What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-08 compared with 2024-11-04 · 138 added, 181 removed, 115 unchanged (74% of the section changed)

6 unchanged sentences

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.

Products & Healthcare Services (P&HS) and Patient Direct.

The Products & Healthcare Services segment includes our U.S.

distribution division (Medical Distribution), including outsourced logistics and value-added services, and our Global Products division which manufactures and sources medical surgical products through our production and kitting operations.

The Patient Direct segment includes our home healthcare divisions.

Net (loss) per share was $(0.32) for the three months ended March 31, 2025 as compared to net (loss) per share of $(0.29) for the three months ended March 31, 2024.

Our financial results for the three months ended March 31, 2025 as compared to the prior year period were impacted by acquisition-related charges of $16 million related to the planned acquisition of Rotech Healthcare Holdings Inc.

(Rotech), a $3.9 million increase in exit and realignment charges, net, partially offset by a decrease in intangible amortization of $6.5 million.

Net (loss) per share was unfavorably impacted as compared to the prior year by foreign currency translation in the amount of $(0.03) for the three months ended March 31, 2025.

Products & Healthcare Services segment operating income was $1.2 million for the three months ended March 31, 2025, compared to $11 million for the three months ended March 31, 2024.

This decrease was primarily driven by a $17 million decrease in net revenue, partially offset by a reduction in teammate benefit costs of $10 million.

Patient Direct segment operating income was $60 million for the three months ended March 31, 2025, compared to $46 million for the three months ended March 31, 2024.

This segment’s results reflect revenue growth of 5.7% and a reduction in teammate benefits costs of $5.9 million.

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

Potential Sale of Products & Healthcare Services Segment

On February 28, 2025, we announced that we are actively engaged in discussions regarding the potential sale of our Products & Healthcare Services segment.

There is no set timetable for the potential sale and there can be no assurance that we will complete a transaction.

Planned Acquisition of Rotech

On July 22, 2024, we entered into an agreement and plan of merger to acquire Rotech for $1.36 billion in cash (the Acquisition).

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.

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

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 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 in the first half of 2025.

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 $(0.17) 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.

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 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.

The Acquisition 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 in the first half of 2025.

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

The Company and Rotech have entered into a timing agreement with the Federal Trade Commission (FTC) under which the FTC will have until June 10, 2025 to complete its review of the transaction.

Results of Operations

Three Months Ended

September 30,

(Dollars in thousands)

1 unchanged sentence

Patient Direct

Nine Months Ended

September 30,

(Dollars in thousands)

Products & Healthcare Services

Patient Direct

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.

Net revenue for the three months ended March 31, 2025, was negatively impacted by approximately $41 million as a result of one less sales day during the period compared to the same period in 2024.

The Products & Healthcare Services net revenue decrease was primarily driven by one less sales day along with a decline in our Global Products division due to competitive pricing pressures, including glo ve pricing .

The increase in our Patient Direct segment net revenue for the three months ended March 31, 2025 was driven primarily by growth across a number of product categories, including diabetes and sleep supplies.

Foreign currency translation had an unfavorable impact on net revenue of $1.7 million for the three months ended March 31, 2025 as compared to the prior year period.

Cost of goods sold.

Three Months Ended

September 30,

(Dollars in thousands)

Cost of goods sold

Nine Months Ended

September 30,

(Dollars in thousands)

Cost of goods sold

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.

The increase in cost of goods sold for the three months ended March 31, 2025 reflects the increased cost associated with net revenue growth of 0.7% and a rise in commodity input costs, partially offset by cost avoidance associated with certain procurement activities.

Foreign currency translation had an unfavorable impact on cost of goods sold of $1.6 million for the three months ended March 31, 2025 as compared to the prior year period.

Gross profit.

Three Months Ended

September 30,

(Dollars in thousands)

As a % of net revenue

Nine Months Ended

September 30,

(Dollars in thousands)

As a % of net revenue

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.

The changes in gross profit for the three months ended March 31, 2025 were driven by the same factors impacting net revenue and cost of goods sold.

Foreign currency translation had an unfavorable impact on gross profit of $3.3 million for the three months ended March 31, 2025 as compared to the prior year period.

Operating expenses.

Three Months Ended

September 30,

(Dollars in thousands)

4 unchanged sentences

Other operating expense, net

Nine Months Ended

September 30,

(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 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.

The decrease in Distribution, selling and administrative expenses (DS&A) expenses for the three months ended March 31, 2025 was driven primarily by a reduction in teammate benefits costs of $16 million and expense savings from operating efficiencies, partially offset by inflationary expense increases.

Foreign currency translation had a favorable impact on DS&A of $0.4 million for the three months ended March 31, 2025 as compared to the prior year period.

Acquisition-related charges were $16 million for the three months ended March 31, 2025 and consisted of costs related to the planned acquisition of Rotech, which related primarily to legal and professional fees.

We incurred no acquisition related charges for the three months ended March 31, 2024.

Intangible amortization was $14 million for the three months ended March 31, 2025 and $20 million for the three months ended March 31, 2024 relating primarily to intangible assets acquired in the Apria, Halyard, and Byram acquisitions.

The decrease was due to certain intangible assets that were fully amortized in 2024.

Exit and realignment charges, net were $31 million for the three months ended March 31, 2025.

These charges primarily related to (1) kitting and manufacturing initiatives of $10 million (2) professional fees associated with the potential sale of our P&HS segment of $7.1 million, (3) an accounts receivable provision of $6.8 million associated with Fusion 5, which is no longer part of our core operations (4) $5.7 million in professional fees associated with Patient Direct strategic initiatives and (5) $1.5 million of other charges.

Exit and realignment charges, net were $27 million for the three months ended March 31, 2024.

These charges primarily related to (1) the 2023-2024 Operating Model Realignment Program of $33 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.

The change in other operating expense, net for the three months ended March 31, 2025 as compared to the prior year reflects an unfavorable change of $1.1 million in foreign currency transaction gains and losses, net of derivative adjustments, as compared to the prior year.

Interest expense, net.

Three Months Ended

September 30,

(Dollars in thousands)

1 unchanged sentence

Effective interest rate

Nine Months Ended

September 30,

(Dollars in thousands)

Interest expense, net

Effective interest rate

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 (income), net.

Interest expense, net for the three months ended March 31, 2025 decreased due to lower average outstanding borrowings of $169 million and a decrease in the effective interest rate of 19 basis points as compared to the three months ended March 31, 2024, partially offset by a decrease in interest income.

See Note 5 of Notes to Condensed Consolidated Financial Statements.

Other expense, net.

Three Months Ended

September 30,

(Dollars in thousands)

Other expense (income), net

Nine Months Ended

September 30,

(Dollars in thousands)

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.

Other expense, net

Other expense, net for the three months ended March 31, 2025 and 2024 includes interest cost and net actuarial losses related to our retirement plans.

Income taxes.

Three Months Ended

September 30,

(Dollars in thousands)

1 unchanged sentence

Effective tax rate

Nine Months Ended

September 30,

(Dollars in thousands)

Income tax provision (benefit)

Effective tax rate

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.

See Note 8 in Notes to Consolidated Financial Statements.

The change in the effective tax rate for the three months ended March 31, 2025 compared to the same period in 2024 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.

Adjusted EBITDA

We use Adjusted EBITDA, a financial measure that is not in accordance with generally accepted accounting principles in the United States, or U.S.

GAAP, to analyze our financial results.

In general, non-GAAP measures exclude items and charges that (i) management does not believe reflect our core business and relate more to strategic, multi-year corporate activities;

or (ii) relate to activities or actions that may have occurred over multiple or in prior periods without predictable trends.

We believe Adjusted EBITDA is useful to investors as a supplemental metric to assist readers in assessing our financial performance and in comparing our performance to that of our competitors.

However, this non-GAAP measure may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies.

Adjusted EBITDA should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and financial results calculated in accordance with GAAP and this reconciliation to those financial statements set forth below should be carefully evaluated.

The following table presents the reconciliation of net loss to Adjusted EBITDA for the three months ended March 31, 2025 and 2024:

Three Months Ended March 31,

Net loss, as reported (GAAP)

Income tax benefit

Interest expense, net

Acquisition-related charges and intangible amortization (1)

Exit and realignment charges, net (2)

Other depreciation and amortization (3)

Stock compensation (4)

LIFO charges (5)

Litigation and related charges (6)

Adjusted EBITDA (non-GAAP)

(1) Acquisition-related charges consist primarily of one-time costs related to the planned acquisition of Rotech, which consisted primarily of legal and professional fees.

For the three months ended March 31, 2025, we incurred $16 million of acquisition-related costs.

We incurred no acquisition related charges for the three months ended March 31, 2024.

Acquisition-related charges and intangible amortization also include amortization of intangible assets established during acquisition method of accounting for business combinations.

Acquisition-related charges consist primarily of one-time costs related to acquisitions, including transaction costs necessary to consummate acquisitions, such as advisory fees and legal fees, director and officer tail insurance expense, as well as transition costs, such as severance and retention bonuses, IT integration costs and professional fees.

These amounts are highly dependent on the size and frequency of acquisitions and are being excluded to allow for a more consistent comparison with forecasted, current and historical results.

(2) Exit and realignment charges, net were $31 million for the three months ended March 31, 2025.

Exit and realignment charges, net were $27 million for the three months ended March 31, 2024.

These costs are not normal recurring, cash operating expenses necessary for the Company to operate its business on an ongoing basis.

(3) Other depreciation and amortization relates to property and equipment and capitalized computer software, excluding such amounts captured within exit and realignment charges, net or acquisition-related charges.

(4) Stock compensation include share-based compensation expense related to our share-based compensation plans, excluding such amounts captured within exit and realignment charges, net or acquisition-related charges.

(5) LIFO charges include non-cash adjustments to merchandise inventories valued at the lower of cost or market, with the approximate cost determined by the last-in, first-out (LIFO) method for distribution inventories in the U.S.

within our P&HS segment.

(6) Litigation and related charges includes settlement costs and related charges of legal matters within our Patient Direct segment.

These costs do not occur in the ordinary course of our business and are inherently unpredictable in timing and amount.

(7) For the three months ended March 31, 2025 and 2024, other includes interest costs and net actuarial losses related to our frozen noncontributory, unfunded retirement plan for certain retirees in the U.S.

Financial Condition, Liquidity and Capital Resources

1 unchanged sentence

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 $30 million.

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 a combination thereof of approximately $29 million.

The majority of our cash and cash equivalents are held in cash depository accounts with major banks in North America, Europe, and Asia.

1 unchanged sentence

(Dollars in thousands)

September 30, 2024

March 31, 2025

December 31, 2024

4 unchanged sentences

Accounts payable

(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 26.1 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.

(1) Based on period end accounts receivable and net revenue for the quarters ended March 31, 2025 and December 31, 2024.

Consolidated DSO reflected the impact of the reduction in accounts receivable, net of allowances, due to sales of accounts receivable under the Receivables Sale Program.

Excluding the impact of the Receivables Sale Program, consolidated DSO would have been 26.4 as of March 31, 2025 and 25.7 as of December 31, 2024.

(2) Based on period end merchandise inventories and cost of goods sold for the quarters ended March 31, 2025 and December 31, 2024.

Liquidity and capital expenditures.

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,

The following table summarizes our condensed consolidated statements of cash flows for the three months ended March 31, 2025 and 2024:

Three Months Ended

(Dollars in thousands)

Net cash provided by (used for):

Net cash (used for) provided by:

Operating activities

2 unchanged sentences

Effect of exchange rate changes

Net (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.

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

Cash used for operating activities in the first three months of 2025 reflected unfavorable changes in working capital including an increase in inventories ahead of the opening of two new large distribution centers as well as in anticipation of tariffs and payment of accrued teammate benefits, partially offset by an increase in accounts payable primarily related to inventory purchases, a $130 million benefit from accounts receivable sold under the Receivables Sale Program and cash provided by operating income.

Cash used for operating activities in the first three months of 2024 reflected unfavorable changes in working capital and cash provided by operating income.

Unfavorable working capital is typical during the first quarter of the year due to the nature of our business and the annual payment of teammate incentives.

Cash used for investing activities in the first three months of 2025 included capital expenditures of $65 million, primarily for patient service equipment and our strategic and operational efficiency initiatives associated with other fixed assets and capitalized software, offset by $17 million in proceeds from sale of patient service equipment and other fixed assets.

Cash used for investing activities in the first three months of 2024 included capital expenditures of $49 million, primarily for patient service equipment, other fixed assets and capitalized software, offset by $50 million in proceeds from sales of patient service equipment and other fixed assets which included $34 million in gross proceeds related to the sale of our corporate headquarters.

Cash provided by financing activities in the first three months of 2025 included net borrowings of $98 million under our Revolving Credit Facility for the first three months of 2025.

Cash provided by 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 $66 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.

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 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.

Our primary sources of liquidity include cash and cash equivalents, our Receivables Sale Program (as defined below), and our Revolving Credit Agreement.

On October 18, 2024, O&M Funding and Owens & Minor Medical, LLC., each a wholly-owned subsidiary of the Company, entered into a Receivables Purchase Agreement (the Receivables Sale Program) with financial institutions from time to time, as Purchasers, PNC Bank, National Association, as Administrative Agent, and PNC Capital Markets LLC, as Structuring Agent, pursuant to which accounts receivable with an aggregate outstanding amount not to exceed $450 million are sold, on a limited-recourse basis, to the Purchasers in exchange for cash.

The Receivables Sale Program amends and restates in its entirety, the Receivables Financing Agreement.

Transactions under this agreement are accounted for as sales in accordance with ASC 860, Transfers and Servicing, with the sold receivables removed from our condensed consolidated balance sheets.

Total accounts receivable sold under the Receivables Sale Program and net cash proceeds were $343 million for the three months ended March 31, 2025.

We collected $209 million of the sold accounts receivable for the three months ended March 31, 2025.

The losses on sales of accounts receivable are recorded in other operating expense, net in the condensed consolidated statements of operations and were $2.1 million for the three months ended March 31, 2025.

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

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The Term Loan A matures in March 2027 and the Term Loan B matures in March 2029.

At September 30, 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.

At March 31, 2025 we had $98 million in outstanding borrowings on our Revolving Credit Agreement.

At December 31, 2024 our Revolving Credit Agreement was undrawn.

At March 31, 2025 and December 31, 2024 we had letters of credit, which reduce Revolver availability, totaling $34 million and $31 million, leaving $318 million and $419 million available for borrowing.

We also had letters of credit and bank guarantees which support certain leased facilities as well as other normal business activities in the United States and Europe that were issued outside of the Revolving Credit Agreement for $3.4 million and $2.9 million as of March 31, 2025 and December 31, 2024.

The Revolving Credit Agreement, the Credit Agreement, the Receivables Sale Program, the 4.500% senior unsecured notes due in March 2029, and the 6.625% senior unsecured notes due in April 2030 contain cross-default provisions which could result in the acceleration of payments due in the event of default of any of the related agreements.

The terms of the applicable credit agreements also require us to maintain ratios for leverage and interest coverage, including on a pro forma basis in the event of an acquisition or divestiture.

We were in compliance with our debt covenants at September 30, 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 $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).

We were in compliance with our debt covenants at March 31, 2025.

On April 4, 2025, we completed the sale of $1.0 billion aggregate principal amount of 10.000% senior secured notes due 2030 (the New Notes) in a private offering (the Offering) to persons reasonably believed to be “qualified institutional buyers” in the United States, as defined in Rule 144A under the Securities Act of 1933, as amended (the Securities Act), and to certain non-U.S.

persons outside the United States in offshore transactions pursuant to Regulation S under the Securities Act.

The Offering was conducted in connection with the financing of the Company’s previously announced proposed acquisition of Rotech.

At the closing of the Offering, the gross proceeds were placed into a segregated escrow account where they will be held for the benefit of the holders of the New Notes pending the consummation of the proposed acquisition of Rotech .

If the Acquisition is not consummated on or prior to October 6, 2025, or upon the occurrence of certain other events, the proceeds will not be released to consummate the Acquisition and related transactions, but instead will be released for the purpose of redeeming the New Notes pursuant to a “Special Mandatory Redemption” in accordance with

the procedures set forth in the indenture governing the New Notes.

The Special Mandatory Redemption price will be a price equal to 100% of the initial issue price of the New Notes plus accrued and unpaid interest to, but excluding, the special mandatory redemption date.

We regularly evaluate market conditions, our liquidity profile and various financing alternatives to enhance our capital structure.

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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.

On February 26, 2025, the Owens & Minor Board of Directors authorized a share repurchase program of up to $100 million over the next 24 months.

Under the program, Owens & Minor may repurchase shares of common stock on a discretionary basis from time to time through open market repurchases, privately negotiated transactions and 10b5-1 trading plans.

During the three months ended March 31, 2025, we repurchased in open-market transactions and retired approximately 0.2 million shares of our common stock for an aggregate $1.5 million, or an average price per share of $8.66.

We believe cash generated by operating activities, available financing sources, and borrowings under the 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, share 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 $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.

Our cash and cash equivalents held by our foreign subsidiaries subject to repatriation totaled $27 million and $22 million at March 31, 2025 and December 31, 2024.

As of March 31, 2025, 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.

For disclosure of material contractual obligations, see our Annual Report on Form 10-K for the year ended December 31, 2024 and Note 13 in the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for the period ended on March 31, 2025.

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 September 30, 2024.

For a discussion of recent accounting pronouncements, see our Annual Report on Form 10-K for the year ended December 31, 2024 and Note 12 in the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for the period ended on March 31, 2025.

Forward-looking Statements

Certain statements in this discussion constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

Although we believe our expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of our knowledge of our business and operations, all forward-looking statements involve risks and uncertainties and, as a result, actual results could differ materially from

those projected, anticipated or implied by these statements.

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

● our ability to successfully complete a transaction related to the potential sale of our Products & Healthcare Services segment;

● uncertainties related to trade policy and tariffs;

● increasing competitive and pricing pressures in the marketplace;

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● 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;

● uncertainties related to general economic, regulatory and business conditions, including tariffs, 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;

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Certain quantitative and qualitative market risk disclosures are described in our Annual Report on Form 10-K for the year ended December 31, 2024.

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

Through March 31, 2025, 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