What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-02 compared with 2022-08-03 · 93 added, 91 removed, 219 unchanged (46% of the section changed)

6 unchanged sentences

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:

Our business has two distinct segments:

Products & Healthcare Services and Patient Direct.

1 unchanged sentence

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.

Beginning with the quarter ended March 31, 2022, we have reported financial results using this two segment structure and have recast our prior period 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.

(Apria) pursuant to the Agreement and Plan of Merger (Apria Acquisition) dated January 7, 2022, in exchange for approximately $1.7 billion, net of $144 million of cash acquired.

The purchase was funded with a combination of debt and cash on hand.

2 unchanged sentences

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.

Net income per diluted share was $0.16 and $1.05 for the three and nine months ended September 30, 2022 as compared to $0.58 and $2.38 for the three and nine months ended September 30, 2021.

Products & Healthcare Services segment operating income was $23.8 million and $174 million for the three and nine months ended September 30, 2022, compared to $64.4 million and $316 million for the three and nine months ended September 30, 2021.

The decreases were primarily the result of overall reduced hospital demand, including reliance on stockpiles built up during the COVID-19 pandemic, the reduction of glove cost pass through, and headwinds created by macroeconomic conditions, including inflationary pressures, supply chain issues, and rising interest rates, partially offset by operating efficiencies and productivity gains derived from the Owens & Minor business system and changes in accrued incentive compensation.

Patient Direct segment operating income was $59.7 million and $127.8 million for the three and nine months ended September 30, 2022, compared to $14.9 million and $41.4 million for the three and nine months ended September 30, 2021.

Net income per diluted share was unfavorably impacted as compared to the prior year by foreign currency translation in the amount of $0.04 and $0.13 for the three and nine months ended September 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 continue to closely monitor 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.

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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.

Essential activity exceptions from these restrictions have allowed us to continue to operate, but virus containment efforts have created supply chain challenges resulting in additional direct costs.

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.

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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.

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

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.

The Recall may 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.

While the equipment shortage in the industry has begun to ease, we do not know whether that will continue.

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

Three Months Ended

June 30, Change

September 30, Change

(Dollars in thousands) 2022 2021 $ %

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Net revenue $ 2,497,401 $ 2,502,175 $ (4,774) (0.2) %

Six Months Ended

June 30, Change

Nine Months Ended

September 30, Change

(Dollars in thousands) 2022 2021 $ %

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Net revenue $ 7,404,368 $ 7,318,169 $ 86,199 1.2 %

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.

The increase in net revenue in our Patient Direct segment for the three and nine months ended September 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 nine months ended September 30, 2022 reflected overall reduced hospital demand, including reliance on stockpiles and the reduction of glove cost pass through.

Foreign currency translation had an unfavorable impact on net revenue of $12.0 million and $33.2 million for the three and nine months ended September 30, 2022 as compared to the prior year.

Cost of goods sold.

Three Months Ended

June 30, Change

September 30, Change

(Dollars in thousands) 2022 2021 $ %

Cost of goods sold $ 1,984,122 $ 2,173,336 $ (189,214) (8.7) %

Six Months Ended

June 30, Change

Nine Months Ended

September 30, Change

(Dollars in thousands) 2022 2021 $ %

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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.

Cost of goods sold compared to prior year reflects the inclusion of Apria since the Acquisition Date, changes in sales activity, including product mix, inflationary pressures, and supply chain issues.

Gross margin.

Three Months Ended

June 30, Change

September 30, Change

(Dollars in thousands) 2022 2021 $ %

1 unchanged sentence

As a % of net revenue 20.55 % 13.14 %

Six Months Ended

June 30, Change

Nine Months Ended

September 30, Change

(Dollars in thousands) 2022 2021 $ %

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As a % of net revenue 19.17 % 16.01 %

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.

Gross margin increase in the three and nine months ended September 30, 2022 was driven by inclusion of Apria in the Patient Direct segment since the Acquisition Date and sales mix, partially offset by overall reduced hospital demand, including reliance on stockpiles, the reduction of glove cost pass through, inflationary pressures, and supply chain issues.

Foreign currency translation had an unfavorable impact on gross margin of $6.4 million and $17.3 million for the three and nine months ended September 30, 2022 as compared to the prior year.

Operating expenses.

Three Months Ended

June 30, Change

September 30, Change

(Dollars in thousands) 2022 2021 $ %

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Acquisition-related and exit and realignment charges $ 8,898 $ 6,380 $ 2,518 39.5 %

Other operating (income) expense, net $ (2,995) $ 464 $ (3,459) (745.5) %

Six Months Ended

June 30, Change

Other operating income, net $ (1,125) $ (2,873) $ 1,748 60.8 %

Nine Months Ended

September 30, Change

(Dollars in thousands) 2022 2021 $ %

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Acquisition-related and exit and realignment charges $ 50,048 $ 20,967 $ 29,081 138.7 %

Other operating (income) expense, net $ (3,894) $ (2,141) $ (1,753) (81.9) %

Other operating income, net $ (5,020) $ (5,016) $ (4) (0.1) %

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.

Overall DS&A expenses were affected by inclusion of Apria in our results since the Acquisition Date, and inflationary pressures for the three and nine months ended September 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 $1.8 million and $4.2 million for the three and nine months ended September 30, 2022.

Acquisition-related charges were $6.9 million and $45.2 million for the three and nine months ended September 30, 2022 as compared to no acquisition-related charges for the three and nine months ended September 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.

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.

Exit and realignment charges were $2.0 million and $4.9 million for the three and nine months ended September 30, 2022, which consisted primarily of wind-down costs related to Fusion5 and severance and other charges associated with the reorganization of our segments.

Exit and realignment charges were $6.4 million and $21.0 million for the three and nine months ended September 30, 2021 and consisted primarily of wind-down costs related to Fusion5, leadership reorganization costs, IT restructuring charges, and other costs related to the reorganization of the U.S.

Other operating income, net for the three and nine months ended September 30, 2022 and 2021 includes the impact of foreign currency transaction gains.

Interest expense, net .

Three Months Ended

June 30, Change

September 30, Change

(Dollars in thousands) 2022 2021 $ %

1 unchanged sentence

Effective interest rate 5.96 % 4.17 %

Six Months Ended

June 30, Change

Nine Months Ended

September 30, Change

(Dollars in thousands) 2022 2021 $ %

1 unchanged sentence

Effective interest rate 5.47 % 4.72 %

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.

Interest expense, net and the effective interest rate fo r the three and nine months ended September 30, 2022 increased primarily due to the increase in debt associated with the Apria Acquisition on March 29, 2022, along with rising market interest rates.

See Note 6 in Notes to Consolidated Financial Statements.

Loss on extinguishment of debt.

Six Months Ended

June 30, Change

Nine Months Ended

September 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.

Loss on extinguishment of debt for the nine months ended September 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.

1 unchanged sentence

Three Months Ended

June 30, Change

September 30, Change

(Dollars in thousands) 2022 2021 $ %

Other expense, net $ 783 $ 799 $ (16) (2.0) %

Six Months Ended

June 30, Change

Nine Months Ended

September 30, Change

(Dollars in thousands) 2022 2021 $ %

Other expense, net $ 2,347 $ 2,397 $ (50) (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.

Other expense, net for the three and nine months ended September 30, 2022 and 2021 represents interest cost and net actuarial losses related to our retirement plans.

Income taxes.

Three Months Ended

June 30, Change

September 30, Change

(Dollars in thousands) 2022 2021 $ %

1 unchanged sentence

Effective tax rate 36.2 % 12.6 %

Six Months Ended

June 30, Change

Nine Months Ended

September 30, Change

(Dollars in thousands) 2022 2021 $ %

1 unchanged sentence

Effective tax rate 24.4 % 20.8 %

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.

The change in the effective tax rate for the three and nine months ended September 30, 2022 compared to the same periods in 2021 resulted primarily from the mixture of income and losses in jurisdictions in which we operate, as well as the as the utilization of foreign tax benefits in the three and nine months ended September 30, 2021.

Financial Condition, Liquidity and Capital Resources

1 unchanged sentence

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.

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 Agreement (as defined below) or Receivables Financing Agreement (as defined below), 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 North America, 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.

2022 December 31, 2021 Change

September 30, 2022 December 31, 2021 Change

(Dollars in thousands) $ %

5 unchanged sentences

Accounts payable $ 1,156,230 $ 1,001,959 $ 154,271 15.4 %

(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.

(1) Based on period end accounts receivable and net revenue for the quarters ended September 30, 2022 and December 31, 2021.

(2) Based on period end merchandise inventories and cost of goods sold for the quarters ended September 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:

The following table summarizes our consolidated statements of cash flows for the nine months ended September 30, 2022 and 2021:

(Dollars in thousands) 2022 2021

5 unchanged sentences

Net increase (decrease) in cash, cash equivalents and restricted cash $ 21,173 $ (78,424)

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.

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.

Cash provided by operating activities in the first nine months of 2022 and 2021 reflected cash generated by net income along with changes in working capital.

Cash used for investing activities in the first nine months of 2022 included cash paid for the acquisition of Apria of $1.7 billion and capital expenditures of $115 million for patient equipment and our strategic and operational efficiency initiatives associated with property and equipment and capitalized software, partially offset by $29.7 million in proceeds related to the sale of property and equipment.

Cash used for investing activities in the first nine months of 2021 included capital expenditures of $32.6 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 nine months of 2022 included proceeds from borrowings of $1.7 billion related to the 6.625% senior notes due in 2030 (the 2030 Unsecured Notes), Term Loan A (as defined below), and Term Loan B (as defined below) for the first nine months of 2022, compared to $575 million related to the 4.500% senior unsecured notes due in 2029 (the 2029 Unsecured Notes) and the accounts receivable securitization program for the first nine months of 2021.

Borrowings under our revolving credit facility, net and accounts receivable securitization program of $30.0 million compared to net repayments of $90.9 million for the same period of 2021.

Repayments of debt in the first nine months of 2022 included $3.0 million on our Term Loan B compared to 2021 included repayments of $553 million on our previous Term Loan A-2, previous Term Loan B, 3.875% Senior Notes due 2021 and 2024 Notes, and accounts receivable securitization program .

Gross issuances and repayments under our amended accounts receivable securitization program were $697.7 million and $770.7 million for the first nine months of 2022.

We also paid $42.6 million in financing costs in the first nine months of 2022 , as compared to $13.9 million for the same period of 2021.

We paid $15.4 million to terminate the remaining $300 million in notional value of interest rate swaps during the first nine months of 2021.

Payments for taxes related to the vesting of restricted stock awards were $44.6 million and $19.3 million for the first nine months of 2022 and 2021, which are included in Other, net.

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.

Our sources of liquidity include cash and cash equivalents, our Revolving Credit Agreement, and our Receivables Financing Agreement.

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 interest rate on our Revolving Credit Agreement is based on a spread over a benchmark rate (as described in the Revolving Credit Agreement).

The Revolving Credit Agreement matures in March 2026.

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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 September 30, 2022, we had no borrowings and letters of credit of $27.9 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.

At September 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 Agreement for $2.3 million and $2.2 million as of September 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.

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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.

We were in compliance with our debt covenants at September 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

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 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 working capital purposes.

As of September 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.

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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.

Our cash and cash equivalents held by our foreign subsidiaries subject to repatriation totaled $25.2 million and $26.9 million at September 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.

We have no specific plans to indefinitely reinvest the unremitted earnings of our foreign subsidiary located in Thailand as of September 30, 2022.

As such, we have recorded withholding tax liabilities that would be incurred upon future distribution to the U.S.

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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.

We can only pass elevated costs onto customers in an effort to offset inflationary pressures on a limited basis.

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.

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Summarized financial information of the Guarantor Group is as follows:

Summarized Consolidated Statement of Operations - Guarantor Group Six Months Ended June 30, 2022

Summarized Consolidated Statement of Operations - Guarantor Group Nine Months Ended September 30, 2022

(Dollars in thousands)

3 unchanged sentences

Net income 67,007

(1) Includes $140 million in sales to non-guarantor subsidiaries for the six months ended June 30, 2022.

Summarized Consolidated Balance Sheets - Guarantor Group June 30, 2022 December 31, 2021

(1) Includes $200 million in sales to non-guarantor subsidiaries for the nine months ended September 30, 2022.

Summarized Consolidated Balance Sheets - Guarantor Group September 30, 2022 December 31, 2021

(Dollars in thousands)

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Summarized financial information of the Collateral Group is as follows:

Summarized Consolidated Balance Sheets - Collateral Group June 30, 2022 December 31, 2021

Summarized Consolidated Balance Sheets - Collateral Group September 30, 2022 December 31, 2021

(Dollars in thousands)

5 unchanged sentences

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

27 unchanged sentences

• 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;

• our financial flexibility may be limited by the restrictive covenants in our credit facilities and existing notes;

• 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;

1 unchanged sentence

• 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;

• the risk that a decline in business volume or profitability could result in an impairment of goodwill or other long-lived assets, which would require us to record a significant charge to earnings in accordance with generally accepted accounting principles;

• 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;

4 unchanged sentences

• the costs associated with and outcome of outstanding and any future litigation, including product and professional liability claims;

• the market price for our common stock may be highly volatile;

• adverse changes in U.S.

3 unchanged sentences

• 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.

Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021 our Form 10-Q for the three months ended March 31, 2022, and our Form 10-Q for the three and six months ended June 30, 2022

We undertake no obligation to update or revise any forward-looking statements, except as required by applicable law.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis