Owens & Minor Reports 1st Quarter Financial Results
“I am pleased with the way that our teams performed in a very challenging environment in response to the COVID-19 pandemic. I have seen our values play out in real life as our teams worked with customers, suppliers, and various agencies of state and federal governments to provide creative solutions to these challenges. We recognize our responsibilities and required leadership in supporting the Nation’s response to protect those on the front line. Our distribution, products, and services teams have rallied around our mission to Empower Our Customers to
“The decisive actions we took this quarter enabled us to quickly pivot and leverage the strength of our
Financial Summary1 |
|||||||
($ in millions, except per share data) |
1Q20 |
1Q19 |
|||||
Revenue |
|
|
|
|
|||
Operating Income, GAAP2 |
|
|
|
|
|||
Adj. Operating Income, Non-GAAP2 |
|
|
|
|
|||
Income (Loss) from continuing operations, GAAP2 |
( |
) |
( |
) |
|||
Adj. Net Income, Non-GAAP2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Income (Loss) from continuing operations per share, GAAP2 |
( |
) |
( |
) |
|||
Adj. Net income per share, Non-GAAP2 |
|
|
|
|
|||
Adj. Net Income per share, Non-GAAP, constant currency2,3 |
|
|
|
|
|
|
|
1. Adjusted net income and Adjusted net income per share relate to continuing operations. 2. Reconciliations of the differences between the non-GAAP financial measures presented in this release and their most directly comparable GAAP financial measures are included in the tables below.
3. Adjusted net income per share, non-GAAP at foreign currency exchange rates as of |
1st Quarter 2020 Highlights
-
On a constant currency basis, adjusted net income per share increased by
$0.02 to$0.08 compared to the prior year quarter, a 33% increase. - Operating results reflect favorable revenue mix combined with continued operating efficiencies resulting in gross margin expansion of 88 basis points compared to in the first quarter of 2019.
-
The Company generated
$93 million of operating cash flow in the first quarter, primarily from working capital improvements. -
Total debt was reduced by
$24 million in the first quarter, bringing the total for the last four quarters to$195 million . -
The change in revenue compared to prior year was driven by lower sales as a result of customer non-renewals that occurred in early 2019 and reduced surgical procedures as a result of COVID-19 in our Medical Distribution business. These changes were partially offset by increased sales of personal protective equipment (PPE) and revenue growth in the
Home Healthcare business. -
On
April 6, 2020 , the Company announced that it had entered into a purchase agreement for the pending sale of its European logistics business, Movianto, toEHDH Holding Group , a privately held French company. The Company continues to believe that the transaction, which is subject to certain customary approvals and conditions to close, will close in the first half of 2020.
COVID-19 Update
- The significant reduction in elective surgical procedures, which began mid-March, is expected to continue through the end of the 2nd quarter of 2020. This reduction in surgical procedures will negatively impact our revenue and profit for the second quarter. However, elective procedures are assumed to recover at an accelerated rate during the 3rd and 4th quarter of 2020, partially offsetting the 2nd quarter impact.
-
Owens & Minor expects to continue the production of our
Americas based PPE at or near full capacity through the end of 2020 due to:- Continued demand related to COVID-19
- Rebuilding of safety stock by our customers and government agencies in the event COVID-19 demand slows
- The need for PPE products as elective procedures ramp up
-
Owens & Minor being named by the
U.S. Department of Health and Human Services as one of five manufacturers to collectively provide approximately 600 million N95 respirator masks over the next 18 months. - New operating protocols requiring PPE in non-healthcare related industries
-
Owens & Minor participated in Operation Local Production in which teammates in our
Lexington, NC facility manufactured nearly 1 million cubic yards of fabric for delivery toNew York City garment workers to make medical gowns for NYC hospitals. -
Owens & Minor worked closely with FEMA’s
Supply Chain Task Force on Project Air Bridge to accelerate the distribution of critical PPE to areas of greatest need and reduce the transit time of these supplies. -
Owens & Minor reaches a milestone in the COVID-19 fight with nearly two billion units of PPE shipped during February and
March 2020 .
Financial Outlook
Key assumptions supporting guidance:
- Elective procedures will not return to normal levels until Q3, negatively impacting revenues in our Global Solutions segment during Q2.
- Hospitals will increase surgical capacity in Q3 and Q4 to partially recover from elective procedures that were postponed during Q2, driving incremental demand in both our Global Solutions and Global Products segments in the second half of the year.
- Global Products production of PPE will continue to run at or near full capacity for the balance of the year to meet market demand and to satisfy federal government stockpiling commitments.
- Additional favorability in commodity pricing for the remainder of the year.
- Continued foreign exchange headwinds assumed for the balance of the year.
Based on the above assumptions, the Company continues to expect adjusted net income for 2020 to be in a range of
-
On a continuing operations basis; based on foreign currency rates in effect
December 31, 2019 .
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
Dividend Information
The Board of Directors approved a second quarter 2020 dividend payment of
Investor Conference Call for 1st Quarter Financial Results
Owens & Minor executives will host a conference call at
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
About Owens & Minor
Consolidated Statements of Operations (unaudited) (dollars in thousands, except per share data) |
||||||||
|
|
Three Months Ended |
||||||
|
|
2020 |
|
2019 |
||||
Net revenue |
|
$ |
2,122,693 |
|
|
$ |
2,350,840 |
|
Cost of goods sold |
|
1,854,134 |
|
|
2,074,219 |
|
||
Gross margin |
|
268,559 |
|
|
276,621 |
|
||
Distribution, selling and administrative expenses |
|
254,048 |
|
|
255,112 |
|
||
Acquisition-related and exit and realignment charges |
|
6,064 |
|
|
4,863 |
|
||
Other operating (income) expense, net |
|
(2,309 |
) |
|
42 |
|
||
Operating income |
|
10,756 |
|
|
16,604 |
|
||
Interest expense, net |
|
23,342 |
|
|
25,458 |
|
||
Other expense, net |
|
4,846 |
|
|
2,734 |
|
||
Loss from continuing operations before income taxes |
|
(17,432 |
) |
|
(11,588 |
) |
||
Income tax benefit |
|
(8,523 |
) |
|
(670 |
) |
||
Loss from continuing operations, net of tax |
|
(8,909 |
) |
|
(10,918 |
) |
||
Loss from discontinued operations, net of tax |
|
(2,415 |
) |
|
(3,178 |
) |
||
Net loss |
|
$ |
(11,324 |
) |
|
$ |
(14,096 |
) |
|
|
|
|
|
||||
Loss from continuing operations per common share: basic and diluted |
|
$ |
(0.15 |
) |
|
$ |
(0.18 |
) |
Loss from discontinued operations per common share: basic and diluted |
|
(0.04 |
) |
|
(0.05 |
) |
||
Net loss per common share: basic and diluted |
|
$ |
(0.19 |
) |
|
$ |
(0.23 |
) |
|
||||||||
Condensed Consolidated Balance Sheets (unaudited) (dollars in thousands) |
||||||||
|
|
2020 |
|
2019 |
||||
|
|
|
|
|
||||
Assets |
|
|
|
|
||||
Current assets |
|
|
|
|
||||
Cash and cash equivalents |
|
$ |
92,315 |
|
|
$ |
67,030 |
|
Accounts receivable, net of allowances of |
|
667,607 |
|
|
674,706 |
|
||
Merchandise inventories |
|
1,108,844 |
|
|
1,146,192 |
|
||
Other current assets |
|
151,635 |
|
|
79,372 |
|
||
Current assets of discontinued operations |
|
499,410 |
|
|
439,983 |
|
||
Total current assets |
|
2,519,811 |
|
|
2,407,283 |
|
||
Property and equipment, net of accumulated depreciation of |
|
301,335 |
|
|
315,427 |
|
||
Operating lease assets |
|
133,738 |
|
|
142,219 |
|
||
|
|
388,000 |
|
|
393,181 |
|
||
Intangible assets, net |
|
271,513 |
|
|
285,018 |
|
||
Other assets, net |
|
100,473 |
|
|
99,956 |
|
||
Total assets |
|
$ |
3,714,870 |
|
|
$ |
3,643,084 |
|
Liabilities and equity |
|
|
|
|
||||
Current liabilities |
|
|
|
|
||||
Accounts payable |
|
$ |
891,542 |
|
|
$ |
808,035 |
|
Accrued payroll and related liabilities |
|
44,722 |
|
|
53,584 |
|
||
Other current liabilities |
|
229,824 |
|
|
231,029 |
|
||
Current liabilities of discontinued operations |
|
383,586 |
|
|
323,511 |
|
||
Total current liabilities |
|
1,549,674 |
|
|
1,416,159 |
|
||
Long-term debt, excluding current portion |
|
1,484,340 |
|
|
1,508,415 |
|
||
Operating lease liabilities, excluding current portion |
|
109,381 |
|
|
117,080 |
|
||
Deferred income taxes |
|
42,962 |
|
|
40,550 |
|
||
Other liabilities |
|
112,175 |
|
|
98,726 |
|
||
Total liabilities |
|
3,298,532 |
|
|
3,180,930 |
|
||
Total equity |
|
416,338 |
|
|
462,154 |
|
||
Total liabilities and equity |
|
$ |
3,714,870 |
|
|
$ |
3,643,084 |
|
Consolidated Statements of Cash Flows (unaudited) (dollars in thousands) |
||||||||
|
|
Three Months Ended |
||||||
|
|
2020 |
|
2019 |
||||
Operating activities: |
|
|
|
|
||||
Net loss |
|
$ |
(11,324 |
) |
|
$ |
(14,096 |
) |
Adjustments to reconcile net loss to cash provided by (used for) operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
23,913 |
|
|
28,720 |
|
||
Share-based compensation expense |
|
3,941 |
|
|
4,505 |
|
||
Impairment charges |
|
9,080 |
|
|
— |
|
||
Provision for losses on accounts receivable |
|
5,213 |
|
|
3,619 |
|
||
Deferred income tax expense (benefit) |
|
6,348 |
|
|
(8,613 |
) |
||
Changes in operating lease right-of-use assets and lease liabilities |
|
(714 |
) |
|
(190 |
) |
||
Changes in operating assets and liabilities: |
|
|
|
|
||||
Accounts receivable |
|
(7,942 |
) |
|
(22,573 |
) |
||
Merchandise inventories |
|
39,340 |
|
|
80,194 |
|
||
Accounts payable |
|
98,743 |
|
|
(120,480 |
) |
||
Net change in other assets and liabilities |
|
(77,178 |
) |
|
(15,668 |
) |
||
Other, net |
|
4,034 |
|
|
3,678 |
|
||
Cash provided by (used for) operating activities |
|
93,454 |
|
|
(60,904 |
) |
||
|
|
|
|
|
||||
Investing activities: |
|
|
|
|
||||
Additions to property and equipment |
|
(4,771 |
) |
|
(11,674 |
) |
||
Additions to computer software |
|
(942 |
) |
|
(2,605 |
) |
||
Proceeds from sale of property and equipment |
|
33 |
|
|
271 |
|
||
Cash used for investing activities |
|
(5,680 |
) |
|
(14,008 |
) |
||
|
|
|
|
|
|
|
||
Financing activities: |
|
|
|
|
|
|
||
Proceeds from issuance of debt |
|
150,000 |
|
|
— |
|
||
(Repayments) borrowings under revolving credit facility |
|
(6,200 |
) |
|
72,100 |
|
||
Repayments of debt |
|
(166,798 |
) |
|
(12,394 |
) |
||
Financing costs paid |
|
(5,785 |
) |
|
(4,313 |
) |
||
Cash dividends paid |
|
(155 |
) |
|
(4,764 |
) |
||
Other, net |
|
(2,468 |
) |
|
(1,124 |
) |
||
Cash (used for) provided by financing activities |
|
(31,406 |
) |
|
49,505 |
|
||
Effect of exchange rate changes on cash and cash equivalents |
|
(62 |
) |
|
(2,721 |
) |
||
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
56,306 |
|
|
(28,128 |
) |
||
Cash, cash equivalents and restricted cash at beginning of period |
|
84,687 |
|
|
103,367 |
|
||
Cash, cash equivalents and restricted cash at end of period (1) |
|
$ |
140,993 |
|
|
$ |
75,239 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
||
Income taxes paid (received), net of refunds |
|
$ |
2,695 |
|
|
$ |
(12,388 |
) |
Interest paid |
|
$ |
21,431 |
|
|
$ |
24,504 |
|
(1) Restricted cash represents
Summary Segment Information (unaudited) (dollars in thousands) |
||||||||||||||
|
Three Months Ended |
|||||||||||||
|
2020 |
|
2019 |
|||||||||||
|
|
|
% of |
|
|
|
% of |
|||||||
|
|
|
consolidated |
|
|
|
consolidated |
|||||||
|
Amount |
|
net revenue |
|
Amount |
|
net revenue |
|||||||
Net revenue: |
|
|
|
|
|
|
|
|
||||||
Segment net revenue |
|
|
|
|
|
|
|
|
||||||
Global Solutions |
$ |
1,847,593 |
|
|
87.04 |
% |
|
$ |
|
2,123,599 |
|
|
90.34 |
% |
Global Products |
|
391,192 |
|
|
18.43 |
% |
|
|
347,085 |
|
|
14.76 |
% |
|
Total segment net revenue |
|
2,238,785 |
|
|
|
|
|
2,470,684 |
|
|
|
|||
Inter-segment revenue |
|
|
|
|
|
|
|
|
||||||
Global Products |
|
(116,092 |
) |
|
(5.47 |
)% |
|
|
(119,844 |
) |
|
(5.10 |
)% |
|
Total inter-segment revenue |
|
(116,092 |
) |
|
|
|
|
(119,844 |
) |
|
|
|||
Consolidated net revenue |
$ |
2,122,693 |
|
|
100.00 |
% |
|
$ |
|
2,350,840 |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
||||||
|
|
|
% of segment |
|
|
|
|
% of segment |
||||||
Operating income: |
|
|
net revenue |
|
|
|
|
net revenue |
||||||
Global Solutions |
$ |
7,691 |
|
|
0.42 |
% |
|
$ |
|
21,642 |
|
|
1.02 |
% |
Global Products |
|
18,571 |
|
|
4.75 |
% |
|
|
7,724 |
|
|
2.23 |
% |
|
Inter-segment eliminations |
|
1,169 |
|
|
|
|
|
1,746 |
|
|
|
|||
Intangible amortization |
|
(10,611 |
) |
|
|
|
|
(10,026 |
) |
|
|
|||
Acquisition-related and exit and realignment charges |
|
(6,064 |
) |
|
|
|
|
(4,863 |
) |
|
|
|||
Other (1) |
— |
|
|
|
|
381 |
|
|
|
|||||
Consolidated operating income |
$ |
10,756 |
|
|
0.51 |
% |
|
$ |
|
16,604 |
|
|
0.71 |
% |
|
|
|
|
|
|
|
|
|||||||
Depreciation and amortization: |
|
|
|
|
|
|
|
|||||||
Global Solutions |
$ |
10,636 |
|
|
|
|
$ |
|
10,500 |
|
|
|
||
Global Products |
|
13,277 |
|
|
|
|
|
12,607 |
|
|
|
|||
Discontinued operations |
— |
|
|
|
|
5,613 |
|
|
|
|||||
Consolidated depreciation and amortization |
$ |
23,913 |
|
|
|
|
$ |
|
28,720 |
|
|
|
||
|
|
|
|
|
|
|
|
|||||||
Capital expenditures: |
|
|
|
|
|
|
|
|||||||
Global Solutions |
$ |
1,032 |
|
|
|
|
$ |
|
3,341 |
|
|
|
||
Global Products |
|
3,017 |
|
|
|
|
|
2,903 |
|
|
|
|||
Discontinued operations |
|
1,664 |
|
|
|
|
|
8,035 |
|
|
|
|||
Consolidated capital expenditures |
$ |
5,713 |
|
|
|
|
$ |
|
14,279 |
|
|
|
(1) 2019 included interest cost and net actuarial losses related to the
Net Loss per Common Share (unaudited) (dollars in thousands, except per share data) |
||||||||
|
Three Months Ended |
|||||||
|
2020 |
|
2019 |
|||||
Weighted average shares outstanding - basic and diluted |
60,571,000 |
|
|
60,376,000 |
|
|||
|
|
|
|
|||||
Loss from continuing operations |
$ |
(8,909 |
) |
|
$ |
(10,918 |
) |
|
Basic and diluted per share |
$ |
(0.15 |
) |
|
$ |
(0.18 |
) |
|
|
|
|
|
|||||
Loss from discontinued operations |
$ |
(2,415 |
) |
|
$ |
(3,178 |
) |
|
Basic and diluted per share |
$ |
(0.04 |
) |
|
$ |
(0.05 |
) |
|
|
|
|
|
|||||
Net loss |
$ |
(11,324 |
) |
|
$ |
(14,096 |
) |
|
Basic and diluted per share |
$ |
(0.19 |
) |
|
$ |
(0.23 |
) |
GAAP/Non-GAAP Reconciliations (unaudited)
The following table provides a reconciliation of reported operating income and loss from continuing operations to non-GAAP measures used by management. |
||||||||
|
|
Three Months Ended |
||||||
(Dollars in thousands except per share data) |
|
2020 |
|
2019 |
||||
Operating income, as reported (GAAP) |
|
$ |
10,756 |
|
|
$ |
16,604 |
|
Intangible amortization (1) |
|
10,611 |
|
|
10,026 |
|
||
Acquisition-related and exit and realignment charges(2) |
|
6,064 |
|
|
4,863 |
|
||
Software as a Service implementation costs (3) |
|
— |
|
|
351 |
|
||
Other (4) |
|
— |
|
|
(731 |
) |
||
Operating income, adjusted (non-GAAP) (Adjusted Operated Income) |
|
$ |
27,431 |
|
|
$ |
31,113 |
|
Operating income as a percent of revenue (GAAP) |
|
0.51 |
% |
|
0.71 |
% |
||
Adjusted operating income as a percent of revenue (non-GAAP) |
|
1.29 |
% |
|
1.32 |
% |
||
|
|
|
|
|
||||
Loss from continuing operations, as reported (GAAP) |
|
$ |
(8,909 |
) |
|
$ |
(10,918 |
) |
Intangible amortization (1) |
|
10,611 |
|
|
10,026 |
|
||
Income tax expense (benefit) (7) |
|
(2,544 |
) |
|
(1,350 |
) |
||
Acquisition-related and exit and realignment charges(2) |
|
6,064 |
|
|
4,863 |
|
||
Income tax expense (benefit) (7) |
|
(1,250 |
) |
|
(735 |
) |
||
Software as a Service implementation costs (3) |
|
— |
|
|
351 |
|
||
Income tax expense (benefit) (7) |
|
— |
|
|
(51 |
) |
||
(Gain) loss on extinguishment and modification of debt (5) |
|
4,127 |
|
|
2,003 |
|
||
Income tax expense (benefit) (7) |
|
(989 |
) |
|
(524 |
) |
||
Other (4) |
|
577 |
|
|
— |
|
||
Income tax expense (benefit) (7) |
|
(138 |
) |
|
— |
|
||
Tax adjustment (6) |
|
(5,187 |
) |
|
— |
|
||
Income from continuing operations, adjusted (non-GAAP) (Adjusted Net Income) |
|
$ |
2,362 |
|
|
$ |
3,665 |
|
|
|
|
|
|
||||
Loss from continuing operations per diluted common share, as reported (GAAP) |
|
$ |
(0.15 |
) |
|
$ |
(0.18 |
) |
Intangible amortization (1) |
|
0.14 |
|
|
0.14 |
|
||
Acquisition-related and exit and realignment charges(2) |
|
0.08 |
|
|
0.07 |
|
||
Software as a Service implementation costs (3) |
|
— |
|
|
0.01 |
|
||
(Gain) loss on extinguishment and modification of debt (5) |
|
0.05 |
|
|
0.02 |
|
||
Other (4) |
|
0.01 |
|
|
— |
|
||
Tax adjustment (6) |
|
(0.09 |
) |
|
— |
|
||
Income from continuing operations per diluted common share, adjusted (non-GAAP) (Adjusted EPS) |
|
$ |
0.04 |
|
|
$ |
0.06 |
|
Impact of currency at 2019 foreign currency exchange rates |
|
0.04 |
|
|
— |
|
||
Adjusted EPS, on a constant currency basis (8) |
|
$ |
0.08 |
|
|
$ |
0.06 |
|
GAAP/Non-GAAP Reconciliations (unaudited), continued
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
(3) Software as a Service (SaaS) implementation costs were associated with significant global IT platforms in connection with the redesign of our global information system strategy.
(4) Other includes interest costs and net actuarial losses related to the
(5) (Gain) loss on extinguishment and modification of debt in 2020 includes the write-off of deferred financing costs associated with the paydown of our Term A loans of
(6) Includes a tax adjustment associated with the estimated benefits under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
(7) 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.
(8) Excludes the impact of translational currency, which assumes 2020 results at 2019 rates.
Use of Non-GAAP Measures
This earnings release contains financial measures that are not calculated in accordance with
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.
View source version on businesswire.com: https://www.businesswire.com/news/home/20200506005127/en/
Source: Owens & Minor