AmerisourceBergen Corporation (now Cencora, Inc.) — FY2022 Form 10-K
Reporting period: Fiscal year ended September 30, 2022. The filing was submitted under the name AmerisourceBergen Corporation and reports annual results, not standalone fourth-quarter results.
Business context
The company distributes pharmaceuticals and related products and services to healthcare providers and manufacturers in the United States and international markets. It reported two segments: U.S. Healthcare Solutions and International Healthcare Solutions. The prior-year comparison reflects the June 2021 acquisition of Alliance Healthcare; segment reporting was also realigned in FY2022.
Financial and operating metrics
| Metric | FY2022 | FY2021 | Change or context |
|---|---|---|---|
| Revenue | $238.6 billion | $214.0 billion | Up 11.5% |
| Gross profit | $8.30 billion | $6.94 billion | Up 19.5% |
| Operating income | $2.37 billion | $2.35 billion | Up 0.5% |
| Net income attributable to AmerisourceBergen | $1.70 billion | $1.54 billion | Up 10.3% |
| Diluted earnings per share | $8.04 | $7.39 | Up 8.8% |
| Cash provided by operating activities | $2.70 billion | $2.67 billion | Payables growth was a major source of cash |
| Capital expenditures | $496 million | $438 million | Company expects approximately $500 million in FY2023 |
| Cash and cash equivalents | $3.39 billion | $2.55 billion | At September 30 |
| Total debt | $5.70 billion | $6.68 billion | At September 30 |
U.S. Healthcare Solutions revenue was $212.1 billion, up 4.8%, and segment operating income was $2.46 billion, up 8.8%. International Healthcare Solutions revenue was $26.5 billion, up 129.8%, and segment operating income was $706 million, up 81.0%; growth primarily reflected the Alliance Healthcare acquisition. U.S. Healthcare Solutions gross margin was 2.57%, up 9 basis points, while its operating margin was 1.16%, up 4 basis points.
Operating cash flow was supported by a $3.32 billion increase in accounts payable, while increases in accounts receivable and inventory used $1.66 billion and $665 million, respectively. Cash generation therefore reflected significant working-capital movements. At year-end, reported current assets were $39.6 billion and current liabilities were $43.5 billion; the distribution model includes substantial accounts payable and inventory balances.
Debt and liquidity: the company reported $5.70 billion of total debt, including $1.07 billion classified as short-term, and $3.80 billion of additional availability under its listed credit facilities. It repaid $850 million of 0.737% notes due in 2023 during FY2022. The company stated that operating cash flow and available borrowing capacity were expected to meet ongoing needs, including opioid-related payments.
Material changes and unusual items
- Revenue growth included $15.0 billion of additional International Healthcare Solutions revenue, primarily from Alliance Healthcare, and $9.6 billion of U.S. segment growth. U.S. growth reflected market and unit-volume gains, partly offset by a $2.0 billion decline in COVID-19 treatment sales.
- Operating expenses increased 29.2%, mainly due to Alliance Healthcare, including higher distribution, selling and administrative costs and amortization. Other notable items included $123 million of litigation and opioid-related expenses, $183 million of acquisition, integration and restructuring costs, and a $76 million Profarma goodwill impairment.
- Gross profit included $67 million of LIFO expense versus a $203 million LIFO credit in FY2021, and a $40 million adverse effect from Turkey’s highly inflationary accounting. Antitrust settlement gains declined to $2 million from $169 million in FY2021.
- Foreign currency translation adjustments reduced comprehensive income, principally reflecting the translation of Alliance Healthcare goodwill and intangible assets. Turkey’s highly inflationary status also affected reported results.
- Non-core business sales generated $273 million of proceeds and a $56 million gain recorded in other income.
- WBA accounted for approximately 27% of revenue and 38% of net accounts receivable; Express Scripts accounted for approximately 13% of revenue. The top ten customers represented approximately 66% of revenue.
Outlook, risks and contingencies
- No specific revenue, earnings or EPS guidance is provided in the filing. Management expected FY2023 capital expenditures of approximately $500 million, including technology and regulatory-compliance investments.
- The company agreed to acquire PharmaLex for €1.28 billion in cash, subject to customary closing conditions and regulatory approvals; closing was expected by March 2023. This was a pending transaction at the filing date.
- The opioid settlement and other opioid-related matters produced a $6.0 billion recorded liability at September 30, 2022, net of $0.8 billion paid to date. Approximately $529 million was expected to be paid before September 30, 2023; the remaining long-term liability was approximately $5.5 billion. The company said it could not estimate possible losses beyond the accrued amount for matters outside the settlement accrual.
- Key risks include concentrated customer relationships, opioid litigation and compliance obligations, pricing and reimbursement changes (including implementation of the Inflation Reduction Act), regulation of controlled-substance distribution, customer credit exposure, cybersecurity and privacy, inflation, foreign-exchange risk, and acquisition integration. Management reported that inflation had not significantly affected FY2022 results but warned sustained or higher inflation could adversely affect performance.
- The company extended WBA distribution and generic purchasing arrangements through 2029 and Boots UK distribution through 2031. It cautioned that expected strategic benefits may not be achieved and that WBA’s stock sales could affect the company’s share price.
- After year-end, the company amended its revolving credit facility to extend maturity to October 2027 and amended its receivables securitization facility to October 2025. These amendments also addressed benchmark-rate transition.
Important facts for investors to verify
- How much of ongoing revenue and operating income growth is organic versus attributable to Alliance Healthcare, and how the acquisition performs against integration expectations.
- Whether operating cash flow remains strong after considering the large contribution from accounts payable and other working-capital movements.
- The eventual cash cost and timing of opioid settlements, including unresolved claims and the Alabama matter, and whether additional liabilities arise.
- Customer concentration and the economics of WBA and Express Scripts contracts, including whether the expected benefits of WBA arrangements are realized.
- The sensitivity of margins and earnings to LIFO changes, generic price deflation, COVID-19 treatment demand, foreign exchange and Turkey’s inflationary conditions.
- Funding and integration of the PharmaLex acquisition, and the company’s debt maturities, facility availability and covenant compliance.