10-QPeriod: Q2 FY2022

Cencora, Inc. Quarterly Report for Q2 Ended Mar 31, 2022

Filed May 4, 2022For Securities:COR

Summary

Cencora, Inc. (COR) reported strong revenue growth for the period ending March 31, 2022, driven significantly by the acquisition of Alliance Healthcare and continued growth across its U.S. and International Healthcare Solutions segments. The company demonstrated a substantial increase in gross profit, also largely attributable to the Alliance Healthcare acquisition and higher fees from distributing government-owned COVID-19 treatments. While operating expenses rose, primarily due to integration costs associated with Alliance Healthcare, operating income saw a notable increase, reflecting the positive impact of the acquisition and organic growth within the U.S. segment. Investors should note the significant increase in debt and interest expense, largely tied to the Alliance Healthcare acquisition financing. The company continues to manage its liquidity effectively and maintains availability under its credit facilities. A key ongoing concern is the substantial accrued litigation liability related to opioid settlements, which is being paid out over 18 years, though the company has accrued its estimated liability. Despite these challenges, the company has made progress in resolving opioid-related claims across various states.

Financial Highlights

55 data points
Beta

Revenue

$57.72B

3.9% Gross Margin

Net Income

$548.01M

0.9% Net Margin

EPS (Diluted)

$2.59

Total Assets

$57.31B

Cash & Equivalents

$2.96B

Free Cash Flow

$136.93M

Financial Statements
Beta
Revenue$57.72B
Cost of Revenue$55.48B
Gross Profit$2.24B
SG&A Expenses$1.20B
Operating Income$780.16M
Net Income$548.01M
EPS (Basic)$2.62
EPS (Diluted)$2.59
Shares Outstanding (Basic)209.24M
Shares Outstanding (Diluted)211.99M

Key Highlights

  • 1Revenue increased by 17.4% year-over-year to $57.7 billion for the quarter and 15.4% to $117.3 billion for the six months ended March 31, 2022, driven by the Alliance Healthcare acquisition and organic growth.
  • 2Gross profit saw a significant increase of 45.8% year-over-year for the quarter and 43.9% for the six months, largely due to the Alliance Healthcare acquisition and higher fees from COVID-19 treatment distribution.
  • 3Operating income rose by 25.0% for the quarter and 21.6% for the six months, reflecting improved profitability from the U.S. Healthcare Solutions segment and the impact of the Alliance Healthcare acquisition.
  • 4The company has accrued a significant $6.7 billion liability for opioid litigation settlements, with approximately $5.9 billion to be paid over 18 years.
  • 5Total assets remained relatively stable, while total liabilities increased, primarily due to higher short-term debt and accounts payable.
  • 6Cash flow from operating activities significantly increased year-over-year, benefiting from higher net income and favorable changes in working capital, particularly accounts payable.
  • 7The company repaid a $250 million term loan and continued its share repurchase program, while also increasing its quarterly dividend.

Frequently Asked Questions

The primary driver of Cencora's significant revenue growth was the acquisition of Alliance Healthcare in June 2021. This acquisition, combined with organic growth across its U.S. and International Healthcare Solutions segments, led to a substantial increase in reported revenue compared to the prior year period.

The company has accrued a $6.7 billion liability for opioid litigation and settlements. While a significant portion of this liability is being resolved through a comprehensive settlement agreement requiring payments over 18 years, it represents a substantial ongoing financial commitment. The company's ability to continue dividend payments is not expected to be impacted, but this remains a material contingent liability that requires careful monitoring.

The acquisition of Alliance Healthcare led to an increase in operating expenses, particularly in distribution, selling, and administrative costs, and depreciation and amortization, primarily due to integration costs and the amortization of acquired intangible assets. Consequently, there was also an increase in interest expense due to the debt financing used for the acquisition. Despite these increases, the company's operating income grew, indicating that the revenue and gross profit contributions from Alliance Healthcare have so far outweighed these associated costs.

Cencora continues to generate strong cash flows from operations, which, along with its available credit facilities, provides sufficient liquidity. The company has a $2.4 billion multi-currency revolving credit facility and other credit arrangements, offering substantial borrowing capacity. The company expects cash flows from operations and borrowings to be sufficient to meet its ongoing requirements, including debt repayment, dividends, and the long-term opioid settlement payments.