Filing identity and reporting period
Important: The supplied filing is Owens & Minor, Inc.’s Form 10-Q for the quarter ended March 31, 2022; it is not an Accendra Health Inc. filing. The summary below reflects the filing provided.
Owens & Minor operates Products & Healthcare Services and Patient Direct. It completed its acquisition of Apria, a home healthcare provider, on March 29, 2022, for approximately $1.7 billion net of cash acquired. Apria’s results were included for only the period after closing and were not separately material to reported first-quarter results.
Financial results
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net revenue | $2.407 billion | $2.327 billion |
| Gross margin | $373.4 million; 15.52% of revenue | $442.8 million; 19.03% |
| Operating income | $61.1 million | $146.7 million |
| Net income | $39.3 million | $69.6 million |
| Diluted EPS | $0.52 | $0.98 |
| Cash from operating activities | $79.7 million | $25.4 million |
Revenue rose 3.5%. Gross margin fell 15.7%, and operating income and net income declined substantially. The filing attributes margin pressure chiefly to the timing of glove price and cost changes, inflation in commodities, transportation and labor, and sales mix. Acquisition-related and exit and realignment charges were $33.5 million, including $31.9 million related primarily to Apria.
- Segments: Products & Healthcare Services revenue increased 1.2% to $2.134 billion; operating income decreased to $89.1 million from $150.4 million. Patient Direct revenue increased 25.7% to $272.9 million; operating income increased to $15.8 million from $12.3 million. Patient Direct growth reflected Byram’s performance and the Apria acquisition.
- Cash flow and investment: Investing cash outflow was $1.587 billion, primarily the $1.6 billion Apria purchase, plus $11.0 million of capital expenditures. Financing cash inflow was $1.664 billion, largely from acquisition-related debt issuance.
- Balance sheet and liquidity: At March 31, cash and cash equivalents were $211.3 million; current assets were $2.553 billion and current liabilities $1.654 billion. Total debt was $2.644 billion, compared with $949.6 million at year-end 2021. The company reported $410 million available under its revolving facility and compliance with debt covenants.
- Margins and taxes: DS&A was $279.7 million, or 11.62% of revenue, versus 12.58% a year earlier. The effective tax rate was 18.6%, versus 24.4%.
Material changes, outlook and risks
The acquisition materially expanded Patient Direct assets and increased leverage. Apria added preliminary goodwill of $1.267 billion, assigned to Patient Direct; the purchase-price allocation remained preliminary. The filing presents no specific financial guidance or quantified full-year outlook. Management said available financing sources and operating cash flows were expected to be sufficient for foreseeable needs, while noting that economic conditions could affect borrowing costs and counterparties.
- Management cited COVID-19 uncertainty, supply-chain disruption, inflation, commodity and freight costs, labor pressures, pricing competition and customer or supplier concentration as ongoing business risks.
- The Philips Respironics device recall may require substantial support and resources; replacement-device shortages, patient hesitancy and costs not recovered from the manufacturer could adversely affect revenue, results, cash flows and liquidity.
- IRS transfer-pricing disputes concerning 2015–2018 tax returns remain unresolved. The company believes its reserves are adequate, but an adverse outcome could materially affect financial results or cash flows.
- Debt agreements include leverage and interest-coverage covenants and cross-default provisions. The filing estimates that a 100-basis-point interest-rate increase would reduce annual pre-tax earnings by approximately $9.4 million, after considering a swap entered into in April 2022.
- Controls were reported effective as of March 31, 2022; management excluded Apria from its internal-control effectiveness evaluation during the permitted post-acquisition period.
Investor verification priorities
- Confirm the issuer: the supplied 10-Q is for Owens & Minor, not Accendra Health.
- Review Apria’s integration, final purchase-price allocation, acquired-business contribution and realization of expected growth opportunities.
- Track gross-margin recovery amid inflation, glove pricing dynamics, PPE demand and freight and labor costs.
- Assess post-acquisition debt, maturities, variable-rate exposure, covenant headroom and liquidity availability.
- Monitor the Philips Respironics recall, equipment availability and potential unreimbursed costs or effects on patient demand.
- Follow the IRS tax dispute and any material developments in the company’s healthcare compliance obligations, including Apria’s Corporate Integrity Agreement.