Walgreens Boots Alliance Reports Fiscal 2023 First Quarter Results
Walgreens Boots Alliance (WBA) reported a first-quarter net loss of $3.7 billion, significantly impacted by a $6.5 billion opioid-related charge. Adjusted EPS fell 30.8% to $1.16. First-quarter sales decreased 1.5% year-over-year to $33.4 billion, with resilient core retail performance but challenges in COVID-19 vaccine sales. The company raised its full-year sales guidance to $133.5 billion to $137.5 billion, while maintaining adjusted EPS guidance of $4.45 to $4.65. Significant investments were made in U.S. Healthcare, particularly through the acquisition of Summit Health for $3.5 billion.
- Raised full-year sales guidance to $133.5 billion to $137.5 billion.
- Maintained adjusted EPS guidance of $4.45 to $4.65.
- U.S. Healthcare segment sales increased significantly by 38.4% on a pro forma basis.
- First-quarter net loss of $3.7 billion compared to net income of $3.6 billion year-over-year.
- Adjusted EPS decreased 30.8% from the previous year.
- Operating loss of $6.2 billion driven by opioid-related claims.
Results On Track to Achieve Full-Year Adjusted EPS Guidance;
Company Raises Sales Guidance
First quarter financial highlights
-
First quarter loss per share* was
$4.31 $4.13 $6.5 billion -
Adjusted EPS decreased 30.8 percent to
$1.16 -
First quarter sales decreased 1.5 percent year-over-year, to
$33.4 billion Walgreens of 485 basis points and the positive contributions fromU.S. Healthcare M&A of 280 basis points, sales growth was 3.2 percent on a constant currency basis -
Invested
$3.5 billion VillageMD's acquisition ofSummit Health , which closedJanuary 3, 2023 , acceleratingU.S. Healthcare segment sales and path to profitability -
Sold 19.2 million shares of AmerisourceBergen common stock in November and December, with after-tax cash proceeds of
$3 billion
Fiscal 2023 outlook and long-term growth outlook
-
Maintaining full-year adjusted EPS guidance of
$4.45 $4.65 -
Raising full-year sales guidance to
$133.5 billion $137.5 billion Summit Health acquisition, refreshed currency rates, and first quarter sales ahead of expectations -
U.S. Healthcare targets raised withSummit Health announcement onNovember 7, 2022 , including fiscal year 2025 sales goal to$14.5 billion $16.0 billion $11.0 billion $12.0 billion - Increased clarity into the Company's long-term growth algorithm, building to low-teens adjusted EPS growth in fiscal year 2025 and beyond
Chief Executive Officer
"WBA delivered a solid start to the fiscal year, as we continue to accelerate our transformation to a consumer-centric healthcare company. We're making significant progress in driving our
Overview of First Quarter Results
WBA first quarter sales decreased 1.5 percent from the year-ago quarter to
Operating loss was
Net loss in the first quarter was
Loss per share in the first quarter was
Net cash provided by operating activities was
Business Highlights
WBA continues to achieve strong results across its business and strategic priorities, including:
Transform and align the core
- Continuing to play a leading role in COVID-19 vaccinations and testing, administering 8.4 million vaccinations in the quarter
-
U.S. retail comparable sales growth of 1.4 percent, or 2.1 percent excluding tobacco, on top of strong prior year performance of 10.6 percent, or 11.7 percent excluding tobacco -
Expanded
U.S. retail margins while managing supply chain costs, maintaining price positioning vs. competitors, and stabilizing shrink levels -
U.S. pharmacy comparable script volume growth of 2.1 percent excluding immunizations - Operating nine automated micro-fulfillment centers at quarter-end, supporting ~3,000 stores
- Investing in labor to return impacted stores to normal operating hours
-
Boots
UK retail comparable sales growth of 8.7 percent on top of robust prior year growth of 16.3 percent
Build our next growth engine with consumer-centric healthcare solutions
-
Invested
$3.5 billion Summit Health , a leading independent provider of primary, specialty, and urgent care -
Closed full acquisition of Shields on
December 28, 2022 -
Full acquisition of
CareCentrix expected to close in the third quarter of fiscal 2023 -
Achieved calendar year 2022 target for co-located
VillageMD clinics of 200, as part of 393 total clinics now open -
Exceeded calendar year 2022 target for
Walgreens Health Corners: 112 vs. goal of 100
Focus the portfolio; optimize capital allocation
-
Sold 19.2 million shares of AmerisourceBergen common stock in November and December, with total after-tax cash proceeds of
$3 billion -
Sold stake of
Guangzhou Pharmaceuticals in December for approximately$150 million
Build a high-performance culture and a winning team
-
Strong U.S. Healthcare leadership team in place, including President and Chief Growth Officer - Appointed Bryan Hanson to the Board of Directors, bolstering leadership experience in healthcare and technology
- Eliminated all task-based metrics for retail pharmacy staff, further enabling pharmacists to practice at the top of their license while creating a differentiated work environment
Business Segments
Pharmacy sales decreased 4.2 percent compared to the year-ago quarter, negatively impacted by a 7.8 percentage point headwind from AllianceRx
Retail sales increased 0.8 percent and comparable retail sales increased 1.4 percent in the first quarter compared with the year-ago quarter. Excluding tobacco, comparable retail sales increased 2.1 percent, aided by strong cough, cold, flu sales representing a tailwind of 220 bps, partly offset by lower sales of OTC test kits representing a headwind of 170 basis points. Beauty and personal care categories both grew, benefiting from owned brand offerings and improved inventory availability.
Gross profit decreased 7.3 percent compared with the year-ago quarter. Adjusted gross profit decreased 7.2 percent. Gross profit and adjusted gross profit were driven by lower contributions from COVID-19 vaccinations and testing and reimbursement net of procurement savings, partially offset by higher retail gross profit from higher sales and gross margin expansion.
Selling, general and administrative expenses (SG&A) increased 129.8 percent from
Operating loss in the first quarter was
International:
The International segment had first quarter sales of
Boots
Gross profit decreased 13.0 percent compared with the year-ago quarter, including an adverse currency impact of 15.1 percent. Gross profit increased 2.1 percent on a constant currency basis, reflecting higher
SG&A in the quarter decreased 18.2 percent from the year-ago quarter to
Operating income increased 96.5 percent from the year-ago quarter to
Gross profit was
First quarter SG&A was
Operating loss was
Conference Call
WBA will hold a conference call to discuss the first quarter results beginning at
*All references to net earnings or net loss are to net earnings or net loss attributable to WBA, and all references to EPS are to diluted EPS attributable to WBA.
**"Adjusted," "constant currency" and free cash flow amounts are non-GAAP financial measures. See the appendix to this release for a discussion of non-GAAP financial measures, including a reconciliation to the most closely correlated GAAP measure. The Company defines Adjusted EBITDA as segment operating income/(loss) before depreciation, amortization, and stock-based compensation; in addition to these items, the Company excludes certain other non-GAAP adjustments, when they occur, as further defined.
Cautionary Note Regarding Forward-Looking Statements: This release contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These include, without limitation, estimates of and goals for future operating, financial and tax performance and results, including our fiscal year 2023 guidance, our long-term growth algorithm, outlook and targets and related assumptions and drivers, as well as forward-looking statements concerning the expected execution and effect of our business strategies, including the potential impacts on our business of COVID-19, our cost-savings and growth initiatives, including statements relating to our expected cost savings under our Transformational Cost Management Program and expansion and future operating and financial results of our
These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions, known or unknown, that could cause actual results to vary materially from those indicated or anticipated.
These risks, assumptions and uncertainties include those described in Item 1A (Risk Factors) of our Form 10-K for the fiscal year ended
We do not undertake, and expressly disclaim, any duty or obligation to update publicly any forward-looking statement after the date of this release, whether as a result of new information, future events, changes in assumptions or otherwise.
Please refer to the supplemental information presented below for reconciliations of the non-GAAP financial measures used in this release to the most comparable GAAP financial measure and related disclosures.
Notes to Editors:
About
A trusted, global innovator in retail pharmacy with approximately 13,000 locations across the
WBA employs more than 325,000 people and has a presence in nine countries through its portfolio of consumer brands:
The Company is proud of its contributions to healthy communities, a healthy planet, an inclusive workplace and a sustainable marketplace. WBA has been recognized for its commitment to operating sustainably: the Company is an index component of the Dow Jones Sustainability Indices (DJSI) and was named to the 100 Best Corporate Citizens 2022.
(WBA-ER)
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (UNAUDITED) (in millions, except per share amounts) |
|||||||
|
Three months ended |
||||||
|
2022 |
|
2021 |
||||
Sales |
$ |
33,382 |
|
|
$ |
33,901 |
|
Cost of sales |
|
26,429 |
|
|
|
26,326 |
|
Gross profit |
|
6,953 |
|
|
|
7,574 |
|
Selling, general and administrative expenses |
|
13,158 |
|
|
|
6,391 |
|
Equity earnings in AmerisourceBergen |
|
53 |
|
|
|
100 |
|
Operating (loss) income |
|
(6,151 |
) |
|
|
1,283 |
|
Other income, net |
|
992 |
|
|
|
2,617 |
|
(Loss) earnings before interest and income tax (benefit) provision |
|
(5,159 |
) |
|
|
3,900 |
|
Interest expense, net |
|
110 |
|
|
|
86 |
|
(Loss) earnings before income tax (benefit) provision |
|
(5,270 |
) |
|
|
3,814 |
|
Income tax (benefit) provision |
|
(1,447 |
) |
|
|
275 |
|
Post-tax earnings (loss) from other equity method investments |
|
7 |
|
|
|
(7 |
) |
Net (loss) earnings |
|
(3,816 |
) |
|
|
3,531 |
|
Net loss attributable to non-controlling interests |
|
(94 |
) |
|
|
(48 |
) |
Net (loss) earnings attributable to |
$ |
(3,721 |
) |
|
$ |
3,580 |
|
|
|
|
|
||||
Net (loss) earnings per common share: |
|
|
|
||||
Basic |
$ |
(4.31 |
) |
|
$ |
4.13 |
|
Diluted |
$ |
(4.31 |
) |
|
$ |
4.13 |
|
|
|
|
|
||||
Weighted average common shares outstanding: |
|
|
|
||||
Basic |
|
863.6 |
|
|
|
865.8 |
|
Diluted |
|
863.6 |
|
|
|
867.6 |
|
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) (in millions) |
||||||||
|
|
|
|
|
||||
Assets |
|
|
|
|
||||
Current assets: |
|
|
|
|
||||
Cash and cash equivalents |
|
$ |
2,349 |
|
$ |
1,358 |
||
Marketable securities |
|
|
1,883 |
|
|
1,114 |
||
Accounts receivable, net |
|
|
4,853 |
|
|
5,017 |
||
Inventories |
|
|
9,322 |
|
|
8,353 |
||
Other current assets |
|
|
1,115 |
|
|
1,059 |
||
Total current assets |
|
|
19,523 |
|
|
16,902 |
||
|
|
|
|
|
||||
Non-current assets: |
|
|
|
|
||||
Property, plant and equipment, net |
|
|
11,450 |
|
|
11,729 |
||
Operating lease right-of-use assets |
|
|
21,240 |
|
|
21,259 |
||
|
|
|
22,582 |
|
|
22,280 |
||
Intangible assets, net |
|
|
10,612 |
|
|
10,730 |
||
Equity method investments |
|
|
4,426 |
|
|
5,495 |
||
Other non-current assets |
|
|
3,042 |
|
|
1,730 |
||
Total non-current assets |
|
|
73,352 |
|
|
73,222 |
||
Total assets |
|
$ |
92,875 |
|
$ |
90,124 |
||
|
|
|
|
|
||||
Liabilities, redeemable non-controlling interests and equity |
|
|
|
|
||||
Current liabilities: |
|
|
|
|
||||
Short-term debt |
|
$ |
3,938 |
|
$ |
1,059 |
||
Trade accounts payable |
|
|
12,184 |
|
|
11,255 |
||
Operating lease obligations |
|
|
2,271 |
|
|
2,286 |
||
Accrued expenses and other liabilities |
|
|
9,534 |
|
|
7,899 |
||
Income taxes |
|
|
109 |
|
|
84 |
||
Total current liabilities |
|
|
28,036 |
|
|
22,583 |
||
|
|
|
|
|
||||
Non-current liabilities: |
|
|
|
|
||||
Long-term debt |
|
|
7,789 |
|
|
10,615 |
||
Operating lease obligations |
|
|
21,514 |
|
|
21,517 |
||
Deferred income taxes |
|
|
1,319 |
|
|
1,442 |
||
Accrued litigation obligations |
|
|
6,427 |
|
|
551 |
||
Other non-current liabilities |
|
|
3,052 |
|
|
3,009 |
||
Total non-current liabilities |
|
|
40,101 |
|
|
37,134 |
||
|
|
|
|
|
||||
Redeemable non-controlling interests |
|
|
157 |
|
|
1,042 |
||
Total equity |
|
|
24,582 |
|
|
29,366 |
||
Total liabilities, redeemable non-controlling interests and equity |
|
$ |
92,875 |
|
$ |
90,124 |
||
|
||||||||
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS |
||||||||
(UNAUDITED) |
||||||||
(in millions) |
||||||||
|
|
Three months ended
|
||||||
|
|
2022 |
|
2021 |
||||
Cash flows from operating activities: |
|
|
|
|
||||
Net (loss) earnings |
|
$ |
(3,816 |
) |
|
$ |
3,531 |
|
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities: |
|
|
|
|
||||
Depreciation and amortization |
|
|
495 |
|
|
|
500 |
|
Deferred income taxes |
|
|
(1,602 |
) |
|
|
164 |
|
Stock compensation expense |
|
|
222 |
|
|
|
35 |
|
Earnings from equity method investments |
|
|
(61 |
) |
|
|
(93 |
) |
Gain on previously held investment interests |
|
|
— |
|
|
|
(2,576 |
) |
Gain on sale of equity method investments |
|
|
(969 |
) |
|
|
— |
|
Other |
|
|
(129 |
) |
|
|
95 |
|
Changes in operating assets and liabilities: |
|
|
|
|
||||
Accounts receivable, net |
|
|
151 |
|
|
|
(127 |
) |
Inventories |
|
|
(918 |
) |
|
|
(1,352 |
) |
Other current assets |
|
|
(68 |
) |
|
|
(58 |
) |
Trade accounts payable |
|
|
867 |
|
|
|
1,335 |
|
Accrued expenses and other liabilities |
|
|
(269 |
) |
|
|
(399 |
) |
Income taxes |
|
|
153 |
|
|
|
79 |
|
Accrued litigation obligations |
|
|
6,494 |
|
|
|
— |
|
Other non-current assets and liabilities |
|
|
(58 |
) |
|
|
(36 |
) |
Net cash provided by operating activities |
|
|
493 |
|
|
|
1,099 |
|
Cash flows from investing activities: |
|
|
|
|
||||
Additions to property, plant and equipment |
|
|
(610 |
) |
|
|
(454 |
) |
Proceeds from sale-leaseback transactions |
|
|
409 |
|
|
|
202 |
|
Proceeds from sale of other assets |
|
|
2,068 |
|
|
|
— |
|
Business, investment and asset acquisitions, net of cash acquired |
|
|
(80 |
) |
|
|
(1,800 |
) |
Other |
|
|
70 |
|
|
|
95 |
|
Net cash provided by (used for) investing activities |
|
|
1,858 |
|
|
|
(1,958 |
) |
Cash flows from financing activities: |
|
|
|
|
||||
Net change in short-term debt with maturities of 3 months or less |
|
|
22 |
|
|
|
937 |
|
Proceeds from debt |
|
|
17 |
|
|
|
7,940 |
|
Payments of debt |
|
|
(11 |
) |
|
|
(4,444 |
) |
Stock purchases |
|
|
(150 |
) |
|
|
(154 |
) |
Proceeds related to employee stock plans, net |
|
|
6 |
|
|
|
19 |
|
Cash dividends paid |
|
|
(415 |
) |
|
|
(413 |
) |
Other |
|
|
(69 |
) |
|
|
(7 |
) |
Net cash (used for) provided by financing activities |
|
|
(599 |
) |
|
|
3,877 |
|
Effect of exchange rate changes on cash, cash equivalents, marketable securities and restricted cash |
|
|
4 |
|
|
|
(20 |
) |
Changes in cash, cash equivalents, marketable securities and restricted cash: |
|
|
|
|
||||
Net increase in cash, cash equivalents, marketable securities and restricted cash |
|
|
1,756 |
|
|
|
2,998 |
|
Cash, cash equivalents, marketable securities and restricted cash at beginning of period |
|
|
2,558 |
|
|
|
1,270 |
|
Cash, cash equivalents, marketable securities and restricted cash at end of period |
|
$ |
4,314 |
|
|
$ |
4,268 |
|
SUPPLEMENTAL INFORMATION (UNAUDITED)
REGARDING NON-GAAP FINANCIAL MEASURES
(in millions, except per share amounts)
The following information provides reconciliations of the supplemental non-GAAP financial measures, as defined under
These supplemental non-GAAP financial measures are presented because management has evaluated the Company’s financial results both including and excluding the adjusted items or the effects of foreign currency translation, as applicable, and believes that the supplemental non-GAAP financial measures presented provide additional perspective and insights when analyzing the core operating performance of the Company’s business from period to period and trends in the Company’s historical operating results. These supplemental non-GAAP financial measures should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented in the press release.
The Company does not provide a reconciliation for non-GAAP estimates on a forward-looking basis where it is unable to provide a meaningful or accurate calculation or estimation of reconciling items and the information is not available without unreasonable effort. This is due to the inherent difficulty of forecasting the timing or amount of various items that have not yet occurred, are out of the Company’s control and/or cannot be reasonably predicted, and that would impact diluted net earnings per share, the most directly comparable forward-looking GAAP financial measure. For the same reasons, the Company is unable to address the probable significance of the unavailable information. Forward-looking non-GAAP financial measures provided without the most directly comparable GAAP financial measures may vary materially from the corresponding GAAP financial measures.
Constant currency
The Company also presents certain information related to current period operating results in “constant currency,” which is a non-GAAP financial measure. These amounts are calculated by translating current period results at the foreign currency exchange rates used in the comparable period in the prior year. The Company presents such constant currency financial information because it has significant operations outside of the
Comparable sales
For the Company's
With respect to the International segment, comparable sales, comparable pharmacy sales and comparable retail sales, are presented on a constant currency basis, which is a non-GAAP financial measure. Refer to the discussion above in "Constant currency" for further details on constant currency calculations.
Key Performance Indicators
The Company considers certain metrics, such as comparable sales, comparable pharmacy sales, comparable retail sales, comparable number of prescriptions, comparable 30-day equivalent prescriptions, number of payor/ provider partnerships, number of locations of
With respect to the total number of
NET (LOSS) EARNINGS AND DILUTED NET (LOSS) EARNINGS PER SHARE |
||||||||
|
|
(in millions) |
||||||
|
|
Three months ended |
||||||
|
|
2022 |
|
2021 |
||||
Net (loss) earnings attributable to |
|
$ |
(3,721 |
) |
|
$ |
3,580 |
|
|
|
|
|
|
||||
Adjustments to operating (loss) income: |
|
|
|
|
||||
Certain legal and regulatory accruals and settlements 1 |
|
|
6,554 |
|
|
|
— |
|
Transformational cost management 2 |
|
|
138 |
|
|
|
203 |
|
Acquisition-related amortization 3 |
|
|
330 |
|
|
|
165 |
|
Acquisition-related costs 4 |
|
|
39 |
|
|
|
71 |
|
Adjustments to equity earnings in AmerisourceBergen 5 |
|
|
86 |
|
|
|
43 |
|
LIFO provision 6 |
|
|
18 |
|
|
|
14 |
|
Total adjustments to operating (loss) income |
|
|
7,166 |
|
|
|
495 |
|
Adjustments to other income, net: |
|
|
|
|
||||
Net investment hedging loss 7 |
|
|
— |
|
|
|
1 |
|
Gain on previously held investments 8 |
|
|
— |
|
|
|
(2,576 |
) |
Gain on sale of equity method investments 9 |
|
|
(969 |
) |
|
|
— |
|
Total adjustments to other income, net |
|
|
(969 |
) |
|
|
(2,574 |
) |
Adjustments to income tax (benefit) provision: |
|
|
|
|
||||
Equity method non-cash tax 10 |
|
|
8 |
|
|
|
18 |
|
Tax impact of adjustments 10 |
|
|
(1,438 |
) |
|
|
(26 |
) |
Total adjustments to income tax (benefit) provision |
|
|
(1,430 |
) |
|
|
(8 |
) |
Adjustments to post-tax earnings (loss) from other equity method investments: |
|
|
|
|
||||
Adjustments to earnings (loss) in other equity method investments 11 |
|
|
8 |
|
|
|
15 |
|
Total adjustments to post-tax earnings (loss) from other equity method investments |
|
|
8 |
|
|
|
15 |
|
Adjustments to net loss attributable to non-controlling interests: |
|
|
|
|
||||
Transformational cost management 2 |
|
|
— |
|
|
|
(1 |
) |
Acquisition-related amortization 3 |
|
|
(37 |
) |
|
|
(32 |
) |
Acquisition-related costs 4 |
|
|
(14 |
) |
|
|
(17 |
) |
Total adjustments to net loss attributable to non-controlling interests |
|
|
(51 |
) |
|
|
(50 |
) |
|
|
|
|
|
||||
Adjusted net earnings attributable to |
|
$ |
1,004 |
|
|
$ |
1,455 |
|
|
|
|
|
|
||||
Diluted net (loss) earnings per common share (GAAP) 12 |
|
$ |
(4.31 |
) |
|
$ |
4.13 |
|
Adjustments to operating (loss) income |
|
|
8.29 |
|
|
|
0.57 |
|
Adjustments to other income, net |
|
|
(1.12 |
) |
|
|
(2.97 |
) |
Adjustments to income tax (benefit) provision |
|
|
(1.65 |
) |
|
|
(0.01 |
) |
Adjustments to post-tax earnings (loss) from other equity method investments 11 |
|
|
0.01 |
|
|
|
0.02 |
|
Adjustments to net loss attributable to non-controlling interests |
|
|
(0.06 |
) |
|
|
(0.06 |
) |
Adjusted diluted net earnings per common share (Non-GAAP measure) 13 |
|
$ |
1.16 |
|
|
$ |
1.68 |
|
|
|
|
|
|
||||
Weighted average common shares outstanding, diluted (in millions) 13 |
|
|
864.3 |
|
|
|
867.6 |
|
|
|
|
|
|
||||
1 |
Certain legal and regulatory accruals and settlements relate to significant charges associated with certain legal proceedings, including legal defense costs. The Company excludes these charges when evaluating operating performance because it does not incur such charges on a predictable basis and exclusion of such charges enables more consistent evaluation of the Company’s operating performance. These charges are recorded within Selling, general and administrative expenses. During the three months ended |
2 |
Transformational Cost Management Program charges are costs associated with a formal restructuring plan. These charges are primarily recorded within Selling, general and administrative expenses. These costs do not reflect current operating performance and are impacted by the timing of restructuring activity. |
3 |
Acquisition-related amortization includes amortization of acquisition-related intangible assets, inventory valuation adjustments and stock-based compensation fair valuation adjustments. Amortization of acquisition-related intangible assets includes amortization of intangible assets such as customer relationships, trade names, trademarks, developed technology and contract intangibles. Intangible asset amortization excluded from the related non-GAAP measure represents the entire amount recorded within the Company’s GAAP financial statements. The revenue generated by the associated intangible assets has not been excluded from the related non-GAAP measures. Amortization expense, unlike the related revenue, is not affected by operations of any particular period unless an intangible asset becomes impaired, or the estimated useful life of an intangible asset is revised. These charges are primarily recorded within Selling, general and administrative expenses. Business combination accounting principles require us to measure acquired inventory at fair value. The fair value of the inventory reflects cost of acquired inventory and a portion of the expected profit margin. The acquisition-related inventory valuation adjustments exclude the expected profit margin component from cost of sales recorded under the business combination accounting principles. The stock-based compensation fair valuation adjustment reflects the difference between the fair value based remeasurement of awards under purchase accounting and the grant date fair valuation. Post-acquisition compensation expense recognized in excess of the original grant date fair value of acquiree awards are excluded from the related non-GAAP measures as these arise from acquisition-related accounting requirements or agreements, and are not reflective of normal operating activities. |
4 |
Acquisition-related costs are transaction and integration costs associated with certain merger, acquisition and divestitures related activities. These costs include charges incurred related to certain mergers, acquisition and divestitures related activities recorded in operating income, for example, costs related to integration efforts for merger, acquisition and divestitures activities. Examples of such costs include deal costs, severance and stock compensation. These charges are primarily recorded within Selling, general and administrative expenses. These costs are significantly impacted by the timing and complexity of the underlying merger, acquisition and divestitures related activities and do not reflect the Company’s current operating performance. |
5 |
Adjustments to equity earnings in AmerisourceBergen consist of the Company’s proportionate share of non-GAAP adjustments reported by AmerisourceBergen consistent with the Company’s non-GAAP measures. |
6 |
The Company’s |
7 |
Gain or loss on certain derivative instruments used as economic hedges of the Company’s net investments in foreign subsidiaries. These charges are recorded within Other income, net. We do not believe this volatility related to mark-to-market adjustment on the underlying derivative instruments reflects the Company’s operational performance. |
8 |
Includes significant gains on business combinations due to the remeasurement of previously held minority equity interests and debt securities to fair value. During the three months ended |
9 |
Includes significant gains on the sale of equity method investments. During the three months ended |
10 |
Adjustments to income tax (benefit) provision include adjustments to the GAAP basis tax (benefit) provision commensurate with non-GAAP adjustments and certain discrete tax items including |
11 |
Adjustments to post tax earnings (loss) from other equity method investments consist of the proportionate share of certain equity method investees’ non-cash items or unusual or infrequent items consistent with the Company’s non-GAAP adjustments. These charges are recorded within post tax earnings (loss) from other equity method investments. Although the Company may have shareholder rights and board representation commensurate with its ownership interests in these equity method investees, adjustments relating to equity method investments are not intended to imply that the Company has direct control over their operations and resulting revenue and expenses. Moreover, these non-GAAP financial measures have limitations in that they do not reflect all revenue and expenses of these equity method investees. |
12 |
Due to the anti-dilutive effect resulting from the reported net loss, the impact of potentially dilutive securities on the per share amounts has been omitted from the quarterly calculation of weighted-average common shares outstanding for diluted EPS for the three months ended |
13 |
Includes impact of potentially dilutive securities in the quarterly calculation of weighted-average common shares, diluted for adjusted diluted net earnings per common share calculation purposes for the three months ended |
NON-GAAP RECONCILIATIONS BY SEGMENT |
||||||||||||||||||||
|
|
(in millions) |
||||||||||||||||||
|
|
Three months ended |
||||||||||||||||||
|
|
|
|
International |
|
|
|
Corporate and
|
|
|
||||||||||
Sales |
|
$ |
27,204 |
|
|
$ |
5,189 |
|
|
$ |
989 |
|
|
$ |
— |
|
|
$ |
33,382 |
|
Gross profit (GAAP) |
|
$ |
5,886 |
|
|
$ |
1,050 |
|
|
$ |
17 |
|
|
$ |
— |
|
|
$ |
6,953 |
|
LIFO provision |
|
|
18 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
18 |
|
Acquisition-related amortization |
|
|
5 |
|
|
|
— |
|
|
|
26 |
|
|
|
— |
|
|
|
31 |
|
Adjusted gross profit (Non-GAAP measure) |
|
$ |
5,910 |
|
|
$ |
1,050 |
|
|
$ |
43 |
|
|
$ |
— |
|
|
$ |
7,003 |
|
Selling, general and administrative expenses (GAAP) |
|
$ |
11,698 |
|
|
$ |
944 |
|
|
$ |
454 |
|
|
$ |
63 |
|
|
$ |
13,158 |
|
Acquisition-related costs |
|
|
(1 |
) |
|
|
11 |
|
|
|
(47 |
) |
|
|
(3 |
) |
|
|
(39 |
) |
Certain legal and regulatory accruals and settlements |
|
|
(6,554 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,554 |
) |
Transformational cost management |
|
|
(127 |
) |
|
|
(7 |
) |
|
|
— |
|
|
|
(4 |
) |
|
|
(138 |
) |
Acquisition-related amortization |
|
|
(73 |
) |
|
|
(14 |
) |
|
|
(212 |
) |
|
|
— |
|
|
|
(298 |
) |
Adjusted selling, general and administrative expenses (Non-GAAP measure) |
|
$ |
4,943 |
|
|
$ |
933 |
|
|
$ |
195 |
|
|
$ |
56 |
|
|
$ |
6,128 |
|
Operating (loss) income (GAAP) |
|
$ |
(5,758 |
) |
|
$ |
106 |
|
|
$ |
(436 |
) |
|
$ |
(63 |
) |
|
$ |
(6,151 |
) |
Adjustments to equity earnings in AmerisourceBergen |
|
|
86 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
86 |
|
Acquisition-related amortization |
|
|
78 |
|
|
|
14 |
|
|
|
238 |
|
|
|
— |
|
|
|
330 |
|
Transformational cost management |
|
|
127 |
|
|
|
7 |
|
|
|
— |
|
|
|
4 |
|
|
|
138 |
|
LIFO provision |
|
|
18 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
18 |
|
Certain legal and regulatory accruals and settlements |
|
|
6,554 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,554 |
|
Acquisition-related costs |
|
|
1 |
|
|
|
(11 |
) |
|
|
47 |
|
|
|
3 |
|
|
|
39 |
|
Adjusted operating income (loss) (Non-GAAP measure) |
|
$ |
1,105 |
|
|
$ |
116 |
|
|
$ |
(152 |
) |
|
$ |
(56 |
) |
|
$ |
1,014 |
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Gross margin (GAAP) |
|
|
21.6 |
% |
|
|
20.2 |
% |
|
|
1.7 |
% |
|
|
|
|
20.8 |
% |
||
Adjusted gross margin (Non-GAAP measure) |
|
|
21.7 |
% |
|
|
20.2 |
% |
|
|
4.4 |
% |
|
|
|
|
21.0 |
% |
||
Selling, general and administrative expenses percent to sales (GAAP) |
|
|
43.0 |
% |
|
|
18.2 |
% |
|
|
45.9 |
% |
|
|
|
|
39.4 |
% |
||
Adjusted selling, general and administrative expenses percent to sales (Non-GAAP measure) |
|
|
18.2 |
% |
|
|
18.0 |
% |
|
|
19.7 |
% |
|
|
|
|
18.4 |
% |
||
Operating margin2 |
|
|
(21.4 |
)% |
|
|
2.0 |
% |
|
|
(44.1 |
)% |
|
|
|
|
(18.6 |
)% |
||
Adjusted operating margin (Non-GAAP measure)2 |
|
|
3.6 |
% |
|
|
2.2 |
% |
|
|
(15.3 |
)% |
|
|
|
|
2.6 |
% |
||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
1 |
Operating income for |
2 |
Operating margins and adjusted operating margins have been calculated excluding equity earnings in AmerisourceBergen and adjusted equity earnings in AmerisourceBergen, respectively. |
|
|
(in millions) |
||||||||||||||||||
|
|
Three months ended |
||||||||||||||||||
|
|
|
|
International |
|
|
|
Corporate and
|
|
|
||||||||||
Sales |
|
$ |
28,032 |
|
|
$ |
5,818 |
|
|
$ |
51 |
|
|
$ |
— |
|
|
$ |
33,901 |
|
Gross profit (GAAP) |
|
$ |
6,347 |
|
|
$ |
1,207 |
|
|
$ |
20 |
|
|
$ |
— |
|
|
$ |
7,574 |
|
LIFO provision |
|
|
14 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
14 |
|
Acquisition-related amortization |
|
|
7 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7 |
|
Adjusted gross profit (Non-GAAP measure) |
|
$ |
6,368 |
|
|
$ |
1,207 |
|
|
$ |
20 |
|
|
$ |
— |
|
|
$ |
7,595 |
|
Selling, general and administrative expenses (GAAP) |
|
$ |
5,091 |
|
|
$ |
1,153 |
|
|
$ |
65 |
|
|
$ |
82 |
|
|
$ |
6,391 |
|
Acquisition-related amortization |
|
|
(133 |
) |
|
|
(17 |
) |
|
|
(8 |
) |
|
|
— |
|
|
|
(158 |
) |
Transformational cost management |
|
|
(141 |
) |
|
|
(54 |
) |
|
|
— |
|
|
|
(9 |
) |
|
|
(203 |
) |
Acquisition-related costs |
|
|
3 |
|
|
|
(39 |
) |
|
|
(24 |
) |
|
|
(11 |
) |
|
|
(71 |
) |
Adjusted selling, general and administrative expenses (Non-GAAP measure) |
|
$ |
4,821 |
|
|
$ |
1,043 |
|
|
$ |
33 |
|
|
$ |
64 |
|
|
$ |
5,961 |
|
Operating income (loss) (GAAP) |
|
$ |
1,356 |
|
|
$ |
54 |
|
|
$ |
(45 |
) |
|
$ |
(82 |
) |
|
$ |
1,283 |
|
Adjustments to equity earnings in AmerisourceBergen |
|
|
43 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
43 |
|
Acquisition-related amortization |
|
|
140 |
|
|
|
17 |
|
|
|
8 |
|
|
|
— |
|
|
|
165 |
|
Transformational cost management |
|
|
141 |
|
|
|
54 |
|
|
|
— |
|
|
|
9 |
|
|
|
203 |
|
LIFO provision |
|
|
14 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
14 |
|
Acquisition-related costs |
|
|
(3 |
) |
|
|
39 |
|
|
|
24 |
|
|
|
11 |
|
|
|
71 |
|
Adjusted operating income (loss) (Non-GAAP measure) |
|
$ |
1,690 |
|
|
$ |
164 |
|
|
$ |
(13 |
) |
|
$ |
(63 |
) |
|
$ |
1,777 |
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Gross margin (GAAP) |
|
|
22.6 |
% |
|
|
20.7 |
% |
|
|
40.3 |
% |
|
|
|
|
22.3 |
% |
||
Adjusted gross margin (Non-GAAP measure) |
|
|
22.7 |
% |
|
|
20.7 |
% |
|
|
40.3 |
% |
|
|
|
|
22.4 |
% |
||
Selling, general and administrative expenses percent to sales (GAAP) |
|
|
18.2 |
% |
|
|
19.8 |
% |
|
|
128.9 |
% |
|
|
|
|
18.9 |
% |
||
Adjusted selling, general and administrative expenses percent to sales (Non-GAAP measure) |
|
|
17.2 |
% |
|
|
17.9 |
% |
|
|
65.5 |
% |
|
|
|
|
17.6 |
% |
||
Operating margin2 |
|
|
4.5 |
% |
|
|
0.9 |
% |
|
|
(88.6 |
)% |
|
|
|
|
3.5 |
% |
||
Adjusted operating margin (Non-GAAP measure)2 |
|
|
5.5 |
% |
|
|
2.8 |
% |
|
|
(25.2 |
)% |
|
|
|
|
4.8 |
% |
||
1 |
Operating income for |
2 |
Operating margins and adjusted operating margins have been calculated excluding equity earnings in AmerisourceBergen and adjusted equity earnings in AmerisourceBergen, respectively. |
OPERATING LOSS TO ADJUSTED EBITDA FOR |
||||||||
|
|
(in millions) |
||||||
|
|
Three months ended |
||||||
|
|
2022 |
|
2021 |
||||
Operating loss (GAAP) 1 |
|
$ |
(436 |
) |
|
$ |
(45 |
) |
Acquisition-related amortization 2 |
|
|
238 |
|
|
|
8 |
|
Acquisition-related costs 3 |
|
|
47 |
|
|
|
24 |
|
Adjusted operating loss (Non-GAAP measure) |
|
|
(152 |
) |
|
|
(13 |
) |
Depreciation expense |
|
|
15 |
|
|
|
2 |
|
Stock-based compensation expense 4 |
|
|
12 |
|
|
|
— |
|
Adjusted EBITDA (Non-GAAP measure) |
|
$ |
(124 |
) |
|
$ |
(10 |
) |
|
|
|
|
|
||||
1 |
The Company reconciles Adjusted EBITDA for |
2 |
Acquisition-related amortization includes amortization of acquisition-related intangible assets, inventory valuation adjustments and stock-based compensation fair valuation adjustments. Amortization of acquisition-related intangible assets includes amortization of intangible assets such as customer relationships, trade names, trademarks, developed technology and contract intangibles. Intangible asset amortization excluded from the related non-GAAP measure represents the entire amount recorded within the Company’s GAAP financial statements. The revenue generated by the associated intangible assets has not been excluded from the related non-GAAP measures. Amortization expense, unlike the related revenue, is not affected by operations of any particular period unless an intangible asset becomes impaired, or the estimated useful life of an intangible asset is revised. These charges are primarily recorded within Selling, general and administrative expenses. Business combination accounting principles require us to measure acquired inventory at fair value. The fair value of the inventory reflects cost of acquired inventory and a portion of the expected profit margin. The acquisition-related inventory valuation adjustments exclude the expected profit margin component from cost of sales recorded under the business combination accounting principles. The stock-based compensation fair valuation adjustment reflects the difference between the fair value based remeasurement of awards under purchase accounting and the grant date fair valuation. Post-acquisition compensation expense recognized in excess of the original grant date fair value of acquiree awards are excluded from the related non-GAAP measures as these arise from acquisition-related accounting requirements or agreements, and are not reflective of normal operating activities. |
3 |
Acquisition-related costs are transaction and integration costs associated with certain merger, acquisition and divestitures related activities. These costs include charges incurred related to certain mergers, acquisition and divestitures related activities recorded in operating income, for example, costs related to integration efforts for merger, acquisition and divestitures activities. Examples of such costs include deal costs, severance and stock compensation. These charges are primarily recorded within Selling, general and administrative expenses. These costs are significantly impacted by the timing and complexity of the underlying merger, acquisition and divestitures related activities and do not reflect the Company’s current operating performance. |
4 |
Includes |
EQUITY EARNINGS IN AMERISOURCEBERGEN |
||||||||
|
|
(in millions) |
||||||
|
|
Three months ended |
||||||
|
|
2022 |
|
2021 |
||||
Equity earnings in AmerisourceBergen (GAAP) |
|
$ |
53 |
|
|
$ |
100 |
|
Acquisition-related intangibles amortization |
|
|
39 |
|
|
|
35 |
|
Litigation and Opioid-related expenses |
|
|
3 |
|
|
|
— |
|
Acquisition integration and restructuring expenses |
|
|
18 |
|
|
|
— |
|
Employee severance, litigation, and other |
|
|
— |
|
|
|
13 |
|
Impairment of non-customer note receivable |
|
|
— |
|
|
|
4 |
|
Gain from antitrust litigation settlements |
|
|
— |
|
|
|
3 |
|
Impairment of assets |
|
|
— |
|
|
|
3 |
|
Tax reform |
|
|
4 |
|
|
|
3 |
|
|
|
|
— |
|
|
|
2 |
|
Certain discrete tax expense |
|
|
(2 |
) |
|
|
— |
|
LIFO expense / (credit) |
|
|
20 |
|
|
|
(1 |
) |
Non-controlling interest |
|
|
— |
|
|
|
(2 |
) |
Gain on remeasurement of equity investment |
|
|
(1 |
) |
|
|
(18 |
) |
|
|
|
5 |
|
|
|
— |
|
Adjusted equity earnings in AmerisourceBergen (Non-GAAP measure) |
|
$ |
139 |
|
|
$ |
143 |
|
ADJUSTED EFFECTIVE TAX RATE |
||||||||||||||||||||||
|
|
(in millions) |
||||||||||||||||||||
|
|
Three months ended |
|
Three months ended |
||||||||||||||||||
|
|
Loss before
|
|
Income tax
|
|
Effective
|
|
Earnings
|
|
Income tax
|
|
Effective
|
||||||||||
Effective tax rate (GAAP) |
|
$ |
(5,270 |
) |
|
$ |
(1,447 |
) |
|
27.5 |
% |
|
$ |
3,814 |
|
|
$ |
275 |
|
|
7.2 |
% |
Impact of non-GAAP adjustments |
|
|
6,197 |
|
|
|
1,273 |
|
|
|
|
|
(2,080 |
) |
|
|
4 |
|
|
|
||
Equity method non-cash tax |
|
|
— |
|
|
|
(8 |
) |
|
|
|
|
— |
|
|
|
(18 |
) |
|
|
||
Adjusted tax rate true-up |
|
|
— |
|
|
|
165 |
|
|
|
|
|
— |
|
|
|
22 |
|
|
|
||
Subtotal |
|
$ |
928 |
|
|
$ |
(17 |
) |
|
|
|
$ |
1,733 |
|
|
$ |
284 |
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Exclude adjusted equity earnings in AmerisourceBergen |
|
|
(139 |
) |
|
|
— |
|
|
|
|
|
(143 |
) |
|
|
— |
|
|
|
||
Adjusted effective tax rate excluding adjusted equity earnings in AmerisourceBergen (Non-GAAP measure) |
|
$ |
788 |
|
|
$ |
(17 |
) |
|
(2.2 |
)% |
|
$ |
1,591 |
|
|
$ |
284 |
|
|
17.8 |
% |
FREE CASH FLOW |
||||||||
|
|
(in millions) |
||||||
|
|
Three months ended |
||||||
|
|
2022 |
|
2021 |
||||
Net cash provided by operating activities (GAAP) |
|
$ |
493 |
|
|
$ |
1,099 |
|
Less: Additions to property, plant and equipment |
|
|
(610 |
) |
|
|
(454 |
) |
Free cash flow (Non-GAAP measure) 1 |
|
$ |
(117 |
) |
|
$ |
645 |
|
1 |
Free cash flow is defined as net cash provided by operating activities in a period less additions to property, plant and equipment (capital expenditures) made in that period. This measure does not represent residual cash flows available for discretionary expenditures as the measure does not deduct the payments required for debt service and other contractual obligations or payments for future business acquisitions. Therefore, we believe it is important to view free cash flow as a measure that provides supplemental information to our entire statements of cash flows. |
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