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. We report our business under two segments: Products & Healthcare Services and Patient Direct. 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. (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 $(0.08) 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, 23 Table of Contents 2022. 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. O&M Halyard N95 Mask FDA Release 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. 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. 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 concerns about fluid resistance performance. 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. 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. 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. 24 Table of Contents Results of Operations Net revenue. Three Months Ended September 30, Change (Dollars in thousands) 2023 2022 $ % Products & Healthcare Services $ 1,943,467 $ 1,903,356 $ 40,111 2.1 % Patient Direct 648,275 594,045 54,230 9.1 % Net revenue $ 2,591,742 $ 2,497,401 $ 94,341 3.8 % Nine Months Ended September 30, Change (Dollars in thousands) 2023 2022 $ % Products & Healthcare Services $ 5,789,679 $ 5,964,784 $ (175,105) (2.9) % Patient Direct 1,888,138 1,439,584 448,554 31.2 % Net revenue $ 7,677,817 $ 7,404,368 $ 273,449 3.7 % 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. Three Months Ended September 30, Change (Dollars in thousands) 2023 2022 $ % Cost of goods sold $ 2,053,244 $ 1,984,122 $ 69,122 3.5 % Nine Months Ended September 30, Change (Dollars in thousands) 2023 2022 $ % Cost of goods sold $ 6,122,579 $ 5,985,136 $ 137,443 2.3 % 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 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. 25 Table of Contents 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. Three Months Ended September 30, Change (Dollars in thousands) 2023 2022 $ % Gross margin $ 538,498 $ 513,279 $ 25,219 4.9 % As a % of net revenue 20.78 % 20.55 % Nine Months Ended September 30, Change (Dollars in thousands) 2023 2022 $ % Gross margin $ 1,555,238 $ 1,419,232 $ 136,006 9.6 % As a % of net revenue 20.26 % 19.17 % 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. Three Months Ended September 30, Change (Dollars in thousands) 2023 2022 $ % Distribution, selling and administrative expenses $ 452,583 $ 430,957 $ 21,626 5.0 % As a % of net revenue 17.46 % 17.26 % Acquisition-related charges and intangible amortization $ 30,217 $ 21,217 $ 9,000 42.4 % Exit and realignment charges $ 30,180 $ 1,983 $ 28,197 1,421.9 % Other operating expense (income), net $ 1,677 $ (1,125) $ 2,802 249.1 % Nine Months Ended September 30, Change (Dollars in thousands) 2023 2022 $ % Distribution, selling and administrative expenses $ 1,356,334 $ 1,122,353 $ 233,981 20.8 % As a % of net revenue 17.67 % 15.16 % Acquisition-related charges and intangible amortization $ 74,609 $ 100,628 $ (26,019) (25.9) % Exit and realignment charges $ 74,817 $ 4,879 $ 69,938 1,433.4 % Other operating expense (income), net $ 4,991 $ (5,020) $ 10,011 199.4 % 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 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. 26 Table of Contents 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. operations. 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 . Three Months Ended September 30, Change (Dollars in thousands) 2023 2022 $ % Interest expense, net $ 38,127 $ 39,869 $ (1,742) (4.4) % Effective interest rate 7.01 % 5.96 % Nine Months Ended September 30, Change (Dollars in thousands) 2023 2022 $ % Interest expense, net $ 121,053 $ 87,727 $ 33,326 38.0 % Effective interest rate 6.92 % 5.47 % 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. 27 Table of Contents Other (income) expense, net . Three Months Ended September 30, Change (Dollars in thousands) 2023 2022 $ % Other (income) expense, net $ (3,302) $ 783 $ (4,085) (521.7) % Nine Months Ended September 30, Change (Dollars in thousands) 2023 2022 $ % 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. Three Months Ended September 30, Change (Dollars in thousands) 2023 2022 $ % Income tax (benefit) provision $ (4,558) $ 7,098 $ (11,656) (164.2) % Effective tax rate 41.5 % 36.2 % Nine Months Ended September 30, Change (Dollars in thousands) 2023 2022 $ % Income tax (benefit) provision $ (16,638) $ 25,937 $ (42,575) (164.1) % Effective tax rate 22.0 % 24.4 % 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. 28 Table of Contents 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. September 30, 2023 December 31, 2022 Change (Dollars in thousands) $ % Cash and cash equivalents $ 215,191 $ 69,467 $ 145,724 209.8 % Accounts receivable, net of allowances $ 682,682 $ 763,497 $ (80,815) (10.6) % DSO (1) 23.9 27.0 Merchandise inventories $ 1,084,350 $ 1,333,585 $ (249,235) (18.7) % Inventory days (2) 48.6 57.2 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 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 nine months ended September 30, 2023 and 2022: (Dollars in thousands) 2023 2022 Net cash provided by (used for): Operating activities $ 628,945 $ 238,045 Investing activities (98,340) (1,771,705) Financing activities (366,115) 1,560,585 Effect of exchange rate changes (515) (5,752) Net increase in cash, cash equivalents and restricted cash $ 163,975 $ 21,173 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. 29 Table of Contents 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 amended 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 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 $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). 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 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 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, 30 Table of Contents 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 $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. Goodwill 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. 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. 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, 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 Nine Months Ended September 30, (Dollars in thousands) Net revenue (1) $ 7,552,889 Gross margin 1,507,745 Operating income 44,584 Net loss (49,614) (1) Includes $101 million in sales to non-guarantor subsidiaries for the nine months ended September 30, 2023. 31 Table of Contents Summarized Consolidated Balance Sheets - Guarantor Group September 30, 2023 December 31, 2022 (Dollars in thousands) Total current assets $ 1,471,896 $ 1,442,661 Total assets 4,609,063 4,658,382 Total current liabilities 1,814,070 1,613,228 Total liabilities 4,283,534 4,360,673 The following tables present summarized financial information for Owens & Minor, Inc. 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. 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 September 30, 2023 December 31, 2022 (Dollars in thousands) Total current assets $ 1,295,619 $ 1,523,290 Total assets 4,240,524 4,614,380 Total current liabilities 1,648,174 1,562,680 Total liabilities 3,861,037 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. 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 September 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; 32 Table of Contents • 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; • 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.