Owens & Minor Reports 4th Quarter & Full-Year 2017 Financial Results
-
Diluted EPS for the year was
$1.20 , while adjusted diluted EPS was$1.61 - Pre-closing activities for the Halyard Health S&IP acquisition continue according to plan
While the company focused on executing the transformation strategy it
launched in 2017, a number of external factors and market forces
continued to affect overall performance throughout the year. Revenue
shortfalls, ongoing margin pressure in the domestic distribution
business, and increased costs to support new business in
"2017 was a very challenging year for Owens & Minor," said Phipps. "In
order to deal with these challenges in 2018, we are taking aggressive
steps to accelerate the transformation of our business toward a new
future. We are reducing certain expenses while improving operational
efficiency. At the same time, our teams are focused on serving our
customers across our expanding geographic network. We are pleased with
the contributions from our
Fourth Quarter 2017 Results
For the fourth quarter of 2017, consolidated revenues were
For the fourth quarter of 2017, Owens & Minor reported a consolidated
operating loss of
Asset Management
The balance of cash and cash equivalents was
Segment Results
Segment financial results for the year and the quarter are shown in the financial tables included with this release. Segment results include:
-
Domestic Segment annual revenues were
$8.79 billion compared to revenues of$9.19 billion a year ago. Fourth quarter 2017 revenues for the Domestic Segment were$2.28 billion , compared to$2.24 billion in the fourth quarter of 2016. For the year, segment operating earnings were$134 million compared to$165 million the year before, while quarterly operating earnings were$31.2 million compared to$39.3 million in the prior year. In the Domestic Segment, price and margin compression in the market negatively affected revenue and gross margin results. In addition, during the fourth quarter, the Domestic Segment incurred higher than expected healthcare costs and LIFO expense. Partially offsetting these results, were benefits derived from the company's transformation and expense reduction initiatives.Byram Healthcare , which was acquired in August of 2017, positively affected annual results with a contribution of$209 million to net revenues. -
International Segment annual revenues were
$392 million compared to prior year revenues of$344 million last year. Fourth quarter revenues were$104 million compared to 2016 fourth quarter revenues of$87.8 million . For the year, the segment operating loss was$3.9 million , compared to$5.6 million of operating earnings last year. For the fourth quarter, the International Segment had an operating loss of$3.1 million compared to operating earnings of$2.2 million in the prior year. The International Segment experienced a less favorable revenue mix, increased costs to onboard new customers, and a lag in implementing cost reduction activities. -
Proprietary Products Segment annual revenues were
$504 million compared to$540 million last year. For the quarter, the segment provided revenues of$111 million , compared to$131 million in the fourth quarter a year ago. For the year, segment operating earnings were$33.0 million compared to$53.8 million the year before, while quarterly operating earnings were$6.9 million compared to$11.9 million in the prior year. The operating earnings decline in the Proprietary Products Segment resulted from lower revenues from sourced products, as well as inventory write-offs. After stabilizing the production environment in 2017, the company has renewed its focus on growing the business.
Financial Guidance and Outlook
Owens & Minor expects to provide its financial outlook for 2018
following the closing of the Halyard Health S&IP transaction, once final
transaction details are known. The formal closing activities are
expected to occur on or about
Investor Conference Call & Supplemental Material for 2017 Financial Results
Owens & Minor executives will host a conference call, which will also be
webcast, to discuss the results 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
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
Consolidated Statements of Income (unaudited) (dollars in thousands, except per share data) |
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Three Months Ended |
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2017 | 2016 | |||||||||
Net revenue | $ | 2,389,834 | $ | 2,368,361 | ||||||
Cost of goods sold | 2,074,622 | 2,073,381 | ||||||||
Gross margin | 315,212 | 294,980 | ||||||||
Distribution, selling and administrative expenses | 281,625 | 243,480 | ||||||||
Acquisition-related and exit and realignment charges | 39,573 | 4,701 | ||||||||
Other operating (income) expense, net | 2,786 | (2,209 | ) | |||||||
Operating earnings | (8,772 | ) | 49,008 | |||||||
Interest expense, net | 9,556 | 6,733 | ||||||||
Income before income taxes | (18,328 | ) | 42,275 | |||||||
Income tax (benefit) provision | (41,325 | ) | 15,170 | |||||||
Net income | $ | 22,997 | $ | 27,105 | ||||||
Net income per common share: | ||||||||||
Basic and diluted | $ | 0.38 | $ | 0.45 | ||||||
Twelve Months Ended |
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2017 | 2016 | |||||||||
Net revenue | $ | 9,318,275 | $ | 9,723,431 | ||||||
Cost of goods sold | 8,146,409 | 8,536,121 | ||||||||
Gross margin | 1,171,866 | 1,187,310 | ||||||||
Distribution, selling and administrative expenses | 1,016,978 | 970,424 | ||||||||
Acquisition-related and exit and realignment charges | 60,707 | 24,675 | ||||||||
Other operating (income) expense, net | 4,930 | (7,388 | ) | |||||||
Operating earnings | 89,251 | 199,599 | ||||||||
Interest expense, net | 31,773 | 27,057 | ||||||||
Income before income taxes | 57,478 | 172,542 | ||||||||
Income tax (benefit) provision | (15,315 | ) | 63,755 | |||||||
Net income | $ | 72,793 | $ | 108,787 | ||||||
Net income per common share: | ||||||||||
Basic and diluted | $ | 1.20 | $ | 1.76 | ||||||
Condensed Consolidated Balance Sheets (unaudited) (dollars in thousands) |
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Assets | |||||||||
Current assets | |||||||||
Cash and cash equivalents | $ | 104,522 | $ | 185,488 | |||||
Accounts receivable, net | 758,936 | 606,084 | |||||||
Merchandise inventories | 990,193 | 916,311 | |||||||
Other current assets | 328,254 | 254,156 | |||||||
Total current assets | 2,181,905 | 1,962,039 | |||||||
Property and equipment, net | 206,490 | 191,718 | |||||||
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713,811 | 414,936 | |||||||
Intangible assets, net | 184,468 | 82,511 | |||||||
Other assets, net | 89,619 | 66,548 | |||||||
Total assets | $ | 3,376,293 | $ | 2,717,752 | |||||
Liabilities and equity | |||||||||
Current liabilities | |||||||||
Accounts payable | $ | 947,572 | $ | 750,750 | |||||
Accrued payroll and related liabilities | 30,416 | 45,051 | |||||||
Other current liabilities | 331,745 | 238,837 | |||||||
Total current liabilities | 1,309,733 | 1,034,638 | |||||||
Long-term debt, excluding current portion | 900,744 | 564,583 | |||||||
Deferred income taxes | 74,247 | 90,383 | |||||||
Other liabilities | 76,090 | 68,110 | |||||||
Total liabilities | 2,360,814 | 1,757,714 | |||||||
Total equity | 1,015,479 | 960,038 | |||||||
Total liabilities and equity | $ | 3,376,293 | $ | 2,717,752 | |||||
Consolidated Statements of Cash Flows (unaudited) (dollars in thousands) |
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Twelve Months Ended |
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2017 | 2016 | |||||||||
Operating activities: | ||||||||||
Net income | $ | 72,793 | $ | 108,787 | ||||||
Adjustments to reconcile net income to cash provided by operating activities: | ||||||||||
Depreciation and amortization | 59,443 | 55,393 | ||||||||
Share-based compensation expense | 11,911 | 12,042 | ||||||||
Provision for losses on accounts receivable | 2,674 | 377 | ||||||||
Deferred income tax (benefit) expense | (49,988 | ) | 4,218 | |||||||
Changes in operating assets and liabilities: | ||||||||||
Accounts receivable | (100,010 | ) | (25,244 | ) | ||||||
Merchandise inventories | (57,032 | ) | 22,589 | |||||||
Accounts payable | 143,947 | 43,430 | ||||||||
Net change in other assets and liabilities | (33,263 | ) | (37,559 | ) | ||||||
Other, net | 6,299 | 3,662 | ||||||||
Cash provided by operating activities | 56,774 | 187,695 | ||||||||
Investing activities: | ||||||||||
Acquisitions, net of cash acquired | (366,569 | ) | — | |||||||
Additions to property and equipment | (34,613 | ) | (20,302 | ) | ||||||
Additions to computer software and intangible assets | (16,124 | ) | (9,819 | ) | ||||||
Proceeds from sale of property and equipment | 663 | 5,375 | ||||||||
Cash used for investing activities | (416,643 | ) | (24,746 | ) | ||||||
Financing activities: | ||||||||||
Proceeds from debt issuance | 250,000 | — | ||||||||
Borrowing under revolving credit facility | 104,600 | — | ||||||||
Repayment of debt | (3,125 | ) | — | |||||||
Financing costs paid | (1,798 | ) | — | |||||||
Cash dividends paid | (63,151 | ) | (63,382 | ) | ||||||
Repurchases of common stock | (5,000 | ) | (71,028 | ) | ||||||
Other, net | (8,720 | ) | (8,294 | ) | ||||||
Cash provided by (used for) financing activities | 272,806 | (142,704 | ) | |||||||
Effect of exchange rate changes on cash and cash equivalents | 6,097 | 4,223 | ||||||||
Net (decrease) increase in cash and cash equivalents | (80,966 | ) | 24,468 | |||||||
Cash and cash equivalents at beginning of period | 185,488 | 161,020 | ||||||||
Cash and cash equivalents at end of period | $ | 104,522 | $ | 185,488 | ||||||
Summary Segment Information (unaudited) (dollars in thousands) |
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Three Months Ended |
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2017 | 2016 | |||||||||||||||||
% of | % of | |||||||||||||||||
consolidated | consolidated | |||||||||||||||||
Amount | net revenue | Amount | net revenue | |||||||||||||||
Net revenue: | ||||||||||||||||||
Segment net revenue | ||||||||||||||||||
Domestic | $ | 2,275,819 | 95.23 | % | $ | 2,236,887 | 94.45 | % | ||||||||||
International | 104,073 | 4.35 | % | 87,813 | 3.71 | % | ||||||||||||
Proprietary Products | 111,373 | 4.66 | % | 130,558 | 5.51 | % | ||||||||||||
Total segment net revenue | 2,491,265 | 2,455,258 | ||||||||||||||||
Inter-segment revenue | ||||||||||||||||||
Proprietary Products | (101,431 | ) | (4.24 | )% | (86,897 | ) | (3.67 | )% | ||||||||||
Total inter-segment revenue | (101,431 | ) | (86,897 | ) | ||||||||||||||
Consolidated net revenue | $ | 2,389,834 | 100.00 | % | $ | 2,368,361 | 100.00 | % | ||||||||||
% of segment | % of segment | |||||||||||||||||
Operating earnings (loss): | net revenue | net revenue | ||||||||||||||||
Domestic | $ | 31,248 | 1.37 | % | $ | 39,293 | 1.76 | % | ||||||||||
International | (3,107 | ) | (2.99 | )% | 2,193 | 2.50 | % | |||||||||||
Proprietary Products | 6,910 | 6.20 | % | 11,933 | 9.14 | % | ||||||||||||
Inter-segment eliminations | 508 | 290 | ||||||||||||||||
Acquisition-related and exit and realignment charges | (39,573 | ) | (4,701 | ) | ||||||||||||||
Other (1) | (4,758 | ) | ||||||||||||||||
Consolidated operating earnings | $ | (8,772 | ) | (0.37 | )% | $ | 49,008 | 2.07 | % | |||||||||
Depreciation and amortization: | ||||||||||||||||||
Domestic | $ | 11,251 | $ | 7,070 | ||||||||||||||
International | 4,254 | 3,992 | ||||||||||||||||
Proprietary Products | 2,135 | 2,149 | ||||||||||||||||
Consolidated depreciation and amortization | $ | 17,640 | $ | 13,211 | ||||||||||||||
Capital expenditures: | ||||||||||||||||||
Domestic | $ | 9,482 | $ | 4,059 | ||||||||||||||
International | 2,415 | 4,820 | ||||||||||||||||
Proprietary Products | 1,051 | 478 | ||||||||||||||||
Consolidated capital expenditures | $ | 12,948 | $ | 9,357 | ||||||||||||||
Summary Segment Information (unaudited) (dollars in thousands) |
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Twelve Months Ended |
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2017 | 2016 | |||||||||||||||||
% of | % of | |||||||||||||||||
consolidated | consolidated | |||||||||||||||||
Amount | net revenue | Amount | net revenue | |||||||||||||||
Net revenue: | ||||||||||||||||||
Segment net revenue | ||||||||||||||||||
Domestic | $ | 8,794,390 | 94.38 | % | $ | 9,191,574 | 94.53 | % | ||||||||||
International | 391,628 | 4.20 | % | 343,674 | 3.53 | % | ||||||||||||
Proprietary Products | 504,026 | 5.41 | % | 539,580 | 5.55 | % | ||||||||||||
Total segment net revenue | 9,690,044 | 10,074,828 | ||||||||||||||||
Inter-segment revenue | ||||||||||||||||||
Proprietary Products | (371,769 | ) | (3.99 | )% | (351,397 | ) | (3.61 | )% | ||||||||||
Total inter-segment revenue | (371,769 | ) | (351,397 | ) | ||||||||||||||
Consolidated net revenue | $ | 9,318,275 | 100.00 | % | $ | 9,723,431 | 100.00 | % | ||||||||||
% of segment | % of segment | |||||||||||||||||
Operating earnings (loss): | net revenue | net revenue | ||||||||||||||||
Domestic | $ | 134,059 | 1.52 | % | $ | 165,495 | 1.80 | % | ||||||||||
International | (3,861 | ) | (0.99 | )% | 5,596 | 1.63 | % | |||||||||||
Proprietary Products | 32,950 | 6.54 | % | 53,799 | 9.97 | % | ||||||||||||
Inter-segment eliminations | 243 | (616 | ) | |||||||||||||||
Acquisition-related and exit and realignment charges | (60,707 | ) | (24,675 | ) | ||||||||||||||
Other (1) | (13,433 | ) | — | |||||||||||||||
Consolidated operating earnings | $ | 89,251 | 0.96 | % | $ | 199,599 | 2.05 | % | ||||||||||
Depreciation and amortization: | ||||||||||||||||||
Domestic | $ | 34,482 | $ | 29,469 | ||||||||||||||
International | 16,327 | 17,117 | ||||||||||||||||
Proprietary Products | 8,634 | 8,807 | ||||||||||||||||
Consolidated depreciation and amortization | $ | 59,443 | $ | 55,393 | ||||||||||||||
Capital expenditures: | ||||||||||||||||||
Domestic | $ | 32,858 | $ | 14,333 | ||||||||||||||
International | 14,074 | 12,874 | ||||||||||||||||
Proprietary Products | 3,805 | 2,914 | ||||||||||||||||
Consolidated capital expenditures | $ | 50,737 | $ | 30,121 | ||||||||||||||
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Total assets: | ||||||||||||||||||
Domestic | $ | 2,437,485 | $ | 1,778,481 | ||||||||||||||
International | 433,513 | 352,898 | ||||||||||||||||
Proprietary Products | 400,773 | 400,885 | ||||||||||||||||
Segment assets | 3,271,771 | 2,532,264 | ||||||||||||||||
Cash and cash equivalents | 104,522 | 185,488 | ||||||||||||||||
Consolidated total assets | $ | 3,376,293 | $ | 2,717,752 | ||||||||||||||
(1) |
Software as a Service (SaaS) implementation costs associated with the upgrading of global IT platforms in connection with the redesign of our global information system strategy. |
Net Income Per Common Share (unaudited) (dollars in thousands, except per share data) |
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Three Months Ended |
Twelve Months Ended |
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2017 | 2016 | 2017 | 2016 | |||||||||||||||||
Numerator: | ||||||||||||||||||||
Net income | $ | 22,997 | $ | 27,105 | $ | 72,793 | $ | 108,787 | ||||||||||||
Less: income allocated to unvested restricted shares | (314 | ) | (289 | ) | (1,060 | ) | (1,147 | ) | ||||||||||||
Net income attributable to common shareholders - basic | 22,683 | 26,816 | 71,733 | 107,640 | ||||||||||||||||
Add: undistributed income attributable to unvested restricted shares - basic |
35 | 79 | 58 | 297 | ||||||||||||||||
Less: undistributed income attributable to unvested restricted shares - diluted |
(35 | ) | (79 | ) | (58 | ) | (297 | ) | ||||||||||||
Net income attributable to common shareholders - diluted | $ | 22,683 | $ | 26,816 | $ | 71,733 | $ | 107,640 | ||||||||||||
Denominator: | ||||||||||||||||||||
Weighted average shares outstanding - basic and diluted | 59,874 | 60,259 | 60,001 | 61,093 | ||||||||||||||||
Net income per share attributable to common shareholders: | ||||||||||||||||||||
Basic and diluted | $ | 0.38 | $ | 0.45 | $ | 1.20 | $ | 1.76 | ||||||||||||
GAAP/Non-GAAP Reconciliations (unaudited) |
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(dollars in thousands, except per share data) |
Three Months Ended |
Twelve Months Ended |
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2017 | 2016 | 2017 | 2016 | |||||||||||||||||
Operating earnings, as reported (GAAP) | $ | (8,772 | ) | $ | 49,008 | $ | 89,251 | $ | 199,599 | |||||||||||
Acquisition-related intangible amortization (1) | 6,665 | 2,450 | 16,402 | 10,002 | ||||||||||||||||
Acquisition-related charges (2) | 10,972 | 286 | 17,265 | 1,211 | ||||||||||||||||
Exit and realignment charges (3) | 28,601 | 4,415 | 43,442 | 23,464 | ||||||||||||||||
Other (4) | 4,758 | — | 13,432 | — | ||||||||||||||||
Operating earnings, adjusted (Non-GAAP) | $ | 42,224 | $ | 56,159 | $ | 179,792 | $ | 234,276 | ||||||||||||
Net income, as reported (GAAP) | $ | 22,997 | $ | 27,105 | $ | 72,793 | $ | 108,787 | ||||||||||||
Acquisition-related intangible amortization (1) | 6,665 | 2,450 | 16,402 | 10,002 | ||||||||||||||||
Income tax expense (benefit) (5) | (2,221 | ) | (633 | ) | (5,214 | ) | (2,592 | ) | ||||||||||||
Acquisition-related charges(2) | 10,972 | 286 | 17,265 | 1,211 | ||||||||||||||||
Income tax expense (benefit) (5) | (4,208 | ) | 67 | (5,976 | ) | (165 | ) | |||||||||||||
Exit and realignment charges (3) | 28,601 | 4,415 | 43,442 | 23,464 | ||||||||||||||||
Income tax expense (benefit) (5) | (10,625 | ) | (289 | ) | (16,224 | ) | (6,670 | ) | ||||||||||||
Other (4) | 4,758 | — | 13,432 | — | ||||||||||||||||
Income tax expense (benefit) (5) | (1,327 | ) | — | (3,792 | ) | — | ||||||||||||||
Tax reform impact (6) | (34,591 | ) | — | (34,591 | ) | — | ||||||||||||||
Net income, adjusted (Non-GAAP) | $ | 21,021 | $ | 33,401 | $ | 97,537 | $ | 134,037 | ||||||||||||
Net income per share, as reported (GAAP) | $ | 0.38 | $ | 0.45 | $ | 1.20 | $ | 1.76 | ||||||||||||
Acquisition-related intangible amortization, after-tax (1) | 0.07 | 0.03 | 0.18 | 0.12 | ||||||||||||||||
Acquisition-related charges, after-tax (2) | 0.12 | — | 0.19 | 0.02 | ||||||||||||||||
Exit and realignment charges, after-tax (3) | 0.30 | 0.07 | 0.46 | 0.27 | ||||||||||||||||
Other, after-tax (4) | 0.06 | — | 0.16 | — | ||||||||||||||||
Tax reform impact (6) | (0.58 | ) | — | (0.58 | ) | — | ||||||||||||||
Net income per share, adjusted (Non-GAAP) | $ | 0.35 | $ | 0.55 | $ | 1.61 | $ | 2.17 | ||||||||||||
The following items in the current quarter have been excluded in our non-GAAP financial measures:
(1) Acquisition-related intangible amortization includes amortization of certain 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. We began to exclude these charges from our non-GAAP results in the second quarter of 2017 and thus prior year amounts have been recast on the same basis.
(2) Acquisition-related charges in 2017 were primarily transaction and transition costs associated with the acquisition of Byram and the upcoming Halyard S&IP transaction. The prior year amounts related primarily to costs incurred to settle certain obligations and address other on-going matters associated with the acquisitions of ArcRoyal and Medical Action.
(3) Exit and realignment charges in 2017 were associated with
severance from reduction in force and other employee costs associated
with the establishment of our new client engagement centers, the
write-down of information system assets which are no longer used and
other IT restructuring charges. Charges in 2016 included severance
activities and other costs associated with our strategic organizational
realignment which included certain professional fees and costs to
streamline administrative functions and processes in
(4) Software as a Service (SaaS) implementation costs associated with the upgrading of global IT platforms in connection with the redesign of our global information system strategy. SaaS implementation costs are recorded in other operating (income) expense, net.
(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.
(6) Includes a recognized income tax benefit of
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 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.
View source version on businesswire.com: http://www.businesswire.com/news/home/20180214005495/en/
Director,
Investor & Media Relations
truitt.allcott@owens-minor.com
or
Director, Finance & Investor Relations
chuck.graves@owens-minor.com
Source:
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