Cardinal Health Reports Fourth Quarter and Full Year Results for Fiscal Year 2023 at High End of Investor Day Guidance
- Fourth quarter revenue increased 13% to $53.5 billion
- Non-GAAP operating earnings increased 24% to $560 million
- Pharmaceutical segment profit increased 12% to $504 million
- Generated operating cash flow and non-GAAP adjusted free cash flow of $2.8 billion
- Fiscal year 2024 non-GAAP EPS guidance raised to $6.50 to $6.75
- None.
- Fourth quarter revenue increased
13% to$53.5 billion - Fourth quarter GAAP1 operating earnings were
and GAAP diluted loss per share was$137 million $0.25 - Fourth quarter non-GAAP operating earnings increased
24% to and non-GAAP diluted EPS increased$560 million 48% to$1.55 - Fourth quarter Pharmaceutical segment profit increased
12% to and Medical segment profit increased to$504 million $82 million - Generated both operating cash flow and non-GAAP adjusted free cash flow of
and returned over$2.8 billion to shareholders in fiscal year 20232$2.5 billion - Fiscal year 2024 non-GAAP EPS guidance raised to
to$6.50 , from$6.75 to$6.45 $6.70
Fiscal year 2023 revenues were
"Fiscal 2023 was an inflection point for Cardinal Health, with improved performance, strong execution and notable progress against both our short and long-term plans," said Jason Hollar, CEO of Cardinal Health. "We are pleased with the strong finish to the year, including robust cash flow generation, continued strong growth in the Pharmaceutical segment and significant improvement in the Medical segment, driven by execution of our Medical Improvement Plan. We enter the new fiscal year with momentum and are raising our previously communicated fiscal year 2024 EPS guidance."
Q4 and full year FY23 summary
Q4 FY23 | Q4 FY22 | Y/Y | FY23 | FY22 | Y/Y | ||||||
Revenue | 13 % | 13 % | |||||||||
Operating earnings/(loss) | N.M. | N.M. | |||||||||
Non-GAAP operating earnings | 24 % | 3 % | |||||||||
Net earnings/(loss) attributable to Cardinal Health, Inc. | N.M. | N.M. | |||||||||
Non-GAAP net earnings attributable to Cardinal Health, Inc. | 37 % | 7 % | |||||||||
Effective Tax Rate3 | 154.3 % | 575.3 % | 58.9 % | (21.2) % | |||||||
Non-GAAP Effective Tax Rate | 27.4 % | 25.4 % | 22.8 % | 22.1 % | |||||||
Diluted EPS attributable to Cardinal Health, Inc. | N.M. | N.M. | |||||||||
Non-GAAP diluted EPS attributable to Cardinal Health, Inc. | 48 % | 14 % |
Segment results
Pharmaceutical segment
Q4 FY23 | Q4 FY22 | Y/Y | FY23 | FY22 | Y/Y | ||||||
Revenue | 15 % | 15 % | |||||||||
Segment profit | 12 % | 13 % |
Fourth-quarter revenue for the Pharmaceutical segment increased
Pharmaceutical segment profit increased
Medical segment
Q4 FY23 | Q4 FY22 | Y/Y | FY23 | FY22 | Y/Y | ||||||
Revenue | — % | (5) % | |||||||||
Segment profit | N.M. | (49) % |
Fourth-quarter revenue for the Medical segment was flat at
Medical segment profit increased to
Fiscal year 2024 outlook1,4
The company raised its fiscal year 2024 outlook for non-GAAP earnings per share by
Non-GAAP earnings per share | |
Pharmaceutical segment: | |
Revenue | |
Segment profit | |
Medical segment: | |
Revenue | ~ |
Segment profit | |
Interest and other | |
Non-GAAP effective tax rate | |
Diluted weighted average shares outstanding | 250M - 253M |
Share repurchases | |
Capital Expenditures | |
Non-GAAP adjusted free cash flow |
Recent highlights
- Cardinal Health hosted an Investor Day on June 8th, 2023 where management detailed the company's growth strategies, highlighted plans for value creation and provided compelling long-term targets.
- Cardinal Health completed its business and portfolio review of the Pharmaceutical segment, which included the launch of the new Navista™ Network supporting community oncologists, the announcement to retain and invest in Nuclear & Precision Health Solutions and the merger of its Outcomes™ business into Transaction Data Systems.
- Cardinal Health announced a new agreement with TrakCel to offer an integrated cell and gene therapy software solution to help biopharma companies track cell therapies through multiple stages of development and commercialization.
- Cardinal Health hosted its 31st annual Retail Business Conference, bringing together nearly 4,500 attendees from across the country to celebrate the critical role its independent pharmacy customers play in caring for their communities and highlight the company's innovations and commitment to its customers.
- Cardinal Health announced plans to build a new distribution center in the
Greenville, South Carolina , area, to support its at-Home Solutions business. - Cardinal Health was named one of the 2023 Best Companies for Multicultural Women by Seramount.
- Cardinal Health Board of Directors approved a quarterly dividend of
per share.$0.50 06
Upcoming webcasted investor events
- Morgan Stanley 21st Annual Global Healthcare Conference at 9:30am ET, September 12, 2023
- Baird 2023 Global Healthcare Conference at 8:30am ET, September 13, 2023
Webcast
Cardinal Health will host a webcast today at 8:30 a.m. Eastern to discuss fourth quarter and full year results. To access the webcast and corresponding slide presentation, go to the Investor Relations page at ir.cardinalhealth.com. No access code is required.
Presentation slides and a webcast replay will be available until August 14, 2024.
About Cardinal Health
Cardinal Health is a distributor of pharmaceuticals, a global manufacturer and distributor of medical and laboratory products, and a provider of performance and data solutions for health care facilities. With more than 50 years in business, operations in more than 30 countries and approximately 46,500 employees globally, Cardinal Health is essential to care. Information about Cardinal Health is available at cardinalhealth.com.
Contacts
Media: Erich Timmerman, erich.timmerman@cardinalhealth.com and 614.757.8231
Investors: Kevin Moran, kevin.moran@cardinalhealth.com and 614.757.7942
1GAAP refers to
2Returned over
3The GAAP effective tax rate for the fourth quarter of fiscal year 2023 and fiscal year 2023 were impacted by the goodwill impairment charges of
The GAAP effective tax rate for the fourth quarter of fiscal year 2022 and fiscal year 2022 were impacted by the goodwill impairment charges of
4The company does not provide forward-looking guidance on a GAAP basis as certain financial information, the probable significance of which cannot be determined, is not available and cannot be reasonably estimated. See "Use of Non-GAAP Measures" following the attached schedules for additional explanation.
5Preliminary fiscal year 2024 outlook previously communicated at company's June Investor Day: non-GAAP diluted EPS previously
Cardinal Health uses its website as a channel of distribution for material company information. Important information, including news releases, financial information, earnings and analyst presentations, and information about upcoming presentations and events is routinely posted and accessible on the Investor Relations page at ir.cardinalhealth.com. In addition, the website allows investors and other interested persons to sign up automatically to receive email alerts when the company posts news releases, SEC filings and certain other information on its website.
Cautions concerning forward-looking statements
This release contains forward-looking statements addressing expectations, prospects, estimates and other matters that are dependent upon future events or developments. These statements may be identified by words such as "expect," "anticipate," "intend," "plan," "believe," "will," "should," "could," "would," "project," "continue," "likely," and similar expressions, and include statements reflecting future results or guidance, statements of outlook and various accruals and estimates. These matters are subject to risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied. These risks and uncertainties include risks arising from ongoing inflationary pressures, including the risk that our plans to mitigate such effects may not be as successful as we anticipate or that costs could remain elevated; the possibility that our Medical unit goodwill could be further impaired due to additional changes to our long-term financial plan, increases in global interest rates or unfavorable changes in the
Schedule 1 | |||||||||||
Cardinal Health, Inc. and Subsidiaries Consolidated Statements of Earnings/(Loss) (Unaudited) | |||||||||||
Fourth Quarter | Fiscal Year | ||||||||||
(in millions, except per common share amounts) | 2023 | 2022 | % Change | 2023 | 2022 | % Change | |||||
Revenue | $ 53,453 | $ 47,103 | 13 % | $ 205,012 | $ 181,364 | 13 % | |||||
Cost of products sold | 51,626 | 45,498 | 13 % | 198,123 | 174,819 | 13 % | |||||
Gross margin | 1,827 | 1,605 | 14 % | 6,889 | 6,545 | 5 % | |||||
Operating expenses: | |||||||||||
Distribution, selling, general and administrative expenses | 1,267 | 1,155 | 10 % | 4,834 | 4,557 | 6 % | |||||
Restructuring and employee severance | 33 | 45 | 95 | 101 | |||||||
Amortization and other acquisition-related costs | 69 | 87 | 285 | 324 | |||||||
Impairments and (gain)/loss on disposal of assets, net 1 | 367 | 286 | 1,250 | 2,050 | |||||||
Litigation (recoveries)/charges, net | (46) | (4) | (302) | 109 | |||||||
Operating earnings/(loss) | 137 | 36 | N.M. | 727 | (596) | N.M. | |||||
Other (income)/expense, net | 1 | 30 | (4) | 16 | |||||||
Interest expense, net | 15 | 34 | (56) % | 93 | 149 | (38) % | |||||
Loss on early extinguishment of debt | — | — | — | 10 | |||||||
(Gain)/Loss on sale of equity interest in naviHealth | — | — | — | (2) | |||||||
Earnings/(loss) before income taxes | 121 | (28) | N.M. | 638 | (769) | N.M. | |||||
Provision for/(benefit from) income taxes 2 | 187 | (165) | N.M. | 376 | 163 | N.M. | |||||
Net earnings/(loss) | (66) | 137 | N.M. | 262 | (932) | N.M. | |||||
Less: Net (earnings)/loss attributable to noncontrolling interests | 2 | 1 | (1) | (1) | |||||||
Net earnings/(loss) attributable to Cardinal Health, Inc. | $ (64) | $ 138 | N.M. | $ 261 | $ (933) | N.M. | |||||
Earnings/(Loss) per common share attributable to Cardinal Health, Inc.: | |||||||||||
Basic | $ (0.25) | $ 0.51 | N.M. | $ 1.00 | $ (3.35) | N.M. | |||||
Diluted | (0.25) | 0.50 | N.M. | 1.00 | (3.35) | N.M. | |||||
Weighted-average number of common shares outstanding: | |||||||||||
Basic | 254 | 273 | 261 | 279 | |||||||
Diluted | 254 | 275 | 262 | 279 |
1 | Impairments and (gain)/loss on disposals of assets, net includes pre-tax goodwill impairment charges of |
2 | Provision for/(benefit from) income taxes includes the tax effects relating to the cumulative goodwill impairment charges. For fiscal 2023, the net tax benefit related to the goodwill impairment charges was |
Schedule 2 | |||
Cardinal Health, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited)
| |||
(in millions) | June 30, 2023 | June 30, 2022 | |
Assets | |||
Current assets: | |||
Cash and equivalents | $ 4,043 | $ 4,717 | |
Trade receivables, net | 11,344 | 10,561 | |
Inventories, net | 15,940 | 15,636 | |
Prepaid expenses and other | 2,362 | 2,021 | |
Assets held for sale | 144 | — | |
Total current assets | 33,833 | 32,935 | |
Property and equipment, net | 2,462 | 2,361 | |
Goodwill and other intangibles, net | 6,081 | 7,629 | |
Other assets | 1,041 | 953 | |
Total assets | $ 43,417 | $ 43,878 | |
Liabilities and Shareholders' Deficit | |||
Current liabilities: | |||
Accounts payable | $ 29,813 | $ 27,128 | |
Current portion of long-term obligations and other short-term borrowings | 792 | 580 | |
Other accrued liabilities | 3,059 | 2,842 | |
Liabilities related to assets held for sale | 42 | — | |
Total current liabilities | 33,706 | 30,550 | |
Long-term obligations, less current portion | 3,909 | 4,735 | |
Deferred income taxes and other liabilities | 8,653 | 9,299 | |
Total shareholders' deficit | (2,851) | (706) | |
Total liabilities and shareholders' deficit | $ 43,417 | $ 43,878 |
Schedule 3 | |||||||
Cardinal Health, Inc. and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) | |||||||
Fourth Quarter | Fiscal Year | ||||||
(in millions) | 2023 | 2022 | 2023 | 2022 | |||
Cash flows from operating activities: | |||||||
Net earnings/(loss) | $ (66) | $ 137 | $ 262 | (932) | |||
Adjustments to reconcile net earnings/(loss) to net cash provided by operating activities: | |||||||
Depreciation and amortization | 176 | 179 | 692 | 692 | |||
Impairments and loss on sale of other investments | 7 | 21 | 7 | 24 | |||
Impairments and (gain)/loss on disposal of assets, net | 367 | 286 | 1,250 | 2,050 | |||
(Gain)/Loss on sale of equity interest in naviHealth | — | — | — | (2) | |||
Loss on early extinguishment of debt | — | — | — | 10 | |||
Share-based compensation | 27 | 16 | 96 | 81 | |||
Provision for/(benefit from) deferred income taxes | (31) | 7 | (31) | 7 | |||
Provision for bad debts | 20 | 22 | 99 | 68 | |||
Change in operating assets and liabilities, net of effects from acquisitions and divestitures: | |||||||
Increase in trade receivables | (437) | (333) | (947) | (1,526) | |||
(Increase)/decrease in inventories | 672 | (149) | (340) | (1,071) | |||
Increase in accounts payable | 245 | 2,307 | 2,718 | 3,428 | |||
Other accrued liabilities and operating items, net | (122) | 499 | (967) | 293 | |||
Net cash provided by operating activities | 858 | 2,992 | 2,839 | 3,122 | |||
Cash flows from investing activities: | |||||||
Additions to property and equipment | (217) | (164) | (481) | (387) | |||
Proceeds from divestitures, net of cash sold | — | — | — | 923 | |||
Acquisition of subsidiaries, net of cash acquired | — | (22) | (10) | (22) | |||
Proceeds from disposal of property and equipment | 10 | 20 | 12 | 31 | |||
Purchase of other investments | (1) | (40) | (7) | (78) | |||
Proceeds from sale of investments | 2 | 2 | 3 | 29 | |||
Proceeds from net investment hedge terminations | — | — | 29 | 71 | |||
Net cash provided by/(used in) investing activities | (206) | (204) | (454) | 567 | |||
Cash flows from financing activities: | |||||||
Purchase of noncontrolling interests | (3) | — | (3) | — | |||
Reduction of long-term obligations | (8) | (288) | (579) | (885) | |||
Net tax proceeds/(withholding) from share-based compensation | 45 | 7 | 56 | (19) | |||
Dividends on common shares | (126) | (134) | (525) | (559) | |||
Purchase of treasury shares | (500) | — | (2,000) | (1,000) | |||
Net cash used in financing activities | (592) | (415) | (3,051) | (2,463) | |||
Effect of exchange rates changes on cash and equivalents | (7) | (12) | (8) | (25) | |||
Cash reclassified from assets held for sale | — | — | — | 109 | |||
Net increase/(decrease) in cash and equivalents | 53 | 2,361 | (674) | 1,310 | |||
Cash and equivalents at beginning of period | 3,990 | 2,356 | 4,717 | 3,407 | |||
Cash and equivalents at end of period | $ 4,043 | $ 4,717 | $ 4,043 | $ 4,717 |
Schedule 4 | ||||||||
Cardinal Health, Inc. and Subsidiaries Segment Information
| ||||||||
Fourth Quarter | ||||||||
(in millions) | 2023 | 2022 | (in millions) | 2023 | 2022 | |||
Pharmaceutical | Medical | |||||||
Revenue | Revenue | |||||||
Amount | $ 49,699 | $ 43,337 | Amount | $ 3,755 | $ 3,769 | |||
Growth rate | 15 % | 13 % | Growth rate | — % | (11) % | |||
Segment profit | Segment profit | |||||||
Amount | $ 504 | $ 451 | Amount | $ 82 | $ (16) | |||
Growth rate | 12 % | 26 % | Growth rate | N.M. | 75 % | |||
Segment profit margin | 1.01 % | 1.04 % | Segment profit margin | 2.18 % | (0.42) % |
Fiscal Year | ||||||||
(in millions) | 2023 | 2022 | (in millions) | 2023 | 2022 | |||
Pharmaceutical | Medical | |||||||
Revenue | Revenue | |||||||
Amount | $ 190,009 | $ 165,491 | Amount | $ 15,014 | $ 15,887 | |||
Growth rate | 15 % | 14 % | Growth rate | (5) % | (5) % | |||
Segment profit | Segment profit | |||||||
Amount | $ 1,999 | $ 1,770 | Amount | $ 111 | $ 216 | |||
Growth rate | 13 % | 5 % | Growth rate | (49) % | (63) % | |||
Segment profit margin | 1.05 % | 1.07 % | Segment profit margin | 0.74 % | 1.36 % |
The sum of the components and certain computations may reflect rounding adjustments. |
Schedule 5 | |||||||||||||
Cardinal Health, Inc. and Subsidiaries GAAP / Non-GAAP Reconciliation1 | |||||||||||||
Earnings/ | |||||||||||||
Gross | Operating | (Loss) | Provision for/ | Net | Diluted | ||||||||
Margin | SG&A2 | Earnings | Before | (Benefit from) | Net | Earnings3 | Effective | EPS 3 | |||||
(in millions, except per common share amounts) | Gross | Growth | Growth | Operating | Growth | Income | Income | Earnings/ | Growth | Tax | Diluted | Growth | |
Margin | Rate | SG&A 2 | Rate | Earnings | Rate | Taxes | Taxes | (Loss) 3 | Rate | Rate | EPS 3,4 | Rate | |
Fourth Quarter 2023 | |||||||||||||
GAAP | $ 1,827 | 14 % | $ 1,267 | 10 % | $ 137 | N.M. | $ 121 | $ 187 | $ (64) | N.M. | 154.3 % | $ (0.25) | N.M. |
Restructuring and employee severance | — | — | 33 | 33 | 7 | 26 | 0.10 | ||||||
Amortization and other acquisition-related costs | — | — | 69 | 69 | 18 | 51 | 0.20 | ||||||
Impairments and (gain)/loss on disposal of assets, net 5 | — | — | 367 | 367 | (51) | 418 | 1.64 | ||||||
Litigation (recoveries)/charges, net | — | — | (46) | (46) | (12) | (34) | (0.14) | ||||||
Non-GAAP | $ 1,827 | 14 % | $ 1,267 | 10 % | $ 560 | 24 % | $ 544 | $ 149 | $ 397 | 37 % | 27.4 % | $ 1.55 | 48 % |
Fourth Quarter 2022 | |||||||||||||
GAAP | $ 1,605 | 9 % | $ 1,155 | 2 % | $ 36 | (78) % | $ (28) | $ (165) | $ 138 | 19 % | 575.3 % | $ 0.50 | 25 % |
Restructuring and employee severance | — | — | 45 | 45 | 13 | 32 | 0.12 | ||||||
Amortization and other acquisition-related costs | — | — | 87 | 87 | 22 | 65 | 0.23 | ||||||
Impairments and (gain)/loss on disposal of assets, net 5 | — | — | 286 | 286 | 226 | 60 | 0.22 | ||||||
Litigation (recoveries)/charges, net | — | — | (4) | (4) | 2 | (6) | (0.02) | ||||||
Non-GAAP | $ 1,605 | 11 % | $ 1,155 | 2 % | $ 450 | 41 % | $ 386 | $ 98 | $ 289 | 27 % | 25.4 % | $ 1.05 | 36 % |
1 | For more information on these measures, refer to the Use of Non-GAAP Measures and Definitions schedules. |
2 | Distribution, selling, general and administrative expenses. |
3 | Attributable to Cardinal Health, Inc. |
4 | For the three months ended June 30, 2023, GAAP diluted loss per share attributable to Cardinal Health, Inc. ("GAAP diluted EPS") and the EPS impact from the GAAP to non-GAAP per share reconciling items are calculated using a weighted average of 254 million common shares, which excludes potentially dilutive securities from the denominator due to their anti-dilutive effects resulting from our GAAP net loss for the period. For the three months ended June 30, 2023, non-GAAP diluted EPS is calculated using a weighted average of 256 million common shares, which includes potentially dilutive shares. |
5 | Impairments and (gain)/loss on disposals of assets, net includes a pre-tax goodwill impairment charge of |
The sum of the components and certain computations may reflect rounding adjustments. | |
We generally apply varying tax rates depending on the item's nature and tax jurisdiction where it is incurred. |
Schedule 5 | |||||||||||||
Cardinal Health, Inc. and Subsidiaries GAAP / Non-GAAP Reconciliation1 | |||||||||||||
Earnings/ | |||||||||||||
Gross | Operating | (Loss) | Net | Diluted | |||||||||
Margin | SG&A2 | Operating | Earnings | Before | Provision for | Net | Earnings3 | Effective | EPS 3 | ||||
Gross | Growth | Growth | Earnings/ | Growth | Income | Income | Earnings/ | Growth | Tax | Diluted | Growth | ||
(in millions, except per common share amounts) | Margin | Rate | SG&A 2 | Rate | (Loss) | Rate | Taxes | Taxes | (Loss) 3 | Rate | Rate | EPS 3,4 | Rate |
Fiscal Year 2023 | |||||||||||||
GAAP | $ 6,889 | 5 % | $ 4,834 | 6 % | $ 727 | N.M. | $ 638 | $ 376 | $ 261 | N.M. | 58.9 % | $ 1.00 | N.M. |
State opioid assessment related to prior fiscal years | — | 6 | (6) | (6) | (2) | (4) | (0.02) | ||||||
Shareholder cooperation agreement costs | — | (8) | 8 | 8 | 2 | 6 | 0.02 | ||||||
Restructuring and employee severance | — | — | 95 | 95 | 21 | 74 | 0.28 | ||||||
Amortization and other acquisition-related costs | — | — | 285 | 285 | 74 | 211 | 0.80 | ||||||
Impairments and (gain)/loss on disposal of assets, net 5 | — | — | 1,250 | 1,250 | 86 | 1,164 | 4.44 | ||||||
Litigation (recoveries)/charges, net | — | — | (302) | (302) | (109) | (193) | (0.73) | ||||||
Non-GAAP | $ 6,889 | 5 % | $ 4,832 | 6 % | $ 2,057 | 3 % | $ 1,968 | $ 448 | $ 1,519 | 7 % | 22.8 % | $ 5.79 | 14 % |
Fiscal Year 2022 | |||||||||||||
GAAP | $ 6,545 | (3) % | $ 4,557 | 1 % | $ (596) | N.M. | $ (769) | $ 163 | $ (933) | N.M. | (21.2) % | $ (3.35) | N.M. |
Surgical gown recall costs/(income) | 1 | — | 1 | 1 | — | 1 | — | ||||||
Restructuring and employee severance | — | — | 101 | 101 | 26 | 75 | 0.27 | ||||||
Amortization and other acquisition-related costs | — | — | 324 | 324 | 84 | 240 | 0.87 | ||||||
Impairments and (gain)/loss on disposal of assets, net 5 | — | — | 2,050 | 2,050 | 107 | 1,943 | 6.93 | ||||||
Litigation (recoveries)/charges, net | — | — | 109 | 109 | 21 | 88 | 0.31 | ||||||
Loss on early extinguishment of debt | — | — | — | 10 | 3 | 7 | 0.03 | ||||||
(Gain)/Loss on sale of equity interest in naviHealth | — | — | — | (2) | — | (2) | — | ||||||
Non-GAAP | $ 6,547 | (3) % | $ 4,557 | 1 % | $ 1,990 | (12) % | $ 1,824 | $ 404 | $ 1,419 | (13) % | 22.1 % | $ 5.06 | (9) % |
1 | For more information on these measures, refer to the Use of Non-GAAP Measures and Definitions schedules. |
2 | Distribution, selling, general and administrative expenses. |
3 | Attributable to Cardinal Health, Inc. |
4 | For fiscal 2022, GAAP diluted loss per share attributable to Cardinal Health, Inc. ("GAAP diluted EPS") and the EPS impact from the GAAP to non-GAAP per share reconciling items are calculated using a weighted average of 279 million common shares, which excludes potentially dilutive securities from the denominator due to their anti-dilutive effects resulting from our GAAP net loss for the period. For fiscal 2022, non-GAAP diluted EPS is calculated using a weighted average of 280 million common shares, which includes potentially dilutive shares. |
5 | Impairments and (gain)/loss on disposals of assets, net includes pre-tax goodwill impairment charges of |
The sum of the components and certain computations may reflect rounding adjustments. | |
We generally apply varying tax rates depending on the item's nature and tax jurisdiction where it is incurred. |
Schedule 6 | |||
Cardinal Health, Inc. and Subsidiaries GAAP / Non-GAAP Reconciliation - GAAP Cash Flow to Non-GAAP Adjusted Free Cash Flow | |||
Fiscal Year | Fiscal Year | ||
(in millions) | 2023 | 2022 | |
GAAP - Cash Flow Categories | |||
Net cash provided by operating activities | $ 2,839 | $ 3,122 | |
Net cash provided by/(used in) investing activities | (454) | 567 | |
Net cash used in financing activities | (3,051) | (2,463) | |
Effect of exchange rates changes on cash and equivalents | (8) | (25) | |
Cash reclassified from assets held for sale | — | 109 | |
Net increase/(decrease) in cash and equivalents | $ (674) | $ 1,310 | |
Non-GAAP Adjusted Free Cash Flow | |||
Net cash provided by operating activities | $ 2,839 | $ 3,122 | |
Additions to property and equipment | (481) | (387) | |
Payments related to matters included in litigation (recoveries)/charges, net | 490 | 511 | |
Other significant and unusual or non-recurring items | |||
— | (966) | ||
Non-GAAP Adjusted Free Cash Flow | $ 2,848 | $ 2,280 | |
For more information on these measures, refer to the Use of Non-GAAP Measures and Definitions schedules. | |||
Cardinal Health, Inc. and Subsidiaries
Use of Non-GAAP Measures
This earnings release contains financial measures that are not calculated in accordance with
In addition to analyzing our business based on financial information prepared in accordance with GAAP, we use these non-GAAP financial measures internally to evaluate our performance, engage in financial and operational planning and determine incentive compensation because we believe that these measures provide additional perspective on and, in some circumstances are more closely correlated to, the performance of our underlying, ongoing business. We provide these non-GAAP financial measures to investors as supplemental metrics to assist readers in assessing the effects of items and events on our financial and operating results on a year-over-year basis and in comparing our performance to that of our competitors. However, the non-GAAP financial measures that we use may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. The non-GAAP financial measures disclosed by us should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations to those financial statements set forth below should be carefully evaluated.
Exclusions from Non-GAAP Financial Measures
Management believes it is useful to exclude the following items from the non-GAAP measures presented in this report for its own and for investors' assessment of the business for the reasons identified below:
- LIFO charges and credits are excluded because the factors that drive last-in first-out ("LIFO") inventory charges or credits, such as pharmaceutical manufacturer price appreciation or deflation and year-end inventory levels (which can be meaningfully influenced by customer buying behavior immediately preceding our fiscal year-end), are largely out of our control and cannot be accurately predicted. The exclusion of LIFO charges and credits from non-GAAP metrics facilitates comparison of our current financial results to our historical financial results and to our peer group companies' financial results. We did not recognize any LIFO charges or credits during the periods presented.
- Surgical gown recall costs or income includes inventory write-offs and certain remediation and supply disruption costs, net of related insurance recoveries, arising from the January 2020 recall of select Association for the Advancement of Medical Instrumentation ("AAMI") Level 3 surgical gowns and voluntary field actions (a recall of some packs and a corrective action allowing overlabeling of other packs) for Presource Procedure Packs containing affected gowns. Income from surgical gown recall costs represents insurance recoveries of these certain costs. We have excluded these costs from our non-GAAP metrics to allow investors to better understand the underlying operating results of the business and to facilitate comparison of our current financial results to our historical financial results and to our peer group companies' financial results.
- State opioid assessments related to prior fiscal years is the portion of state assessments for prescription opioid medications that were sold or distributed in periods prior to the period in which the expense is incurred. This portion is excluded from non-GAAP financial measures because it is retrospectively applied to sales in prior fiscal years and inclusion would obscure analysis of the current fiscal year results of our underlying, ongoing business. Additionally, while states' laws may require us to make payments on an ongoing basis, the portion of the assessment related to sales in prior periods are contemplated to be one-time, nonrecurring items. Income from state opioid assessments related to prior fiscal years represents reversals of accruals due to changes in estimates or when the underlying assessments were invalidated by a Court or reimbursed by manufacturers.
- Shareholder cooperation agreement costs includes costs such as legal, consulting and other expenses incurred in relation to the agreement (the "Cooperation Agreement") entered into among Elliott Associates, L.P., Elliott International, L.P. (together, "Elliott") and Cardinal Health, including costs incurred to negotiate and finalize the Cooperation Agreement and costs incurred by the Business Review Committee of the Board of Directors, which was formed under this Cooperation Agreement. We have excluded these costs from our non-GAAP metrics because they do not occur in or reflect the ordinary course of our ongoing business operations and may obscure analysis of trends and financial performance.
- Restructuring and employee severance costs are excluded because they are not part of the ongoing operations of our underlying business and include, but are not limited to, costs related to divestitures, closing and consolidating facilities, changing the way we manufacture or distribute our products, moving manufacturing of a product to another location, changes in production or business process outsourcing or insourcing, employee severance and realigning operations.
- Amortization and other acquisition-related costs, which include transaction costs, integration costs and changes in the fair value of contingent consideration obligations, are excluded because they are not part of the ongoing operations of our underlying business and to facilitate comparison of our current financial results to our historical financial results and to our peer group companies' financial results. Additionally, costs for amortization of acquisition-related intangible assets are non-cash amounts, which are variable in amount and frequency and are significantly impacted by the timing and size of acquisitions, so their exclusion facilitates comparison of historical, current and forecasted financial results. We also exclude other acquisition-related costs, which are directly related to an acquisition but do not meet the criteria to be recognized on the acquired entity's initial balance sheet as part of the purchase price allocation. These costs are also significantly impacted by the timing, complexity and size of acquisitions.
- Impairments and gain or loss on disposal of assets, net are excluded because they do not occur in or reflect the ordinary course of our ongoing business operations and are inherently unpredictable in timing and amount, and in the case of impairments, are non-cash amounts, so their exclusion facilitates comparison of historical, current and forecasted financial results.
- Litigation recoveries or charges, net are excluded because they often relate to events that may have occurred in prior or multiple periods, do not occur in or reflect the ordinary course of our business and are inherently unpredictable in timing and amount. During fiscal 2022, we incurred a one-time contingent attorneys' fee of
related to the finalization of the settlement agreement (the "National Opioid Settlement Agreement") resulting in the settlement of the vast majority of opioid lawsuits filed by state and local governmental entities. Due to the unique nature and significance of the National Opioid Settlement Agreement, and the one-time, contingent nature of the fee, this fee was included in litigation recoveries or charges, net. Additionally, during fiscal 2022 our Pharmaceutical segment profit was positively impacted by a$18 million judgment for lost profits. This judgment was the result of an ordinary course intellectual property rights claim and, therefore, is not adjusted in calculating the litigation recoveries or charges, net adjustment. During fiscal 2021, we incurred a tax benefit related to a carryback of a net operating loss. Some pre-tax amounts, which contributed to this loss, relate to litigation charges. As a result, we allocated substantially all of the tax benefit to litigation charges.$16 million - Loss on early extinguishment of debt is excluded because it does not typically occur in the normal course of business and may obscure analysis of trends and financial performance. Additionally, the amount and frequency of this type of charge is not consistent and is significantly impacted by the timing and size of debt extinguishment transactions.
- (Gain)/Loss on sale of equity interest in naviHealth was incurred in connection with the sale of our remaining equity interest in naviHealth in fiscal 2020. The equity interest was retained in connection with the initial sale of our majority interest in naviHealth during fiscal 2019. We exclude this significant gain because gains or losses on investments of this magnitude do not typically occur in the normal course of business and are similar in nature to a gain or loss from a divestiture of a majority interest, which we exclude from non-GAAP results. The gain on the initial sale of our majority interest in naviHealth in fiscal 2019 was also excluded from our non-GAAP measures.
The tax effect for each of the items listed above is determined using the tax rate and other tax attributes applicable to the item and the jurisdiction(s) in which the item is recorded. The gross, tax and net impact of each item are presented with our GAAP to non-GAAP reconciliations.
Non-GAAP adjusted free cash flow: We provide this non-GAAP financial measure as a supplemental metric to assist readers in assessing the effects of items and events on our cash flow on a year-over-year basis and in comparing our performance to that of our peer group companies. In calculating this non-GAAP metric, certain items are excluded from net cash provided by operating activities because they relate to significant and unusual or non-recurring events and are inherently unpredictable in timing and amount. We believe adjusted free cash flow is important to management and useful to investors as a supplemental measure as it indicates the cash flow available for working capital needs, debt repayments, dividend payments, share repurchases, strategic acquisitions, or other strategic uses of cash. A reconciliation of our GAAP financial results to Non-GAAP adjusted free cash flow is provided in Schedule 6 of the financial statement tables included with this release.
Forward Looking Non-GAAP Measures
In this document, the Company presents certain forward-looking non-GAAP metrics. The Company does not provide outlook on a GAAP basis because the items that the Company excludes from GAAP to calculate the comparable non-GAAP measure can be dependent on future events that are less capable of being controlled or reliably predicted by management and are not part of the Company's routine operating activities. Additionally, management does not forecast many of the excluded items for internal use and therefore cannot create or rely on outlook done on a GAAP basis.
The occurrence, timing and amount of any of the items excluded from GAAP to calculate non-GAAP could significantly impact the Company's fiscal 2024 GAAP results. Over the past five fiscal years, the excluded items have impacted the Company's EPS from
Definitions
Growth rate calculation: growth rates in this report are determined by dividing the difference between current-period results and prior-period results by prior-period results.
Interest and Other, net: other (income)/expense, net plus interest expense, net.
Segment Profit: segment revenue minus (segment cost of products sold and segment distribution, selling, general and administrative expenses).
Segment Profit margin: segment profit divided by segment revenue.
Non-GAAP gross margin: gross margin, excluding LIFO charges/(credits) and surgical gown recall costs/(income).
Non-GAAP distribution, selling, general and administrative expenses or Non-GAAP SG&A: distribution, selling, general and administrative expenses, excluding surgical gown recall costs/(income), state opioid assessment related to prior fiscal years and shareholder cooperation agreement costs.
Non-GAAP operating earnings: operating earnings/(loss) excluding (1) LIFO charges/(credits), (2) surgical gown recall costs/(income), (3) state opioid assessment related to prior fiscal years, (4) shareholder cooperation agreement costs, (5) restructuring and employee severance, (6) amortization and other acquisition-related costs, (7) impairments and (gain)/loss on disposal of assets, net and (8) litigation (recoveries)/charges, net.
Non-GAAP earnings before income taxes: earnings/(loss) before income taxes excluding (1) LIFO charges/(credits), (2) surgical gown recall costs/(income), (3) state opioid assessment related to prior fiscal years, (4) shareholder cooperation agreement costs, (5) restructuring and employee severance, (6) amortization and other acquisition-related costs, (7) impairments and (gain)/loss on disposal of assets, net, (8) litigation (recoveries)/charges, net, (9) loss on early extinguishment of debt and (10) (gain)/loss on sale of equity interest in naviHealth.
Non-GAAP net earnings attributable to Cardinal Health, Inc.: net earnings/(loss) attributable to Cardinal Health, Inc. excluding (1) LIFO charges/(credits), (2) surgical gown recall costs/(income), (3) state opioid assessment related to prior fiscal years, (4) shareholder cooperation agreement costs, (5) restructuring and employee severance, (6) amortization and other acquisition-related costs, (7) impairments and (gain)/loss on disposal of assets, net, (8) litigation (recoveries)/charges, net, (9) loss on early extinguishment of debt and (10) (gain)/loss on sale of equity interest in naviHealth, each net of tax.
Non-GAAP effective tax rate: provision for/(benefit from) income taxes adjusted for the tax impacts of (1) LIFO charges/(credits), (2) surgical gown recall costs/(income), (3) state opioid assessment related to prior fiscal years, (4) shareholder cooperation agreement costs, (5) restructuring and employee severance, (6) amortization and other acquisition-related costs, (7) impairments and (gain)/loss on disposal of assets, net, (8) litigation (recoveries)/charges, net, (9) loss on early extinguishment of debt and (10) (gain)/loss on sale of equity interest in naviHealth divided by (earnings before income taxes adjusted for the ten items above).
Non-GAAP diluted earnings per share attributable to Cardinal Health, Inc.: non-GAAP net earnings attributable to Cardinal Health, Inc. divided by diluted weighted-average shares outstanding.
Non-GAAP adjusted free cash flow: net cash provided by operating activities less payments related to additions to property and equipment, excluding settlement payments and receipts related to matters included in litigation (recoveries)/charges, net, as defined above, or other significant and unusual or non-recurring cash payments or receipts. For example, the
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SOURCE Cardinal Health
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