ACCENDRA HEALTH INC/VA/ 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis describes results of operations and material changes in the financial condition of Owens & Minor, Inc. and its subsidiaries since December 31, 2021. Trends of a material nature are discussed to the extent known and considered relevant. This discussion should be read in conjunction with the consolidated financial statements, 22 Table of Contents related notes thereto, and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2021. Overview Owens & Minor, Inc., along with its subsidiaries, (we, us, or our) is a leading global healthcare solutions company. To better reflect how we go to market as well as certain changes to the leadership team, organizational structure, budgeting and financial reporting processes, we have organized our business into two distinct segments: Products & Healthcare Services and Patient Direct. Products & Healthcare Services provides distribution, outsourced logistics and value-added services, and manufactures and sources medical surgical products through our production and kitting operations. Patient Direct expands our business along the continuum of care through delivery of disposable medical supplies sold directly to patients and home health agencies and is a leading provider of integrated home healthcare equipment and related services in the United States. Beginning with the quarter ended March 31, 2022, we now report financial results using this two segment structure and have recast prior year segment results on the same basis. On March 29, 2022 (the Acquisition Date), we completed the acquisition of 100% of Apria, Inc. (Apria) pursuant to the Agreement and Plan of Merger (Apria Acquisition) dated January 7, 2022, in exchange for approximately $1.7 billion. The purchase was funded with a combination of debt and cash on hand. At the time of the Apria Acquisition, each share of Apria’s common stock was converted into the right to receive $37.50 in cash. Apria is a leading provider of integrated home healthcare equipment and related services in the United States. This business is reported as part of the Patient Direct segment. Net income per diluted share was $0.37 and $0.89 for the three and six months ended June 30, 2022 as compared to $0.87 and $1.80 for the three and six months ended June 30, 2021. Products & Healthcare Services segment operating income was $61.2 million and $150 million for the three and six months ended June 30, 2022, compared to $101 million and $252 million for the three and six months ended June 30, 2021. The decreases were primarily the result of lower hospital demand, the reduction of glove cost pass through, and headwinds created by macroeconomic conditions, including accelerating inflationary pressures, supply chain issues, and rising interest rates, partially offset by operating efficiencies and productivity gains derived from the Owens & Minor business system. Patient Direct segment operating income was $52.3 million and $68.1 million for the three and six months ended June 30, 2022, compared to $14.3 million and $26.6 million for the three and six months ended June 30, 2021. The increase was primarily the result of the inclusion of Apria in the Patient Direct segment since the Acquisition Date, strong revenue growth in our Byram business, leveraging our fixed costs, and operating efficiencies, partially offset by accelerating inflationary pressures. Net income per diluted share was unfavorably impacted as compared to the prior year by foreign currency translation in the amount of $0.05 and $0.08 for the three and six months ended June 30, 2022. COVID-19 Update We are closely monitoring the impact of the 2019 novel coronavirus (COVID-19), including its variants and sub-variants, on all aspects of our business, including our customers, teammates, suppliers, vendors and distribution channels. We have taken actions to protect our teammates while maintaining business continuity as we respond to the needs from this global pandemic. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our teammates, customers, suppliers and shareholders. We are unable to predict the timing of the pandemic and the full impact that COVID-19 will have on our future operating results, financial position and cash flows due to numerous variables and continued uncertainties. Transportation and business operation restrictions arising from virus containment efforts of governments around the world have continued to impact our operations in certain locations, including within Asia. Essential activity exceptions from these restrictions have allowed us to continue to operate but virus containment efforts have resulted in additional direct costs from supply chain challenges. Although we have experienced growth in sales volumes for certain of our products (such as personal protective equipment (PPE)) during the COVID-19 pandemic, as well as improved productivity and manufacturing output, there can be no assurance that such growth rates, increased sales volumes or other improvements will be maintained during or following the COVID-19 pandemic. Philips Respironics Recall In June 2021, one of Apria's suppliers, Philips Respironics, announced a voluntary recall (Recall) for continuous and non-continuous ventilators (certain continuous positive airway pressure (CPAP), BiLevel positive airway pressure and ventilator devices) related to polyurethane foam used in those devices. The Food and Drug Administration (FDA) has since identified this as a Class I recall, the most serious category of recall. Because we distribute these products and provide related home respiratory services and, in part, due to the substantial number of impacted devices, we will likely devote substantial time and resources to coordinating recall-related activity and to supporting our home healthcare patients’ needs. This Recall may cause us to incur significant costs, some or all of which may not be recoverable from the product manufacturer. The Recall may 23 Table of Contents also materially negatively affect our revenues and results of operations as a result of patients not using their impacted devices, current shortages in the availability of both replacement devices for impacted patients and new devices for new patients, patient hesitancy to use respiratory devices generally or other reasons. We are closely monitoring the impact of the Recall on our business and the uncertainty surrounding the availability and supply of CPAP and ventilators due to the Recall. There is an equipment shortage in the industry and the Recall or other supply chain disruptions may have a future material adverse effect on our financial condition or results of operations, cash flows and liquidity. Results of Operations Net revenue. Three Months Ended June 30, Change (Dollars in thousands) 2022 2021 $ % Products & Healthcare Services $ 1,927,388 $ 2,255,820 $ (328,432) (14.6) % Patient Direct 572,627 233,640 338,987 145.1 % Net revenue $ 2,500,015 $ 2,489,460 $ 10,555 0.4 % Six Months Ended June 30, Change (Dollars in thousands) 2022 2021 $ % Products & Healthcare Services $ 4,061,429 $ 4,365,265 $ (303,836) (7.0) % Patient Direct 845,538 450,729 394,809 87.6 % Net revenue $ 4,906,967 $ 4,815,994 $ 90,973 1.9 % The increase in net revenue in our Patient Direct segment for the three and six months ended June 30, 2022 was driven by the acquisition of Apria on March 29, 2022 and continued strong performance in our Byram business. The decrease in net revenue in our Products & Healthcare Services segment for the three and six months ended June 30, 2022 reflected lower hospital demand and the reduction of glove cost pass through. Foreign currency translation had an unfavorable impact on net revenue of $12.6 million and $21.1 million for the three and six months ended June 30, 2022 as compared to the prior year. Cost of goods sold. Three Months Ended June 30, Change (Dollars in thousands) 2022 2021 $ % Cost of goods sold $ 1,967,510 $ 2,089,392 $ (121,882) (5.8) % Six Months Ended June 30, Change (Dollars in thousands) 2022 2021 $ % Cost of goods sold $ 4,001,014 $ 3,973,175 $ 27,839 0.7 % Cost of goods sold includes the cost of the product (net of supplier incentives and cash discounts) and all costs incurred for shipments of products from manufacturers to our distribution centers for all customer arrangements where we are the primary obligor and bear risk of general and physical inventory loss. These are sometimes referred to as distribution contracts. Cost of goods sold also includes direct and certain indirect labor, depreciation of certain property and equipment, product costs, and material and overhead costs. Cost of goods sold compared to prior year reflects the inclusion of Apria since the Acquisition Date, changes in sales activity, including product mix, accelerating inflationary pressures, and supply chain issues. Gross margin. 24 Table of Contents Three Months Ended June 30, Change (Dollars in thousands) 2022 2021 $ % Gross margin $ 532,505 $ 400,068 $ 132,437 33.1 % As a % of net revenue 21.30 % 16.07 % Six Months Ended June 30, Change (Dollars in thousands) 2022 2021 $ % Gross margin $ 905,953 $ 842,819 $ 63,134 7.5 % As a % of net revenue 18.46 % 17.50 % Gross margin increase in the three and six months ended June 30, 2022 was driven by inclusion of Apria in the Patient Direct segment since the Acquisition Date and sales mix, partially offset by lower hospital demand, the reduction of glove cost pass through, accelerating inflationary pressures, and supply chain issues. Foreign currency translation had an unfavorable impact on gross margin of $6.9 million and $10.8 million for the three and six months ended June 30, 2022 as compared to the prior year. Operating expenses. Three Months Ended June 30, Change (Dollars in thousands) 2022 2021 $ % Distribution, selling and administrative expenses $ 452,813 $ 294,096 $ 158,717 54.0 % As a % of net revenue 18.11 % 11.81 % Acquisition-related and exit and realignment charges $ 7,602 $ 8,624 $ (1,022) (11.9) % Other operating (income) expense, net $ (2,995) $ 464 $ (3,459) (745.5) % Six Months Ended June 30, Change (Dollars in thousands) 2022 2021 $ % Distribution, selling and administrative expenses $ 732,553 $ 586,796 $ 145,757 24.8 % As a % of net revenue 14.93 % 12.18 % Acquisition-related and exit and realignment charges $ 41,150 $ 14,587 $ 26,563 182.1 % Other operating (income) expense, net $ (3,894) $ (2,141) $ (1,753) (81.9) % Distribution, selling and administrative (DS&A) expenses include labor and warehousing costs associated with our distribution and outsourced logistics services and all costs associated with our fee-for-service arrangements in our Products & Healthcare Services segment. Shipping and handling costs are primarily included in DS&A expenses and include costs to store, move, and prepare products for shipment, as well as costs to deliver products to customers. Overall DS&A expenses were affected by inclusion of Apria in our results since the Acquisition Date, and accelerating inflationary pressures for the three and six months ended June 30, 2022, partially offset by operating efficiencies and productivity gains derived from the Owens & Minor business system, and changes in accrued incentive compensation. DS&A expenses also included a favorable impact for foreign currency translation of $1.5 million and $2.4 million for the three and six months ended June 30, 2022. Acquisition-related charges were $6.4 million and $38.3 million for the three and six months ended June 30, 2022 as compared to no acquisition-related charges for the three and six months ended June 30, 2021. Acquisition-related charges in 2022 consisted primarily of costs related to the Apria acquisition. Exit and realignment charges were $1.2 million and $2.9 million for the three and six months ended June 30, 2022, which consisted primarily of severance and other charges associated with the reorganization of our segments. Exit and realignment charges were $8.6 million and $14.6 million for the three and six months ended June 30, 2021 and consisted primarily of an increase in reserves associated with certain retained assets of Fusion5, IT restructuring charges and other costs related to the reorganization of the U.S. operations. 25 Table of Contents The change in other operating (income) expense, net for the three and six months ended June 30, 2022 includes the impact of foreign currency transaction gains, as compared to foreign currency transaction losses for the three months ended June 30, 2021 and foreign currency gains for the six months ended June 30, 2021. Interest expense, net . Three Months Ended June 30, Change (Dollars in thousands) 2022 2021 $ % Interest expense, net $ 35,839 $ 11,540 $ 24,299 210.6 % Effective interest rate 5.26 % 4.30 % Six Months Ended June 30, Change (Dollars in thousands) 2022 2021 $ % Interest expense, net $ 47,858 $ 25,212 $ 22,646 89.8 % Effective interest rate 5.12 % 4.94 % Interest expense, net and the effective interest rate fo r the three and six months ended June 30, 2022 increased primarily due to the increase in debt associated with the Apria Acquisition on March 29, 2022. See Note 6 in Notes to Consolidated Financial Statements. Loss on extinguishment of debt. Six Months Ended June 30, Change (Dollars in thousands) 2022 2021 $ % Loss on extinguishment of debt $ — $ 40,433 $ (40,433) (100.0) % Loss on extinguishment of debt for the six months ended June 30, 2021 includes the write-off of deferred financing costs and third party fees associated with the debt financing in March 2021 of $15. 3 million and amounts reclassified from accumulated other comprehensive loss as a result of the termination of our interest rate swaps of $25.1 million. Other expense, net . Three Months Ended June 30, Change (Dollars in thousands) 2022 2021 $ % Other expense, net $ 783 $ 1,028 $ (245) (23.8) % Six Months Ended June 30, Change (Dollars in thousands) 2022 2021 $ % Other expense, net $ 1,565 $ 1,598 $ (33) (2.1) % Other expense, net for the three and six months ended June 30, 2022 and 2021 represents interest cost and net actuarial losses related to our retirement plans. Income taxes. 26 Table of Contents Three Months Ended June 30, Change (Dollars in thousands) 2022 2021 $ % Income tax provision $ 9,859 $ 18,420 $ (8,561) (46.5) % Effective tax rate 25.6 % 21.8 % Six Months Ended June 30, Change (Dollars in thousands) 2022 2021 $ % Income tax provision $ 18,837 $ 40,848 $ (22,011) (53.9) % Effective tax rate 21.7 % 23.2 % The change in the effective tax rate for the three and six months ended June 30, 2022 compared to the same periods in 2021 resulted primarily from the mixture of income and losses in jurisdictions in which we operate offset by the incremental income tax benefit associated with the vesting of restricted stock recorded in the six months ended June 30, 2022. Financial Condition, Liquidity and Capital Resources Financial condition . We monitor operating working capital through days sales outstanding (DSO) and merchandise inventory days. We estimate a hypothetical increase (decrease) in DSO of one day would result in a decrease (increase) in our cash balances, an increase (decrease) in borrowings against our revolving credit facility or receivables securitization program, or a combination thereof of approximately $27 million. The majority of our cash and cash equivalents are held in cash depository accounts with major banks in the United States, Europe, and Asia. Changes in our working capital can vary in the normal course of business based upon the timing of inventory purchases, collections of accounts receivable, and payments to suppliers. June 30, 2022 December 31, 2021 Change (Dollars in thousands) $ % Cash and cash equivalents $ 56,406 $ 55,712 $ 694 1.2 % Accounts receivable, net of allowances $ 743,853 $ 681,564 $ 62,289 9.1 % Consolidated DSO (1) 26.0 24.6 Merchandise inventories $ 1,525,331 $ 1,495,972 $ 29,359 2.0 % Inventory days (2) 70.5 64.7 Accounts payable $ 1,137,337 $ 1,001,959 $ 135,378 13.5 % (1) Based on period end accounts receivable and net revenue for the quarters ended June 30, 2022 and December 31, 2021. (2) Based on period end merchandise inventories and cost of goods sold for the quarters ended June 30, 2022 and December 31, 2021. Liquidity and capital expenditures. The following table summarizes our consolidated statements of cash flows for the six months ended June 30, 2022 and 2021: (Dollars in thousands) 2022 2021 Net cash provided by (used for): Operating activities $ 169,524 $ 12,406 Investing activities (1,745,299) (18,659) Financing activities 1,580,633 (64,788) Effect of exchange rate changes (3,864) (1,718) Net increase (decrease) in cash, cash equivalents and restricted cash $ 994 $ (72,759) Cash provided by operating activities in the first six months of 2022 and 2021 reflected cash generated by net income along with changes in working capital. 27 Table of Contents Cash used for investing activities in the first six months of 2022 included cash paid for the acquisition of Apria of $1.7 billion and capital expenditures of $65.7 million for patient equipment and our strategic and operational efficiency initiatives associated with property and equipment and capitalized software. Cash used for investing activities in the first six months of 2021 included capital expenditures of $18.7 million for our strategic and operational efficiency initiatives associated with property and equipment, investments for increased manufacturing capacity in the Americas, and capitalized software. C ash used for financing activities in the first six months of 2022 included borrowings under our revolving credit facility, net and accounts receivable securitization program of $30.0 million compared to net repayments of $5.0 million for the same period of 2021. Gross issuances and repayments under our amended accounts receivable securitization program were $347.8 million and $402.8 million for the first six months of 2022. We also had proceeds from borrowings of $1.7 billion related to the 2030 Unsecured Notes, Term Loan A, and Term Loan B for the first six months of 2022, compared to $500 million related to the 2029 Unsecured Notes for the first six months of 2021. We also paid $41.5 million in financing costs in the first six months of 2022 , as compared to $12.9 million for the same period of 2021. Payments for taxes related to the vesting of restricted stock awards were $44.4 million and $19.1 million for the first six months of 2022 and 2021, which are included in Other, net. Financing activities in the first six months of 2021 included repayments of $523 million on our previous Term Loan A-2 and previous Term Loan B. In addition, we paid $15.4 million to terminate the remaining $300 million in notional value of interest rate swaps during the first six months of 2021. Capital resources. Our sources of liquidity include cash and cash equivalents, a revolving credit facility with an administrative and collateral agent and a syndicate of financial institutions, as lenders (the Revolving Credit Agreement), and a receivables securitization program. The Revolving Credit Agreement provides a revolving borrowing capacity of $450 million. We have $1.1 billion in outstanding term loans under a term loan credit agreement (the Credit Agreement). The interest rate on our revolving credit facility is based on a spread over a benchmark rate (as described in the Revolving Credit Agreement). The Revolving Credit Agreement matures in March 2026. The interest rate on the Term Loan A facility (Term Loan A) is based on either the Term SOFR or the Base Rate plus an Applicable Rate which varies depending on the current Debt Ratings or Total Leverage Ratio, determined as to whichever shall result in more favorable pricing to the Borrowers (each as defined in the Credit Agreement). The interest rate on the Term Loan B facility (Term Loan B) is based on either the Term SOFR or the Base Rate plus an Applicable Rate. The Term Loan A will mature in March 2027 and the Term Loan B will mature in March 2029. At June 30, 2022, we had no borrowings and letters of credit of $28.0 million outstanding under our Revolving Credit Agreement. At December 31, 2021, we had no borrowings and letters of credit of $9.4 million outstanding under our Revolving Credit Agreement. At June 30, 2022 and December 31, 2021, we had $422 million and $291 million, available for borrowing under our Revolving Credit Agreement. We also had letters of credit and bank guarantees, which were issued outside of the Revolving Credit Facility for $2.1 million and $2.2 million as of June 30, 2022 and December 31, 2021, which supports certain leased facilities as well as other normal business activities in the United States and Europe. On March 29, 2022, we entered into a Security Agreement Supplement pursuant to which the Security and Pledge Agreement (the Security Agreement), dated March 10, 2021 was supplemented to grant collateral on behalf of the holders of the 2024 Notes, and the parties secured under the credit agreements (the Secured Parties) including first priority liens and security interests in (a) all present and future shares of capital stock owned by the Grantors (as defined in the Security Agreement) in the Grantors’ present and future subsidiaries, subject to certain customary exceptions, and (b) all present and future personal property and assets of the Grantors, subject to certain exceptions. On March 29, 2022, we entered into an amendment to our accounts receivable securitization program (the Receivables Financing Agreement). Pursuant to the amended Receivables Financing Agreement, the aggregate principal amount of the loans made by the Lenders (as defined) will not exceed $450 million outstanding at any time. The interest rate under the Receivables Financing Agreement is based on a spread over a benchmark SOFR rate (as described in the Fourth Amendment to the Receivables Financing Agreement). Under the Receivables Financing Agreement, certain of our subsidiaries sell substantially all of their accounts receivable balances to our wholly owned special purpose entity, O&M Funding LLC. The Receivables Financing Agreement matures in March 2025. The Revolving Credit Agreement, Term Loan A, Term Loan B, Receivables Financing Agreement, 2024 Notes, 2029 Unsecured Notes, and 2030 Unsecured Notes contain cross-default provisions which could result in the acceleration of payments due in the event of default of any of the related agreements. The terms of the credit agreements also require us to maintain ratios for leverage and interest coverage, including on a pro forma basis in the event of an acquisition or divestiture. We were in compliance with our debt covenants at June 30, 2022. In May 2020, we entered into an equity distribution agreement, pursuant to which we may offer and sell, from time to time, shares of our common stock having an aggregate offering price of up to $50.0 million. We intend to use the net proceeds from the sale of our securities offered by this program for the repayment of indebtedness and/or for general corporate and 28 Table of Contents working capital purposes. As of June 30, 2022 no shares were issued and $50.0 million of common stock remained available under the at-the-market equity financing program. We regularly evaluate market conditions, our liquidity profile and various financing alternatives to enhance our capital structure. From time to time, we may enter into transactions to repay, repurchase or redeem our outstanding indebtedness (including by means of open market purchases, privately negotiated repurchases, tender or exchange offers and/or repayments or redemptions pursuant to the debt’s terms). Our ability to consummate any such transaction will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. We cannot provide any assurance as to if or when we will consummate any such transactions or the terms of any such transaction. We believe available financing sources, including cash generated by operating activities and borrowings under the Revolving Credit Agreement and Receivables Financing Agreement, will be sufficient to fund our working capital needs, capital expenditures, long-term strategic growth, payments under long-term debt and lease arrangements, debt repurchases and other cash requirements. While we believe that we will have the ability to meet our financing needs in the foreseeable future, changes in economic conditions may impact (i) the ability of financial institutions to meet their contractual commitments to us, (ii) the ability of our customers and suppliers to meet their obligations to us or (iii) our cost of borrowing. We earn a portion of our operating income in foreign jurisdictions outside the United States. Our cash and cash equivalents held by our foreign subsidiaries totaled $23.0 million and $26.9 million at June 30, 2022 and December 31, 2021. We continue to remain permanently reinvested in our foreign subsidiaries, with the exception of a subsidiary in Thailand. We have no specific plans to indefinitely reinvest the unremitted earnings of our foreign subsidiary located in Thailand as of June 30, 2022. As such, we have recorded withholding tax liabilities that would be incurred upon future distribution to the U.S. There are no unrecognized deferred taxes as there is no outside basis difference unrelated to unremitted earnings for Thailand. We will continue to evaluate our foreign earnings repatriation policy in 2022 for all our foreign subsidiaries. Impact of Inflation The cost to manufacture and distribute our products is influenced by the cost of raw materials, finished goods, labor, and transportation. We have recently experienced inflationary pressure and higher costs as a result of the increasing cost of raw materials, finished goods, labor, transportation, and other administrative costs associated with the normal course of business. The increase in cost of raw materials and finished goods are due in part to a shortage in the availability of certain products, the higher cost of shipping, and inflation. Additionally, it is not certain that we will be able to pass elevated costs onto customers in an effort to offset inflationary pressures. Future volatility of general price inflation and the impact of inflation on costs and availability of materials, costs for shipping and warehousing and other operational overhead could adversely affect our financial results. Guarantor and Collateral Group Summarized Financial Information We are providing the following information in compliance with Rule 13-01, “Financial Disclosures about Guarantors and Issuers of Guaranteed Securities” and Rule 13-02 of Regulation S-X, of with respect to our 2024 Notes. See Note 6 of the accompanying consolidated financial statements for additional information regarding the terms of the 2024 Notes. The following tables present summarized financial information for Owens & Minor, Inc. and the guarantors of Owens & Minor, Inc.’s 2024 Notes (together, "the Guarantor Group"), on a combined basis with intercompany balances and transactions between entities in the Guarantor Group eliminated. The guarantor subsidiaries are 100% owned by Owens & Minor, Inc. Separate financial statements of the guarantor subsidiaries are not presented because the guarantees by our guarantor subsidiaries are full and unconditional, as well as joint and several. Summarized financial information of the Guarantor Group is as follows: Summarized Consolidated Statement of Operations - Guarantor Group Six Months Ended June 30, 2022 (Dollars in thousands) Net revenue (1) $ 4,771,148 Gross margin 839,511 Operating income 100,937 Net income 48,825 (1) Includes $140 million in sales to non-guarantor subsidiaries for the six months ended June 30, 2022. 29 Table of Contents Summarized Consolidated Balance Sheets - Guarantor Group June 30, 2022 December 31, 2021 (Dollars in thousands) Total current assets $ 1,648,833 $ 1,449,917 Total assets 4,915,785 2,807,581 Current liabilities 1,643,705 1,399,499 Total liabilities 4,464,205 2,422,542 The following tables present summarized financial information for Owens & Minor, Inc. and the subsidiaries of Owens & Minor, Inc.’s 2024 Notes pledged that constitute a substantial portion of collateral (together, "the Collateral Group"), on a combined basis with intercompany balances and transactions between entities in the Collateral Group eliminated. The pledged subsidiaries are 100% owned by Owens & Minor, Inc. No trading market for the subsidiaries included in the Collateral Group exists. Summarized financial information of the Collateral Group is as follows: Summarized Consolidated Balance Sheets - Collateral Group June 30, 2022 December 31, 2021 (Dollars in thousands) Total current assets $ 1,718,358 $ 1,514,724 Total assets 4,839,246 2,729,455 Current liabilities 1,567,372 1,341,691 Total liabilities 4,423,123 2,398,694 The results of operations of the Collateral Group are not materially different from the corresponding amounts presented in our consolidated statements of operations. Recent Accounting Pronouncements For a discussion of recent accounting pronouncements, see our Annual Report on Form 10-K for the year ended December 31, 2021 and Note 15 in the Notes to Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for the period ended on June 30, 2022. Forward-looking Statements Certain statements in this discussion constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Although we believe our expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of our knowledge of our business and operations, all forward-looking statements involve risks and uncertainties and, as a result, actual results could differ materially from those projected, anticipated or implied by these statements. Such forward-looking statements involve known and unknown risks, including, but not limited to: • our ability to achieve revenue and operating income goals may be affected by: COVID-19 related factors, risks and challenges, including among others, the length of time that the pandemic continues, and any worsening of the pandemic, including through any new variant strains of the underlying virus, or future pandemics, related governmental responses, the effectiveness, availability, and public acceptance of vaccines, a decrease in revenue ultimately resulting in less cash flow, longer duration in receivables collection, the need to expedite payments to important suppliers may grow, shifts in demand away from certain products we manufacture and distribute, reduced workforces which may be caused by, but not limited to, the temporary inability of the workforce to work due to illness, quarantine, or government vaccine and other mandates, temporary production and distribution center and office closures due to reduced workforces or government vaccine and other mandates, availability of raw materials, potential labor negotiations or disputes, changes in the types and numbers of businesses that compete with us, including non-traditional competitors, and the aggressiveness of that competition, impacts of the pandemic or future pandemics on other third parties with whom we conduct business, the healthcare industry, and the broader business environment, and trends in elective surgeries and other healthcare spending not directly associated with COVID-19; • competitive pressures in the marketplace, including intense pricing pressure; • our ability to retain existing and attract new customers in a market characterized by consolidation among significant customers, health insurers and/or other industry participants, and intense cost-containment initiatives; 30 Table of Contents • our dependence on sales to certain customers or the loss or material reduction in purchases by key customers; • our dependence on distribution of product of certain suppliers; • our ability to successfully identify, manage or integrate acquisitions; • our ability to successfully manage our international operations, including risks associated with changes in international trade regulations, foreign currency volatility, changes in regulatory conditions, deteriorating economic conditions, adverse tax consequences, and other risks of operating in international markets; • the risk that problems may arise in successfully integrating the businesses of Apria and the Company, which may result in the combined company not operating as effectively and efficiently as expected and the risk that the combined company may be unable to achieve the anticipated synergies or cost savings, or it may take longer than expected to achieve those synergies; • the effect of our acquisition of Apria and any developments relating thereto on our relationships with customers, suppliers and other third parties, as well as our operating results and business; • uncertainties related to and our ability to adapt to changes in government regulations, including healthcare laws and regulations; • risks arising from possible violations of legal, regulatory or licensing requirements of the markets in which we operate; • uncertainties related to general economic, regulatory and business conditions; • our ability to successfully implement our strategic initiatives; • the availability of and modifications to existing supplier funding programs and our ability to meet the terms to qualify for certain of these programs; • the effect of price volatility in the commodities markets, including fuel price fluctuations, on our operating costs and supplier product prices; • our ability to adapt to changes in product pricing and other terms of purchase by suppliers of product; • the ability of customers and suppliers to meet financial commitments due to us; • changes in manufacturer preferences between direct sales and wholesale distribution; • changing trends in customer profiles and ordering patterns and our ability to meet customer demand for additional value-added services; • our ability to manage operating expenses and improve operational efficiencies in response to changing customer profiles; • our ability to meet performance targets specified by customer contracts under contractual commitments; • availability of and our ability to access special inventory buying opportunities; • the ability of business partners and financial institutions to perform their contractual responsibilities; • our ability to continue to obtain financing, obtain financing at reasonable rates and to manage financing costs and interest rate risk, and our ability to refinance, extend or repay our substantial indebtedness; • the risk that information systems are interrupted or damaged or fail for any extended period of time, that new information systems are not successfully implemented or integrated, or that there is a data security breach in our information systems; • we depend on reimbursements by payors, which could lead to delays and uncertainties in the reimbursement process; • the home healthcare industry is highly competitive and fragmented, with limited barriers to entry which may make it susceptible to vertical integration by manufacturers, payors, providers (such as hospital systems) or disruptive new entrants; • the risk that a decline in business volume or profitability could result in an impairment of goodwill or other long-lived assets; 31 Table of Contents • our ability to timely or adequately respond to technological advances in the medical supply and home healthcare industries and/or product and therapy innovations may make the services we currently provide obsolete or less competitive; • our failure to adequately insure against losses, including from substantial claims and litigation, could have an adverse impact on our operations, financial condition, or prospects; • recalls of any of our products, either voluntarily or at the direction of the Food and Drug Administration or another governmental authority, or safety risks or the discovery of serious safety issues with our products; • our capitation arrangements may prove unprofitable if actual utilization rates exceed our assumptions; • reductions in Medicare, Medicaid and commercial payor reimbursement rates could have a material adverse effect on our results of operations and financial condition; • the costs associated with and outcome of outstanding and any future litigation, including product and professional liability claims; • adverse changes in U.S. and foreign tax laws and the outcome of outstanding tax contingencies and legislative and tax proposals; • our ability to successfully implement the expense reduction and productivity and efficiency initiatives; • our ability to continue to comply with the terms and conditions of Apria’s Corporate Integrity Agreement; and • other factors detailed from time to time in the reports we file with the SEC, including those described in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021 and our Form 10-Q for the three months ended March 31, 2022. We undertake no obligation to update or revise any forward-looking statements, except as required by applicable law.