10-QPeriod: Q1 FY2016

Cencora, Inc. Quarterly Report for Q1 Ended Dec 31, 2015

Filed February 4, 2016For Securities:COR

Summary

Cencora, Inc. (formerly AmerisourceBergen Corporation) reported strong revenue growth for the quarter ended December 31, 2015, with a 9.3% increase year-over-year, driven by its Pharmaceutical Distribution segment and a significant contribution from its 'Other' segment, largely due to the acquisition of MWI Veterinary Supply. Despite increased operating expenses, including warrant expenses and acquisition-related costs, the company achieved a substantial net income driven by a significant income tax benefit related to a private letter ruling on the fair value of warrants issued to Walgreens Boots Alliance. The company also announced a substantial increase in its quarterly cash dividend and continued its share repurchase program. Management highlighted the acquisition of PharMEDium Healthcare Holdings for $2.7 billion as a key strategic move. While the company faces ongoing litigation risks and regulatory scrutiny, its liquidity position remains strong, supported by significant availability under its credit facilities.

Financial Highlights

54 data points
Beta

Revenue

$36.71B

2.6% Gross Margin

Net Income

$329.64M

0.9% Net Margin

EPS (Diluted)

$1.45

Total Assets

$30.76B

Cash & Equivalents

$978.09M

Free Cash Flow

$661.50M

Financial Statements
Beta
Revenue$36.71B
Cost of Revenue$35.74B
Gross Profit$964.88M
SG&A Expenses$525.08M
Operating Income-$178.14M
Net Income$329.64M
EPS (Basic)$1.60
EPS (Diluted)$1.45
Shares Outstanding (Basic)206.18M
Shares Outstanding (Diluted)226.72M

Key Highlights

  • 1Revenue increased by 9.3% year-over-year, reaching $36.7 billion, primarily driven by the Pharmaceutical Distribution segment and the "Other" segment, boosted by the MWI acquisition.
  • 2The company reported a net income of $330.4 million, a significant turnaround from a net loss of $199.9 million in the prior year quarter, largely due to a $456 million tax benefit related to warrants.
  • 3Acquired PharMEDium Healthcare Holdings for $2.7 billion, adding a leading provider of compounded sterile preparations to its portfolio.
  • 4Increased the quarterly cash dividend by 17% to $0.34 per share and maintained a robust share repurchase program with significant availability remaining.
  • 5Total gross profit increased by 28.3%, benefiting from the MWI acquisition and a reduction in LIFO expense.
  • 6Distribution, selling, and administrative expenses rose by 26.8%, primarily due to the inclusion of MWI's operating costs.
  • 7The company faces significant litigation and regulatory risks, including ongoing investigations related to controlled substance diversion and potential qui tam actions.

Frequently Asked Questions

The substantial increase in net income was primarily driven by a significant income tax benefit of approximately $456 million, resulting from a private letter ruling from the IRS that allows Cencora to recognize an income tax deduction equal to the fair value of warrants issued to Walgreens Boots Alliance upon exercise. This benefit dramatically offset operating expenses and the prior year's net loss.

The acquisition of PharMEDium for $2.7 billion in November 2015 added $1.8 billion in goodwill and $1.1 billion in intangible assets to the balance sheet. It also increased operating expenses related to amortization of these intangible assets and contributed to the growth in the 'Other' revenue segment, though its full impact on revenue and profitability will be more apparent in subsequent quarters.

Cencora expects its revenue in fiscal year 2016 to increase in the range of 8% to 10%. This growth is anticipated to be influenced by industry trends, new drug therapies, generic drug availability, pricing dynamics, economic conditions, and competition.

Yes, two significant contracts are scheduled to expire within the next twelve months: the contract with Kaiser Permanente in June 2016 and the contract with Express Scripts in September 2016. The renewal or non-renewal, or less favorable terms of these contracts, could negatively impact the company's revenue, results of operations, and cash flows.