Filing summary
Entity and period: The supplied filing is Owens & Minor, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2017; it does not identify Accendra Health Inc. as the registrant.
Business context and results
Owens & Minor distributes medical products and provides logistics and related services. It reports Domestic, International, and Proprietary Products segments. The former Clinical & Procedural Solutions segment was renamed Proprietary Products effective January 1, 2017, with no change to its composition.
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Net revenue | $2,328.6 million | $2,455.8 million |
| Gross margin | $281.2 million; 12.08% | $296.6 million; 12.08% |
| Operating earnings | $35.5 million | $45.0 million |
| Net income | $18.8 million | $24.1 million |
| Diluted EPS | $0.31 | $0.39 |
| Operating cash flow | $(26.4) million | $45.1 million |
| Cash at quarter-end | $127.2 million | $190.3 million |
GAAP gross margin percentage was unchanged, but operating and net income declined. Adjusted EPS, a non-GAAP measure, was $0.41 versus $0.50. The filing reports a 34.7% effective tax rate, compared with 36.8%.
Financial position and cash flows
At March 31, 2017, total assets were $2.70 billion, total liabilities $1.73 billion, and equity $970.0 million. Long-term debt, excluding current portion, was $564.1 million. The company had $550 million principal amount of senior notes due in 2021 and 2024. Its $450 million revolving facility had no borrowings and approximately $445 million available after letters of credit; management reported covenant compliance.
Operating cash use was primarily attributed to routine working-capital timing, including vendor payments. Inventory rose $33.0 million from year-end, while cash declined $58.3 million. Investing cash use was $14.5 million, including $10.1 million in property and equipment and $4.6 million in software and intangible assets. Financing cash use was $18.5 million, including $15.7 million of dividends. The quarterly dividend was $0.2575 per share; no shares were repurchased.
Material changes, outlook, and risks
- Revenue fell 5.2%, primarily following the loss of a large Domestic customer in 2016. Domestic revenue fell 5.5%; International revenue rose 13.7%, partly offset by $8.4 million of unfavorable currency translation; Proprietary Products revenue declined 3.0%.
- Management said competitive pressures, customer cost containment, lower provider margin, manufacturer price changes, and the lost customer are expected to continue pressuring revenue and gross margin. International earnings were affected by new-business onboarding costs; Proprietary Products faced production capacity and workforce challenges.
- Exit and realignment charges were $7.6 million, including information-system asset write-downs and severance. Management said client engagement center establishment costs would continue during 2017. The company also recorded $0.9 million of SaaS implementation costs associated with its global information-system strategy.
- On May 2, 2017, the company agreed to acquire Byram Healthcare for $380 million in cash, subject to customary adjustments, closing conditions, regulatory approvals, and other requirements. Closing was expected in Q3 2017; the company intended to use available cash and revolving borrowings. The transaction was not conditioned on obtaining financing.
- Risks highlighted include intense pricing competition, customer or supplier concentration, customer retention, acquisition execution, foreign currency and fuel-price exposure, regulatory and tax changes, information-system disruption or security breaches, and access to financing. Management stated that available financing was expected to meet foreseeable needs; future dividends remain at the board’s discretion.
Important facts for investors to verify
- Confirm the intended registrant: the provided filing is for Owens & Minor, not Accendra Health Inc.
- Track the impact of the lost Domestic customer and ongoing margin pressure, including whether revenue and profitability stabilize.
- Monitor working-capital cash use, particularly inventory and supplier-payment timing, and the conversion of earnings to operating cash flow.
- Verify Byram acquisition closing, final purchase price and funding, required approvals, and integration outcomes.
- Review the company’s debt covenants, liquidity, and continued capacity to fund capital spending and dividends.