10-QPeriod: Q3 FY2020

Cencora, Inc. Quarterly Report for Q3 Ended Jun 30, 2020

Filed August 5, 2020For Securities:COR

Summary

Cencora, Inc. (formerly AmerisourceBergen) reported its financial results for the period ending June 30, 2020. The company demonstrated resilience amidst the early stages of the COVID-19 pandemic, with revenue showing a slight increase year-over-year for both the quarter and the nine-month period. While gross profit saw a modest decrease due to factors like lower gains from antitrust litigation and LIFO expense, operating income remained relatively stable for the quarter and saw a slight increase for the nine months, aided by lower impairments and reduced depreciation and amortization. A significant factor impacting net income, particularly for the nine-month period, was a substantial discrete income tax benefit related to the exit from the PharMEDium business and the CARES Act. Liquidity remains strong, supported by operating cash flows and available credit facilities. The company continued its commitment to shareholder returns through dividend payments and share repurchases. Despite the ongoing challenges posed by the COVID-19 pandemic, including potential impacts on supply chains and customer financial health, Cencora is focused on business continuity and navigating the evolving economic landscape. The company's forward-looking statements indicate expectations for continued revenue growth, albeit at a moderated pace, and ongoing management of operational and legal risks, most notably the extensive opioid litigation.

Financial Highlights

56 data points
Beta

Revenue

$45.37B

2.7% Gross Margin

Net Income

$289.44M

0.6% Net Margin

EPS (Diluted)

$1.41

Total Assets

$40.79B

Cash & Equivalents

$3.42B

Free Cash Flow

-$194.62M

Financial Statements
Beta
Revenue$45.37B
Cost of Revenue$44.14B
Gross Profit$1.23B
SG&A Expenses$666.88M
Operating Income$404.83M
Net Income$289.44M
EPS (Basic)$1.42
EPS (Diluted)$1.41
Shares Outstanding (Basic)203.65M
Shares Outstanding (Diluted)205.54M

Key Highlights

  • 1Revenue for the nine months ended June 30, 2020, increased by 5.0% to $140.6 billion, driven by growth in Pharmaceutical Distribution Services and other operating segments.
  • 2The company reported a significant income tax benefit of $741.0 million in the nine months ended June 30, 2020, primarily related to exiting the PharMEDium business and CARES Act provisions, which substantially boosted net income.
  • 3Operating income for the nine months ended June 30, 2020, increased by 4.9% to $977.8 million, benefiting from lower impairment charges and reduced depreciation/amortization.
  • 4Despite the onset of COVID-19 impacting customer purchasing patterns, revenue for the three months ended June 30, 2020, saw a modest 0.3% increase year-over-year.
  • 5The company maintained a strong liquidity position, with $3.4 billion in cash and cash equivalents as of June 30, 2020, and significant availability under its credit facilities.
  • 6Cencora continued its capital return strategy, repurchasing $405.6 million of its common stock and paying $256.8 million in dividends during the nine months ended June 30, 2020.

Frequently Asked Questions

The COVID-19 pandemic began to impact Cencora's operations in March 2020. While it led to increased customer purchases in the prior quarter (ended March 31, 2020) causing a slight dip in the current quarter's purchases, the overall revenue for the nine-month period showed growth. The company implemented measures for business continuity and employee safety and is monitoring potential prolonged effects on revenue, operations, and cash flows. Increased bad debt expense was noted due to the assessment of customer collectibility in light of the pandemic.

The most significant non-recurring item was a discrete income tax benefit of approximately $741.0 million recognized in the nine months ended June 30, 2020. This benefit stemmed from the company's decision to permanently exit the PharMEDium compounding business, resulting in a substantial tax deduction, and also included benefits from the CARES Act. Additionally, impairment charges related to the PharMEDium business were recorded in previous periods and contributed to the difference in year-over-year operating income.

Cencora maintained a strong liquidity position with substantial cash and cash equivalents and significant availability under its revolving credit facilities. The company issued $500 million in senior notes in May 2020 and used the proceeds to refinance existing debt, demonstrating active debt management. Operating cash flows remain a primary source for funding operations, debt repayment, dividends, and share repurchases, with management expecting sufficient capital resources for the foreseeable future.

Cencora is actively engaged in discussions aimed at reaching a global resolution for the ongoing opioid litigation brought by numerous counties, municipalities, and states. While the company continues to defend itself in pending lawsuits and is preparing for potential trials, a liability for a global resolution has not yet been recognized as the outcome and timing of settlement discussions remain uncertain. The company previously settled claims with two Ohio counties for $66.7 million in December 2019.