Owens & Minor Reports 1st Quarter 2019 Financial Results

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Owens & Minor, Inc. (NYSE: OMI) today reported financial
results for the first quarter ended March 31, 2019, as summarized in the
table below.

“My first sixty days have been full of meetings with customers and
teammates, and I am pleased with the open dialogue that has helped to
validate some of our strategies and some of my initial perspectives,”
said Edward A. Pesicka, President & Chief Executive Officer of Owens &
Minor. “These meetings have also helped me to shape what adjustments
need to be made to the business, some of which have already occurred
with others yet to come, as I continue to collect information from our
customers, partners, and teammates. As we move forward, you will see an
increased level of intensity and accountability with a complete focus
around serving our customers. We have a great foundation based on our
broad offering of products, solutions and services, and I am
increasingly confident in our ability to drive profitable growth in the
future. In fact, the overall results from the first quarter of this year
are consistent with the company’s operating plan.”


Financial Summary

($ in millions, except per share data)	1Q19	1Q18

Revenue	$2,461	$2,373
% yoy growth	3.7%

Operating income, GAAP¹	$14.7	$24.2
Adj. Operating income, Non-GAAP¹	$30.5	$47.6

Net income (loss), GAAP¹	$(14.1)	$8.2
Adj. Net income, Non-GAAP¹	$1.0	$26.2

Net Income (loss) per share, GAAP¹	$(0.23)	$0.13
Adj. Net Income per share, Non-GAAP¹	$0.02	$0.43

					1.		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.

1Q 2019 Results

Investments made in the company’s operations have resulted in
significant improvement in service levels compared to 2018. The
company is now consistently meeting service level targets and is
beginning to drive improved productivity in operations.
Compared to the prior year’s first quarter, consolidated quarterly
revenues grew 3.7%, primarily resulting from Halyard sales of $189
million for the quarter (net of $52 million of intercompany sales) and
strong sales growth with Byram Healthcare. These gains were partially
offset by lower distribution revenues, as a result of customer
non-renewals during 2018 and early 2019, primarily resulting from
service issues.
Quarterly results reflected revenue changes, continued pressure on
distribution gross margins, higher supply chain costs, and increased
expenses incurred for the development of new solutions. In addition,
interest expense of $29.1 million for the quarter increased $18.8
million when compared to the prior year as a result of the company’s
new debt structure.

Financial Guidance and Outlook
For
2019, the company maintained its previously issued guidance of adjusted
net income per share to be in a range of $0.60 to $0.75 per share.

Although the company does provide guidance for adjusted net income 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 net income
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 Securities and Exchange Commission (“SEC”).

Upcoming Investor Events
Owens
& Minor plans to participate in the following investor conferences in
the second quarter of 2019, and the company will post webcasts of formal
presentations on its corporate website.

Bank of America Merrill Lynch Healthcare Conference, Las Vegas, May 14
Goldman Sachs Global Healthcare Conference, Rancho Palos Verdes, June
11 – 13

Investor Conference Call for 1Q 2019 Financial
Results
Owens & Minor executives will host a conference
call, which will also be webcast, to discuss the results at 8:30 a.m.
EDT on Tuesday, May 7, 2019. Participants may access the call at
866-393-1604. The international dial-in number is 224-357-2191. A replay
of the call will be available for one week by dialing 855-859-2056. The
access code for the conference call, international dial-in and replay is
#6765196. A webcast of the event will be available on www.owens-minor.com
under the Investor
Relations section.

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 SEC’s Fair Disclosure Regulation. This release contains certain
“forward-looking” statements made pursuant to the Safe Harbor provisions
of the Private Securities Litigation Reform Act of 1995. These
statements include, but are not limited to, the statements in this
release regarding our expectations with respect to our 2019 financial
performance, as well as other statements related to the company’s
expectations regarding the performance of its business, growth, and
improvement of operational performance. Forward-looking statements
involve known and unknown risks and uncertainties that may cause our
actual results in future periods to differ materially from those
projected or contemplated in the forward-looking statements. Investors
should refer to Owens & Minor’s Annual Report on Form 10-K for the year
ended December 31, 2018, filed with the SEC including the sections
captioned “Cautionary Note Regarding Forward-Looking Statements” and
“Item 1A. Risk Factors,” and subsequent quarterly reports on Form 10-Q
and current reports on Form 8-K filed with or furnished to the SEC, for
a discussion of certain known risk factors that could cause the
company’s actual results to differ materially from its current
estimates. These filings are available at www.owens-minor.com. Given
these risks and uncertainties, Owens & Minor can give no assurance that
any forward-looking statements will, in fact, transpire and, therefore,
cautions investors not to place undue reliance on them. Owens & Minor
specifically disclaims any obligation to update or revise any
forward-looking statements, whether as a result of new information,
future developments or otherwise.

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
Owens &
Minor, Inc. (NYSE: OMI) is a global healthcare solutions company with
integrated technologies, products, and services aligned to deliver
significant and sustained value for healthcare providers and
manufacturers across the continuum of care. With 17,000 dedicated
teammates serving healthcare industry customers in 90 countries, Owens &
Minor helps to reduce total costs across the supply chain by optimizing
episode and point-of-care performance, freeing up capital and clinical
resources, and managing contracts to optimize financial performance. A
FORTUNE 500 company, Owens & Minor was founded in 1882 in Richmond,
Virginia, where it remains headquartered today. The company has
distribution, production, customer service and sales facilities located
across the Asia Pacific region, Europe, Latin America, and North
America. For more information about Owens & Minor, visit owens-minor.com,
follow @Owens_Minor
on Twitter, and connect on LinkedIn at www.linkedin.com/company/owens-&-minor.


Owens & Minor, Inc. Consolidated Statements of Income (Loss) (unaudited) (dollars in thousands, except per share data)

	Three Months Ended March 31,
	2019			2018
Net revenue	$	2,461,388		$	2,372,579
Cost of goods sold		2,102,964			2,047,892
Gross margin		358,424			324,687
Distribution, selling and administrative expenses		338,703			284,361
Acquisition-related and exit and realignment charges		4,990			14,760
Other operating expense, net		39			1,349
Operating income		14,692			24,217
Interest expense, net		29,101			10,253
Income (loss) before income taxes		(14,409	)		13,964
Income tax provision (benefit)		(313	)		5,813
Net income (loss)	$	(14,096	)	$	8,151

Net income (loss) per common share:
Basic and diluted	$	(0.23	)	$	0.13


Owens & Minor, Inc. Condensed Consolidated Balance Sheets (unaudited) (dollars in thousands)

	March 31, 2019		December 31, 2018

Assets
Current assets
Cash and cash equivalents	$	75,239	$	103,367
Accounts receivable, net		843,384		823,418
Merchandise inventories		1,210,558		1,290,103
Other current assets		336,065		321,690
Total current assets		2,465,246		2,538,578
Property and equipment, net		386,135		386,723
Operating lease assets		197,200		—
Goodwill		413,235		414,122
Intangible assets, net		311,254		321,764
Other assets, net		109,294		112,601
Total assets	$	3,882,364	$	3,773,788
Liabilities and equity
Current liabilities
Accounts payable	$	990,688	$	1,109,589
Accrued payroll and related liabilities		40,999		48,203
Other current liabilities		377,989		314,219
Total current liabilities		1,409,676		1,472,011
Long-term debt, excluding current portion		1,685,135		1,650,582
Operating lease liabilities, excluding current portion		155,703		—
Deferred income taxes		42,144		50,852
Other liabilities		87,867		81,924
Total liabilities		3,380,525		3,255,369
Total equity		501,839		518,419
Total liabilities and equity	$	3,882,364	$	3,773,788


Owens & Minor, Inc. Consolidated Statements of Cash Flows (unaudited) (dollars in thousands)

	Three Months Ended March 31,
	2019			2018

Operating activities:
Net income (loss)	$	(14,096	)	$	8,151
Adjustments to reconcile net income (loss) to cash (used for) provided by operating activities:
Depreciation and amortization		28,720			17,911
Share-based compensation expense		4,505			3,035
Provision for losses on accounts receivable		3,619			1,073
Deferred income tax benefit		(8,613	)		(1,482	)
Changes in operating assets and liabilities:
Accounts receivable		(22,573	)		(18,519	)
Merchandise inventories		80,194			(30,556	)
Accounts payable		(120,480	)		9,478
Net change in other assets and liabilities		(15,858	)		28,904
Other, net		3,678			278
Cash (used for) provided by operating activities		(60,904	)		18,273

Investing activities:
Additions to property and equipment		(11,674	)		(7,074	)
Additions to computer software and intangible assets		(2,605	)		(7,086	)
Proceeds from sale of property and equipment		271			—
Cash used for investing activities		(14,008	)		(14,160	)

Financing activities:
Borrowings (repayments) under revolving credit facility		72,100			(300	)
Repayments of debt		(12,394	)		(3,125	)
Financing costs paid		(4,313	)		—
Cash dividends paid		(4,764	)		(16,074	)
Other, net		(1,124	)		(2,304	)
Cash provided by (used for) financing activities		49,505			(21,803	)

Effect of exchange rate changes on cash and cash equivalents		(2,721	)		800

Net decrease in cash and cash equivalents		(28,128	)		(16,890	)
Cash and cash equivalents at beginning of period		103,367			104,522
Cash and cash equivalents at end of period	$	75,239		$	87,632


Owens & Minor, Inc. Summary Segment Information (unaudited) (dollars in thousands)

	Three Months Ended March 31,
	2019					2018
				% of					% of
				consolidated					consolidated
	Amount			net revenue		Amount			net revenue
Net revenue:
Segment net revenue
Global Solutions	$	2,234,147		90.77	%	$	2,341,122		98.68	%
Global Products		347,085		14.10	%		121,287		5.11	%
Total segment net revenue		2,581,232					2,462,409
Inter-segment revenue
Global Products		(119,844	)	(4.87	)%		(89,830	)	(3.79	)%
Total inter-segment revenue		(119,844	)				(89,830	)
Consolidated net revenue	$	2,461,388		100.00	%	$	2,372,579		100.00	%

				% of segment					% of segment
Operating income (loss):				net revenue					net revenue
Global Solutions	$	21,071		0.94	%	$	36,759		1.57	%
Global Products		7,724		2.23	%		11,084		9.14	%
Inter-segment eliminations		1,746					(242	)
Intangible amortization		(10,361	)				(6,407	)
Acquisition-related and exit and realignment charges		(4,990	)				(14,760	)
Other ⁽¹⁾		(498	)				(2,217	)
Consolidated operating income	$	14,692		0.60	%	$	24,217		1.02	%

Depreciation and amortization:
Global Solutions	$	16,113				$	15,781
Global Products		12,607					2,130
Consolidated depreciation and amortization	$	28,720				$	17,911

Capital expenditures:
Global Solutions	$	11,376				$	13,602
Global Products		2,903					558
Consolidated capital expenditures	$	14,279				$	14,160

⁽¹⁾		Other consists of 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 March 31,
	2019			2018
Numerator:
Net income (loss)	$	(14,096	)	$	8,151
Less: income allocated to unvested restricted shares		—			(323	)
Net income (loss) attributable to common shareholders – basic and diluted		(14,096	)		7,828
Denominator:
Weighted average shares outstanding – basic and diluted		60,376			59,969
Net income (loss) per share attributable to common shareholders:
Basic and diluted	$	(0.23	)	$	0.13


Owens & Minor, Inc. GAAP/Non-GAAP Reconciliations (unaudited)

(dollars in thousands, except per share data)	Three Months Ended March 31,
	2019			2018

Operating income (loss), as reported (GAAP)	$	14,692			24,217
Intangible amortization ⁽¹⁾		10,361			6,407
Acquisition-related and exit and realignment charges ⁽²⁾		4,990			14,760
Other ⁽³⁾		499			2,217
Operating income, adjusted (non-GAAP) (Adjusted Operating Income)	$	30,542		$	47,601

Net income (loss), as reported (GAAP)	$	(14,096	)	$	8,151
Intangible amortization ⁽¹⁾		10,361			6,407
Income tax expense (benefit) ⁽⁵⁾		(1,664	)		(1,557	)
Acquisition-related and exit and realignment charges ⁽²⁾		4,990			14,760
Income tax expense (benefit) ⁽⁵⁾		(760	)		(3,576	)
Write-off of deferred financing costs ⁽⁴⁾		2,003			—
Income tax expense (benefit) ⁽⁵⁾		(313	)		—
Other ⁽³⁾		499			2,217
Income tax expense (benefit) ⁽⁵⁾		(55	)		(228	)
Net income, adjusted (non-GAAP) (Adjusted Net Income)	$	965		$	26,174

Net income (loss) per diluted common share, as reported (GAAP)	$	(0.23	)	$	0.13
Intangible amortization, per diluted common share ⁽¹⁾		0.14			0.08
Acquisition-related and exit and realignment charges, per diluted common share ⁽²⁾		0.07			0.19
Write-off of deferred financing costs, per diluted common share ⁽⁴⁾		0.03			—
Other, per diluted common share ⁽³⁾		0.01			0.03
Net income per diluted common share, adjusted (non-GAAP) (Adjusted EPS)	$	0.02		$	0.43

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⁾Acquisition-related charges were $4.2 million and $12.1
million in the first quarter of 2019 and 2018, respectively. Acquisition
related expenses in 2019 and 2018 consist primarily of transition and
transaction costs for the Halyard transaction.

Exit and realignment charges were $0.8 million in the first quarter of
2019 and $2.7 million in the first quarter of 2018. Amounts in 2019 were
associated with the establishment of our client engagement centers and
IT restructuring charges. Amounts in 2018 were associated with the
establishment of our client engagement centers.

⁽³⁾ Other consists of Software as a Service (SaaS)
implementation costs associated with significant global IT platforms in
connection with the redesign of our global information system strategy.

⁽⁴⁾Write-off of deferred financing costs associated with the
revolving credit facility as a result of the Fourth Amendment to the
Credit Agreement.

⁽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.

Use of Non-GAAP Measures

This earnings release contains financial measures that are not
calculated in accordance with U.S. generally accepted accounting
principles (“GAAP”). In general, the measures exclude items and charges
that (i) management does not believe reflect Owens & Minor, Inc.’s (the
“Company”) core business and relate more to strategic, multi-year
corporate activities; or (ii) relate to activities or actions that may
have occurred over multiple or in prior periods without predictable
trends. Management uses these non-GAAP financial measures internally to
evaluate the Company’s performance, evaluate the balance sheet, engage
in financial and operational planning and determine incentive
compensation.

Management provides these non-GAAP financial measures to investors as
supplemental metrics to assist readers in assessing the effects of items
and events on its financial and operating results and in comparing the
Company’s performance to that of its competitors. However, the non-GAAP
financial measures used by the Company may be calculated differently
from, and therefore may not be comparable to, similarly titled measures
used by other companies.

The non-GAAP financial measures disclosed by the Company should not be
considered substitutes 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.

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