Business context and reporting period
This is Owens & Minor, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2020, not a filing identified as Accendra Health Inc. The company distributes healthcare products and provides logistics services, and manufactures and sources medical-surgical products. Unless noted, operating results below are from continuing operations; Movianto is presented as discontinued operations.
Financial performance and condition
- Revenue: $2.123 billion, down 9.7% from $2.351 billion. Global Solutions revenue fell 13.0% to $1.848 billion; Global Products revenue rose 12.7% to $391.2 million.
- Margins and operating income: Gross margin was $268.6 million, or 12.65% of revenue, versus $276.6 million and 11.77%. Operating income was $10.8 million, down from $16.6 million.
- Net loss: Continuing-operations loss was $8.9 million ($0.15 per share), compared with $10.9 million ($0.18 per share). Including discontinued operations, net loss was $11.3 million ($0.19 per share), versus $14.1 million ($0.23 per share).
- Cash flow: Operating activities provided $93.5 million, compared with $60.9 million used in Q1 2019. Investing activities used $5.7 million and financing activities used $31.4 million. These cash-flow totals include discontinued operations.
- Liquidity: Cash and cash equivalents were $92.3 million at March 31, 2020, up from $67.0 million at year-end. Cash, cash equivalents and restricted cash totaled $141.0 million, including $16.3 million restricted and $32.4 million held by discontinued operations. Available borrowing capacity under the revolver was $215.5 million.
- Debt: Total debt carrying amount was $1.536 billion, including $171.7 million drawn on the revolver and $147.2 million under the new receivables securitization program. The company said it was in compliance with debt covenants at quarter-end. Long-term debt, excluding current maturities, was $1.484 billion.
Material changes versus the prior comparable period
- Lower Global Solutions revenue and continued distribution-margin pressure reduced segment operating income to $7.7 million from $21.6 million. Management cited prior customer non-renewals and fewer elective procedures, including COVID-19-related reductions.
- Global Products operating income increased to $18.6 million from $7.7 million, largely due to higher demand for personal protective equipment (PPE).
- Interest expense declined 8.3% to $23.3 million, primarily reflecting lower debt, partly offset by a higher effective interest rate and financing-cost amortization. Other expense rose to $4.8 million, including costs tied to the February credit-agreement amendment and term-loan paydown.
- Operating cash flow improved year over year, with working-capital movements contributing to the reported result. Accounts payable increased by $83.5 million from year-end; inventory decreased by $37.3 million.
- Comprehensive loss was $50.7 million, versus $20.5 million, reflecting larger currency-translation and derivative-related losses.
Outlook, commentary, risks and unusual items
- COVID-19 had a nominal overall revenue impact in Q1: increased PPE demand was partly offset by reduced surgical procedures beginning in mid-March. Management expected the procedure-related reduction to continue through Q2, but said the pandemic’s full financial and operational effects could not be predicted.
- The company announced plans to sell its European logistics business, Movianto, to EHDH Holding Group for $133 million cash, with closing expected in the first half of 2020. Movianto reported Q1 revenue of $122.3 million and a $2.4 million after-tax loss. The company recorded a $9.1 million held-for-sale impairment in Q1; the filing also reports a $32.1 million loss in connection with the held-for-sale classification at December 31, 2019.
- In April 2020, the U.S. Department of Defense initiated an agreement involving up to $30 million of anticipated funding to expand N-95 mask capacity; final terms were still being completed. The company also filed for a $13 million tax refund related to NOL carrybacks and recorded a $5.2 million tax benefit in Q1.
- Key risks include uncertain COVID-19 effects on demand, supply, staffing, collections and operating costs; customer and supplier concentration; pricing and competitive pressure; foreign-exchange, commodity and interest-rate exposure; and the ability to refinance or repay substantial debt. A 100-basis-point interest-rate increase was estimated to reduce annual pretax earnings by approximately $6 million after swaps.
- No full-year earnings guidance is provided in the supplied filing text. Management said available financing sources were expected to be sufficient for foreseeable needs, while noting economic conditions could affect financing access and costs. Disclosure controls were reported effective as of March 31, 2020.
Important facts for investors to verify
- Confirm the issuer identity: the supplied filing is for Owens & Minor, Inc. (NYSE: OMI), despite the request metadata naming Accendra Health Inc.
- Track whether the Movianto sale closed on the expected timetable and its final proceeds and accounting effects.
- Verify final terms and funding under the up-to-$30 million N-95 capacity agreement, and collection of the requested $13 million tax refund.
- Monitor COVID-19 effects on elective procedures, PPE demand, supply availability, working capital and cash generation, particularly after Q1.
- Review debt maturities, covenant compliance, borrowing availability and refinancing needs, including the 2021 notes and springing-maturity provisions.