Filing identity and reporting period
The supplied filing is Owens & Minor, Inc. (NYSE: OMI), not Accendra Health Inc. It is a Form 10-K for the year ended December 31, 2019, filed March 4, 2020; it reports annual results, not a standalone fourth quarter.
Owens & Minor distributes healthcare products and provides supply-chain services, and manufactures and sources medical products. Unless noted, results below refer to continuing operations; cash flows are consolidated and include discontinued operations.
Financial results and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Net revenue | $9.211 billion | $9.418 billion |
| Gross margin | $1.128 billion; 12.25% of revenue | $1.071 billion; 11.37% |
| Operating income (loss) | $73.2 million; 0.79% of revenue | $(352.3) million; (3.74)% |
| Net income (loss) | $(62.4) million | $(437.0) million |
| Diluted loss per share | $(1.03) | $(7.28) |
| Net cash from operating activities | $166.1 million | $115.6 million |
| Cash and cash equivalents at year-end | $67.0 million | $66.3 million |
| Total debt | $1.560 billion | $1.677 billion |
Revenue declined 2.2%. Global Solutions revenue fell 6.0% to $8.244 billion, while Global Products revenue rose 29.0% to $1.434 billion, benefiting from a full-year contribution from the Halyard business acquired in April 2018. Global Solutions operating income was $83.6 million versus $108.8 million; Global Products operating income was $65.1 million versus $75.7 million.
Gross margin improved, reflecting Byram growth and a more favorable sales mix, partly offset by foreign exchange. Distribution, selling and administrative expenses increased 7.4% to $1.023 billion, or 11.11% of revenue, from 10.12%. Interest expense rose 38.2% to $98.1 million, primarily due to acquisition-related borrowings and higher borrowing costs. The 2019 net loss included $39.8 million of discontinued-operations loss; 2018 included $42.3 million from discontinued operations and $413.9 million of goodwill and intangible-asset impairment charges in continuing operations.
Operating cash flow improved by $50.5 million, with working-capital movements contributing to cash generation. Capital expenditures were $52.2 million. Year-end inventory was $1.146 billion, accounts receivable $674.7 million, and accounts payable $808.0 million. DSO was 27.1 days; inventory turnover was 6.6, down from 6.9.
Debt comprised approximately $858 million of term loans, $177.9 million drawn on a $400 million revolver, and senior notes, among other obligations. The company disclosed $209.3 million of undrawn credit availability, $238 million principal of 2021 Notes and $275 million of 2024 Notes. Debt-to-equity was 337%. Management said available financing sources and operating cash were expected to fund foreseeable needs, while warning that debt service, refinancing and covenant compliance remained significant risks.
Material changes, outlook and risks
- Management attributed lower distribution revenue partly to customer non-renewals following service issues before early 2019, continued pricing and margin pressure, and higher transportation expense.
- The company recorded no goodwill impairment in 2019; it had recorded $397.6 million of goodwill impairment in 2018. Year-end goodwill was $393.2 million.
- Dividends fell to $0.01 per share in 2019 from $0.86 in 2018. The board approved a first-quarter 2020 dividend of $0.0025 per share.
- On January 16, 2020, the company announced a proposed sale of European logistics business Movianto for $133 million in cash, expected to close in the first half of 2020. The sale was not assured. Movianto was classified as discontinued operations; a $32.1 million asset impairment was recorded in connection with held-for-sale classification. Its 2019 revenue was $439.1 million and net loss was $39.8 million.
- In February 2020, the company amended its credit agreement, including changes to financial covenants and an increase in specified interest margins from 3.50% to 4.25%, subject to a stepdown. It also established a receivables securitization program with up to $325 million outstanding, intended in part to repay higher-interest debt.
- Risks highlighted include competitive pricing pressure, reliance on major GPOs and customers, supplier concentration, substantial secured debt and refinancing needs, variable interest rates, restrictive covenants, product and regulatory exposure, commodity-cost volatility, and operational, cyber and supply-chain disruptions. The filing noted that COVID-19 had disrupted some medical-product supply chains and increased demand as of the report date; the financial impact was uncertain.
- Fusion5, a bundled-payment services venture, had cumulative losses exceeding revenue at year-end 2019 and may continue to incur losses. No numerical earnings or revenue guidance is provided in the supplied filing text.
Most important facts for investors to verify
- Confirm the filing applies to Owens & Minor, not the company named in the request, and use the audited statements and notes for any deeper analysis.
- Check the subsequent closing status and actual proceeds from the proposed Movianto sale, and how proceeds were applied to debt.
- Review the February 2020 credit amendment, covenant headroom, securitization terms, and the company’s plan for the 2021 Notes maturity.
- Assess whether operating cash flow and working-capital releases are sustainable, especially given falling revenue and high debt service.
- Monitor customer retention and service performance, segment margins, Fusion5 losses, and the effects of COVID-19 and supply-chain conditions.