What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-03 compared with 2023-08-04 · 119 added, 123 removed, 201 unchanged (55% of the section changed)

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Owens & Minor, Inc., along with its subsidiaries, (we, us, or our) is a global healthcare solutions company.

Our business has two distinct segments:

We report our business under two 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.

The Products & Healthcare Services segment includes our United States distribution division (Medical Distribution), outsourced logistics and value-added services, and Global Products division which manufactures and sources medical surgical products through our production and kitting operations.

The Patient Direct segment includes our home healthcare divisions (Byram and Apria).

On March 29, 2022 (the Acquisition Date), we completed the acquisition (the Apria Acquisition) of 100% of Apria, Inc.

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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.

Net (loss) per share was $(0.08) and $(0.78) for the three and nine months ended September 30, 2023 as compared to net income per diluted share of $0.16 and $1.05 for the three and nine months ended September 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, an increase in exit and realignment charges of $28.2 million and $69.9 million for the three and nine months ended September 30, 2023, primarily related to our Operating Model Realignment Program and IT restructuring charges, partially offset by the inclusion of Apria in our results since the Acquisition Date, strong revenue growth in our Patient Direct segment, productivity gains derived from operating efficiencies, and Operating Model Realignment Program savings.

The decrease for the nine months ended September 30, 2023 was offset by a reduction in acquisition-related charges as compared to the prior year period.

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 nine months ended September 30, 2023.

Products & Healthcare Services segment operating income was $19.8 million and $24.6 million for the three and nine months ended September 30, 2023, compared to $23.8 million and $174 million for the three and nine months ended September 30, 2022.

The decreases reflected changes in product sales mix, lower demand for PPE, including reduced COVID-19 related product purchases, partially offset by productivity gains derived from operating efficiencies and Operating Model Realignment Program savings.

Patient Direct segment operating income was $64.4 million and $169 million for the three and nine months ended September 30, 2023, compared to $59.7 million and $128 million for the three and nine months ended September 30,

The increases were primarily the result of the inclusion of Apria in our results since the Acquisition Date and strong revenue growth.

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.

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.

On April 5, 2023 we received a communication from the National Institute for Occupational Safety & Health (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.

Our investigation determined that a limited number of lots were potentially implicated by the results of the NIOSH particulate filtration testing on model 46827, and that the vast majority of the products in those lots remained in our possession and under our control.

Those lots have been segregated for disposal.

We also determined that a limited quantity of products from one lot did reach the market.

Although products from that lot passed internal and external follow-up testing for filtration efficiency, we initiated a voluntary recall of the lot on August 9, 2023 out of an abundance of caution.

O&M Halyard has confirmed to NIOSH that the particle filtration issue was isolated to the identified lots.

In addition, the FDA also recommended against using certain of our surgical, procedure and pediatric face masks when fluid resistance is required.

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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.

On September 29, 2023, the FDA updated its previous recommendation to consumers, health care providers and facilities regarding the above-referenced models of O&M Halyard surgical N95 respirators based on extensive testing and performance data provided by O&M Halyard.

Specifically, the FDA stated that both O&M Halyard respirator models could be used according to the product labeling for respiratory and fluid barrier protection to the wearer (excluding the one lot of products that O&M Halyard voluntarily recalled on August 9, 2023).

Following the FDA’s update, we published a user notice on our website announcing the resumption of sales and shipments of O&M Halyard surgical N95 respirators, noting that the data provided to the FDA and NIOSH demonstrated that our products provide the levels of particle filtration and fluid resistance for which they are rated.

NIOSH reviewed and concurred with the facts set forth in our user notice published on September 29, 2023.

We will continue to work with the FDA and NIOSH following the resolution of this matter to ensure that O&M Halyard products comply with regulatory requirements.

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.

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Net revenue $ 2,591,742 $ 2,497,401 $ 94,341 3.8 %

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Net revenue $ 7,677,817 $ 7,404,368 $ 273,449 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.

The increase in net revenue for the three months ended September 30, 2023 was driven by strong revenue growth in a number of our Patient Direct segment product categories.

Products & Healthcare Services segment net revenue for the three months ended September 30, 2023 increased compared to the three months ended September 30, 2022 due to net revenue growth in the Medical Distribution division of 5.4% with strong growth in non-PPE product categories, partially offset by an approximate $55 million decline in PPE net revenue due to a decrease related to glove pricing of $33 million and lower demand for PPE.

The increase in net revenue for the nine months ended September 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 strong revenue growth in a number of our Patient Direct segment product categories.

The decrease in our Products & Healthcare Services segment net revenue for the nine months ended September 30, 2023 was driven by an approximate $425 million decline in PPE net revenue due to a decrease related to glove pricing of $209 million and lower demand for PPE, including reduced COVID-19 related product purchases, partially offset by net revenue growth in the Medical Distribution division of 3.0% with strong growth in non-PPE product categories compared to the nine months ended September 30, 2022.

Foreign currency translation had a favorable impact on net revenue of $0.5 million and an unfavorable impact of $6.2 million for the three and nine months ended September 30, 2023 as compared to the prior year periods.

Cost of goods sold.

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Cost of goods sold $ 2,053,244 $ 1,984,122 $ 69,122 3.5 %

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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.

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.

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.

The increase in cost of goods sold for the three months ended September 30, 2023 reflects higher costs of goods sold driven by net revenue growth, partially offset by a $6.7 million last in, first out (LIFO) liquidation credit for the three months ended September 30, 2023 as a result of a $101 million reduction in our Products & Healthcare Services segment inventory, as measured on a first in, first out basis, and Operating Model Realignment Program savings.

The increase in cost of goods sold for the nine months ended September 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 $175 million and an $11.6 million LIFO liquidation credit as a result of a $305 million reduction in our Products & Healthcare Services segment inventory, as measured on a first in, first out basis.

Foreign currency translation had an unfavorable impact on cost of goods sold of $0.9 million and a favorable impact of $3.1 million for the three and nine months ended September 30, 2023 as compared to the prior year periods.

Gross margin.

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As a % of net revenue 20.78 % 20.55 %

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As a % of net revenue 20.26 % 19.17 %

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.

The changes in gross margin for the three and nine months ended September 30, 2023 were driven by the same factors impacting net revenue and cost of goods sold.

The gross margin for the nine months ended September 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 $0.4 million and $3.1 million for the three and nine months ended September 30, 2023 as compared to the prior year periods.

Operating expenses.

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Other operating expense (income), net $ 1,677 $ (1,125) $ 2,802 249.1 %

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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.

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.

The increase in DS&A expenses for the three months ended September 30, 2023 was driven primarily by incremental costs to support net revenue growth of $94.3 million, or 3.8%, an increase of $15.4 million in teammate benefit costs including incentives, partially offset by productivity gains derived from operating efficiencies and Operating Model Realignment Program savings.

The increase in DS&A expenses for the nine months ended September 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 $27.7 million in teammate benefit costs including incentives, partially offset by productivity gains derived from operating efficiencies and Operating Model Realignment Program savings.

Foreign currency translation had an unfavorable impact on DS&A of $0.1 million and a favorable impact of $0.9 million for the three and nine months ended September 30, 2023 as compared to the prior year periods.

Acquisition-related charges were $9.4 million and $11.9 million for the three and nine months ended September 30, 2023 and $6.9 million and $45.2 million for the three and nine months ended September 30, 2022 consisting primarily of costs related to the Apria Acquisition.

The decline for the nine months ended September 30, 2023 as compared to the prior year period reflects the incurrence of most of these costs closer to the Acquisition Date.

Intangible amortization was $20.8 million and $62.7 million for the three and nine months ended September 30, 2023 and $14.3 million and $55.5 million for the three and nine months ended September 30, 2022 related primarily to intangible assets acquired in the Apria, Halyard and Byram acquisitions.

Intangible amortization for the third quarter of 2023 increased as compared to the prior year primarily due to purchase price accounting changes to the estimated value assigned to certain intangible assets recorded in the third quarter of 2022.

Exit and realignment charges were $30.2 million and $74.8 million for the three and nine months ended September 30, 2023.

These charges primarily related to our (1) Operating Model Realignment Program of $24.5 million and $63.9 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 $3.3 million and $6.7 million and, (3) other costs associated with strategic initiatives of $2.4 million and $4.1 million for the three and nine months ended September 30, 2023.

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, leadership reorganization costs, IT restructuring charges, and other costs related to the reorganization of our U.S.

The increases in other operating expense (income), net for the three and nine months ended September 30, 2023 as compared to the prior year periods reflect $3.5 million and $7.1 million of losses on sale of accounts receivable under the RPA, through which we began executing sales during the second quarter of 2023.

During the three and nine months ended September 30, 2023, we incurred a favorable change of $0.6 million and an unfavorable change of $2.0 million in foreign currency transaction gains and losses, net of derivative adjustments, as compared to the prior year periods.

Interest expense, net .

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Effective interest rate 7.01 % 5.96 %

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Effective interest rate 6.92 % 5.47 %

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.

Interest expense, net fo r the three months ended September 30, 2023 decreased primarily due to lower average outstanding borrowings driven by $188 million and $355 million reductions in total debt during the three and nine months ended September 30, 2023, partially offset by an increase in the effective interest rate due to higher interest rates on our term loans, net of interest rate swaps, which contributed $3.6 million in interest expense as compared to the prior year period.

Interest expense, net fo r the nine months ended September 30, 2023 increased due to higher average outstanding borrowings and higher interest rates on our term loans, net of interest rate swaps, which contributed $29.3 million to the increase, and to higher average outstanding borrowings on our 2030 Unsecured Notes, which were issued on the Acquisition Date and contributed $9.1 million to the increase, partially offset by a reduction in average borrowings under our amended Receivables Financing Agreement.

See Note 6 in Notes to Consolidated Financial Statements.

Other expense, net .

Other (income) expense, net .

Three Months Ended

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Other expense, net $ 1,072 $ 783 $ 289 36.9 %

Six Months Ended

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Other (income) expense, net $ (3,302) $ 783 $ (4,085) (521.7) %

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Other expense, net $ 2,458 $ 1,565 $ 893 57.1 %

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.

Other (income) expense, net $ (843) $ 2,347 $ (3,190) (135.9) %

Other (income) expense, net for the three and nine months ended September 30, 2023 and 2022 includes interest cost and net actuarial losses related to our retirement plans.

In addition, other (income) expense, net for the three and nine months ended September 30, 2023 includes the gain on extinguishment of debt of $5.2 million and $4.4 million associated with the early retirement of indebtedness of $195 million and $268 million.

Income taxes.

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Effective tax rate 41.5 % 36.2 %

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Effective tax rate 22.0 % 24.4 %

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.

The change in the effective tax rate for the three and nine months ended September 30, 2023 compared to the same periods in 2022 resulted primarily from changes in income and losses, as well as the incremental income tax benefit recorded for FDII in the three and nine months ended September 30, 2023.

Financial Condition, Liquidity and Capital Resources

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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.

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Accounts receivable, net of allowances $ 682,682 $ 763,497 $ (80,815) (10.6) %

Consolidated DSO (1)

Merchandise inventories $ 1,084,350 $ 1,333,585 $ (249,235) (18.7) %

1 unchanged sentence

Accounts payable $ 1,182,408 $ 1,147,414 $ 34,994 3.0 %

(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.

(1) Based on period end accounts receivable and net revenue for the quarters ended September 30, 2023 and December 31, 2022.

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, DSO would have been 27.0 as of September 30, 2023.

(2) Based on period end merchandise inventories and cost of goods sold for the quarters ended September 30, 2023 and December 31, 2022.

The decrease in inventory days is due to inventory management efforts in our Products & Healthcare Services segment.

Liquidity and capital expenditures.

The following table summarizes our consolidated statements of cash flows for the six months ended June 30, 2023 and 2022:

The following table summarizes our consolidated statements of cash flows for the nine months ended September 30, 2023 and 2022:

(Dollars in thousands) 2023 2022

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Net increase in cash, cash equivalents and restricted cash $ 163,975 $ 21,173

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.

Cash provided by operating activities in the first nine months of 2023 reflected a net loss, as compared to net income in the first nine months of 2022.

The increase in cash provided by operating activities in 2023 as compared to 2022 reflected changes in working capital, including a cash benefit of $247 million from reduction in inventory and a cash benefit of $108 million from net cash proceeds under the RPA, and the inclusion of Apria in our results since the Acquisition Date.

Cash used for investing activities in the first nine months of 2023 included capital expenditures of $152 million for patient equipment and our strategic and operational efficiency initiatives associated with property and equipment and capitalized software, partially offset by $53.6 million in proceeds related to the sale of property and equipment.

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.

C ash used for financing activities in the first nine months of 2023 included repayments of debt of $270 million, including $125 million of unscheduled and $10.8 million of scheduled principal payments on the Term Loan A and the Term Loan B, $134 million of cash to repurchase $143 million aggregate principal of the 2024 Notes, the 2029 Unsecured Notes and the 2030 Unsecured Notes.

We had no borrowings under our revolving credit facility on a net basis for the first nine months of 2023 and made net repayments of $96.0 million under our amended Receivables Financing Agreement.

Cash provided by financing activities in the first nine months of 2022 included proceeds from borrowings of $1.7 billion related to the 2030 Unsecured Notes, Term Loan A, and Term Loan B for the first nine months of 2022 and borrowings under our revolving credit facility, net and Receivables Financing Agreement of $30.0 million.

Net repayments under our amended Receivables Financing Agreement program were $73.0 million for the first nine months of 2022.

We also paid $42.6 million in financing costs in the first nine months of 2022.

Payments for taxes related to the vesting of restricted stock awards were $44.6 million for the first nine 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.

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

The Receivables Financing Agreement provides a maximum revolving borrowing capacity of $450 million.

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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.

We had no borrowings at September 30, 2023 and $96.0 million outstanding at December 31, 2022 under our amended Receivables Financing Agreement.

At September 30, 2023 and December 31, 2022, we had maximum revolving borrowing capacity of $450 million and $354 million under our amended Receivables 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).

We have $960 million 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).

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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.

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.

At September 30, 2023 and December 31, 2022, our Revolving Credit Agreement was undrawn, and we had letters of credit, which reduce revolver availability, of $27.4 million and $27.9 million, leaving $423 million and $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 $2.9 million and $2.3 million as of September 30, 2023 and December 31, 2022.

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.

The Revolving Credit Agreement, the Credit Agreement, Receivables Financing Agreement, the 2024 Notes, 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 were in compliance with our debt covenants at September 30, 2023.

On March 14, 2023, we entered into the RPA, pursuant to which accounts receivable with an aggregate outstanding amount not to exceed $200 million are sold, on a limited-recourse basis, to the Purchaser in exchange for cash.

Cash received from the sale of accounts receivable, net of payments made to the Purchaser, is reflected in the change in accounts receivable within cash provided by operating activities in the consolidated statements of cash flows.

Total accounts receivable sold under the RPA were $482 million and $894 million for the three and nine months ended September 30, 2023.

During the three and nine months ended September 30, 2023, we received net cash proceeds of $478 million and $888 million from the sale of accounts receivable under the RPA and collected $508 million and $805 million of the sold accounts receivable.

For the nine months ended September 30, 2023, we received a cash benefit of $108 million from net cash proceeds under the RPA.

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).

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.

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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 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.

Our cash and cash equivalents held by our foreign subsidiaries subject to repatriation totaled $39.5 million and $26.3 million at September 30, 2023 and December 31, 2022.

As of September 30, 2023, we are permanently reinvested in our foreign subsidiaries.

As compared to the date of the most recent annual goodwill impairment test performed as of October 1, 2022, the fair value of our Global Products and Apria reporting units have been adversely impacted by unfavorable industry and macroeconomic conditions, including higher interest rates, inflation, pricing pressures and lower demand for certain product categories.

Adverse changes in these and other factors could result in future goodwill impairment.

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.

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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.

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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, 2023

Summarized Consolidated Statement of Operations - Guarantor Group Nine Months Ended

September 30,

(Dollars in thousands)

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Net loss (49,614)

(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

(1) Includes $101 million in sales to non-guarantor subsidiaries for the nine months ended September 30, 2023.

Summarized Consolidated Balance Sheets - Guarantor Group September 30, 2023 December 31, 2022

(Dollars in thousands)

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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.

and the pledged subsidiaries of Owens & Minor, Inc.’s 2024 Notes 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.

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Summarized financial information of the Collateral Group is as follows:

Summarized Consolidated Balance Sheets - Collateral Group June 30, 2023 December 31, 2022

Summarized Consolidated Balance Sheets - Collateral Group September 30, 2023 December 31, 2022

(Dollars in thousands)

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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

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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