Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Owens & Minor Inc (OMI, Financial) reported a 4% year-over-year revenue growth in the second quarter, reaching $2.7 billion.
- The company’s products and healthcare services segment generated $2 billion in revenue, reflecting a 4% improvement over the previous year.
- Patient direct segment posted $660 million in revenue, a 4% year-over-year improvement, driven by strong growth in diabetes and sleep supplies.
- Gross profit for the second quarter was $544 million, reflecting margin expansion of 11 basis points compared to the same period last year.
- Owens & Minor Inc (OMI) announced a definitive agreement to acquire Rotech Healthcare Holdings, Inc., aligning with their strategy to strengthen and expand their patient direct business.
Negative Points
- GAAP net loss for the quarter was $31.9 million, compared to a net loss of $28.2 million in the same quarter last year.
- The company recorded a one-time tax charge of $17 million related to past transfer pricing methodology, impacting their financial results.
- Certain respiratory therapies such as NIV and oxygen were below expectations in the patient direct segment.
- Distribution, selling, and administrative expenses increased to $469 million from $455 million in the second quarter of the previous year.
- The company faces headwinds from rising shipping costs, which could impact their profitability in the back half of the year.
Q & A Highlights
Q: I want to talk about some of the operational plans that you've had put in place, in particular the progress you made on the products and healthcare services side. Where are the biggest opportunities to expand in the back half of the year? Is it volume? Is it that unlocking of the backlog of customers? And how does the dynamics around the tariffs that are expected to go into place impact or not impact you relative to the sourcing side?
A: (Edward Pesicka, CEO) On the tariff aspect, it's going to have a minimal impact on us. A significant portion of our products are manufactured in our own facilities in the Americas. Our glove footprint is not in China. For the back half of the year, the levers include continued execution on sourcing, operational effectiveness in our P&HS segment, and expansion of our private label product portfolio.
Q: Can you talk about the dynamics behind the reversal in cash flow this quarter and how that should factor in in terms of your cash generation versus use over the course of the year?
A: (Jonathan Leon, Interim CFO) The increased cash flow was due to better management of inventory and payables. We have been successful in driving out payment terms with third parties. We also expect seasonal lift in the back half of the year, particularly in patient direct, which will have very attractive cash flow.
Q: There's been a lot of interest around what's going on with shipping costs and how it impacts the channel. How does it impact you, and does it make your products that are manufactured domestically more attractive?
A: (Edward Pesicka, CEO) Shipping costs primarily impact our P&HS segment. For products manufactured nearshore, it creates some level of advantage. We have made investments in incremental inventory to mitigate the impact of rising shipping costs. However, it will create some level of headwind in the back half of the year.
Q: The patient direct ramp in the second half seems more than normal seasonality. Can you give us a rationale behind why there will be this acceleration?
A: (Jonathan Leon, Interim CFO) The biggest factor is the backlog in patient direct, primarily sleep patients, which we are catching up on. Additionally, the normal seasonality in the business will contribute to a stronger second half.
Q: Just following up on the plan around patient direct. How do you think about the impact on patient direct's top-line growth given the backlog?
A: (Jonathan Leon, Interim CFO) The eligibility verification process has become very manual, but we are improving. The backlog grew to as much as 50,000 customers, primarily sleep patients, which is a high-margin business. We expect this to improve throughout the year.
Q: Gross margins stepped down sequentially from the first quarter. Is this more attributable to the patient direct mix shift?
A: (Jonathan Leon, Interim CFO) Yes, the mix shift in patient direct can be meaningful. Areas like sleep and respiratory have higher margins compared to other categories like diabetes, which has been growing nicely for us.
Q: Now that you've had time to digest the Rotech acquisition announcement, what is the initial feedback from your payer and provider customers?
A: (Edward Pesicka, CEO) The feedback has been positive, aligning with our strategy to invest inorganically in the patient direct space. It is still early to get detailed feedback from patients and payers, but overall, the response has been extremely positive.
Q: There were some legal expenses this quarter related to Apria. What is driving that, and do you expect increased legal expenses for the remainder of the year?
A: (Jonathan Leon, Interim CFO) The legal expenses were a onetime settlement related to actions that began before we acquired Apria. This has now been settled, and we do not expect further legal expenses related to this matter.
Q: Did you break out the difference between medical distribution growth and products growth that combined to get you to the 4%?
A: (Jonathan Leon, Interim CFO) We mentioned that medical distribution grew 5% and the overall segment grew 4%. The same-store sales were consistent with the 4%, and new wins helped move that up further.
Q: Why is the cash flow conversation different now compared to 90 days ago?
A: (Edward Pesicka, CEO) The change is due to increased focus, improved forecasting, and better execution on working capital improvement initiatives. These factors have given us better visibility and confidence in our cash flow generation.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
