Business context and reporting period
Cencora, Inc. filed this Form 10-Q under its then-name, AmerisourceBergen Corporation. The report covers fiscal Q1 2022, the three months ended December 31, 2021; comparisons are with the three months ended December 31, 2020 unless noted. The company distributes pharmaceuticals and provides related healthcare services. It reorganized reporting into U.S. Healthcare Solutions and International Healthcare Solutions, with prior segment figures revised to match.
Key financial metrics
- Revenue: $59.63 billion, up 13.5%. Net income attributable to AmerisourceBergen was $449.1 million, up 19.8%; diluted EPS was $2.13, versus $1.81.
- Profitability: Gross profit was $2.06 billion, up 41.9%; reported operating income was $644.4 million, up 17.8%. Gross margin was approximately 3.46% versus 2.77%; operating margin was approximately 1.08% versus 1.04%.
- Segments: U.S. Healthcare Solutions revenue rose 2.7% to $53.0 billion and operating income rose 0.6% to $569.1 million. International Healthcare Solutions revenue was $6.65 billion and operating income $180.1 million; the substantial year-over-year increase primarily reflects the Alliance Healthcare acquisition.
- Cash flow: Operating cash flow was $863.4 million, compared with $903.1 million. Capital expenditures were $79.7 million; operating cash flow less capex was approximately $783.7 million. Cash and cash equivalents were $3.17 billion at quarter-end.
- Debt and liquidity: Total debt was $6.68 billion, including $6.41 billion long-term debt; cash and cash equivalents less total debt was approximately negative $3.51 billion. Current assets were $39.38 billion and current liabilities $41.61 billion (current ratio approximately 0.95). The company reported $3.85 billion of additional availability across listed credit facilities and said it was compliant with applicable credit covenants.
- Other: The opioid-related litigation accrual was $6.7 billion, including approximately $796.9 million expected to be paid before December 31, 2022. Cash dividends declared were $0.46 per share, up from $0.44.
Material changes versus the prior comparable period
Alliance Healthcare, acquired in June 2021, was the primary driver of consolidated revenue and international segment growth, while also increasing selling, depreciation and amortization expenses and interest costs. U.S. revenue growth reflected market and unit-volume growth, higher specialty physician and animal health sales, partly offset by a $1.0 billion decline in COVID-19 treatment sales. U.S. segment operating income grew only 0.6%.
Operating cash flow declined by $39.6 million. Seasonal inventory growth used $990.0 million of cash, partly offset by favorable receivables and payables movements. Days sales outstanding rose to 28.1 from 25.3; days inventory on hand rose to 28.2 from 27.6. The effective tax rate fell to 24.6% from 28.3%. Foreign currency translation produced a $379.1 million comprehensive loss, despite positive net income.
Outlook, commentary, risks and unusual items
- Management expected fiscal 2022 revenue growth in the high-single to low-double digits and approximately $500 million of capital expenditures. It said operating cash flows and borrowing capacity were expected to fund ongoing needs, including opioid-related payments over 18 years.
- The proposed nationwide opioid settlement remained subject to participation and other conditions. The company accrued $6.7 billion but warned ultimate losses could differ materially; litigation and investigations continued. Subsequent to quarter-end, it announced additional Rhode Island, tribal and Florida settlement agreements, with payments included in the existing accrual.
- Other notable items included $64.97 million of employee severance, litigation and other costs, including acquisition integration and opioid-related costs, and a $4.9 million impairment charge on a disposal group held for sale. Two non-core subsidiaries were classified as held for sale, with sales expected within twelve months of September 30, 2021.
- Key risks cited include opioid litigation and controlled-substance investigations, successful integration and performance of Alliance Healthcare, customer or supplier concentration and contract economics, reimbursement and drug-pricing changes, working-capital volatility, foreign exchange and interest-rate movements, and COVID-19 effects. WBA-related agreements generated $16.2 billion of quarterly revenue; the company’s net receivable from WBA was $6.7 billion at quarter-end.
Important facts for investors to verify
- Progress and final participation conditions for the proposed opioid settlement, actual payment timing, and adequacy of the $6.7 billion accrual.
- Alliance Healthcare’s contribution to recurring growth and margins, integration costs, and debt and foreign-exchange exposure.
- Whether seasonal working-capital movements and cash conversion remain manageable as inventory and customer/supplier payment terms change.
- Fiscal 2022 revenue and capital expenditure outlook, alongside the decline in COVID-19 treatment sales and broader drug-pricing and reimbursement trends.
- Status and proceeds of the planned subsidiary divestitures, and ongoing dependence on major customer relationships, including WBA.