Business context and reporting period
Filing identity: The request identifies ACCENDRA HEALTH INC, but the supplied Form 10-K is for Owens & Minor, Inc. (NYSE: OMI). This summary reflects the filing provided. It covers the fiscal year ended December 31, 2022, not a standalone 2022 fourth quarter.
Owens & Minor operates Products & Healthcare Services, which distributes and manufactures medical-surgical products, and Patient Direct, which provides home medical equipment and supplies. On March 29, 2022, it acquired Apria for approximately $1.7 billion net of cash acquired; Apria is included in Patient Direct from the acquisition date.
Financial results and key metrics
| Metric | 2022 | 2021 |
|---|---|---|
| Net revenue | $9.955 billion | $9.785 billion |
| Gross margin | $1.826 billion; 18.35% | $1.513 billion; 15.46% |
| Operating income | $142.9 million; 1.44% of revenue | $368.5 million; 3.77% of revenue |
| Net income | $22.4 million | $221.6 million |
| Diluted earnings per share | $0.29 | $2.94 |
| Cash from operating activities | $325.0 million | $124.2 million |
| Capital expenditures | $166.6 million | $49.7 million |
| Cash and cash equivalents at year-end | $69.5 million | $55.7 million |
| Total debt at year-end | $2.501 billion | $949.6 million |
Revenue increased 1.7% overall. Products & Healthcare Services revenue declined 10.5% to $7.898 billion, while Patient Direct revenue rose 114.4% to $2.057 billion, primarily reflecting Apria and Byram growth. Segment operating income was $175.3 million for Products & Healthcare Services (down from $384.4 million) and $193.7 million for Patient Direct (up from $58.0 million); segment figures exclude specified adjustments.
Reported operating income included a $92.3 million inventory valuation charge, primarily for excess personal protective equipment (PPE). The charge was approximately $69.6 million after tax, or $0.93 per basic share and $0.91 per diluted share. Interest expense rose to $128.9 million from $48.1 million, mainly due to acquisition-related borrowing and higher market rates. The company recorded an income tax benefit of $11.5 million, versus a $55.2 million provision in 2021.
Operating cash flow improved year over year, while investing cash outflow was $1.804 billion, principally reflecting the Apria acquisition. Financing cash inflow was $1.497 billion. Year-end working-capital indicators included DSO of 27.0 days (24.6 in 2021) and inventory days of 57.2 (64.7 in 2021).
Material changes versus prior year
- Apria added substantial Patient Direct revenue, assets and debt; the acquisition contributed $937 million in revenue and a $3.3 million net loss from the acquisition date through year-end.
- Products & Healthcare Services faced weaker hospital demand, customer reliance on stockpiles, glove pricing changes, inflation and supply-chain pressures. Its operating income fell substantially.
- Gross margin percentage improved, principally reflecting Apria and sales mix, but higher operating expenses, acquisition costs, the PPE inventory charge and sharply higher interest expense reduced earnings.
- Inventory fell by 10.9% to $1.334 billion, including the effects of the inventory valuation adjustment. Accounts receivable increased 12.0% to $763.5 million.
- Total debt rose by approximately $1.55 billion year over year. The company issued $600 million of 6.625% senior notes due 2030 and obtained $1.1 billion in term loans to help fund the Apria acquisition.
Outlook, risks and unusual items
The filing provides no specific earnings or revenue guidance. Management said available operating cash flow and financing sources were expected to cover working capital, capital expenditures, strategic growth and debt and lease obligations, while noting that economic conditions could affect borrowing costs and counterparties’ ability to meet obligations.
- Leverage and liquidity: Debt totaled approximately $2.5 billion; the company reported $422 million available under its revolving credit agreement and $354 million under its receivables financing agreement. It was in compliance with debt covenants at year-end. Principal maturities include approximately $274 million in 2024, $403 million in 2027, and $1.060 billion in 2029; the filing warns that refinancing may be needed.
- Apria compliance matter: Apria’s prior $40 million settlement concerning alleged improper use of non-invasive ventilation products included a five-year HHS OIG Corporate Integrity Agreement. Failure to comply could lead to penalties or exclusion from federal healthcare programs.
- Philips Respironics recall: The Class I recall of certain respiratory devices and repair deficiencies created patient-care, equipment-supply and cost risks; some costs may not be recoverable from the manufacturer.
- Inventory and demand: Lower PPE demand and excess inventory prompted the material valuation charge. Management cautioned that demand, pricing, inflation and supply-chain conditions could continue to affect performance.
- Other principal risks: Dependence on major GPO relationships and suppliers, reimbursement and regulatory changes, cyber incidents, acquisition integration, commodity and freight costs, and variable interest rates.
- Legal and reporting: The company said ordinary-course legal matters were not expected to have a material adverse effect. Management and the auditor reported effective internal controls, but Apria’s controls were excluded from the 2022 assessment; Apria was to be included in 2023.
The financial statements received an unqualified audit opinion. The auditor identified acquisition-date valuation of Apria intangible assets and Patient Direct revenue estimates as critical audit matters.
Important facts for investors to verify
- Confirm that Owens & Minor, rather than ACCENDRA HEALTH INC, is the intended issuer and filing.
- Assess whether Apria integration, expected benefits and its compliance agreement are progressing as anticipated.
- Track hospital demand, PPE inventory reductions and any subsequent inventory charges.
- Review debt repayment and refinancing plans, covenant headroom, variable-rate exposure and interest costs.
- Monitor Patient Direct reimbursement estimates, respiratory-device availability and any continuing costs or effects from the Philips recall.
- Compare subsequent cash flow, DSO and margins with 2022, and check for updates to the tax dispute with the IRS concerning transfer pricing.