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AmerisourceBergen Reports Fiscal 2018 Third Quarter Results

August 2, 2018

VALLEY FORGE, Pa.--(BUSINESS WIRE)--Aug 2, 2018--AmerisourceBergen Corporation (NYSE:ABC) today reported that in its fiscal year 2018 third quarter ended June 30, 2018, revenue increased 11.5 percent to $43.1 billion. On the basis of U.S. generally accepted accounting principles (GAAP), diluted earnings per share (EPS) was $1.25 for the June quarter of fiscal 2018, compared to $0.23 in the prior year quarter. Adjusted diluted EPS, which is a non-GAAP measure that excludes items described below, increased 7.7 percent to $1.54 in the fiscal third quarter.

The Company continues to expect adjusted diluted EPS for fiscal year 2018 to be near the bottom of its guidance range of $6.45 to $6.65, reflecting growth of 10 percent versus last fiscal year. The Company does not provide forward-looking guidance on a GAAP basis, as discussed below in Fiscal Year 2018 Expectations.

“AmerisourceBergen is continuing to execute, invest and innovate to support customer growth and create significant value for our manufacturer and provider partners. As an update on PharMEDium, we notified the FDA two weeks ago that we were resuming limited production at the Memphis facility and expect to commence commercial distribution this month. We continue to expect production in Memphis to increase gradually over time and be fully operational in fiscal 2019,” said Steven H. Collis, Chairman, President and Chief Executive Officer of AmerisourceBergen.

“As we approach the end of fiscal 2018, we are confident that our strategic long-term partnerships, leadership in specialty distribution and services, innovative services and solutions and strong financial stewardship position us to continue to deliver long-term value to all of our stakeholders,” Mr. Collis continued. “I am pleased with the performance in the third quarter and thank all of our associates for their ongoing execution, which continues to help AmerisourceBergen carry out its purpose as we are united in our responsibility to create healthier futures.”

Third Quarter Fiscal Year 2018 Summary Results

Below, AmerisourceBergen presents descriptive summaries of the Company’s GAAP quarterly results as well as its adjusted (Non-GAAP) quarterly results. In the tables that follow, GAAP results and GAAP to Non-GAAP reconciliations are presented. For more information related to Non-GAAP financial measures, including our fiscal year 2018 expectations, please refer to the Supplemental Information Regarding Non-GAAP Financial Measures following the tables.

Third Quarter GAAP Results

Revenue: In the third quarter of fiscal 2018, revenue was $43.1 billion, up 11.5 percent compared to the same quarter in the previous fiscal year, reflecting an 11.6 percent increase in Pharmaceutical Distribution Services revenue and an 8.8 percent increase in revenue within Other. Gross Profit: Gross profit in the fiscal 2018 third quarter was $1.2 billion, a 12.2 percent increase compared to the same period in the previous fiscal year. The increase was primarily due to our revenue growth including the consolidation of Profarma and the acquisition of H. D. Smith. The current year quarter was favorably impacted by an increase in gains from antitrust litigation settlements and negatively impacted by a lower LIFO credit in comparison to the prior year period and a lower contribution from PharMEDium. Gross profit as a percentage of revenue was 2.81 percent, an increase of 2 basis points from the prior year quarter. Operating Expenses: In the third quarter of fiscal 2018, operating expenses were $822.1 million, compared to $909.5 million in the same period last fiscal year. Operating expenses as a percentage of revenue in the fiscal 2018 third quarter was 1.91 percent, compared to 2.35 percent for the same period in the previous fiscal year. The decline in operating expenses was due to a $273.4 million litigation settlement in the prior year quarter, which was largely offset by increases in operating expenses due to the consolidation of Profarma and the specialty joint venture in Brazil, the acquisition of H. D. Smith and duplicate costs resulting from the implementation of new information technology systems. Operating Income: In the fiscal 2018 third quarter, operating income was $389.2 million versus $170.4 million in the prior year quarter primarily due to the increase in gross profit. Operating income as a percentage of revenue increased 46 basis points to 0.90 percent in the fiscal 2018 third quarter compared to the previous fiscal year’s third quarter. Interest Expense, Net: In the fiscal 2018 third quarter, net interest expense of $47.2 million was up 32.4 percent versus the prior year quarter, primarily due to the debt issued to finance the H. D. Smith acquisition and the consolidation of Profarma’s debt and related interest expense. Tax Rate: The effective tax rate of 19.5 percent for the third quarter of fiscal 2018, down from 62.2 percent in the prior year quarter, primarily reflects the reduction in the U.S. federal income tax rate from 35% to 21%. The effective tax rate in the prior year quarter was negatively impacted by a non-deductible legal settlement charge. Diluted Earnings Per Share: Diluted earnings per share was $1.25 in the third quarter of fiscal 2018 compared to $0.23 in the previous fiscal year’s third quarter. Diluted Shares Outstanding: Diluted weighted average shares outstanding for the third quarter of fiscal 2018 were 220.8 million, a 0.5 percent decline versus the prior fiscal year third quarter, due primarily to share repurchases, net of stock option exercises.

Definition of Adjusted (Non-GAAP) Results

The comments below compare adjusted results, which exclude:

Gain from antitrust litigation settlements; LIFO expense (credit); PharMEDium remediation costs; Acquisition-related intangibles amortization; Employee severance, litigation, and other; Loss on consolidation of equity investments; Impairment on non-customer note receivable; Loss on early retirement of debt; and a One-time tax reform adjustment.

In addition, we previously issued $600 million of 1.15 percent senior notes that were repaid in May 2017 to fund our initial special share repurchase program to mitigate the dilutive effect of the Warrants. The interest expense incurred relating to this borrowing has been excluded from the Non-GAAP presentation.

Third Quarter Adjusted (Non-GAAP) Results

Revenue: In the third quarter of fiscal 2018, revenue was $43.1 billion, up 11.5 percent compared to the same quarter in the previous fiscal year, reflecting an 11.6 percent increase in Pharmaceutical Distribution Services revenue and an 8.8 percent increase in revenue within Other. Adjusted Gross Profit: Gross profit in the fiscal 2018 third quarter was $1.2 billion, which was up 11.0 percent when compared to the same period in the previous year, primarily due to the increase in gross profit in Pharmaceutical Distribution Services, which reflects the acquisition of H. D. Smith and the consolidation of Profarma, offset in part by a lower contribution from PharMEDium. Gross profit as a percentage of revenue was 2.72 percent, a decrease of 1 basis point from the prior year quarter. Adjusted Operating Expenses: In the third quarter of fiscal 2018, operating expenses were $697.2 million, an increase of 19.4 percent compared to the same period in the last fiscal year. Operating expenses as a percentage of revenue in the fiscal 2018 third quarter was 1.62 percent, compared to 1.51 percent for the same period in the previous fiscal year. The increase in operating expenses was primarily driven by the consolidation of Profarma and the specialty joint venture in Brazil, the acquisition of H. D. Smith and duplicate costs resulting from the implementation of new information technology systems. Adjusted Operating Income: In the fiscal 2018 third quarter, operating income of $474.4 million increased 0.7 percent from the prior year period. Operating income as a percentage of revenue decreased 12 basis points to 1.10 percent in the fiscal 2018 third quarter compared to the previous fiscal year’s third quarter. Adjusted Interest Expense, Net: In the fiscal 2018 third quarter, net interest expense of $47.2 million was up 36.5 percent versus the prior year quarter, primarily due to the debt issued to finance the H. D. Smith acquisition and the consolidation of Profarma’s debt and related interest expense. Adjusted Tax Rate: The effective tax rate for the third quarter of fiscal 2018 was 20.3 percent, down from 27.0 percent in the previous fiscal year’s third quarter, primarily driven by a reduction in the U.S. federal income tax rate from 35% to 21%. Adjusted Diluted Earnings Per Share: Diluted earnings per share was up 7.7 percent to $1.54 in the third quarter of fiscal 2018 compared to $1.43 in the previous fiscal year’s third quarter, driven by the benefit from U.S. tax reform. Diluted Shares Outstanding: Diluted weighted average shares outstanding for the third quarter of fiscal 2018 were 220.8 million, a 0.5 percent decline versus the prior fiscal year third quarter due primarily to share repurchases, net of stock option exercises.

Segment Discussion

The Company’s operations are comprised of the Pharmaceutical Distribution Services reportable segment and other operating segments that are not significant enough to require separate reportable segment disclosure and, therefore, have been included in Other for the purpose of reportable segment presentation. Other consists of operating segments that focus on global commercialization services and animal health and includes AmerisourceBergen Consulting Services (ABCS), World Courier and MWI Animal Health (MWI).

Pharmaceutical Distribution Services Segment

Pharmaceutical Distribution Services revenue was $41.6 billion, an increase of 11.6 percent compared to the same quarter in the prior fiscal year. Segment operating income of $392.7 million in the June quarter of fiscal 2018 was up 3.3 percent compared to the same period in the previous fiscal year, primarily due to an increase in gross profit, largely offset by an increase in operating expenses.

Other

Revenue in Other was $1.6 billion in the third quarter of fiscal 2018, an increase of 8.8 percent compared to the same period in the prior fiscal year, primarily due to the consolidation of the specialty joint venture in Brazil, ABCS’s growth in its Canadian operations and World Courier. Operating income in Other decreased 9.9 percent to $82.3 million in the third quarter of fiscal 2018. This decrease was primarily driven by a decline in operating income at ABCS, specifically the Lash Group, and was partially offset by the increased contribution from World Courier.

Recent Company Highlights & Milestones

AmerisourceBergen has been recognized by DiversityInc. as a ‘Noteworthy’ company for diversity, based on its hiring, retention and promotion of women, minorities, people with disabilities, LGBT and veterans. This marks the second year in a row AmerisourceBergen has received this notable distinction, which is awarded to companies that have shown continued momentum in diversity and inclusion practices. AmerisourceBergen was ranked #19 on a list of the world’s top 100 most innovative companies in 2018 compiled by Forbes. Recorded our 18th consecutive quarter with 10 percent or greater revenue growth in Specialty distribution. AmerisourceBergen and Good Neighbor Pharmacy announced new and enhanced programs that will help independent pharmacies strengthen the core of their businesses and expand their role within their communities. The programs and solutions, which were presented at ThoughtSpot 2018, Good Neighbor Pharmacy’s annual tradeshow, reflect AmerisourceBergen and Good Neighbor Pharmacy’s continued commitment to supporting independent pharmacies today and in the future. Lash Group launched its newest solution for electronic benefit verification (eBV). Powered by SmartPointSM, a proprietary artificial intelligence (AI) technology, Lash Group’s eBV solution will accelerate speed to therapy and improve the care delivery experience for patients and providers.

Fiscal Year 2018 Expectations

The 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. Please refer to the Supplemental Information Regarding Non-GAAP Financial Measures following the tables for additional information.

Fiscal Year 2018 Expectations on an Adjusted (Non-GAAP) Basis

Based upon the Company’s performance in the first three quarters of the fiscal year, and evaluation of current business expectations and lower than previously anticipated operating income contribution from the Lash Group, AmerisourceBergen has updated the following aspects of its fiscal year 2018 financial guidance:

Other, which is comprised of businesses focused on Global Commercialization Services and Animal Health, operating income decline in the range of down 4 percent to 7 percent; Adjusted effective tax rate of approximately 22 percent.

All other previously communicated aspects of the Company’s fiscal year 2018 financial guidance and assumptions remain the same.

Conference Call & Slide Presentation

The Company will host a conference call to discuss the results at 8:30 a.m. ET on August 2, 2018. A slide presentation for investors has also been posted on the Company’s website at investor.amerisourcebergen.com. Participating in the conference call will be:

Steven H. Collis, Chairman, President & Chief Executive Officer Tim G. Guttman, Executive Vice President & Chief Financial Officer

The dial-in number for the live call will be (612) 326-1011. No access code is required. The live call will also be webcast via the Company’s website at investor.amerisourcebergen.com. Users are encouraged to log on to the webcast approximately 10 minutes in advance of the scheduled start time of the call.

Replays of the call will be made available via telephone and webcast. A replay of the webcast will be posted on investor.amerisourcebergen.com approximately two hours after the completion of the call and will remain available for 30 days. The telephone replay will also be available approximately two hours after the completion of the call and will remain available for seven days. To access the telephone replay from within the U.S., dial (800) 475-6701. From outside the U.S., dial (320) 365-3844. The access code for the replay is 451454.

Upcoming Investor Events

AmerisourceBergen management will be attending the following investor conferences in the coming months:

Baird Global Healthcare Conference, September 5-6, New York; and the Morgan Stanley Annual Global Healthcare Conference, September 12-14, New York.

Please check the website for updates regarding the timing of the live presentation webcasts, if any, and for replay information.

About AmerisourceBergen

AmerisourceBergen provides pharmaceutical products, value-driving services and business solutions that improve access to care. Tens of thousands of healthcare providers, veterinary practices and livestock producers trust us as their partner in the pharmaceutical supply chain. Global manufacturers depend on us for services that drive commercial success for their products. Through our daily work—and powered by our 21,000 associates—we are united in our responsibility to create healthier futures. AmerisourceBergen is ranked #12 on the Fortune 500, with more than $150 billion in annual revenue. The company is headquartered in Valley Forge, Pa. and has a presence in 50+ countries. Learn more at investor.amerisourcebergen.com.

AmerisourceBergen’s Cautionary Note Regarding Forward-Looking Statements

Certain of the statements contained in this press release are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Words such as “expect,” “likely,” “outlook,” “forecast,” “would,” “could,” “should,” “can,” “project,” “intend,” “plan,” “continue,” “sustain,” “synergy,” “on track,” “believe,” “seek,” “estimate,” “anticipate,” “may,” “possible,” “assume,” variations of such words, and similar expressions are intended to identify such forward-looking statements. These statements are based on management’s current expectations and are subject to uncertainty and change in circumstances. These statements are not guarantees of future performance and are based on assumptions that could prove incorrect or could cause actual results to vary materially from those indicated. Among the factors that could cause actual results to differ materially from those projected, anticipated, or implied are the following: unfavorable trends in brand and generic pharmaceutical pricing, including in rate or frequency of price inflation or deflation; competition and industry consolidation of both customers and suppliers resulting in increasing pressure to reduce prices for our products and services; changes in pharmaceutical market growth rates; changes in the United States healthcare and regulatory environment, including changes that could impact prescription drug reimbursement under Medicare and Medicaid; increasing governmental regulations regarding the pharmaceutical supply channel and pharmaceutical compounding; declining reimbursement rates for pharmaceuticals; federal and state government enforcement initiatives to detect and prevent suspicious orders of controlled substances and the diversion of controlled substances; increased public concern over the abuse of opioid medications; prosecution or suit by federal, state and other governmental entities of alleged violations of laws and regulations regarding controlled substances, and any related disputes, including shareholder derivative lawsuits; increased federal scrutiny and litigation, including qui tam litigation, for alleged violations of laws and regulations governing the marketing, sale, purchase and/or dispensing of pharmaceutical products or services, and associated reserves and costs, including the reserve recorded in connection with the proceedings with the United States Attorney’s Office for the Eastern District of New York; material adverse resolution of pending legal proceedings; the retention of key customer or supplier relationships under less favorable economics or the adverse resolution of any contract or other dispute with customers or suppliers; changes to customer or supplier payment terms; risks associated with the strategic, long-term relationship between Walgreens Boots Alliance, Inc. and the Company, including principally with respect to the pharmaceutical distribution agreement and/or the global generic purchasing services arrangement; changes in tax laws or legislative initiatives that could adversely affect the Company’s tax positions and/or the Company’s tax liabilities or adverse resolution of challenges to the Company’s tax positions; regulatory action in connection with the production, labeling or packaging of products compounded by our compounded sterile preparations (CSP) business; suspension of production of CSPs; failure to realize the expected benefits from our reorganization and other business process initiatives; managing foreign expansion, including non-compliance with the U.S. Foreign Corrupt Practices Act, anti-bribery laws and economic sanctions and import laws and regulations; declining economic conditions in the United States and abroad; financial market volatility and disruption; substantial defaults in payment, material reduction in purchases by or the loss, bankruptcy or insolvency of a major customer; the loss, bankruptcy or insolvency of a major supplier; changes to the customer or supplier mix; malfunction, failure or breach of sophisticated information systems to operate as designed; risks generally associated with data privacy regulation and the international transfer of personal data; natural disasters or other unexpected events that affect the Company’s operations; the impairment of goodwill or other intangible assets (including with respect to foreign operations), resulting in a charge to earnings; the acquisition of businesses that do not perform as expected, or that are difficult to integrate or control, including the integration of H. D. Smith and PharMEDium, or the inability to capture all of the anticipated synergies related thereto or to capture the anticipated synergies within the expected time period; the effects of disruption from the transactions on the respective businesses of the Company and H. D. Smith and the fact that the transactions may make it more difficult to establish or maintain relationships with employees, suppliers, customers and other business partners; the disruption of the Company’s cash flow and ability to return value to its stockholders in accordance with its past practices; interest rate and foreign currency exchange rate fluctuations; and other economic, business, competitive, legal, tax, regulatory and/or operational factors affecting the Company’s business generally. Certain additional factors that management believes could cause actual outcomes and results to differ materially from those described in forward-looking statements are set forth (i) in Item 1A (Risk Factors) in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2017 and elsewhere in that report and (ii) in other reports filed by the Company pursuant to the Securities Exchange Act.

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