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, 2022. 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, 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, 2022. Overview Owens & Minor, Inc., along with its subsidiaries, (we, us, or our) is a global healthcare solutions company. Our business has 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. On March 29, 2022 (the Acquisition Date), we completed the acquisition (the Apria Acquisition) of 100% of Apria, Inc. (Apria) pursuant to the Agreement and Plan of Merger 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. Apria is a leading provider of integrated home healthcare equipment and related services in the United States. This division is reported as part of the Patient Direct segment. Net (loss) per share was $(0.37) and $(0.70) for the three and six months ended June 30, 2023 as compared to net income per diluted share of $0.37 and $0.89 for the three and six months ended June 30, 2022. The decreases reflected lower demand for personal protective equipment (PPE), including reduced COVID-19 related product purchases, in our Products & Healthcare Services segment, exit and realignment charges associated with our Operating Model Realignment Program, and inflationary pressures, partially offset by the inclusion of Apria in our results since the Acquisition Date, a reduction in acquisition-related charges, strong revenue growth in our Patient Direct segment, and productivity gains derived from operating efficiencies. Net (loss) per share was unfavorably impacted as compared to the prior year by foreign currency translation in the amount of $0.01 and $0.02 for the three and six months ended June 30, 2023. Products & Healthcare Services segment operating income was $2.9 million and $4.8 million for the three and six months ended June 30, 2023, compared to $61.2 million and $150 million for the three and six months ended June 30, 2022. The decreases reflected changes in product sales mix, lower demand for PPE, including reduced COVID-19 related product purchases, and inflationary pressures, partially offset by productivity gains derived from operating efficiencies. Patient Direct segment operating income was $59.1 million and $105 million for the three and six months ended June 30, 2023, compared to $52.3 million and $68.1 million for the three and six months ended June 30, 2022. The increases were primarily the result of the inclusion of Apria in our results since the Acquisition Date and strong revenue growth, partially offset by inflationary pressures. Refer to 'Results of Operations' for further detail of quantitative and qualitative drivers of our results. Philips Respironics Recall In June 2021, one of Apria's suppliers, Philips Respironics, announced a voluntary recall for continuous and non-continuous ventilators (certain 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. Philips Respironics issued a subsequent voluntary recall in December 2022 (together with the June 2021 recall, the Recall), related to deficiencies in repairs made to certain of the ventilators that had been recalled in June 2021. Because we distribute these products and provide related home respiratory services and, in part, due to the substantial number of impacted devices, we have devoted, and will likely continue to devote, substantial time and resources to coordinating Recall-related activity and to supporting our home healthcare patients’ needs. The Recall has caused us, and may continue to cause us, to incur significant costs, some or all of which may not be recoverable from the product manufacturer. The Recall 22 Table of Contents 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 Philips 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. While the equipment shortage in the industry has begun to ease for certain CPAP and BiLevel positive airway pressure devices, we do not know whether that will continue. The Recall or other supply chain disruptions may have a f uture material adverse effect on our financial condition or results of operations, cash flows and liquidity. O&M Halyard N95 Mask FDA Release On April 5, 2023 we received a communication from the NIOSH that products from one lot of a model (No. 46827) of surgical N95 respirator manufactured by O&M Halyard did not pass laboratory tests for fluid resistance and for filtration efficiency, and that products from one lot of another model (No. 46727) did not pass fluid resistance testing, but did pass filtration efficiency testing. At present, our investigation has determined that there are a limited number of lots potentially implicated by the results of the NIOSH particulate filtration testing on model 46827. The vast majority of the products in those lots remain in our possession and under our control, and those lots that had products that did reach the market have passed internal follow-up testing. On April 12, 2023, the FDA recommended that consumers, health care providers, and facilities not use the two models (model numbers 46827 and 46727) of O&M Halyard surgical N95 respirators due to fluid resistance. In addition, the FDA also recommended against using certain of our surgical, procedure and pediatric face masks when fluid resistance is required. On or about that date, we voluntarily stopped the sale in the U.S. of the above-referenced surgical N95 respirators and similar models pending our investigation of the performance issues identified by the FDA and NIOSH. Regulatory bodies in other non-U.S. markets where we sell our facial protection products have inquired about the relevance of the FDA notification to products sold in their countries. The FDA updated its recommendation on April 21, 2023, to permit use of the model 46727 of Halyard N95 respirators when fluid resistance is not required. These items are included in our Products & Healthcare Services segment. We are thoroughly investigating the matters identified by the FDA and NIOSH and we are performing product retesting as we work closely with government agencies to resolve these matters. We are unable to reasonably estimate the amount of any possible loss or range of possible losses or predict the ultimate outcome of these matters. However, there is a risk that these matters and any other safety concerns could have a material adverse effect on our results of operations, financial condition, or cash flows, including as a result of a significant volume of customer product returns and/or recall of products, implementation of corrective action plans, and/or other costly remedial actions in the US and elsewhere. In addition, these matters could potentially have other negative impacts including: government investigations and enforcement actions by the FDA or other US or international regulators or governmental entities; the suspension or revocation of the authority to produce, distribute or sell products, and other sanctions; losses due to patient claims, including product liability claims and lawsuits; and customer claims related to their direct costs arising from supply disruption. 23 Table of Contents Results of Operations Net revenue. Three Months Ended June 30, Change (Dollars in thousands) 2023 2022 $ % Products & Healthcare Services $ 1,930,723 $ 1,927,388 $ 3,335 0.2 % Patient Direct 632,503 572,627 59,876 10.5 % Net revenue $ 2,563,226 $ 2,500,015 $ 63,211 2.5 % Six Months Ended June 30, Change (Dollars in thousands) 2023 2022 $ % Products & Healthcare Services $ 3,846,212 $ 4,061,429 $ (215,217) (5.3) % Patient Direct 1,239,863 845,538 394,325 46.6 % Net revenue $ 5,086,075 $ 4,906,967 $ 179,108 3.7 % The increase in net revenue for the three months ended June 30, 2023 was driven by double-digit growth in most of our Patient Direct segment product categories. Products & Healthcare Services segment net revenue for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 was relatively flat, driven by an approximate $107 million decline in PPE net revenue due to a decrease related to glove pricing of $70.5 million, and lower demand for PPE, which was more than offset by net revenue growth in other product categories. The increase in net revenue for the six months ended June 30, 2023 was driven primarily by incremental Apria net revenue in the first quarter of 2023 of $308 million as compared to the first quarter of 2022 and double-digit growth in most of our Patient Direct segment product categories. The decrease in Products & Healthcare Services segment net revenue for the six months ended June 30, 2023 was driven by an approximate $370 million decline in PPE net revenue due to a decrease related to glove pricing of $176 million, and lower demand for PPE, including reduced COVID-19 related product purchases, partially offset by net revenue growth in other product categories compared to the six months ended June 30, 2022. Foreign currency translation had an unfavorable impact on net revenue of $1.5 million and $6.7 million for the three and six months ended June 30, 2023 as compared to the prior year periods. Cost of goods sold. Three Months Ended June 30, Change (Dollars in thousands) 2023 2022 $ % Cost of goods sold $ 2,043,794 $ 1,967,510 $ 76,284 3.9 % Six Months Ended June 30, Change (Dollars in thousands) 2023 2022 $ % Cost of goods sold $ 4,069,336 $ 4,001,014 $ 68,322 1.7 % 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. The increase in cost of goods sold for the three months ended June 30, 2023 reflects higher costs of goods sold driven by changes in product sales mix and net revenue growth, partially offset by a favorable change in the last in, first out (LIFO) credit or provision of $6.7 million, as compared to the period year. The increase in cost of goods sold for the six months ended June 30, 2023 was driven primarily by the incremental Apria cost of goods sold in the first quarter of 2023 of $114 million as compared to the first quarter of 2022 and net revenue growth in our Patient Direct segment, partially offset by a decline in Products & Healthcare Services segment net revenue of $215 million. 24 Table of Contents Foreign currency translation had a favorable impact on cost of goods sold of $0.6 million and $4.0 million for the three and six months ended June 30, 2023 as compared to the prior year periods. Gross margin. Three Months Ended June 30, Change (Dollars in thousands) 2023 2022 $ % Gross margin $ 519,432 $ 532,505 $ (13,073) (2.5) % As a % of net revenue 20.26 % 21.30 % Six Months Ended June 30, Change (Dollars in thousands) 2023 2022 $ % Gross margin $ 1,016,739 $ 905,953 $ 110,786 12.2 % As a % of net revenue 19.99 % 18.46 % The changes in gross margin for the three and six months ended June 30, 2023 was driven by the same factors impacting net revenue and cost of goods sold. The gross margin for the six months ended June 30, 2023 includes incremental Apria gross margin in the first quarter of 2023 of $195 million as compared to the first quarter of 2022. Foreign currency translation had an unfavorable impact on gross margin of $0.9 million and $2.7 million for the three and six months ended June 30, 2023 as compared to the prior year periods. Operating expenses. Three Months Ended June 30, Change (Dollars in thousands) 2023 2022 $ % Distribution, selling and administrative expenses $ 455,030 $ 421,925 $ 33,105 7.8 % As a % of net revenue 17.75 % 16.88 % Acquisition-related charges and intangible amortization $ 22,203 $ 37,276 $ (15,073) (40.4) % Exit and realignment charges $ 28,963 $ 1,214 $ 27,749 2,285.7 % Other operating expense (income), net $ 2,397 $ (2,995) $ 5,392 180.0 % Six Months Ended June 30, Change (Dollars in thousands) 2023 2022 $ % Distribution, selling and administrative expenses $ 903,752 $ 691,397 $ 212,355 30.7 % As a % of net revenue 17.77 % 14.09 % Acquisition-related charges and intangible amortization $ 44,392 $ 79,410 $ (35,018) (44.1) % Exit and realignment charges $ 44,637 $ 2,896 $ 41,741 1,441.3 % Other operating expense (income), net $ 3,312 $ (3,894) $ 7,206 185.1 % 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. The increase in DS&A expenses for the three months ended June 30, 2023 was driven primarily by incremental costs to support the $63 million, or 2.5%, net revenue growth, an increase of $9.2 million in teammate benefit costs including incentives, and inflationary pressures negatively impacting wages and occupancy costs, which increased approximately 5% and 11%, partially offset by productivity gains derived from operating efficiencies. The increase in DS&A expenses for the six months ended June 30, 2023 was driven by Apria incremental DS&A expense in the first quarter of 2023 of $171 million as compared to the first quarter of 2022, Patient Direct net revenue growth, an increase of $12.3 million in teammate benefit costs including incentives, and inflationary pressures negatively impacting wages and occupancy costs, which increased approximately 5% and 10%, partially offset by productivity gains derived from operating efficiencies. 25 Table of Contents Foreign currency translation had a favorable impact on DS&A of $0.2 million and $1.1 million for the three and six months ended June 30, 2023 as compared to the prior year periods. Acquisition-related charges were $1.3 million and $2.5 million for the three and six months ended June 30, 2023 and $6.4 million and $38.3 million for the three and six months ended June 30, 2022 consisting primarily of costs related to the Apria Acquisition. The declines from the prior year periods reflect the incurrence of most of these costs within the first year after the Acquisition Date. Intangible amortization was $20.9 million and $41.8 million for the three and six months ended June 30, 2023 and $30.9 million and $41.2 million for the three and six months ended June 30, 2022 related primarily to intangible assets acquired in the Apria, Halyard and Byram acquisitions. Intangible amortization for the second quarter of 2023 declined as compared to the prior year primarily from purchase price accounting changes to the estimated value assigned to certain intangible assets. Exit and realignment charges were $29.0 million and $44.6 million for the three and six months ended June 30, 2023. These charges primarily related to our (1) Operating Model Realignment Program of $24.3 million and $39.3 million, including professional fees, severance, and other costs to streamline functions and processes, (2) IT restructuring charges such as converting certain divisions to a common information technology system of $3.4 million and $3.5 million and, (3) other costs associated with strategic initiatives of $1.3 million and $1.8 million for the three and six months ended June 30, 2023. 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. The increases in other operating expense (income), net for the three and six months ended June 30, 2023 as compared to the prior year periods reflect $1.4 million and $2.5 million unfavorable changes in foreign currency transaction gains and losses, as compared to the prior year periods. During the three and six months ended June 30, 2023 we incurred $2.9 million and $3.6 million of losses on sale of accounts receivable, inclusive of professional fees incurred to establish the agreement, under the RPA, through which we began executing sales during the second quarter of 2023. Interest expense, net . Three Months Ended June 30, Change (Dollars in thousands) 2023 2022 $ % Interest expense, net $ 40,728 $ 35,839 $ 4,889 13.6 % Effective interest rate 6.93 % 5.26 % Six Months Ended June 30, Change (Dollars in thousands) 2023 2022 $ % Interest expense, net $ 82,926 $ 47,858 $ 35,068 73.3 % Effective interest rate 6.86 % 5.12 % Interest expense, net and the effective interest rate fo r the three months ended June 30, 2023 increased primarily due to higher interest rates on our term loans, net of interest rate swaps, of $6.9 million, partially offset by lower average outstanding borrowings. Interest expense, net fo r the six months ended June 30, 2023 increased due to higher average outstanding borrowings and higher interest rates on our term loans, net of interest rate swaps, of $25.8 million, and to higher average outstanding borrowings on our 2030 Unsecured Notes of $9.7 million. See Note 6 in Notes to Consolidated Financial Statements. Other expense, net . Three Months Ended June 30, Change (Dollars in thousands) 2023 2022 $ % Other expense, net $ 1,072 $ 783 $ 289 36.9 % Six Months Ended June 30, Change (Dollars in thousands) 2023 2022 $ % Other expense, net $ 2,458 $ 1,565 $ 893 57.1 % 26 Table of Contents Other expense, net for the three and six months ended June 30, 2023 and 2022 includes interest cost and net actuarial losses related to our retirement plans. In addition, other expense, net for the three and six months ended June 30, 2023 includes the loss on extinguishment of debt, of $0.3 million and $0.8 million associated with the early retirement of indebtedness of $48.0 million and $73.0 million. Income taxes. Three Months Ended June 30, Change (Dollars in thousands) 2023 2022 $ % Income tax (benefit) provision $ (2,720) $ 9,859 $ (12,579) (127.6) % Effective tax rate 8.8 % 25.6 % Six Months Ended June 30, Change (Dollars in thousands) 2023 2022 $ % Income tax (benefit) provision $ (12,079) $ 18,837 $ (30,916) (164.1) % Effective tax rate 18.7 % 21.7 % The change in the effective tax rate for the three and six months ended June 30, 2023 compared to the same periods in 2022 resulted primarily from changes in income and losses. 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 Agreement or Receivables Financing Agreement, or a combination thereof of approximately $28 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. June 30, 2023 December 31, 2022 Change (Dollars in thousands) $ % Cash and cash equivalents $ 286,307 $ 69,467 $ 216,840 312.1 % Accounts receivable, net of allowances $ 672,511 $ 763,497 $ (90,986) (11.9) % Consolidated DSO (1) 23.5 27.0 Merchandise inventories $ 1,168,227 $ 1,333,585 $ (165,358) (12.4) % Inventory days (2) 52.0 57.2 Accounts payable $ 1,194,173 $ 1,147,414 $ 46,759 4.1 % (1) Based on period end accounts receivable and net revenue for the quarters ended June 30, 2023 and December 31, 2022. Consolidated DSO reflected the impact of the reduction in accounts receivable, net of allowances, due to sales of accounts receivable under the RPA. Excluding the impact of the RPA, Consolidated DSO would have been 27.6 as of June 30, 2023. (2) Based on period end merchandise inventories and cost of goods sold for the quarters ended June 30, 2023 and December 31, 2022. The decrease in inventory days is due to inventory management efforts in our Products & Healthcare Services segment. 27 Table of Contents Liquidity and capital expenditures. The following table summarizes our consolidated statements of cash flows for the six months ended June 30, 2023 and 2022: (Dollars in thousands) 2023 2022 Net cash provided by (used for): Operating activities $ 471,510 $ 169,524 Investing activities (65,668) (1,745,299) Financing activities (183,120) 1,580,633 Effect of exchange rate changes 196 (3,864) Net increase in cash, cash equivalents and restricted cash $ 222,918 $ 994 Cash provided by operating activities in the first six months of 2023 reflected a net loss, as compared to net income in the first six months of 2022. The increase in cash provided by operating activities in 2023 as compared to 2022 reflected changes in working capital including cash proceeds from the sale of accounts receivables, as described in Note 1 of Notes to Consolidated Financial Statements and the inclusion of Apria in our results since the Acquisition Date. Cash used for investing activities in the first six months of 2023 included capital expenditures of $101.0 million for patient equipment and our strategic and operational efficiency initiatives associated with property and equipment and capitalized software, partially offset by $35.7 million in proceeds related primarily to the sale of patient equipment. 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. C ash used for financing activities in the first six months of 2023 included repayments of debt of $78.3 million, including $65.0 million of unscheduled principal payments on the Term Loan A and the Term Loan B. We had no borrowings under our revolving credit facility on a net basis for the first six months of 2023 and made net repayments of $96.0 million under our amended Receivables Financing Agreement. Payments for taxes related to the vesting of restricted stock awards, which are included in Other, net, were $10.2 million for the first six months of 2023. Cash used for financing activities in the first six months of 2022 included borrowings under our revolving credit facility, net and Receivables Financing Agreement of $30.0 million. Gross issuances and repayments under our amended Receivable Financing Agreement 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. We also paid $41.5 million in financing costs in the first six months of 2022. Payments for taxes related to the vesting of restricted stock awards were $44.4 million for the first six months of 2022, which are included in Other, net. Capital resources. Our primary sources of liquidity include cash and cash equivalents, our Receivables Financing Agreement, and our Revolving Credit Agreement. The Receivables Financing Agreement provides a maximum revolving borrowing capacity of $450 million. 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, as further amended by the Fifth Amendment to the Receivables Financing Agreement). Under the Receivables Financing Agreement, certain of our accounts receivable balances are sold to our wholly owned special purpose entity, O&M Funding LLC. The Receivables Financing Agreement matures in March 2025. We had no borrowings at June 30, 2023 and $96.0 million outstanding at December 31, 2022 under our Receivables Financing Agreement. At June 30, 2023 and December 31, 2022, we had maximum revolving borrowing capacity of $450 million and $354 million under our Receivable Financing Agreement. The Revolving Credit Agreement provides a revolving borrowing capacity of $450 million. We have $1.0 billion in outstanding term loans under a term loan credit agreement (the 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 2027. The interest rate on the 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 is based on either the Term SOFR or the Base Rate plus an Applicable Rate. The Term Loan A matures in March 2027 and the Term Loan B matures in March 2029. At June 30, 2023 and December 31, 2022, our Revolving Credit Agreement was undrawn, and we had letters of credit, which reduce Revolver availability, totaling $27.9 million, leaving $422 million available for borrowing. We also had letters of credit and bank guarantees which support certain leased facilities as well as other normal business activities in the United States and Europe that were issued outside of the Revolving Credit Agreement for $2.1 million and $2.3 million as of June 30, 2023 and December 31, 2022. 28 Table of Contents 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 4.375% senior notes due in December 2024 (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. The Revolving Credit Agreement, the Credit Agreement, Receivables Financing Agreement, the 2024 Notes, 4.500% senior unsecured notes due in March 2029 (the 2029 Unsecured Notes), and the 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 applicable 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, 2023. On March 14, 2023, we entered into a RPA, pursuant to which accounts receivable with an aggregate outstanding amount not to exceed $200 million are sold, on a limited-recourse basis, to a third-party financial institution (Purchaser) in exchange for cash. During the three months ended June 30, 2023, we received net cash proceeds of $409 million from the sale of accounts receivable under its RPA which is included in cash provided by operating activities in the consolidated statements of cash flows. As of June 30, 2023 there were a total of $115 million of uncollected accounts receivable that had been sold and removed from our consolidated balance sheet. We regularly evaluate market conditions, our liquidity profile and various financing alternatives to enhance our capital structure. We have from time to time, entered into, and from time to time in the future 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 cash generated by operating activities, available financing sources, and borrowings under the Receivables Financing Agreement and Revolving Credit Agreement, as well as cash on hand, 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 subject to repatriation totaled $44.1 million and $26.3 million at June 30, 2023 and December 31, 2022. As of June 30, 2023, we are permanently reinvested in 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. During the first six months of 2023, we have experienced continued inflationary pressure and higher costs as a result of the increasing cost of labor, occupancy and other administrative costs associated with the normal course of business. 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. Seasonality Our business is affected by seasonality, which historically has resulted in higher sales volume during our third and fourth quarters, ending September 30 and December 31. Contractual obligations We anticipate that the noncancellable obligations beyond 12 months related to outsourced information technology operations, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, will no longer be material as a result of executed contract terminations, expected contract terminations, and insourcing of information technology operations. Refer to our Annual Report on Form 10-K for the year ended December 31, 2022 for disclosure of other material contractual obligations. 29 Table of Contents 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, 2023 (Dollars in thousands) Net revenue (1) $ 5,002,701 Gross margin 979,789 Operating income 16,500 Net loss (50,043) (1) Includes $63.6 million in sales to non-guarantor subsidiaries for the six months ended June 30, 2023. Summarized Consolidated Balance Sheets - Guarantor Group June 30, 2023 December 31, 2022 (Dollars in thousands) Total current assets $ 1,566,927 $ 1,442,661 Total assets 4,726,801 4,658,382 Total current liabilities 1,745,464 1,613,228 Total liabilities 4,410,080 4,360,673 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, 2023 December 31, 2022 (Dollars in thousands) Total current assets $ 1,643,155 $ 1,523,290 Total assets 4,668,692 4,614,380 Total current liabilities 1,688,001 1,562,680 Total liabilities 4,388,132 4,343,750 The results of operations of the Collateral Group are not materially different from the corresponding amounts presented in our consolidated statements of operations. 30 Table of Contents Recent Accounting Pronouncements For a discussion of recent accounting pronouncements, see our Annual Report on Form 10-K for the year ended December 31, 2022 and Note 13 in the Notes to Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for the period ended on June 30, 2023. 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: • risks related to public health crises or future outbreaks of health crises or other adverse public health developments such as the novel coronavirus (COVID-19) global pandemic; • increasing competitive and pricing pressures in the marketplace; • our ability to retain existing and attract new customers and our dependence on sales to certain customers; • our dependence on certain vendors, suppliers and third-parties for key components, raw materials, equipment and services; • our ability to successfully identify, manage or integrate acquisitions, including Apria; • our ability to successfully implement our Operating Model Realignment Program and our strategic initiatives; • our ability to successfully manage our international operations, including risks associated with changes in international trade regulations, foreign currency volatility, adverse tax consequences, and other risks of operating in international markets; • uncertainties related to, and our ability to adapt to and comply with, changes in government regulations, including healthcare, tax and product licensing 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 and our ability to adapt to changes in product pricing and other terms of purchase by suppliers of product; • our ability to meet the terms to qualify for supplier funding programs; • 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; • our ability to manage operating expenses and improve operational efficiencies; • availability of, and our ability to access, special inventory buying opportunities; • our ability to continue to 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 ability to attract and retain talented and qualified teammates; • recalls of any of our products, or safety risks or the discovery of serious safety issues with our products; • changes, delays and uncertainties in the reimbursement process; • our ability to adequately establish, maintain, protect and enforce our intellectual property and proprietary rights as well as avoid infringement, misappropriation or other violations of the intellectual property and proprietary rights of third parties; • our ability to engage in transactions that may be limited by the restrictive covenants in our credit facilities and existing notes; 31 Table of Contents • 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; • the risk of an impairment to goodwill or other long-lived assets; • our ability to timely or adequately respond to technological advances; • our failure to adequately insure against losses, including from substantial claims and litigation; • our ability to meet performance targets specified by customer contracts under contractual commitments; • our capitation arrangements may prove unprofitable if actual utilization rates exceed our assumptions; • the outcome of outstanding and any future litigation, including product and professional liability claims; • volatility in the price of our common stock and securities; • 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, 2022. We undertake no obligation to update or revise any forward-looking statements, except as required by applicable law.