Cencora, Inc. (then AmerisourceBergen Corporation) — Fiscal 2022 Second-Quarter 10-Q
Reporting period: Quarter and six months ended March 31, 2022. Unaudited consolidated results; comparisons are with the periods ended March 31, 2021. The company reports U.S. Healthcare Solutions and International Healthcare Solutions. International results include Alliance Healthcare, acquired in June 2021.
Financial performance
| Metric | Quarter | Six months |
|---|---|---|
| Revenue | $57.72 billion, up 17.4% | $117.35 billion, up 15.4% |
| Gross profit | $2.24 billion, up 45.8%; gross margin 3.87% versus 3.12% | $4.30 billion, up 43.9% |
| Operating income | $780.2 million, up 25.0% | $1.42 billion, up 21.6% |
| Net income attributable to AmerisourceBergen | $548.0 million; diluted EPS $2.59 | $997.1 million; diluted EPS $4.71 |
| Operating cash flow | $1.13 billion, versus $449.2 million in the prior-year six-month period |
Quarterly diluted EPS increased from $2.10. Consolidated operating margin was approximately 1.35%, compared with 1.27%; net margin was approximately 0.95%, compared with 0.89%. Quarterly dividends declared rose to $0.46 per share from $0.44.
U.S. Healthcare Solutions revenue grew 5.8% in the quarter, principally on unit-volume growth and specialty physician sales, partly offset by lower commercial COVID-19 treatment sales. International Healthcare Solutions revenue rose to $6.78 billion from $989.0 million, mainly reflecting Alliance Healthcare. U.S. gross profit also benefited from fees for distributing government-owned COVID-19 treatments.
Cash, debt, and liquidity
- At March 31, 2022, cash and cash equivalents were $2.96 billion; total debt was $6.46 billion, down from $6.68 billion at September 30, 2021. Cash less total debt was approximately $3.50 billion.
- Current assets were $39.41 billion and current liabilities $42.80 billion. Accounts payable was $38.21 billion, consistent with the company’s high-volume distribution working-capital model.
- Operating cash flow improved year over year, supported by net income and a $598.4 million increase in accounts payable. Cash use included increases in receivables and inventory of $527.5 million and $215.5 million, respectively; management cautions that operating cash flow can fluctuate with working-capital timing.
- Investing cash use was $337.2 million, including $209.3 million in capital expenditures and $124.2 million for acquisitions. Financing cash use was $384.6 million; the company repaid a $250 million term loan in March.
- Reported available capacity under identified credit facilities was $3.80 billion. No commercial paper was outstanding, and the company was compliant with its financial covenants. Fiscal 2022 capital expenditures were expected to be approximately $500 million.
Material changes, outlook, and risks
- Alliance Healthcare was the primary driver of the increase in consolidated revenue, gross profit, operating expenses, and interest expense. Higher acquisition-related amortization and distribution, selling, and administrative expenses partly offset profit growth.
- Management expected fiscal 2022 revenue growth in the high-single- to low-double-digit range. The filing provides no clear full-year earnings or EPS guidance.
- The $6.7 billion accrued opioid-related litigation liability was unchanged from September 30, 2021. The comprehensive distributor settlement became effective April 2, 2022 for 46 states and more than 98% by population of eligible subdivisions in those states; the company expects to pay approximately $5.9 billion over 18 years. The estimated liability for non-settling jurisdictions, subdivisions, and Native American tribes was approximately $0.8 billion. Approximately $795.7 million was classified as payable before March 31, 2023. These estimates remain subject to uncertainty and further legal developments.
- Subsequent to quarter-end, the company and other distributors agreed to a Washington settlement of up to $518 million; the company’s 31% share was included in its existing opioid accrual. The filing also describes continuing opioid-related litigation and investigations, including a criminal investigation involving MWI Veterinary Supply.
- Other items include $141.4 million of employee severance, litigation, and other costs for the six-month period, including opioid legal and settlement costs, Alliance integration, and restructuring. A $4.9 million impairment charge was recorded on a disposal group held for sale. One non-core business was sold in April for $110 million, subject to a working-capital adjustment; another sale was expected by September 30, 2022.
- Risks cited include opioid and other litigation, regulation of controlled substances, customer and supplier concentration and contract economics, Alliance integration, pharmaceutical price and reimbursement changes, working-capital volatility, foreign exchange and interest-rate exposure, and macroeconomic and geopolitical uncertainty. Management said the Russia-Ukraine conflict’s fiscal second-quarter financial impact was not material.
Important facts for investors to verify
- Whether revenue and operating-profit growth persists after separating Alliance Healthcare’s contribution from underlying growth in existing businesses.
- Whether operating cash flow remains strong when accounts-payable timing and seasonal working-capital changes normalize.
- How opioid settlement participation, payment timing, unresolved claims, and related legal costs compare with the $6.7 billion accrual.
- Progress on Alliance integration, expected synergies, and planned divestitures, alongside the impact of higher amortization and interest expense.
- Whether fiscal 2022 revenue and capital-expenditure expectations are achieved, and how debt maturities and available credit capacity evolve.