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Operator: Welcome to McKesson’s Third Quarter Fiscal 2025 Earnings Conference Call. Please be advised that today’s conference is being recorded. At this time, I’d like to turn the conference over to Rachel Rodriguez, VP of Investor Relations. Please go ahead.

Rachel Rodriguez: Thank you, Operator. Good afternoon and welcome everyone to McKesson’s third quarter fiscal 2025 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 into a question-and-answer session. Today’s discussions 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 report and other SEC filings for additional information concerning risk factors that could cause our actual results to 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. 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: Thank you, Rachel and good afternoon everybody. Thanks for joining the call. Earlier today, McKesson reported strong third quarter results delivering another quarter of double-digit growth and operating process. Our team executed against our company’s priorities with focus and unwavering dedication, thanks to their commitment we are expanding our differentiated capabilities driving operational efficiencies and creating real value for our partners and shareholders. Yesterday we were excited to announce the signing to acquire a controlling interest in PRISM Vision which is a provider at general opthamology and retina management services. This marks an important step as we continue to enhance our specialty services platform and capabilities.

I’ll share additional details about the transaction a little later in my comments. But let’s move to the third quarter results. During the quarter, revenue grew 18% to $95.3 billion and adjusted operating profit grew 16% to $1.5 billion. Adjusted operating profit grew across all segments, led by strong double-digit growth in U.S. pharmaceutical and prescription technology solutions segments. In medical surgical growth was lower than anticipated, primarily driven by the late start of a softer illness season. The strength of the enterprise and the scale of our assets gave us the confidence to increase and narrow our full year guidance for adjusted earnings per diluted share from $32.40 to $33 to a new range of $32.55 to $32.95 which represents 19% to 20% year-over-year adjusted EPS growth.

Today I’m excited to share with you the great progress we’ve made in the past quarter, which is key to the financial results we delivered today and more importantly to the long run growth of the business. Then I’ll turn it over to Britt for more details in the financial review. I want to start with our focus on talent and culture, which is foundational to our company strategy and everything we do here at McKesson. We value the breadth of backgrounds, experiences and skills of our team members and that includes our Board of Directors. Earlier this week, our Board of directors elected two new members to our board, Lynn Lynne Doughtie and Dr. Julie Gerberding. Miss Doughtie brings accounting and finance expertise from the board from her experience as the former Chair and Chief Executive officer of KPMG.

Dr. Gerberding brings extensive executive experience in the healthcare industry and public policy arena. She was formerly the Chief Executive Officer or is currently the Chief Executive Officer of the foundation for National Institutes of Health and formerly the Executive Vice President and Chief Patent Officer at Merck and a former director of the CDC. Miss Doughtie will serve on our Audit Committee and finance committee and Dr. Gerberding will serve on a Compliance Committee and the Compensation and Talent Committee. These additions are yet another example of our best talent philosophy at work. We look forward to their leadership as we work together to continue to drive the growth of the company. Let’s move on to our second priority that’s strengthening the distribution capabilities and performance in North America.

Within the US Pharmaceutical segment, utilization trends remain stable leading to solid volume growth in the underlying business. The strong performance in the quarter is underpinned by our scale distribution capabilities across multiple therapeutic areas and our ability to provide exceptional services to our customers. One of the channels we serve is community pharmacies, which play a critical role in bringing accessible care to patients. Recently we launched a strategic initiative to help protect critical pharmacy services and to elevate the pharmacy profession. We will provide funding support to eligible community pharmacy associations across all 50 states to help meet their advocacy goals and strengthen their voice in the community and the role of the community pharmacy industry.

Within the medical surgical segment, we’ve strategically positioned this business to be focused on the alternate site markets. One of the market dynamics that impacts this segment is the annual illness, flu or respiratory season. Each illness season is unique, including its onset, its severity and how long it lasts. During the quarter, we observed lower than anticipated volumes related to the illness season which impacted the third quarter results. Market data shows that the number of flu like illness cases was lower than the average of the last five non COVID years and below the prior season. The softer illness season impacted the demand of seasonal vaccines, illness testing and foot traffic in primary care sites. This development, coupled with the general market weakness in the primary care channel we’ve called out for the prior two previous quarters, posed a challenging market backdrop for the segment.

Despite the impact of the market trends, we remain confident in our strategy in the alternate site market and the strength of the underlying business. We continue to take immediate and effective actions to better align our service model and capabilities with our customer needs and the market demand. In the past quarter, we made important progress in the business rationalization initiatives that were previously announced. Thanks to the focus from our team, we’re on track to complete the rationalization plan by the first half of fiscal 2026 and deliver meaningful savings as expected. Moving on to our two strategic growth pillars, oncology and biopharma services platforms. Over the years, we’ve continually invested and expanded our oncology assets in alignment with our stated strategy.

The oncology market continues to be the largest growing therapeutic category and is one reason we continue to invest in this area. We have built a portfolio of assets that include distribution of oncology drugs and value added services that improve the cancer care journey. Through the US Oncology Network, we empower the delivery of advanced and integrated cancer care in the community setting which is often closer to home and more cost effective for the patient. We’re pleased to see the continued expansion growing to over 2,750 providers across 640 sites of care in 31 different states. We provide resources and support to these community oncology practices to empower their growth and ultimately improve the patient experience and the outcomes of cancer care.

We also provide clinical trial services to community based practices through the Sarah Cannon Research Institute Joint Venture which we often refer to SCRI. Last year the patient accruals through clinical trials increased 25% within SCRI. It participated in the development of 33 of the 47 therapies approved by the FDA. We’re excited to bring more innovative and life changing therapies to community based practices and their patients. As we continue to advance our strategy, oncology and other specialties, we’ve also been evaluating opportunities in other therapeutic areas. Last year we acquired certain assets from US Retina and launched a new GPO program called Onmark Vision. We also have Retina OS, a clinical workflow and inventory management technology that streamlines inventory, revenue and payments management.

All of these assets are building blocks for the acquisition that we announced yesterday. We’re excited to sign an agreement to acquire a controlling interest in PRISM Vision. Its affiliated practices include 180 providers, 91 office locations and seven ambulatory surgery centers. Similar to our strategy oncology, we see an exciting opportunity in Retina and Ophthalmology given its attractive drug pipeline, the speed of innovation and practitioners needs for additional supporting services. We have a great track record of building and growing the oncology platform over the past several years. We’re taking a similar approach to the expansion in Retina. We are strategic and thoughtful in building these platforms and creating a portfolio of assets that complement each other and reinforce each other.

The transaction is subject to customary closing conditions including necessary regulatory clearances. We look forward to advancing Retina and ophthalmology patient care through a meaningful platform of distribution and other value added services. Onto our biopharma services platform, we offer a portfolio of solutions that connect biopharma companies, providers, pharmacies and payers to improve the access, affordability and adherence of medications. In the third quarter, the Prescription technology solutions segment delivered strong performance in line with our expectations. Growth accelerated in the quarter reflecting strong demand across our product solutions. One of our value add solutions is prior authorizations, which automate the process and give patients access to their prescriptions faster.

But in addition to prior authorizations, we’re seeing continued growth from many other solutions. In the fiscal third quarter, we added access and affordability support for pharma brands that span across 30 indications and more than 12 therapeutic areas. We’re pleased to support a diversified portfolio of brands with their unique needs and ultimately make these medications more accessible and affordable to providers and patients. Biopharma Services is a strategic growth pillar for us and we continue to invest strategically to support its growth. In the past few quarters, we’ve updated the user interface of our key customer systems, enhanced the core technical infrastructures and improve the overall user experience. These updates help us support customers and a more efficient manager as we ramp up the annual verification programs in our fiscal fourth quarter.

Looking across our business segments, we’ve built a large and a diversified portfolio of assets. It is part of our continuous practice to assess this portfolio for strategic alignment. In December, we completed the divestiture of the Rexall and Well.ca businesses. This allows us to focus and prioritize investments in other strategic areas. As Canada’s largest pharmaceutical distributor, we continue to invest and modernize our distribution network, introducing automation and technology to improve efficiency. We’re also growing a set of biopharma solutions that include third party logistics, patient care services and data insights. So let me try to sum up the quarter. McKesson delivered strong quarterly results in fiscal 2025. Three of our four business segments grew adjusted operating profit at double digit rates in the quarter.

That represents over 80% of our business, growing AOP in double digits and highlights the strong momentum across the enterprise the fundamentals of our business remain strong and we’re taking strategic actions to enhance our differentiated portfolio, to drive operational efficiencies and to modernize the enterprise. We’re confident in our market positions and pleased with the momentum we’re building across the business. Looking ahead, we’re focused on delivering a strong finish to fiscal 2025 and driving sustainable long-term growth in the years ahead. With that, I’ll hand it over to Britt for some additional insights and comments.

Britt Vitalone: Thank you Brian, and good afternoon. My comments today will refer to our adjusted results. We’ll start with consolidated results followed by a review at the segment level and conclude with an update on our full year fiscal 2025 outlook. We reported another strong quarter with notable momentum across the enterprise. We’re pleased to report record quarterly revenue and operating profit, including year-over-year operating profit growth in each segment. These results demonstrate the remarkable breadth of McKesson’s products and services and reflect the focus and execution against our company priorities. Consolidated revenues increased 18% to $95.3 billion, led by growth in the U.S. pharmaceutical segment due to increased prescription volumes from retail national account customers and growth in the distribution of specialty products, including higher volumes in oncology and specialty provider settings.

Gross profit was $3.3 billion, an increase of 7%, primarily a result of specialty distribution and provider growth within the U.S. Pharmaceutical segment and growth in the prescription technology solutions segment driven by our access and affordability solutions. Operating expenses increased 2% to $1.9 billion, driven by higher expenses to support growth in the U.S. pharmaceutical segment. We’re pleased with the focus on driving a lower operating cost structure, implementing efficiencies through automation and data capabilities, and delivering insights to improve our operations, products and service offerings. This is reflected in the operating expense to gross profit ratio, which improved over 250 basis points as compared to the prior year.

Operating profit was $1.5 billion, an increase of 16%. Year-over-year results benefited from growth across all segments. Interest expense was $62 million, an increase over the prior year resulting from higher average balances of our loan portfolio during the quarter. The effective tax rate was 23.9% compared to 10.6% in the prior year. This rate was in line with the guidance provided at recent Investor industry conferences. Third quarter diluted weighted average shares outstanding was $126.6 million, a decrease of 5%. In third quarter earnings per diluted share increased 4% to $8.03. Year-over-year growth was driven by strong operational performance and a lower share count, partially offset by a higher tax rate resulting from discrete items in the quarter.

Turning to third quarter segment results, which can be found on slides 8 through 12 and starting with our U.S. pharmaceutical segment. Revenues were $87.1 billion, an increase of 19%. Revenue growth was led by higher volumes from retail national account customers, growth from specialty product distribution, including higher volumes from oncology and specialty provider settings, and partially offset by the anticipated decline of a certain of certain brand volumes due to formulary changes by a retail national account customer beginning in our fiscal 2025 first quarter. Revenues from GLP-1 medications were $10.9 billion in the quarter, an increase of approximately $3.4 billion or 45% when compared to the prior year. We anticipate continued GLP-1 medication growth year-over-year, however, with variability from quarter-to-quarter, operating profit increased 14% to $944 million, driven by growth in the distribution of specialty products to health systems and specialty providers, the onboarding of a new strategic customer and growth in our differentiated oncology platform, partially offset by expected lower distribution volumes of COVID-19 vaccines as compared to the prior year.

In the Prescription Technology Solutions segment, organic and new program growth across our access and affordability solutions led to strong growth compared to the prior year. Revenues increased 14% to $1.4 billion and operating profit increased 22% to $235 million. Third quarter results reflect increased prescription transaction volumes which drove higher demand for our access solutions, including prior authorization services for GLP-1 medications and growth in our third party logistics business. Year-over-year growth was also supported by increased sales to new customers and programs across our access and affordability solutions. Turning to Medical Surgical solutions, as Brian mentioned earlier in his remarks, we observed lower than anticipated volumes due to less demand for illness season products.

As we’ve previously discussed, each illness season is unique and the timing and severity level of each illness season could drive variability from quarter-to-quarter. Through the fiscal third quarter, this illness season had lower severity levels compared to prior years and lower than our expectations, impacting foot traffic in the primary care settings that we serve. As measured by IQVIA data, illness severity was approximately 62% of the average of the previous five non-COVID illness seasons. In the third quarter, revenues decreased 3% to $2.9 billion. The decline in revenues can be attributable to the lower levels of seasonal vaccines, illness testing and related medical surgical supplies in the primary care channel. Operating profit increased 4% to $294 million, driven by operational efficiencies from the cost optimization initiative that we announced in Q1 and growth in the extended care business.

These are partially offset by lower contributions in the primary care channel as compared to the prior year. As we previously guided, we anticipate the cost optimization initiatives will deliver $100 million of cost savings in the second half of fiscal 2025, with a higher proportion coming in the fourth quarter. We’re pleased with the execution to date and we remain confident in achieving these savings. Next, let me address our International Results. Revenues were $3.9 billion, an increase of 6% and operating profit was $124 million, an increase of 18% driven by higher pharmaceutical distribution volumes in the Canadian business. Operating profit included $19 million or $0.11 of earnings accretion resulting from the held for sale accounting related to the sale of our Canada based Rexall and Well.ca businesses which was completed on December 30th of 2024.

Wrapping up our segment review with Corporate. Corporate expenses were $134 million which included a pretax gain of $6 million or $0.04 per share related to equity investments within the McKesson Ventures portfolio compared to pretax losses of $8 million or $0.05 per share in the third quarter of fiscal 2024. Let me turn to cash and capital deployment which can be found on slide 13. We ended the quarter with $1.1 billion in cash and cash equivalents. During the quarter, we had negative free cash flow of $2.6 billion. Timing, including the day of the week that the quarter ended on led to approximately $2 billion of cash shifting from our fiscal third quarter to our fiscal fourth quarter. This does not impact our full year free cash flow guidance.

Additionally, free cash flow included $196 million of capital expenditures primarily related to investments in new and existing distribution centers, as well as investments in technology, data and analytics to support our growth priorities. In the third quarter, we returned $919 million of cash to shareholders, which included $827 million of share repurchases at an average price of $537 per share, and we made $92 million in dividend payments. Now let me discuss our updated fiscal 2025 outlook. As a result of our third quarter performance and the confidence that we have in the outlook for the remainder of the year, we’re raising and narrowing our guidance range for fiscal 2025 adjusted earnings per diluted share to $32.55 to $32.95. Our strategy continues to yield exceptional results led by the growing and differentiated oncology and biopharma services platforms supported by a foundation centered on a strong core of distribution assets.

In the U.S. Pharmaceutical segment our core pharmaceutical distribution operations continue to demonstrate a diversified and strong value proposition to customers. We anticipate revenues to increase 18% to 20% and operating profit to increase 11% to 13%. This updated segment outlook incorporates strong third quarter performance as well as continued momentum in the core distribution business, including stable utilization trends, performance of our sourcing program and continued growth in specialty pharmaceuticals. We continue to be pleased with the strategic partner we announced and onboarded in July. This partnership is a testament to our leading distribution and sourcing capabilities and our strong customer value proposition. We anticipate the strategic partnership will contribute approximately $32 billion of incremental revenue in full year fiscal 2025 and it’s incorporated in the full year Outlook.

Our oncology platform is delivering across a range of capabilities including distribution, practice management, data and analytics, and clinical research. More than 2,750 providers in the U.S. Oncology Network continue to experience solid growth, with same site visits increasing 6% in the quarter. And yesterday we announced the signing of a definitive agreement to acquire controlling interest in PRISM Vision Holdings, a premier provider of general ophthalmology and retina management services. This transaction advances McKesson’s specialty position and our commitment to improve and expand patient access to quality community care. We intend to develop a leading platform for retinal care delivering differentiated solutions and value across providers, biopharma partners and patients.

McKesson’s long track record of leading practice management and clinical research outcomes with our differentiated oncology platform will allow us to expand our suite of solutions and continue to pursue our purpose of advancing health outcomes for all. McKesson will purchase an 80% ownership interest for approximately $850 million. We anticipate financing the transaction with a mixture of cash and debt. Following completion of the transaction, PRISM Vision will be part of McKesson’s broad set of specialty solutions and financial results will be consolidated within McKesson’s U.S. pharmaceutical segment. Upon closing, PRSIM is anticipated to be approximately $0.20 to $0.30 accretive to McKesson’s adjusted earnings per diluted share in the first 12 months post-closing and $0.65 to $0.75 accretive by the end of the third year following the close of the transaction.

The transaction is subject to customary closing conditions including necessary regulatory clearances, and we’ve not included any financial results from this transaction in our updated fiscal 2025 outlook. In the Prescription Technology Solutions segment, we anticipate revenues to increase 9% to 12% and operating profit to increase 12% to 15%. The updated outlook incorporates a strong third quarter performance and affirms our confidence in achieving operating profit growth at or above the long-term growth rate target in fiscal 2025. As we’ve previously communicated, we anticipate revenue and operating profit growth will not be linear and will vary from quarter-to-quarter, driven by several factors including the timing and trajectory of new product drug launches utilization trends, the evolution of a product’s program support requirements as it matures, which could result in the shift to other services or program termination, product delays and supply shortages payer requirements including utilization management and formulary strategies, the annual verification programs that we provide for our customers that occur in our fiscal fourth quarter, and the size and timing of investments to support and expand our product portfolio.

Moving to Medical Surgical Solutions. During the third quarter, we observed lower than anticipated illness season volumes, including vaccines and testing, and lower volumes in the primary care channel, which negatively impacted third quarter results more than originally anticipated. As a result of third quarter performance in our revised outlook for the remainder of the fiscal year, we now anticipate revenues and operating profit to be roughly flat to the prior year, a result of the weaker than anticipated illness season. Despite these macro challenges, we have made progress toward our previously announced cost optimization initiatives, which have already begun to drive anticipated operational efficiencies in the segment. We continue to anticipate these initiatives will deliver approximately $100 million in cost savings in fiscal 2025 as previously outlined, and will be more heavily weighted toward the fourth quarter.

In the International Segment, we anticipate revenues to increase 3% to 7% and operating profits increase 10% to 14%. As I mentioned at the beginning of my remarks, we completed the sale of our Canada based Rexall and Well.ca businesses at the end of the third quarter. This transaction closed earlier than we had previously anticipated, negatively impacting operating profit guidance, and is the main driver behind the change in guidance for the segment. We also remain committed to exit and fully divest our European business. As a reminder, Norway remains the only operating country in Europe that we’ve not entered into an agreement to sell, and contributions related to operations in Norway are included in the fiscal 2025 outlook for the segment.

We intend to exit Norway as part of the completion of our European exit. Finally, in the corporate segment, we anticipate expenses to be in the range of $480 million to $520 million, which incorporates the impact of $6 million of pretax gains related to equity investments within the McKesson Ventures portfolio in the third quarter. As a reminder, McKesson Ventures impact on consolidated financials can be influenced by the performance of each individual investment quarter-to-quarter, which may result in gains and losses, the timing and magnitude of which can vary for each investment. Moving below the line, we anticipate interest expense to be approximately $255 million to $265 million, reflecting higher than anticipated interest expense in the third quarter and anticipated additional borrowing activities driven by the timing of working capital in the fourth quarter.

We anticipate income attributable to non-controlling interest to be in the range of $185 million to $195 million owing to the success of ClarusONE’s generic sourcing operations. We anticipate the full year effective tax rate will be in the range of approximately 17% to 19%. And turning to cash flow and capital deployment, we remain focused on shareholder value creation and our disciplined capital deployment approach remains unchanged. It starts with stable and growing free cash flow. For fiscal 2025, we anticipate free cash flow of approximately $4.8 billion to $5.2 billion. Next, we’ll continue to deploy capital to grow the business on strategy. The acquisition of PRISM Vision is a good example of this. Secondly, we’ll return capital to our shareholders through a growing dividend and value creating share repurchases.

Our guidance includes plans to repurchase approximately $3.2 billion of shares in fiscal 2025. As a result of the share repurchase activity, we estimate weighted average diluted shares outstanding to be approximately 128 million. And finally, we’ll maintain a strong balance sheet with stable credit ratings. Wrapping up fiscal 2025 guidance we anticipate revenue growth of 16% to 18% and operating profit growth of 13% to 15% compared to the prior year. For fiscal 2025, we anticipate earnings per diluted share of $32.55 to $32.95, which represents approximately 19% to 20% growth as compared to fiscal 2024. Before I close, I’d like to share some initial thoughts on fiscal 2026. We anticipate our operating momentum to persist. As Brian mentioned earlier, approximately 80% of the operating profit of the company is growing at double digit growth rates in fiscal 2025.

As a result, we maintain confidence in the long-term adjusted EPS target of 12% to 14% growth. In U.S. Pharmaceutical there’s several positive items that we anticipate will continue to support growth in fiscal 2026. These include the scale and efficiency of our pharmaceutical distribution operations, our leading position in specialty, including the breadth of our oncology platform, the U.S. Oncology network, GPO services, Ontada and the Sarah Cannon Research Institute. The growth of other specialties in areas like retina and ophthalmology, which include the recently announced acquisition of PRISM Vision and our leading generics offerings including the strength of ClarusONE. We anticipate that the strength we’re seeing across the prescription technology solutions segment will continue to benefit from our leading products and capabilities supported by several factors which would include stable utilization trends, differentiated access and affordability programs, Unmatched connectivity as our solutions are in the workflow of over 950,000 providers and more than 50,000 pharmacies and the innovative products and services supported by ongoing investments.

Our medical surgical solutions segment is well positioned as care continues to move across the alternate site settings. We’re confident that the cost optimization actions we’ve taken will better align our business to the markets and customers that we serve. We’ll continue to evaluate the environment as the illness season progresses, as primary care markets continue to stabilize and the overall impacts from our early cost optimization efforts materialize. Finally, we’ll continue to invest in adding capabilities to our North American distribution footprint. These investments include increased capacity, automation and regulatory excellence capabilities. We are modernizing the enterprise and we’re investing in data and analytics, including the acceleration of several investments in cloud, networking and infrastructure.

We’re also accelerating the use of AI to unlock the potential to deliver customer and foundational enhancements. We’re using AI to improve the customer experience and improve productivity, including supply chain disruptions, predictions, forecast accuracy algorithms and fraud detection. In closing, our third quarter results represent another strong performance with operating profit growth across all segments demonstrating remarkable execution against our strategic growth pillars. Through the durability of our business models, the scale and differentiation across our solutions and services in the investments we’re making to modernize and accelerate the enterprise, we’re committed to delivering value creation. We’re confident in McKesson’s bright future.

We have leading positions across distribution and biopharma services driven by our execution and innovative solutions. Before turning to Q&A, I’d like to take a moment to thank Rachel Rodriguez. Rachel’s taking a new role on our corporate FP&A team. I’d like to thank Rachel for her positive impact leading investor relations for the past three and a half years, and the partnership with both Brian and me. And I’d like to welcome Jenny [ph] Dominguez who will now be leading the investor relations team. Jenny has a long track record in several leadership positions across our finance teams at McKesson. And with that, let’s move to the Q&A session.

Operator: Thank you. [Operator Instructions] And we’ll take our first question.

Eric Percher: Thank you. Eric Percher from Nephron Research. I appreciate the detail on 2025 and early view of 2026. Brian and Brooke, can I ask you, it sounds like you expect the utilization levels you’ve seen driving pharma and specialty continue and the growth rate elevation. How much of that do you attribute to the macro trends versus what is unique about your specialty business and any areas where we should have concern about the ability to carry on into next year? And then the final piece I’d ask is, is there any area where IRA is impacting your business today?

Brian Tyler: I’ll start Eric, and thanks for the question. I mean I think we’ve seen pretty stable and consistent overall prescription volume in the pharma segment the last several quarters. Obviously specialty in oncology in particular has been strong. We’ve been benefiting from the growth in GLP-1s but I think as we scan the environment today, other than some quarter-to-quarter volatility in GLP-1s which could be hard to predict, we, we think the environment will continue to be sort of pretty steady and as has been obviously FY25 is playing out very consistent with our expectations. The growth in the U.S. Oncology network has been solid and is clearly a driver and our set of differentiated assets there is helping us. We’ve had 6% same store patient growth and then obviously we augment that over the course of the last several years with practice, new practice members joining the U.S. Oncology network.

So I think that has been a position of strength and will continue to be for us.

Rachel Rodriguez: Next question please?

Operator: And the next question will come from Kevin Caliendo with UBS.

Kevin Caliendo: Hi, thanks for taking my question. I guess I just wanted, I’m a little confused on the commentary that you had for fiscal 2026. Are you actually sort of blessing that we should take the guidance from 2025 and given the variables that you described for the segments, be comfortable with that. You’re comfortable with an earnings growth rate of 12% to 14%. And if, if so is that inclusive of the deals that you’ve announced already that haven’t closed yet?

Brian Tyler: Kevin, thanks for the question. Let me clarify that. What we wanted to try to do was give you some of the qualitative factors that we see supporting the business this year that we would, we would expect qualitatively will be a part of the algorithm next year. We are giving you the long term EPS growth rate. We’re affirming that at 12% to 14%. We feel comfortable with that. Obviously as we get to our fourth quarter earnings, we’ll give you a more detailed breakdown by, by each segment. Like qualitatively, a lot of the factors that we see driving the business should be in place next year. We think that will support the long-term adjusted EPS growth rate of 12% to 14%. In terms of the acquisitions, I’ll just remind you that they’re subject to customary regulatory closing conditions and review.

We did give you the first 12 months accretion when those deals do close. But obviously, they haven’t closed. They’re still going through the customary regulatory review process, but we feel comfortable in at least providing you the accretion for the first 12 months and then after that.

Rachel Rodriguez: Next question please?

Operator: And the next question will come from Allen Lutz with Bank of America.

Allen Lutz: Good afternoon. Thanks for taking the questions. One for Britt. 2% operating expense growth in the quarter that’s really strong. As we look at the different segments, there does seem to be some variability by segment. I think you’re investing in RxTS and there’s some cost cuts in MedSurg. Can you talk about the big drivers and some of the variability within segments to get to that 2% OpEx growth? And how to think about, what’s embedded in 4Q and maybe exiting 4Q, how you’re thinking about operating expense growth?

Britt Vitalone: Yes. Thanks for that question, Allen. I think we’ve talked about this back in November when we had our sell-side update. One of the things that we’ve really focused on for the last several years is driving operating leverage into the business. And we’ve seen our ability for us to do that over the last several years, getting operating efficiency in our North American distribution businesses and clearly focusing on investments to drive better data and analytics, better sourcing, better capabilities from our operations. So we are getting more efficient. We are driving more leverage and more throughput through the organization, but at the same time, investing back in key areas. Key areas like RxTS, where we’re putting investments to play to support additional products and services and capabilities.

And you should expect us to continue to do that. So generally speaking, driving great operating leverage through getting efficiencies, automation, data and analytics capabilities, but we will continue to invest against our growth strategy to RxTS being one of those.

Rachel Rodriguez: Next question please?

Operator: And our next question will come from Elizabeth Anderson with Evercore ISI. Again, Ms. Anderson, your line is open, perhaps you’re on mute. Our next question will come from Brian Tanquilut with Jefferies.

Brian Tanquilut: Hey good afternoon guys.

Brian Tyler: Good afternoon.

Brian Tanquilut: Just a quick 2-parter. Brian, as I think about the medical side of the business, how are we — I guess the seasonality factor that has impacted that. But how are you thinking about market share in that segment or that industry? And then maybe, Britt, really quickly on PRISM. Who is a distributor for PRISM currently? Is that incremental business coming in for you guys? Thanks.

Brian Tyler: No, I mean, in terms of the medical business, just to remind everybody that years ago, we shifted the strategy of this business to be focused on the alternate-site locations. Physician office, specialty clinics, long-term care, urgent care clinics, retail care clinics. And so that’s — when you talk about market share, it’s really hard to get definitive market share in the alternate site markets. But it’s clear we have a leading positions in those marketplaces. We’re probably a lot less focused on market share than just growing customer base, expanding share of wallet. A part of the strategy in this business over the years has been to evolve from just commodity medical products to more sophisticated medical products, the lab, pharmaceuticals, kind of all things that these alternative site locations need to support the practice of medicine that they’re providing there.

So we’re quite confident in our capabilities, the breadth of those capabilities, including our private label programs. So we think that, that’s what supported our great share position in those markets.

Britt Vitalone: And to quickly answer your question on PRISM, we are not the distributor today. We would pick that business up, and it’s included in the accretion numbers that we provided you.

Rachel Rodriguez: Next question please?

Operator: The next question will come from Charles Rhyee with TD Cowen.

Unidentified Analyst: This is Lucas [ph] on for Charles. I wanted to ask about the MedSurg segment and kind of the outlook for 2026. The midpoint of your implied guide for implies an exit rate — growth rate of about 13% to 14%. I guess, one, how much of this strong growth rate incorporates an uptick in the respiratory illness uptick in flu cases to start the year? And then for fiscal 2026, just thinking about the growth rate and the moving pieces there. Are we obviously expecting $100 million worth of costs lapping and cost optimization benefit in 2026? But also too, when you guys initiated your guidance last May, you kind of highlighted investments made in the MedSurg segment driven around 2 percentage points worth of growth. So maybe confirm that still an ongoing process and that we can potentially lap that in 2026? Thanks.

Britt Vitalone: Yes. Thanks for your question. I’ll make a couple of comments here. We have not provided specific guidance for any of our segments at this point for FY 2026. We have seen a softer flu season and less demand for illness season in general and for those illness season products. We’re not making any prediction on the remainder certainly on next year’s illness season. We are pleased with our efforts thus far in the cost optimization initiatives, and we do anticipate that we’ll get those $100 million of savings this year. And clearly, we’re continuing to work on the business and get it aligned correctly with our customer base and the markets that we serve. And that’s something that we’ll just continue to focus on. We have seen softer volumes in the primary care channels and settings that we serve, and we’ll continue to evaluate that, as I mentioned in my comments, we’re going to evaluate the markets and the — how the illness season plays out for the rest of this year and continue to evaluate our cost optimization efforts as they materialize through the end of the year.

So what I could tell you is that clearly, we are seeing a soft illness season. That’s impacting other components of our volumes in the primary care channel settings, but we’re pleased with the efforts on the cost optimization initiatives this year.

Rachel Rodriguez: Next question please?

Operator: Certainly. The next question will come from Lisa Gill with JPMorgan.

Lisa Gill: Thank you so much. Britt, I wanted to follow up on a comment that you made around brand changes. And I’m assuming that talking about formulary changes that pertains to PBMs and you have 2 large mail order pieces of business with both Optum and Caremark. I just sort of want to understand, as we see those changes, I’m assuming it’s around things like Humira, as we move into 20 — your fiscal 2026 or calendar 2025, we’re going to have Celera [ph] where we’ll have a biosimilar. So really my question is two things. One, is it that you’re calling out that’s a revenue impact, but you’re still going to distribute the product and so you’ve got potential better margin on that biosimilar? Or is it more that we’re seeing some of these players actually self-distribute something on the biosimilar side.

And therefore, that could be a headwind as we move into more biosimilars? I just want to understand that in general and how we should think about that going into next year. As you look at the formulary changes for all the big PBMs and the changes that they’re making.

Britt Vitalone: Yes. Thanks for the question, Lisa. This is a very similar comment that I made in prior quarters this year. This is one particular product that did go biosimilar. And the — there was a formulary change made by a large retail national customer of ours. It’s a revenue issue for us, and all I’m doing is calling that out as a revenue impact in this particular quarter. Not making any comments on other products that may go off brand and go biosimilar. We’ll see how those play out as time goes on. But this is the same the same issue that we called out in the first quarter. It’s a revenue issue on one product with one particular customer.

Rachel Rodriguez: Next question please?

Operator: Thank you. The next question will come from Stephen Baxter with Wells Fargo.

Stephen Baxter: Hi, thanks for the question. I appreciate all the color on the factors of the business that you feel reasonably confident are going to persist into fiscal 2026. Just as we think about the earnings baseline, are there things that you think we should be thinking as a potential maybe adjustments to the baseline and maybe potential headwinds as you move into fiscal 2026? Or anything you might describe as more of a swing factor approach to keep in mind? Thank you.

Britt Vitalone: Yes. I appreciate that question. Look, I think there’s a few things that are somewhat analogous to this year. Clearly, we’ve onboarded a large strategic customer in our U.S. Pharmaceutical business that was onboarded in our — beginning of our second quarter. And I think other than that, we really are very pleased with strong utilization, as Brian mentioned, in our pharmaceutical distribution as well as in our specialty businesses. We continue to make good progress in our specialty areas, such as oncology. As Brian has talked about here, we’ve added 185 providers this year, which is really a high watermark for us over the last several years. We’re seeing really good same site visits going through those provider bases.

So I think — as you think about the year, clearly, there are a couple of items such as adding a large strategic partner. But generally speaking, the businesses are performing in line with or slightly above our long-range targets, and we’re really pleased with that performance.

Rachel Rodriguez: Next question please?

Operator: Next question will come from Erin Wright with Morgan Stanley.

Erin Wright: Hey thank you. A follow-up on PRISM. Just how do you think about the opportunity across general ophthalmology versus the retina business? I understand it has kind of both — I think there’s more of a pharmaceutical angle from a retina perspective, but how do you think about that and the potential synergies, the opportunities around biosimilars like EYLEA [ph]? And you mentioned some of the initiatives in the space like on Mark from a vision perspective. And are there other investments that you need to make or build out kind of in and around this space? And is this an area that from a disclosure standpoint, and I think one of your peers will be doing this is, is breaking this out, whether it’s PRISM or U.S. oncology or think you got greater disclosure around some of those MSO businesses? Thanks.

Brian Tyler: I’ll start, and then Britt, you can complement my comments. I think the one thing that attracted us to PRISM was their approach to coordinated care and treating the full spectrum of eye care, retina, general ophthalmology and ambulatory surgery centers. So they’re a provider for general ophthalmology and retina centers. And as you think about our strategy and the evolution of our strategy here. We started by acquiring some assets in GPO and some software called retina OS which I described in my opening comments. And so we began to build pieces of the platform. And as we reflect on the success we’ve had in oncology over the last 1.5 decades, and the measured way we grew that and started with drug distribution into GPO services and then just continue to augment clinical trial services, data and analytics services.

We’ve been waiting and studying and looking for an adjacent market that had, we saw a strong pipeline of drug growth. We saw less practices where we could bring these value-add services to help the physicians practice medicine better. And so we think this is a terrific opportunity. And one thing we’re excited about is we feel like, based on our experience with oncology, we really know what to look for the group that practices medicine, in this case, in ophthalmology and retinology to a very specific philosophy that wants to move together, the practices on a common practice management system. So we’ve all got integrated data. And so we very much look at this augmented with the distribution we already do, the GPO services we already do, the other services we already provide and the tools we have as building out now this analogous platform.

Not exactly the same as U.S. oncology. It’s tailored for retinology and ophthalmology, but it’s very much sort of an analogous strategy.

Britt Vitalone: Maybe I’ll address your question on disclosure. You always look to enhance our disclosure where appropriate. We’ve begun to give you some sense of the oncology platform and the pieces in that platform. You might recall at our sell-side update. We talked about all the building pieces from distribution through practice management and GPO, our data and analytics business all the way through to Sarah Cannon and some of the clinical trial capabilities that we have. And we outlined for you the revenue for fiscal 2025 from that platform is about $35 billion. Now we’ve announced a few transactions here, but we haven’t closed those. And so as we get to a point where hopefully we can close these transactions. We’ll evaluate whether it’s necessary for us to do some further disclosure.

But at this point in time, I think we feel comfortable that we’re providing a good level of data to support some of the commentary in some of our strategies around the oncology platform.

Rachel Rodriguez: Next question please?

Operator: Moving on to George Hill with Deutsche Bank.

George Hill: Hey good afternoon guys. Thanks for taking the questions. And two very quick ones for Britt. Britt, number one is the recognition of the cost savings in the Medical segment for the back half of this fiscal year seems to be nonlinear. I’m wondering if we can annualize the Q4 part versus the Q3 part looking forward? And then the other part is Britt. I just want to give you a chance to talk about whether or not there’s any headwinds for fiscal 2026 because some first blush, everything sounds great.

Britt Vitalone: Yes. Thanks, George. Look, we haven’t given any guidance, obviously, on what those cost optimization initiatives will yield in 2026. Clearly, we’ve given you a piece it for FY 2025. And these are — we would expect these to be more than temporary cost savings. So I’ll just leave it at that. In terms of headwinds, look, I think we we’ve talked about certainly public policy as a wildcard for us. It’s not something that we control. But certainly, we watch it. We think that we’re well informed in helping educate policymakers. And as we talked about with our Medical segment. We have seen slower volumes this year, not only in illness season, but in the primary care channel in general for the last three quarters. And so that — one of the reasons why we went down the path with our cost optimization initiatives to better align our business and to better align it to the markets and the customers that we serve.

And I would call that out as probably the one area that potentially could continue to be a headwind. But we need to — as I mentioned, we need to see how the rest of the fourth quarter materializes, how the illness season finishes out and certainly our efforts against our cost optimization initiatives.

Rachel Rodriguez: Next question please?

Operator: And the next question comes from Michael Cherny with Leerink Partners.

Unidentified Analyst: Thank you. This is Dan Clark [ph] on. Two on MedSurg. One for the fiscal fourth quarter, what are your expectations for the flu and respiratory season and any associated volumes there? And then secondarily, like you just talked about in response to George’s question, you’ve seen slower volumes in the primary care channel for the past three quarters. When you talk about potential stabilization in fiscal 2026, like what do you see as the main drivers to cause that? Is it just lapping easier comps? Or is there anything else we’re worth calling out?

Brian Tyler: So as we came into this fiscal year, we planned the illness season to be a “average illness season” as we look back over the years. Obviously, in Q3, got out to a very slow start. I think Britt and I have been around this business long enough to know that forecasting the illness season is probably — is a hazardous activity. I mean when they start, how fast they accelerate, how long they endure and then how fast they fall away, it looks very, very different year-to-year. So to speculate on how that will play out in Q4, I think it’s just difficult at this moment in time. We’re just not far enough through that cycle. As to the Medical-Surgical business looking forward, I think we think we have terrific assets position in good markets.

If you step away from the last few quarters and just think about aging demographics, think about the most convenient sites of care for patients. Think about the cost of delivering that care. Alternate sites play right into all three of those themes. And population is only aging. It’s only going to need to consume more health over time. So I think we continue to believe we’re in the right segments. We’ve got the right capabilities. We’ve got the right team. We’ve got confidence in the actions that we’ve taken over the last quarters to position the business against the trends that we see.

Rachel Rodriguez: And we time for one more question please.

Operator: And that question will come from Daniel Grosslight with Citi.

Daniel Grosslight: Hi, thanks for taking the question. I wanted to go back to the PRISM acquisition. I think it makes a whole lot of sense here. But I was really curious on timing. The acquisition comes shortly on the heels of one of your competitors closing on their retina MSO. So I was wondering if there’s been any change in the oncology or retinopology markets that makes now a more opportune time to invest in this space? In another way, has the opportunity in oncology being kind of tapped and now you’re hunting in other areas? And then secondly, I was curious if you could maybe go into a little bit more detail on what services or what expertise from your oncology platform you can bring to the retina space?

Brian Tyler: So certainly want to emphasize that oncology remains one of the central growth pillars for the business. But we think we’ve got decades of experience, terrific assets, a track record over the last four years or 5 years of growing, very consistency with the scale and the capabilities like Sarah Cannon and Ontada. We think our value proposition of those providers just continues to strengthen. And so oncology very much remains a central growth platform for us. Not for this year but into the future as well. In terms of the timing, I can understand the coincident nature of it. The fact of the matter is when you do M&A, it takes a willing buyer and a willing seller. And it takes a financial model that works for us. And we maintain very — a lot of financial discipline through the M&A process.

And so as we look at various targets, sometimes we can act on them. Sometimes, the conditions don’t match. We can’t agree on valuation. We don’t like quality assets. So what we want to do is be thoughtful discipline, stick to our strategy, stick to our financial discipline and when we could find a transaction that aligns to our strategy and make sense, leverages our strength in specialty distribution, leverages the retina GPO we have, leverages the business performance services that we have to support that. This was just became a perfect fit at the right time, and we could agree on valuation.

Brian Tyler: Okay. Well, thank you, everybody. Really appreciate the great questions, and you’re taking the time to join our call. I want to thank Justin, our operator, for facilitating the call. McKesson delivered strong results in our fiscal third quarter. We’re really confident in our strategy and our execution continues to position us for sustainable growth over the long term. I’d be remiss not to thank all of our teammates and our employees for their focus, on their passion advancing our mission together. I’m proud to be part of your leadership team and excited for what the future holds for all of us. Thanks again, everybody. I hope you have a terrific evening.

Operator: Thank you for joining today’s McKesson FY 2025 Third Quarter Conference Call. You may now disconnect, and have a great day.