Owens & Minor Reports 4th Quarter & Full-Year 2018 Financial Results

RICHMOND, Va.–(BUSINESS WIRE)–lt;a href=”https://twitter.com/hashtag/2018FinancialResults?src=hash” target=”_blank”gt;#2018FinancialResultslt;/agt;–Owens & Minor, Inc. (NYSE: OMI) today reported financial
results for the fourth quarter and the year ended December 31, 2018, as
summarized in the table shown below.

“2018 was a year of change for Owens & Minor, and, although we faced
challenges, we achieved our expectations for the fourth quarter adjusted
results, excluding costs associated with the exit of our former chief
executive officer,” said Robert C. Sledd, chairman and interim president
& chief executive officer. “We are encouraged by the opportunities we
see in the future and are aggressively addressing challenges in our
distribution business. We have made progress in returning our
distribution and logistics services to the Owens & Minor standard, but
we still have work to do in 2019. We are focused on selling more
proprietary and preferred vendor products to our extensive healthcare
customer base, as we work to win and retain customers. In combination
with positive momentum from Halyard and Byram Healthcare and investments
that will support our future efforts, we believe we have the right
tools, the right team, and the right strategy to realize a bright,
long-term future.”

 
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 $274
million and $440 million, respectively.

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 from Byram 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, Owens & Minor announced that,
after a thorough search and careful evaluation of candidates, its board
of directors has named Edward A. Pesicka to serve as president & chief
executive officer of Owens & Minor, effective March 4, 2019. Pesicka, a
formerly long-tenured executive at Thermo Fisher Scientific, joins the
company with more than 25 years of business and operational experience
in healthcare and related industries. He will also join Owens & Minor’s
board of directors. Pesicka most recently served as chief commercial
officer and senior vice president of Thermo Fisher Scientific, where he
was responsible for developing and leading the company’s go to market
strategies and managing the company’s commercial approach.

Amended Credit Agreement & Dividend for 1Q 2019

On February 12, 2019, the company entered into an amended credit
agreement that enhances the company’s financial flexibility and, among
other things, revises the financial covenants throughout the life of the
agreement. As a result of this agreement, the company’s interest expense
will increase going forward, which is reflected in the financial
guidance for 2019.

Owens & Minor also announced that its board of directors has approved a
first quarter dividend payment of $0.0025 per share. This dividend is
payable on March 29, 2019, to shareholders of record as of March 15,
2019.

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 $0.60 to $0.75 per share.

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 Securities and Exchange Commission (“SEC”).

Upcoming Investor Events

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

  • J.P. Morgan Global High Yield & Leveraged Finance; February 25
  • Barclays Global Healthcare; March 12

Investor Conference Call & Supplemental
Material for 2018 Financial Results

Owens & Minor executives will host a conference call, which will also be
webcast, to discuss the results at 8:30 a.m. EST on Wednesday, February
20, 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 #3609149. A
webcast of the event and a corresponding slide presentation 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, improvement of operational performance, and the performance of
and synergies from the recently acquired Byram Healthcare and Halyard
businesses. 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, 2017, 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 now 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 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 ($0.1 million and $4.8 million for
the fourth quarter of 2018 and 2017 and $3.5 million and $13.4 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 ($27.1 million 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)

                 

Three Months Ended
December 31,

For the Years Ended
December 31,

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
December 31,

   

For the Years Ended
December 31,

        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 $4.3 million
and $45.3 million for the three months and year ended December 31, 2018,
compared to $11.0 million and $17.3 million for the same periods of
2017. Acquisition related expenses in 2018 consisted primarily of
transition and transaction costs for the Halyard S&IP acquisition.
Expenses in 2017 consisted primarily of transition and transaction costs
for the Byram acquisition and due diligence costs for the Halyard S&IP
acquisition.

Exit and realignment charges, pre-tax, were $10.5 million and $16.9
million for the three months and year ended December 31, 2018. Amounts
in 2018 were associated with establishment of our client engagement
centers. Exit and realignment charges were $28.6 million and $43.4
million for the three months and year ended December 31, 2017. Charges
in 2017 were associated with the write-down of information system assets
which are no longer used and severance charges from reduction in force
and other employee costs associated with the establishment of our new
client engagement center.

(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.

Contacts

Truitt Allcott
Director, Media Relations
804-723-7555
[email protected]

Chuck Graves
Director, Finance & Investor Relations
804-723-7556
[email protected]

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