Cencora, Inc. (COR) Earnings Call Transcript & Summary

Hey, everyone. My name is Eric Coldwell. I cover pharma services and health care distribution for Baird. And it's a great pleasure to have AmerisourceBergen with us today. I'm sure most are familiar with the company, but for anyone who is not, ABC is a global leader in pharmaceutical distribution, spanning brands, generics, specialty and related items. They are a global leader in health care services, consulting, analytics and support both upstream and downstream for manufacturers and providers and patients alike. Company has a world-leading veterinary business, a world-leading clinical trial supply in specialty logistics business. And it's just made a really interesting acquisition across the pond, so to speak, that will expand their offerings globally, but really ties in nicely with the legacy and history of the company. Today, we have Jim Cleary, EVP and CFO. Also Bennett Murphy is joining us. Bennett is the main spearhead on the investor communications side. And when we were going out to start this process of an ESG conference, and really Baird believes this is going to be table stakes going forward, I reached out to all of my coverage and said, would you be interested in joining us. And ABC was the first to pop at this and say, yes, absolutely. We're highly focused on it. I know from my past talking to Bennett, in particular, that the company has made this a major effort internally. It's something that you can see and track for a number of years, and it's become more visible here in the last year or 2. So I'm really excited to have Jim with us in the presentation today. Jim, I know you have a couple of slides you want to go through briefly, and then we'll jump right into the Q&A.

Eric, thank you. Yes, thanks so much for inviting us to participate today. We really appreciate the opportunity to participate with you and Baird. As Eric said, I'm Jim Cleary, I'm CFO of AmerisourceBergen. I'm really pleased to be here to discuss our ESG strategy and initiatives. It's something that's personally very important to me. More importantly, it's really important to our company, to our Board, our senior management, broadly to our associates and really to all of our stakeholders also. Why don't we advance one slide. And I'll just really cover a couple of slides, and I'll do it very briefly, and then I think we'll get into Q&A, which will probably be a lot more interesting. But as an introduction, as Eric was saying, at AmerisourceBergen, we foster a positive impact on the health of people and communities around the world by advancing the development and delivery of pharmaceuticals and health care products. And as a leading global health care company with a foundation and pharmaceutical distribution and solutions for manufacturers, pharmacies and providers, we create access, efficiency and reliability for both human and animal health. And our key differentiators continue to provide a platform for value creation for our stakeholders, helping provide valuable solutions for our partners, both upstream and down, to ultimately ensure patient health and well-being. Our business proved its resilience and ability to grow over the past 16 months during the pandemic. We're guided by our purpose, and you'll see our purpose here of being united in our responsibility to create healthier futures. And being guided by that purpose, we invested to protect our people and leverage strong business continuity plans to meet stakeholder needs while enabling the continuity and stability of the supply chain and demonstrating the vital nature of our role and the health system as a pillar of pharmaceutical innovation and access. And again, I'll just briefly cover one more slide, if we can advance the slide. And our purpose being united in our responsibility to create healthier futures. It guides our ESG strategy in order to ensure that at AmerisourceBergen, we're making a positive impact on the people, planet and communities where we live and work. And as you can see on this slide, some of our achievements recently within the ESG area include a reduction in greenhouse gas emissions by 5%, the development of more than 100 disaster preparedness plans and climate risk assessments to ensure supply chain resiliency, a focus on transportation, packaging and operational efficiency. On the social front, a robust COVID-19 response to protect our people, to provide needed health care solutions and to make philanthropic contributions and a long-term diversity and inclusion strategy. We have strong board oversight and senior management focus on ESG, as I said. And we recently published our global sustainability report, our fifth ever report, and it showcases how our business practices align with many of the leading global sustainability frameworks. You can see that on our ESG micro site, which Eric recently referenced in one of his reports. And so that's just kind of briefly a couple of overview things I wanted to cover. And Eric, I'd love to get into whatever Q&A you would like to go for today.

Jim, that's great. And I was -- again, I was just thinking, so many companies that we're seeing today have just published their first CSR report, and others have yet to do so. So you guys, as I said, have been at this a number of years, and I think that speaks volumes. You briefly hit on some of the strategy and purpose, but I think just big picture is, before we dive into more detail, can you tell us how you define ESG? Like, really just what does it mean to you and how do you define it? And how does that lead to how you tackle various initiatives?

Yes. So it all starts with our purpose, and I've already said our purpose a couple of times by being united in our responsibility to create healthier futures. We understand that our duty extends beyond the services we provide, and the customers we serve, and the team members we employ and the communities where we live and work. It means that we have an obligation, and that obligation is to improve the well-being of human and animal populations by expanding access to quality health care, promoting diversity and inclusion, operating sustainably even in unprecedented times like we've had over the past 16 months and upholding the highest standards of safety and quality while ensuring our worldwide AmerisourceBergen family feels represented, heard and valued.

Jim, your strategy is, it's obviously multifactor. There's a lot of levels here. But I know you have a number of people dedicated in the organization, and it goes high up in the organization in terms of who's focused on this and who's involved in committees and various structures that you've set up. Can you talk a little bit about or describe more how you approach the strategy of addressing the ESG topics of the day?

Yes. And so we've developed an ESG strategy that really focused around 3 million really important priorities that align with our services and with our core beliefs. And let me go through those 3 priorities. First is inspired team members. Around the globe, we engage team members and foster a diverse and inclusive workforce in which our purpose is shared, and individuality is celebrated. So the first priority is inspired team members. The second priority is resilient operations, which, of course, with the vital role we serve in the health care supply chain, it's incredibly important to have resilient operations. And so we're committed to sustainable and responsible operations across the supply chain and always being able to supply given our vital role. And then third is healthy communities. And we're striving to help enable healthy and resilient communities nearby where we work and live. And as I said before, we measure our ESG progress, and we summarize our impacts in this global sustainability and ESG report. As I said, we published our fifth, but I really congratulate companies that are publishing their first. That's awesome. And we obviously make sure that we align with all the top external reporting standards and frameworks that guide our efforts.

That's great. Just acquired Alliance Healthcare. And that moves you into some new territory, gives you some additional businesses overseas. I'm curious how the acquisition of Alliance is going to fit in. And maybe if I could take that and run with it a second. There are different demands in different countries in terms of everything I see in health care, in terms of what's expected from how we treat everything from patient data to how we interact with providers. What are you going to learn from Alliance? What are they going to learn from you? How is Alliance going to fit into your strategy?

Yes. And as you very well know, we announced it at the beginning of the year, but we closed at the beginning of the month. And so we're still pretty new with it, but we really welcome the Alliance team to AmerisourceBergen, and are very excited about the opportunities. And it's a business that we've known for a long time because, of course, it has been part of our largest customer, WBA, and we're just very excited to have them as part of the team. And with regard to ESG. So ESG is a shared value across our new global footprint. We're excited to welcome our Alliance colleagues. And we hope to learn from them and share our experiences also in managing ES risk and ESG opportunities. We recognize that there are different stakeholder expectations in different geographies. And we addressed this through our annual ESG priority assessment and include new launches geographically. Like, there is some additional rule-making that's occurred in Europe, particularly on the environmental front, and I'm sure we'll learn from that and then Alliance, I'm sure will learn from us also. And we support global framework. So the good thing is a lot of these frameworks like the sustainability accounting standards or SASB and the global guideposts such as the United Nations sustainable development goals. A lot of these frameworks have been set up on a global basis. And so ESG is one of the many important parts of the integration with Alliance, and we're evaluating our governance processes and overall strategy to make sure it's inclusive of our larger organizational international footprint.

Jim, you mentioned SASB. Can you tell us a little bit about how you work with that organization?

Yes. They're, of course, one of the key frameworks that we work with. And I would say one of the exciting things -- and we're very fortunate. We have hired a professional to run our ESG effort, who's just outstanding and has been very proactive, not only internally but externally working with the different frameworks. And one of the exciting things we're doing with SASB is we're serving as a member of the SASB Standards Advisory Group and participating in an industry-wide initiative to further develop SASB industry standards. And so there are different aspects of different industries. And SASB is doing an outstanding job, but to work with them to be able to define what are the right standards for health care services and health care distribution. That's an exciting opportunity to be involved on that at the front end.

That's great. Let's dig into the details here a bit. So ESG, that's 3 different categories. Maybe we start with social. You've talked a lot about employees. You've talked about engaging teammates, inclusion and diversity. Can you tell us, maybe make this more real for us in terms of that comes out in practice? And maybe give us some of your -- some of the statistics that perhaps you're more proud about in terms of inclusion and diversity, social initiatives, anything you want to run with. And then I'll have a follow-up on that.

Yes. Let me kind of go through what we're doing there and give you some specifics also, Eric. So inspiring our team members, I mean that's just a very important part of the social component of ESG, and it's a key element of our business strategy, and it's centered around investing in our people and communities to inspire team members and foster healthy communities. And to inspire team members and we focus on diversity and inclusion. We focus on developing our talent and evolving our culture. And we align our people strategy with our business strategy in order to create value now and for the long term. And let me start with diversity and inclusion. Our long-term diversity and inclusion strategy is focused on 3 critical dimensions; people, culture and community. And it's grounded in deep organizational insights, our people, data and industry research and benchmarks. Some of the specifics, diversity and inclusion, it's a key focus of our investments and our workplace culture. We encourage our associates to participate in employee resource groups. And in the past 12 months, we've introduced 3 new ERGs. ERG stands for employee resource groups, and participation in ERGs has grown 88%. We have an extensive number of ERGs. The 3 most recent ones that we introduced, one is called Ability, and it's focused on promoting diversity and inclusion as it relates to disabilities. It's sponsored by the head of our HR. Another one that we just recently introduced in the past year was ASPIRE, which is focused on Asian Pacific heritage, and it's sponsored by our General Counsel, and then Unidos which is focused on Hispanic and Latinx heritage. And so those are examples of the ERGs and just really good associate participation in the ERGs up 88% this past year. Our commitment to diversity and inclusion also extends to our supplier partners. And at AmerisourceBergen, we work with a leading national supplier Diversity Councils to build a pipeline of additional qualified diverse suppliers to add to our portfolio. And then also, we're dedicated to growing, learning and shaping our approach to diversity and inclusion for the benefit of our workforce and communities we serve. And we feel that there's significant intrinsic value created for all our stakeholders by having a strong culture and diversity that mirrors society as a whole. Let me kind of get into a little bit on talent, development and culture. And we're committed to enhancing our resources and benefits to enable high-performance culture and to support our team members' ability to live with purpose every day. Our aim is to create a positive work environment where everyone can thrive and find opportunities to grow, learn and pursue their passions while contributing to our purpose and healthier futures. And tools we offer to grow our teams include leadership and professional development programs and resources, tuition reimbursement and opportunities to volunteer and participate in mentorship programs and the ERGs I talked about. Let me just give one example of some of our leadership and development programs. We have a new leadership competency model, which emphasizes people, collaboration, innovation and purpose. And it's being rolled out as well in the process of being rolled out to every team member in fiscal year '21, and this new model will help us unlock the full potential of our people and build new skills and behaviors that we need to achieve our enterprise strategy.

That's great. Before we go to the environmental and the governance side, I think sticking on what I would primarily put under the social side would be how companies responded to COVID. Clearly, there's a governance side of that, there's other. But can you talk about your response during the COVID pandemic and how you dealt with employees, how you dealt with suppliers and customers. And I've heard from a number of companies that there was a lot of cost associated with the transition. And some companies got more aggressive on cutting back and managing costs and laying off people and other companies said, no, we're going to fight through this, and we're going to maintain the steady course no matter how long it takes. So I'm curious how you responded to COVID and what things you're most proud of during the last 16 months that you mentioned earlier.

Yes. I'm very proud of our response to COVID and by the work of our teams. And I'm also, I'd like to say very proud of the way our industry, health care services and health cares respond to during COVID. It's really quite incredible. And so of course, the safety of our employees and customers is of the utmost importance to us in how we run our business. And when the pandemic started, last year, we made immediate adjustments to how we operate, and we quickly shifted all suitable roles to remote work, including our corporate roles and sales force. This included restrictions on travel for work. For frontline team members, we implemented additional important measures, such as enhanced cleaning protocols, social distancing protections and providing them with PPE, of course. But I think it's important to note that we continue now, just as we have throughout the pandemic, to ensure we protect and assist our employees and their families with things like enhanced time off, additional bonuses, physical and mental health resources, which are so important at this time and childcare and dependent care benefits as part of our strong benefits programs, which now also include expanded paid parental leave. And protecting and supporting our people through the pandemic, really enabled them to focus on providing solutions, both in the U.S. and abroad as our manufacturers and providers face new challenges. So I just do want to take a second to talk about some of the things, I think, in that we were doing such a good job and focusing on our team members, what our team members have been able to accomplish. I mean, first, in the U.S., we've served as the distributor of the antiviral and antibody therapies to health systems across the country. Through our work with the strategic national stockpile, we're supporting government preparedness for current and future potential pharmaceutical needs. Second example, in Canada, our Innomar business is working in partnership with FedEx to distribute the COVID-19 vaccine on behalf of the Canadian government. Third, recently, we were able to leverage really the full breadth of AmerisourceBergen's capabilities, including our logistics expertise and our efficient execution. And we worked with the U.S. government and our manufacturer partner, and we're able to facilitate the transportation of antiviral therapies to India, where they're so badly needed. And then just one additional example, and this is an example that Steve gave, Steve Collis, our CEO gave on our most recent earnings call, how our good neighbor pharmacy members or good neighbor pharmacy partners, independent pharmacists as trusted health providers with well-established relationships in their communities, they've been promoting health equity on a daily basis and playing a major role in ensuring positive outcomes locally and the critical work of these local pharmacies has really helped the national COVID-19 vaccination effort reach all parts of the country. So those are some of the things we've been doing in addition to really important work that's been done by our foundation, including the fact that we've committed over $1 million to support communities impacted by COVID-19.

Why don't we talk about the foundation. I think that's a great segue. Tell us what you're doing with the foundation, what the future goals are and how that really plays into this overall strategy?

Yes. Foundation is an important part of the strategy. And our foundation is an independent not-for-profit charitable-giving organization whose mission is to improve the health and well-being of patient populations, both human and animal, by investing in communities and partnering with organizations to help expand access to quality health care, promote health equity and provide resources to ensure prescription drug safety. And more than just giving to organizations, the foundation aims to develop strong relationships and invest in our partnerships. We promote best practice sharing within the nonprofit community. And this commitment is evidenced through quarterly collaboration calls, a LinkedIn group we have with nonprofits we support, a resource sharing library and our Annual Foundation Conference. And our foundation's partners also strive to integrate diversity and inclusion into the work they do every day and serving traditionally underserved communities and diverse populations. And let me just kind of give you one example of work that our foundation is doing. We recently made a donation to the Boys & Girls Clubs of America to support COVID-19 vaccine education and awareness in an effort to remove barriers to vital health care access and improve the health of communities. And so there are several of examples like this, but this donation to the Boys and Girls Club of America on vaccine education is just one of the areas where we're supporting healthy communities across the U.S. by partnering with nonprofits.

Do you have a set metric on funding the foundation? Is it a percent of net profit? Or is it more ad hoc based on performance each year or need each year? How do you come up with a funding mechanism for the foundation?

Yes. There are a couple of different ways we do it, but it's something that we have been funding. And absolutely, it's really kind of a very important part of our business and something that we plan to continue to fully fund, Eric.

That's great. We have to hit the other 2 parts of ESG, environmental and governance. Let's start with environmental. What does it mean to you? How does it fit in? And can you give us some of the stats that you're most focused on?

Yes. And it's personally one of the areas that I'm most interested in and our company is very interested in. And our environmental strategy, it's focused on adapting to climate change and advancing a resilient and responsible supply chain. And the resilience of our supply chain is so important given the work that we do. And so our efforts to advance a resilient and responsible supply chain include robust business continuity planning, which allow us to seamlessly pivot guide and support our customers and helping communities at a moment's notice. And so this preparation, along with our focus on supply chain innovation have positioned our company to partner with the U.S. government on the distribution of the first COVID-19 treatments authorized for emergency use authorization. And one of the things we do there is we prepare to remain operational in the event of a disaster so that we can continue to deliver life-saving medications to our customers and their patients in the event of climate-related issues, such as severe weather events or natural disasters. And so regardless of what challenges come our way, we remain fully aware of our impact on the environment and are committed to responsible supply chain operations that contribute to a healthier planet for future generations. And we're taking important steps to address climate issues and are proud of our performance to date. One of the details and as we've conducted physical climate risk assessments for over 100 of our locations to ensure supply chain resiliency, we also believe that energy management is critical to sustainability and an area for continuous improvement as we work to deploy efficiency measures across the organization. And as I said over the last fiscal year, we saw a 5% reduction in our greenhouse gas emissions. And we also look for opportunities to enhance the efficiency and reliability of transportation. We work with all of our fleet management and courier partners who deliver our inventory to optimize their roots and miles driven and are piloting also the utilization of electric vehicles in certain parts of our business. And so to that end, we're assessing reduction scenarios for our greenhouse gas footprint following science-based target approaches. We're also committed to sustainable packaging, removing single-use petroleum-based materials like plastic and polystyrene foam from our operations and sourcing more ecological options. We utilize sustainable cold-chain packaging solutions that include reusable totes and plant-based materials for ice packs across our human health distribution centers. On the animal health front, you mentioned our animal health business. We have a great business called Micro Technologies, and it offers advanced technology solutions for live stock operations to help producers optimize animal production and reduce resources needed for the production process. And so really, across our operations and supply chain, we're deploying sophisticated systems and innovations to have a positive impact on the environment and improve efficiency, safety and quality.

Jim, I want to squeeze in governance, but I did get a question from the audience, which is, could you talk about your cybersecurity initiatives? So risk management, and that will clearly segue us into the governance discussion, and then you could wrap with the details on your governance program.

Yes. Cybersecurity is, of course, a major focus of our company just like it is of all large companies and all large entities. It's something where we are -- it's a very large area of investment for us. It's a very focused area for senior management, very focused area for our Board. We are very fortunate and we feel like we do have a very strong chief information security officer and effort that we've -- for the last 5-plus years, it's been a very large and growing focus of our company. And you'd asked about governance.

Yes. Sorry, I was muted. I had to find my mouse there. Governance, absolutely. We have about 3 minutes left, and I'd love it if you could maybe lead us into the horizon with initiatives on governance, what you're doing with the Board. Obviously, you've talked a little bit here about risk management, but please, I know you have a lot to share.

Yes. And so yes, governance, the governance element of ESG, it's embracing a culture of transparency, ethics, integrity, which informs everything we do and ensures the highest standards of governance. Our commitment to doing the right thing is core to AmerisourceBergen's purpose and principles. Our ESG efforts and strategy, they are overseen by the Board and receive support from the highest levels of our company. And our Board has a Governance Sustainability and Corporate Responsibility Committee that has primary oversight or governance structure and processes, sustainability and corporate responsibility, Board succession planning and then also actually for investor relations and political engagement. And the committee reviews and guides sustainability and corporate responsibility strategy and any related major plans of action and risk management policies and budgets and business plans related to those things. And then we also have -- also included in our Board's skills matrix is sustainability and corporate responsibility. So they're always working to strengthen our Board-level commitment to ESG-related topics. And then as I'm sure I brought out during the call, this is a very important focus area also for our senior management of our company, Eric.

I see Steve frequently on LinkedIn and other venues talking about these initiatives. So I know it goes to the highest level of the organization. Last question here, we have 1 minute left. How do you measure and disclose ESG? We've talked about your CSR report. You've been pretty public compared to many companies. But how do you measure your initiatives? And how do you plan to report your initiatives in the future? And how might that change?

Yes. So you mentioned our Fifth Annual Global Sustainability Report and ESG Reporting Index. We aligned with the global sustainability frameworks, SASB, GRI, the UN sustainable development goals. For the first time, we also aligned with the task force on climate-related financial disclosure and also the World Economic Forum. It's overseen by an ESG Reporting Committee in our company, which is comprised of subject matter experts across our business. And then as I said, we're also a member of the SASB Standards Advisory Group. So I'd really encourage those of you who are interested to please visit our ESG micro site. And as a company, we'll continue to look forward to continuing to provide updates on our ESG reporting.

That's great. We finished with one second left. So I'm going to have to wrap it up there. I really appreciate all the hard work Bennett has done. He's behind the scenes, hidden from view here today, but I know he's been incredibly active on this. Jim, thank you for the presentation. I know this goes to the highest level of the organization. And we here at Baird are excited about really taking the ball and running with it. We're going to be very active in the future in terms of how we talk about ESG. And I think it's something that we've all committed to in terms of how we analyze companies and consider it in our valuation and thought process. The next presenter will be Henry Schein, led by, I believe Jeff Johnson should be the analyst covering that, and he will be doing the next presentation here in about 4 minutes. So again, thank you very much.

Eric, if I could just take 10 seconds or so and thank you and thank Baird for doing this conference. And I also want to thank you for mentioning Bennett, who's on the screen here. Bennett, who runs our IR, is really committed and focused on ESG also and is one of the key members of our ESG Council.

Yes, I know that. We talked a lot about it.

Thank you.

Thank you so much. Have a wonderful day.

Bye-bye.

Bye-bye.