Owens & Minor Reports 4th Quarter & Full-Year 2018 Financial Results
“2018 was a year of change for
Financial Summary | ||||||||||||||||||||
($ in millions, except per share data) | ||||||||||||||||||||
4Q18 |
4Q17 | FY2018 | FY2017 | |||||||||||||||||
Revenue | $ | 2,543 | $ | 2,390 | $ | 9,839 | $ | 9,318 | ||||||||||||
% yoy growth | 6.4 | % | 5.6 | % | ||||||||||||||||
Operating income (loss), GAAP1 | $ | (266 | ) | $ | (8.8 | ) | $ | (392 | ) | $ | 89.3 | |||||||||
Adj. Operating income (loss), Non-GAAP2 | $ | 33.7 | $ | 42.2 | $ | 177 | $ | 180 | ||||||||||||
Net income (loss), GAAP1 | $ | (262 | ) | $ | 23.0 | $ | (437 | ) | $ | 72.8 | ||||||||||
Adj. Net income (loss), Non-GAAP2 | $ | 5.3 | $ | 21.0 | $ | 70.4 | $ | 97.5 | ||||||||||||
Net Income (loss) per share, GAAP1 | $ | (4.37 | ) | $ | 0.38 | $ | (7.28 | ) | $ | 1.20 | ||||||||||
Adj. Net Income per share, Non-GAAP2 | $ | 0.09 | $ | 0.35 | $ | 1.15 | $ | 1.61 | ||||||||||||
1. Includes impairment charge for 4Q18 and full year 2018 of
2. Reconciliations of the differences between the non-GAAP financial measures presented in this news release and their most directly comparable GAAP financial measures are included in the financial tables below.
Discussion of 2018 Results
-
When compared to prior year, quarterly revenue growth benefited from
Halyard contributions of
$196 million (after intercompany eliminations). Annual revenue growth benefited from Halyard contributions of$518 million (after intercompany eliminations) and revenue growth fromByram Healthcare of$340 million . -
On a GAAP basis, fourth quarter and annual results were significantly
affected by non-cash goodwill and other intangible impairment charges
of
$274 million ($4.08 per share) and$440 million ($6.81 per share), respectively. -
Quarterly and annual results were affected by lower distribution
revenues, continued pressure on distribution margins, warehouse
inefficiencies in certain facilities, and increased expenses incurred
for the development of new solutions, which were partially offset by
positive contributions from
Byram Healthcare and Halyard. -
Fourth quarter and annual results included severance and related
expenses totaling
$4.8 million ($0.08 per share) and$7.3 million ($0.12 per share), respectively, related to the departure of certain executives during 2018.
New Chief Executive Officer
In a separate press release issued today,
Amended Credit Agreement & Dividend for 1Q 2019
On
Financial Guidance and Outlook
“2019 is about laying the foundation for a much more profitable future, and I am confident that the company is on the right track,” said Sledd. “Our guidance encompasses the increased interest expense from the amended credit agreement, thoughtful investments for our future, and deleveraging our balance sheet.”
For 2019, the company expects adjusted net income per share to be in a
range of
Additional details related to expectations for 2019 are provided in a presentation posted on the Investor Relations section of the company’s website.
Although the company does provide guidance for adjusted earnings 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 earnings
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
Upcoming Investor Events
-
J.P. Morgan Global High Yield & Leveraged Finance;
February 25 Barclays Global Healthcare ;March 12
Investor Conference Call & Supplemental Material for 2018 Financial Results
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, Inc. | |||||||||||
Consolidated Statements of Income (Loss) (unaudited) | |||||||||||
(dollars in thousands, except per share data) |
|||||||||||
Three Months Ended December 31, | |||||||||||
2018 | 2017 | ||||||||||
Net revenue | $ | 2,542,981 | $ | 2,389,834 | |||||||
Cost of goods sold | 2,178,271 | 2,074,622 | |||||||||
Gross margin | 364,710 | 315,212 | |||||||||
Distribution, selling and administrative expenses | 343,600 | 281,625 | |||||||||
Goodwill and intangible asset impairment charges | 274,166 | — | |||||||||
Acquisition-related and exit and realignment charges | 14,784 | 39,573 | |||||||||
Other operating (income) expense, net | (2,143 | ) | 2,786 | ||||||||
Operating income (loss) | (265,697 | ) | (8,772 | ) | |||||||
Interest expense, net | 24,371 | 9,556 | |||||||||
Income (loss) before income taxes | (290,068 | ) | (18,328 | ) | |||||||
Income tax provision (benefit) | (28,247 | ) | (41,325 | ) | |||||||
Net income (loss) | $ | (261,821 | ) | $ | 22,997 | ||||||
Net income (loss) per common share: | |||||||||||
Basic and diluted | $ | (4.37 | ) | $ | 0.38 | ||||||
For the Years Ended December 31, | |||||||||||
2018 | 2017 | ||||||||||
Net revenue | $ | 9,838,708 | $ | 9,318,275 | |||||||
Cost of goods sold | 8,471,745 | 8,146,409 | |||||||||
Gross margin | 1,366,963 | 1,171,866 | |||||||||
Distribution, selling and administrative expenses | 1,261,748 | 1,016,978 | |||||||||
Goodwill and intangible asset impairment charges | 439,613 | — | |||||||||
Acquisition-related and exit and realignment charges | 62,200 | 60,707 | |||||||||
Other operating (income) expense, net | (4,424 | ) | 4,930 | ||||||||
Operating income (loss) | (392,174 | ) | 89,251 | ||||||||
Interest expense, net | 77,021 | 31,773 | |||||||||
Income (loss) before income taxes | (469,195 | ) | 57,478 | ||||||||
Income tax provision (benefit) | (32,183 | ) | (15,315 | ) | |||||||
Net income (loss) | $ | (437,012 | ) | $ | 72,793 | ||||||
Net income (loss) per common share: | |||||||||||
Basic and diluted | $ | (7.28 | ) | $ | 1.20 | ||||||
Owens & Minor, Inc. |
|||||||||
Condensed Consolidated Balance Sheets (unaudited) | |||||||||
(dollars in thousands) |
|||||||||
December 31, 2018 | December 31, 2017 | ||||||||
Assets | |||||||||
Current assets | |||||||||
Cash and cash equivalents | $ | 103,367 | $ | 104,522 | |||||
Accounts receivable, net | 823,418 | 758,936 | |||||||
Merchandise inventories | 1,290,103 | 990,193 | |||||||
Other current assets | 321,690 | 328,254 | |||||||
Total current assets | 2,538,578 | 2,181,905 | |||||||
Property and equipment, net | 386,723 | 206,490 | |||||||
Goodwill, net | 414,122 | 713,811 | |||||||
Intangible assets, net | 321,764 | 184,468 | |||||||
Other assets, net | 112,601 | 89,619 | |||||||
Total assets | $ | 3,773,788 | $ | 3,376,293 | |||||
Liabilities and equity | |||||||||
Current liabilities | |||||||||
Accounts payable | $ | 1,109,589 | $ | 947,572 | |||||
Accrued payroll and related liabilities | 48,203 | 30,416 | |||||||
Other current liabilities | 314,219 | 331,745 | |||||||
Total current liabilities | 1,472,011 | 1,309,733 | |||||||
Long-term debt, excluding current portion | 1,650,582 | 900,744 | |||||||
Deferred income taxes | 50,852 | 74,247 | |||||||
Other liabilities | 81,924 | 76,090 | |||||||
Total liabilities | 3,255,369 | 2,360,814 | |||||||
Total equity | 518,419 | 1,015,479 | |||||||
Total liabilities and equity | $ | 3,773,788 | $ | 3,376,293 | |||||
Owens & Minor, Inc. | |||||||||||
Consolidated Statements of Cash Flows (unaudited) | |||||||||||
(dollars in thousands) |
|||||||||||
For the Years Ended December 31, | |||||||||||
2018 | 2017 | ||||||||||
Operating activities: | |||||||||||
Net income (loss) | $ | (437,012 | ) | $ | 72,793 | ||||||
Adjustments to reconcile net income (loss) to cash provided by (used for) operating activities: | |||||||||||
Depreciation and amortization | 101,927 | 59,443 | |||||||||
Share-based compensation expense | 16,376 | 11,911 | |||||||||
Goodwill and intangible asset impairment charges | 439,613 | — | |||||||||
Deferred income tax (benefit) expense | (35,018 | ) | (49,988 | ) | |||||||
Provision for losses on accounts receivable | 9,430 | 2,674 | |||||||||
Changes in operating assets and liabilities: | |||||||||||
Accounts receivable | 11,106 | (100,010 | ) | ||||||||
Merchandise inventories | (65,451 | ) | (57,032 | ) | |||||||
Accounts payable | 92,179 | 143,947 | |||||||||
Net change in other assets and liabilities | (23,604 | ) | (33,263 | ) | |||||||
Other, net | 6,043 | 6,299 | |||||||||
Cash provided by operating activities | 115,589 | 56,774 | |||||||||
Investing activities: | |||||||||||
Acquisitions, net of cash acquired | (751,834 | ) | (366,569 | ) | |||||||
Additions to computer software and intangible assets | (20,812 | ) | (16,124 | ) | |||||||
Additions to property and equipment | (44,873 | ) | (34,613 | ) | |||||||
Proceeds from sale of property and equipment | 1,690 | 663 | |||||||||
Cash used for investing activities | (815,829 | ) | (416,643 | ) | |||||||
Financing activities: | |||||||||||
Proceeds from issuance of debt | 695,750 | 250,000 | |||||||||
Proceeds from revolving credit facility | 105,500 | 104,600 | |||||||||
Repayments of debt | (16,250 | ) | (3,125 | ) | |||||||
Financing costs paid | (28,512 | ) | (1,798 | ) | |||||||
Cash dividends paid | (48,200 | ) | (63,151 | ) | |||||||
Repurchases of common stock | — | (5,000 | ) | ||||||||
Other, net | (7,217 | ) | (8,720 | ) | |||||||
Cash provided by financing activities | 701,071 | 272,806 | |||||||||
Effect of exchange rate changes on cash and cash equivalents | (1,986 | ) | 6,097 | ||||||||
Net decrease in cash and cash equivalents | (1,155 | ) | (80,966 | ) | |||||||
Cash and cash equivalents at beginning of period | 104,522 | 185,488 | |||||||||
Cash and cash equivalents at end of period | $ | 103,367 | $ | 104,522 | |||||||
Owens & Minor, Inc. | |||||||||||||||||||
Summary Segment Information (unaudited) | |||||||||||||||||||
(dollars in thousands) |
|||||||||||||||||||
Three Months Ended December 31, | |||||||||||||||||||
2018 | 2017 | ||||||||||||||||||
% of | % of | ||||||||||||||||||
consolidated | consolidated | ||||||||||||||||||
Amount | net revenue | Amount | net revenue | ||||||||||||||||
Net revenue: | |||||||||||||||||||
Segment net revenue | |||||||||||||||||||
Global Solutions | $ | 2,312,989 | 90.95 | % | $ | 2,379,892 | 99.58 | % | |||||||||||
Global Products | 360,552 | 14.18 | % | 111,373 | 4.66 | % | |||||||||||||
Total segment net revenue | 2,673,541 | 2,491,265 | |||||||||||||||||
Inter-segment revenue | |||||||||||||||||||
Global Products | (130,560 | ) | (5.13 | )% | (101,431 | ) | (4.24 | )% | |||||||||||
Total inter-segment revenue | (130,560 | ) | (101,431 | ) | |||||||||||||||
Consolidated net revenue | $ | 2,542,981 | 100.00 | % | $ | 2,389,834 | 100.00 | % | |||||||||||
% of segment | % of segment | ||||||||||||||||||
Operating income (loss): | net revenue | net revenue | |||||||||||||||||
Global Solutions | $ | 19,359 | 0.84 | % | $ | 33,457 | 1.41 | % | |||||||||||
Global Products | 14,337 | 3.98 | % | 8,259 | 7.42 | % | |||||||||||||
Inter-segment eliminations | 17 | 508 | |||||||||||||||||
Goodwill and intangible asset impairment charges | (274,166 | ) | — | ||||||||||||||||
Intangible amortization | (10,367 | ) | (6,665 | ) | |||||||||||||||
Acquisition-related and exit and realignment charges | (14,784 | ) | (39,573 | ) | |||||||||||||||
Other (1) | (93 | ) | (4,758 | ) | |||||||||||||||
Consolidated operating income (loss) | $ | (265,697 | ) | (10.45 | )% | $ | (8,772 | ) | (0.37 | )% | |||||||||
Depreciation and amortization: | |||||||||||||||||||
Global Solutions | $ | 16,246 | $ | 15,505 | |||||||||||||||
Global Products | 12,085 | 2,135 | |||||||||||||||||
Consolidated depreciation and amortization | $ | 28,331 | $ | 17,640 | |||||||||||||||
Capital expenditures: | |||||||||||||||||||
Global Solutions | $ | 9,372 | $ | 11,897 | |||||||||||||||
Global Products | 9,007 | 1,051 | |||||||||||||||||
Consolidated capital expenditures | $ | 18,379 | $ | 12,948 | |||||||||||||||
Owens & Minor, Inc. | |||||||||||||||||||
Summary Segment Information (unaudited) | |||||||||||||||||||
(dollars in thousands) |
|||||||||||||||||||
|
For the Years Ended December 31, | ||||||||||||||||||
2018 | 2017 | ||||||||||||||||||
% of | % of | ||||||||||||||||||
consolidated | consolidated | ||||||||||||||||||
Amount | net revenue | Amount | net revenue | ||||||||||||||||
Net revenue: | |||||||||||||||||||
Segment net revenue | |||||||||||||||||||
Global Solutions | $ | 9,188,066 | 93.39 | % | $ | 9,186,018 | 98.58 | % | |||||||||||
Global Products | 1,111,322 | 11.29 | % | 504,026 | 5.41 | % | |||||||||||||
Total segment net revenue | 10,299,388 | 9,690,044 | |||||||||||||||||
Inter-segment revenue | |||||||||||||||||||
Global Products | (460,680 | ) | (4.68 | )% | (371,769 | ) | (3.99 | )% | |||||||||||
Total inter-segment revenue | (460,680 | ) | (371,769 | ) | |||||||||||||||
Consolidated net revenue | $ | 9,838,708 | 100.00 | % | $ | 9,318,275 | 100.00 | % | |||||||||||
% of segment | % of segment | ||||||||||||||||||
Operating income (loss): | net revenue | net revenue | |||||||||||||||||
Global Solutions | $ | 104,099 | 1.13 | % | $ | 141,091 | 1.54 | % | |||||||||||
Global Products | 75,688 | 6.81 | % | 38,458 | 7.63 | % | |||||||||||||
Inter-segment eliminations | (3,014 | ) | 243 | ||||||||||||||||
Goodwill and intangible asset impairment charges | (439,613 | ) | — | ||||||||||||||||
Intangible amortization | (36,514 | ) | (16,402 | ) | |||||||||||||||
Acquisition-related and exit and realignment charges | (62,200 | ) | (60,707 | ) | |||||||||||||||
Other (1) | (30,620 | ) | (13,432 | ) | |||||||||||||||
Consolidated operating income (loss) | $ | (392,174 | ) | (3.99 | )% | $ | 89,251 | 0.96 | % | ||||||||||
Depreciation and amortization: | |||||||||||||||||||
Global Solutions | $ | 63,710 | $ | 50,809 | |||||||||||||||
Global Products | 38,217 | 8,634 | |||||||||||||||||
Consolidated depreciation and amortization | $ | 101,927 | $ | 59,443 | |||||||||||||||
Capital expenditures: | |||||||||||||||||||
Global Solutions | $ | 49,524 | $ | 46,932 | |||||||||||||||
Global Products | 16,161 | 3,805 | |||||||||||||||||
Consolidated capital expenditures | $ | 65,685 | $ | 50,737 | |||||||||||||||
(1) Software as a Service (SaaS) implementation costs associated with
significant global IT platforms in connection with the redesign of our
global information system strategy (
Owens & Minor, Inc. | |||||||||||||||||||||
Net Income (Loss) Per Common Share (unaudited) | |||||||||||||||||||||
(dollars in thousands, except per share data) |
|||||||||||||||||||||
Three Months Ended |
For the Years Ended |
||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||||||||
Numerator: | |||||||||||||||||||||
Net income (loss) | $ | (261,821 | ) | $ | 22,997 | $ | (437,012 | ) | $ | 72,793 | |||||||||||
Less: income allocated to unvested restricted shares | — | (314 | ) | — | (1,060 | ) | |||||||||||||||
Net income (loss) attributable to common shareholders - basic | (261,821 | ) | 22,683 | (437,012 | ) | 71,733 | |||||||||||||||
Add: undistributed income attributable to unvested restricted shares -basic | — | 35 | — | 58 | |||||||||||||||||
Less: undistributed income attributable to unvested restricted shares -diluted | — | (35 | ) | — | (58 | ) | |||||||||||||||
Net income (loss) attributable to common shareholders - diluted | $ | (261,821 | ) | $ | 22,683 | $ | (437,012 | ) | $ | 71,733 | |||||||||||
Denominator: | |||||||||||||||||||||
Weighted average shares outstanding - basic and diluted | 59,974 | 59,874 | 60,014 | 60,001 | |||||||||||||||||
Net income (loss) per share attributable to common shareholders: | |||||||||||||||||||||
Basic and diluted | $ | (4.37 | ) | $ | 0.38 | $ | (7.28 | ) | $ | 1.20 | |||||||||||
Owens & Minor, Inc. | |||||||||||||||||||||
GAAP/Non-GAAP Reconciliations (unaudited) | |||||||||||||||||||||
(dollars in thousands, except per share data) |
Three Months Ended |
For the Years Ended |
|||||||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||||||||
Operating income (loss), as reported (GAAP) | $ | (265,697 | ) | $ | (8,772 | ) | $ | (392,174 | ) | $ | 89,251 | ||||||||||
Intangible amortization (1) | 10,367 | 6,665 | 36,514 | 16,402 | |||||||||||||||||
Goodwill and intangible asset impairment charges (2) | 274,166 | — | 439,613 | — | |||||||||||||||||
Acquisition-related and exit and realignment charges (3) | 14,784 | 39,573 | 62,200 | 60,707 | |||||||||||||||||
Fair value adjustments related to purchase accounting (4) | — | — | 27,088 | — | |||||||||||||||||
Other (5) | 93 | 4,758 | 3,532 | 13,432 | |||||||||||||||||
Operating income, adjusted (non-GAAP) (Adjusted Operating Income) | $ | 33,713 | $ | 42,224 | $ | 176,773 | $ | 179,792 | |||||||||||||
Net income (loss), as reported (GAAP) | $ | (261,821 | ) | $ | 22,997 | $ | (437,012 | ) | $ | 72,793 | |||||||||||
Intangible amortization (1) | 10,367 | 6,665 | 36,514 | 16,402 | |||||||||||||||||
Income tax expense (benefit) (6) | (672 | ) | (2,221 | ) | (7,677 | ) | (5,214 | ) | |||||||||||||
Goodwill and intangible asset impairment charges (2) | 274,166 | — | 439,613 | — | |||||||||||||||||
Income tax expense (benefit) (6) | (30,669 | ) | — | (32,729 | ) | — | |||||||||||||||
Acquisition-related and exit and realignment charges (3) | 14,784 | 39,573 | 62,200 | 60,707 | |||||||||||||||||
Income tax expense (benefit) (6) | (959 | ) | (14,833 | ) | (13,079 | ) | (22,200 | ) | |||||||||||||
Fair value adjustments related to purchase accounting (4) | — | — | 27,088 | — | |||||||||||||||||
Income tax expense (benefit) (6) | — | — | (5,696 | ) | — | ||||||||||||||||
Other (5) | 93 | 4,758 | 3,532 | 13,432 | |||||||||||||||||
Income tax expense (benefit) (6) | (6 | ) | (1,327 | ) | (743 | ) | (3,792 | ) | |||||||||||||
Tax adjustments (7) | — | (34,591 | ) | (1,596 | ) | (34,591 | ) | ||||||||||||||
Net income, adjusted (non-GAAP) (Adjusted Net Income) | $ | 5,283 | $ | 21,021 | $ | 70,415 | $ | 97,537 | |||||||||||||
Net income (loss) per share, as reported (GAAP) | $ | (4.37 | ) | $ | 0.38 | $ | (7.28 | ) | $ | 1.20 | |||||||||||
Intangible amortization (1) | 0.16 | 0.07 | 0.47 | 0.18 | |||||||||||||||||
Goodwill and intangible asset impairment charges (2) |
4.08 | — | 6.81 | — | |||||||||||||||||
Acquisition-related and exit and realignment charges (3) | 0.22 | 0.42 | 0.80 | 0.65 | |||||||||||||||||
Fair value adjustments related to purchase accounting (4) | — | — | 0.33 | — | |||||||||||||||||
Other (5) | — | 0.06 | 0.04 | 0.16 | |||||||||||||||||
Tax adjustments (7) | — | (0.58 | ) | (0.02 | ) | (0.58 | ) | ||||||||||||||
Net income per share, adjusted (non-GAAP) (Adjusted EPS) | $ | 0.09 | $ | 0.35 | $ | 1.15 | $ | 1.61 | |||||||||||||
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) The charges resulted from our interim goodwill impairment testing performed as a result of a decline in market capitalization of the Company and lower than projected financial results of certain reporting units due to customer losses and operational inefficiencies, which have caused us to revise our expectations with regard to future performance.
(3) Acquisition-related charges, pre-tax, were
Exit and realignment charges, pre-tax, were
(4) The second and third quarters of 2018 includes an incremental charge to cost of goods sold from purchase accounting impacts related to the sale of acquired inventory that was written up to fair value in connection with the Halyard acquisition.
(5) Software as a Service (SaaS) implementation costs associated with significant global IT platforms in connection with the redesign of our global information system strategy.
(6) 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.
(7) Includes tax adjustments primarily associated with the estimated benefits under the Tax Cuts and Jobs Act.
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
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: https://www.businesswire.com/news/home/20190219006072/en/
Source:
Truitt Allcott
Director, Media Relations
804-723-7555
truitt.allcott@owens-minor.com
Chuck Graves
Director, Finance & Investor Relations
804-723-7556
chuck.graves@owens-minor.com