Business context and reporting period
This is AmerisourceBergen Corporation’s Form 10-K for the fiscal year ended September 30, 2021, not a standalone fourth-quarter report. The company, now known as Cencora, distributes pharmaceuticals and provides related services; its businesses include U.S. pharmaceutical distribution, animal health, global commercialization services, specialty logistics, and international distribution. The Alliance Healthcare acquisition closed June 1, 2021, so its results are included for four months.
Financial performance and liquidity
| Metric | FY2021 | FY2020 | Change or context |
|---|---|---|---|
| Revenue | $214.0 billion | $189.9 billion | Up 12.7% |
| Gross profit | $6.94 billion | $5.19 billion | Up 33.7%; consolidated gross margin approximately 3.24% |
| Operating income (loss) | $2.35 billion | $(5.14) billion | FY2020 included a $6.6 billion opioid-related legal accrual |
| Net income (loss) attributable to AmerisourceBergen | $1.54 billion | $(3.41) billion | Diluted EPS was $7.39 versus $(16.65) |
| Cash from operations | $2.67 billion | $2.21 billion | FY2021 supported in part by a $2.05 billion increase in accounts payable |
| Capital expenditures | $438 million | $370 million | Operating cash flow less capital expenditures was approximately $2.23 billion |
| Cash and cash equivalents | $2.55 billion | $4.60 billion | Additionally, $523 million of restricted cash was reported separately |
| Total debt | $6.68 billion | $4.12 billion | Increased primarily to help fund Alliance Healthcare |
Pharmaceutical Distribution Services revenue rose 8.6% to $198.2 billion; Other revenue increased 112.3% to $16.0 billion, mainly reflecting Alliance Healthcare. Pharmaceutical Distribution Services gross margin was 2.17%, up 7 basis points; its operating margin was 1.03%, up 4 basis points. Other gross margin declined to 14.32% from 18.60%, principally because Alliance Healthcare carries a lower margin.
Current assets were $38.8 billion and current liabilities $41.4 billion at year-end. The balance sheet therefore showed a working-capital deficit, typical of the company’s distribution model but relevant alongside its substantial trade payables and debt. Management reported compliance with debt covenants and approximately $3.99 billion of additional borrowing availability under listed facilities at September 30, 2021.
Material changes versus the prior comparable period
- Revenue growth reflected specialty-product and COVID-19 treatment sales, market volume growth, and the Alliance Healthcare acquisition. Management attributed $3.2 billion of increased Pharmaceutical Distribution Services sales to COVID-19 treatments.
- GAAP earnings rebounded from FY2020’s large loss, primarily because FY2020 included the $6.6 billion opioid-litigation charge. FY2021 also included a further $147.7 million opioid-related accrual.
- FY2021 gross profit benefited from a $203.0 million LIFO credit versus a $7.4 million LIFO expense in FY2020, and $168.8 million of antitrust settlement gains versus $9.1 million.
- Distribution, selling, and administrative expenses increased 29.9% to $3.59 billion, largely due to Alliance Healthcare and payroll-related costs. Total operating expenses fell 55.6%, mainly because the prior-year opioid accrual and asset impairment charges were much larger.
- Alliance Healthcare was acquired for total consideration estimated at $6.93 billion; net cash paid was $5.54 billion. The company issued approximately 2 million shares and added acquired goodwill and intangible assets. Purchase-price allocation remained subject to finalization.
Outlook, commentary, risks, and unusual items
- Management expected FY2022 revenue growth in the high-single to low-double digits and approximately $500 million of capital expenditures. These are revenue and spending expectations; the filing text does not provide a clear numerical earnings or EPS forecast.
- The company expects opioid-settlement payments of up to approximately $6.4 billion over 18 years. Its accrued opioid liability was approximately $6.7 billion; $764.8 million was classified as payable before September 30, 2022, including $288.4 million placed in escrow. The proposed settlement remained conditional, and the company could not estimate possible losses above the recorded accrual.
- Customer concentration is significant: WBA accounted for approximately 31% of FY2021 revenue and Express Scripts approximately 12%; the top 10 customers represented about 69%. The Express Scripts contract was scheduled to expire in September 2022.
- Key risks include opioid litigation and investigations; manufacturer pricing and generic deflation; reimbursement and regulatory changes; COVID-19-related supply, demand, and workforce disruption; customer credit exposure; cybersecurity and privacy; foreign exchange and international integration; and the execution and benefits of the Alliance Healthcare acquisition and WBA strategic relationship.
- Management said less favorable brand and generic pricing trends had pressured segment profit and consolidated operating earnings in FY2021 and expected those trends to continue in FY2022. COVID-19 impacts remained uncertain.
- Two non-core subsidiaries were classified as held for sale, with sales expected within 12 months. A new U.S. and International Healthcare Solutions reporting structure was to begin in FY2022.
- The financial-statement auditor issued an unqualified opinion, as did its internal-control audit. However, Alliance Healthcare—22% of total assets and 3% of FY2021 revenue—was excluded from the FY2021 internal-control assessment.
Most important facts an investor should verify
- Progress and final terms of the opioid settlement, including participation, payment schedule, escrow treatment, and potential exposure beyond the accrual.
- Alliance Healthcare’s full-year contribution, integration costs, purchase-price allocation, expected synergies, and effect on margins, debt, and cash generation.
- Renewal or replacement terms for the Express Scripts contract and continued economics of the WBA distribution and generic-purchasing arrangements.
- Whether operating cash flow remains strong after considering working-capital movements, especially accounts payable, inventory, and receivables.
- FY2022 performance against management’s revenue-growth and capital-expenditure expectations, including the effects of pricing, reimbursement, and COVID-19 trends.