ACCENDRA HEALTH INC quarterly report, Q2 FY2021

Business context and reporting period

This summary is of Owens & Minor, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2021—not a filing identified as Accendra Health Inc. The filing describes two segments: Global Solutions, including U.S. distribution and outsourced logistics, and Global Products, which manufactures and sources medical-surgical products. Comparisons with 2020 are affected by the June 2020 divestiture of Movianto, presented as discontinued operations in 2020.

Financial performance

MetricQ2 2021Q2 2020First half 2021First half 2020
Net revenue$2,489.5 million$1,807.7 million$4,816.0 million$3,930.4 million
Gross margin$400.1 million; 16.07%$269.4 million; 14.90%$842.8 million; 17.50%$538.0 million; 13.69%
Operating income$96.9 million$22.2 million$243.6 million$33.0 million
Net income (loss)$65.9 million$(55.6) million$135.5 million$(67.0) million
Diluted continuing-operations EPS$0.87$0.00$1.80$(0.14)
  • Revenue increased 37.7% in Q2 and 22.5% in the first half year over year. Management cited recovery in elective procedures, higher PPE sales, elevated glove-cost pass-through, Patient Direct strength, and favorable foreign-currency translation.
  • Global Solutions operating income was $18.5 million in Q2 and $27.4 million in the first half, versus losses of $10.1 million and $2.5 million, respectively, in 2020. Management attributed improvement to higher volumes and productivity and efficiency gains.
  • Global Products operating income was $95.3 million in Q2 and $258.9 million in the first half, up from $51.8 million and $70.3 million. Higher PPE sales, glove-cost pass-through timing, product mix, productivity, and fixed-cost leverage helped; higher commodity and transportation costs partly offset gains.
  • Q2 net income comparisons include the 2020 discontinued-operations loss of $55.8 million. For the first half, the 2021 $40.4 million debt-extinguishment loss included $15.3 million in financing-cost and fee write-offs and $25.1 million related to terminated interest-rate swaps.

Cash flow, balance sheet, and debt

  • First-half operating cash flow was $12.4 million, compared with $150.5 million in 2020. Inventory growth used $298.3 million and accounts receivable growth used $57.3 million; accounts payable growth provided $127.5 million.
  • First-half investing cash use was $18.7 million, including $18.7 million of capital expenditures. The prior-year period included $133.0 million of Movianto divestiture proceeds.
  • Cash and cash equivalents at June 30 were $45.4 million; cash, cash equivalents, and restricted cash totaled $61.7 million. Merchandise inventory was $1.530 billion, up $296.6 million from year-end 2020.
  • Total debt was $1.009 billion, including $1.008 billion of long-term debt. The company issued $500 million of 4.500% notes due 2029 and refinanced its credit arrangements in March. It reported $255 million available under its $300 million revolver and compliance with debt covenants at quarter-end.
  • Net interest expense fell 46.6% in Q2 and 43.9% in the first half year over year, which management attributed primarily to lower debt and interest rates. The company estimates a 100-basis-point rate increase would reduce annual pretax earnings by approximately $2.7 million, based on quarter-end borrowings.

Outlook, risks, and unusual items

  • The filing provides no specific quantitative earnings or revenue guidance. Management said the duration and full financial effects of COVID-19 remain uncertain and cautioned that elevated PPE sales, sales growth, and operational improvements may not persist. Supply-chain restrictions and costs, elective-procedure trends, and product demand remain relevant uncertainties.
  • Management expects available operating cash flow and borrowing sources to fund working capital, capital expenditures, debt and lease payments, strategic growth, and other needs. Working capital is a key cash-flow sensitivity: management estimates a one-day DSO increase would affect cash or borrowing needs by approximately $27 million. Inventory days rose to 66.7 from 57.8 at year-end.
  • The IRS issued proposed adjustments concerning 2015–2018 tax returns and U.S. income attributed to foreign-subsidiary product sourcing. The company disputes the IRS position and believes its reserves are adequate, but warns an adverse outcome could materially affect results, financial position, or cash flows.
  • Other disclosed risks include competition and pricing pressure, customer and supplier concentration, commodity and fuel costs, foreign exchange, substantial debt and refinancing, and cyberattacks. The company added a risk factor highlighting increased cyberattack sophistication and potential operational, financial, regulatory, and reputational harm.
  • Exit and realignment charges were $8.6 million in Q2 and $14.6 million in the first half of 2021, primarily related to retained Fusion5 assets, IT restructuring, and U.S. reorganization costs; management said further Fusion5-related costs may occur in 2021.

Important facts for investors to verify

  • Confirm the filing issuer: the supplied 10-Q is for Owens & Minor, Inc., notwithstanding the request metadata naming Accendra Health Inc.
  • Track whether PPE demand, elective-procedure recovery, glove pricing, and segment profitability continue, and how commodity and freight costs affect margins.
  • Assess working-capital conversion, particularly the inventory build and sharply lower first-half operating cash flow.
  • Review debt maturities, refinancing capacity, covenant headroom, variable-rate exposure, and the consequences of cross-default provisions.
  • Monitor the IRS tax dispute and any changes in the company’s assessment of potential exposure.