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Press Release

May 7, 2019 at 7:00 AM EDT

Owens & Minor Reports 1st Quarter 2019 Financial Results

RICHMOND, Va.--(BUSINESS WIRE)--May 7, 2019-- Owens & Minor, Inc. (NYSE: OMI)today reported financial results for the first quarter ended March 31, 2019, as summarized in the table below.

“My first sixty days have been full of meetings with customers and teammates, and I am pleased with the open dialogue that has helped to validate some of our strategies and some of my initial perspectives,” said Edward A. Pesicka, President & Chief Executive Officer of Owens & Minor. “These meetings have also helped me to shape what adjustments need to be made to the business, some of which have already occurred with others yet to come, as I continue to collect information from our customers, partners, and teammates. As we move forward, you will see an increased level of intensity and accountability with a complete focus around serving our customers. We have a great foundation based on our broad offering of products, solutions and services, and I am increasingly confident in our ability to drive profitable growth in the future. In fact, the overall results from the first quarter of this year are consistent with the company’s operating plan.”

                       
         

Financial Summary

           
                       
          ($ in millions, except per share data)    

1Q19

   

1Q18

                       
          Revenue     $2,461     $2,373
          % yoy growth     3.7%      
                       
          Operating income, GAAP1     $14.7     $24.2
          Adj. Operating income, Non-GAAP1     $30.5     $47.6
                       
          Net income (loss), GAAP1     $(14.1)     $8.2
          Adj. Net income, Non-GAAP1     $1.0     $26.2
                       
          Net Income (loss) per share, GAAP1     $(0.23)     $0.13
          Adj. Net Income per share, Non-GAAP1     $0.02     $0.43
                       
          1.   Reconciliations of the differences between the non-GAAP financial measures presented in this news release and their most directly comparable GAAP financial measures are included in the financial tables below.
               

1Q 2019 Results

  • Investments made in the company’s operations have resulted in significant improvement in service levels compared to 2018. The company is now consistently meeting service level targets and is beginning to drive improved productivity in operations.
  • Compared to the prior year’s first quarter, consolidated quarterly revenues grew 3.7%, primarily resulting from Halyard sales of $189 million for the quarter (net of $52 million of intercompany sales) and strong sales growth with Byram Healthcare. These gains were partially offset by lower distribution revenues, as a result of customer non-renewals during 2018 and early 2019, primarily resulting from service issues.
  • Quarterly results reflected revenue changes, continued pressure on distribution gross margins, higher supply chain costs, and increased expenses incurred for the development of new solutions. In addition, interest expense of $29.1 million for the quarter increased $18.8 million when compared to the prior year as a result of the company’s new debt structure.

Financial Guidance and Outlook
For 2019, the company maintained its previously issued guidance of adjusted net income per share to be in a range of $0.60 to $0.75 per share.

Although the company does provide guidance for adjusted net income per share (which is a non-GAAP financial measure), it is not able to forecast the most directly comparable measure calculated and presented in accordance with GAAP without unreasonable effort. Certain elements of the composition of the GAAP amount are not predictable, making it impracticable for the company to forecast. Such elements include, but are not limited to restructuring and acquisition charges. As a result, no GAAP guidance or reconciliation of the company’s adjusted net income per share guidance is provided. For the same reasons, the company is unable to assess the probable significance of the unavailable information, which could have a potentially significant impact on its future GAAP financial results. The outlook is based on certain assumptions that are subject to the risk factors discussed in the company’s filings with the Securities and Exchange Commission (“SEC”).

Upcoming Investor Events
Owens & Minor plans to participate in the following investor conferences in the second quarter of 2019, and the company will post webcasts of formal presentations on its corporate website.

  • Bank of America Merrill Lynch Healthcare Conference, Las Vegas, May 14
  • Goldman Sachs Global Healthcare Conference, Rancho Palos Verdes, June 11 - 13

Investor Conference Call for 1Q 2019 Financial Results
Owens & Minor executives will host a conference call, which will also be webcast, to discuss the results at 8:30 a.m. EDT on Tuesday, May 7, 2019. Participants may access the call at 866-393-1604. The international dial-in number is 224-357-2191. A replay of the call will be available for one week by dialing 855-859-2056. The access code for the conference call, international dial-in and replay is #6765196. A webcast of the event will be available on www.owens-minor.com under the Investor Relations section.

Safe Harbor
This release is intended to be disclosure through methods reasonably designed to provide broad, non-exclusionary distribution to the public in compliance with the SEC’s Fair Disclosure Regulation. This release contains certain “forward-looking” statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, the statements in this release regarding our expectations with respect to our 2019 financial performance, as well as other statements related to the company’s expectations regarding the performance of its business, growth, and improvement of operational performance. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from those projected or contemplated in the forward-looking statements. Investors should refer to Owens & Minor’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC including the sections captioned “Cautionary Note Regarding Forward-Looking Statements” and “Item 1A. Risk Factors,” and subsequent quarterly reports on Form 10-Q and current reports on Form 8-K filed with or furnished to the SEC, for a discussion of certain known risk factors that could cause the company’s actual results to differ materially from its current estimates. These filings are available at www.owens-minor.com. Given these risks and uncertainties, Owens & Minor can give no assurance that any forward-looking statements will, in fact, transpire and, therefore, cautions investors not to place undue reliance on them. Owens & Minor specifically disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.

Owens & Minor uses its web site, www.owens-minor.com, 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 the Investor Relations section.

About Owens & Minor
Owens & Minor, Inc. (NYSE: OMI) is a global healthcare solutions company with integrated technologies, products, and services aligned to deliver significant and sustained value for healthcare providers and manufacturers across the continuum of care. With 17,000 dedicated teammates serving healthcare industry customers in 90 countries, Owens & Minor helps to reduce total costs across the supply chain by optimizing episode and point-of-care performance, freeing up capital and clinical resources, and managing contracts to optimize financial performance. A FORTUNE 500 company, Owens & Minor was founded in 1882 in Richmond, Virginia, where it remains headquartered today. The company has distribution, production, customer service and sales facilities located across the Asia Pacific region, Europe, Latin America, and North America. For more information about Owens & Minor, visit owens-minor.com, follow @Owens_Minor on Twitter, and connect on LinkedIn at www.linkedin.com/company/owens-&-minor.

 

Owens & Minor, Inc.

Consolidated Statements of Income (Loss) (unaudited)

(dollars in thousands, except per share data)

 
      Three Months Ended March 31,
      2019     2018
Net revenue     $ 2,461,388       $ 2,372,579
Cost of goods sold       2,102,964         2,047,892
Gross margin       358,424         324,687
Distribution, selling and administrative expenses       338,703         284,361
Acquisition-related and exit and realignment charges       4,990         14,760
Other operating expense, net       39         1,349
Operating income       14,692         24,217
Interest expense, net       29,101         10,253
Income (loss) before income taxes       (14,409 )       13,964
Income tax provision (benefit)       (313 )       5,813
Net income (loss)     $ (14,096 )     $ 8,151
             
Net income (loss) per common share:            
Basic and diluted     $ (0.23 )     $ 0.13
                   
 

Owens & Minor, Inc.

Condensed Consolidated Balance Sheets (unaudited)

(dollars in thousands)

 
      March 31, 2019     December 31, 2018
             
Assets            
Current assets            
Cash and cash equivalents     $ 75,239     $ 103,367
Accounts receivable, net       843,384       823,418
Merchandise inventories       1,210,558       1,290,103
Other current assets       336,065       321,690
Total current assets       2,465,246       2,538,578
Property and equipment, net       386,135       386,723
Operating lease assets       197,200      
Goodwill       413,235       414,122
Intangible assets, net       311,254       321,764
Other assets, net       109,294       112,601
Total assets     $ 3,882,364     $ 3,773,788
Liabilities and equity            
Current liabilities            
Accounts payable     $ 990,688     $ 1,109,589
Accrued payroll and related liabilities       40,999       48,203
Other current liabilities       377,989       314,219
Total current liabilities       1,409,676       1,472,011
Long-term debt, excluding current portion       1,685,135       1,650,582
Operating lease liabilities, excluding current portion       155,703      
Deferred income taxes       42,144       50,852
Other liabilities       87,867       81,924
Total liabilities       3,380,525       3,255,369
Total equity       501,839       518,419
Total liabilities and equity     $ 3,882,364     $ 3,773,788
                 
 

Owens & Minor, Inc.

Consolidated Statements of Cash Flows (unaudited)

(dollars in thousands)

 
      Three Months Ended March 31,
      2019     2018
             
Operating activities:            
Net income (loss)     $ (14,096 )     $ 8,151  
Adjustments to reconcile net income (loss) to cash (used for) provided by operating activities:            
Depreciation and amortization       28,720         17,911  
Share-based compensation expense       4,505         3,035  
Provision for losses on accounts receivable       3,619         1,073  
Deferred income tax benefit       (8,613 )       (1,482 )
Changes in operating assets and liabilities:            
Accounts receivable       (22,573 )       (18,519 )
Merchandise inventories       80,194         (30,556 )
Accounts payable       (120,480 )       9,478  
Net change in other assets and liabilities       (15,858 )       28,904  
Other, net       3,678         278  
Cash (used for) provided by operating activities       (60,904 )       18,273  
             
Investing activities:            
Additions to property and equipment       (11,674 )       (7,074 )
Additions to computer software and intangible assets       (2,605 )       (7,086 )
Proceeds from sale of property and equipment       271          
Cash used for investing activities       (14,008 )       (14,160 )
             
Financing activities:            
Borrowings (repayments) under revolving credit facility       72,100         (300 )
Repayments of debt       (12,394 )       (3,125 )
Financing costs paid       (4,313 )        
Cash dividends paid       (4,764 )       (16,074 )
Other, net       (1,124 )       (2,304 )
Cash provided by (used for) financing activities       49,505         (21,803 )
             
Effect of exchange rate changes on cash and cash equivalents       (2,721 )       800  
             
Net decrease in cash and cash equivalents       (28,128 )       (16,890 )
Cash and cash equivalents at beginning of period       103,367         104,522  
Cash and cash equivalents at end of period     $ 75,239       $ 87,632  
                     
 

Owens & Minor, Inc.

Summary Segment Information (unaudited)

(dollars in thousands)

 
      Three Months Ended March 31,
      2019     2018
            % of           % of
            consolidated           consolidated
      Amount     net revenue     Amount     net revenue
Net revenue:                        
Segment net revenue                        
Global Solutions     $ 2,234,147       90.77 %     $ 2,341,122       98.68 %
Global Products       347,085       14.10 %       121,287       5.11 %
Total segment net revenue       2,581,232               2,462,409        
Inter-segment revenue                        
Global Products       (119,844 )     (4.87

)%

      (89,830 )     (3.79 )%
Total inter-segment revenue       (119,844 )             (89,830 )      
Consolidated net revenue     $ 2,461,388       100.00 %     $ 2,372,579       100.00 %
                         
            % of segment           % of segment
Operating income (loss):           net revenue           net revenue
Global Solutions     $ 21,071       0.94 %     $ 36,759       1.57 %
Global Products       7,724       2.23 %       11,084       9.14 %
Inter-segment eliminations       1,746               (242 )      
Intangible amortization       (10,361 )             (6,407 )      
Acquisition-related and exit and realignment charges       (4,990 )             (14,760 )      
Other (1)       (498 )             (2,217 )      
Consolidated operating income     $ 14,692       0.60 %     $ 24,217       1.02 %
                         
Depreciation and amortization:                        
Global Solutions     $ 16,113             $ 15,781        
Global Products       12,607               2,130        
Consolidated depreciation and amortization     $ 28,720             $ 17,911        
                         
Capital expenditures:                        
Global Solutions     $ 11,376             $ 13,602        
Global Products       2,903               558        
Consolidated capital expenditures     $ 14,279             $ 14,160        
                                 
(1)   Other consists of Software as a Service (SaaS) implementation costs associated with significant global IT platforms in connection with the redesign of our global information system strategy.
     
 

Owens & Minor, Inc.

Net Income (Loss) Per Common Share (unaudited)

(dollars in thousands, except per share data)

 
     

Three Months Ended
March 31,

      2019     2018
Numerator:            
Net income (loss)     $ (14,096 )     $ 8,151  
Less: income allocated to unvested restricted shares               (323 )
Net income (loss) attributable to common shareholders - basic and diluted       (14,096 )       7,828  
Denominator:            
Weighted average shares outstanding - basic and diluted       60,376         59,969  
Net income (loss) per share attributable to common shareholders:            
Basic and diluted     $ (0.23 )     $ 0.13  
                     
 

Owens & Minor, Inc.

GAAP/Non-GAAP Reconciliations (unaudited)

 
(dollars in thousands, except per share data)    

Three Months Ended
March 31,

      2019     2018
             
Operating income (loss), as reported (GAAP)     $ 14,692         24,217  
Intangible amortization (1)       10,361         6,407  
Acquisition-related and exit and realignment charges (2)       4,990         14,760  
Other (3)       499         2,217  
Operating income, adjusted (non-GAAP) (Adjusted Operating Income)     $ 30,542       $ 47,601  
             
Net income (loss), as reported (GAAP)     $ (14,096 )     $ 8,151  
Intangible amortization (1)       10,361         6,407  
Income tax expense (benefit) (5)       (1,664 )       (1,557 )
Acquisition-related and exit and realignment charges (2)       4,990         14,760  
Income tax expense (benefit) (5)       (760 )       (3,576 )
Write-off of deferred financing costs (4)       2,003          
Income tax expense (benefit) (5)       (313 )        
Other (3)       499         2,217  
Income tax expense (benefit) (5)       (55 )       (228 )
Net income, adjusted (non-GAAP) (Adjusted Net Income)     $ 965       $ 26,174  
             
Net income (loss) per diluted common share, as reported (GAAP)     $ (0.23 )     $ 0.13  
Intangible amortization, per diluted common share (1)       0.14         0.08  
Acquisition-related and exit and realignment charges, per diluted common share (2)       0.07         0.19  
Write-off of deferred financing costs, per diluted common share (4)       0.03          
Other, per diluted common share (3)       0.01         0.03  
Net income per diluted common share, adjusted (non-GAAP) (Adjusted EPS)     $ 0.02       $ 0.43  
                     

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

(1) Intangible amortization includes amortization of intangible assets established during purchase accounting for business combinations. These amounts are highly dependent on the size and frequency of acquisitions and are being excluded to allow for a more consistent comparison with forecasted, current and historical results and the results of our peers.

(2)Acquisition-related charges were $4.2 million and $12.1 million in the first quarter of 2019 and 2018, respectively. Acquisition related expenses in 2019 and 2018 consist primarily of transition and transaction costs for the Halyard transaction.

Exit and realignment charges were $0.8 million in the first quarter of 2019 and $2.7 million in the first quarter of 2018. Amounts in 2019 were associated with the establishment of our client engagement centers and IT restructuring charges. Amounts in 2018 were associated with the establishment of our client engagement centers.

(3) Other consists of Software as a Service (SaaS) implementation costs associated with significant global IT platforms in connection with the redesign of our global information system strategy.

(4) Write-off of deferred financing costs associated with the revolving credit facility as a result of the Fourth Amendment to the Credit Agreement.

(5) 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 substitutes 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.

Source: Owens & Minor, Inc.

INVESTORS: Chuck Graves, Director, Finance & Investor Relations, 804-723-7556, chuck.graves@owens-minor.com
MEDIA: Jenny Graves, Operating Vice President, Global Corporate Communications, 804-723-7754, jenny.graves@owens-minor.com