Business context and reporting period
This is Owens & Minor, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2020. The request metadata names Accendra Health Inc., but the filing itself identifies Owens & Minor as the registrant.
Owens & Minor operates Global Solutions, a U.S. distribution and outsourced logistics business, and Global Products, which manufactures and sources medical-surgical products. The company completed the sale of its European Movianto logistics business on June 18, 2020; Movianto is reported as discontinued operations.
Key financial metrics
Amounts below are in millions of dollars except per-share data and percentages.
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Continuing-operations revenue | $1,807.7 | $2,376.7 | $3,930.4 | $4,727.5 |
| Gross margin | $269.4; 14.90% | $286.5; 12.06% | $538.0; 13.69% | $563.1; 11.91% |
| Operating income | $22.2 | $15.9 | $33.0 | $32.5 |
| Continuing-operations income (loss), net of tax | $0.2 | $(9.7) | $(8.7) | $(20.7) |
| Net loss, including discontinued operations | $(55.6) | $(10.5) | $(67.0) | $(24.6) |
| Net loss per share | $(0.91) | $(0.17) | $(1.10) | $(0.41) |
| Interest expense, net | $21.6 | $26.0 | $44.9 | $51.5 |
For the six months, cash from operating activities was $150.5 million, investing activities provided $127.0 million, and financing activities used $171.1 million. The resulting increase in cash, cash equivalents and restricted cash was $111.8 million. Operating cash flow included favorable working-capital changes; investing cash flow included $133.0 million of Movianto sale proceeds.
At June 30, cash and cash equivalents were $101.3 million; cash, cash equivalents and restricted cash totaled $196.5 million. Total debt was $1.399 billion, including $1.270 billion of long-term debt excluding current maturities. The company had $256.1 million available under its $400 million revolving facility and reported compliance with debt covenants. Total assets were $3.138 billion and total equity was $395.2 million.
Material changes versus prior comparable periods
- Q2 revenue declined 23.9% year over year; first-half revenue fell 16.9%. Management attributed the decline primarily to fewer elective procedures during COVID-19 and lower distribution revenue following customer non-renewals.
- Global Solutions operating results weakened to a $10.1 million Q2 loss from $17.7 million of income a year earlier; first-half results were a $2.5 million loss versus $39.4 million of income.
- Global Products operating income rose to $51.8 million in Q2 from $17.9 million, and to $70.3 million for the first half from $25.7 million. Management cited increased PPE demand, favorable product mix, higher manufacturing output and operating efficiencies.
- Gross margin dollars declined, but gross margin as a percentage of revenue improved, reflecting mix and productivity benefits in Global Products. Lower revenue and foreign-currency effects partly offset those gains.
- Net loss was substantially larger mainly because of the Movianto divestiture loss: $56.4 million in Q2 and $65.5 million for the first half. Discontinued operations reported total net losses of $55.8 million and $58.2 million, respectively.
- Debt declined from $1.560 billion at year-end 2019 to $1.399 billion. The company repaid $258.0 million of debt during the first half and used $83.2 million to repurchase $87.8 million principal amount of 2021 and 2024 notes.
Outlook, risks and unusual items
- No numerical earnings or revenue guidance is provided. Management said the full financial impact of COVID-19 could not be predicted with certainty.
- The pandemic reduced elective procedures and affected revenue, while increasing PPE demand. Risks cited include the duration and effects of COVID-19, customer and supplier performance, competition and pricing, access to financing, and the ability to refinance or repay substantial debt.
- The Movianto sale generated $133 million in cash and a recognized loss of $65.5 million for the first half. A final working-capital adjustment could produce a benefit of up to $42 million, but none was recognized at June 30. Of the sale proceeds, $78.9 million was restricted for repayment of 2021 notes or term loans.
- Under a Defense Production Act arrangement, the U.S. Department of Defense provided for up to $30 million of anticipated funding to expand N-95 mask capacity; approximately $12 million had been expended and reimbursed by June 30.
- The company filed for a $13 million CARES Act tax refund related to a net operating loss carryback and recorded a $5.2 million tax benefit for the first half. The IRS is auditing 2015 and 2016 tax returns; management disputes the IRS position, but states an adverse outcome could materially affect results or cash flows.
- Other financial risks include floating-rate debt (a 100-basis-point rate increase was estimated to reduce annual pretax earnings by approximately $5 million after swaps), foreign-exchange exposure, and volatile raw-material and fuel costs. A $50 million at-the-market equity program was available, with no shares issued by June 30.
Important facts for investors to verify
- Confirm the issuer identity: the supplied filing is for Owens & Minor, Inc., not Accendra Health Inc.
- Track elective-procedure recovery, PPE demand and the resulting segment revenue, margins and operating performance.
- Verify completion and final value of the Movianto working-capital adjustment, and application of restricted sale proceeds to debt.
- Monitor the 2021 debt maturity, springing-maturity provisions, covenant compliance, refinancing capacity and remaining borrowing availability.
- Review the IRS audit, COVID-related operating uncertainties, and progress and funding terms of the N-95 capacity agreement.