Filing identity and reporting period
Important issuer mismatch: The supplied filing is Owens & Minor, Inc.’s Form 10-Q for the quarter ended September 30, 2022, not a filing by Accendra Health Inc. Verify the intended company before relying on this summary.
Owens & Minor operates Products & Healthcare Services and Patient Direct. The results include Apria, acquired March 29, 2022, in Patient Direct from the acquisition date onward. Unless stated otherwise, dollar figures below are in millions.
Key financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $2,497.4 | $2,502.2 | $7,404.4 | $7,318.2 |
| Gross margin | $513.3 (20.6%) | $328.8 (13.1%) | $1,419.2 (19.2%) | $1,171.7 (16.0%) |
| Operating income | $60.2 | $62.9 | $196.4 | $306.5 |
| Net income | $12.5 | $44.1 | $80.4 | $179.6 |
| Diluted EPS | $0.16 | $0.58 | $1.05 | $2.38 |
| Operating cash flow | Not separately presented for the quarter | $238.0 | $73.8 |
Q3 operating and net margins were approximately 2.4% and 0.5%, respectively, versus 2.5% and 1.8% a year earlier. Nine-month operating and net margins were approximately 2.7% and 1.1%, versus 4.2% and 2.5%.
- Q3 revenue was essentially flat year over year; nine-month revenue increased 1.2%. Patient Direct growth, reflecting Apria and Byram, offset lower Products & Healthcare Services revenue.
- Gross margin rose, but operating income and net income declined. Higher selling, distribution and administrative costs, acquisition-related costs, and interest expense outweighed the gross margin improvement.
- Nine-month interest expense increased to $87.7 million from $36.8 million, primarily reflecting acquisition-related borrowing and higher market rates. The 2021 period included a $40.4 million debt-extinguishment loss; the 2022 period did not.
- At September 30, cash and cash equivalents were $76.8 million and total debt was $2.562 billion, versus $55.7 million and $949.6 million at December 31, 2021. Current assets were $2.442 billion and current liabilities $1.602 billion.
- Nine-month investing cash outflow was $1.772 billion, including $1.685 billion for Apria net of cash acquired and $115.1 million in capital expenditures. Financing cash inflow was $1.561 billion. Cash, cash equivalents and restricted cash ended at $93.2 million.
Material changes and management commentary
- Products & Healthcare Services revenue fell 15.6% in Q3 and 9.9% for nine months. Management cited reduced hospital demand, customers drawing on pandemic-era stockpiles, and lower glove cost pass-through.
- Patient Direct revenue rose 141.6% in Q3 and 106.7% for nine months, primarily from Apria and continued Byram growth. Apria contributed $310 million of Q3 revenue and $620 million for the nine-month period since acquisition; its included net results were $0.7 million income and $38.4 million loss, respectively.
- Management cited inflation, supply-chain challenges and rising interest rates as headwinds; operating efficiencies and productivity gains partly offset pressure. Foreign currency translation reduced diluted EPS by $0.04 for Q3 and $0.13 for nine months.
- The Apria acquisition was funded with debt and cash. Goodwill increased to $1.631 billion from $390.2 million at year-end, predominantly reflecting Apria. The purchase price allocation remained preliminary.
Liquidity, debt, risks and outlook
- The company reported covenant compliance at September 30, 2022. Its revolving facility had $422 million available and no borrowings; letters of credit outstanding were $27.9 million. The receivables financing facility had a $450 million limit.
- Management said available financing sources and operating cash flow were expected to support working capital, capital expenditures, strategic growth and debt and lease payments. No numerical earnings or revenue guidance was provided in the supplied filing text.
- Interest-rate exposure is meaningful: management estimated a 100-basis-point rate increase could reduce annual future pre-tax earnings by approximately $8.5 million, after considering an interest-rate swap.
- Key risks include the Philips Respironics Class I device recall affecting Apria’s home respiratory products and supply availability; inflation and freight costs; reduced hospital demand; acquisition integration and leverage; reimbursement and customer concentration risks; and foreign-exchange exposure.
- The IRS disputes transfer-pricing treatment for tax years 2015–2018. The company said it believes reserves are adequate and does not expect a material impact, but noted that an adverse outcome could materially affect results, cash flows or financial position.
- The filing reported no material developments in previously disclosed legal proceedings and no material changes to previously reported risk factors. Disclosure controls were assessed as effective; Apria’s internal controls were excluded from the evaluation during the permitted post-acquisition period.
Most important facts for investors to verify
- Confirm the intended issuer: the filing supplied is for Owens & Minor, Inc., not Accendra Health Inc.
- Assess whether Patient Direct growth and profitability can be sustained after the Apria acquisition, and distinguish acquired revenue from organic performance.
- Review debt maturities, variable-rate exposure, covenant headroom and the company’s ability to reduce acquisition-related leverage.
- Track Products & Healthcare Services demand, margins, inflation and supply-chain pressures, as well as the financial effects of the Philips recall.
- Monitor the preliminary Apria purchase-price allocation and the IRS transfer-pricing dispute for changes to earnings, taxes or cash flows.