Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis describes results of operations and material changes in the financial condition of Owens & Minor, Inc. and its subsidiaries since December 31, 2023. Trends of a material nature are discussed to the extent known and considered relevant. This discussion should be read in conjunction with the consolidated financial statements, related notes thereto, and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2023.
Overview
Owens & Minor, Inc., along with its subsidiaries, (we, us, or our) is a global healthcare solutions company. Our business has two distinct segments: Products & Healthcare Services and Patient Direct. Products & Healthcare Services provides distribution, outsourced logistics and value-added services, and manufactures and sources medical surgical products through our production and kitting operations. The Patient Direct segment includes our home healthcare divisions (Byram and Apria).
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.
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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, 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 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. 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. 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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Results of Operations
Net revenue.
Three Months Ended
June 30,
Change
(Dollars in thousands)
2024
2023
$
%
Products & Healthcare Services
$
2,010,605
$
1,930,723
$
79,882
4.1
%
Patient Direct
660,401
632,503
27,898
4.4
%
Net revenue
$
2,671,006
$
2,563,226
$
107,780
4.2
%
Six Months Ended
June 30,
Change
(Dollars in thousands)
2024
2023
$
%
Products & Healthcare Services
$
3,985,442
$
3,846,212
$
139,230
3.6
%
Patient Direct
1,298,244
1,239,863
58,381
4.7
%
Net revenue
$
5,283,686
$
5,086,075
$
197,611
3.9
%
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.
Three Months Ended
June 30,
Change
(Dollars in thousands)
2024
2023
$
%
Cost of goods sold
$
2,126,853
$
2,043,794
$
83,059
4.1
%
Six Months Ended
June 30,
Change
(Dollars in thousands)
2024
2023
$
%
Cost of goods sold
$
4,204,003
$
4,069,336
$
134,667
3.3
%
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.
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Gross profit.
Three Months Ended
June 30,
Change
(Dollars in thousands)
2024
2023
$
%
Gross profit
$
544,153
$
519,432
$
24,721
4.8
%
As a % of net revenue
20.37
%
20.26
%
Six Months Ended
June 30,
Change
(Dollars in thousands)
2024
2023
$
%
Gross profit
$
1,079,683
$
1,016,739
$
62,944
6.2
%
As a % of net revenue
20.43
%
19.99
%
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.
Three Months Ended
June 30,
Change
(Dollars in thousands)
2024
2023
$
%
Distribution, selling and administrative expenses
$
469,313
$
455,030
$
14,283
3.1
%
As a % of net revenue
17.57
%
17.75
%
Acquisition-related charges and intangible amortization
$
19,985
$
22,203
$
(2,218)
(10.0)
%
Exit and realignment charges, net
$
29,293
$
28,963
$
330
1.1
%
Other operating expense, net
$
5,263
$
2,397
$
2,866
119.6
%
Six Months Ended
June 30,
Change
(Dollars in thousands)
2024
2023
$
%
Distribution, selling and administrative expenses
$
946,926
$
903,752
$
43,174
4.8
%
As a % of net revenue
17.92
%
17.77
%
Acquisition-related charges and intangible amortization
$
40,298
$
44,392
$
(4,094)
(9.2)
%
Exit and realignment charges, net
$
56,649
$
44,637
$
12,012
26.9
%
Other operating expense, net
$
5,815
$
3,312
$
2,503
75.6
%
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.
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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 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.
Three Months Ended
June 30,
Change
(Dollars in thousands)
2024
2023
$
%
Interest expense, net
$
35,899
$
40,728
$
(4,829)
(11.9)
%
Effective interest rate
7.09
%
6.93
%
Six Months Ended
June 30,
Change
(Dollars in thousands)
2024
2023
$
%
Interest expense, net
$
71,554
$
82,926
$
(11,372)
(13.7)
%
Effective interest rate
7.15
%
6.86
%
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.
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Other expense, net.
Three Months Ended
June 30,
Change
(Dollars in thousands)
2024
2023
$
%
Other expense, net
$
1,205
$
1,072
$
133
12.4
%
Six Months Ended
June 30,
Change
(Dollars in thousands)
2024
2023
$
%
Other expense, net
$
2,358
$
2,458
$
(100)
(4.1)
%
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.
Three Months Ended
June 30,
Change
(Dollars in thousands)
2024
2023
$
%
Income tax provision (benefit)
$
15,108
$
(2,720)
$
17,828
655.4
%
Effective tax rate
(89.9)
%
8.8
%
Six Months Ended
June 30,
Change
(Dollars in thousands)
2024
2023
$
%
Income tax provision (benefit)
$
9,882
$
(12,079)
$
21,961
181.8
%
Effective tax rate
(22.5)
%
18.7
%
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
Financial condition . We monitor operating working capital through days sales outstanding (DSO) and merchandise inventory days. We estimate a hypothetical increase (decrease) in DSO of one day would result in a decrease (increase) in our cash balances, an increase (decrease) in borrowings against our Revolving Credit Agreement or Receivables Financing Agreement, or a combination thereof of approximately $29 million.
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The majority of our cash and cash equivalents are held in cash depository accounts with major banks in North America, Europe, and Asia. Changes in our working capital can vary in the normal course of business based upon the timing of inventory purchases, collections of accounts receivable, and payments to suppliers.
Change
(Dollars in thousands)
June 30, 2024
December 31, 2023
$
%
Cash and cash equivalents
$
243,671
$
243,037
$
634
0.3
%
Accounts receivable, net
$
662,444
$
598,257
$
64,187
10.7
%
DSO (1)
22.1
20.5
Merchandise inventories
$
1,231,413
$
1,110,606
$
120,807
10.9
%
Inventory days (2)
52.7
49.0
Accounts payable
$
1,381,871
$
1,171,882
$
209,989
17.9
%
(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 26.5 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 six months ended June 30, 2024 and 2023:
Six Months Ended
June 30,
(Dollars in thousands)
2024
2023
Net cash provided by (used for):
Operating activities
$
63,187
$
471,510
Investing activities
(37,040)
(65,668)
Financing activities
(24,920)
(183,120)
Effect of exchange rate changes
(682)
196
Net increase in cash, cash equivalents and restricted cash
$
545
$
222,918
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.
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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. Our primary sources of liquidity include cash and cash equivalents, our Receivables Financing Agreement, and our Revolving Credit Agreement. The Receivables Financing Agreement provides a maximum revolving borrowing capacity of $450 million. The interest rate under the Receivables Financing Agreement is based on a spread over a benchmark SOFR rate (as described in the Fourth Amendment to the Receivables Financing Agreement, as further amended by the Fifth Amendment to the Receivables Financing Agreement). Under the Receivables Financing Agreement, certain of our accounts receivable balances are sold to our wholly owned special purpose entity, O&M Funding LLC. The Receivables Financing Agreement matures in March 2025. We had no borrowings at June 30, 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. We have $898 million in outstanding term loans under a term loan credit agreement (the Credit Agreement). The interest rate on our Revolving Credit Agreement is based on a spread over a benchmark rate (as described in the Revolving Credit Agreement). The Revolving Credit Agreement matures in March 2027. The interest rate on the Term Loan A is based on either the Term SOFR or the Base Rate plus an Applicable Rate which varies depending on the current Debt Ratings or Total Leverage Ratio, determined as to whichever shall result in more favorable pricing to the Borrowers (each as defined in the Credit Agreement). The interest rate on the Term Loan B is based on either the Term SOFR or the Base Rate plus an Applicable Rate. The Term Loan A matures in March 2027 and the Term Loan B matures in March 2029.
At 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 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 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
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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).
We regularly evaluate market conditions, our liquidity profile and various financing alternatives to enhance our capital structure. We have from time to time, entered into, and from time to time in the future, we may enter into transactions to repay, repurchase or redeem our outstanding indebtedness (including by means of open market purchases, privately negotiated repurchases, tender or exchange offers and/or repayments or redemptions pursuant to the debt’s terms). Our ability to consummate any such transaction will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. We cannot provide any assurance as to if or when we will consummate any such transactions or the terms of any such transaction.
We believe cash generated by operating activities, 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 U.S. 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
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, of 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.
The following tables present summarized financial information for Owens & Minor, Inc. and the guarantors of Owens & Minor, Inc.’s 2024 Notes (together, “the Guarantor Group”), on a combined basis with intercompany balances and transactions between entities in the Guarantor Group eliminated. The guarantor subsidiaries are 100% owned by Owens & Minor, Inc. Separate financial statements of the guarantor subsidiaries are not presented because the guarantees by our guarantor subsidiaries are full and unconditional, as well as joint and several.
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Summarized financial information of the Guarantor Group is as follows:
Summarized Consolidated Statement of Operations - Guarantor Group
Six Months Ended
(Dollars in thousands)
June 30, 2024
Net revenue (1)
$
5,201,722
Gross profit
1,038,640
Operating income
14,708
Net loss
(58,636)
(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)
June 30, 2024
December 31, 2023
Total current assets
$
1,656,446
$
1,472,999
Total assets
4,797,778
4,601,026
Total current liabilities
2,241,249
2,002,468
Total liabilities
4,521,706
4,243,230
The following tables present summarized financial information for Owens & Minor, Inc. and the subsidiaries of Owens & Minor, Inc.’s 2024 Notes pledged that constitute a substantial portion of collateral (together, “the Collateral Group”), on a combined basis with intercompany balances and transactions between entities in the Collateral Group eliminated. The pledged subsidiaries are 100% owned by Owens & Minor, Inc. No trading market for the subsidiaries included in the Collateral Group exists.
Summarized financial information of the Collateral Group is as follows:
Summarized Consolidated Balance Sheets - Collateral Group
(Dollars in thousands)
June 30, 2024
December 31, 2023
Total current assets
$
1,495,870
$
1,280,045
Total assets
4,425,775
4,220,357
Total current liabilities
2,064,898
1,821,030
Total liabilities
4,077,513
3,801,549
The results of operations of the Collateral Group are not materially different from the corresponding amounts presented in our consolidated statements of operations.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see our Annual Report on Form 10-K for the year ended December 31, 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 June 30, 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
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those projected, anticipated or implied by these statements. Such forward-looking statements involve known and unknown risks, including, but not limited to:
● 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, finished goods, equipment and services;
● 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;
● our ability to successfully manage our international operations, including risks associated with changes in international trade regulations, foreign currency volatility, adverse tax consequences, and other risks of operating in international markets;
● uncertainties related to, and our ability to adapt to and comply with, changes in government regulations, including healthcare, tax and product licensing laws and regulations;
● risks arising from possible violations of legal, regulatory or licensing requirements of the markets in which we operate;
● uncertainties related to general economic, regulatory and business conditions and our ability to adapt to changes in product pricing and other terms of purchase by suppliers of product;
● our ability to meet the terms to qualify for supplier funding programs;
● the ability of customers and suppliers to meet financial commitments due to us;
● changes in manufacturer preferences between direct sales and wholesale distribution;
● changing trends in customer profiles and ordering patterns;
● our ability to manage operating expenses and improve operational efficiencies;
● availability of, and our ability to access, special inventory buying opportunities;
● our ability to continue to obtain financing at reasonable rates and to manage financing costs and interest rate risk, and our ability to refinance, extend or repay our substantial indebtedness;
● our ability to attract and retain talented and qualified teammates;
● recalls of any of our products, or safety risks or the discovery of serious safety issues with our products;
● changes, delays and uncertainties in the reimbursement process;
● our ability to adequately establish, maintain, protect and enforce our intellectual property and proprietary rights as well as avoid infringement, misappropriation or other violations of the intellectual property and proprietary rights of third parties;
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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 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;
● our ability to timely or adequately respond to technological advances;
● our failure to adequately insure against losses, including from substantial claims and litigation;
● our ability to meet performance targets specified by customer contracts under contractual commitments;
● our capitation arrangements may prove unprofitable if actual utilization rates exceed our assumptions;
● the outcome of outstanding and any future litigation, including product and professional liability claims;
● volatility in the price of our common stock and securities; and
● other factors detailed from time to time in the reports we file with the SEC, including those described in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023.
We undertake no obligation to update or revise any forward-looking statements, except as required by applicable law.
Item 3. 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 June 30, 2024, there have been no material changes in the quantitative and qualitative market risk disclosures described in such Annual Report.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.