Owens & Minor Reports Financial Results for 3rd Quarter 2018
For the third quarter, consolidated operating income on a GAAP basis was
“Our teams are working diligently to integrate the Halyard S&IP business
and to address the continuing challenges we are facing in our domestic
distribution business,” said
For the nine months ended
Segment Results
The Global Solutions SBU is comprised of the former Domestic and
International segments, which includes our U.S. and European
distribution, logistics and value-added services business, as well as
The Global Products SBU is comprised of the former Proprietary
Products segment, which includes Global Sourcing, Clinical & Procedural
Solutions (CPS); as well as the recently acquired Halyard business.
Revenues in the third quarter of 2018 were
Dividend
The company also announced that its board of directors declared a fourth
quarter 2018 dividend of
“The new fourth quarter dividend rate achieves a more balanced capital allocation strategy,” said Phipps. “By right-sizing the dividend, we can continue to provide a reasonable return of capital to shareholders as we transform the business.”
Financial Guidance
Based on expectations for the remainder of the year, as well as
year-to-date financial results,
“For 2018, our revised guidance range reflects lower year-to-date results and reduced expectations for our Global Solutions SBU,” said Phipps. “In addition, we expect Global Products’ production costs to be higher in the fourth quarter than in the third quarter. In light of this revised guidance range for 2018, we are re-evaluating our prior outlook for 2019 and anticipate issuing guidance for 2019 in the first quarter of next year. We remain focused on improving our operating performance and on executing our strategy to strengthen our company for the future.”
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 amounts 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
Credit Suisse Healthcare Conference ; Scottsdale;November 14 Bank of America Chicago Healthcare Day ;Chicago ;December 12
Investors Conference Call & Supplemental Material
Conference Call: Owens & Minor’s management team will conduct a
conference call for investors on
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
Included with the press release financial tables are reconciliations of the differences between the historical non-GAAP financial measures presented in this news release, which exclude acquisition-related and exit and realignment charges, and their most directly comparable GAAP financial measures.
About
Owens & Minor, Inc. | |||||||
Consolidated Statements of Income (Loss) (unaudited) | |||||||
(dollars in thousands, except per share data) |
|||||||
Three Months Ended September 30, | |||||||
2018 | 2017 | ||||||
Net revenue | $ | 2,464,877 | $ | 2,333,961 | |||
Cost of goods sold | 2,112,303 | 2,032,019 | |||||
Gross margin | 352,574 | 301,942 | |||||
Distribution, selling and administrative expenses | 325,012 | 261,045 | |||||
Acquisition-related and exit and realignment charges | 7,727 | 9,299 | |||||
Other operating (income) expense, net | (1,522 | ) | 1,927 | ||||
Operating income (loss) | 21,357 | 29,671 | |||||
Interest expense, net | 23,826 | 8,737 | |||||
Income (loss) before income taxes | (2,469 | ) | 20,934 | ||||
Income tax provision (benefit) | (1,904 | ) | 10,063 | ||||
Net income (loss) | $ | (565 | ) | $ | 10,871 | ||
Net income (loss) per common share: | |||||||
Basic and diluted | $ | (0.01 | ) | $ | 0.18 | ||
Nine Months Ended September 30, | |||||||
2018 | 2017 | ||||||
Net revenue | $ | 7,295,727 | $ | 6,928,441 | |||
Cost of goods sold | 6,293,474 | 6,071,787 | |||||
Gross margin | 1,002,253 | 856,654 | |||||
Distribution, selling and administrative expenses | 918,147 | 735,353 | |||||
Goodwill and intangible asset impairment charges | 165,447 | — | |||||
Acquisition-related and exit and realignment charges | 47,416 | 21,134 | |||||
Other operating (income) expense, net | (2,281 | ) | 2,143 | ||||
Operating income (loss) | (126,476 | ) | 98,024 | ||||
Interest expense, net | 52,651 | 22,218 | |||||
Income (loss) before income taxes | (179,127 | ) | 75,806 | ||||
Income tax provision (benefit) | (3,936 | ) | 26,010 | ||||
Net income (loss) | $ | (175,191 | ) | $ | 49,796 | ||
Net income (loss) per common share: | |||||||
Basic and diluted | $ | (2.92 | ) | $ | 0.82 | ||
Owens & Minor, Inc. | |||||||
Condensed Consolidated Balance Sheets (unaudited) | |||||||
(dollars in thousands) |
|||||||
September 30, 2018 | December 31, 2017 | ||||||
Assets | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | 124,890 | $ | 104,522 | |||
Accounts receivable, net | 870,187 | 758,936 | |||||
Merchandise inventories | 1,203,838 | 990,193 | |||||
Other current assets | 293,993 | 328,254 | |||||
Total current assets | 2,492,908 | 2,181,905 | |||||
Property and equipment, net | 343,710 | 206,490 | |||||
Goodwill, net | 761,173 | 713,811 | |||||
Intangible assets, net | 332,172 | 184,468 | |||||
Other assets, net | 102,318 | 89,619 | |||||
Total assets | $ | 4,032,281 | $ | 3,376,293 | |||
Liabilities and equity | |||||||
Current liabilities | |||||||
Accounts payable | $ | 1,107,541 | $ | 947,572 | |||
Accrued payroll and related liabilities | 47,404 | 30,416 | |||||
Other current liabilities | 301,800 | 331,745 | |||||
Total current liabilities | 1,456,745 | 1,309,733 | |||||
Long-term debt, excluding current portion | 1,640,455 | 900,744 | |||||
Deferred income taxes | 66,445 | 74,247 | |||||
Other liabilities | 76,223 | 76,090 | |||||
Total liabilities | 3,239,868 | 2,360,814 | |||||
Total equity | 792,413 | 1,015,479 | |||||
Total liabilities and equity | $ | 4,032,281 | $ | 3,376,293 | |||
Owens & Minor, Inc. | ||||||||
Consolidated Statements of Cash Flows (unaudited) | ||||||||
(dollars in thousands) |
||||||||
Nine Months Ended September 30, | ||||||||
2018 | 2017 | |||||||
Operating activities: | ||||||||
Net income (loss) | $ | (175,191 | ) | $ | 49,796 | |||
Adjustments to reconcile net income (loss) to cash provided by (used for) operating activities: | ||||||||
Depreciation and amortization | 73,596 | 41,060 | ||||||
Share-based compensation expense | 10,499 | 8,592 | ||||||
Goodwill and intangible asset impairment charges | 165,447 | — | ||||||
Provision for losses on accounts receivable | 5,757 | 1,158 | ||||||
Deferred income tax (benefit) expense | (6,754 | ) | (4,585 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (51,603 | ) | (79,114 | ) | ||||
Merchandise inventories | 21,244 | (56,134 | ) | |||||
Accounts payable | 88,198 | 79,787 | ||||||
Net change in other assets and liabilities | (11,522 | ) | (40,634 | ) | ||||
Other, net | 2,838 | 5,719 | ||||||
Cash provided by operating activities | 122,509 | 5,645 | ||||||
Investing activities: | ||||||||
Acquisitions, net of cash acquired | (751,834 | ) | (366,569 | ) | ||||
Additions to property and equipment | (32,489 | ) | (24,963 | ) | ||||
Additions to computer software and intangible assets | (14,816 | ) | (12,826 | ) | ||||
Proceeds from sale of property and equipment | 258 | 780 | ||||||
Cash used for investing activities | (798,881 | ) | (403,578 | ) | ||||
Financing activities: | ||||||||
Proceeds from issuance of debt | 695,750 | 250,000 | ||||||
Financing costs paid | (28,512 | ) | (1,798 | ) | ||||
Repayments of debt | (9,375 | ) | — | |||||
Proceeds from revolving credit facility | 74,762 | 117,200 | ||||||
Cash dividends paid | (32,151 | ) | (47,316 | ) | ||||
Repurchases of common stock | — | (5,000 | ) | |||||
Other, net | (5,308 | ) | (7,363 | ) | ||||
Cash provided by financing activities | 695,166 | 305,723 | ||||||
Effect of exchange rate changes on cash and cash equivalents | 1,574 | 5,137 | ||||||
Net increase (decrease) in cash and cash equivalents | 20,368 | (87,073 | ) | |||||
Cash and cash equivalents at beginning of period | 104,522 | 185,488 | ||||||
Cash and cash equivalents at end of period | $ | 124,890 | $ | 98,415 | ||||
Owens & Minor, Inc. | ||||||||||||||
Summary Segment Information (unaudited) | ||||||||||||||
(dollars in thousands) |
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Three Months Ended September 30, | ||||||||||||||
2018 | 2017 | |||||||||||||
% of | % of | |||||||||||||
consolidated | consolidated | |||||||||||||
Amount | net revenue | Amount | net revenue | |||||||||||
Net revenue: | ||||||||||||||
Segment net revenue | ||||||||||||||
Global Solutions | $ | 2,243,782 | 91.03 | % | $ | 2,290,804 | 98.15 | % | ||||||
Global Products | 349,895 | 14.20 | % | 124,542 | 5.34 | % | ||||||||
Total segment net revenue | 2,593,677 | 2,415,346 | ||||||||||||
Inter-segment revenue | ||||||||||||||
Global Products | (128,800 | ) | (5.23 | )% | (81,385 | ) | (3.49 | )% | ||||||
Total inter-segment revenue | (128,800 | ) | (81,385 | ) | ||||||||||
Consolidated net revenue | $ | 2,464,877 | 100.00 | % | $ | 2,333,961 | 100.00 | % | ||||||
% of segment | % of segment | |||||||||||||
Operating income (loss): | net revenue | net revenue | ||||||||||||
Global Solutions | $ | 24,150 | 1.08 | % | $ | 37,556 | 1.64 | % | ||||||
Global Products | 27,634 | 7.90 | % | 10,510 | 8.44 | % | ||||||||
Inter-segment eliminations | (2,957 | ) | 416 | |||||||||||
Acquisition-related intangible amortization | (10,366 | ) | (5,071 | ) | ||||||||||
Acquisition-related and exit and realignment charges | (7,727 | ) | (9,299 | ) | ||||||||||
Other (1) | (9,377 | ) | (4,441 | ) | ||||||||||
Consolidated operating income (loss) | $ | 21,357 | 0.87 | % | $ | 29,671 | 1.27 | % | ||||||
Depreciation and amortization: | ||||||||||||||
Global Solutions | $ | 15,829 | $ | 13,906 | ||||||||||
Global Products | 13,953 | 1,947 | ||||||||||||
Consolidated depreciation and amortization | $ | 29,782 | $ | 15,853 | ||||||||||
Capital expenditures: | ||||||||||||||
Global Solutions | $ | 12,006 | $ | 12,778 | ||||||||||
Global Products | 5,245 | 718 | ||||||||||||
Consolidated capital expenditures | $ | 17,251 | $ | 13,496 | ||||||||||
Owens & Minor, Inc. | ||||||||||||||
Summary Segment Information (unaudited) | ||||||||||||||
(dollars in thousands) |
||||||||||||||
Nine Months Ended September 30, | ||||||||||||||
2018 | 2017 | |||||||||||||
% of | % of | |||||||||||||
consolidated | consolidated | |||||||||||||
Amount | net revenue | Amount | net revenue | |||||||||||
Net revenue: | ||||||||||||||
Segment net revenue | ||||||||||||||
Global Solutions | $ | 6,875,077 | 94.23 | % | $ | 6,806,126 | 98.23 | % | ||||||
Global Products | 750,770 | 10.29 | % | 392,654 | 5.67 | % | ||||||||
Total segment net revenue | 7,625,847 | 7,198,780 | ||||||||||||
Inter-segment revenue | ||||||||||||||
Global Products | (330,120 | ) | (4.52 | )% | (270,339 | ) | (3.90 | )% | ||||||
Total inter-segment revenue | (330,120 | ) | (270,339 | ) | ||||||||||
Consolidated net revenue | $ | 7,295,727 | 100.00 | % | $ | 6,928,441 | 100.00 | % | ||||||
% of segment | % of segment | |||||||||||||
Operating income (loss): | net revenue | net revenue | ||||||||||||
Global Solutions | $ | 84,742 | 1.23 | % | $ | 107,636 | 1.58 | % | ||||||
Global Products | 61,351 | 8.17 | % | 30,199 | 7.69 | % | ||||||||
Inter-segment eliminations | (3,032 | ) | (266 | ) | ||||||||||
Goodwill and intangible asset impairment charges | (165,447 | ) | — | |||||||||||
Acquisition-related intangible amortization | (26,147 | ) | (9,737 | ) | ||||||||||
Acquisition-related and exit and realignment charges | (47,416 | ) | (21,134 | ) | ||||||||||
Other (1) | (30,527 | ) | (8,674 | ) | ||||||||||
Consolidated operating income (loss) | $ | (126,476 | ) | (1.73 | )% | $ | 98,024 | 1.41 | % | |||||
Depreciation and amortization: | ||||||||||||||
Global Solutions | $ | 47,464 | $ | 35,305 | ||||||||||
Global Products | 26,132 | 5,755 | ||||||||||||
Consolidated depreciation and amortization | $ | 73,596 | $ | 41,060 | ||||||||||
Capital expenditures: | ||||||||||||||
Global Solutions | $ | 40,152 | $ | 35,035 | ||||||||||
Global Products | 7,153 | 2,754 | ||||||||||||
Consolidated capital expenditures | $ | 47,305 | $ | 37,789 | ||||||||||
(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 ($0.3 million and $4.4 million for the third quarter of 2018 and 2017 and $3.4 million and $8.7 million for the year-to-date period of 2018 and 2017) and incremental charge to cost of goods sold for inventory fair value adjustments associated with purchase accounting ($9.0 million in the third quarter and $27.1 in the year-to-date period of 2018). |
Owens & Minor, Inc. | ||||||||||||||||
Net Income (Loss) Per Common Share (unaudited) | ||||||||||||||||
(dollars in thousands, except per share data) |
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Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Numerator: | ||||||||||||||||
Net income (loss) | $ | (565 | ) | $ | 10,871 | $ | (175,191 | ) | $ | 49,796 | ||||||
Less: income allocated to unvested restricted shares | — | (279 | ) | — | (738 | ) | ||||||||||
Net income (loss) attributable to common shareholders - basic | (565 | ) | 10,592 | (175,191 | ) | 49,058 | ||||||||||
Add: undistributed income attributable to unvested restricted shares -basic | — | — | — | 16 | ||||||||||||
Less: undistributed income attributable to unvested restricted shares -diluted | — | — | — | (16 | ) | |||||||||||
Net income (loss) attributable to common shareholders - diluted | $ | (565 | ) | $ | 10,592 | $ | (175,191 | ) | $ | 49,058 | ||||||
Denominator: | ||||||||||||||||
Weighted average shares outstanding - basic and diluted | 59,766 | 59,849 | 59,996 | 60,010 | ||||||||||||
Net income (loss) per share attributable to common shareholders: | ||||||||||||||||
Basic and diluted | $ | (0.01 | ) | $ | 0.18 | $ | (2.92 | ) | $ | 0.82 | ||||||
Owens & Minor, Inc. | ||||||||||||||||
GAAP/Non-GAAP Reconciliations (unaudited) | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
(dollars in thousands, except per share data) |
September 30, | September 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Operating income (loss), as reported (GAAP) | $ | 21,357 | $ | 29,671 | $ | (126,476 | ) | $ | 98,024 | |||||||
Acquisition-related intangible amortization (1) | 10,366 | 5,071 | 26,147 | 9,737 | ||||||||||||
Goodwill and intangible asset impairment charges (2) | — | — | 165,447 | — | ||||||||||||
Acquisition-related and exit and realignment charges (3) | 7,727 | 9,299 | 47,416 | 21,134 | ||||||||||||
Fair value adjustments related to purchase accounting (4) | 9,029 | — | 27,088 | — | ||||||||||||
Other (5) | 348 | 4,441 | 3,439 | 8,674 | ||||||||||||
Operating income, adjusted (non-GAAP) (Adjusted Operating Income) | $ | 48,827 | $ | 48,482 | $ | 143,061 | $ | 137,569 | ||||||||
Net income (loss), as reported (GAAP) | $ | (565 | ) | $ | 10,871 | $ | (175,191 | ) | $ | 49,796 | ||||||
Acquisition-related intangible amortization (1) | 10,366 | 5,071 | 26,147 | 9,737 | ||||||||||||
Income tax expense (benefit) (6) | (2,209 | ) | (1,601 | ) | (6,284 | ) | (2,993 | ) | ||||||||
Goodwill and intangible asset impairment charges (2) | — | — | 165,447 | — | ||||||||||||
Income tax expense (benefit) (6) | — | — | (2,060 | ) | — | |||||||||||
Acquisition-related and exit and realignment charges (3) | 7,727 | 9,299 | 47,416 | 21,134 | ||||||||||||
Income tax expense (benefit) (6) | (1,575 | ) | (2,854 | ) | (11,843 | ) | (7,367 | ) | ||||||||
Fair value adjustments related to purchase accounting (4) | 9,029 | — | 27,088 | — | ||||||||||||
Income tax expense (benefit) (6) | (1,922 | ) | — | (6,872 | ) | — | ||||||||||
Other (5) | 348 | 4,441 | 3,439 | 8,674 | ||||||||||||
Income tax expense (benefit) (6) | (85 | ) | (973 | ) | (558 | ) | (2,465 | ) | ||||||||
Tax adjustments (7) | (1,596 | ) | — | (1,596 | ) | — | ||||||||||
Net income, adjusted (non-GAAP) (Adjusted Net Income) | $ | 19,518 | $ | 24,254 | $ | 65,133 | $ | 76,516 | ||||||||
Net income (loss) per diluted common share, as reported (GAAP) | $ | (0.01 | ) | $ | 0.18 | (2.92 | ) | $ | 0.82 | |||||||
Acquisition-related intangible amortization, per diluted common share (1) | 0.14 | 0.06 | 0.32 | 0.11 | ||||||||||||
Goodwill and intangible asset impairment charges (2) | — | — | 2.73 | — | ||||||||||||
Acquisition-related and exit and realignment charges, per diluted common share (3) | 0.10 | 0.11 | 0.58 | 0.23 | ||||||||||||
Fair value adjustments related to purchase accounting (4) | 0.11 | — | 0.33 | — | ||||||||||||
Other, per diluted common share (5) | — | 0.05 | 0.04 | 0.10 | ||||||||||||
Tax adjustments (7) | (0.02 | ) | — | (0.02 | ) | — | ||||||||||
Net income per diluted common share, adjusted (non-GAAP) (Adjusted EPS) | $ | 0.32 | $ | 0.40 | $ | 1.06 | $ | 1.26 | ||||||||
The following items 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.
(2) Includes
(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 S&IP 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/20181031005192/en/
Source:
Owens & Minor, Inc.
Truitt Allcott, 804-723-7555
Director,
Investor & Media Relations
truitt.allcott@owens-minor.com
or
Chuck
Graves, 804-723-7556
Director, Finance & Investor Relations
chuck.graves@owens-minor.com