Good morning, and welcome to the First Quarter 20 20 AmerisourceBergen Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, Please note this event is being recorded. I would now like to turn the conference over to Bennett Murphy, Senior Vice President of Investor Relations. Please go ahead.
Thank you. Good morning, and thank you all for joining us for this conference call to discuss AmerisourceBergen's fiscal 20 2Q1 results. I am Bennett Murphy, Senior Vice President, Investor Relations. And joining me today are Steve Collis, Chairman, President and CEO and Jim Cleary, Executive Vice President and CFO. On today's call, we will be discussing non GAAP financial measures.
Reconciliations of these measures to GAAP are provided in today's press release and are also available on our website at investor. Americisourceberger.com. We've also posted a slide presentation to accompany today's press release on our investor website. During this conference call, we will make forward looking statements about our business and financial expectations on an adjusted non GAAP basis, including, but not limited to, EPS, operating income and income taxes. Forward looking statements are based on management's current expectations and are subject to uncertainty and change.
For a discussion of key risks and assumptions, we refer you to today's press release and our SEC filings, including our most recent 10 ks. AmerisourceBergen assumes no obligation to update any forward looking statements and this call cannot be rebroadcast without the express permission of the company. You will have the opportunity to ask questions after today's remarks by management. We ask that you limit your questions to 1 per participant in order for us to get to as many participants as possible within the hour. With that, I'll turn the call over to Steve.
Thank you, Bennett, and good morning to everyone on today's call. Today, I am pleased to discuss AmerisourceBergen's strong fiscal 2020 Q1 results. We delivered solid performance across both the pharmaceutical distribution and global commercialization services and animal health groups, each delivering year over year growth in the Q1. Revenues were up 5% to $48,000,000,000 for the quarter and our adjusted diluted EPS was $1.76 for the Q1, an increase of 10% compared to the previous fiscal year period. Before we provide more details on our Q1 results, I want to take a few moments to discuss the ongoing opioid litigation and the decision to exit the PharMEDium business.
AmerisourceBergen and the other parties continue the complex process of working towards a global resolution of the opioid litigation, while also continuing to prepare for upcoming trials. We are hopeful that the necessary parties understand and see the merits of the global framework as a practical path for global resolution. As we engage in discussions related to the global framework and continue to litigate, we are unable to comment deeply on these matters at this time. AmerisourceBergen remains committed to transparency and providing shareholders with updates as we are able. Moving on to PharMEDium.
At this point last year, we detailed how we had begun a comprehensive strategic and financial review of PharMEDium and engaged new cGMP expert consulting firm to work with the business' new seasoned leadership team. As we stated at that time, we entered this review phase with a focus on pursuing a thoughtful and decisive course of action that was best for AmerisourceBergen and our shareholders, while respecting both the needs of our customers and other stakeholders. Over the past year, we worked internally to optimize the business, continue discussions with regulators and reach an agreement on the terms of a consent decree for PharMEDium with the FDA focused on remediating the business. Despite this progress, we still face considerable challenges in order to successfully move the business forward, including ongoing regulatory challenges, continued operational issues, inability to make sufficient progress on remediation and the continued financial burden of running the business. Given these factors, we made the difficult decision to shut down and exit the PharMEDium business.
The decision is a difficult one and we are mindful of the impact it has on our associates and customers. We want to thank all PharMEDium associates for their dedication and we are appreciative of their efforts. As part of the shutdown process, we will provide impacted associates with the support and services they need. We are also disappointed that PharMEDium will no longer be able to serve its customers, but believe exiting the business is appropriate path forward for AmerisourceBergen and its shareholders. Jim will provide financial details, including the decision's impact on fiscal 2020 guidance later in the call.
Turning now to our Q1 results. AmerisourceBergen continues to benefit from our unique pharmaceutical centered strategy that positions us well within the U. S. Market. Additionally, the company's core strength and capabilities regarding our unrivaled talent, expertise and ability to provide comprehensive solutions continues to differentiate us from our peers.
I want to thank our associates for their dedication, executional excellence and focus on consistently creating and delivering value for all of our stakeholders. I am proud to work alongside our teams who remain relentless in their pursuit of opportunities to unlock value for pharmaceutical manufacturers, healthcare providers and the patients they serve. Within pharmaceutical distribution services, the segment success reflects this continued focus on customer experience in addition to our ongoing strength in specialty distribution and overall growth in customer volumes. AmerisourceBergen is the leader in specialty distribution and our strong growth continues to be fueled by our deep expertise and key customer relationships. For an organically growing market with favorable demographics and increased pharmaceutical utilization resulting from innovation within specialty, particularly in the areas of oncology, ophthalmology and rheumatology.
In these and other therapeutic categories, AmerisourceBergen continues to deliver value and provide differentiated services and solutions to key customer segments such as our community physician practice partners. A key differentiator for our specialty business, our ION GPO remains a competitive advantage in our suite of offerings to oncology physician practices. As the market leading GPO for community oncologists, ION provides physicians with the contracting, analytics and business practice solutions they need to run their more efficiently and profitably. At the same time, we continue to see positive early signs for biosimilar utilization. We believe that the right conditions exist in the U.
S. For increasing biosimilar commercialization success. We continue to see signs that legislators and commercial plans are recognizing the potential of biosimilars to create better access and affordability for patients. AmerisourceBergen's market leading position in specialty strongly positions us to benefit from biosimilars. We've aligned ourselves with key customers and biosimilar manufacturers understand the value of contracting with ION as they seek to increase utilization of their products.
These elements combined with our scale, efficiency, state of the art distribution network and competitive sourcing capabilities position AmerisourceBergen to capitalize on market opportunities. AmerisourceBergen is also well positioned to seize market opportunities in animal health and pharmaceutical manufacturer services through our global commercialization services and animal health group, businesses that comprise approximately 20% of AmerisourceBergen's operating income. Our largest business in the segment, MWI is a market leader in animal health solutions with the right strategic partnerships and capabilities to enhance operational efficiencies and deliver strong customer experience, while our portfolio of global commercialization services strengthens health outcomes by supporting pharmaceutical innovation with data driven solutions that advance and support patient access and adherence to therapy. For example, extended health economics consulting and field tech team reimbursement support services are helping manufacturers maximize market access for products, while the Lash Group's technology enabled patient access and adherence solutions are helping to reduce barriers for patients to stay start and stay on therapy. Essential to pharmaceutical manufacturers ability to commercialize and improve access to innovative therapies is ability to transport trial products and unique patient treatments like cell and gene therapies on time and at the right temperature.
World Courier, the global market leader in specialty and clinical trial logistics is a trusted solutions partner that services these complex needs for manufacturers around the world. Operating over 50 countries, this highly differentiated and innovative business continues to grow and expand. This business delivers unparalleled service offerings for its pharmaceutical partners in clinical trial logistics and commercial services. For example, World Courier's Cocoon offering is the industry's most dependable and cost effective refrigerated container solution, providing unprecedented reliability and driving strong momentum for the business this year. In addition, World Courier's Nova Technology platform further improves operational excellence, scaling to meet the demand and complex requirements of our global customers.
Looking ahead, World Courier will continue to design and deploy patient centric and forward thinking transport services in new areas like in home clinical trials, making treatments in patients' home possible in virtually every therapeutic area. I am proud of AmerisourceBergen's role as a global healthcare solutions leader and purpose driven organization. We are united in our responsibility to create healthier futures and recognize that there is always a patient connected to every product. Pharmaceutical care is still the most efficient form of healthcare and medication adherence provides positive health benefits for patients, while saving lives and the healthcare systems 100 of 1,000,000,000 of dollars annually. Adherence should be the goal for which all healthcare stakeholders are striving.
As an enabler of access and creator of additional efficiencies, AmerisourceBergen will continue to engage in constructive dialogue around benefit design and rising out of pocket cost for patients and the sustainability and efficiency of the healthcare system. As a leader in the healthcare supply chain, AmerisourceBergen remains well positioned to create sustained long term value. Execution of our 4 key strategic pillars, strong customer base, leadership in specialty distribution and services, innovative services and solutions and proven corporate stewardship positions us well to benefit from market trends within evolving market landscape. As we move further into fiscal 2020, we will continue to advance our talent and culture and execute on our unique and differentiated business strategy. More than ever, we remain confident in our growth strategy, focused on execution and dedicated to delivering long term value for our associates, shareholders, partners, customers and the patients they serve.
Thank you again for your interest in AmerisourceBergen. I will now turn the call over to Jim for a more in-depth review of our Q1 fiscal 2020 results. Jim?
Thanks, Steve, and good morning, everyone. My remarks today will focus primarily on our adjusted non GAAP financial results. Growth rates and comparisons are made against the prior year December quarter, unless otherwise noted. For a discussion of our GAAP results, please refer to our earnings release. As Steve mentioned, we had a strong quarter with solid execution in our Pharmaceutical Distribution segment and continued growth in our Global Commercialization Services and Animal Health Group.
Before I discuss our results in greater detail this morning, I want to take a moment to discuss the GAAP asset impairment charge that we took for PharMEDium as of December 31 and the January strategic decision to exit the business. First, the GAAP asset impairment for PharMEDium. We updated our recoverability assessment of PharMEDium's long lived assets as of December 31 and made the determination that the estimated undiscounted future cash flows indicated that the assets should have a lower carrying value. As a result, we calculated the fair value of PharMEDium's long lived assets using undiscounted cash flow estimates as of December 31 and determine the asset impairment amount to be $138,000,000 2nd, I'll cover the decision to exit the PharMEDium business. As Steve said, the company has decided to exit the compounding business and as a result will cease all commercial administrative operations related to the business.
The decision to exit the PharMEDium business was not easy, but it is undoubtedly the right path forward for AmerisourceBergen and our shareholders. As Steve noted, the decision was based on a number of factors, notably continuing regulatory and operational challenges, including PharMEDium's decision earlier this month to suspend production at its New Jersey facility. In addition to the December quarter impairment charge, as a result of the decision in January to exit the business, the company expects to impair the majority of the remaining $55,000,000 of tangible PharMEDium assets and all of the remaining $185,000,000 of PharMEDium intangible assets in the March quarter. Finally, as a result of the exit, we expect to claim an ordinary income tax deduction and estimate that we will realize a cash tax benefit in fiscal 2020 through fiscal 2022, totaling approximately $500,000,000 to $600,000,000 This will benefit our GAAP P and L and GAAP tax rate, but will not impact our adjusted tax rate. However, it will have a positive impact on cash flows in the years in which the benefit is realized.
As it pertains to the adjusted non GAAP results for the remainder of the year, our decision to exit PharMEDium will have a positive impact on our outlook for fiscal 2020, which I will provide greater detail on in a few minutes. Turning now to our Q1 results. I'll provide commentary in 2 main areas this morning. First, I will detail our adjusted quarterly consolidated and segment performance. 2nd, I will cover our increased fiscal 2020 guidance, reflecting the continued strength of AmerisourceBergen's businesses, a lower share count and the removal of PharMEDium for the remaining 3 quarters of fiscal 2020.
We finished the quarter with adjusted diluted EPS of $1.76 an increase of 10%, primarily due to higher operating income and a lower share count. Lower net interest expense was offset by an increase in income taxes. Also, our December quarter of last year had unfavorable bad debt expense, which benefits the current year over year comparison by a couple of pennies. Our consolidated revenue was $47,900,000,000 up 5%, driven by strong revenue growth in both segments. Gross profit increased 3% or $40,000,000 to $1,240,000,000 Consolidated operating expenses increased 2% to $748,000,000 This quarter is an easier comparison than the balance of fiscal 2020 due to a few reasons that we have called out previously.
First, we had not yet lapped the healthcare benefit design change that was implemented for calendar 2019. 2nd, much of the operational synergies related to our fiscal 2018 acquisition of H. D. Smith were captured after the Q1 of fiscal 2019. Additionally, we executed on delivering better than expected expense management across the business in the quarter, most notably within the Pharmaceutical Distribution segment.
Consolidated operating income was $495,000,000 up 5% with our operating margin down 1 basis point. As I mentioned earlier, there were some favorable items related to bad debt expense comparison, healthcare and the timing of H. D. Smith's synergy capture. Our businesses with the exception of PharMEDium are executing well and the strength of our business continues to show through in our financial results as we posted another solid quarter of growth in operating income.
As it pertains to PharMEDium, since the decision to exit the business was made in January, PharMEDium's adjusted operating loss for the Q1 of fiscal 2020 will remain in our full year fiscal 2020 results. The adjusted operating loss from PharMEDium in the first quarter was $20,000,000 compared to an adjusted operating loss of $14,000,000 in the Q1 of fiscal 2019. Moving below the operating income line, net interest expense decreased 26% to $31,000,000 As a reminder, the adoption of the new lease accounting standard in fiscal 2020 has a favorable impact on the interest expense line at certain build to suit leases that were previously accounted for as finance leases are being accounted for as operating leases, resulting in an off setting unfavorable impact on operating expenses and therefore operating income. In addition to the lower interest expense, we continue to benefit from interest income related to our higher average invested cash balance. Moving now to income taxes.
Our adjusted income tax rate was 21%, up from 19.9% in the prior year quarter, which benefited from a discrete state income tax item. Our diluted share count decreased 3% to 207,500,000 shares. In the December quarter, we used opportunistic share repurchases to return $135,000,000 of capital to our shareholders. While on the topic of returning capital to shareholders, this morning we also announced that the company's Board of Directors approved a dividend increase of 5%. AmerisourceBergen has a balanced approach to capital deployment and as evidenced by share repurchases and dividend increase, we have exhibited our ongoing commitment to returning capital to shareholders.
Regarding free cash flow and cash balance, in the December quarter, we had free cash flow of $76,000,000 as we experienced normal seasonality in the business and remain on track for hitting our adjusted free cash flow guidance. Adjusted free cash flow in the quarter was $134,000,000 As a reminder, the company defines adjusted free cash flow as net cash provided by operating activities, excluding significant unpredictable or non recurring cash payments or receipts relating to legal settlements minus capital expenditures. We ended the quarter with $3,200,000,000 in cash, of which $1,100,000,000 was held offshore and the majority was U. S. Denominated cash.
This completes the review of our consolidated results. Now I will turn to our segment results. Beginning with Pharmaceutical Distribution Services, segment revenue was $46,000,000,000 up 5% as the segment continues to benefit from continued strength in the specialty distribution of specialty products in multiple channels and the growth of our customers overall. Our segment operating income increased 5% to $392,000,000 We continue to be encouraged by our team's ability to execute and deliver value for our partners both upstream and down, particularly in our specialty physician services group. As I mentioned earlier, the segment did benefit from favorable bad debt expense compared to the previous year quarter as well as the year over year comparison of no longer operating the H.
D. Smith distribution centers that we began transitioning to our existing distribution network in the Q2 of fiscal 2019. I will now turn to the other segment, businesses that focus on global commercialization services and animal health, including World Courier, AmerisourceBergen Consulting and MWI. In the quarter, revenue was $1,800,000,000 up 10%, driven by 8% growth for MWI and double digit growth in global commercialization services. From an operating income standpoint, this group had operating income of $104,000,000 up 6% driven by growth in Consulting and World Courier.
The group is off to a solid start and we are encouraged by As we look out into the future, we are focused on being leaders in providing key manufacturer services to support pharmaceutical innovation and we are investing to fortify our strength and overall value proposition through projects like Fusion at Lash and Nova at World Courier. Additionally, MWI has continued to strengthen its customer relationships and commercial partnerships and is focused on execution to further enhance efficiency. This completes the review of our segment results. Let me now turn to our fiscal 2020 guidance. As we said in this morning's press release, we are raising our fiscal 2020 EPS guidance from a range of $7.30 to $7.60 to an updated range of $7.55 to $7.80 which implies EPS growth of 6% to 10% and reflects the company's continued strong performance, opportunistic share repurchases in the Q1 and our exit of the PharMEDium business, which represents slightly less than half of the guidance increase.
Regarding operating income, we now expect to grow consolidated operating income in the mid single digit percent range to reflect the continued strength of our overall business and the year over year favorability of not having PharMEDium losses in our adjusted operating income results for the balance of the year. We now expect the operating income in Pharmaceutical Distribution Services segment to grow in the mid single digit percent range. As a result of exiting the PharMEDium business, our fiscal second, third and fourth quarters will have a favorable comparison to the respective fiscal 2019 quarters in which we recorded adjusted PharMEDium operating losses of $14,000,000 $9,000,000 $18,000,000 respectively. In total, the fiscal 20 20 adjusted operating loss from PharMEDium is solely what we recorded in Q1, dollars 20,000,000 The total adjusted operating loss from PharMEDium in fiscal 2019 was $55,000,000 Therefore, the exit of PharMEDium results in a fiscal 2020 operating income tailwind of $35,000,000 versus the prior year. Since we will not be revising our previously reported adjusted non GAAP operating results, we are providing this additional level of detail as part of our focus on being as transparent as possible on the financial impact of the PharMEDium exit and providing key information for your modeling purposes.
Regarding share repurchases, given the level of share repurchases in the December quarter, we now expect to finish the year around 208,000,000 weighted average shares outstanding. Lastly, while we do not have specific guidance metrics, broadly speaking, both brand and generic pricing are trending relatively in line with our original expectations for the year. Regarding our fiscal 2nd quarter EPS expectations, while we do not provide quarterly guidance, I will note that our 2nd quarter EPS growth is likely to be at the low end of the 6% to 10% EPS guidance growth range for the year as we expect an increase in our operating expense growth in the quarter. On our Q2 call last year, I noted that there were some positive general and administrative expense items that benefited that quarter. We do not expect those items to repeat in 2020.
In closing, regarding PharMEDium, our review has been both thoughtful and decisive, but there comes a point in time where you have to make a decision that the path you have been on is no longer appropriate and our decision to exit the business is the right path forward from here. Despite this strategic change, the key differentiators of AmerisourceBergen remain unchanged. We have strong customer relationships in each customer segment. Our businesses are focused on execution and bringing innovative services and solutions to our partners. We have leadership in key specialty markets, notably specialty distribution and commercialization services.
And finally, AmerisourceBergen is purpose driven and focused on creating shareholder value through thoughtful corporate stewardship with a balanced and strategic approach to capital allocation and a clear emphasis on advancing our talent and culture. AmerisourceBergen is executing very well across the business. Our value proposition to our partners is undeniable and we are well positioned to create long term value for all of our stakeholders. Thank you for your interest in AmerisourceBergen. Now I will turn the call back to the operator to start our Q and A.
Thank you. We will now begin the question and answer session. The first question will come from Robert Jones of Goldman Sachs.
Great. Thanks for the question. I guess just to focus on the pharma segment guidance change and PharMEDium. I guess Steve first maybe could you talk a little bit about whether or not there was a sale process around PharMEDium? Any discussions maybe with the FDA about the ramifications or potential ramifications from exiting this business just on thinking about the largest compounding pharmacy business out there?
And then, you gave a lot of detail, Jim, around the change in the Pharma segment guidance as far as the impact in the quarter and the balance of the year from PharMEDium. I guess maybe just to take a step back, did any of your other assumptions change outside of the PharMEDium math you provided as far as thinking about 2Q through 4Q?
Bob, I'll start with the PharMEDium question. Obviously, a disappointing day for ABC, I think that Jim's script was excellent. And by the way, I apologize to everyone. I think the quality of the sound was not quite what we would hope and we'll endeavor to do better next time. But I think Jim's comments were excellent.
You can see from the financial disclosures, we've displayed a lot of perseverance with this business. And it's just I think the 503 changes have made it very difficult to scale the business and get to the sort of consistent quality that we AmerisourceBergen would like to deliver to our customers. And we continue to experience ongoing regulatory challenges and challenges with the remediation program we put in place. We announced on this call that our New Jersey facility recently had a close. And so we really went into this year with an attitude of wanting to protect our profits for our shareholders and other stakeholders.
And we had a lot of, I think, perseverance with this business. And I think that we reached this decision and we think that given where the business is, it would be very difficult to enter into a sales process. We have certainly been in close communication with the FDA throughout the consent decree negotiation and the decree implementation. We think that we've approached this as a good stakeholder. We'd certainly regard regulators as a stakeholder.
And we'll work collaboratively and transparently with them and professionally with them through the closure. Jim, you want to answer the second part of the question?
Yes, sure. Bob, the second part of the question, my understanding had to do with guidance impact and other than PharMEDium, which I really went into a lot of detail on in the call, what were the other things that impacted guidance, particularly as it relates to our pharmaceutical distribution business. And as I said during my prepared remarks, if you look at our increase in guidance, the exit of the PharMEDium business represents slightly less than half of the guidance increase. So if you look at the $0.20 increase in guidance at the top end of the range, the exit of PharMEDium represents slightly less than half the guidance increase, the benefit of excluding those losses in Q2 through Q4. And so that means that the rest of the business is performing quite well and we are seeing really good performance in the core pharma distribution business.
As we talked about, we're seeing a lot of strength in specialty distribution, in particular, our specialty physician services business. We're seeing good volume growth in the pharma distribution business. We're seeing 5% volume growth. That's due to, of course, our balanced portfolio of customers. And so we really feel good about our Q1 performance and the impact that that's having on our full year guidance.
And of course, it relates to our farm and distribution business you asked about, but also good volumes and good performance in global commercialization services and animal health business, which had 10% revenue growth in the quarter and so that positively impacts our fiscal year guidance also, Bob.
Great. Appreciate all the comments.
The next question will come from Eric Percher of Nephron Research.
Thank you. Continuing with PharMEDium, I know over the last 2 years, it's been pretty clear that hospitals don't particularly want to be in this business. And at one point, this was an effort to expand the hospital relationship. As you shutter it, do you see any impact on the other business that you have focused on the hospital and particularly with respect to the specialty business, how do you help ensure that those relationships don't sour and impact specialty?
Yes. Hi, Eric. It's obviously, of course, we thought about associates and our customers. And we are unfortunately, since the closure of Memphis, we've never really been able to deliver the consistent customer experience that an AmerisourceBergen company would like to have. And there's a lot of reasons for it.
And in the 6 years since the passage of the 503 legislation, I think there was a really strong expectation to move to a very high cGMP standard immediately. And as you pointed out correctly, we were by far the largest. So I think having that leadership position, they were very high expectations put on us. And I think we really along with some talented associates, dedicated associates and some new leadership team, some new outside experts. We really did a tremendous effort to meet the high bar.
But there's a lot of we do sterile, there's a lot of powder products in the marketplace. It's hard to read scale and there's tremendous consequences if something doesn't go if something goes badly like at least as far as the FDA expectations are to off. So for ABC, which we have our purpose, we have our stakeholder value set, We just made the decision that this is not a business that really fits into our portfolio. Our customers have been understanding, I think somewhat disappointed, but I think it reflects the reality of where we are with regulators, where we are with the powder products in this market, where we are with economics in the overall health system. And again, we don't want to be in a business where we can't provide a very reliable exceptional efficient service.
So I think that's about all we can say there. Thank you.
The next question will come from Lisa Gill with JPMorgan.
Good morning. Thank you for taking my question. Steve, how are you thinking about IPI pricing? Clearly specialty is a sweet spot for ABC, but there's a lot of talk about changes around reimbursement. And I'm just curious how you're thinking about that.
Do you think anything will change here in your fiscal 2020? What are your conversations with the actual providers in the marketplace that community based position? Just any color you can help us understand how you're thinking about this would be helpful.
I'd say this is our number 2 concern in specialty. Our number one concern is physician reimbursement and making sure that those community sites can continue to serve patients in the community setting. Manufacturers are obviously another key stakeholder, but they're large, they're sophisticated. And I think that there'll be some very legitimate conversations. And in fact, often when these conversations start, actions change in the marketplace in anticipation of those changes.
And I think you've seen some changes, you've seen very moderate inflation. In fact, on the Part B products, there's always been moderate inflation because of the ASP reimbursement. So if there is international reference pricing as we discussed in January, so I hope that it will be a thoughtful transition that it will give manufacturers time to adjust. I think that a lot of the noise is not actually factual. The price differentials are not quite as high as one would have you believe and sometimes people tend to take a sticker process and they are a lot of things that go behind wholesale acquisition costs and ASP with commercial payers that aren't always recognized.
And one thing as well with government and single payer systems, the process gets negotiated upfront and then there's no changes. So that's one of the nuances that are different in the U. S. System. So complex topic, you can hear that even at the CEO level, I'm very engaged in this, very passionate about it.
I saw the Head of our Government Affairs office yesterday. We talking about it. Barry Fortner, who heads up our physician services business is in Washington. Constantly, our business, Ion, as you can imagine, is very involved with practice management. So we are going to be a part of the discussion and we look forward to participating in any changes and hope that they are sensible and logical in the context of Part B reimbursement.
Is it still anticipated that it will be under some kind of competitive acquisition program? And so if that's the case, do you see maybe potential incremental opportunity for ABC? So I understand what you're saying around the pricing dynamic is already starting to change. And so maybe we don't see a huge impact to pricing, but is there the potential for you to either gain or potentially lose some amount of market share around a competitive acquisition program?
I feel like we're going back to the 90s. With the Medicare Modernization Act. At the time, I think there was great anticipation that ABC with our suite of businesses would participate and actually for the 2000s of course the Bush administration. And there was no economically feasible way for us to participate. And I tell you, we brought in people especially to evaluate being a cat provider, mainly to ensure that our customers would be able to carry on participating.
And it was just it was impossible to make the numbers work. We don't believe it's very efficient. We've seen so called white bagging and brown bagging programs, try to be implemented by different payers more on the commercial side and they just haven't worked. And you know the original CAP program didn't work. So there's potential wastage with these programs.
We believe that the current system works very well with oncologists having the financial responsibility for the preparation of the infusions. And we'll carry on assisting with that. If there were to be a new type of a reimbursement and there was differentiated reimbursement or some sort of encouragement to move more towards the CAP program, we would look to work with what are some very large, much more aggregated community oncologists, we look to work with them to provide solutions to payers and regulators.
Okay, great. Thank you for the color. I appreciate it.
The next question will come from Glenn Santangelo of Guggenheim.
Yes. Thanks for the questions. Jim, I just want to follow-up on the guidance question. I appreciate all the detail. You seem to suggest that over the next three quarters, there'll be about a $35,000,000 tailwind from eliminating the losses from PharMEDium, which I understand the EPS impact, but if we could just look at it from an operating income perspective, that $35,000,000 seems to be about a 2% tailwind, which seems like it would fully explain the change in your guidance from low to mid single up to mid single.
I'm just trying to understand, is there has anything changed with respect to your assumptions around the core distribution business? Because I just want to try to reconcile that versus the much stronger than expected Q1, which seemed to incorporate a bigger than expected loss from PharMEDium. So if you could just sort of reconcile those, that'd be great.
Yes. And so, I will cover that. And you're right, we indicated that PharMEDium is at $35,000,000 tailwind year over year versus last year. And so that's kind of the benefit that we'll see year over year compared to last year. And as we look at guidance, as I said before, taking PharMEDium out of the last three quarters is about half the increase to guidance.
And we are seeing strength throughout the businesses. Of guidance is a range. So going from low to mid single digits PharMEDium is a big part of that, but we're also seeing strength throughout the businesses that's impacting our guidance increase also. And it's pretty broad based. We talked about specialty physician services, but we're seeing strength throughout the business.
One thing that I'll mention as you talked about the Q1, during the Q1, one thing we benefited from is low growth in operating expenses. Our operating expenses grew 2% during the Q1 and that included some year over year benefits, which we don't expect to continue through the rest of the year. And so that was a favorable experience on that debt expense, favorable experience on our internal healthcare cost that is a benefit design change in calendar year 2019 that we were still benefiting from year over year. And then also the operational synergies related to consolidating the H. D.
Smith distribution centers. And so that's kind of one thing which benefited the Q1, which doesn't continue for the rest of the year. And then as we said, the second quarter, we're expecting the growth in the second quarter, the EPS growth to be at the lower end of our 6% to 10% EPS growth range because last year we had particularly favorable operating expense experience in the Q2, which we aren't expecting to repeat in the Q2 of this year. And so I
think that gives
some additional color there, Glenn.
Yes, that's all really helpful. Thanks, Jim. And Steve, I just want to follow-up with you with one quick question on the balance sheet. As of this quarter, you have about $900,000,000 in net debt. And based on your free cash flow assumptions, you're going to be cash have positive cash on the balance sheet here in the next 2 to 3 quarters.
And so I'm just kind of wondering with PharMEDium now in the rearview mirror, has any have your thoughts changed at all with respect to the balance sheet or capital deployment priorities? And how should we think about that going forward?
No, we've had a very consistent capital deployment strategy. I think last year we returned in fiscal year 2019, we returned $1,000,000,000 to shareholders of which was approximately 30% dividend, 70% share buybacks and that's approximate numbers. And we like to have financial flexibility. So our first option is to invest in the business and we're bullish about projects like Fusion, for example, and we talked about the strong growth of World Courier, which in part is because of the Nova and the Cocoon investments. So those are good investments.
And a couple of years ago, we were making tremendous investments with ABC Order and the distribution networks. So those are very good examples core business investments. We remain interested in that. We are of course our replenishment center in Ohio is a good example of another core investment that we're doing. So that's the first priority.
We then we'd look at the right sort of acquisitions. Unfortunately, it's been really a seller's market. And the quality of I think if we found really the right asset and the management team was convinced that we had a company with a leadership position with the right sort of patients and physicians that we support. I think we could be talking to paying significantly more than our multiple because we understand that that's probably it's what's required in this market. But we really haven't seen the sort of asset that motivates us.
It's about 2 years ago since we acquired H. D. Smith, it was close to $1,000,000,000 that's worked out really, really well. There's not really opportunities on the regional side. So we just haven't seen great opportunities.
I think you know where we're interested in the commercialization services, expansion of the MWR business that could be something we're very interested in. We've made a couple more investments in our Brazil and Canadian businesses, where we have solid presences, management teams that we can invest behind. So those are things. And then of course, we'll continue to be very thoughtful where we increased our dividend we announced this morning. So you'll continue to see us be very thoughtful about returns to shareholders.
So I hope that makes sense.
Thank you very much.
The next question will come from Charles Rhyee of Cowen.
Yes. Hey, thanks for taking the question. Steve, I think earlier on you talked about biosimilars and sort of the growth there. If you look at the data if we look at the data last year, we did see a big starting to really see a big uptick in sort of adoption, particularly when you look at something like Neulasta or EPOGEN. Are you how much are you monitoring here sort of the shift particularly with biosimilar insulin?
Is that an opportunity for you guys? Because that looks like will be deemed interchangeable. And then if you have any thoughts on when you expect other biologics to become interchangeable? And would that create a market for biosimilars that mimic more of the traditional generics market perhaps bring more purchasing power back towards the supply chain side?
Charles, thanks. Just in general, the biosimilar numbers are encouraging. I think we talked about at the end of fiscal 2019, just how the growth exceeded our expectations. I would say that that trend continues. The numbers are still small, but ABC has, we think, an important place to play in adoption of biosimilars with the market presence we have in particularly in oncology and other specialty markets.
Diabetes is a very important market for our Good Neighbor Pharmacy customers because those sort of complex chronic conditions are exactly what we think community pharmacies very well set up to play a role in. So definitely we'd be interested. I think one of the ways that I'm really proud ABC has developed is on our sourcing side. We have I'd say over the last decade or so since I moved up here, we really invest a lot of resources there. We have very proficient people on the manufacturing side that really are working, I think, very competently and put positioning us well for the long term to be the key player in biosimilars option, particularly on the injectable and infusible side.
So we like what we're seeing and it's something that we monitor very, very closely and are staying close to as you would expect. We regard it as one of the key opportunities that ABC has for the next couple of years. So thanks. Thanks for the question.
The next question will come from Ricky Goldwasser of Morgan Stanley.
Yes. Hi, good morning. So one guidance question and one just follow-up on PharMEDium. So on the PharMEDium side, if we think about PharMEDium from a pro form a basis and we just kind of like exclude the losses that you incurred from them last year, What would be the pro form a EBIT growth for the Pharmaceutical Distribution segment? So that's on them.
And then secondly, if we think about kind of like your guidance for the remainder of the year, it seems that the top line guidance seems to be skewed toward an acceleration 2Q to 4Q if you think about the midpoint from what you reported in the Q1. So where are you seeing that incremental growth coming from? Is it additional volume coming from existing customers? I know that last quarter, we talked about the potential of gaining more business from Cigna or anything else that you're seeing in the marketplace, maybe on the specialty side that you can provide color on that drives the acceleration for the rest of
the year? Yes. And so, we're seeing broad based growth across the business, seeing particularly strong growth in specialty distribution, but really broad based growth in many parts of the business. We have called out the Cigna volume being added to Express Scripts, which is we indicated that that is approximately one quarter of our revenue growth. And while it's inherently lower margin business, it is positive for growing revenue and operating income dollars, but we're seeing growth in several businesses.
And as you noted, we're seeing particularly good growth in our global commercialization services and Animal Health business. And then you asked about growth if we exclude PharMEDium. And I think we provided, Ricky, really good detail on that in our prepared remarks that the impact on PharMEDium, if we're looking year over year, is a $55,000,000 adjusted operating loss last year. And this year in our adjusted results will be a $20,000,000 adjusted operating loss. And so if we look year over year, it is a $35,000,000 tailwind to the business.
But we are seeing excluding that good growth throughout our various businesses, in particular, our specialty distribution business, but throughout the business.
The next question will come from Steven Valiquette of Barclays.
Thanks. Good morning, guys. So just a question on the financial hurdle on the sale versus shutdown decision for PharMEDium. I guess in my mind, I feel like any asset that was arguably worth $2,600,000,000 in the marketplace only 4 years ago would still have some value today, either in the hands of private equity or another strategic buyer. So I'm guessing that the private transaction value of PharMEDium today is probably not $0 What I wanted to just sort of dig into quickly here is just generally speaking, should we conclude that the cash tax benefits of $500,000,000 to $600,000,000 that ABC is receiving from shutting it down that outweigh the benefits of any after tax proceeds you might have received in a sale transaction?
Or would you have gotten or shutdown decision that was probably something well above $0 I just wanted to understand that a little bit better. Thanks.
Yes. We felt that the business was not saleable due to the ongoing regulatory challenges, continued operational issues, continued challenges to achieving the remediation timetable, which was extending and the continued financial burden of running the business. And so due to that, we made the decision to shut the business down as the most appropriate path forward for AmerisourceBergen and our shareholders. As you've noted, we do have a cash tax benefit of $500,000,000 to $600,000,000 that will recognize between fiscal year 2020 fiscal year 2022. That will benefit our GAAP P and L.
It will not benefit our adjusted P and L, but there will be a benefit to cash flow over that time period.
The next question will come from George Hill of Deutsche Bank.
Good morning, guys, and I appreciate you taking the question. I've got a quick follow-up kind of on the balance sheet outlook. And Steve or Jim, I guess, can you talk about whether or not you guys feel the need to kind of war chest cash opioid settlement that we I guess people expect to occur at some point is kind of into own buckets, so to speak?
No. As I said, our priorities for capital deployment are, I detailed them. We don't feel the need to war chest at all because if you look at the framework that was announced, it was an 18 year settlement. So I think that's been anticipation of the sort of long term characteristics of the industry for not only us, but our peers, our competitors as well. So that's again, that is the proposed framework, but that's the sort of framework that we'd be interested in.
So it's a sort of it really plays it out over long term, which also has the benefit of providing consistent support for the patient service that we think will be needed to transition population health management for this crisis. So in a way, if you want to call it that. So no, it's not we don't feel the need at all. It is a lot of cash in absolute terms. In relative terms, it's relative to a couple of $100,000,000 a day in sales.
It's not that much and some of it is out the country. And it is tremendous seasonality in our business as well. So we like being in a strong cash position, but again, we are mindful of fair returns to our shareholders and the internal and external opportunities that there may be in
the marketplace.
Thanks. So with that, I think we are going to close this Q1 call. And we appreciate your interest in AmerisourceBergen. I must say that this is probably the most difficult decision that we have made since I became CEO almost 9 years ago. And the management team has really tried to persevere with these business, but it's been a very difficult decision.
And we are, of course, especially conscious of the impact on our customers and our associates who we are committed to treating with the utmost respect and transparency and dignity. So, but I think it's incumbent on us to talk about the key strengths and the key differentiators of Amerisource Bergen, which remain unchanged, as I think Jim commented on so well in his remarks. So as we stand here today, commercially, we have extremely strong customer relationships, partnerships and leadership in key markets and services. Culturally, we are a purpose driven organization that feels united in our responsibility to create healthier futures. And AmerisourceBergen, I can assure you, is focused on creating long term growth and value for all its stakeholders.
And again, we thank you for your time and attention this morning. Have a good day. Bye.
Thank you. The conference has now concluded. Thank you all for attending today's presentation. You may now disconnect your lines. Have a great day.