. Hill, please proceed. I think we lost him.

Can you guys hear me?

Yes, go ahead.

Can you hear me now? Oh, I'm sorry, Britt, Brian, I don't know what happened there. Just the growth of the oncology business has been pretty impressive over the last couple of years. I was just wondering if you would kind of provide any color to kind of give us some sense of the scope and the scale of that business inside the U.S. distribution segment? Any color would be helpful.

When we talk about our oncology business, we talk about it as an ecosystem, everything from distribution to GPO services to iMed EMR, to community to [indiscernible] to the SCRI joint venture. So there's a lot, a lot of components that go into that. I think what we have provided in terms of sense of scale and scope is 2400 plus providers operating in 27 states seeing roughly 15 plus percent of all cancer patients in the in the community settings, so I hope that helps you get an order of magnitude.

Okay. Is that our last question? Great. Well, thank you everybody for the questions, for your interest in McKesson and certainly for joining our call today. Thank you operator for helping facilitate the call. I want to conclude by just reiterating McKesson delivered solid second quarter results. We saw continued momentum across the business and we're confident in our ability to deliver sustained long-term growth. As a diversified healthcare services company, we've made significant progress advancing our company priorities. And lastly and importantly, I want to make sure that I thank the McKesson team for all their contributions. It's incredibly humbling and proud to be able to leave the talented and dedicated team. Thanks again everybody. I hope you all have a terrific evening.

Thank you for joining today's conference call. You may now disconnect and have a great day.