10-QPeriod: Q3 FY2018

Cencora, Inc. Quarterly Report for Q3 Ended Jun 30, 2018

Filed August 2, 2018For Securities:COR

Summary

Cencora, Inc. (formerly AmerisourceBergen) reported a significant increase in revenue for the nine months ended June 30, 2018, driven by its Pharmaceutical Distribution Services segment, bolstered by the consolidation of Profarma and the acquisition of H.D. Smith. Despite revenue growth, operating expenses, particularly distribution, selling, and administrative costs, also rose due to integration and IT system implementation costs. Net income and earnings per share saw a substantial uplift, largely attributable to the positive impact of the Tax Cuts and Jobs Act of 2017 and a decrease in prior-year litigation settlement charges. The company's balance sheet shows a healthy increase in total assets, driven by acquisitions and consolidated entities, alongside a rise in both current and long-term liabilities, reflecting increased debt to fund these activities. Cash flow from operations improved significantly year-over-year, indicating better working capital management, although the company continues to rely on its credit facilities for seasonal working capital needs. Investors should monitor the ongoing litigation and opioid-related costs, as well as the integration of recent acquisitions and the impact of the new tax regime.

Financial Highlights

56 data points
Beta

Revenue

$43.14B

2.8% Gross Margin

Net Income

$275.81M

0.6% Net Margin

EPS (Diluted)

$1.25

Total Assets

$38.31B

Cash & Equivalents

$2.39B

Free Cash Flow

$743.74M

Financial Statements
Beta
Revenue$43.14B
Cost of Revenue$41.93B
Gross Profit$1.21B
SG&A Expenses$626.55M
Operating Income$389.19M
Net Income$275.81M
EPS (Basic)$1.26
EPS (Diluted)$1.25
Shares Outstanding (Basic)218.57M
Shares Outstanding (Diluted)220.76M

Key Highlights

  • 1Revenue increased by 11.5% for the quarter and 9.3% for the nine-month period ended June 30, 2018, primarily driven by the Pharmaceutical Distribution Services segment.
  • 2The company completed the acquisition of H.D. Smith and consolidated Profarma in January 2018, significantly contributing to revenue and asset growth.
  • 3Net income attributable to AmerisourceBergen Corporation more than quadrupled year-over-year for both the quarter and the nine-month period, largely due to the 2017 Tax Act and a reduction in litigation expenses.
  • 4Total assets grew to $38.3 billion from $35.3 billion, with significant increases in goodwill and other intangible assets reflecting recent acquisitions.
  • 5Operating cash flow improved substantially to $746.0 million for the nine months ended June 30, 2018, compared to $123.7 million in the prior year period.
  • 6The company incurred significant legal costs and reserves, including a $625.0 million reserve for alleged civil claims related to the False Claims Act and ongoing opioid litigation.
  • 7Total debt increased by approximately $950 million, largely to finance the acquisition of H.D. Smith.

Frequently Asked Questions

Revenue growth was primarily driven by the Pharmaceutical Distribution Services segment, fueled by the consolidation of Profarma (a Brazilian pharmaceutical wholesaler) and the acquisition of H.D. Smith, the largest independent pharmaceutical wholesaler in the United States. Growth in major customer accounts and overall market growth also contributed.

The Tax Cuts and Jobs Act significantly impacted the company's results, particularly in the nine-month period ended June 30, 2018. The company recorded a discrete deferred income tax benefit of $897.6 million due to the lower U.S. federal income tax rate applied to net deferred tax liabilities, and a $310.0 million expense for the one-time transition tax on historical foreign earnings. This led to a substantial income tax benefit and a significantly lower effective tax rate for the period.

The company is involved in numerous legal matters, including opioid litigation, government investigations concerning controlled substances, and civil claims under the False Claims Act. A significant provision of $625.0 million was accrued in the prior year related to alleged civil claims with the U.S. Attorney's Office for the Eastern District of New York. Opioid-related costs and litigation expenses are also a notable expense, with the company actively defending itself in these ongoing matters.

Total debt increased substantially to approximately $4.4 billion from $3.4 billion. This increase was primarily driven by the issuance of $1.25 billion in senior notes to finance the acquisition of H.D. Smith and to refinance existing debt. The company also consolidated debt from Profarma and the specialty joint venture. The company maintains significant availability under its revolving credit facilities and receivables securitization facility.