Press Release Details

Owens & Minor Reports 2nd Quarter 2016 Financial Results

August 2, 2016 at 5:10 PM EDT

 

  • Consolidated quarterly revenue grew 2.5% to $2.48 billion
  • Quarterly operating earnings were $52.1 million, while adjusted operating earnings (non-GAAP) were $58.8 million for the quarter
  • Quarterly diluted EPS was $0.45, while adjusted quarterly diluted EPS (non-GAAP) was $0.52

 

OWENS & MINOR REPORTS 2ND QUARTER 2016 FINANCIAL RESULTS

RICHMOND, Va.--(BUSINESS WIRE)-- Owens & Minor, Inc. (NYSE-OMI) today reported financial results for the second quarter ended June 30, 2016, including consolidated revenues of $2.48 billion, an increase of 2.5% when compared to revenues of $2.42 billion in the second quarter of 2015. Quarterly net income was $27.7 million, or $0.45 per diluted share, compared to $0.39 per diluted share in the second quarter of 2015. Quarterly adjusted net income (non-GAAP) was $32.2 million, or $0.52 per diluted share, compared to $0.46 per diluted share in last year's second quarter. The increase in net income per diluted share resulted from revenue growth and initiatives associated with the company's transformation agenda, including improved expense control. A reconciliation of reported results to adjusted (non-GAAP) measures is included among the schedules below.

Consolidated operating earnings for the second quarter of 2016 were $52.1 million, or 2.10% of revenues, representing an increase $4.2 million when compared to the second quarter last year. Adjusted consolidated operating earnings (non-GAAP) for the second quarter were $58.8 million, or 2.37% of revenues, an improvement of $5.2 million when compared to the same period last year.

"Our global teams remain focused on delivery of our 2016 plan and have performed well across our enterprise so far this year," said P. CodyPhipps, president & chief executive officer of Owens & Minor. "Our strategy of attacking complexity across the healthcare supply chain and creating value for our manufacturer and provider customers is gaining traction while we refine our strategies to drive sustained profitable growth. I am pleased with our execution and performance through the first half of this year."

2016 Year-to-Date Results

For the 2016 year-to-date period, Owens & Minor reported consolidated revenues of $4.94 billion, an increase of 2.6% when compared to revenues of $4.81 billion in the first half of 2015. Net income for the first six months of 2016 was $51.9 million, or $0.83 per diluted share, compared to $0.69 per diluted share in last year's first half. Adjusted net income (non-GAAP) was $63.5 million, or $1.02 per diluted share, compared to $0.90 per diluted share last year. The increase in net income per diluted share resulted from improved operating earnings in each of the company's segments.

Consolidated operating earnings for the first six months of 2016 were $97.0 million, or 1.96% of revenues, representing an increase of $8.2 million, when compared to the same period last year. Adjusted consolidated operating earnings (non-GAAP) for the year-to-date period improved $9.8 million to $114.3 million, or 2.31% of revenues.

Asset Management

At June 30, 2016, the balance of cash and cash equivalents was $139 million. For the first six months of 2016, the company reported cash provided by operating activities of $42.6 million. Asset management metrics for the quarter were strong with consolidated days sales outstanding (DSO) of 21.5 days, as of June 30, 2016. Consolidated inventory turns were 9.3 for the period.

Segment Results

Domestic segment revenues for the second quarter of 2016 were $2.35 billion, increased 2.9% when compared to the prior year's second quarter revenue. For the year-to-date period, Domestic segment revenues improved 3.0% to $4.67 billion, when compared to the same period last year. Revenue improvement for both periods resulted primarily from growth with large healthcare provider customers. An additional sales day in the first quarter of 2016 also contributed to the improvement in the year-to-date period. For the second quarter of 2016, Domestic segment operating earnings were $43.5 million, an improvement of $5.1 million when compared to the second quarter of 2015. For the year-to-date period, Domestic segment operating earnings were $85.2 million, improved 11.3% compared to the prior year. The improvements in operating earnings resulted primarily from revenue growth and expense control initiatives, partially offset by a year-over-year decline in income from manufacturer product price changes.

International segment revenues were $88.6 million for the second quarter of 2016, a decrease of $4.3 million in comparison to last year. For the first six months of 2016, International segment revenues declined $16.3 million to $172 million. Excluding the previously discussed exit of a U.K.-based customer last year and the negative impact of foreign exchange, revenues improved by $1.4 million for the quarter and declined $2.9 million year-to-date. For the second quarter of 2016, International segment operating earnings were $0.9 million, representing a decline of approximately $288 thousand over last year. For the year-to-date period, the International segment reported operating earnings of $2.0 million, improved $1.2 million from the prior year, as a result of improved performance in the U.K. and continued profitable results across the regions.

Clinical & Procedural Solutions (CPS) revenues for the second quarter were $135 million, representing a slight decline compared to the prior year quarter. For the year-to-date period, CPS reported revenues of $276 million, an increase of 4.1% over last year. Revenue growth benefitted from improved alignment with the sales efforts of our Domestic segment. Operating earnings for the CPS segment were $14.3 million for the quarter and $27.5 million year-to-date, both improved slightly when compared to last year's results.

"We are pleased with our second quarter performance and the continued progress made by our three segments during the second quarter," said Richard A. Meier, executive vice president & chief financial officer, and president-International of Owens & Minor. "At this point in the year, we believe the strong first half performance and our continued execution will offset much of the impact of the previously announced exit of a large healthcare provider customer. Therefore, we are affirming our financial outlook for the year."

2016 Outlook

The company affirmed its financial guidance for 2016 of adjusted earnings per diluted share in the range of $2.00 to $2.05.

Upcoming Investor Events

Owens & Minor is scheduled to participate in two investor conferences in the third quarter of 2016. Webcasts of formal presentations will be posted on the company's corporate website:

  • Baird 2016 Global Healthcare Conference - September 7 - New York
  • Wells Fargo 2016 Healthcare Conference - September 8 - Boston

Investors Conference Call & Supplemental Material

Conference Call: Owens & Minor will conduct a conference call for investors on Wednesday, August 3, 2016, at 8:30 a.m. EDT. The access code for the conference call, international dial-in and replay is #49423409. 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.

Safe Harbor Statement

This release is intended to be disclosure through methods reasonably designed to provide broad, non-exclusionary distribution to the public in compliance with the Securities and Exchange Commission's Fair Disclosure Regulation. This release contains certain ''forward-looking'' statements, including those with respect to our 2016 Outlook, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. 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 our annual report on Form 10-K for the year ended December 31, 2015, filed with the Securities and Exchange Commission ("SEC") 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 our actual results to differ materially from our current estimates. These filings are available at www.owens-minor.com. Given these risks and uncertainties, we can give no assurances that any forward-looking statements will, in fact, transpire and, therefore, caution investors not to place undue reliance on them. We specifically disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.

Owens & Minor, Inc. (NYSE: OMI) is a leading global 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 June 30,
    2016   2015
Net revenue   $ 2,483,676     $ 2,422,167  
Cost of goods sold   2,184,256     2,123,830  
Gross margin   299,420     298,337  
Distribution, selling and administrative expenses   242,914     246,958  
Acquisition-related and exit and realignment charges   6,752     5,707  
Other operating income, net   (2,300 )   (2,188 )
Operating earnings   52,054     47,860  
Interest expense, net   6,765     6,680  
Income before income taxes   45,289     41,180  
Income tax provision   17,573     16,954  
Net income   $ 27,716     $ 24,226  
         
Net income per common share:        
Basic   $ 0.45     $ 0.39  
Diluted   $ 0.45     $ 0.39  
      Six Months Ended June 30,
     

2016

 

2015

Net revenue     $ 4,939,469     $ 4,813,363  
Cost of goods sold     4,343,413     4,217,425  
Gross margin     596,056     595,938  
Distribution, selling and administrative expenses     485,639     496,652  
Acquisition-related and exit and realignment charges     17,235     15,623  
Other operating income, net     (3,842 )   (5,172 )
Operating earnings     97,024     88,835  
Interest expense, net     13,554     13,560  
Income before income taxes     83,470     75,275  
Income tax provision     31,619     32,109  
Net income     $ 51,851     $ 43,166  
           
Net income per common share:          
Basic     $ 0.83     $ 0.69  
Diluted     $ 0.83     $ 0.69  

Owens & Minor, Inc.

Condensed Consolidated Balance Sheets (unaudited)

(in thousands)

       
         
    June 30, 2016   December 31, 2015
         
Assets        
Current assets        
Cash and cash equivalents   $ 138,951     $ 161,020
Accounts and notes receivable, net   609,212     587,935
Merchandise inventories   957,972     940,775
Other current assets   268,645     284,970
Total current assets   1,974,780     1,974,700
Property and equipment, net   201,519     208,930
Goodwill, net   418,366     419,619
Intangible assets, net   89,599     95,250
Other assets, net   71,800     75,277
Total assets   $ 2,756,064     $ 2,773,776
Liabilities and equity        
Current liabilities        
Accounts payable   $ 775,970     $ 710,609
Accrued payroll and related liabilities   28,268     45,907
Other current liabilities   239,887     307,073
Total current liabilities   1,044,125     1,063,589
Long-term debt, excluding current portion   566,955     568,495
Deferred income taxes   84,500     86,326
Other liabilities   64,187     62,776
Total liabilities   1,759,767     1,781,186
Total equity   996,297     992,590
Total liabilities and equity   $ 2,756,064     $ 2,773,776

Owens & Minor, Inc.

Consolidated Statements of Cash Flows (unaudited)

(in thousands)

     
    Six Months Ended June 30,
    2016   2015
         
Operating activities:        
Net income   $ 51,851     $ 43,166  
Adjustments to reconcile net income to cash provided by operating activities:        
Depreciation and amortization   28,343     36,138  
Share-based compensation expense   5,969     5,048  
Provision for losses on accounts and notes receivable   (27 )   41  
Deferred income tax (benefit) expense   (2,071 )   2,992  
Changes in operating assets and liabilities:        
Accounts and notes receivable   (29,736 )   41,622  
Merchandise inventories   (17,947 )   (31,866 )
Accounts payable   62,710     145,682  
Net change in other assets and liabilities   (56,599 )   2,771  
Other, net   145     1,196  
Cash provided by operating activities   42,638     246,790  
         
Investing activities:        
Additions to property and equipment   (8,857 )   (12,009 )
Additions to computer software and intangible assets   (4,602 )   (10,816 )
Proceeds from sale of property and equipment   4,565     837  
Cash used for investing activities   (8,894 )   (21,988 )
         
Financing activities:        
Change in bank overdraft       1,530  
Repayment of revolving credit facility       (33,700 )
Cash dividends paid   (32,003 )   (31,867 )
Repurchases of common stock   (20,849 )   (7,440 )
Excess tax benefits related to share-based compensation   598     457  
Other, net   (5,968 )   (5,112 )
Cash used for financing activities   (58,222 )   (76,132 )
Effect of exchange rate changes on cash and cash equivalents   2,409     (4,473 )
         
Net increase (decrease) in cash and cash equivalents   (22,069 )   144,197  
Cash and cash equivalents at beginning of period   161,020     56,772  
Cash and cash equivalents at end of period   $ 138,951     $ 200,969  

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)   6/30/2016   3/31/2016   12/31/2015   9/30/2015   6/30/2015
                .    
Consolidated operating results:                    
Net revenue   $ 2,483,676     $ 2,455,793     $ 2,487,914     $ 2,471,669     $ 2,422,167  
                     
Gross margin   $ 299,420     $ 296,636     $ 312,282     $ 306,354     $ 298,337  
Gross margin as a percent of revenue   12.06 %   12.08 %   12.55 %   12.39 %   12.32 %
                     
Distribution, selling & admin expenses   $ 242,914     $ 242,725     $ 250,172     $ 246,959     $ 246,958  
Distribution, selling & admin expenses as a percent of revenue   9.78 %   9.88 %   10.06 %   9.99 %   10.20 %
                     
Operating earnings, as reported (GAAP)   $ 52,054     $ 44,970     $ 57,953     $ 53,572     $ 47,860  
Acquisition-related charges (1)   730     (399 )   4,048     1,335     1,786  
Exit and realignment charges (2)   6,022     10,882     2,599     4,799     3,921  
Other (3)           (1,500 )        
Operating earnings, adjusted (Non-GAAP)   $ 58,806     $ 55,453     $ 63,100     $ 59,706     $ 53,567  
Operating earnings as a percent of revenue, adjusted (Non-GAAP)   2.37 %   2.26 %   2.54 %   2.42 %   2.21 %
                     
Net income, as reported (GAAP)   $ 27,716     $ 24,135     $ 32,068     $ 28,176     $ 24,226  
Acquisition-related charges (1)   730     (399 )   4,048     1,335     1,786  
Income tax expense(benefit) (4)   (164 )   152     77     (236 )   (437 )
Exit and realignment charges (2)   6,022     10,882     2,599     4,799     3,921  
Income tax expense(benefit) (4)   (2,081 )   (3,506 )   (2,163 )   (519 )   (401 )
Other (3)           (1,500 )        
Income tax expense(benefit) (4)                    
Net income, adjusted (Non-GAAP)   $ 32,223     $ 31,264     $ 35,129     $ 33,555     $ 29,095  
                     
Net income per diluted common share, as reported (GAAP)   $ 0.45     $ 0.39     $ 0.51     $ 0.45     $ 0.39  
Acquisition-related charges (1)   0.01         0.07     0.02     0.02  
Exit and realignment charges (2)   0.06     0.11         0.07     0.05  
Other (3)           (0.02 )        
Net income per diluted common share, adjusted (Non-GAAP)   $ 0.52     $ 0.50     $ 0.56     $ 0.54     $ 0.46  
                     
Financing:                    
Cash and cash equivalents   $ 138,951     $ 190,323     $ 161,020     $ 125,245     $ 200,969  
Total interest-bearing debt   $ 571,143     $ 572,318     $ 573,522     $ 574,304     $ 575,065  
                     

Stock information:

                   
Cash dividends per common share   $ 0.255     $ 0.255     $ 0.2525     $ 0.2525     $ 0.2525  
Stock price at quarter-end   $ 37.38     $ 40.42     $ 35.98     $ 31.94     $ 34.00  

Owens & Minor, Inc.

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

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

(1) Acquisition-related charges in the second quarter of 2016 primarily relate to costs incurred to settle certain obligations and address other on-going matters associated with the acquisitions of ArcRoyal and Medical Action. Charges in the first quarter of 2016 related to the gain on the sale of property acquired with the Medical Action acquisition. Charges in 2015 consisted 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.

(2) Charges in 2016 were associated with severance activities (including our voluntary employee separation program in the first quarter of 2016), and other costs associated with our strategic organizational realignment which include certain professional fees and costs to streamline administrative functions and processes in the United States and Europe. Similar charges in 2015 also included the consolidation of distribution and logistics centers and closure of offsite warehouses.

(3) 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.

(4) 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 June 30,
    2016     2015  
        % of       % of
        consolidated       consolidated
    Amount   net revenue   Amount   net revenue
Net revenue:                
Segment net revenue                
Domestic   $ 2,345,746     94.45 %     $ 2,279,725     94.12 %  
International   88,559     3.57 %     92,856     3.83 %  
CPS   134,964     5.43 %     135,714     5.60 %  
Total segment net revenue   2,569,269         2,508,295      
Inter-segment revenue                
CPS   (85,593 )   (3.45 )%     (86,128 )   (3.56 )%  
Total inter-segment revenue   (85,593 )       (86,128 )    
Consolidated net revenue   $ 2,483,676     100.00 %   $ 2,422,167     100.00 %
                 
        % of segment       % of segment
Operating earnings (loss):       net revenue       net revenue
Domestic   $ 43,451     1.85 %     $ 38,394     1.68 %  
International   893     1.01 %     1,181     1.27 %  
CPS   14,255     10.56 %     13,850     10.21 %  
Inter-segment eliminations   207         142      
Acquisition-related and exit and realignment charges (1)   (6,752 )       (5,707 )    
Consolidated operating earnings   $ 52,054     2.10 %     $ 47,860     1.98 %  
                 
Depreciation and amortization:            
Domestic   $ 7,497         $ 8,888      
International   4,416         4,743      
CPS   2,213         2,150      
Consolidated depreciation and amortization   $ 14,126         $ 15,781      
                 
Capital expenditures:                
Domestic   $ 2,659         $ 3,349      
International   2,860         7,875      
CPS   880         35      
Consolidated capital expenditures   $ 6,399         $ 11,259      

Owens & Minor, Inc.

Summary Segment Information (unaudited)

(in thousands)

   
         
    Six Months Ended June 30,
    2016       2015    
        % of       % of
        consolidated       consolidated
    Amount   net revenue   Amount   net revenue
Net revenue:                    
Segment net revenue                    
Domestic   $ 4,667,455     94.49 %     $ 4,529,430     94.10 %  
International   172,110     3.48 %     188,367     3.91 %  
CPS   276,317     5.59 %     265,359     5.51 %  
Total segment net revenue   5,115,882           4,983,156        
Inter-segment revenue                    
CPS   (176,413 )   (3.57 )%     (169,793 )   (3.53 )%  
Total inter-segment revenue   (176,413 )         (169,793 )      
Consolidated net revenue   $ 4,939,469     100.00

%

 

  $ 4,813,363     100.00

%

 

                     
        % of segment       % of segment
Operating earnings (loss):       net revenue       net revenue
Domestic   $ 85,169     1.82 %     $ 76,499     1.69 %  
International   2,021     1.17 %     843     0.45 %  
CPS   27,526     9.96 %     27,032     10.19 %  
Inter-segment eliminations   (457 )         84        
Acquisition-related and exit and realignment charges (1)   (17,235 )         (15,623 )      
Consolidated operating earnings   $ 97,024     1.96 %     $ 88,835     1.85 %  
                     
Depreciation and amortization:                
Domestic   $ 15,038           $ 17,971        
International   8,865           9,638        
CPS   4,440           4,341        
Consolidated depreciation and amortization   $ 28,343           $ 31,950        
                     
Capital expenditures:                    
Domestic   $ 7,202           $ 11,358        
International   4,830           10,790        
CPS   1,427           677        
Consolidated capital expenditures   $ 13,459           $ 22,825        
                     
    June 30, 2016         December 31, 2015      
Total assets:                    
Domestic   $ 1,752,278           $ 1,728,345        
International   442,097           464,003        
CPS   422,738           420,408        
Segment assets   2,617,113           2,612,756        
Cash and cash equivalents   138,951           161,020        
Consolidated total assets   $ 2,756,064           $ 2,773,776        
                     

(1) The three and six months ended June 30, 2015 included $1.2 million and $4.2 million, respectively in accelerated

amortization related to an information system that was replaced.

Owens & Minor, Inc.

Net Income Per Common Share (unaudited)

(in thousands, except per share data)

         
   

Three Months Ended

June 30,

 

Six Months Ended
June 30,

    2016   2015   2016   2015
Numerator:                
Net income   $ 27,716     $ 24,226     $ 51,851     $ 43,166  
Less: income allocated to unvested restricted shares   (281 )   (195 )   (560 )   (359 )
Net income attributable to common shareholders - basic   27,435     24,031     51,291     42,807  
Add: undistributed income attributable to unvested restricted shares -basic   72     42     131     63  
Less: undistributed income attributable to unvested restricted shares -diluted   (72 )   (42 )   (131 )   (63 )
Net income attributable to common shareholders - diluted   $ 27,435     $ 24,031     $ 51,291     $ 42,807  
Denominator:                
Weighted average shares outstanding — basic   61,502     62,226     61,588     62,281  
Dilutive shares - stock options               1  
Weighted average shares outstanding — diluted   61,502     62,226     61,588     62,282  
                 
                 
Net income per share attributable to common shareholders:                
Basic   $ 0.45     $ 0.39     $ 0.83     $ 0.69  
Diluted   $ 0.45     $ 0.39     $ 0.83     $ 0.69  

 

Owens & Minor
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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IR Contact

Chandrika Nigam
Director, Investor Relations
Phone: 804-723-7556