What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-03 compared with 2023-11-03 · 107 added, 188 removed, 132 unchanged (69% of the section changed)

5 unchanged sentences

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

We report our business under two segments:

Our business has two distinct 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.

Products & Healthcare Services provides distribution, outsourced logistics and value-added services and 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,

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

Net (loss) per share was $(0.29) for the three months ended March 31, 2024 as compared to net (loss) per share of $(0.32) for the three months ended March 31, 2023.

This improvement reflects the operating results of our two segments as described below and lower interest expense, partially offset by increased exit and realignment charges associated with our Operating Model Realignment Program.

Net (loss) per share was unfavorably impacted as compared to the prior year by foreign currency translation in the amount of $(0.02) for the three months ended March 31, 2024.

Products & Healthcare Services segment operating income was $11.5 million for the three months ended March 31, 2024, compared to $1.8 million for the three months ended March 31, 2023.

This increase was primarily from revenue growth of 3.1%, savings derived by our Operating Model Realignment Program in excess of $25 million, partially offset by changes in product sales mix, increased costs to support future revenue growth, and $5.0 million of increased teammate benefit costs.

Patient Direct segment operating income was $45.9 million for the three months ended March 31, 2024, compared to $45.8 million for the three months ended March 31, 2023.

This segment’s results reflect revenue growth of 5.0% and cost savings from information technology (IT) strategic initiatives and other operating efficiencies, which were virtually offset by unfavorable changes in revenue mix and increased teammate benefit costs.

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.

Philips Respironics Recall

In June 2021, one of Apria’s suppliers, Philips Respironics, announced a voluntary recall of its continuous and non-continuous ventilators (certain CPAP, bilevel positive airway pressure and ventilator devices) related to polyurethane foam used in those devices, which the U.S.

Food and Drug Administration (FDA) identified as a Class I recall, the most serious category of recall.

In December 2022, Philips Respironics issued a subsequent voluntary recall related to deficiencies in repairs made to certain of the ventilators that had originally been recalled in June 2021 (together with the June 2021 recall, the Recall).

In April 2024, Philips Respironics entered into a consent decree enjoining Philips Respironics from making and distributing non-medically necessary CPAP, bilevel positive airway pressure and ventilator devices at any of its Sleep and Respiratory Care Business facilities until the FDA determines that Philips Respironics has complied with the remediation and compliance activities set forth in the consent decree.

We continue to closely monitor the impact of the Recall and subsequent consent decree on our business.

To date, we have incurred significant costs coordinating Recall-related activities, and we may continue to incur additional significant costs (including costs in completing the replacement of devices subject to the Recall).

Some or all of these costs may not be recoverable from the product manufacturer.

While we believe we have access to a sufficient supply of CPAP, bilevel positive airway pressure and ventilator devices to service our home healthcare patients’ needs, other supply chain disruptions may have a future material adverse effect on our financial condition or results of operations, cash flows and liquidity.

Results of Operations

Three Months Ended

September 30, Change

(Dollars in thousands)

1 unchanged sentence

Patient Direct

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.

The Products & Healthcare Services net revenue increase of $59.3 million was primarily from net revenue growth in the Medical Distribution division of 4.7% which was partially offset by a slight decline in our Global Products division, primarily driven by a decline in international net revenue.

The Patient Direct segment net revenue growth of $30.5 million was driven by growth across certain product categories, including diabetes and sleep supplies, as a result of new patient starts and high retention of customers, and lower estimated variable consideration as a result of improved collection rates, which contributed approximately $9 million to the increase.

Foreign currency translation had an unfavorable impact on net revenue of $1.3 million for the three months ended March 31, 2024 as compared to the prior year period.

Cost of goods sold.

Three Months Ended

September 30, Change

(Dollars in thousands)

Cost of goods sold

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.

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.

The increase in cost of goods sold for the three months ended March 31, 2024 reflects the increased cost associated with net revenue growth of 3.6%, partially offset by cost reductions in our Global Products division, including approximately $5.5 million of savings associated with sourcing initiatives.

Foreign currency translation had an unfavorable impact on cost of goods sold of $1.0 million for the three months ended March 31, 2024 as compared to the prior year period.

Gross profit.

Three Months Ended

September 30, Change

(Dollars in thousands)

Gross margin $ 538,498 $ 513,279 $ 25,219 4.9 %

As a % of net revenue

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.

The changes in gross profit for the three months ended March 31, 2024 was driven by the same factors impacting net revenue and cost of goods sold.

Foreign currency translation had an unfavorable impact on gross profit of $2.2 million for the three months ended March 31, 2024 as compared to the prior year period.

Operating expenses.

Three Months Ended

September 30, Change

(Dollars in thousands)

2 unchanged sentences

Acquisition-related charges and intangible amortization

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.

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.

Exit and realignment charges, net

Other operating expense, net

The increase in Distribution, selling and administrative expenses (DS&A) expenses for the three months ended March 31, 2024 was driven primarily by incremental costs to support the $89.8 million, or 3.6% of net revenue growth, along with future revenue growth and an increase of approximately $11 million in teammate benefit costs, partially offset by approximately $5 million of personnel cost savings related to 2023 organizational changes, approximately $8 million in expense savings from our IT strategic initiatives, and other productivity gains derived from operating efficiencies.

Foreign currency translation had a favorable impact on DS&A of $0.3 million for the three months ended March 31, 2024 as compared to the prior year period.

Intangible amortization was $20.3 million for the three months ended March 31, 2024 and $20.9 million for the three months ended March 31, 2023 related primarily to intangible assets acquired in the Apria, Halyard and Byram acquisitions.

Acquisition-related charges were $1.3 million for the three months ended March 31, 2023 consisting primarily of costs related to the acquisition of Apria, Inc.

The decline from the prior year period reflect the incurrence of most of these costs within the first year after the March 29, 2022 acquisition date.

Exit and realignment charges, net were $27.4 million for the three months ended March 31, 2024.

These charges primarily related to our (1) Operating Model Realignment Program of $33.5 million, including professional fees, severance, and other costs to streamline functions and processes and (2) costs related to IT strategic initiatives such as converting certain divisions to common IT systems of $1.2 million partially offset by (3) a $7.4 million gain on the sale of our corporate headquarters.

Exit and realignment charges, net were $15.7 million for the three months ended March 31, 2023, which consisted primarily of costs related to our Operating Model Realignment Program, including professional fees, severance and costs to streamline functions and processes.

We expect to incur material future costs relating to our Operating Model Realignment Program and IT strategic initiatives, which we are not able to reasonably estimate.

The change in other operating expense, net for the three months ended March 31, 2024 as compared to the prior year reflects $3.3 million of losses on sales of accounts receivable under the Master Receivables Purchase Agreement (RPA) as compared to $0.8 million of losses for the three months ended March 31, 2023.

During the three months ended March 31, 2024, we incurred a favorable change of $2.5 million in foreign currency transaction gains and losses, net of derivative adjustments, as compared to the prior year.

Interest expense, net.

Three Months Ended

September 30, Change

(Dollars in thousands)

1 unchanged sentence

Effective interest rate

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.

Other (income) expense, net .

Interest expense, net for the three months ended March 31, 2024 decreased due to lower average outstanding borrowings of $367 million, partially offset by an increase in the effective interest rate of 30 basis points as compared to the three months ended March 31, 2023.

See Note 5 of Notes to Consolidated Financial Statements.

Other expense, net.

Three Months Ended

September 30, Change

(Dollars in thousands)

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.

Other expense, net

Other expense, net for the three months ended March 31, 2024 and 2023 includes interest cost and net actuarial losses related to our retirement plans.

Income taxes.

Three Months Ended

September 30, Change

(Dollars in thousands)

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) %

Income tax benefit

Effective tax rate

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.

The change in the effective tax rate for the three months ended March 31, 2024 compared to the same period in 2023 resulted primarily from changes in results of operations in the jurisdictions in which we operate and changes in forecasted results reflected in the tax rates.

Financial Condition, Liquidity and Capital Resources

4 unchanged sentences

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)

March 31, 2024

December 31, 2023

Cash and cash equivalents

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

Accounts receivable, net

Merchandise inventories

1 unchanged sentence

Accounts payable

(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.

(1) Based on period end accounts receivable and net revenue for the quarters ended March 31, 2024 and December 31, 2023.

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 26.7 as of March 31, 2024 and 24.8 as of December 31, 2023.

(2) Based on period end merchandise inventories and cost of goods sold for the quarters ended March 31, 2024 and December 31, 2023.

Liquidity and capital expenditures.

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

The following table summarizes our consolidated statements of cash flows for the three months ended March 31, 2024 and 2023:

Three Months Ended

(Dollars in thousands)

Net cash provided by (used for):

Net cash (used for) provided by:

Operating activities

2 unchanged sentences

Effect of exchange rate changes

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.

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.

Net decrease in cash, cash equivalents and restricted cash

Cash used for operating activities in the first three months of 2024 reflected a net loss and unfavorable changes in working capital.

Cash provided by operating activities in the first three months of 2023 reflected a net loss and favorable changes in working capital.

Cash used for investing activities in the first three months of 2024 included capital expenditures of $49.4 million for patient service equipment and our strategic and operational efficiency initiatives associated with property and equipment and capitalized software, offset by $49.5 million in proceeds from sale of property and equipment, which included sales of patient service equipment and $33.5 million in gross proceeds related to the sale of our corporate headquarters.

Cash used for investing activities in the first three months of 2023 included capital expenditures of $51.5 million for patient equipment and our strategic and operational efficiency initiatives associated with property and equipment and capitalized software, partially offset by $17.3 million in proceeds related primarily to the sale of patient equipment.

Cash used for financing activities in the first three months of 2024 included repayments of term loans of $4.6 million.

We had no borrowings under our revolving credit facility for the first three months of 2024 and had net borrowings of $65.7 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 $2.6 million for the first three months of 2024.

Cash used for financing activities in the first three months of 2023 included repayments of term loans of $26.5 million.

We had no borrowings under our revolving credit facility on a net basis for the first three 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 $5.8 million for the first three months of 2023.

Capital resources.

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

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.

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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.

We had $65.7 million in principal outstanding and no borrowings at March 31, 2024 and December 31, 2023 under our Receivables Financing Agreement.

At March 31, 2024 and December 31, 2023, we had maximum revolving borrowing capacity of $384 million and $450 million under our Receivable Financing Agreement.

The Revolving Credit Agreement provides a revolving borrowing capacity of $450 million.

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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.

At March 31, 2024 and December 31, 2023, our Revolving Credit Agreement was undrawn, and we had letters of credit, which reduce Revolver availability, totaling $26.7 million and $27.4 million, leaving $423 million available for borrowing at the end of each period.

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 $3.0 million as of March 31, 2024 and December 31, 2023.

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 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, the Receivables Financing Agreement, the 2024 Notes, the 4.500% senior unsecured notes due in March 2029, and the 6.625% senior unsecured notes due in April 2030 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 were in compliance with our debt covenants at March 31, 2024.

Cash received from the sales 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 and net cash proceeds were $515 million and $512 million during the three months ended March 31, 2024.

We collected $536 million of the sold accounts receivable for the three months ended March 31, 2024.

No accounts receivables were sold under the RPA for the three months ended March 31, 2023.

The losses on sale of accounts receivable, inclusive of professional fees incurred to establish the agreement, recorded in other operating expense, net in the consolidated statements of operations were $3.3 million and $0.8 million for the three months ended March 31, 2024 and 2023.

The RPA is separate and distinct from the accounts receivable securitization program (the Receivables Financing Agreement).

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.

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.

We believe cash generated by operating activities, including available cash proceeds from the RPA, 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.

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.

We earn a portion of our operating income in foreign jurisdictions outside the U.S.

Our cash and cash equivalents held by our foreign subsidiaries subject to repatriation totaled $26.8 million and $22.0 million at March 31, 2024 and December 31, 2023.

As of March 31, 2024, we are permanently reinvested in our foreign subsidiaries.

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.

Commitments include $48.4 million of legally binding lease payments for the Morgantown, West Virginia center of excellence for medical supplies and logistics lease signed, but not yet commenced.

Refer to our Annual Report on Form 10-K for the year ended December 31, 2023 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 5 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 Nine Months Ended

September 30,

Summarized Consolidated Statement of Operations - Guarantor Group

Three Months Ended

(Dollars in thousands)

March 31, 2024

Net revenue (1)

Gross margin 1,507,745

Operating income

Net loss (49,614)

(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

(1) Includes $28.4 million in sales to non-guarantor subsidiaries for the three months ended March 31, 2024.

Summarized Consolidated Balance Sheets - Guarantor Group

(Dollars in thousands)

March 31, 2024

December 31, 2023

Total current assets

Total assets 4,609,063 4,658,382

Total current liabilities

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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.

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.

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Summarized financial information of the Collateral Group is as follows:

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

Summarized Consolidated Balance Sheets - Collateral Group

(Dollars in thousands)

March 31, 2024

December 31, 2023

Total current assets

Total assets 4,240,524 4,614,380

Total current liabilities

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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 September 30, 2023.

For a discussion of recent accounting pronouncements, see our Annual Report on Form 10-K for the year ended December 31, 2023 and Note 12 in the Notes to Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for the period ended on March 31, 2024.

Forward-looking Statements

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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 dependence on certain vendors, suppliers and third-parties for key components, raw materials, finished goods, equipment and services;

● our ability to successfully identify, manage or integrate acquisitions, including Apria;

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● 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 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 or a third party’s information systems that impacts our business;

● 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;

● the risk of an impairment to goodwill or other long-lived assets;

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

Quantitative and Qualitative Disclosures About Market Risk

Certain quantitative and qualitative market risk disclosures are described in our Annual Report on Form 10-K for the year ended December 31, 2023.

Through March 31, 2024, there have been no material changes in the quantitative and qualitative market risk disclosures described in such Annual Report.

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