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Press Release

October 27, 2015 at 5:21 PM EDT

Owens & Minor Releases 3rd Quarter 2015 Financial Results

  • Consolidated quarterly revenue grew 3.6% vs. the prior year
  • Adjusted net income per diluted share was $0.54 for the third quarter
  • Year-to-date operating cash flow was $206 million
  • O&M reiterated 2015 guidance of adjusted annual EPS in a range of $1.85 to $1.95

RICHMOND, Va.--(BUSINESS WIRE)-- Owens & Minor, Inc. (NYSE:OMI) today reported financial results for the third quarter ended September 30, 2015, including consolidated net revenues of $2.47 billion, which improved 3.6% when compared to the prior year period. Excluding the impact of the two fourth-quarter 2014 acquisitions, quarterly consolidated revenues increased 1.2%, when compared to the same period last year. Quarterly net income was $28.2 million, or $0.45 per diluted share. Adjusted net income (non-GAAP), excluding after-tax charges of $5.4 million for acquisition-related and exit and realignment activities, was $33.6 million, or $0.54 per diluted share. A reconciliation of reported results to adjusted (non-GAAP) measures is included below.

Consolidated operating earnings for the third quarter of 2015 were $53.6 million, increased by $18.2 million, when compared to the third quarter last year. Adjusted consolidated operating earnings (non-GAAP) for the third quarter of 2015 were $59.7 million, or 2.42% of revenues, improved by $10.4 million when compared to the prior year period. This improvement resulted, in part, from contributions from the two 2014 acquisitions and manufacturer product price changes.

"Our teams turned in a solid operating performance for the quarter, and I am pleased with the commitment and dedication demonstrated throughout our organization," said P. Cody Phipps, president & chief executive officer of Owens & Minor. "During the quarter, I visited a number of our Domestic and European facilities, as well as with key manufacturer and provider customers, and I am very encouraged by our position in the marketplace. Throughout the quarter, I continued to work with our leadership team to refine our strategic plan for long-term success and profitable growth."

2015 Year-to-Date Results

For the nine months ended September 30, 2015, consolidated revenues were $7.29 billion, an increase of $337 million, or 4.8%, when compared to the first nine months of 2014. Excluding the impact of the acquisitions, consolidated revenues increased 2.6% for the year-to-date period. Net income for the first nine months of 2015 was $71.3 million, or $1.14 per diluted share. For the year-to-date period, adjusted net income (non-GAAP), which excludes after-tax charges of $18.8 million for acquisition-related and exit and realignment activities, was $90.2 million, or $1.44 per diluted share.

Consolidated operating earnings for the year-to-date period of 2015 improved $23.6 million to $142.4 million, when compared to the same period of 2014. On an adjusted basis, consolidated operating earnings for the year-to-date period were $164.2 million, or 2.25% of revenues, an improvement of $20.6 million versus the first nine months of 2014.

Asset Management

The balance of cash and cash equivalents was $125 million at September 30, 2015. For the year-to-date period of 2015, the company reported cash provided by operating activities of approximately $206 million compared to $81 million for the same period last year; the increase was primarily due to timing of payments to vendors and improvements in net working capital. Asset management metrics for the quarter included: consolidated days sales outstanding (DSO) of 23.0 days, as of September 30, 2015, compared to DSO of 21.8 days, as of September 30, 2014; and consolidated inventory turns of 9.5 compared to 10.0 for 2014.

Segment Results

Domestic segment revenues for the third quarter of 2015 were $2.37 billion, an increase of 4.7% when compared to the prior year. Excluding the impact of the domestic acquisition, Domestic segment revenues grew 2.6% in the third quarter. Domestic segment revenue growth resulted primarily from larger healthcare provider customer accounts and new business, continuing a recent trend. Growth among the larger customer accounts offset declines from smaller customers. For the year-to-date period of 2015, Domestic segment revenues improved 5.6% to $6.97 billion, or 3.8% excluding the impact of the 2014 acquisition.

For the third quarter of 2015, Domestic segment operating earnings improved $7.2 million to $58.0 million, or 2.45% of segment revenues. For the year-to-date period, Domestic segment operating earnings were $160.9 million, or 2.31% of segment revenues, a $9.1 million improvement, over the same period of 2014. For both the quarter and the year-to-date periods, the Domestic segment operating earnings reflected the benefits of strong revenue growth and the positive impact of manufacturer product price changes.

The International segment contributed revenues of $104 million for the third quarter of 2015 and $314 million in revenues for the year-to-date period, representing declines of $20.4 million and $36.1 million respectively. The declines were driven by the unfavorable foreign currency translation of $12.4 million and $42.4 million for the quarter and year-to-date periods, respectively. On a constant currency basis, excluding the effect of the 2014 international acquisition and the late 2014 transition of a customer from a buy-sell to a fee-for-service arrangement, International segment revenues declined approximately 7.0% for the quarter and were essentially flat for the year-to-date period. The quarterly decline was largely a result of the previously announced exit from a U.K. customer contract.

The International segment reported operating earnings of $1.7 million for the third quarter of 2015 and $3.3 million for the year-to-date period. In both periods, the operating earnings results represent a significant positive swing of $3.2 million for the quarter and $11.5 million for the year-to-date period, when compared to the same periods in the prior year.

"We are pleased with the continued operational and financial improvement in our International segment," said Richard A. Meier, president-International & executive vice president, chief financial officer of Owens & Minor. "The European team is working effectively to reach our strategic goals and is making solid progress."

2015 Outlook

The company continues to target adjusted net income per diluted share for the year in a range of $1.85 to $1.95.

The 2015 outlook is based on certain assumptions that are subject to the risk factors discussed in the company's filings with the Securities & Exchange Commission.

Investor Events

Owens & Minor is scheduled to participate in several investor events in the fourth quarter of 2015; webcasts of the company's formal presentations will be posted on the company's corporate website:

  • Credit Suisse 2015 Healthcare Conference - Phoenix, November 10th
  • Jefferies Global Healthcare Conference - London, November 18th
  • 2015 Owens & Minor Investor Day - New York, December 4th

2015 Investor Day

Owens & Minor will host its 2015 Investor Day in New York on Friday, December 4, 2015. The event will be held at the New York Palace Hotel starting at 8:30 a.m. and concluding by 10:30 a.m. Guests should register by Monday, November 30, 2015. A live, listen-only webcast of the briefing will be available on the company website at www.owens-minor.com under the Investor Relations Section.

Investors Conference Call & Supplemental Material

Conference Call: Owens & Minor will conduct a conference call for investors on Wednesday, October 28, 2015, at 8:30 a.m. EDT. The access code for the conference call, international dial-in and replay is #55700591. Participants may access the call at 866-393-1604. The international dial-in number is 224-357-2191. Replay: A replay of the call will be available for one week by dialing 855-859-2056. Webcast: A listen-only webcast of the call, along with supplemental information, will be available on www.owens-minor.com under "Investor Relations."

Owens & Minor uses its website as a channel of distribution for material company information, including news releases, investor presentations and financial information. This information is routinely posted and accessible under Investor Relations at www.owens-minor.com.

Included with the press release financial tables are reconciliations of the differences between the non-GAAP financial measures presented in this news release, which exclude acquisition-related and exit and realignment charges, and their most directly comparable GAAP financial measures.

Safe Harbor Statement

Except for historical information, the matters discussed in this press release may constitute forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. These risk factors are discussed in reports filed by the company with the Securities & Exchange Commission. All of this information is available at www.owens-minor.com.

The company assumes no obligation, and expressly disclaims any such obligation, to update or alter information, whether as a result of new information, future events, or otherwise.

Owens & Minor, Inc. (NYSE: OMI) is a leading healthcare logistics company dedicated to Connecting the World of Medical Products to the Point of CareSM by providing vital supply chain services to healthcare providers and manufacturers of healthcare products. Owens & Minor provides logistics services across the spectrum of medical products from disposable medical supplies to devices and implants. With logistics platforms strategically located in the United States and Europe, Owens & Minor serves markets where three quarters of global healthcare spending occurs. Owens & Minor's customers span the healthcare market from independent hospitals to large integrated healthcare networks, as well as group purchasing organizations, healthcare products manufacturers, and the federal government. A FORTUNE 500 company, Owens & Minor is headquartered in Richmond, Virginia, and has annualized revenues exceeding $9 billion. For more information about Owens & Minor, visit the company website at www.owens-minor.com.

Owens & Minor, Inc.

Consolidated Statements of Income (unaudited)

(in thousands, except per share data)

 
  Three Months Ended September 30,
2015   2014
Net revenue $ 2,471,669 $ 2,386,126
Cost of goods sold 2,165,315   2,093,643  
Gross margin 306,354 292,483
Selling, general and administrative expenses 231,847 231,377
Acquisition-related and exit and realignment charges 6,134 13,957
Depreciation and amortization 15,112 13,841
Other operating income, net (311 ) (2,069 )
Operating earnings 53,572 35,377
Interest expense, net 6,744 4,304
Loss on early retirement of debt   14,890  
Income before income taxes 46,828 16,183
Income tax provision 18,652   9,028  
Net income $ 28,176   $ 7,155  
 
Net income per common share:
Basic $ 0.45 $ 0.11
Diluted $ 0.45 $ 0.11
 
  Nine Months Ended September 30,
2015   2014
Net revenue $ 7,285,032 $ 6,948,365
Cost of goods sold 6,382,740   6,092,413  
Gross margin 902,292 855,952
Selling, general and administrative expenses 697,170 682,825
Acquisition-related and exit and realignment charges 21,757 24,813
Depreciation and amortization 46,441 41,597
Other operating income, net (5,484 ) (12,046 )
Operating earnings 142,408 118,763
Interest expense, net 20,305 10,893
Loss on early retirement of debt   14,890  
Income before income taxes 122,103 92,980
Income tax provision 50,761   40,464  
Net income $ 71,342   $ 52,516  
 
Net income per common share:
Basic $ 1.14 $ 0.84
Diluted $ 1.14 $ 0.84
 

Owens & Minor, Inc.

Condensed Consolidated Balance Sheets (unaudited)

(in thousands)

   

September 30,
2015

 

December 31,
2014

   
Assets
Current assets
Cash and cash equivalents $ 125,245 $ 56,772
Accounts and notes receivable, net 640,653 626,192
Merchandise inventories 896,722 872,457
Other current assets   265,758     315,285
Total current assets 1,928,378 1,870,706
Property and equipment, net 214,561 232,979
Goodwill 420,772 423,276
Intangible assets, net 98,084 108,593
Other assets, net   89,865     99,852
Total assets   $ 2,751,660     $ 2,735,406
Liabilities and equity
Current liabilities
Accounts payable $ 690,134 $ 608,846
Accrued payroll and related liabilities 38,834 31,507
Deferred income taxes 41,763 37,979
Other accrued liabilities   296,898     326,223
Total current liabilities 1,067,629 1,004,555
Long-term debt, excluding current portion 574,033 608,551
Deferred income taxes 61,037 63,901
Other liabilities   62,860     67,561
Total liabilities 1,765,559 1,744,568
Total equity   986,101     990,838
Total liabilities and equity   $ 2,751,660     $ 2,735,406
 

Owens & Minor, Inc.

Consolidated Statements of Cash Flows (unaudited)

(in thousands)

  Nine Months Ended September 30,
    2015   2014
 
Operating activities:
Net income $ 71,342 $ 52,516
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization 51,871 41,597
Loss on early retirement of debt 14,890
Share-based compensation expense 7,611 6,136
Provision for losses on accounts and notes receivable (182 ) (356 )
Deferred income tax (benefit) expense 3,643 (7,387 )
Changes in operating assets and liabilities:
Accounts and notes receivable (13,758 ) (21,456 )
Merchandise inventories (25,339 ) (63,883 )
Accounts payable 83,434 54,634
Net change in other assets and liabilities 25,890 3,131
Other, net   1,526     1,322  
Cash provided by operating activities   206,038     81,144  
 
Investing activities:
Additions to property and equipment (15,321 ) (36,169 )
Additions to computer software and intangible assets (16,876 ) (17,988 )
Proceeds from sale of investment 1,937
Proceeds from sale of property and equipment   119     151  
Cash used for investing activities   (32,078 )   (52,069 )
 
Financing activities:
Long-term debt borrowings 547,693
Repayment of revolving credit facility (33,700 )
Cash dividends paid (47,780 ) (47,335 )
Repurchases of common stock (15,821 ) (9,934 )
Excess tax benefits related to share-based compensation 521 514
Proceeds from exercise of stock options 1,180
Purchase of noncontrolling interest (1,500 )
Debt issuance costs (4,178 )
Other, net   (6,296 )   (5,671 )
Cash provided by (used for) financing activities   (103,076 )   480,769  
Effect of exchange rate changes on cash and cash equivalents   (2,411 )   (1,602 )
 
Net increase in cash and cash equivalents 68,473 508,242
Cash and cash equivalents at beginning of period   56,772     101,905  
Cash and cash equivalents at end of period   $ 125,245     $ 610,147  
 

Owens & Minor, Inc.

Financial Statistics and GAAP/Non-GAAP Reconciliations (unaudited)

(in thousands, except per share data)

    Quarter Ended
(in thousands, except ratios and per share data)   9/30/2015   6/30/2015   3/31/2015   12/31/2014   9/30/2014
         
Consolidated operating results:
Domestic $ 2,368,008 $ 2,317,661 $ 2,285,635 $ 2,353,321 $ 2,262,081
International 103,661   104,506   105,561   138,496   124,045  
Net revenue   $ 2,471,669     $ 2,422,167     $ 2,391,196     $ 2,491,817     $ 2,386,126  
 
Gross margin $ 306,354 $ 298,337 $ 297,601 $ 314,015 $ 292,483
Gross margin as a percent of revenue   12.39 %   12.32 %   12.45 %   12.60 %   12.26 %
 
SG&A expenses $ 231,847 $ 231,498 $ 233,825 $ 244,152 $ 231,377
SG&A expenses as a percent of revenue   9.38 %   9.56 %   9.78 %   9.80 %   9.70 %
 
Operating earnings, as reported (GAAP) $ 53,572 $ 47,860 $ 40,975 $ 40,773 $ 35,377
Acquisition-related charges (1) 1,335 1,786 2,605 7,394 4,565
Exit and realignment charges (2) 4,799 3,921 7,311 10,594 9,392
Fair value adjustments related to purchase accounting (3) (3,706 )
Other (4)       3,907    
Operating earnings, adjusted (Non-GAAP) $ 59,706 $ 53,567 $ 50,891 $ 58,962 $ 49,334
Operating earnings as a percent of revenue, adjusted (Non-GAAP)   2.42 %   2.21 %   2.13 %   2.37 %   2.07 %
 
Net income, as reported (GAAP) $ 28,176 $ 24,226 $ 18,940 $ 13,987 $ 7,155
Acquisition-related charges, after-tax (1) 1,099 1,349 2,257 6,211 3,543
Exit and realignment charges, after-tax (2) 4,280 3,520 6,335 11,477 6,754
Fair value adjustments related to purchase accounting, after-tax (3) (4,703 )
Other, after-tax (4) 3,907
Loss on early retirement of debt, after-tax (5)         9,092  
Net income, adjusted (Non-GAAP)   $ 33,555     $ 29,095     $ 27,532     $ 30,879     $ 26,544  
 
Net income per diluted common share, as reported (GAAP) $ 0.45 $ 0.39 $ 0.30 $ 0.22 $ 0.11
Acquisition-related charges, after-tax (1) 0.02 0.02 0.03 0.10 0.06
Exit and realignment charges, after-tax (2) 0.07 0.05 0.11 0.18 0.11
Fair value adjustments related to purchase accounting, after-tax (3) (0.07 )
Other, after-tax (4) 0.06
Loss on early retirement of debt, after tax (5)         0.14  
Net income per diluted common share, adjusted (Non-GAAP)   $ 0.54     $ 0.46     $ 0.44     $ 0.49     $ 0.42  
 
Financing:
Cash and cash equivalents $ 125,245 $ 200,969 $ 159,056 $ 56,772 $ 610,147
Total interest-bearing debt   $ 578,512     $ 579,415     $ 579,505     $ 613,809     $ 766,283  
 
Stock information:
Cash dividends per common share   $ 0.2525     $ 0.2525     $ 0.2525     $ 0.25     $ 0.25  
Stock price at quarter-end   $ 31.94     $ 34.00     $ 33.84     $ 35.11     $ 32.74  
 

Owens & Minor, Inc.
Financial Statistics and GAAP/Non-GAAP Reconciliations (unaudited)
(in thousands, except per share data)

The following items in the current quarter have been excluded in our non-GAAP financial measures:

(1) Acquisition-related charges in the first three quarters of 2015 consist primarily of costs to continue the integration of Medical Action and ArcRoyal which were acquired in the fourth quarter of 2014 including certain severance and contractual payments to former management and costs to transition information technology and other administrative functions. Charges incurred in 2014 related primarily to costs to perform due diligence and analysis related to the Medical Action and Arc Royal acquisitions, costs to complete the transactions, and costs to begin the integration of the acquired operations (including certain severance and contractual payments to former management) as well as certain costs in Movianto to resolve issues and claims with the former owner.

(2) Exit and realignment charges in 2015 and 2014 were associated with optimizing our operations and include the consolidation of distribution and logistics centers and closure of offsite warehouses in the United States and Europe, as well as other costs associated with our strategic organizational realignment which include certain professional fees and costs to streamline administrative functions and processes in Europe.

(3) The fourth quarter of 2014 included a gain of $6.7 million (pretax) recorded in other operating income, net from a fair value adjustment to contingent consideration related to the Movianto acquisition purchase price, offset by the incremental charge to cost of goods sold of $3.0 million (pretax) from purchase accounting impacts related to the sale of acquired inventory that was written up to fair value in connection with the 2014 acquisitions.

(4) The fourth quarter of 2014 included a loss in other operating income, net related to an accrual for the settlement amount of a contract claim in the United Kingdom for $3.9 million (pretax).

(5) In 2014, we repaid our 2016 Notes and recorded a net loss on the early retirement of $14.9 million (pretax), which included the redemption premium offset by the recognition of a gain on previously settled interest rate swaps.

These charges have been tax effected in the preceding table by determining the income tax rate depending on the amount of charges incurred in different tax jurisdictions and the deductibility of those charges for income tax purposes.

Use of Non-GAAP Measures

This earnings release contains financial measures that are not calculated in accordance with U.S. generally accepted accounting principles ("GAAP"). In general, the measures exclude items and charges that (i) management does not believe reflect Owens & Minor, Inc.'s (the "Company") core business and relate more to strategic, multi-year corporate activities; or (ii) relate to activities or actions that may have occurred over multiple or in prior periods without predictable trends. Management uses these non-GAAP financial measures internally to evaluate the Company's performance, evaluate the balance sheet, engage in financial and operational planning and determine incentive compensation.

Management provides these non-GAAP financial measures to investors as supplemental metrics to assist readers in assessing the effects of items and events on its financial and operating results and in comparing the Company's performance to that of its competitors. However, the non-GAAP financial measures used by the Company 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 the Company 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 above should be carefully evaluated.

Owens & Minor, Inc.

Summary Segment Information (unaudited)

(in thousands)

Three Months Ended September 30,
2015   2014
  % of   % of
consolidated consolidated
Amount net revenue Amount net revenue
Net revenue:
Domestic $ 2,368,008 95.81 % $ 2,262,081 94.80 %
International 103,661   4.19 % 124,045   5.20 %
Consolidated net revenue $ 2,471,669   100.00 % $ 2,386,126   100.00 %
 
 
% of segment % of segment
Operating earnings (loss): net revenue net revenue
Domestic $ 58,002 2.45 % $ 50,797 2.25 %
International 1,704 1.64 % (1,463 ) (1.18 )%
Acquisition-related and exit and realignment charges (1) (6,134 )

     N/A

(13,957 )

     N/A

Consolidated operating earnings $ 53,572   2.17 % $ 35,377   1.48 %
 
 
Depreciation and amortization:
Domestic $ 10,197 $ 8,986
International 5,250   4,855  
Consolidated depreciation and amortization $ 15,447   $ 13,841  
 
 
Capital expenditures: (2)
Domestic $ 2,137 $ 11,077
International 7,235   4,257  
Consolidated capital expenditures $ 9,372   $ 15,334  
 
 

Owens & Minor, Inc.

Summary Segment Information (unaudited)

(in thousands)

Nine Months Ended September 30,
2015   2014
  % of   % of
consolidated consolidated
Amount net revenue Amount net revenue
Net revenue:
Domestic $ 6,971,304 95.69 % $ 6,598,531 94.97 %
International 313,728   4.31 % 349,834   5.03 %
Consolidated net revenue $ 7,285,032   100.00 % $ 6,948,365   100.00 %
 
 
% of segment % of segment
Operating earnings (loss): net revenue net revenue
Domestic $ 160,904 2.31 % $ 151,849 2.30 %
International 3,261 1.04 % (8,273 ) (2.36 )%
Acquisition-related and exit and realignment charges (1) (21,757 )

        N/A

(24,813 )

        N/A

Consolidated operating earnings $ 142,408   1.95 % $ 118,763   1.71 %
 
 
Depreciation and amortization:
Domestic $ 31,439 $ 26,772
International 15,958   14,825  
Consolidated depreciation and amortization $ 47,397   $ 41,597  
 
 
Capital expenditures: (2)
Domestic $ 14,172 $ 40,110
International 18,025   14,047  
Consolidated capital expenditures $ 32,197   $ 54,157  
 
 
September 30, 2015 December 31, 2014
Total assets:
Domestic $ 2,135,572 $ 2,139,972
International 490,843   538,662  
Segment assets 2,626,415 2,678,634
Cash and cash equivalents 125,245   56,772  
Consolidated total assets $ 2,751,660   $ 2,735,406  
 
(1) The three and nine months ended September 30, 2015 include $0.3 million and $4.5 million, respectively, in accelerated amortization related to an information system that has been replaced.
(2) Represents additions to property and equipment and additions to computer software and separately acquired identifiable intangible assets.
 
 

Owens & Minor, Inc.

Net Income Per Common Share (unaudited)

(in thousands, except per share data)

Three Months Ended
September 30,

      Nine Months Ended
September 30,
2015   2014 2015   2014
Numerator:
Net income $ 28,176 $ 7,155 $ 71,342 $ 52,516
Less: income allocated to unvested restricted shares (262 ) (150 ) (620 ) (453 )
Net income attributable to common shareholders - basic 27,914 7,005 70,722 52,063
Add: undistributed income attributable to unvested restricted shares -basic 67 129 26
Less: undistributed income attributable to unvested restricted shares -diluted (67 )   (129 ) (26 )
Net income attributable to common shareholders - diluted $ 27,914   $ 7,005   $ 70,722   $ 52,063  
Denominator:
Weighted average shares outstanding — basic 61,998 62,175 62,204 62,238
Dilutive shares - stock options   4   1   7  
Weighted average shares outstanding — diluted 61,998   62,179   62,205   62,245  
 
 
Net income per share attributable to common shareholders:
Basic $ 0.45 $ 0.11 $ 1.14 $ 0.84
Diluted $ 0.45 $ 0.11 $ 1.14 $ 0.84

Owens & Minor, Inc.
Trudi Allcott, Director
Investor & Media Relations
804-723-7555
truitt.allcott@owens-minor.com
or
Chuck Graves, Director
Finance & Investor Relations
804-723-7556
chuck.graves@owens-minor.com

Source: Owens & Minor, Inc.

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