Filing identity and reporting period
The supplied filing is Owens & Minor, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2019, filed May 7, 2019. This does not match the request metadata identifying ACCENDRA HEALTH INC; confirm the intended issuer before relying on this summary.
Owens & Minor operates Global Solutions, a healthcare distribution and logistics business, and Global Products, which manufactures and sources medical products. Global Products includes the Surgical and Infection Prevention business acquired from Avanos (formerly Halyard) on April 30, 2018.
Financial results and position
Unless otherwise noted, amounts are U.S. dollars; financial statement figures below are in millions.
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $2,461.4 | $2,372.6 |
| Gross margin | $358.4 (14.56%) | $324.7 (13.68%) |
| Operating income | $14.7 (0.60%) | $24.2 (1.02%) |
| Net income (loss) | $(14.1) | $8.2 |
| Diluted EPS | $(0.23) | $0.13 |
| Adjusted operating income (non-GAAP) | $30.5 (1.24%) | $47.6 (2.01%) |
| Adjusted net income / adjusted EPS (non-GAAP) | $1.0 / $0.02 | $26.2 / $0.43 |
| Cash from operating activities | $(60.9) | $18.3 |
| Cash from investing activities | $(14.0) | $(14.2) |
| Cash from financing activities | $49.5 | $(21.8) |
At March 31, 2019, cash was $75.2 million; current assets were $2,465.2 million and current liabilities were $1,409.7 million. Total debt was $1,737.2 million, including $282.2 million drawn on the $400 million revolver; long-term debt excluding current maturities was $1,685.1 million. The company reported compliance with debt covenants. Operating lease assets and liabilities were $197.2 million and $200.6 million, respectively, following adoption of the new lease standard.
Material changes versus the prior comparable period
- Revenue rose 3.7%, primarily reflecting $188.7 million of net revenue from the Halyard acquisition. Global Solutions revenue fell 4.6%, while Global Products revenue increased substantially, primarily due to Halyard.
- Gross margin dollars increased 10.4%, but operating income fell to $14.7 million. Distribution, selling and administrative expenses rose 19.1% to $338.7 million, and operating margin declined to 0.60% from 1.02%.
- Net results swung from $8.2 million income to a $14.1 million loss. Net interest expense rose $18.8 million to $29.1 million, principally due to acquisition-related borrowings; Q1 2019 also included a $2.0 million write-off of deferred financing costs.
- Operating cash flow declined from $18.3 million provided to $60.9 million used, with working-capital movements including a $120.5 million cash use from accounts payable.
- The declared quarterly dividend was $0.0025 per share, versus $0.26 per share in Q1 2018. The company reported no share repurchases in either quarter.
Outlook, management commentary, risks and unusual items
The filing provides no specific earnings or revenue guidance. Management said available financing sources, including operating cash generation and the credit facility, were expected to be sufficient for foreseeable needs, while noting that economic conditions could affect lenders, customers, suppliers and borrowing costs. Management attributed Global Solutions’ lower operating income to lower revenue, distribution-margin pressure and higher supply-chain costs.
Key risks identified include customer retention and concentration, pricing and competitive pressure, supplier dependence, integration and realization of Halyard acquisition benefits, foreign exchange and interest-rate changes, fuel and raw-material costs, healthcare regulation, information-system implementation and cybersecurity, and litigation. A 100-basis-point interest-rate increase was estimated to reduce annual pretax earnings by approximately $7 million after swaps. The company also cited potential sensitivity to fuel prices and volatile polypropylene and nitrile costs.
Other notable items: the company adopted lease accounting Topic 842 on January 1, 2019, recording approximately $197 million of operating lease assets and $201 million of liabilities at adoption, with no material net-income impact. Acquisition-related and exit/realignment charges were $5.0 million; other excluded costs included SaaS implementation costs. Management reported effective disclosure controls as of March 31, 2019; its evaluation excluded the acquired Halyard business’s internal control over financial reporting. The filing reported no material legal-proceeding developments or material changes to previously disclosed risk factors.
Important facts for investors to verify
- Confirm issuer identity: the filing is for Owens & Minor, Inc., not ACCENDRA HEALTH INC.
- Assess whether Global Solutions can stabilize customer retention, distribution margins and operating costs.
- Review cash conversion and working-capital trends, given negative operating cash flow and lower cash balances.
- Evaluate debt service, refinancing and covenant headroom, including the revolver draw, interest-rate exposure and maturity structure.
- Verify the sustainability and implications of the sharply reduced dividend, and whether Halyard integration improves returns.
- Distinguish GAAP results from management’s non-GAAP adjustments when assessing underlying performance.