What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-04 compared with 2024-08-02 · 127 added, 130 removed, 169 unchanged (60% of the section changed)

14 unchanged sentences

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.

Net (loss) per share was $(0.17) and $(0.87) for the three and nine months ended September 30, 2024 as compared to net (loss) per share of $(0.08) and $(0.78) for the three and nine months ended September 30, 2023.

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

(1) a decline in operating income of our Products & Healthcare Services segment as described below;

(2) $10.0 million of expense primarily for a legal settlement and related charges for a compensation dispute, partially offset by (3) an increase in operating income by our Patient Direct segment as described below;

(4) a decline in intangible amortization of $6.2 million;

and (5) a decline in interest expense of $1.6 million.

Our financial results for the nine months ended September 30, 2024 as compared to the prior year periods were impacted by the following:

(1) the remeasurement of an uncertain tax position, including interest which resulted in a $17.9 million, or $(0.23) income tax charge per share for the nine months ended September 30, 2024 (see Note 8 in Notes to Consolidated Financial Statements);

(2) legal settlements of $16.7 million related primarily to compensation and wage and hour disputes and (3) a $10.7 million increase in exit and realignment charges, net partially offset by (4) operating income increases in both of our segments as described below;

(5) a decline in interest expense of $12.9 million;

and (6) a decline in intangible amortization of $11.5 million.

Net (loss) per share was favorably impacted as compared to the prior year by foreign currency translation in the amount of $0.02 and $0.01 for the three and nine months ended September 30, 2024.

Products & Healthcare Services operating income was $4.2 million and $27.2 million for the three and nine months ended September 30, 2024, compared to $19.8 million and $24.6 million for the three and nine months ended September 30, 2023.

The decline for the three months ended September 30, 2024 was primarily due to (1) a $10.3 million increase in last in, first out (LIFO) charges, (2) $4.6 million of unfavorable changes in foreign currency transaction gains and losses, net of derivative adjustments, as compared to the prior year and (3) costs to support future revenue growth partially offset by (4) revenue growth of 4.7% and (5) approximately $11 million of savings derived

sourcing initiatives and other operating efficiencies .

The increase for the nine months ended September 30, 2024 was primarily due to revenue growth of 4.0% and savings derived by our sourcing initiatives of approximately $26 million, partially offset by a $14.2 million increase in LIFO charges, increased costs to support future revenue growth, and approximately $8 million of increased teammate benefit costs.

Patient Direct operating income was $79.9 million and $191 million for the three and nine months ended September 30, 2024, compared to $64.4 million and $169 million for the three and nine months ended September 30, 2023.

This segment’s results reflect revenue growth of 5.9% and 5.1% and cost savings from information technology (IT) strategic initiatives and other operating efficiencies.

For the nine months ended September 30, 2024, we recognized a $5.1 million gain from an agreement with Philips Respironics (Philips) for previously recalled equipment, which was partially offset by unfavorable changes in revenue mix and approximately $15 million of increased teammate benefit costs.

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

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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.

During the second quarter, we reached an agreement with Philips requiring Philips to pay us for recalled equipment returned to Philips.

Refer to the ‘Overview’ section for details of the impacts to our statements of operations for the nine months ended September 30, 2024.

During the three months ended September 30, 2024, we received $17.1 million from Philips which was recorded in the ‘other, net’ line item within investing activities of the consolidated statements of cash flows.

The corresponding gain of $5.1 million on the returned equipment for the nine months ended September 30, 2024 is reflected in the ‘gain on sales and dispositions of property and equipment’ line item within operating activities of the consolidated statements of cash flows.

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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Three Months Ended

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Patient Direct

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1 unchanged sentence

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.

The Products & Healthcare Services net revenue increase of $90.8 million for the three months ended September 30, 2024 was driven primarily from net revenue growth in the Medical Distribution division of 5.5%, which includes the benefit of one additional sales day.

The Patient Direct segment net revenue growth for the three months ended September 30, 2024 of $38.6 million was driven by growth across most product categories, including diabetes and sleep supplies, as a result of patient growth and high retention of customers.

The Products & Healthcare Services net revenue increase of $230 million for the nine months ended September 30, 2024 was driven primarily from net revenue growth in the Medical Distribution division of 5.0%, which includes the benefit of one additional sales day and 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 nine months ended September 30, 2024 of $97.0 million was driven by virtually the same factors impacting the third quarter of 2024.

Foreign currency translation had a favorable impact on net revenue of $0.2 million for the three months ended September 30, 2024 and an unfavorable impact of $3.0 million for the nine months ended September 30, 2024 as compared to the prior year periods.

Cost of goods sold.

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Cost of goods sold

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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.

The increase in cost of goods sold for the three months ended September 30, 2024 reflects the increased cost associated with net revenue growth of 5.0% and a $10.3 million increase in LIFO charges, which reflects a $6.7 million LIFO liquidation credit for the three months ended September 30, 2023 as a result of a reduction in our Products & Healthcare Services segment inventory, as measured on a first in, first out basis.

The increase was partially offset by cost reductions in our Global Products division, including approximately $11 million of savings associated with sourcing initiatives and other operating efficiencies.

The increase in cost of goods sold for the nine months ended September 30, 2024 reflects the increased cost associated with net revenue growth of 4.3% and a $14.2 million increase in LIFO charges , partially offset by cost reductions in our Global Products division, including approximately $26 million of savings associated with sourcing initiatives.

Foreign currency translation had a favorable impact on cost of goods sold of $2.2 million and $3.1 million for the three and nine months ended September 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 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.

The changes in gross profit for the three and nine months ended September 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 a favorable impact on gross profit of $2.4 million and $0.1 million for the three and nine months ended September 30, 2024 as compared to the prior year periods.

Operating expenses.

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Other operating expense, net

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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 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.

The increase in Distribution, selling and administrative (DS&A) expenses for the three months ended September 30, 2024 was driven primarily by incremental costs to support the $129 million, or 5.0%, net revenue growth, along with future revenue growth, partially offset by productivity gains derived from operating efficiencies.

The increase in DS&A expenses for the nine months ended September 30, 2024 was driven primarily by incremental costs to support the $327 million, or 4.3%, net revenue growth, along with future revenue growth and an increase of approximately $22 million in teammate benefit costs, partially offset by approximately $14 million in expense savings from our IT strategic initiatives, approximately $8 million of personnel cost savings related to 2023 organizational changes, and other productivity gains derived from operating efficiencies.

Foreign currency translation had an unfavorable impact on DS&A expenses of $0.1 million and favorable impact on DS&A expenses of $0.8 million for the three and nine months ended September 30, 2024 as compared to the prior year periods.

Intangible amortization was $14.6 million and $51.2 million for the three and nine months ended September 30, 2024 and $20.8 million and $62.7 million for the three and nine months ended September 30, 2023

related primarily to intangible assets acquired in the Apria, Halyard Health, Inc.

and Byram Healthcare Centers, Inc.

acquisitions.

The declines as compared to the prior periods of $6.2 million and $11.5 million, respectively, was related to certain intangible assets being fully amortized.

See Note 3 in Notes to Consolidated Financial Statements.

Acquisition-related charges were $6.5 million and $10.2 million for the three and nine months ended September 30, 2024 consisting of costs related to the expected acquisition of Rotech.

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

See Note 1 in Notes to Consolidated Financial Statements.

Exit and realignment charges, net were $28.9 million and $85.5 million for the three and nine months ended September 30, 2024.

These charges were primarily related to our (1) Operating Model Realignment Program of $19.5 million and $75.9 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 $7.6 million and $14.3 million and, (3) other costs associated with strategic initiatives of $1.8 million and $2.8 million for the three and nine months ended September 30, 2024.

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

Exit and realignment charges, net 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.

We may incur material future costs relating to certain exit and realignment actions, which remain underway and we are not able to reasonably estimate.

The change in other operating expense, net for the three and nine months ended September 30, 2024 reflects $3.6 million and $10.8 million of losses on sales of accounts receivable under the Master Receivables Purchase Agreement (RPA) as compared to $3.5 million and $7.1 million of losses for the three and nine months ended September 30, 2023.

Other operating expense, net for the three months ended September 30, 2024 reflects $10.0 million of expense primarily for a legal settlement and related charges for a compensation dispute.

Other operating expense, net for the nine months ended September 30, 2024 reflects $16.7 million related primarily to the legal settlements of a compensation dispute and a wage and hour dispute in the state of California within our Apria division and gains related to an agreement with Philips for previously recalled equipment of $5.1 million.

During the three and nine months ended September 30, 2024, we incurred an unfavorable change of $4.6 million and $1.4 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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1 unchanged sentence

Effective interest rate

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1 unchanged sentence

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.

Interest expense, net for the three and nine months ended September 30, 2024 decreased due to lower average outstanding borrowings of $148 million and $260 million, partially offset by an increase in the effective interest rate of

11 basis points and 22 basis points as compared to the three and nine months ended September 30, 2023.

See Note 5 in Notes to Consolidated Financial Statements.

Other expense, net.

Other expense (income), net.

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Other expense, net

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Other expense (income), net

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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.

Other expense (income), net

Other expense (income), net for the three and nine months ended September 30, 2024 and 2023 includes interest cost and net actuarial losses related to our retirement plans.

In addition, other expense (income), net for the three and nine months ended September 30, 2024 includes a loss on extinguishment of debt of $0.3 million compared to a 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 for the three and nine months ended September 30, 2023.

Income taxes.

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Income tax provision (benefit)

Income tax benefit

Effective tax rate

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1 unchanged sentence

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 change in the effective tax rate for the three months ended September 30, 2024 compared to the same period in 2023 resulted primarily from changes in results of operations in the jurisdictions in which we operate and a tax benefit recorded for foreign derived intangible income during the three months ended September 30, 2023.

The change in the effective tax rate for the nine months ended September 30, 2024 compared to the same period in 2023 resulted primarily from a one-time income tax charge of $17.9 million, or $(0.23) per share, related to a recent decision associated with Notices of Proposed Adjustments (NOPA) that we received in 2020 and 2021 as well as the factors described for the three month period.

The NOPA was communicated to us in late June 2024.

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

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(Dollars in thousands)

June 30, 2024

September 30, 2024

December 31, 2023

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Accounts payable

(1) Based on period ended accounts receivable and net revenue for the quarters ended June 30, 2024 and December 31, 2023.

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

Excluding the impact of the RPA, Consolidated DSO would have been 26.1 as of September 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 September 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

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

Nine Months Ended

September 30,

(Dollars in thousands)

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Effect of exchange rate changes

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.

Net (decrease) increase in cash, cash equivalents and restricted cash

Cash provided by operating activities in the first nine months of 2024 and 2023 reflected net losses and changes in working capital.

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

Cash used for investing activities in the first nine months of 2024 included capital expenditures of $157 million, primarily for patient service equipment and our strategic and operational efficiency initiatives associated with property and equipment and capitalized software, offset by $84.8 million in proceeds from sales and dispositions 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, and $17.1 million included in the ‘other, net’ line item for a settlement with Philips for returned equipment as described in the ‘Philips Respironics Recall’ section above.

Cash used for investing activities in the first nine months of 2023 included capital expenditures of $152 million for patient service 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 primarily to the sale of patient service equipment.

Cash used for financing activities in the first nine months of 2024 included repayments of debt of $211 million including the $171 million paid to redeem the outstanding 4.375% seniors notes due in December 2024 (the 2024 Notes), an unscheduled principal payment of $20.0 million on the Term Loan A and scheduled principal payments of $20.1 million on our Term Loans.

We had no borrowings under our revolving credit facility for the first nine 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

$8.1 million for the first nine months of 2024.

Cash 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.

Capital resources.

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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.

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

At September 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.

5 unchanged sentences

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.

At September 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 $3.0 million as of September 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 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 September 16, 2024, we redeemed all of our outstanding 2024 Notes, see Note 5 in Notes to Consolidated Financial Statements.

The Revolving Credit Agreement, the Credit Agreement, the Receivables Financing Agreement, 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.

We were in compliance with our debt covenants at September 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

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.

Total accounts receivable sold under the RPA were $542 million and $1.6 billion for the three and nine months ended September 30, 2024.

During the three and nine months ended September 30, 2024,

we received net cash proceeds of $538 million and $1.6 billion from the sale of accounts receivable under the RPA and collected $550 million and $1.6 billion of the sold accounts receivable.

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.

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 $3.6 million and $3.5 million for the three months ended September 30, 2024 and 2023 and $10.8 million and $7.1 million for the nine months ended September 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 $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.

Our cash and cash equivalents held by our foreign subsidiaries subject to repatriation totaled $22.2 million and $22.0 million at September 30, 2024 and December 31, 2023.

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

Contractual Obligations

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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.

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)

Operating income

(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

Total current liabilities

Total liabilities

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

Total current liabilities

Total liabilities

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

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● 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 implement 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;

28 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 June 30, 2024, there have been no material changes in the quantitative and qualitative market risk disclosures described in such Annual Report.

Through September 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