What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-02 compared with 2024-05-03 · 130 added, 70 removed, 169 unchanged (54% of the section changed)

9 unchanged sentences

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

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.

On July 22, 2024, we entered into an Agreement and Plan of Merger to acquire Rotech Healthcare Holdings Inc., (Rotech) for $1.36 billion in cash.

Given anticipated tax benefits of approximately $40 million from the transaction, the net purchase price is approximately $1.32 billion.

Rotech is a national leader in providing home medical equipment in the US.

The definitive agreement contains certain termination rights for the Company and Rotech.

In the event that we terminate the contract, we will be required to pay Rotech a termination fee of $70.0 million.

The transaction is subject to customary closing conditions, including expiration or termination of the applicable waiting period under the Hart Scott Rodino Act, and is expected to close by the end of 2024.

We have fully committed financing in place and expect to use a combination of cash and incremental borrowings to fund the purchase price.

Net (loss) per share was $(0.42) and $(0.70) for the three and six months ended June 30, 2024 as compared to net (loss) per share of $(0.37) and $(0.70) for the three and six months ended June 30, 2023.

Our financial results for the three and six months ended June 30, 2024 as compared to the prior year periods were impacted by the following:

(1) the remeasurement of an uncertain tax position, which resulted in a $17.2 million, or $(0.22) income tax charge per share for the three and six months ended June 30, 2024 (see Note 8 in Notes to Consolidated Financial Statements);

(2) increased exit and realignment charges;

partially offset by (3) improvements in the operating results by both of our segments as described below;

(4) lower interest expense;

and (5) lower intangible amortization.

Net (loss) per share was not impacted as compared to the prior year by foreign currency translation for the three months ended June 30, 2024 and was unfavorably impacted as compared to the prior year by foreign currency translation in the amount of $(0.01) for the six months ended June 30, 2024.

Products & Healthcare Services segment operating income was $11.5 million and $23.0 million for the three and six months ended June 30, 2024, compared to $2.9 million and $4.8 million for the three and six months ended June 30, 2023.

The increases were primarily from revenue growth of 4.1% and 3.6% and savings derived by our Operating Model Realignment Program of approximately $18 million and $42 million, partially offset by changes in product sales mix, increased costs to support future revenue growth, and approximately $3 million and $8 million of increased teammate benefit costs for the three and six months ended June 30, 2024.

Patient Direct segment operating income was $64.8 million and $111 million for the three and six months ended June 30, 2024, compared to $59.1 million and $105 million for the three and six months ended June 30, 2023.

This segment’s results reflect revenue growth of 4.4% and 4.7%, savings derived by our Operating Model Realignment Program of approximately $3 million and $5 million, a $4.2 million gain related to an agreement with Philips Respironics (Philips) for previously recalled equipment, and cost savings from information technology (IT) strategic initiatives and other operating efficiencies, which were partially offset by unfavorable changes in revenue mix and approximately $8 million and $14 million of increased teammate benefit costs for the three and six months ended June 30, 2024.

Refer to ‘Results of Operations’ for further detail of quantitative and qualitative drivers of our results.

Philips Respironics Recall

In June 2021, one of Apria’s suppliers, Philips Respironics, announced a voluntary recall 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.

In June 2021, one of Apria’s suppliers, Philips, announced a voluntary recall of its continuous and non-continuous ventilators (certain continuous positive airway pressure (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.

In December 2022, Philips 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 entered into a consent decree enjoining Philips 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 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.

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

During the second quarter, we reached an agreement with Philips which requires Philips to pay us approximately $14 million for recalled equipment which we will return to Philips.

Refer to the ‘Overview’ section for details of the impacts to our statements of operations for the three and six months ended June 30, 2024.

The amount owed from Philips was accrued within other current assets on our consolidated balance sheet as of June 30, 2024.

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.

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Patient Direct

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.

Six Months Ended

(Dollars in thousands)

Products & Healthcare Services

Patient Direct

The Products & Healthcare Services net revenue increase of $79.9 million for the three months ended June 30, 2024 was driven primarily from net revenue growth in the Medical Distribution division of 4.9%.

The Patient Direct segment net revenue growth for the three months ended June 30, 2024 of $28 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.

The Products & Healthcare Services net revenue increase of $139 million for the six months ended June 30, 2024 was driven primarily from net revenue growth in the Medical Distribution division of 4.8% 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 for the six months ended June 30, 2024 of $58 million was driven by virtually the same factors impacting the second quarter of 2024.

Foreign currency translation had an unfavorable impact on net revenue of $1.9 million and $3.2 million for the three and six months ended June 30, 2024 as compared to the prior year periods.

Cost of goods sold.

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Cost of goods sold

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.

Six Months Ended

(Dollars in thousands)

Cost of goods sold

The increase in cost of goods sold for the three months ended June 30, 2024 reflects the increased cost associated with net revenue growth of 4.2%, partially offset by cost reductions in our Global Products division, including approximately $9.5 million of savings associated with sourcing initiatives.

The increase in cost of goods sold for the six months ended June 30, 2024 reflects the increased cost associated with net revenue growth of 3.9%, partially offset by cost reductions in our Global Products division, including approximately $15.0 million of savings associated with sourcing initiatives.

Foreign currency translation had a favorable impact on cost of goods sold of $1.9 million and $0.9 million for the three and six months ended June 30, 2024 as compared to the prior year periods.

Gross profit.

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As a % of net revenue

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.

Six Months Ended

(Dollars in thousands)

As a % of net revenue

The changes in gross profit for the three and six months ended June 30, 2024 was driven by net revenue growth and other factors impacting net revenue and cost of goods sold described above.

Foreign currency translation had an unfavorable impact on gross profit of $0.1 million and $2.3 million for the three and six months ended June 30, 2024 as compared to the prior year periods.

Operating expenses.

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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.

Six Months Ended

(Dollars in thousands)

Distribution, selling and administrative expenses

As a % of net revenue

Acquisition-related charges and intangible amortization

Exit and realignment charges, net

Other operating expense, net

The increase in Distribution, selling and administrative (DS&A) expenses for the three months ended June 30, 2024 was driven primarily by incremental costs to support the $108 million, or 4.2%, net revenue growth, along with future revenue growth and an increase of approximately $11 million in teammate benefit costs, partially offset by approximately $4 million in expense savings from our IT strategic initiatives, approximately $2 million of personnel cost savings related to 2023 organizational changes, and other productivity gains derived from operating efficiencies.

The increase in DS&A expenses for the six months ended June 30, 2024 was driven primarily by incremental costs to support the $198 million, or 3.9%, net revenue growth, along with future revenue growth and an increase of approximately $22 million in teammate benefit costs, partially offset by approximately $13 million in expense savings from our IT strategic initiatives, approximately $7 million of personnel cost savings related to 2023 organizational changes, and other productivity gains derived from operating efficiencies.

Foreign currency translation had a favorable impact on DS&A expenses of $0.5 million and $0.8 million for the three and six months ended June 30, 2024 as compared to the prior year periods.

Intangible amortization was $16.3 million and $36.5 million for the three and six months ended June 30, 2024 and $20.9 million and $41.8 million for the three and six months ended June 30, 2023 related primarily to intangible assets acquired in the Apria, Halyard and Byram acquisitions.

Acquisition-related charges were $3.7 million for the three and six months ended June 30, 2024 consisting of costs related to the pending Rotech transaction.

Acquisition-related charges were $1.3 million and $2.5 million for the three and six months ended June 30, 2023 consisting primarily of costs related to the acquisition of Apria, Inc.

The decline from the three and six month prior year periods reflect the incurrence of most of these costs closer to the March 29, 2022 acquisition date, and intangible amortization expense reduction of $4.7 million and $5.3 million, as certain intangible assets are fully amortized.

Exit and realignment charges, net were $29.3 million and $56.6 million for the three and six months ended June 30, 2024.

These charges were primarily related to our (1) Operating Model Realignment Program of $22.9 million and $56.4 million, including professional fees, severance, and other costs to streamline functions and processes, (2) costs related to IT strategic initiatives such as converting certain divisions to common IT systems of $5.4 million and $6.7 million and, (3) other costs associated with strategic initiatives of $1.0 million and $1.1 million for the three and six months ended June 30, 2024.

Exit and realignment charges, net also included a $7.4 million gain on the sale of our corporate headquarters for the six months ended June 30, 2024.

Exit and realignment charges, net were $29.0 million and $44.6 million for the three and six months ended June 30, 2023.

These charges primarily related to our (1) Operating Model Realignment Program of $24.3 million and $39.3 million, including professional fees, severance, and other costs to streamline functions and processes, (2) IT restructuring charges such as converting certain divisions to a common information technology system of $3.4 million and $3.5 million and, (3) other costs associated with strategic initiatives of $1.3 million and $1.8 million for the three and six months ended June 30, 2023.

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.

The change in other operating expense, net for the three and six months ended June 30, 2024 reflects $3.9 million and $7.2 million of losses on sales of accounts receivable under the Master Receivables Purchase Agreement (RPA) as compared to $2.9 million and $3.6 million of losses for the three and six months ended June 30, 2023.

Other operating expense, net for the three and six months ended June 30, 2024 reflects $6.7 million related to the settlement of a wage and hour dispute in the state of California within our Apria division and a $4.2 million gain related to an agreement with Philips for previously recalled equipment.

During the three and six months ended June 30, 2024, we incurred a favorable change of $0.8 million and $3.3 million in foreign currency transaction gains and losses, net of derivative adjustments, as compared to the prior year.

Interest expense, net.

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Effective interest rate

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.

Six Months Ended

(Dollars in thousands)

Interest expense, net

Effective interest rate

Interest expense, net for the three and six months ended June 30, 2024 decreased due to lower average outstanding borrowings of $267 million and $325 million, partially offset by an increase in the effective interest rate of 16 basis points and 29 basis points as compared to the three and six months ended June 30, 2023.

See Note 5 in Notes to Consolidated Financial Statements.

Other expense, net.

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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.

Six Months Ended

(Dollars in thousands)

Other expense, net

Other expense, net for the three and six months ended June 30, 2024 and 2023 includes interest cost and net actuarial losses related to our retirement plans.

In addition, other expense, net for the three and six months ended June 30, 2023 includes the loss on extinguishment of debt, of $0.3 million and $0.8 million associated with the early retirement of indebtedness of $48.0 million and $73.0 million.

Income taxes.

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(Dollars in thousands)

Income tax benefit

Income tax provision (benefit)

Effective tax rate

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.

Six Months Ended

(Dollars in thousands)

Income tax provision (benefit)

Effective tax rate

The change in the effective tax rate for the three and six months ended June 30, 2024 compared to the same periods in 2023 resulted primarily from a one-time income tax charge of $17.2 million, or $(0.22) per share, related to a recent decision associated with Notices of Proposed Adjustments that we received in 2020 and 2021, for the three and six months ended June 30, 2024.

This was communicated to us in late June 2024.

The matter at hand is related to past transfer pricing methodology, which is no longer employed.

See Note 8 in Notes to Consolidated Financial Statements.

Financial Condition, Liquidity and Capital Resources

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(Dollars in thousands)

March 31, 2024

June 30, 2024

December 31, 2023

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Accounts payable

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

(1) Based on period ended accounts receivable and net revenue for the quarters ended June 30, 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.

Excluding the impact of the RPA, Consolidated DSO would have been 26.5 as of June 30, 2024 and 24.8 as of December 31, 2023.

(2) Based on period ended merchandise inventories and cost of goods sold for the quarters ended June 30, 2024 and December 31, 2023.

Liquidity and capital expenditures.

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

Three Months Ended

The following table summarizes our consolidated statements of cash flows for the six months ended June 30, 2024 and 2023:

Six Months Ended

(Dollars in thousands)

Net cash (used for) provided by:

Net cash provided by (used for):

Operating activities

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Effect of exchange rate changes

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.

Net increase in cash, cash equivalents and restricted cash

Cash provided by operating activities in the first six months of 2024 reflected a net loss and favorable changes in working capital.

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

The change in cash provided by operating activities is primarily driven by the reduction in accounts receivable, net from the initial favorability of uncollected accounts receivable sold through the RPA and the significant reduction in inventory levels during the six months ended June 30, 2023, as these items did not recur during the six months ended June 30, 2024.

Cash used for investing activities in the first six months of 2024 included capital expenditures of $95.2 million for patient service equipment and our strategic and operational efficiency initiatives associated with property and equipment and capitalized software, offset by $67.0 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 six months of 2023 included capital expenditures of $101 million for patient service equipment and our strategic and operational efficiency initiatives associated with property and equipment and capitalized software, partially offset by $35.7 million in proceeds related primarily to the sale of patient service equipment.

Cash used for financing activities in the first six months of 2024 included repayments of term loans of $12.4 million.

We had no borrowings under our revolving credit facility for the first six months of 2024 and the activity under our amended Receivables Financing Agreement netted to no impact to our outstanding borrowings.

Payments for taxes related to the vesting of restricted stock awards, which are included in Other, net, were $8.0 million for the first six months of 2024.

Cash used for financing activities in the first six months of 2023 included repayments of term loans of $78.3 million, including $65.0 million of unscheduled principal payments on the Term Loan A and the Term Loan B.

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

Payments for taxes related to the vesting of restricted stock awards, which are included in Other, net, were $10.2 million for the first six months of 2023.

Capital resources.

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The Receivables Financing Agreement matures in March 2025.

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.

We had no borrowings at June 30, 2024 and December 31, 2023 under our Receivables Financing Agreement.

At June 30, 2024 and December 31, 2023, we had maximum revolving borrowing capacity of $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 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.

At June 30, 2024 and December 31, 2023, our Revolving Credit Agreement was undrawn, and we had letters of credit, which reduce Revolver availability, totaling $31.5 million and $27.4 million, leaving $419 million and $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 $2.9 million and $3.0 million as of June 30, 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.

On July 31, 2024, we provided notice that we intend to redeem the 2024 Notes, see Note 14 in Notes to Consolidated Financial Statements.

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 March 31, 2024.

We were in compliance with our debt covenants at June 30, 2024.

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 a third-party financial institution (the Purchaser) in exchange for cash.

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.

Total accounts receivable sold under the RPA were $573 million and $1.1 billion for the three and six months ended June 30, 2024.

During the three and six months ended June 30, 2024, we received net cash proceeds of $569 million and $1.1 billion from the sale of accounts receivable under the RPA and collected $547

million and $1.1 billion of the sold accounts receivable.

Total accounts receivable sold under the RPA were $412 million for the three and six months ended June 30, 2023.

During the three and six months ended June 30, 2023, we received net cash proceeds of $409 million from the sale of accounts receivable under the RPA and collected $297 million of the sold accounts receivable.

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 $3.9 million and $2.9 million for the three months ended June 30, 2024 and 2023 and $7.2 million and $3.6 million for the six months ended June 30, 2024 and 2023.

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

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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.

Our cash and cash equivalents held by our foreign subsidiaries subject to repatriation totaled $21.8 million and $22.0 million at June 30, 2024 and December 31, 2023.

As of June 30, 2024, we are permanently reinvested in our foreign subsidiaries.

Contractual obligations

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Summarized Consolidated Statement of Operations - Guarantor Group

Three Months Ended

Six Months Ended

(Dollars in thousands)

March 31, 2024

June 30, 2024

Net revenue (1)

Operating income

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

(1) Includes $59.1 million in sales to non-guarantor subsidiaries for the six months ended June 30, 2024.

Summarized Consolidated Balance Sheets - Guarantor Group

(Dollars in thousands)

March 31, 2024

June 30, 2024

December 31, 2023

9 unchanged sentences

(Dollars in thousands)

March 31, 2024

June 30, 2024

December 31, 2023

4 unchanged sentences

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, see our Annual Report on Form 10-K for the year ended December 31, 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

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.

those projected, anticipated or implied by these statements.

Such forward-looking statements involve known and unknown risks, including, but not limited to:

2 unchanged sentences

● 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;

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

● our ability to successfully implement our Operating Model Realignment Program and our strategic initiatives;

29 unchanged sentences

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.

Through June 30, 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