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

Okay. I think we are live here. Hopefully, everyone can see us, and we have the team from AmerisourceBergen. My name is Eric Coldwell. I cover the pharma supply chain and health care services stocks at Baird. And it's a great pleasure to have AmerisourceBergen with us again this year. It's great to see a company that's been very actively involved in ESG, one of the -- really the leaders in my coverage universe acted for, at least what Jim 6 years now, plus, I think. And with us today, we have Bennett Murphy, who works a lot on ESG. We have Jim Cleary.

And Jim, I'm not going to do a big formal deep dive introduction, but I would like to have you start off, if you don't mind, by speaking at a very high level, how do you measure, how do you disclose ESG? And then we'll do a follow-up with -- since last year, since your participation last year, can you provide an overview of any changes in your program and new updates that have occurred since the conference 1 year ago?

Yes, sure. I would love to do that. And first of all, Eric, let me thank you very much for having us participate in and inviting us to participate. We really appreciate this. And then also, I want to just, very quickly before I get started, complement you because I really enjoy your research. I really like the quality of your research and the rigor of your modeling also. But let me kind of -- yes, thanks and let's just say how incredibly important ESG is to us and how we're really integrating it throughout our business. And you asked us about kind of how we kind of measure it and how we disclose ESG and then you ask for any updates since last year, any major updates. And we have recently released our sixth ESG sustainability report. I mentioned we've been doing this for at least 6 years, and we're very proud that, that report is aligned with all the leading frameworks, including GRI, SASB and TCFD, and I think probably most of the participants would be familiar with those groups. It's also aligned with the World Economic Forum. It's aligned with the UN SDGs. So we're really just aligned with all the major frameworks out there. And we also disclosed on our micro site, and I really encourage anyone who's listening, if you haven't seen it to go to our micro site, which is sustainability.amerisourcebergen.com. And it's really -- I think it's a really quality micro site that we have. And I think a really key point is that our key metrics have been externally assured, and this is the fourth year that our key metrics have been externally assured. Also, I really like to just say in terms of updates. One thing that's constant is we have 3 pillars of focus in ESG. The first is purpose-driven team members. The second is a resilient and sustainable operations. And the third is healthy communities for all. And we are 1 year now into a 3-year ESG integration plan, where we're really integrating ESG throughout our business. And one of the things we're doing is building measurement and accountability around our various initiatives. One of the things that we've done is we committed to set science-based targets on reducing greenhouse gas emissions. And after the acquisition of Alliance, which is, of course, a major development is we're integrating Alliance into our ESG metrics and the emission targets that we announced this upcoming spring will include Alliance Healthcare also. And in the interim, we are aiming to reduce our Scope 1 and 2 emissions by an average of 5% annually from 2019. And Ben, and I'm sure I left some things out in the updates and how we measure it. So I'll turn it over to you.

Sure, Jim. I think I'll just talk about how is this managed? And we have a global ESG council, which is comprised of across functional group of senior management, which Jim cosponsors alongside our Chief Administration Communications Officer, Gina Clark, and I serve as co-chair alongside our Head of Corporate Responsibility and Sustainability, Susan Lorenz-Fisher and our Corporate Secretary, Korey Pirouz. And the council's overarching purpose is to ensure the integration and alignment of AmerisourceBergen's ESG strategy and practices with the business strategy and policy. And the council leads AmerisourceBergen's efforts to embrace that company-wide ESG approach that Jim talked about and really make sure that we're integrating ESG into the business, and have high standards for accountability of management and priority -- of management other priorities and goals. And we're encouraged by the continued progress on our ESG initiatives and committed to advancing our ESG initiatives in the years to come as we continue to be driven by our purpose of being united in our responsibility to create healthier futures.

That's a great start. And I know you hit on an environmental topic there in a big way. And I did notice the reduction in emissions Scope 1 and 2 that you've talked about. Jim, you mentioned Alliance Healthcare. And I think, it is a good segue because obviously, corporate metrics change when you have a change in your corporate footprint, whether it's getting out of a business, or now getting into a new business and new territories with Alliance. I am curious, it's been, I think, about 8 months since that deal closed, give or take. I am curious how that fits into your ESG strategy. And you talked about the emissions goals. There's also social and governance. I'm curious -- to the extent you've had a chance to really get into it, how does Alliance stand up to the old ABC? That -- what's the starting point, the jumping-off point? Yes.

Yes. Yes, that is a really good question. And of course, Alliance, as you know, is the largest acquisition that AmerisourceBergen has ever done, and it's going very well. And the acquisition, I mean, involves so many aspects of integration, and we're really integrating it into so many parts of our business. And ESG is one of the areas where we're integrating Alliance. And it's a very thoughtful integration just like the other aspects of integration. We've been doing a deep-dive on priorities and metrics and comparing what AmerisourceBergen does and what Alliance does. And what we've talked about and you've referenced is we will be rescoping emissions data and our reporting approach to consolidate Alliance and come up with some new metrics that we hope to report on in the spring. And I would say that Alliance is a business where ESG has been important just like it is at AmerisourceBergen. And they have a team at Alliance that's been working on ESG just like AmerisourceBergen. And Bennett referenced, Susan Lorenz-Fisher, who's really outstanding who runs the AmerisourceBergen effort, and she's now working closely with Giulia Ferrati at Alliance, who has been the leader of ESG at Alliance. And we have Alliance team members on our ESG Council and on our corporate responsibility team. And let me just say, I always think it helps the -- cite examples, and let me just kind of cite one example, it's something that Alliance has been doing, which I think shows their focus. The goal is to cut single-use plastics at Alliance in the U.K. by 60% by the end of fiscal year '22. And the program has a really -- kept a name, Getting drastic with plastic. And this is just one example that shows that ESG is not only important to AmerisourceBergen with Alliance, but also is important for the legacy Alliance.

Drastic with plastic, sounds like a headline for one of our quarterly research notes. But I love it. Literary freedom is great. So Alliance, obviously, I think most people are familiar with the business, but it is an international non-U.S. focused company. And you have this expanding global footprint. Obviously, you already had World Courier and other businesses in Canada, for example. But now you do have this truly increasingly global footprint. It probably changes some of the diversity metrics in the employee base, I would guess. Can you talk about things like diversity, equity, inclusion? And how as you become more global, how that maybe your mindset changes, if at all, as opposed to what was predominantly a U.S.-based and U.S. operating company?

Yes. And so let me mention a few things on the diversity, equity and inclusion front, and I will incorporate Alliance. One really important thing is that we've recently hired Ann Anaya as our Chief Diversity, Equity and Inclusion Officer. It's wonderful that we were able to hire her. She joined us from 3M very recently, and she's really kicking off a number of initiatives. One of the initiatives I'll indicate for an example, is you're doing a lot of team member surveying. And one of the things that we'll be including in our team member engagement surveys is surveying inclusiveness. And so that's just kind of one example of something we're doing on the DEI front. Alliance definitely does give us a more diverse workforce in 13 different countries, and it is one of the kind of the key aspects of the Alliance acquisition. But I must say, I'm overall very pleased with the progress we're making on the -- on this front. One of the things we've been doing that you may have noticed is we've been very good about pay equity disclosures. And kind of one of the progress areas and the areas that we're very proud of is in the pay equity disclosure front. And in the U.S. in this case, e-mails we've disclosed, made $0.994 for every dollar that mails earned. And this is just one of the -- again kind of the key data points that it will continue to track. But Alliance does definitely give us a more diverse workforce. And just on this topic, one other thing I'd like to add is that we're not only focused internally on DEI, but we're also focused externally. And one of the things we've done this year as we've set up a supplier diversity program. And there are many examples that I could give, but one I just like to call out in the finance area is we've started to invest our money market funds with Liberty Bank, which is a Black-owned bank in New Orleans area, and the profits that they're making from our money market fund investments, they're reinvesting back into the community and for training and development of associates.

That's a cool example. That was -- you copy with that one. I wasn't aware. So great work in the progress there. Jim, there's been a lot of focus on pandemic. I mean we're 2 years in, we can't get away from it. Pandemic is done a couple of things. I mean if we're being -- and I know you are transparent because we read your reports, but on one hand, the pandemic I think, helped with certain environmental metrics for companies because there was less office time, there was less travel. On the other hand, it hurt on the employment side because you saw a big shift in the workforce. And we've seen higher turnover. We've seen a lot of wage inflation. There's a lot of moving pieces with COVID. So I guess, first off, pandemic issues, positive and negative, probably more importantly, how do you change with COVID, whether it's office space? Or how you work with employees? How you change benefits? I've noticed that you initiated a paid caregiver leave program here recently. So a lot of topics I'm throwing at you, but the goods, the bads and more importantly, how it structurally or maybe more permanently changes your ESG approach, thinking about what the world looks like in the later innings of the worst of the pandemic, hopefully?

Yes. While there's a lot there in the question, and so let me hit on a bunch of things. First of all, how does business change with COVID. Business definitely changes. And it definitely has impacts from an ESG standpoint. And then after that, I'll get into the talent, which is, of course, extremely important. But we definitely do have a lot of learnings from COVID. I think we'll have much more flexible work than we've had in the past. And there'll be flexibility in terms of remote working versus in person. I think that we'll see more travel over the next year, but definitely less than we saw pre-COVID. And I'll use just Alliance, again, as an example here. We had a monthly business review with the Alliance team this morning, and we were commenting on the monthly business review that it will be 2 years ago tomorrow -- 2 years ago tomorrow was the first day that we met with the Alliance team to start to get to know them. And of course, it wasn't for months and months after that until we announced the deal. But that's when we first started to learn about the business and meet with the team and that sort of thing. And it's just incredible how during the acquisition and integration process, of course, we did some travel, but how much we did virtually versus what we would have done in the past. And work is definitely going to change in that regard. And there certainly will be some environmental benefits. Now let me shift to talent because, of course, attracting and retaining talent is one of the most important parts of our business, and we really are focused on talent, and we've been very, very kind of sensitive about and focused on talent during the pandemic. One of -- let me talk about a few things we've done. We've rolled out a new talent framework with a new leadership competency model an enterprise learning strategy approach to performance management, professional development opportunities, tuition reimbursement, mentorship and ERGs have really grown. Employee resource groups have really grown during the pandemic. We now have over 4,000 associates and employing resource groups. And so from a benefit standpoint also, we've made some adjustments during the pandemic, which are definitely going to continue, and I think will be very positive for our associates. And I'll turn it over to Bennett to see if he'd like to get into some of the details.

Sure. And paying market competitive wages is important in table stakes. We've really focused on -- something you talked about a little earlier, Eric, providing comprehensive benefits, which include things like, of course, health care insurance, retirement plan with company match and medical cover interesting tax partners and domestic partnerships and really enhanced our paid time off structure to be more flexible during this -- during the COVID-19 pandemic, including things like offering 8 weeks of paid parental leave for both parents. And things like introducing the new caregiver leave, which you talked about which provides team members up to 40 hours of paid leave care for family members. And I think it kind of -- it really goes back to the company's purpose. And since the onset of the COVID-19 pandemic, we've been even more focused on employee health and safety. The health and safety of both our employees and our customers is of utmost importance while continuing to ensure safe and secure access to pharmaceuticals. And we continue now as we have throughout the pandemic to ensure that we protect and assist our employees and their families with those enhanced time-off offerings, additional bonuses when appropriate physical and mental health resources, childcare and dependent care benefits as part of our really strong benefits program, which has been a key focus of the company. So I think that sums up pretty well.

Yes, it's a long list, and I know this is not a financial numbers call or an earnings call. So I'll be cautious, but you've absorbed a lot. And you said nice things to us in the beginning of the call. I would say a nice thing back to you, which is you're 1 of 3 stocks on my screen that actually is in the green this year. So thank you for that. And I think one of the highlights is you have invested a lot and you've been able to absorb that. And I think that speaks highly. You mentioned both obviously today, but also last year, you talked a lot about the purpose. And Bennett you talked some about the purpose and talked about the famous Amerisource tag line. And part of this is, as Jim, as you said, it's not just internal, it's also external and things like working with external supplier diversity. But you have created a foundation. And I'm curious about the foundation's role and how that ties into the purpose and the kind of investments that are being made and what the -- maybe a few of the main initiatives are there?

Yes, it's all integrated. Our business, our purpose, our ESG strategy, our foundation. And we do have a foundation that's focused on improving health and well-being of patient populations, and it's a very active foundation. In fiscal year '21, we donated more than 100 nonprofits. I'll just call out one because it's very topical. It's a $700,000 donation for the Boys & Girls Clubs of America to support COVID-19 vaccine education. Also, our foundation is active in donating over-the-counter products to organizations like Americares, Feeding America and Direct Relief. Our foundation is also active in kind of sharing best practices with other foundations. We focused at our third annual conference with nonprofit partners to develop strategies to address some open health equity and access. And so the foundation is very active, and they're very out of its work. Bennett, anything you'd like to add?

Yes. I think health equity is a really important topic. So I'll call out a couple of things that actually -- on the health equity front that are beyond the foundation's reach. And that would be things like in partnership with the Federal Retail Pharmacy Program, the Good Neighbor Pharmacies network, helping support the allocation of 4 million COVID-19 vaccine doses to more than 1,600 pharmacies nationwide. Those allocations help reach communities where help is needed most, nearly 50% of individuals vaccinated by pharmacies in our GMP network, live in zip codes with a high social vulnerability index as defined by the CDC. On the distribution side, we're also proud of the work we've done within HHS to support the strategic national stockpile in the U.S. and globally, AmerisourceBergen has facility for distribution of over 100 million vaccines over 30 countries across the world. And I think additionally, one of the important things in taking -- in our role as a pharmaceutical distribution company is the use of our fair share allocation program to continue to safeguard products high demand during the pandemic. And they are continuously improving our processes and technology to ensure patient safety.

Are there any areas related to COVID where your investments in health equity and health access, health education and the like where you see that continuing, but maybe also leading -- we always -- I think a lot of companies like to say it's fine to do well while doing good. And so did you ever see opportunities to actually create new business models that also fit into a strong ESG purpose as well? Does that make sense? In terms of like education programs, access programs, health equity programs, adherence, compliance initiatives, things like that. Are there tie-ins on the business side while also meeting the social purpose goals that you have?

Yes. I would say definitely. And let me start out here and then Bennett, if there's anything you would like to add, please do so. I think this is just very important of integrating our ESG strategy and our business strategy. And let me give you one example, Eric. I think one of the reasons why our company has done so well during the pandemic, both from a business standpoint and also from an ESG standpoint, it's highly related is the resilience of our operations. And even during the height of the pandemic, the resilience of our operations was just excellent. And I would say that the pharmaceutical supply chain really in general was extremely resilient and more so than most any other supply team out there. And an example of one of the things we've done as part of our ESG and part of our operations is we developed resiliency plans for our top 100 locations, and we've done detailed resiliency assessments of those top 100 locations. And so if there is a climate event like a hurricane or a wildfire or something like that, we have plans to keep our operations open, and we do the same thing for cold chain shipments to really make sure that cold chain shipments stay within the right temperature range even in the event that there's a climate event that makes it tougher for that shipment to occur. And so those are examples of something that's really highly aligned with ESG, but also makes our business stronger. And I think it's reflected in our results.

So we -- I will add to that. I think -- I guess it's kind of in that vein is we -- I would say the company exhibits significant intellectual confidence to solve patient problem or solve the access solutions with -- in new ways that ended up creating business solutions, but we're really guided by that purpose of creating healthier futures. And the pandemic really forced all participants in the health care supply chain to accelerate and expand how we use data to meet patient needs. And AmerisourceBergen's utilization of data to adjust our allocation strategy to accommodate areas and health systems in the United States with the highest demand for certain products. And from a hospital capacity standpoint to real-time data from John Hopkins, we did a lot of work to try and use that data to help our stakeholders upstream and industry to understand supply demand -- real supply, real demand, and that turned into some commercial opportunities, but is really guided by that purpose of alternate futures.

That's great. Now we've -- we've covered a lot of ground. I want to come back for a minute to the environmental part of the ESG equation. I love drastic with plastic. That's going to stick in my memory bank, but American Health Packaging was -- and maybe they're correlated, but it was also doing something, I think, somewhat similar where you have a pilot project underway for pill bottle recycling and saw some nice reduction in landfill waste in the first couple of months of that pilot. I'm curious if you could speak about that and maybe other environmental pilots underway, give us some sense of what to look forward to?

Yes. Sure. And so American Health Packaging is a business where we repackage from pill bottles into blister packs for health systems and health systems and patients really appreciate the service. And we were looking for ways, better ways to recycle to pill bottles, and we found a really good partner. And last year, we started a pilot program. And in the first few months, we recycled 6,000 pounds of pill bottles. And in the month of January, the most recent month, we recycled 8,000 pounds of pill bottles in a single month. And we're always exploring options like this to reduce plastic waste as part of our role in the circular economy. And it follows our model, which would be another example of reusing delivery totes. And so it's focusing on sustainable packaging and removing single-use plastics. And we've been quite successful. We've achieved 80% waste diversion rate in our Human Health and Alliance Healthcare locations.

Jim, I'm going to -- I wanted more on environmental, but I realize we have 2 minutes, and I have to cover governance or we're only going to get 2/3 of the topics done. So I'll throw it out there. Governance, how do you approach it? Can you give us some key highlights and maybe things to look forward there too as well?

Yes. And so from a governance standpoint, we have a strong Board with of course, independent directors and oversight. And ESG is overseen by our Board's committee that's called the Governance Sustainability and Corporate Responsibility Committee, and they changed to that name in 2020. And there's a lot in a name. And in fact, it was called, I think, the governance sustainability and corporate responsibility committee is very important, they've got oversight for ESG reporting and disclosure governance structure, sustainability, corporate responsibility, Board succession, those sorts of things. And they are actually working with our compensation committee to evaluate ways to integrate an ESG performance metric into executive compensation. And so that's from a Board standpoint. And then from a management standpoint, we have our global ESG Council, which Bennett talked about. And Ben and I are both involved in that as our other members of management. We all just very engaged because ESG is truly important to us.

Got to find my new button. We are at time. I -- we squeezed a lot in there. We could probably go twice as long easily. But I just want to, again, thank you, Jim and Bennett. AmerisourceBergen, it's been a pleasure to have you with us again this year. I know this has been a really big topic and a lot of work. But the results I think are showing up. We look forward to your next updates and reports. And with that, I'll let you guys get on with your real job day to day. So thank you again. Appreciate it.

Thanks a lot, Eric.

Thank you, Eric.

Bye guys.

Bye-bye.