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Press Release

February 8, 2016 at 5:24 PM EST

Owens & Minor Reports 4th Quarter & Full-Year 2015 Financial Results

  • Company achieved record annual adjusted earnings of $2.00 per share for 2015
  • Consolidated annual revenues increased 3.5% to $9.77 billion
  • International segment operating earnings improved $10.6 million compared to 2014

RICHMOND, Va.--(BUSINESS WIRE)-- Owens & Minor, Inc. (NYSE-OMI) today reported financial results for the year ended December 31, 2015, including consolidated revenues of $9.77 billion, which improved 3.5% over the prior year. Net income for 2015 was $103.4 million, or $1.65 per diluted share. Adjusted net income (non-GAAP) was $125.3 million, or $2.00 per diluted share, the strongest earnings result ever reported by the company. The increase of $0.24 in adjusted earnings per diluted share resulted from continued progress in repositioning the International segment, improving performance from the two 2014 acquisitions, benefits derived from the global sourcing strategy, and early progress associated with implementation of the company's transformation agenda. A reconciliation of reported results to adjusted (non-GAAP) measures is included below.

Consolidated operating earnings for 2015 were $200.4 million, or 2.05% of revenues, representing an improvement of $40.8 million when compared to last year's operating earnings. Adjusted consolidated operating earnings (non-GAAP) for the full year improved 12.2% to $227.3 million, or 2.33% of revenues.

"I am pleased with the performance of our teams in the U.S., Europe, and Asia, who worked in concert to close out 2015 on a strong note by achieving solid revenue and record earnings results," said P. CodyPhipps, president & chief executive officer of Owens & Minor. "We are making solid progress on our transformation agenda, which contributed to our positive results for 2015. Looking ahead, we have a clear path, a newly energized leadership team, and specific plans for creating efficiencies throughout our global business platform. Our focus remains on demonstrating consistent earnings growth, while we reposition the company for long term success."

Fourth Quarter 2015 Results

For the fourth quarter of 2015, consolidated net revenues were $2.49 billion, representing a slight decline when compared to revenues in the fourth quarter of 2014. Quarterly revenue results reflected the previously discussed exit of certain healthcare customers in the Domestic and International segments. Quarterly net income was $32.1 million, or $0.51 per diluted share. Adjusted net income (non-GAAP) for the quarter was $35.1 million, or $0.56 per diluted share.

Consolidated operating earnings for the fourth quarter of 2015 increased $17.2 million to $58.0 million, when compared to the same period last year. Adjusted consolidated operating earnings (non-GAAP) for the fourth quarter of 2015 were $63.1 million, an improvement of $4.1 million over last year. The quarterly improvements were derived from the same factors highlighted in the annual results.

Asset Management

The balance of cash and cash equivalents was $161 million at December 31, 2015. For the year, the company reported $270 million of cash provided by operating activities, compared to cash used for operating activities of $3.8 million in the prior year. The increase in operating cash flow was driven primarily by improved net income and the recovery from the temporarily unfavorable timing of vendor payments in 2014. Asset management metrics, as of the end of the year, included consolidated days sales outstanding (DSO) of 21.0, compared to DSO of 22.1 days last year; as well as consolidated inventory turns of 9.4 compared to 10.1 for 2014.

Segment Results

For the full year of 2015, Domestic segment revenue increased 4.5% to $9.36 billion, when compared to the prior year. Domestic segment revenues for the fourth quarter of 2015 were $2.38 billion, representing an increase of 1.3% when compared to last year's fourth quarter. Revenue growth in the Domestic segment resulted primarily from larger healthcare provider customers and new business, which offset declines from smaller customer accounts. Another positive contributor to Domestic segment revenue growth was the Medical Action acquisition, which accounted for 1.5% of the annual revenue increase.

For the full year, Domestic segment operating earnings increased $14.1 million to $223.4 million, representing 2.39% of segment revenues. For the fourth quarter of 2015, Domestic segment operating earnings were $62.5 million, an increase of $5.0 million, when compared to the same period of 2014. The improvement in annual and quarterly Domestic segment operating earnings resulted primarily from revenue growth, benefits from manufacturer product price changes, contributions from Medical Action, expense control initiatives, and lower fuel costs.

For the International segment, full-year revenues decreased 14.6% to $417 million, while quarterly revenues decreased 25.6% to $103 million. On a constant currency basis, excluding the effect of the transition of a U.K. customer from a buy-sell to a fee-for-service arrangement and the first full year of contributions from the ArcRoyal acquisition, International segment revenues declined approximately 3.5% for the year. For the year, the International segment reported operating earnings of $3.9 million, which improved $10.6 million from the prior year. The company attributed the gains to measures taken throughout the year to streamline and reposition the business, improve operational efficiency, and reduce expenses. For the fourth quarter of 2015, the International segment had operating earnings of $0.6 million.

"Our International team worked throughout the year to achieve operational and financial improvements, leading to a $10.6 million increase in International segment operating earnings for the year," said Richard A. Meier, executive vice president & chief financial officer and president-International of Owens & Minor. "At the same time, the team repositioned and stabilized the business, finding ways to serve our clients with greater efficiency. In the coming year, we look forward to focusing on developing new avenues for growth."

2016 Outlook

The company reiterated its financial guidance for 2016, consistent with the guidance originally provided at its December 2015 Investor Day.

For 2016, the company is targeting adjusted earnings per diluted share in a range of $2.00 to $2.05.

Upcoming Investor Relations Events

Owens & Minor will participate in the following investor conference in the first quarter of 2016; a webcast of the presentation will be available on www.owens-minor.com.

  • Barclays Capital 2016 Global Healthcare Conference; March 15-17, Miami

Investors Conference Call & Supplemental Material

Conference Call: Company executives will host a conference call, which will also be webcast, to discuss the results on the following morning, Tuesday, February 9, 2016, at 8:30 a.m. EST. The access code for this event is #27559950. The dial-in number for the live conference call is 866-393-1604; the international dial-in number is 224-357-2191; and a replay of the call will be available for one week by calling 855-859-2056. A webcast of the event and a corresponding slide presentation will be available on www.owens-minor.com under the Investor Relations section.

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.

Included with the press release financial tables are reconciliations of the differences between the non-GAAP financial measures presented in this news release 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 services company dedicated to Connecting the World of Medical Products to the Point of CareTM 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 owens-minor.com.

     

Owens & Minor, Inc.

Consolidated Statements of Income (unaudited)

(in thousands, except per share data)

 
 
Three Months Ended December 31,
2015     2014
Net revenue $ 2,487,914 $ 2,491,817
Cost of goods sold 2,175,632   2,177,802  
Gross margin 312,282 314,015
Selling, general and administrative expenses 236,426 244,152
Acquisition-related and exit and realignment charges 6,647 17,988
Depreciation and amortization 13,745 15,528
Other operating expense (income), net (2,489 ) (4,426 )
Operating earnings 57,953 40,773
Interest expense, net 6,845   7,270  
Income before income taxes 51,108 33,503
Income tax provision 19,040   19,516  
Net income $ 32,068   $ 13,987  
 
Net income per common share:
Basic $ 0.51 $ 0.22
Diluted $ 0.51 $ 0.22
 
 
Twelve Months Ended December 31,
2015 2014
Net revenue $ 9,772,946 $ 9,440,182
Cost of goods sold 8,558,373   8,270,216  
Gross margin 1,214,573 1,169,966
Selling, general and administrative expenses 933,596 926,977
Acquisition-related and exit and realignment charges 28,404 42,801
Depreciation and amortization 60,187 57,125
Other operating expense (income), net (7,973 ) (16,473 )
Operating earnings 200,359 159,536
Loss on early retirement of debt 14,890
Interest expense, net 27,149   18,163  
Income before income taxes 173,210 126,483
Income tax provision 69,801   59,980  
Net income $ 103,409   $ 66,503  
 
Net income per common share:
Basic $ 1.65 $ 1.06
Diluted $ 1.65 $ 1.06
 

Owens & Minor, Inc.

Condensed Consolidated Balance Sheets (unaudited)

(in thousands)

         
 
December 31, December 31,
        2015     2014
 
Assets
Current assets
Cash and cash equivalents $ 161,020 $ 56,772
Accounts and notes receivable, net 587,935 626,192
Merchandise inventories 940,775 872,457
Other current assets       284,970       314,479
Total current assets 1,974,700 1,869,900
Property and equipment, net 208,930 232,979
Goodwill, net 419,619 423,276
Intangible assets, net 95,250 108,593
Other assets, net       79,341       100,658
Total assets       $ 2,777,840       $ 2,735,406
Liabilities and equity
Current liabilities
Accounts payable $ 700,116 $ 608,846
Accrued payroll and related liabilities 45,907 31,507

Other current liabilities

      317,566       326,223
Total current liabilities 1,063,589 966,576
Long-term debt, excluding current portion 572,559 608,551
Deferred income taxes 86,326 101,880
Other liabilities       62,776       67,561
Total liabilities 1,785,250 1,744,568
Total equity       992,590       990,838
Total liabilities and equity       $ 2,777,840       $ 2,735,406
 

Owens & Minor, Inc.

Consolidated Statements of Cash Flows (unaudited)

(in thousands)

      Twelve Months Ended December 31,
        2015     2014
         
Operating activities:
Net income $ 103,409 $ 66,503
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization 65,982 63,407
Share-based compensation expense 11,306 8,207
Deferred income tax expense (benefit) (6,101 ) (3,385 )
Provision for losses on accounts and notes receivable (24 ) 448
Loss on early retirement of debt 14,890
Changes in operating assets and liabilities:
Accounts and notes receivable 18,333 (17,803 )
Merchandise inventories (69,727 ) (57,329 )
Accounts payable 103,518 (52,148 )
Net change in other assets and liabilities 40,670 (25,828 )
Other, net       2,231       (723 )
Cash (used for) provided by operating activities       269,597       (3,761 )
 
Investing activities:
Acquisitions, net of cash acquired (248,536 )
Additions to computer software and intangible assets (16,085 ) (22,384 )
Additions to property and equipment (20,531 ) (48,424 )
Proceeds from the sale of investment 1,937
Proceeds from the sale of property and equipment       143       156  
Cash used for investing activities       (36,473 )     (317,251 )
 
Financing activities:
Proceeds from issuance of debt 547,693
Proceeds from (repayment of) revolving credit facility (33,700 ) 33,700
Repayment of debt (217,352 )
Cash dividends paid (63,651 ) (63,104 )
Repurchases of common stock (20,000 ) (9,934 )
Financing costs paid (5,391 )
Proceeds from exercise of stock options 1,180
Excess tax benefits related to share-based compensation 646 582
Purchase of noncontrolling interest (1,500 )
Other, net       (7,528 )     (7,314 )
Cash provided by (used for) financing activities       (124,233 )     278,560  
               
Effect of exchange rate changes on cash and cash equivalents       (4,643 )     (2,681 )
 
Net increase (decrease) in cash and cash equivalents 104,248 (45,133 )
Cash and cash equivalents at beginning of period       56,772       101,905  
Cash and cash equivalents at end of period       $ 161,020       $ 56,772  
 

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)     12/31/2015     9/30/2015     6/30/2015     3/31/2015     12/31/2014
                   
Consolidated operating results:
Domestic $ 2,384,836 $ 2,368,008 $ 2,317,661 $ 2,285,635 $ 2,353,321
International 103,078       103,661       104,506       105,561       138,496  
Net revenue     $ 2,487,914       $ 2,471,669       $ 2,422,167       $ 2,391,196       $ 2,491,817  
 
Gross margin $ 312,282 $ 306,354 $ 298,337 $ 297,601 $ 314,015
Gross margin as a percent of revenue     12.55 %     12.39 %     12.32 %     12.45 %     12.60 %
 
SG&A expenses $ 236,426 $ 231,847 $ 231,498 $ 233,825 $ 244,152
SG&A expenses as a percent of revenue     9.50 %     9.38 %     9.56 %     9.78 %     9.80 %
 
Operating earnings, as reported (GAAP) $ 57,953 $ 53,572 $ 47,860 $ 40,975 $ 40,773
Acquisition-related charges (1) 4,048 1,335 1,786 2,605 7,394
Exit and realignment charges (2) 2,599 4,799 3,921 7,311 10,594
Fair value adjustments related to purchase accounting (3) (3,706 )
Other (4) (1,500 )                       3,907  
Operating earnings, adjusted (Non-GAAP) $ 63,100 $ 59,706 $ 53,567 $ 50,891 $ 58,962
Operating earnings as a percent of revenue, adjusted (Non-GAAP)     2.54 %     2.42 %     2.21 %     2.13 %     2.37 %
 
Net income, as reported (GAAP) $ 32,068 $ 28,176 $ 24,226 $ 18,940 $ 13,987
Acquisition-related charges, after-tax (1) 4,125 1,099 1,349 2,257 6,211
Exit and realignment charges, after-tax (2) 436 4,280 3,520 6,335 11,477
Fair value adjustments related to purchase accounting, after-tax (3) (4,703 )
Other, after-tax (4) (1,500 )                       3,907  
Net income, adjusted (Non-GAAP)     $ 35,129       $ 33,555       $ 29,095       $ 27,532       $ 30,879  
 
Net income per diluted common share, as reported (GAAP) $ 0.51 $ 0.45 $ 0.39 $ 0.30 $ 0.22
Acquisition-related charges, after-tax (1) 0.07 0.02 0.02 0.03 0.10
Exit and realignment charges, after-tax (2) 0.07 0.05 0.11 0.18
Fair value adjustments related to purchase accounting, after-tax (3) (0.07 )
Other, after-tax (4) (0.02 )                       0.06  
Net income per diluted common share, adjusted (Non-GAAP)     $ 0.56       $ 0.54       $ 0.46       $ 0.44       $ 0.49  
 
Financing:
Cash and cash equivalents $ 161,020 $ 125,245 $ 200,969 $ 159,056 $ 56,772
Total interest-bearing debt     $ 577,585       $ 578,512       $ 579,415       $ 579,505       $ 613,809  
 
Stock information:
Cash dividends per common share     $ 0.2525       $ 0.2525       $ 0.2525       $ 0.2525       $ 0.25  
Stock price at quarter-end     $ 35.98       $ 31.94       $ 34.00       $ 33.84       $ 35.11  
 

Owens & Minor, Inc

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

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

(1) Acquisition-related charges in 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 the former owner and costs to transition information technology and other administrative functions. Charges incurred in 2014 related primarily to costs to complete the transactions, and costs to begin the integration of the acquired operations (including certain severance and contractual payments) 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 2015 included a partial recovery of $1.5 million related to a contract settlement in the United Kingdom for which $3.9 million was expensed in 2014. Both the 2015 recovery and the 2014 settlement expense were recorded in other operating income, net.

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 December 31,     Twelve Months Ended December 31,
2015     2014 2015     2014
    % of     % of     % of     % of
consolidated consolidated consolidated consolidated
Amount net revenue Amount net revenue Amount net revenue Amount net revenue
Net revenue:
Domestic $ 2,384,836 95.86 % $ 2,353,321 94.44 % $ 9,356,140 95.74 % $ 8,951,852 94.83 %
International 103,078   4.14 % 138,496   5.56 % 416,806   4.26 % 488,330   5.17 %
Consolidated net revenue $ 2,487,914   100.00 % $ 2,491,817   100.00 % $ 9,772,946   100.00 % $ 9,440,182   100.00 %
 
 
% of segment % of segment % of segment % of segment
Operating earnings (loss): net revenue net revenue net revenue net revenue
Domestic $ 62,459 2.62 % $ 57,428 2.44 % $ 223,364 2.39 % $ 209,277 2.34 %
International 641 0.62 % 1,534 1.11 % 3,899 0.94 % (6,739 ) (1.38 )%
Acquisition-related and exit and realignment charges (1) (6,647 ) N/A (17,988 ) N/A (28,404 ) N/A (42,801 ) N/A
Fair value adjustments related to purchase accounting N/A 3,706 N/A N/A 3,706 N/A
Other 1,500   N/A (3,907 ) N/A 1,500   N/A (3,907 ) N/A
Consolidated operating earnings $ 57,953   2.33 % $ 40,773   1.64 % $ 200,359   2.05 % $ 159,536   1.69 %
 
 
Depreciation and amortization:
Domestic $ 9,143 $ 10,420 $ 40,582 $ 37,193
International 4,967   5,406   20,926   20,230  
Consolidated depreciation and amortization $ 14,110   $ 15,826   $ 61,508   $ 57,423  
 
 
Capital expenditures: (2)
Domestic $ 4,286 $ 12,419 $ 18,458 $ 52,529
International 133   4,232   18,158   18,279  
Consolidated capital expenditures $ 4,419   $ 16,651   $ 36,616   $ 70,808  
 
 
December 31, 2015 December 31, 2014
Total assets:
Domestic $ 2,155,236 $ 2,139,972
International 461,584   538,662  
Segment assets 2,616,820 2,678,634
Cash and cash equivalents 161,020   56,772  
Consolidated total assets $ 2,777,840   $ 2,735,406  
 
(1) The years ended December 31, 2015 and 2014 include $4.5 million and $6.0 million, respectively and the three months ended December 31, 2014 includes $3.3 million of 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 intangible assets.
 

Owens & Minor, Inc.

Net Income Per Common Share (unaudited)

(in thousands, except per share data)

       

Three Months Ended
December 31,

Twelve Months Ended
December 31,

2015   2014 2015   2014
Numerator:
Net income $ 32,068 $ 13,987 $ 103,409 $ 66,503
Less: income allocated to unvested restricted shares (307 ) (141 ) (925 ) (597 )
Net income attributable to common shareholders - basic 31,761 13,846 102,484 65,906
Add: undistributed income attributable to unvested restricted shares -basic 107 235 18
Less: undistributed income attributable to unvested restricted shares -diluted (107 )   (235 ) (18 )
Net income attributable to common shareholders - diluted $ 31,761   $ 13,846   $ 102,484   $ 65,906  
 
Denominator:
Weighted average shares outstanding — basic 61,771 62,193 62,116 62,220
Dilutive shares - stock options   4   1   6  
Weighted average shares outstanding — diluted 61,771   62,197   62,117   62,226  
 
 
Net income per share attributable to common shareholders:
Basic $ 0.51 $ 0.22 $ 1.65 $ 1.06
Diluted $ 0.51 $ 0.22 $ 1.65 $ 1.06

Owens & Minor, Inc.
Truitt 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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