Owens & Minor (OMI) 2 Nov 222022 Q3 Earnings call transcript

Good day and thank you for standing by. Welcome to Owens & Minor’s Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instruction].

to to conference Investor Alex like first to Relations. now today speaker Jost, would hand over the your I Director of

Minor’s Thank the call. and everyone, third & you. earnings quarter welcome XXXX Hello, Owens to

on release comments slides included results the Investor as in release. financial the our today’s Our on for are XXXX, as press of for the press be third call of focused along on section both supplemental the our XXXX, outlook quarter posted with well the will which Relations The are website.

call, our that during subject will note which The or to Please statements. of full and to Form reports from the matters risks in for today. XX-Q. Report our this including uncertainties, could are we statements quarterly Please materially make these and results actual projected differ these factors Form SEC forward-looking description section risk of on on cause uncertainties, addressed Annual those to implied refer a filings and risks XX-K here

our financial release. these measures, reference to are and certain financial included press discussion non-GAAP in the measures about and reconciliations our measures will information today, In comparable most GAAP we

joining Executive I’m for Long, and President Pesicka, Today, Ed and and us session. Officer of and President Executive Vice Services Chief by Bruni, be Alex the Executive Healthcare Executive and Chief will Officer joined Financial President Chief Officer; Andy Vice and Products Q&A

Ed. to With over that, I’ll the turn Ed? call

today. everyone and morning, Good for us the you. you Thank joining on thank call

factors the change expectations that in start I'd outlook. line call factors drove with this our recent unanticipated well the like as were our by the addressing in as to that

quarter of key the the some aspects were there acceleration combined third with expected. challenges, many and as new existing of While continuation occurred challenges

organically with the to one, major mid teens in growing Patient momentum segment, categories. we across our all Starting high in Direct gaining continued

in our in our our Two investments QX segment sleep the access backlog our of see to equipment, onboarded we to services optimization, future. already in our analytics, well our XXXX expected and product reduce of result service and successfully market acute predictive continue meaningfully ability and orders as were overall inventory we allowed healthcare as new quarter, AI us planned, customers QX And in leading We QX Three, and discussed as to the also to product made continue the improvement care improve soft and investments and which volumes four, procedural with providing benefits a last line. pre-pandemic levels. below in in levels.

previous our our in unanticipated put, stockpiled items customers care change a factor choosing Difficulty]. has progressed, the in let recent more of One, the including deplete Simply to margin our reorders delay as drove S&IP more that discuss Now [Technical we products. me acute outlook. QX higher our been quarter factors saw and our their third guide

and Ladies momentarily. hold continue to your momentarily. conference please resume stand-by gentlemen, your will Please conference resume call will

Apologize connectivity about off back where issues left but at. to me continue let I the

the that the changes our in So me unanticipated factors let discuss outlook. drove QX now in recent

more and our as saw customers factored not guidance our quarter our previous of S&IP reorders stockpiled as the in to margin their assumption. care put including Simply more choosing First, higher progressed, an products. this we delay deplete acute items

end past. services product done and in and insufficient of healthcare we we actions segment and taking quarter, strengthened we the third the concluded as towards the of than standpoint, dollar impact Second, from the prices the had headwinds were that in U.S. were the as fuel execution The increase a of and future to began our offset the velocity macroeconomic Federal Three, to QX. actions more course were macroeconomic aggressive expected. we Reserve reverse ended successfully

of extent up procedural volume, were expect QX. these third finally, changes shortfalls we good of in into volumes, beginning it segment and made efficiently at see procedural to cost us end long-term the And to see slight quarter more to the here the that did news have of ramp and improvements the while not we we in and will Accordingly, operate are is the allow opportunities more this address numerous effectively. and we that short-term there

not supporting few an have system One, implement going better remain incentivize win is make our every this a levels. with just We since products, on for key we QX new proprietary and partners. financial And provide Owens operational growth. to distinction retain aggressively are customer refocused customers. This Minor important drive Here with we business going into Three, we leverage in changes term along forward, we Simply said has the more faster. & supplier Two, benefits. is us. focused finally the of put, customers we execute are QX which leading will are to as and will must and sense our expanding continue industry profitable business on and helped This attractive product we segment. in service them. sales our way conversion to and our longer penetration of team we implementing portfolio existing

Direct to business effectiveness Direct of our Patient on Patient our segment, system segment. apparent in the Moving is the readily

able this simply been the difference but same the We well side offset experienced many the have is of macroeconomic have execution. business of of the same to some The on in challenges. pressures as

sleep our us XX.X% of ability our census to grew better urology, Patient orders. to which segment quarter, of continence segment and On mid year-over-year. the care. teens pro achieved at our procure a basis, sleep was meaningfully diabetes, forma to backlog sleep, Direct wound equipment Also, high reduce In organic growth revenue than our ostomy, the and this patients across and third grow in expected, enabled

nicely This highly as will we base compound into XXXX. revenue recurring head

and growing, supply sold With the And patients benefit the will in will this the backlog of clearing more sleep see sleep the we census future. patient bottom-line.

the earnings to integration internal and be this exciting. perspective, continue company very of segment this patient higher synergy the will cash of growing an margin And larger that the and faster larger from a We overlooked is of attractiveness long-term segment and are is the segment by our believe portion we Overall, Finally, ahead perspectives market. the and near-term total flow. targets. direct of

I few take emphasize financials call you the to outlooks, to quarterly revised points. a to through I the want our and Before turn Alex over recently

our selective to impactful that commitment bottom-line. wins. most the share hospital First, new gains off customer industry pursuing our is and paying remain service the the are we to in will leading Again, in

more stockpiled items the to current should depleted, normal. & of Next, these and Owens deployment fulsome healthcare by our return temporary. customers S&IP And product a business the will you in Minor the segment. are activities of products use for Three, our stockpiles as is for system services demand and rapid see

and Four, properly Patient and I more believe steadiness greater our the business. from believe Direct appreciation and will More and of I valued. recurring the the of will for growth even there our will strength Patient segment, revenue rates of coming earnings nature our and Direct be an become be EBITDA segment

business I have correct And remain segments. finally, core strategy we and that across confident the strong, fundamentals am our business both

over Alex? With our that, to I call will financial turn results. Alex for of discussion the

Today the of and quarter, third assumptions review revised pleasure and discuss morning, you full I Thank and today ahead. drivers I'll results to It's and for the many our related forward our then and you with outlook. months my year meeting to expectations in look to everyone. financial performance you, the in and key weeks good be Ed our

First, with quarter our results. let me third start

Direct the Our offset within strong products $X.X services by growth virtually in driven contribution from organic billion healthcare of sector. segment was revenue and by Patient the quarter the flat revenues prior the the lower within year, Apria and

million $XXX or mix up $X Direct within and was currency million. of foreign margin the prior impacted QX that XX.X% revenue adjusted and by operating was year. margin by of reflected Apria contribution by XXX by segment. Patient Year-over-year sales Growth gross revenue million, income negatively basis points million $XX from of Gross sales driven for and $X

selling Distribution, and offset system. Apria by inflationary Minor efficiencies, higher was million driven and & addition Owens derived ongoing from pressures, expenses expense operating gains from productivity administrative partially primarily of business and the the $XXX

in in million prior $XX which quarter, higher financing by than the acquisition was driven March. the Interest was Apria million late expense debt of the $XX year

X/Xrd and year's The quarter. third As in quarter jurisdictions well swaps. of XX.X% overall in from represents tax this was last The our effective income foreign GAAP a which the rate losses approximately interest our in in as inclusive we XX.X% change of to operate, as of reminder, floating tax mixture rates rate compared rate of year's resulted primarily utilization borrowings benefits. debt prior the

for income the for Our was a a Adjusted the $XX or $X.XX was quarter net share. $X.XX or income GAAP million million $XX quarter share. net

versus up the $XXX million, with was margin EBITDA basis adjusted quarter XXX year. points prior of Third X.X% a

customers billion, as $X.X inflationary hospital segment Products $XX basis operating change glove million quarter by services was reliance attributable was of billion And and versus year. the factors $X.X $XXX to on for healthcare compared and reduced and was last products This existing last healthcare services discussed, change pressures. to just driven with stockpiles. the million pass-through, cost On approximately this income revenue as was well approximately third million $XX quarter year. along adjusted lower demand accelerating a

an $XX year-over-year, Direct, on equipment. aided Patient quarter excellent to income by Adjusted pro key strong million, quarter sleep the increase ability forma for was last $XX XXX% basis growth revenue product an a million, compared and to was categories, million. segment in was $XXX to had across our third year's quarter. XX.X% better-than-expected this of Turning Net quarter growing the operating procure of double-digit

are expect an to $XX add patient in to $XX to adjusted few $XXX $XXX Apria tracking and over continue the we years, The annual range And million to deal add nine million of to million months $XX its revenue generating of incremental expect million. of for business continue of XXXX. of synergies million are $XXX our contribution we revenue the In expectations. million, of in EBITDA direct to we within synergies ahead over incremental adjusted annual next EBITDA

Moving now to cashflow, and sheet the structure. capital balance

operations. of This capital $XXX $XX less we through in And adjusted quarter, with generated million from under first a the just $XX quarter, it's basis, expenditures, $XXX million XXXX. flow million have net on million. defined cash as months year-to-day we generated of EBITDA, cash nine Free the

is reduction further we all top change and priority, target and we comfortably by debt net debt During times. there $XX net million to two the three reduced no leverage our Leverage a were quarter, covenant of ratio in requirements. remains within

look at current our let's Now guidance.

full range a $XX expect $X.XX. $X.X of $XXX of to million to adjusted in $XXX a revenue net be and to year EPS billion to in For in we $X.XX million billion. EBITDA of Adjusted the XXXX, a range range

revised drivers look the outlook items to few a the are versus we there key As of guidance, at note. this previous

software QX our midpoint. have volumes, in This the million reflects reordering. revenue customer new and we on factors at procedural and $XX trends First, reduced assumption assumptions recent decrease our the by

As delay we more the quarter, their care product customers acute deplete reorders, mentioned, choosing over to saw we of our stockpiles. instead

interest than the are had different the for This the levels midpoint the expecting partially interest offset range adjusted mix expense year. Given reduced majority management due continuing for we the to sales a year this, we in guidance $XXX is is $X.XX average million and much of previously by driving Expected $XXX reduction ongoing the higher in debt assumptions. a QX of debt to million EPS lower projected. of rate slightly to to daily

of list filed we've SEC section X-K supplemental modeling the slides also Form of refer assumptions, posted For summarized which investor a on to our please to today, the relations the earlier website. with complete

are we put normal discuss midst cycle, in the to XXXX us which Looking first ahead, of outlook in farther a would for position our in quarter. the budgeting our

the very we've are question, for to without changes a our renewed came There result as And urgency year focused address As many some outlook of positive quarter. these from challenges. the and issues. were a also have we takeaways unanticipated this discussed, to

wins segment. our within performance of We new and successful Thank And onboarding and proud are the outlook products very about the segment. and and excited patient you. healthcare very service services we direct the remain for quality

call begin Operator? the the to operator this turn back I'll to At point, over Q&A.

of ahead. question first comes go [Operator Please Kevin Thank the I UBS. line Instructions] you, from And our Caliendo sir. from show

manifesting expectations It's if morning, for run in your everybody. in and around, Andrea actually the XXXX. good little margin we appreciate of bit for think apnea around more could just of sort one slip products Hi, we a more that And on get of so in, next would your Kevin. Thanks backlog I guess Alfonso I color numbers little how rate a from much. just the if bit year. granularity sleep should and thoughts the about could

talk second and part start Alex start this little a the with will Ed. of forward. Sure. I'll projection the going is, bit question the I'll about

we in backlog close the way And, extremely we'd normal is, get a took almost the We basically to to to frankly, think about strong to the access down able I to product, we sitting very to it. well closer we team product levels additional anticipate. executed were sleep. quarter to had now where on think back what sleep today, of our

So products into of or were of year, while incredible the we to And those to XXXX, now, depletion received. able we execution to that frankly, business had of teams and backlog get capture early us we of the additional the that actually anticipated next that we of part most on QX lead because receive capacity additional out. volume part

late product. revenue revenue continue or we will those obviously, in is will that. how because we placing to the then flow thing, where XX-day of future? generally supply would deployment to that to now fill into then equipment start initial orders in throughout get the XXXX recurring to recurring originally that they QX, occur gain it's of So 'XX, all with the and does the QX start versus equipment And that start a manifest one that Yes, into thought,

the back the of the So little a the run would ahead get on direct today. sleep of orders us the on rates, kind with strong our focus where in the really I on backlog we getting we sit cover Alex team, partnering and to get curve, and will, And on patient and are execution we it's out really that on what then, standard of down where as question to back manufacturers been part process. see rate normal first a bit product

Thanks, Ed. Good morning, Andrea.

that we've to be I of expect our we'll The markets that And here quarter. over our we process the as So short-term work month through in have And reflected think at I QX. continue least are in so. do and seen very budget the expect QX, And in within greater mentioned, or visibility trends do through in guidance. PHS, to we middle first that's the to in the next the dynamic. continue

much. Thanks very

line Please for Thank the I question comes you. a from One next of And next Citi. Grosslight ahead. show our moment go Daniel question. from

thanks you you're just implementing. do a enough And and specific you you put for bit the solutions guys, the margins nature. more on will to take Hi, mentioned that a taking pressures seems pressures could products these point there in given normalized anytime are that abating are It finer like most begin how you be of if I'm in of actions macro seem for going But specifically facing question. quickly what didn't can business? in the and soon. the wondering macro quickly to near-term manifest don't you're

I'll Sure, that. take

industry a both really, we're it's So some specific of as well of seeing. mix macro the as that

QX the stock historically a about to a extending amount hospitals material have electing QX into fact tremendous of are PPE So that's on under They in and destocking, a here haven't bit then that's us and little the on They that constraint. utilize of that hand financial are versus they which impact restocking. had. I talked having really

So “safety inventory, to which us. having a they're their stock” down using material is impact bleed on

are of I think side we're in there several on macroeconomic process that doing. different the the things

Business ability of fuel as of delivery us go Owens is for to prices the to out way the Optimization look us period work Route continue services from there's healthcare of cost There's segments. driving really two additional business optimize and standpoint. going customers take Route tremendous by segment. really macro with and product customers up, to our opportunities still for the is take to within continue Minor Some the one I our offset it contrast time System to within aggressively Optimization improvement a the to that's things There's and continuous and compare to our the impact that & embedding and those to a at maximize think

the that segment. Patient Many same impact and our pressures product Direct macroeconomic healthcare impact services of

been Patient our quickly Business to cost side on implementation that of Our to be Owens system of other same segment. more embedding to effective. the healthcare business services and on the happen has out have Direct take the System That product able Minor & through of the

about really macroeconomic I thing, force. the of other some to off-sizing The is at would at to continue talk the labor look looking

One of QX. and that in the into things stabilization QX and labor. didn't We of was we QX had anticipated the see going coming into QX the

longer teammates and the and and force our as tighten, to to actually time economy us will However, continues keep a the labor that have opportunities a for employees we then believe period turnover. create for labor better reduce force of

aspect we've much new so the do we have continuing to that another identified than it, distribution we our well-trained hires. way, more that centers of reduce of turnover teammates our where that's of and ways look So can at are teammates effective how

So about that's another how aspect it. of thinking we're

pressure Thanks. And haven't you well, margin in Appreciate is to one and could lot here, mentioned of slip due you if a products back within the mix higher come products the expected. color. margin I the more solutions just much as as as product

you of you're within Given proprietary business, margins seeing segment? products, proprietary does higher this than your distribution the the rather mean pressure seeing core generally most really within products had

the to way of primarily of this actually go those reduce to stockpile, one level happen the and that's to in product, bought they product. customers and deplete distribution seeing our We're the of and have then it from because the less grow think think out changed they is, electing that up products, start down the hospital and that's many of and utilize a demand. products. in now specifically increase are of find will recurring utilization fundamentally we're they're winning less a actually customers, us years when stockpile from the our built our things hospitals today one really based continuing not products purchasing that's seeing their S&IP we're comes those and lower last their a Proprietary to then in right stockpile and business, seeing again in the the and business, is the we're They I general during those those that's while directly anywhere PPE about it down products went area other down products manufacturers to our product few to in products we're seeing revenue could we're COVID

Thanks, color. appreciate the

next And the of John you. Thank I go Stansel show our ahead. from comes question JPMorgan. line from Please

million Hi, John of Thanks on taking dig on $XX is same was schedule contribution. just this little commentary for the kind of question. Lisa. called in that seeing, I of want ahead bit for I to if synergies that about $XX you're my hearing kind correct of the out you a EBITDA but think million amount to I the

my think And synergies So I you question forward? guess that about your overall how we just than is, more going I seeing expected from a are guess, should integration?

absolutely continue are. I've them Yes. and the System. come the them watched Direct at together Minor watched collectively embrace I've Patient to [Apria is, grow. embed & The Again watched to answer we -- business that We've Owens question Byram] both Business we and [ph],

pro the about growth, XX% rate I If think growth you and QX pro forma is forma approximately XX.X%. think rate growth right, was QX

we've I identify Apria to learned Byram has fact successful. many done the has ability would has successful about think and opportunities. that done that has from effectively the Apria made fact to there's sides of embraced of things has Apria that made synergies from the the have both things cross-sell, ability the just the some Byram and Byram Byram. that that, learned and on say So Apria

up X.X% seeing was pro last XX%, you're percentage. that overall, Again, this we you're adjusted quarter growth, to as again forma from in in quarter, operating that to seeing income I believe operating XX.X%, XX%, went income

major one it's better digits. has And just expansion. by effectiveness, category we're driven seeing a but categories driven by think grew categories, the at in driven two that all virtually is cost margin with also is elimination seeing synergies, you're operational And by double So growth again, not that been top-line I important growth. that

the continuing So top-line synergies the well expansion adjusted growth. as as those the are drive that quantitative are validating income accelerated examples and to operating margin

you. thank Great,

of next you. I Please America. our from Thank question from of show go And the Kolb comes Bank Charlotte ahead. line

on from environment a any you Hi, talk this Mike. the little a Thanks my you're for competitive bit Can is seeing versus Charlotte peers? impacts taking about that for and share perspective question.

are different a across Yes, I business, I categories. I in business. our I within like Direct Board, to the teens from got mean -- product, manufacturing and said to obviously, that the Patient those other distribution we all we I business, businesses believe a business would continues our are grow in environment, got XX.X%, I competitive all pro of the we've at major take a forma Direct a got if double order again Patient really should high say digits the

we to So across opportunities market. would right the I grow we wins say it continue we're meaningful say we're above markets like the our also those distribution, wins or in to believe fact and as playing, to look that And losses, that wins? at for our within continuing Board the But continue in very into grow. right the to to we're and at can meaningful the business. there continuing I new are meaningful with also gaining I as is come that I'll We qualify business. we gain to look medical see retaining those at would meaningful some wins

that. it's the grow also just we're state around footprint -- then with the opportunity the together the that adding one to programs of entire announcements when example a medical had in states in That's not we putting and we We're customers great to win, that doing recent of distribution our business geographic an there with WVU. win is

space. continue isn't across in I maintain we too just to us, of in affecting And coming are to as our our PPE that contracts have So our say in that. success base, onto others -- space, the destocking coming I this there's say, we’re expansions new many on would customer the contracts that's continue affecting those where we great we proprietary our it's products, market the think our at customers onto in PPE look are PPE. I

think well. the extremely Board across I we're So doing

you. Thank Great.

showing to for in call back questions remarks. the At Pesicka you. over like no queue. Mr. Thank further I'm closing time, turn this the I'd to

Thank you. just I sure I Well, we that call first, us thank to for I conversation. reiterate to points few to want want joining before the a from end make but today, today's everyone key I want call, the on all take away

Owens to question, First, service committed new previous continuing us or That our going at services. & provide and Minor, stated providing are we're to and deliver continues to the wins the leading we're right just growth and industry focus I as industry customers completely forward. in going we leading continue for to to level on

completely recently through stockpile the that amount been we've customer We're I a had most offset met now it, financial stockpile with stockpiles customers utilizing validated it, with met the really some a burning utilize seeing that that issue, got woes. stockpile. customers that we're Second tremendous their was our have yes, of through of of stockpile. customers other product some and

is our for product going forever, last to still As exists, that those they're and using and not it's it today. products that demand stockpile exists, depleted

& intensity our segment. really services Minor the Next, you're to Owens increased business healthcare product see and and an system around going

communications. Finally, we've talked in back QX, about open this various and in QX

segments it see EBITDA come people our & more to and shift really Owens and to more a that Minor, going are continue earnings I to of from where the segment, understand at as it's believe our and and mix Patient going You're you're to to tremendous revenue go as has see forward. and we profitable mix has continue as that more growth segment services it nature patient, healthcare segment our as recurring well product a shift going and than Direct higher

remain I completely have core over confident the And across strategies business we the segments. fundamentals finally, that correct strong, and our long-term, am both

you. to sharing I XXXX. want So when early everyone, out thank look progress and our we forward in fourth Thank quarter results report I our to

today's call. participating. concludes you. This Thank Thank you for conference

You may now disconnect.