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Owens & Minor Reports 2nd Quarter 2017 Financial Results

17:05 EDT 1 Aug 2017 | Businesswire
Owens & Minor, Inc.

Owens & Minor completes acquisition of Byram Healthcare for $380 million

Owens & Minor, Inc. (NYSE: OMI) today reported financial results for the second quarter ended June 30, 2017, including consolidated revenues of $2.27 billion, compared to revenues of $2.48 billion in the second quarter of 2016. Quarterly net income was $20.1 million, or $0.33 per share, compared to $27.7 million, or $0.45 per share, for the second quarter last year. Adjusted net income (non-GAAP) was $25.8 million, or $0.43 per share, compared to $0.55 per share in last year’s second quarter.

With the closing of the Byram Healthcare acquisition, Owens & Minor has adopted a revised non-GAAP presentation that excludes amortization of acquisition-related intangible assets in addition to items currently excluded. A reconciliation of reported results to adjusted (non-GAAP) measures is included below.Similar to the first quarter of 2017, the quarterly decrease in revenues and earnings resulted primarily from the previously discussed transition of a significant customer in 2016, as well as increased production costs in our Proprietary Products segment and ongoing margin pressure in our Domestic distribution business. Offsetting these factors were benefits from cost control and productivity initiatives, as well as a one-time benefit from the release of an income tax valuation allowance in Europe, resulting from improved operating performance.

Consolidated operating earnings for the second quarter of 2017 were $32.8 million, compared to $52.1 million in last year’s second quarter. Adjusted consolidated operating earnings (non-GAAP) for the second quarter were $41.4 million, compared to $61.3 million for the same period last year.

“We are pleased to have successfully closed the acquisition of Byram Healthcare, and we welcome these new teammates into our organization. Acquiring Byram Healthcare represents an important step toward accelerating our strategy to expand our services along the continuum of care,” said P. Cody Phipps, chairman, president & chief executive officer of Owens & Minor. “As we have previously said, the first half of 2017 was challenging, but we remain committed to improving our performance, as we continue to execute our strategy.”

Year-to-Date 2017 Results

For the first six months of 2017, consolidated revenues were $4.59 billion, compared to revenues of $4.94 billion in the first six months of 2016. Net income for the first half of the year was $38.9 million, or $0.64 per share, compared to $0.83 per share for the same period last year. Adjusted net income (non-GAAP) was $52.3 million, or $0.86 per share, compared to $1.08 per share in the first six months of last year.

Consolidated operating earnings for the first half of 2017 were $68.4 million, compared to $97.0 million in the same period last year. Adjusted consolidated operating earnings (non-GAAP) for the first six months of 2017 were $89.1 million, compared to $119 million for the same period last year.

Acquisition of Byram Healthcare

Owens & Minor also announced that it has closed the previously announced acquisition of Byram Healthcare for $380 million. Byram Healthcare, a leading national distributor of direct-to-patient medical supplies, will accelerate Owens & Minor’s strategic plan to expand its services along the continuum of care. As part of the transaction, Owens & Minor executed a refinancing of its bank credit facility and expanded it to $600 million and executed a term loan of $250 million, both of which are due in 2022. Owens & Minor expects the transaction to be modestly accretive to earnings in 2017, and anticipates further accretion to earnings in 2018.

Segment Results

Segment financial results for the quarter are shown in the financial tables included with this release. Segment results include:

  • Domestic Segment quarterly revenues were $2.13 billion, compared to $2.35 billion a year ago; operating earnings were $29.5 million, compared to $43.5 million for the same period last year.
  • International Segment quarterly revenues were $95.9 million, compared to $88.6 million last year; operating earnings were $0.8 million, compared to $0.9 million in last year’s second quarter.
  • Proprietary Products Segment quarterly revenues were $131 million, compared to $135 million in the prior year quarter; operating earnings were $8.8 million versus $14.3 million last year.

Revised Financial Guidance and Outlook

As a result of the closing of the Byram Healthcare transaction and the adoption of a revised non-GAAP presentation, Owens & Minor is revising its guidance on an adjusted basis (non-GAAP) for 2017 and 2018. The revised outlook for non-GAAP diluted earnings per share in 2017 is $1.90 to $2.00. For 2018, the company is updating guidance to $2.25 to $2.35 per share on an adjusted basis (non-GAAP). The company believes that its strategic plan and the acquisition of Byram Healthcare will enable Owens & Minor to achieve its stated goal of high single-digit growth rates in subsequent years.

Although the company does provide guidance for adjusted earnings per share (which is a non-GAAP financial measure), it is not able to forecast the most directly comparable measure calculated and presented in accordance with GAAP. Certain elements of the composition of the GAAP amounts are not predictable, making it impractical for the company to forecast. Such elements include, but are not limited to restructuring and acquisition charges. As a result, no GAAP guidance is provided. The outlook is based on certain assumptions that are subject to the risk factors discussed in the company’s filings with the Securities & Exchange Commission.

Investors Conference Call & Supplemental Material

Conference Call: Owens & Minor will conduct a conference call for investors on Wednesday, August 2, 2017, at 8:00 a.m. EDT. The access code for the conference call, international dial-in and replay is #57721689. Participants may access the call at 866-393-1604.The international dial-in number is 224-357-2191. Replay: A replay of the call will be available for one week by dialing 855-859-2056. Webcast: A listen-only webcast of the call, along with supplemental information, will be available on www.owens-minor.com under “Investor Relations.”

Safe Harbor Statement

This release is intended to be disclosure through methods reasonably designed to provide broad, non-exclusionary distribution to the public in compliance with the Securities and Exchange Commission's Fair Disclosure Regulation. This release contains certain ''forward-looking'' statements, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including financial guidance for 2017 and 2018 and growth rates in subsequent years. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from those projected or contemplated in the forward-looking statements. Investors should refer to our annual report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission ("SEC") and subsequent quarterly reports on Form 10-Q and current reports on Form 8-K filed with or furnished to the SEC, for a discussion of certain known risk factors that could cause our actual results to differ materially from our current estimates. These filings are available at www.owens-minor.com. Given these risks and uncertainties, we can give no assurances that any forward-looking statements will, in fact, transpire and, therefore, caution investors not to place undue reliance on them. We specifically disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.

Owens & Minor uses its Web site, www.owens-minor.com, as a channel of distribution for material company information, including news releases, investor presentations and financial information. This information is routinely posted and accessible under the Investor Relations section.

Included with the press release financial tables are reconciliations of the differences between the non-GAAP financial measures presented in this news release and their most directly comparable GAAP financial measures.

About Owens & Minor, Inc.

Owens & Minor, Inc. (NYSE: OMI) is a global healthcare services company dedicated to Connecting the World of Medical Products to the Point of CareSM by providing vital supply chain services to healthcare providers and manufacturers of healthcare products. Owens & Minor provides logistics services across the spectrum of medical products from disposable medical supplies to devices and implants. With logistics platforms strategically located in the United States and Europe, Owens & Minor serves markets where three quarters of global healthcare spending occurs. Owens & Minor’s customers span the healthcare market from independent hospitals to large integrated healthcare networks, as well as group purchasing organizations, healthcare products manufacturers, and the federal government. A FORTUNE 500 company, Owens & Minor is headquartered in Richmond, Virginia, and has annualized revenues exceeding $9 billion. For more information about Owens & Minor, visit owens-minor.com, follow @Owens_Minor on Twitter, and connect on LinkedIn at www.linkedin.com/company/owens-&-minor.

 

Owens & Minor, Inc.

Consolidated Statements of Income (unaudited)

(dollars in thousands, except per share data)

 
    Three Months Ended June 30,
2017     2016
Net revenue $ 2,265,907 $ 2,483,676
Cost of goods sold 1,992,374   2,184,256  
Gross margin 273,533 299,420
Distribution, selling and administrative expenses 236,615 242,914
Acquisition-related and exit and realignment charges 2,893 6,752
Other operating (income) expense, net 1,188   (2,300 )
Operating earnings 32,837 52,054
Interest expense, net 6,736   6,765  
Income before income taxes 26,101 45,289
Income tax provision 5,960   17,573  
Net income $ 20,141   $ 27,716  
 
Net income per common share:
Basic $ 0.33 $ 0.45
Diluted $ 0.33 $ 0.45
 
 
 
Six Months Ended June 30,
2017 2016
Net revenue $ 4,594,480 $ 4,939,469
Cost of goods sold 4,039,768   4,343,413  
Gross margin 554,712 596,056
Distribution, selling and administrative expenses 474,308 485,639
Acquisition-related and exit and realignment charges 11,835 17,235
Other operating (income) expense, net 216   (3,842 )
Operating earnings 68,353 97,024
Interest expense, net 13,480   13,554  
Income before income taxes 54,873 83,470
Income tax provision 15,947   31,619  
Net income $ 38,926   $ 51,851  
 
Net income per common share:
Basic $ 0.64 $ 0.83
Diluted $ 0.64 $ 0.83
 
 

Owens & Minor, Inc.

Condensed Consolidated Balance Sheets (unaudited)

(dollars in thousands)

 
          June 30, 2017     December 31, 2016  
         
Assets
Current assets
Cash and cash equivalents $ 57,066 $ 185,488
Accounts receivable, net 655,259 606,084
Merchandise inventories 1,004,076 916,311
  Other current assets         306,452       254,156  
Total current assets 2,022,853 1,962,039
Property and equipment, net 198,442 191,718
Goodwill, net 423,107 414,936
Intangible assets, net 80,051 82,511
  Other assets, net         70,684       66,548  
  Total assets       $ 2,795,137     $ 2,717,752  
Liabilities and equity
Current liabilities
Accounts payable $ 798,454 $ 750,750
Accrued payroll and related liabilities 23,819 45,051
  Other current liabilities         241,091       238,837  
Total current liabilities 1,063,364 1,034,638
Long-term debt, excluding current portion 579,117 564,583
Deferred income taxes 89,812 90,383
  Other liabilities         69,273       68,110  
Total liabilities 1,801,566 1,757,714
  Total equity         993,571       960,038  
  Total liabilities and equity       $ 2,795,137     $ 2,717,752  
 
 

Owens & Minor, Inc.

Consolidated Statements of Cash Flows (unaudited)

(dollars in thousands)

 
        Six Months Ended June 30,  
          2017     2016  
     
Operating activities:
Net income $ 38,926 $ 51,851
Adjustments to reconcile net income to cash (used for) provided by operating activities:
Depreciation and amortization 25,206 28,343
Share-based compensation expense 5,619 5,969
Provision for losses on accounts receivable (368 ) (27 )

Deferred income tax (benefit) expense

(5,385 ) (2,071 )
Changes in operating assets and liabilities:
Accounts receivable (41,863 ) (29,736 )
Merchandise inventories (86,234 ) (17,947 )
Accounts payable 42,235 62,710
Net change in other assets and liabilities (66,003 ) (56,599 )
  Other, net         5,371         743    
  Cash (used for) provided by operating activities         (82,496 )       43,236    
 
Investing activities:
Additions to property and equipment (16,433 ) (8,857 )
Additions to computer software and intangible assets (7,860 ) (4,602 )
  Proceeds from sale of property and equipment         573         4,565    
  Cash used for investing activities         (23,720 )       (8,894 )  
 
Financing activities:
Proceeds from revolving credit facility 15,400
Cash dividends paid (31,476 ) (32,003 )
Repurchases of common stock (4,998 ) (20,849 )
  Other, net         (5,658 )       (5,968 )  
  Cash used for financing activities         (26,732 )       (58,820 )  
                   
  Effect of exchange rate changes on cash and cash equivalents         4,526         2,409    
 
Net decrease in cash and cash equivalents (128,422 ) (22,069 )
  Cash and cash equivalents at beginning of period         185,488         161,020    
  Cash and cash equivalents at end of period       $ 57,066       $ 138,951    
 
 

Owens & Minor, Inc.

Financial Statistics and GAAP/Non-GAAP Reconciliations (unaudited)

 
  (dollars in thousands, except per share data)       Quarter Ended  
          6/30/2017     3/31/2017     12/31/2016     9/30/2016     6/30/2016  
                       
Consolidated operating results:
  Net revenue       $ 2,265,907       $ 2,328,573       $ 2,368,361       $ 2,415,601       $ 2,483,676    
 
Gross margin $ 273,533 $ 281,180 $ 294,980 $ 296,275 $ 299,420
  Gross margin as a percent of revenue         12.07 %       12.08 %       12.46 %       12.27 %       12.06 %  
 
Distribution, selling & administrative expenses $ 236,615 $ 237,693 $ 243,480 $ 241,305 $ 242,914
  Distribution, selling & administrative expenses as a percent of revenue         10.44 %       10.21 %       10.28 %       9.99 %       9.78 %  
 
Operating earnings, as reported (GAAP) $ 32,837 $ 35,517 $ 49,008 $ 53,568 $ 52,054
Acquisition-related charges (1) 692 1,347 286 597 730
Exit and realignment charges (2) 2,201 7,595 4,415 2,142 6,022
Acquisition-related intangible amortization (3) 2,347 2,319 2,450 2,489 2,538
  Other (4)         3,311         922                            
Operating earnings, adjusted (Non-GAAP) $ 41,388 $ 47,700 $ 56,159 $ 58,796 $ 61,344
Operating earnings as a percent of revenue (GAAP) 1.45 % 1.53 % 2.07 % 2.22 % 2.10 %
  Operating earnings as a percent of revenue, adjusted (Non-GAAP)         1.83 %       2.05 %       2.37 %       2.43 %       2.47 %  
.
Net income, as reported (GAAP) $ 20,141 $ 18,785 $ 27,105 $ 29,831 $ 27,716
Acquisition-related charges(1) 692 1,347 286 597 730
Income tax expense (benefit) (5) (228 ) (450 ) 67 (221 ) (164 )
Exit and realignment charges (2) 2,201 7,595 4,415 2,142 6,022
Income tax expense (benefit) (5) (780 ) (3,055 ) (289 ) (794 ) (2,081 )
Acquisition-related intangible amortization (3) 2,347 2,319 2,450 2,489 2,538
Income tax expense (benefit) (5) (696 ) (696 ) (633 ) (645 ) (658 )
Other (4) 3,311 922
  Income tax expense (benefit) (5)         (1,139 )       (354 )                          
  Net income, adjusted (Non-GAAP)       $ 25,849       $ 26,413       $ 33,401       $ 33,399       $ 34,103    
 
Net income per share, as reported (GAAP) $ 0.33 $ 0.31 $ 0.45 $ 0.48 $ 0.45
Acquisition-related charges, after-tax (1) 0.01 0.01 0.01 0.01
Exit and realignment charges, after-tax (2) 0.02 0.08 0.07 0.02 0.06
Acquisition-related intangible amortization, after-tax (3) 0.03 0.03 0.03 0.03 0.03
  Other, after-tax (4)         0.04         0.01                            
  Net income per share, adjusted (Non-GAAP)       $ 0.43       $ 0.44       $ 0.55       $ 0.54       $ 0.55    
 
Financing:
Cash and cash equivalents $ 57,066 $ 127,167 $ 185,488 $ 213,096 $ 138,951
  Total interest-bearing debt       $ 583,201       $ 568,565       $ 569,387       $ 570,263       $ 571,143    
 
Stock information:
  Cash dividends per common share       $ 0.2575       $ 0.2575       $ 0.255       $ 0.255       $ 0.255    
  Stock price at quarter-end       $ 32.19       $ 34.60       $ 35.29       $ 34.73       $ 37.38    
 
 

Owens & Minor, Inc.

Financial Statistics and GAAP/Non-GAAP Reconciliations (unaudited)

The following items in the current quarter have been excluded in our non-GAAP financial measures:

(1) Acquisition-related charges in the first and second quarters of 2017 were primarily transaction and transition costs associated with the acquisition of Byram Healthcare. The prior year amounts related primarily to costs incurred to settle certain obligations and address other on-going matters associated with the acquisitions of ArcRoyal and Medical Action.

(2) Exit and realignment charges in 2017 were associated with the write-down of information system assets which are no longer used and severance charges from reduction in force and other employee costs associated with the establishment of our new client engagement center. Expenses associated with the establishment of the client engagement center will continue to be recorded throughout 2017. Charges in 2016 included severance activities (including our voluntary employee separation program in the first quarter of 2016), and other costs associated with our strategic organizational realignment which include certain professional fees and costs to streamline administrative functions and processes in the United States and Europe.

(3) Acquisition-related intangible amortization includes amortization of certain intangible assets established during purchase accounting for business combinations. 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 and the results of our peers. We have begun to exclude these charges from our non-GAAP results in the second quarter of 2017 and thus prior year amounts have been recast on the same basis. Full year 2016 intangible amortization was $10.0 million or $0.12 per share.

(4) Software as a Service (SaaS) implementation costs associated with significant global IT platforms in connection with the redesign of our global information system strategy.

(5)These charges have been tax effected in the preceding table by determining the income tax rate depending on the amount of charges incurred in different tax jurisdictions and the deductibility of those charges for income tax purposes.

 

Use of Non-GAAP Measures

This earnings release contains financial measures that are not calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). In general, the measures exclude items and charges that (i) management does not believe reflect Owens & Minor, Inc.’s (the “Company”) 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. Management uses these non-GAAP financial measures internally to evaluate the Company’s performance, evaluate the balance sheet, engage in financial and operational planning and determine incentive compensation.
 
Management provides these non-GAAP financial measures to investors as supplemental metrics to assist readers in assessing the effects of items and events on its financial and operating results and in comparing the Company’s performance to that of its competitors. However, the non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies.
 
The non-GAAP financial measures disclosed by the Company should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations to those financial statements set forth above should be carefully evaluated.
 
 

Owens & Minor, Inc.

Summary Segment Information (unaudited)

(dollars in thousands)

 
    Three Months Ended June 30,
2017     2016
    % of     % of
consolidated consolidated
Amount net revenue Amount net revenue
Net revenue:
Segment net revenue
Domestic $ 2,130,468 94.02 % $ 2,345,746 94.45 %
International 95,899 4.23 % 88,559 3.57 %
Proprietary Products   130,959   5.78 %   134,964   5.43 %
Total segment net revenue 2,357,326 2,569,269
Inter-segment revenue
Proprietary Products   (91,419 ) (4.03 )%   (85,593 ) (3.45 )%
Total inter-segment revenue   (91,419 )     (85,593 )  
Consolidated net revenue $ 2,265,907   100.00 % $ 2,483,676   100.00 %
 
% of segment % of segment
Operating earnings (loss): net revenue net revenue
Domestic $ 29,460 1.38 % $ 43,451 1.85 %
International 752 0.78 % 893 1.01 %
Proprietary Products 8,810 6.73 % 14,255 10.56 %
Inter-segment eliminations 19 207
Acquisition-related and exit and realignment charges (2,893 ) (6,752 )
Other (1)   (3,311 )    
Consolidated operating earnings $ 32,837   1.45 % $ 52,054   2.10 %
 
Depreciation and amortization:
Domestic $ 6,769 $ 7,497
International 3,964 4,416
Proprietary Products   1,915     2,213  
Consolidated depreciation and amortization $ 12,648   $ 14,126  
 
Capital expenditures:
Domestic $ 4,986 $ 2,659
International 3,431 2,860
Proprietary Products   1,105     880  
Consolidated capital expenditures $ 9,522   $ 6,399  
 
 

Owens & Minor, Inc.

Summary Segment Information (unaudited)

(dollars in thousands)

 
    Six Months Ended June 30,
2017     2016
    % of     % of
consolidated consolidated
Amount net revenue Amount net revenue
Net revenue:
Segment net revenue
Domestic $ 4,324,428 94.12 % $ 4,667,455 94.49 %
International 190,894 4.15 % 172,110 3.48 %
Proprietary Products   268,112   5.84 %   276,317   5.59 %
Total segment net revenue 4,783,434 5,115,882
Inter-segment revenue
Proprietary Products   (188,954 ) (4.11 )%   (176,413 ) (3.57 )%
Total inter-segment revenue   (188,954 )     (176,413 )  
Consolidated net revenue $ 4,594,480   100.00 % $ 4,939,469   100.00 %
 
% of segment % of segment
Operating earnings (loss): net revenue net revenue
Domestic $ 66,756 1.54 % $ 85,169 1.82 %
International 1,408 0.74 % 2,021 1.17 %
Proprietary Products 16,938 6.32 % 27,526 9.96 %
Inter-segment eliminations (681 ) (457 )
Acquisition-related and exit and realignment charges (11,835 ) (17,235 )
Other (1)   (4,233 )    
Consolidated operating earnings $ 68,353   1.49 % $ 97,024   1.96 %
 
Depreciation and amortization:
Domestic $ 13,630 $ 15,038
International 7,768 8,865
Proprietary Products   3,808     4,440  
Consolidated depreciation and amortization $ 25,206   $ 28,343  
 
Capital expenditures:
Domestic $ 13,804 $ 7,202
International 8,453 4,830
Proprietary Products   2,036     1,427  
Consolidated capital expenditures $ 24,293   $ 13,459  
 

June 30,
2017

December 31,
2016

Total assets:
Domestic $ 1,945,271 $ 1,778,481
International 405,020 352,898
Proprietary Products   387,780     400,885  
Segment assets 2,738,071 2,532,264
Cash and cash equivalents   57,066     185,488  
Consolidated total assets $ 2,795,137   $ 2,717,752  

(1) Software as a Service (SaaS) implementation costs associated with significant global IT platforms in connection with the redesign of our global information system strategy.

 

Owens & Minor, Inc.

Net Income Per Common Share (unaudited)

(dollars in thousands, except per share data)

 
   

Three Months Ended
June 30,

   

Six Months Ended
June 30,

2017     2016 2017     2016
Numerator:
Net income $ 20,141 $ 27,716 $ 38,926 $ 51,851
Less: income allocated to unvested restricted shares   (229 )   (281 )   (469 )   (560 )
Net income attributable to common shareholders - basic 19,912 27,435 38,457 51,291
Add: undistributed income attributable to unvested restricted shares -basic 27 72 51 131
Less: undistributed income attributable to unvested restricted shares -diluted   (27 )   (72 )   (51 )   (131 )
Net income attributable to common shareholders - diluted $ 19,912   $ 27,435   $ 38,457   $ 51,291  
Denominator:        
Weighted average shares outstanding - basic and diluted   59,863     61,502     60,020     61,588  
 
 
Net income per share attributable to common shareholders:
Basic $ 0.33 $ 0.45 $ 0.64 $ 0.83
Diluted $ 0.33 $ 0.45 $ 0.64 $ 0.83
 

Owens & Minor, Inc.
Truitt Allcott, 804-723-7555
Director, Investor & Media Relations
truitt.allcott@owens-minor.com
or
Chuck Graves, 804-723-7556
Director, Finance & Investor Relations
chuck.graves@owens-minor.com

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