SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
For the quarterly period ended June 30, 2023
OR
For the transition period from to
Commission file number 1-9810
(Exact name of Registrant as specified in its charter)
| Virginia | | 54-1701843 | ||||||||
| |||||||||||
(State or other jurisdiction of | | (I.R.S. Employer | |||||||||
| | | | ||||||||
| 9120 Lockwood Boulevard Mechanicsville, Virginia |
| 23116 | ||||||||
| (Address of principal executive offices) | | (Zip Code) | ||||||||
| | | | ||||||||
| Post Office Box 27626, | | 23261-7626 | ||||||||
| (Mailing address of principal executive | | (Zip Code) |
Registrant’s telephone number, including area code (804) (804) 723-7000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Common Stock, $2 par value per share | | OMI | | New York Stock Exchange |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “larger accelerated filer”, “accelerated filer”, “smaller reporting company” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
| | | | ||||||||
Large accelerated filer | ☒ | Accelerated filer | ☐ | ||||||||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||||||||
Emerging growth company | ☐ | | | ||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of Owens & Minor, Inc.’s common stock outstanding as of July 31, 2023April 26, 2024 was 76,530,72476,499,288 shares.
Index
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2
Item 1. Financial Statements
Owens & Minor, Inc. and Subsidiaries
(unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
(in thousands, except per share data) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
Net revenue | $ | 2,563,226 | $ | 2,500,015 | $ | 5,086,075 | $ | 4,906,967 | |||||||||||||||
Cost of goods sold | 2,043,794 | 1,967,510 | 4,069,336 | 4,001,014 | |||||||||||||||||||
Gross margin | 519,432 | 532,505 | 1,016,739 | 905,953 | |||||||||||||||||||
Distribution, selling and administrative expenses | 455,030 | 421,925 | 903,752 | 691,397 | |||||||||||||||||||
Acquisition-related charges and intangible amortization | 22,203 | 37,276 | 44,392 | 79,410 | |||||||||||||||||||
Exit and realignment charges | 28,963 | 1,214 | 44,637 | 2,896 | |||||||||||||||||||
Other operating expense (income), net | 2,397 | (2,995) | 3,312 | (3,894) | |||||||||||||||||||
Operating income | 10,839 | 75,085 | 20,646 | 136,144 | |||||||||||||||||||
Interest expense, net | 40,728 | 35,839 | 82,926 | 47,858 | |||||||||||||||||||
Other expense, net | 1,072 | 783 | 2,458 | 1,565 | |||||||||||||||||||
(Loss) income before income taxes | (30,961) | 38,463 | (64,738) | 86,721 | |||||||||||||||||||
Income tax (benefit) provision | (2,720) | 9,859 | (12,079) | 18,837 | |||||||||||||||||||
Net (loss) income | $ | (28,241) | $ | 28,604 | $ | (52,659) | $ | 67,884 | |||||||||||||||
Net (loss) income per common share: | |||||||||||||||||||||||
Basic | $ | (0.37) | $ | 0.38 | $ | (0.70) | $ | 0.92 | |||||||||||||||
Diluted | $ | (0.37) | $ | 0.37 | $ | (0.70) | $ | 0.89 |
| | | | | | |
|
| Three Months Ended | ||||
| | March 31, | ||||
(in thousands, except per share data) |
| 2024 |
| 2023 | ||
Net revenue | | $ | 2,612,680 | | $ | 2,522,849 |
Cost of goods sold | |
| 2,077,151 | |
| 2,025,542 |
Gross profit | |
| 535,529 | |
| 497,307 |
Distribution, selling and administrative expenses | |
| 477,613 | |
| 448,722 |
Acquisition-related charges and intangible amortization | |
| 20,313 | |
| 22,188 |
Exit and realignment charges, net | | | 27,356 | | | 15,674 |
Other operating expense, net | |
| 551 | |
| 916 |
Operating income | |
| 9,696 | |
| 9,807 |
Interest expense, net | |
| 35,655 | |
| 42,198 |
Other expense, net | |
| 1,153 | |
| 1,387 |
Loss before income taxes | |
| (27,112) | |
| (33,778) |
Income tax benefit | |
| (5,226) | |
| (9,360) |
Net loss | | $ | (21,886) | | $ | (24,418) |
| | | | | | |
Net loss per common share | |
|
| |
|
|
Basic | | $ | (0.29) | | $ | (0.32) |
Diluted | | $ | (0.29) | | $ | (0.32) |
See accompanying notes to consolidated financial statements.
3
(unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
(in thousands) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
Net (loss) income | $ | (28,241) | $ | 28,604 | $ | (52,659) | $ | 67,884 | |||||||||||||||
Other comprehensive income (loss) net of tax: | |||||||||||||||||||||||
Currency translation adjustments | (5,167) | (18,831) | (49) | (19,618) | |||||||||||||||||||
Change in unrecognized net periodic pension costs | 136 | 297 | (11) | 486 | |||||||||||||||||||
Change in gains and losses on derivative instruments | 3,299 | 2,764 | (78) | 2,764 | |||||||||||||||||||
Total other comprehensive loss, net of tax | (1,732) | (15,770) | (138) | (16,368) | |||||||||||||||||||
Comprehensive (loss) income | $ | (29,973) | $ | 12,834 | $ | (52,797) | $ | 51,516 |
| | | | | | |
|
| Three Months Ended | ||||
| | March 31, | ||||
(in thousands) | | 2024 |
| 2023 | ||
Net loss | | $ | (21,886) | | $ | (24,418) |
Other comprehensive (loss) income net of tax: | |
| | |
| |
Currency translation adjustments | |
| (13,266) | |
| 5,118 |
Change in unrecognized net periodic pension costs | |
| 235 | |
| (147) |
Change in gains and losses on derivative instruments | |
| 1,412 | |
| (3,377) |
Total other comprehensive (loss) income, net of tax | |
| (11,619) | |
| 1,594 |
Comprehensive loss | | $ | (33,505) | | $ | (22,824) |
See accompanying notes to consolidated financial statements.
4
(unaudited)
June 30, | December 31, | ||||||||||
(in thousands, except per share data) | 2023 | 2022 | |||||||||
Assets | |||||||||||
Current assets | |||||||||||
Cash and cash equivalents | $ | 286,307 | $ | 69,467 | |||||||
Accounts receivable, net of allowances of $9,270 and $9,063 | 672,511 | 763,497 | |||||||||
Merchandise inventories | 1,168,227 | 1,333,585 | |||||||||
Other current assets | 135,409 | 128,636 | |||||||||
Total current assets | 2,262,454 | 2,295,185 | |||||||||
Property and equipment, net of accumulated depreciation of $510,394 and $450,286 | 559,508 | 578,269 | |||||||||
Operating lease assets | 292,809 | 280,665 | |||||||||
Goodwill | 1,637,149 | 1,636,705 | |||||||||
Intangible assets, net | 403,020 | 445,042 | |||||||||
Other assets, net | 133,060 | 150,417 | |||||||||
Total assets | $ | 5,288,000 | $ | 5,386,283 | |||||||
Liabilities and equity | |||||||||||
Current liabilities | |||||||||||
Accounts payable | $ | 1,194,173 | $ | 1,147,414 | |||||||
Accrued payroll and related liabilities | 92,264 | 93,296 | |||||||||
Other current liabilities | 405,204 | 325,756 | |||||||||
Total current liabilities | 1,691,641 | 1,566,466 | |||||||||
Long-term debt, excluding current portion | 2,309,853 | 2,482,968 | |||||||||
Operating lease liabilities, excluding current portion of $86,437 and $76,805 | 214,905 | 215,469 | |||||||||
Deferred income taxes | 55,354 | 60,833 | |||||||||
Other liabilities | 120,018 | 114,943 | |||||||||
Total liabilities | 4,391,771 | 4,440,679 | |||||||||
Commitments and contingencies | |||||||||||
Equity | |||||||||||
Common stock, par value $2 per share; authorized - 200,000 shares; issued and outstanding - 76,440 shares and 76,279 shares as of June 30, 2023 and December 31, 2022 | 152,880 | 152,557 | |||||||||
Paid-in capital | 421,993 | 418,894 | |||||||||
Retained earnings | 357,349 | 410,008 | |||||||||
Accumulated other comprehensive loss | (35,993) | (35,855) | |||||||||
Total equity | 896,229 | 945,604 | |||||||||
Total liabilities and equity | $ | 5,288,000 | $ | 5,386,283 |
| | | | | | |
|
| March 31, | | December 31, | ||
(in thousands, except per share data) | | 2024 |
| 2023 | ||
Assets |
| |
|
| |
|
Current assets |
| |
|
| |
|
Cash and cash equivalents | | $ | 244,866 | | $ | 243,037 |
Accounts receivable, net of allowances of $7,005 and $7,861 | |
| 669,861 | |
| 598,257 |
Merchandise inventories | |
| 1,144,597 | |
| 1,110,606 |
Other current assets | |
| 177,020 | |
| 150,890 |
Total current assets | |
| 2,236,344 | |
| 2,102,790 |
Property and equipment, net of accumulated depreciation and amortization of $546,326 and $546,397 | |
| 501,385 | |
| 543,972 |
Operating lease assets | |
| 349,984 | |
| 296,533 |
Goodwill | |
| 1,635,368 | |
| 1,638,846 |
Intangible assets, net | |
| 342,593 | |
| 361,835 |
Other assets, net | |
| 142,319 | |
| 149,346 |
Total assets | | $ | 5,207,993 | | $ | 5,093,322 |
Liabilities and equity | |
|
| |
|
|
Current liabilities | |
|
| |
|
|
Accounts payable | | $ | 1,218,817 | | $ | 1,171,882 |
Accrued payroll and related liabilities | |
| 79,480 | |
| 116,398 |
Current portion of long-term debt | | | 207,658 | | | 206,904 |
Other current liabilities | |
| 427,136 | |
| 396,701 |
Total current liabilities | |
| 1,933,091 | |
| 1,891,885 |
Long-term debt, excluding current portion | |
| 1,946,005 | |
| 1,890,598 |
Operating lease liabilities, excluding current portion | |
| 276,327 | |
| 222,429 |
Deferred income taxes, net | |
| 34,437 | |
| 41,652 |
Other liabilities | |
| 123,265 | |
| 122,592 |
Total liabilities | |
| 4,313,125 | |
| 4,169,156 |
Commitments and contingencies | |
|
| |
|
|
Equity | |
|
| |
|
|
Common stock, par value $2 per share; authorized - 200,000 shares; issued and outstanding - 76,449 shares and 76,546 shares | |
| 152,897 | |
| 153,092 |
Paid-in capital | |
| 438,587 | |
| 434,185 |
Retained earnings | |
| 346,821 | |
| 368,707 |
Accumulated other comprehensive loss | |
| (43,437) | |
| (31,818) |
Total equity | |
| 894,868 | |
| 924,166 |
Total liabilities and equity | | $ | 5,207,993 | | $ | 5,093,322 |
See accompanying notes to consolidated financial statements.
5
(unaudited)
Six Months Ended June 30, | |||||||||||
(in thousands) | 2023 | 2022 | |||||||||
Operating activities: | |||||||||||
Net (loss) income | $ | (52,659) | $ | 67,884 | |||||||
Adjustments to reconcile net (loss) income to cash provided by operating activities: | |||||||||||
Depreciation and amortization | 142,988 | 97,286 | |||||||||
Share-based compensation expense | 11,675 | 11,210 | |||||||||
(Benefit) provision for losses on accounts receivable | (900) | 4,512 | |||||||||
Loss on extinguishment of debt | 843 | — | |||||||||
Deferred income tax (benefit) provision | (6,758) | 1,601 | |||||||||
Changes in operating lease right-of-use assets and lease liabilities | (3,077) | 606 | |||||||||
(Gain) loss on sale and dispositions of property and equipment | (18,563) | 226 | |||||||||
Changes in operating assets and liabilities, net of acquisitions: | |||||||||||
Accounts receivable | 90,203 | 16,275 | |||||||||
Merchandise inventories | 165,651 | (24,438) | |||||||||
Accounts payable | 52,159 | 12,349 | |||||||||
Net change in other assets and liabilities | 82,954 | (23,945) | |||||||||
Other, net | 6,994 | 5,958 | |||||||||
Cash provided by operating activities | 471,510 | 169,524 | |||||||||
Investing activities: | |||||||||||
Acquisition, net of cash acquired | — | (1,684,607) | |||||||||
Additions to property and equipment | (92,750) | (62,236) | |||||||||
Additions to computer software | (8,229) | (3,463) | |||||||||
Proceeds from sale of property and equipment | 35,729 | 5,846 | |||||||||
Other, net | (418) | (839) | |||||||||
Cash used for investing activities | (65,668) | (1,745,299) | |||||||||
Financing activities: | |||||||||||
Borrowings under amended Receivables Financing Agreement | 348,200 | 347,800 | |||||||||
Repayments under amended Receivables Financing Agreement | (444,200) | (402,800) | |||||||||
Repayments of debt | (78,301) | (1,500) | |||||||||
Proceeds from issuance of debt | — | 1,691,000 | |||||||||
Borrowings under revolving credit facility, net and Receivables Financing Agreement | — | 30,000 | |||||||||
Financing costs paid | — | (41,479) | |||||||||
Other, net | (8,819) | (42,388) | |||||||||
Cash (used for) provided by financing activities | (183,120) | 1,580,633 | |||||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | 196 | (3,864) | |||||||||
Net increase in cash, cash equivalents and restricted cash | 222,918 | 994 | |||||||||
Cash, cash equivalents and restricted cash at beginning of period | 86,185 | 72,035 | |||||||||
Cash, cash equivalents and restricted cash at end of period | $ | 309,103 | $ | 73,029 | |||||||
Supplemental disclosure of cash flow information: | |||||||||||
Income taxes (received) paid, net | $ | (10,506) | $ | 25,782 | |||||||
Interest paid | $ | 78,625 | $ | 32,417 | |||||||
Noncash investing activity: | |||||||||||
Unpaid purchases of property and equipment and computer software at end of period | $ | 65,808 | $ | 56,429 |
| | | | | | |
|
| Three Months Ended March 31, | ||||
(in thousands) | | 2024 |
| 2023 | ||
Operating activities: | | | | | | |
Net loss | | $ | (21,886) | | $ | (24,418) |
Adjustments to reconcile net loss to cash provided by operating activities: | |
|
| |
|
|
Depreciation and amortization | |
| 74,095 | |
| 70,926 |
Share-based compensation expense | |
| 6,866 | |
| 6,463 |
Provision (benefit) for losses on accounts receivable | |
| 181 | |
| (521) |
Loss on extinguishment of debt | |
| — | |
| 564 |
Deferred income tax benefit | |
| (3,659) | |
| (591) |
Changes in operating lease right-of-use assets and lease liabilities | |
| 1,139 | |
| (225) |
Gain on sale and dispositions of property and equipment | |
| (15,619) | |
| (8,269) |
Changes in operating assets and liabilities: | |
|
| |
|
|
Accounts receivable | |
| (75,144) | |
| 5,240 |
Merchandise inventories | |
| (35,412) | |
| 45,832 |
Accounts payable | |
| 52,926 | |
| 23,082 |
Net change in other assets and liabilities | |
| (39,617) | |
| 36,483 |
Other, net | |
| 3,168 | |
| 3,832 |
Cash (used for) provided by operating activities | |
| (52,962) | |
| 158,398 |
Investing activities: | |
|
| |
|
|
Additions to property and equipment | |
| (45,997) | |
| (46,150) |
Additions to computer software | |
| (3,411) | |
| (5,340) |
Proceeds from sale of property and equipment | |
| 49,538 | |
| 17,306 |
Other | |
| (2,000) | |
| — |
Cash used for investing activities | |
| (1,870) | |
| (34,184) |
Financing activities: | |
|
| |
|
|
Borrowings under amended Receivables Financing Agreement | |
| 205,000 | |
| 232,100 |
Repayments under amended Receivables Financing Agreement | |
| (139,300) | |
| (328,100) |
Repayments of term loans | |
| (4,625) | |
| (26,500) |
Other, net | |
| (7,755) | |
| (4,989) |
Cash provided by (used for) financing activities | |
| 53,320 | |
| (127,489) |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | |
| (618) | |
| 284 |
Net decrease in cash, cash equivalents and restricted cash | |
| (2,130) | |
| (2,991) |
Cash, cash equivalents and restricted cash at beginning of period | |
| 272,924 | |
| 86,185 |
Cash, cash equivalents and restricted cash at end of period | | $ | 270,794 | | $ | 83,194 |
Supplemental disclosure of cash flow information: | |
|
| |
|
|
Income taxes paid, net | | $ | 2,365 | | $ | 2,405 |
Interest paid | | $ | 18,211 | | $ | 32,536 |
Noncash investing activity: | |
|
| |
|
|
Unpaid purchases of property and equipment and computer software at end of period | | $ | 69,368 | | $ | 64,658 |
See accompanying notes to consolidated financial statements.
6
(unaudited)
(in thousands, except per share data) | Common Shares Outstanding | Common Stock ($2 par value ) | Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Equity | |||||||||||||||||||||||||||||
Balance, December 31, 2022 | 76,279 | $ | 152,557 | $ | 418,894 | $ | 410,008 | $ | (35,855) | $ | 945,604 | ||||||||||||||||||||||||
Net loss | — | — | — | (24,418) | — | (24,418) | |||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | 1,594 | 1,594 | |||||||||||||||||||||||||||||
Share-based compensation expense, exercises and other | (83) | (166) | 1,786 | — | — | 1,620 | |||||||||||||||||||||||||||||
Balance, March 31, 2023 | 76,196 | 152,391 | 420,680 | 385,590 | (34,261) | 924,400 | |||||||||||||||||||||||||||||
Net loss | — | — | — | (28,241) | — | (28,241) | |||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | (1,732) | (1,732) | |||||||||||||||||||||||||||||
Share-based compensation expense, exercises and other | 244 | 489 | 1,313 | — | — | 1,802 | |||||||||||||||||||||||||||||
Balance, June 30, 2023 | 76,440 | $ | 152,880 | $ | 421,993 | $ | 357,349 | $ | (35,993) | $ | 896,229 | ||||||||||||||||||||||||
Balance, December 31, 2021 | 75,433 | $ | 150,865 | $ | 440,608 | $ | 387,619 | $ | (40,591) | $ | 938,501 | ||||||||||||||||||||||||
Net income | — | — | — | 39,279 | — | 39,279 | |||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | (598) | (598) | |||||||||||||||||||||||||||||
Share-based compensation expense, exercises and other | 653 | 1,307 | (30,867) | — | — | (29,560) | |||||||||||||||||||||||||||||
Balance, March 31, 2022 | 76,086 | 152,172 | 409,741 | 426,898 | (41,189) | 947,622 | |||||||||||||||||||||||||||||
Net income | — | — | — | 28,604 | — | 28,604 | |||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | (15,770) | (15,770) | |||||||||||||||||||||||||||||
Share-based compensation expense, exercises and other | 85 | 171 | (1,968) | — | — | (1,797) | |||||||||||||||||||||||||||||
Balance, June 30, 2022 | 76,171 | $ | 152,343 | $ | 407,773 | $ | 455,502 | $ | (56,959) | $ | 958,659 |
| | | | | | | | | | | | | | | | | |
|
| |
| Common |
| | |
| | |
| Accumulated |
| | | ||
| | Common | | Stock | | | | | | | | Other | | | | ||
| | Shares | | ($2 par | | Paid-In | | Retained | | Comprehensive | | Total | |||||
(in thousands, except per share data) | | Outstanding | | value) | | Capital | | Earnings | | Loss | | Equity | |||||
Balance, December 31, 2023 |
| 76,546 | | $ | 153,092 | | $ | 434,185 | | $ | 368,707 | | $ | (31,818) | | $ | 924,166 |
Net loss |
| — | |
| — | |
| — | |
| (21,886) | |
| — | |
| (21,886) |
Other comprehensive loss |
| — | |
| — | |
| — | |
| — | |
| (11,619) | |
| (11,619) |
Share-based compensation expense, exercises and other |
| (97) | |
| (195) | |
| 4,402 | |
| — | |
| — | |
| 4,207 |
Balance, March 31, 2024 |
| 76,449 | | $ | 152,897 | | $ | 438,587 | | $ | 346,821 | | $ | (43,437) | | $ | 894,868 |
| | | | | | | | | | | | | | | | | |
Balance, December 31, 2022 |
| 76,279 | | $ | 152,557 | | $ | 418,894 | | $ | 410,008 | | $ | (35,855) | | $ | 945,604 |
Net loss |
| — | |
| — | |
| — | |
| (24,418) | |
| — | |
| (24,418) |
Other comprehensive income |
| — | |
| — | |
| — | |
| — | |
| 1,594 | |
| 1,594 |
Share-based compensation expense, exercises and other |
| (83) | |
| (166) | |
| 1,786 | |
| — | |
| — | |
| 1,620 |
Balance, March 31, 2023 |
| 76,196 | | $ | 152,391 | | $ | 420,680 | | $ | 385,590 | | $ | (34,261) | | $ | 924,400 |
See accompanying notes to consolidated financial statements.
7
(unaudited)
(in thousands, except per share data, unless otherwise indicated)
Basis of Presentation
The accompanying unaudited consolidated financial statements include the accounts of Owens & Minor, Inc. and the subsidiaries it controls (we, us, or our) and contain all adjustments (which are comprised only of normal recurring accruals and use of estimates) necessary to conform with U.S. generally accepted accounting principles (GAAP). All significant intercompany accounts and transactions have been eliminated. The results of operations for interim periods are not necessarily indicative of the results expected for the full year.
We report our business hasunder two distinct segments: Products & Healthcare Services and Patient Direct. The Products & Healthcare Services providessegment includes our United States (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 expandssegment includes our business along the continuum of care through delivery of disposable medical supplies sold directly to patients and home health agencies and is a leading provider of integrated home healthcare equipmentdivisions (Byram and related services in the United States.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires us to make assumptions and estimates that affect reported amounts and related disclosures. Actual results may differ from these estimates.
Cash, Cash Equivalents and Restricted Cash
Cash, cash equivalents and restricted cash includes cash and marketable securities with an original maturity or maturity at acquisition of three months or less. Cash, cash equivalents and restricted cash are stated at cost. Nearly all of our cash, cash equivalents and restricted cash are held in cash depository accounts in major banks in North America, Europe, and Asia. Cash that is held by a major bank and has restrictions on its availability to us is classified as restricted cash. Restricted cash as of June 30, 2023March 31, 2024 and December 31, 2022 primarily represents2023 includes cash held in an escrow account as required by the Centers for Medicare & Medicaid Services in conjunction with the Bundled Payments for Care Improvement initiatives related to wind-down costs of Fusion5. Restricted cashFusion5, as of June 30, 2023 also includes $6.4well as $9.5 million and $13.5 million of cash deposits received subject to limitations on use until remitted to a third-party financial institution (the Purchaser), pursuant to the Master Receivables Purchase Agreement (RPA).
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the accompanying consolidated balance sheets that sum to the total of those same amounts presented in the accompanying consolidated statements of cash flows.
June 30, 2023 | December 31, 2022 | ||||||||||
Cash and cash equivalents | $ | 286,307 | $ | 69,467 | |||||||
Restricted cash included in Other current assets | 22,796 | — | |||||||||
Restricted cash included in Other assets, net | — | 16,718 | |||||||||
Total cash, cash equivalents, and restricted cash | $ | 309,103 | $ | 86,185 |
| | | | | | |
|
| March 31, 2024 |
| December 31, 2023 | ||
Cash and cash equivalents | | $ | 244,866 | | $ | 243,037 |
Restricted cash included in Other current assets | |
| 25,928 | |
| 29,887 |
Total cash, cash equivalents, and restricted cash | | $ | 270,794 | | $ | 272,924 |
Rental Revenue
Within our Patient Direct segment, revenues are recognized under fee-for-service arrangements for equipment we rent to patients and sales of equipment, supplies and other items we sell to patients. Revenue that is generated from equipment that we rent to patients is primarily recognized over the noncancelable rental period, typically one month, and commences on delivery of the equipment to the patients. Revenues are recorded at amounts estimated to be received under reimbursement arrangements with third-party payors, including private insurers, prepaid health plans, Medicare,
8
Medicaid and patients. Rental revenue,revenue, less estimated adjustments,adjustments, is recognized as earned on a straight-line basis over the noncancellablenoncancelable lease term. We recorded $175$147 million and $144$172 million for the three months ended June 30,March 31, 2024 and 2023 and 2022 and $346 million and $151 million for the six months ended June 30, 2023 and 2022 in revenue related to equipment we rent to patients.
Sales of Accounts Receivable
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 the Purchaser in exchange for cash. As of June 30,March 31, 2024 and December 31, 2023, there were a total of $115$103 million and $124 million of uncollected accounts receivable, that had been sold and removed from our consolidated balance sheet.sheets. We account for these transactions as sales in accordance with ASC 860, Transfers and Servicing, with the sold receivables removed from our consolidated balance sheets. Under the RPA, we provide certain servicing and collection actions on behalf of the Purchaser; however, we do not maintain any beneficial interest in the accounts receivable sold.
Proceeds from the sale of accounts receivable are recorded as an increase to cash and cash equivalents and a reduction to accounts receivable, net of allowances, in the consolidated balance sheets. Cash received from the sale of accounts receivable, net of payments made to the Purchaser, is reflected as cash provided by operating activities in the consolidated statements of cash flows. Total accounts receivable sold under the RPA were $412$515 million for the three and six months ended June 30, 2023.March 31, 2024. During the three and six months ended June 30, 2023,March 31, 2024, we received net cash proceeds of $409$512 million from the sale of accounts receivable under the RPA and collected $297$536 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, (income), net in the consolidated statements of operations were $2.9$3.3 million and $3.6$0.8 million for the three and six months ended June 30,March 31, 2024 and 2023. The RPA is separate and distinct from the
Fair value is determined based on assumptions that a market participant would use in pricing an asset or liability. The assumptions used are in accordance with a three-tier hierarchy, defined by GAAP, that draws a distinction between market participant assumptions based on (i) observable inputs such as quoted prices in active markets (Level 1), (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2) and (iii) unobservable inputs that require the use of present value and other valuation techniques in the determination of fair value (Level 3).
The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and accrued payroll and related liabilities reported in the consolidated balance sheets approximate fair value due to the short-term nature of these instruments. The fair value of debt is estimated based on quoted market prices or dealer quotes for the identical liability when traded as an asset in an active market (Level 1) or, if quoted market prices or dealer quotes are not available, on the borrowing rates currently available for loans with similar terms, credit ratings, and average remaining maturities (Level 2). See Note 65 for the fair value of debt. The fair value of our derivative contracts is determined based on the present value of expected future cash flows considering the risks involved, including non-performance risk, and using discount rates appropriate for the respective maturities. Observable Level 2 inputs are used to determine the present value of expected future cash flows. See Note 87 for the fair value of derivatives.
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Our acquisitions may include contingent consideration as part of the purchase price. The fair value of contingent consideration is estimated as of the acquisition date and at the end of each subsequent reporting period based on the present value of the contingent payments to be made using a weighted probability of possible payments (Level 3). Subsequent changes in fair value are recorded as adjustments to acquisition-related charges and intangible amortization within the consolidated statements of operations.
Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | ||||||||||
Net revenue | $ | 2,500,015 | $ | 5,184,080 | |||||||
Net income (loss) | $ | 34,408 | $ | (44,454) |
The following table summarizes the goodwill balances by segment and the changes in the carrying amount of goodwill through June 30, 2023:
Patient Direct | Products & Healthcare Services | Consolidated | |||||||||||||||
Carrying amount of goodwill, December 31, 2022 | $ | 1,533,670 | $ | 103,035 | $ | 1,636,705 | |||||||||||
Acquisition adjustment | 1,582 | — | 1,582 | ||||||||||||||
Currency translation adjustments | — | (1,138) | (1,138) | ||||||||||||||
Carrying amount of goodwill, June 30, 2023 | $ | 1,535,252 | $ | 101,897 | $ | 1,637,149 |
| | | | | | | | | |
|
| | |
| Products & |
| | | |
| | | | | Healthcare | | | | |
| | Patient Direct | | Services | | Consolidated | |||
Carrying amount of goodwill, December 31, 2023 | | $ | 1,535,252 | | $ | 103,594 | | $ | 1,638,846 |
Currency translation adjustments | |
| — | |
| (3,478) | |
| (3,478) |
Carrying amount of goodwill, March 31, 2024 | | $ | 1,535,252 | | $ | 100,116 | | $ | 1,635,368 |
Intangible assets subject to amortization, which exclude indefinite-lived intangible assets, at June 30, 2023March 31, 2024 and December 31, 20222023 were as follows:
June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||
Customer Relationships | Tradenames | Other Intangibles | Customer Relationships | Tradenames | Other Intangibles | ||||||||||||||||||||||||||||||||||||
Gross intangible assets | $ | 446,344 | $ | 202,000 | $ | 73,184 | $ | 447,107 | $ | 202,000 | $ | 73,181 | |||||||||||||||||||||||||||||
Accumulated amortization | (224,154) | (59,874) | (34,480) | (197,540) | (50,094) | (29,612) | |||||||||||||||||||||||||||||||||||
Net intangible assets | $ | 222,190 | $ | 142,126 | $ | 38,704 | $ | 249,567 | $ | 151,906 | $ | 43,569 | |||||||||||||||||||||||||||||
Weighted average useful life | 13 years | 10 years | 6 years | 13 years | 10 years | 6 years |
| | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 | | ||||||||||||||
|
| Customer |
| | |
| Other |
| Customer |
| | |
| Other | | ||||
| | Relationships | | Tradenames | | Intangibles | | Relationships | | Tradenames | | Intangibles | | ||||||
Gross intangible assets | | $ | 397,193 | | $ | 202,000 | | $ | 73,055 | | $ | 433,750 | | $ | 202,000 | | $ | 73,958 | |
Accumulated amortization | |
| (213,793) | |
| (74,544) | |
| (43,318) | |
| (236,791) | |
| (69,655) | |
| (41,427) | |
Net intangible assets | | $ | 183,400 | | $ | 127,456 | | $ | 29,737 | | $ | 196,959 | | $ | 132,345 | | $ | 32,531 | |
Weighted average useful life | |
| 14 years | |
| 10 years | |
| 6 years | |
| 13 years | |
| 10 years | |
| 6 years | |
At June 30, 2023March 31, 2024 and December 31, 2022, $2792023, $236 million and $308$250 million in net intangible assets were held in the Patient Direct segment and $124$107 million and $137$112 million were held in the Products & Healthcare Services segment. Amortization expense for intangible assets was $20.9$20.3 million and $30.9$20.9 million for the three months ended June 30, 2023March 31, 2024 and 2022 and $41.8 million and $41.2 million for the six months ended June 30, 2023 and 2022.
As of June 30, 2023,March 31, 2024, based on the current carrying value of intangible assets subject to amortization, estimated amortization expense were as follows:
| | | |
Year |
| | |
2024 (remainder) | | $ | 44,080 |
2025 | |
| 54,389 |
2026 | |
| 50,036 |
2027 | |
| 41,687 |
2028 | |
| 32,008 |
Thereafter | | | 118,393 |
Total future amortization | | $ | 340,593 |
Year | |||||
2023 (remainder) | $ | 41,489 | |||
2024 | 65,285 | ||||
2025 | 55,157 | ||||
2026 | 53,721 | ||||
2027 | 46,878 | ||||
2028 | 28,867 |
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We periodically incur exit and realignment and other charges associated with optimizing our operations which includes the consolidation of certain facilities, IT strategic initiatives and IT restructuring charges.other strategic actions. These charges also include costs associated with our Operating Model Realignment Program, which include professional fees, severance and other costs to streamline functions and processes.
Exit and realignment charges, net were $29.0$27.4 million and $1.2$15.7 million for the three months ended June 30, 2023March 31, 2024 and 2022 and $44.6 million and $2.9 million for six months ended June 30, 2023 and 2022.2023. These amounts are excluded from our segmentssegments’ operating income. We expect material additional costs in 2023
During the three months ended March 31, 2024, exit and realignment charges, net included a gain of $7.4 million associated with the sale of our corporate headquarters and $34.7 million in charges under our Operating Model Realignment Program and IT restructuring charges.
The following table summarizes the activity related to exit and realignment cost accruals, which are classified as other current liabilities in our consolidated balance sheets, through June 30, 2023March 31, 2024 and 2022:2023:
| | | |
|
| Total | |
Accrued exit and realignment costs, December 31, 2023 | | $ | 20,047 |
Provision for exit and realignment activities: | |
|
|
Severance | |
| 184 |
Professional fees | |
| 25,625 |
Other | |
| 2,493 |
Cash payments | |
| (11,728) |
Accrued exit and realignment costs, March 31, 2024 | | $ | 36,621 |
| | | |
Accrued exit and realignment costs, December 31, 2022 | | $ | 969 |
Provision for exit and realignment activities: | |
|
|
Severance | |
| 4,127 |
Professional fees | | | 9,012 |
Other | |
| 2,535 |
Cash payments | |
| (5,546) |
Accrued exit and realignment costs, March 31, 2023 | | $ | 11,097 |
In addition to the exit and realignment accruals in the preceding table and the $7.4 million gain associated with the sale of our corporate headquarters, we also incurred $6.5 million of costs that were expensed as incurred for the three months ended March 31, 2024, which primarily related to accelerated depreciation of certain assets held in our Products & Healthcare Services segment.
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Debt, net of unamortized deferred financing costs, consists of the following:
June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||
Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | ||||||||||||||||||||
4.375% Senior Notes, due December 2024 | $ | 245,659 | $ | 240,032 | $ | 245,510 | $ | 237,772 | |||||||||||||||
Receivables Securitization Program | — | — | 93,142 | 96,000 | |||||||||||||||||||
Term Loan A | 454,349 | 452,060 | 490,816 | 485,000 | |||||||||||||||||||
4.500% Senior Notes, due March 2029 | 492,703 | 417,752 | 492,762 | 396,625 | |||||||||||||||||||
Term Loan B | 546,014 | 563,203 | 576,587 | 597,733 | |||||||||||||||||||
6.625% Senior Notes, due April 2030 | 579,023 | 538,085 | 585,180 | 516,060 | |||||||||||||||||||
Finance leases and other | 16,508 | 16,508 | 16,877 | 16,877 | |||||||||||||||||||
Total debt | 2,334,256 | 2,227,640 | 2,500,874 | 2,346,067 | |||||||||||||||||||
Less current maturities | (24,403) | (24,403) | (17,906) | (17,906) | |||||||||||||||||||
Long-term debt | $ | 2,309,853 | $ | 2,203,237 | $ | 2,482,968 | $ | 2,328,161 |
| | | | | | | | | | | | |
|
| March 31, 2024 |
| December 31, 2023 | ||||||||
|
| Carrying |
| Estimated |
| Carrying |
| Estimated | ||||
| | Amount | | Fair Value | | Amount | | Fair Value | ||||
4.375% Senior Notes, due December 2024 | | $ | 171,306 | | $ | 169,816 | | $ | 171,232 | | $ | 168,754 |
Receivables Financing Agreement | |
| 64,438 | |
| 65,700 | |
| — | |
| — |
Term Loan A | |
| 385,003 | |
| 389,513 | |
| 387,591 | |
| 390,668 |
4.500% Senior Notes, due March 2029 | |
| 473,162 | |
| 438,337 | |
| 472,869 | |
| 422,647 |
Term Loan B | |
| 502,481 | |
| 518,722 | |
| 503,212 | |
| 518,293 |
6.625% Senior Notes, due April 2030 | |
| 540,947 | |
| 547,661 | |
| 540,445 | |
| 529,472 |
Finance leases and other | |
| 16,326 | |
| 16,326 | |
| 22,153 | |
| 22,153 |
Total debt | |
| 2,153,663 | |
| 2,146,075 | |
| 2,097,502 | |
| 2,051,987 |
Less current maturities | |
| (207,658) | |
| (207,658) | |
| (206,904) | |
| (206,904) |
Long-term debt | | $ | 1,946,005 | | $ | 1,938,417 | | $ | 1,890,598 | | $ | 1,845,083 |
We have $246$171 million of 4.375% senior notes due in December 2024 (the 2024 Notes), with interest payable semi-annually. The 2024 Notes were sold at 99.6% of the principal amount with an effective yield of 4.422%. We have the option to redeem the 2024 Notes in part or in whole prior to maturity at a redemption price equal to the greater of 100% of the principal amount or the present value of the remaining scheduled payments discounted at the applicable Benchmark Treasury Rate (as defined)defined in the Indenture which governs the 2024 Notes) plus 30 basis points.
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 (the Secured Parties) 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.
The amended Receivables Financing Agreement has a maximum 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 $65.7 million in principal outstanding and no borrowings at June 30, 2023March 31, 2024 and $96.0 million outstanding at December 31, 20222023 under our Receivables Financing Agreement. At June 30, 2023March 31, 2024 and December 31, 2022,2023, we had maximum revolving borrowing capacity of $450$384 million and $354$450 million under our Receivables Financing Agreement.
On March 29, 2022, we entered into a term loan credit agreement with an administrative agent and collateral agent and a syndicate of financial institutions, as lenders (the Credit Agreement) that provides for two new credit facilities (i) a $500 million Term Loan A facility (the Term Loan A), and (ii) a $600 million Term Loan B facility (the Term Loan B). The interest rate on the Term Loan A is based on the sum of either Term SOFR or the Base Rate and an Applicable Rate which varies depending on the current Debt Ratings or Total Leverage Ratio, determined as to whichever shall result in more favorable pricing to the Borrowers (each as defined in the Credit Agreement). The interest rate on the Term Loan B is based on either the Term SOFR or the Base Rate plus an Applicable Rate. The Term Loan A will mature in March 2027 and the Term Loan B will mature in March 2029. In addition to our scheduled principal payments of $3.1 million on the Term Loan A and $3.0 million on the Term Loan B, we made unscheduled principal payments of $35 million on Term Loan A and $30 million on Term Loan B during the six months ended June 30, 2023.
On March 10, 2021, we issued $500 million of 4.500% senior unsecured notes due in March 2029 (the 2029 Unsecured Notes), with interest payable semi-annually (the Notes Offering). The 2029 Unsecured Notes were sold at
12
100% of the principal amount with an effective yield of 4.500%. We may redeem all or part of the 2029 Unsecured Notes prior to March 31, 2024, at a price equal to 100% of the principal amount of the 2029 Unsecured Notes redeemed, plus accrued and unpaid interest, if any, to, but not including, the redemption date, plus a “make-whole” premium, as described in the Indenture dated March 10, 2021 (the Indenture). On or after March 31, 2024, we may redeem all or part of the 2029 Unsecured Notes at the
On March 29, 2022, we completed the sale ofissued $600 million in aggregate principal amount of our 6.625% senior unsecured notes due in April 2030 (the 2030 Unsecured Notes), with interest payable semi-annually. The 2030 Unsecured Notes were sold at 100% of the principal amount with an effective yield of 6.625%. We may redeem all or part of the 2030 Unsecured Notes, prior to April 1, 2025, at a price equal to 100% of the principal amount of the 2030 Unsecured Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, plus a “make-whole” premium, as described in the Indenture dated March 29, 2022 (the New Indenture). From and after April 1, 2025, we may redeem all or part of the 2030 Unsecured Notes at the applicable redemption prices described in the New Indenture, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. We may also redeem up to 40% of the aggregate principal amount of the 2030 Unsecured Notes at any time prior to April 1, 2025, at a redemption price equal to 106.625% with an amount equal to or less than the net cash proceeds from certain equity offerings, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.
The 2029 Unsecured Notes and the 2030 Unsecured Notes are subordinated to any of our secured indebtedness, including indebtedness under our credit agreements.
We have a revolving credit agreement dated as of March 10, 2021 with an administrative agent and collateral agent and a syndicate of financial institutions, as lenders (Revolving Credit Agreement). with a maximum borrowing capacity of $450 million. The amendment (i) increased the aggregate revolving credit commitmentsinterest rate under theour Revolving Credit Agreement by $150 million, to an aggregate amount of $450 million and (ii) replaced the Eurocurrency Rate withis based on the Adjusted Term SOFR Rate (each as(as defined in the Revolving Credit Agreement). The Revolving Credit Agreement matures in March 2027.
At June 30, 2023March 31, 2024 and December 31, 2022,2023, our Revolving Credit Agreement was undrawn, and we had letters of credit, which reduce Revolver availability, totaling $27.9$26.7 million and $27.4 million, leaving $422$423 million available for borrowing.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 StatesU.S. and Europe that were issued outside of the Revolving Credit Agreement for $2.1 million and $2.3$3.0 million as of June 30, 2023March 31, 2024 and December 31, 2022.
The Revolving Credit Agreement, the Credit Agreement, the Receivables Financing Agreement, the 2024 Notes, the 2029 Unsecured Notes and the 2030 Unsecured Notes 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, 2023.
As of June 30, 2023,March 31, 2024, scheduled future principal payments of debt, excluding finance leases and other, were as follows:
| | | |
Year |
| | |
2024 (remainder) | | $ | 194,572 |
2025 | |
| 106,075 |
2026 | |
| 43,500 |
2027 | |
| 305,375 |
2028 | |
| 6,000 |
2029 | |
| 965,654 |
2030 | |
| 552,189 |
Year | |||||
2023 (remainder) | $ | 9,250 | |||
2024 | 273,855 | ||||
2025 | 40,375 | ||||
2026 | 43,500 | ||||
2027 | 367,875 | ||||
2028 | 6,000 | ||||
2029 | 1,028,845 | ||||
2030 | 592,670 |
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Of the $274$195 million due in 2024, $254$179 million is due in December 2024. Current maturities at June 30, 2023March 31, 2024 include $15.6$171 million in principal payments on our 2024 Notes, $25.0 million in principal payments on our Term Loan A, $6.0 million in principal payments on our Term Loan B, and $2.8$5.3 million in current portion of finance leases.
We have a frozen noncontributory, unfunded retirement plan for certain retirees in the United StatesU.S. (U.S. Retirement Plan). As of June 30, 2023March 31, 2024 and December 31, 2022,2023, the accumulated benefit obligation of the U.S. Retirement Plan was $38.5$33.7 million and $39.3$34.1 million. Certain of our foreign subsidiaries also have defined benefit pension plans covering substantially all of their respective teammates.
The components of net periodic benefit cost for the three and six months ended June 30,March 31, 2024 and 2023 and 2022 were as follows:
Three Months Ended
June 30,Six Months Ended
June 30,2023 2022 2023 2022 Service cost $ 446 $ 617 $ 887 $ 1,250 Interest cost 714 519 1,423 1,042 Recognized net actuarial loss 123 267 246 534 Net periodic benefit cost $ 1,283 $ 1,403 $ 2,556 $ 2,826
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2024 |
| 2023 | ||
Service cost | | $ | 458 | | $ | 441 |
Interest cost | | | 645 | | | 710 |
Recognized net actuarial loss | |
| 81 | |
| 123 |
Net periodic benefit cost | | $ | 1,184 | | $ | 1,274 |
Note 8—7—Derivatives
We are directly and indirectly affected by changes in foreign currency, which may adversely impact our financial performance and are referred to as “market risks.” When deemed appropriate, we use derivatives as a risk management tool to mitigate the potential impact of certain market risks. We do not enter into derivative financial instruments for trading purposes.
We enter into foreign currency contracts to manage our foreign exchange exposure related to certain balance sheet items that do not meet the requirements for hedge accounting. These derivative instruments are adjusted to fair value at the end of each period through earnings. The gain or loss recorded on these instruments is substantially offset by the remeasurement adjustment on the foreign currency denominated asset or liability.
We pay interest on our Credit Agreement which fluctuates based on changes in our benchmark interest rates. In order to mitigate the risk of increases in benchmark rates on our term loans, we entered into an interest rate swap agreement whereby we agree to exchange with the counterparty, at specified intervals, the difference between fixed and variable amounts calculated by reference to the notional amount. The interest rate swaps were designated as cash flow hedges. Cash flows related to the interest rate swap agreement are included in interest expense, net.
We determine the fair value of our foreign currency derivatives and interest rate swaps based on observable market-based inputs or unobservable inputs that are corroborated by market data. We do not view the fair value of our derivatives in isolation, but rather in relation to the fair values or cash flows of the underlying exposure. All derivatives are carried at fair value in our consolidated balance sheets. We consider the risk of counterparty default to be minimal. We report cash flows from our hedging instruments in the same cash flow statement category as the hedged items.
14
The following table summarizes the terms and fair value of our outstanding derivative financial instruments as of June 30, 2023:
Derivative Assets | Derivative Liabilities | ||||||||||||||||||||||||||||||||||
Notional Amount | Maturity Date | Classification | Fair Value | Classification | Fair Value | ||||||||||||||||||||||||||||||
Cash flow hedges | |||||||||||||||||||||||||||||||||||
Interest rate swaps | $ | 350,000 | March 2027 | Other assets, net | $ | 15,355 | Other liabilities | $ | — | ||||||||||||||||||||||||||
Economic (non-designated) hedges | |||||||||||||||||||||||||||||||||||
Foreign currency contracts | $ | 76,916 | July - August 2023 | Other current assets | $ | 269 | Other current liabilities | $ | 2 |
| | | | | | | | | | | | | | | |
|
| | |
| |
| | | | |
| | | | |
|
| Notional |
| |
| Derivative Assets |
| Derivative Liabilities | |||||||
|
| Amount |
| Maturity Date |
| Classification |
| Fair Value |
| Classification |
| Fair Value | |||
Cash flow hedges | | |
| |
|
|
|
| |
| |
|
| |
|
Interest rate swaps | | $ | 300,000 | | March 2027 |
| Other assets, net | | $ | 10,356 | | Other liabilities | | $ | — |
| | | | | | | | | | | | | | | |
Economic (non-designated) hedges | |
|
| |
|
|
| |
|
| |
| |
|
|
Foreign currency contracts | | $ | 69,335 | | April 2024 |
| Other current assets | | $ | 129 | | Other current liabilities | | $ | 44 |
The following table summarizes the terms and fair value of our outstanding derivative financial instruments as of December 31, 2022:
| | | | | | | | | | | | | | | |
|
| | |
| |
| | | | |
| | | | |
|
| Notional |
| |
| Derivative Assets |
| Derivative Liabilities | |||||||
|
| Amount |
| Maturity Date |
| Classification |
| Fair Value |
| Classification |
| Fair Value | |||
Cash flow hedges | | |
| |
| |
| | |
| |
| | |
|
Interest rate swaps | | $ | 350,000 | | March 2027 |
| Other assets, net | | $ | 8,447 | | Other liabilities | | $ | — |
| | | | | | | | | | | | | | | |
Economic (non-designated) hedges | |
|
| |
|
|
| |
|
| |
| |
|
|
Foreign currency contracts | | $ | 78,436 | | January 2024 |
| Other current assets | | $ | 1,043 | | Other current liabilities | | $ | — |
Derivative Assets | Derivative Liabilities | ||||||||||||||||||||||||||||||||||
Notional Amount | Maturity Date | Classification | Fair Value | Classification | Fair Value | ||||||||||||||||||||||||||||||
Cash flow hedges | |||||||||||||||||||||||||||||||||||
Interest rate swaps | $ | 400,000 | March 2027 | Other assets, net | $ | 15,461 | Other liabilities | $ | — | ||||||||||||||||||||||||||
Economic (non-designated) hedges | |||||||||||||||||||||||||||||||||||
Foreign currency contracts | $ | 58,321 | January 2023 | Other current assets | $ | 440 | Other current liabilities | $ | 42 |
The notional amount of the interest rate swaps represents the amount in effect at the end of the period. Based on contractual terms, the notional amount will decrease in increments of $50 million on the last business day of March of each year until the maturity date.
The following table summarizes the effect of cash flow hedge accounting on our consolidated statements of operations for the three and six months ended June 30, 2023:
Amount of Gain Recognized in Other Comprehensive Income (Loss) | Location of Gain Reclassified from Accumulated Other Comprehensive Loss into Income | Total Amount of Expense Line Items Presented in the Consolidated Statement of Operations in Which the Effects are Recorded | Amount of Gain Reclassified from Accumulated Other Comprehensive Loss into Income | ||||||||||||||||||||||||||||||||||||||
Three months ended June 30, 2023 | Six months ended June 30, 2023 | Three months ended June 30, 2023 | Six months ended June 30, 2023 | Three months ended June 30, 2023 | Six months ended June 30, 2023 | ||||||||||||||||||||||||||||||||||||
Interest rate swaps | $ | 6,792 | $ | 4,405 | Interest expense, net | $ | (40,728) | $ | (82,926) | $ | 2,335 | $ | 4,511 |
| | | | | | | | | | | |
| | | | | | | | | |||
| | Amount of Gain Recognized in Other Comprehensive Income (Loss) | | Location of Gain Reclassified from Accumulated Other Comprehensive Loss into Income | | Total Amount of Expense Line Items Presented in the Consolidated Statement of Operations in Which the Effects are Recorded | | Amount of Gain Reclassified from Accumulated Other Comprehensive Loss into Net Loss | |||
Interest rate swaps | | $ | 4,557 |
| Interest expense, net | | $ | (35,655) | | $ | 2,649 |
The amount of ineffectiveness associated with these contracts was immaterial for the period presented.
The following table summarizes the effect of cash flow hedge accounting on our consolidated statements of operations for the three and six months ended June 30, 2022:March 31, 2023:
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | Amount of Loss Recognized in Other Comprehensive Income (Loss) | | Location of Gain Reclassified from Accumulated Other Comprehensive Loss into Income | | | Total Amount of Expense Line Items Presented in the Consolidated Statement of Operations in Which the Effects are Recorded | | | Amount of Gain Reclassified from Accumulated Other Comprehensive Loss into Net Loss |
Interest rate swaps | | $ | (2,387) |
| Interest expense, net | | $ | (42,198) | | $ | 2,176 |
Amount of Gain Recognized in Other Comprehensive Income (Loss) | Location of Loss Reclassified from Accumulated Other Comprehensive Loss into Income | Total Amount of Expense Line Items Presented in the Consolidated Statement of Operations in Which the Effects are Recorded | Amount of Loss Reclassified from Accumulated Other Comprehensive Loss into Income | ||||||||||||||||||||||||||||||||||||||
Three months ended June 30, 2022 | Six months ended June 30, 2022 | Three months ended June 30, 2022 | Six months ended June 30, 2022 | Three months ended June 30, 2022 | Six months ended June 30, 2022 | ||||||||||||||||||||||||||||||||||||
Interest rate swaps | $ | 2,044 | $ | 2,044 | Interest expense, net | $ | (35,839) | $ | (47,858) | $ | (1,692) | $ | (1,692) |
15
The amount of ineffectiveness associated with these contracts was immaterial for the periodsperiod presented.
For the three and six months ended June 30,March 31, 2024 and 2023, we recognized a loss of $0.9$4.2 million and no gain (loss) associated with our economic (non-designated) foreign currency contracts. For the three and six months ended June 30, 2022, we recognized losses of $1.3 million and $1.4 million associated with our economic (non-designated) foreign currency contracts.
We recorded the change in fair value of derivative instruments and the remeasurement adjustment of the foreign currency denominated asset or liability in other operating expense, (income), net for our foreign exchange contracts.
Note 9—8—Income Taxes
The effective tax rate was 8.8% and 18.7%19.3% for the three and six months ended June 30, 2023,March 31, 2024, compared to 25.6% and 21.7%27.7% in the same periodsperiod of 2022.2023. The change in these rates resultedwere primarily from changes in incomeresults of operations in the jurisdictions in which we operate and losses.
The liability for unrecognized tax benefits was $22.7$22.8 million at June 30, 2023March 31, 2024 and $22.5$22.7 million at December 31, 2022.2023. Included in the liability at June 30, 2023March 31, 2024 and December 31, 20222023 were $2.7 million of tax positions for which ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.
On August 26, 2020, we received a Notice of Proposed Adjustment (NOPA) from the Internal Revenue Service (IRS) regarding our 2015 and 2016 consolidated income tax returns. On June 30, 2021, we received a NOPA from the IRS regarding our 2017 and 2018 consolidated income tax returns. Within the NOPAs, the IRS has asserted that our taxable income for the aforementioned years should be higher based on their assessment of the appropriate amount of taxable income that we should report in the United States in connection with our sourcing of products by our foreign subsidiaries for sale in the United States by our domestic subsidiaries. Our amount of taxable income in the United States is based on our transfer pricing methodology, which has been consistently applied for all years subject to the NOPAs. We strongly disagree with the IRS position and will pursue all available administrative and judicial remedies, including those available under the U.S. - Ireland Income Tax Treaty to alleviate double taxation. We regularly assess the likelihood of adverse outcomes resulting from examinations such as this to determine the adequacy of our tax reserves. We believe that we have adequately reserved for this matter and that the final adjudication of this matter will not have a material impact on our consolidated financial position, results of operations or cash flows. However, the ultimate outcome of disputes of this nature is uncertain, and if the IRS were to prevail on its assertions, the additional tax, interest and any potential penalties could have a material adverse impact on our financial position, results of operations or cash flows.
The following summarizes the calculation of net (loss) incomeloss per common share attributable to common shareholders for the three and six months ended June 30, 2023March 31, 2024 and 2022:2023:
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
(in thousands, except per share data) |
| 2024 |
| 2023 | ||
Net loss | | $ | (21,886) | | $ | (24,418) |
| | | | | | |
Weighted average shares outstanding - basic | |
| 76,319 | |
| 75,177 |
Dilutive shares | |
| — | |
| — |
Weighted average shares outstanding - diluted | |
| 76,319 | |
| 75,177 |
| | | | | | |
Net loss per common share: | | | | | | |
Basic | | $ | (0.29) | | $ | (0.32) |
Diluted | | $ | (0.29) | | $ | (0.32) |
16
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
(in thousands, except per share data) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
Net (loss) income | $ | (28,241) | $ | 28,604 | $ | (52,659) | $ | 67,884 | |||||||||||||||
Weighted average shares outstanding - basic | 75,801 | 74,710 | 75,559 | 74,158 | |||||||||||||||||||
Dilutive shares | — | 1,587 | — | 2,011 | |||||||||||||||||||
Weighted average shares outstanding - diluted | 75,801 | 76,297 | 75,559 | 76,169 | |||||||||||||||||||
Net (loss) income per common share: | |||||||||||||||||||||||
Basic | $ | (0.37) | $ | 0.38 | $ | (0.70) | $ | 0.92 | |||||||||||||||
Diluted | $ | (0.37) | $ | 0.37 | $ | (0.70) | $ | 0.89 |
Share-based awards for the three and six months ended June 30,March 31, 2024 and 2023 of approximately 1.81.6 million and 1.7 million shares were excluded from the calculation of net loss per diluted common share as the effect would be anti-dilutive.
The following table shows the changes in accumulated other comprehensive (loss) income by component for the three and six months ended June 30, 2023March 31, 2024 and 2022:2023:
| | | | | | | | | | | | |
|
| | |
| Currency |
| | |
| | | |
| | Retirement | | Translation | | | | | | | ||
| | Plans | | Adjustments | | Derivatives | | Total | ||||
Accumulated other comprehensive (loss) income, December 31, 2023 | | $ | (5,115) | | $ | (32,954) | | $ | 6,251 | | $ | (31,818) |
Other comprehensive income (loss) before reclassifications | |
| 234 | |
| (13,266) | |
| 4,557 | |
| (8,475) |
Income tax | |
| (59) | |
| — | |
| (1,185) | |
| (1,244) |
Other comprehensive income (loss) before reclassifications, net of tax | |
| 175 | |
| (13,266) | |
| 3,372 | |
| (9,719) |
Amounts reclassified from accumulated other comprehensive income (loss) | |
| 81 | |
| — | |
| (2,649) | |
| (2,568) |
Income tax | |
| (21) | |
| — | |
| 689 | |
| 668 |
Amounts reclassified from accumulated other comprehensive income (loss), net of tax | |
| 60 | |
| — | |
| (1,960) | |
| (1,900) |
Other comprehensive income (loss) | |
| 235 | |
| (13,266) | |
| 1,412 | |
| (11,619) |
Accumulated other comprehensive (loss) income, March 31, 2024 | | $ | (4,880) | | $ | (46,220) | | $ | 7,663 | | $ | (43,437) |
| | | | | | | | | | | | |
|
| | |
| Currency |
| | |
| | | |
| | Retirement | | Translation | | | | | | | ||
| | Plans | | Adjustments | | Derivatives | | Total | ||||
Accumulated other comprehensive (loss) income, December 31, 2022 | | $ | (7,201) | | $ | (40,095) | | $ | 11,441 | | $ | (35,855) |
Other comprehensive income (loss) before reclassifications | |
| — | |
| 5,118 | |
| (2,387) | |
| 2,731 |
Income tax | |
| — | |
| — | |
| 621 | |
| 621 |
Other comprehensive income (loss) before reclassifications, net of tax | |
| — | |
| 5,118 | |
| (1,766) | |
| 3,352 |
Amounts reclassified from accumulated other comprehensive income (loss) | |
| 123 | |
| — | |
| (2,176) | |
| (2,053) |
Income tax | |
| (270) | |
| — | |
| 565 | |
| 295 |
Amounts reclassified from accumulated other comprehensive income (loss), net of tax | |
| (147) | |
| — | |
| (1,611) | |
| (1,758) |
Other comprehensive (loss) income | |
| (147) | |
| 5,118 | |
| (3,377) | |
| 1,594 |
Accumulated other comprehensive (loss) income, March 31, 2023 | | $ | (7,348) | | $ | (34,977) | | $ | 8,064 | | $ | (34,261) |
Retirement Plans | Currency Translation Adjustments | Derivatives | Total | ||||||||||||||||||||
Accumulated other comprehensive (loss) income, March 31, 2023 | $ | (7,348) | $ | (34,977) | $ | 8,064 | $ | (34,261) | |||||||||||||||
Other comprehensive (loss) income before reclassifications | — | (5,167) | 6,792 | 1,625 | |||||||||||||||||||
Income tax | — | — | (1,766) | (1,766) | |||||||||||||||||||
Other comprehensive (loss) income before reclassifications, net of tax | — | (5,167) | 5,026 | (141) | |||||||||||||||||||
Amounts reclassified from accumulated other comprehensive income (loss) | 123 | — | (2,335) | (2,212) | |||||||||||||||||||
Income tax | 13 | — | 608 | 621 | |||||||||||||||||||
Amounts reclassified from accumulated other comprehensive income (loss), net of tax | 136 | — | (1,727) | (1,591) | |||||||||||||||||||
Other comprehensive income (loss) | 136 | (5,167) | 3,299 | (1,732) | |||||||||||||||||||
Accumulated other comprehensive (loss) income, June 30, 2023 | $ | (7,212) | $ | (40,144) | $ | 11,363 | $ | (35,993) |
Retirement Plans | Currency Translation Adjustments | Derivatives | Total | ||||||||||||||||||||
Accumulated other comprehensive loss, March 31, 2022 | $ | (14,408) | $ | (26,781) | $ | — | $ | (41,189) | |||||||||||||||
Other comprehensive (loss) income before reclassifications | — | (18,831) | 2,044 | (16,787) | |||||||||||||||||||
Income tax | — | — | (532) | (532) | |||||||||||||||||||
Other comprehensive (loss) income before reclassifications, net of tax | — | (18,831) | 1,512 | (17,319) | |||||||||||||||||||
Amounts reclassified from accumulated other comprehensive loss | 386 | — | 1,692 | 2,078 | |||||||||||||||||||
Income tax | (89) | — | (440) | (529) | |||||||||||||||||||
Amounts reclassified from accumulated other comprehensive loss, net of tax | 297 | — | 1,252 | 1,549 | |||||||||||||||||||
Other comprehensive income (loss) | 297 | (18,831) | 2,764 | (15,770) | |||||||||||||||||||
Accumulated other comprehensive (loss) income, June 30, 2022 | $ | (14,111) | $ | (45,612) | $ | 2,764 | $ | (56,959) |
Retirement Plans | Currency Translation Adjustments | Derivatives | Total | ||||||||||||||||||||
Accumulated other comprehensive (loss) income, December 31, 2022 | $ | (7,201) | $ | (40,095) | $ | 11,441 | $ | (35,855) | |||||||||||||||
Other comprehensive (loss) income before reclassifications | — | (49) | 4,405 | 4,356 | |||||||||||||||||||
Income tax | — | — | (1,145) | (1,145) | |||||||||||||||||||
Other comprehensive (loss) income before reclassifications, net of tax | — | (49) | 3,260 | 3,211 | |||||||||||||||||||
Amounts reclassified from accumulated other comprehensive income (loss) | 246 | — | (4,511) | (4,265) | |||||||||||||||||||
Income tax | (257) | — | 1,173 | 916 | |||||||||||||||||||
Amounts reclassified from accumulated other comprehensive income (loss), net of tax | (11) | — | (3,338) | (3,349) | |||||||||||||||||||
Other comprehensive loss | (11) | (49) | (78) | (138) | |||||||||||||||||||
Accumulated other comprehensive (loss) income, June 30, 2023 | $ | (7,212) | $ | (40,144) | $ | 11,363 | $ | (35,993) |
Retirement Plans | Currency Translation Adjustments | Derivatives | Total | ||||||||||||||||||||
Accumulated other comprehensive loss, December 31, 2021 | $ | (14,597) | $ | (25,994) | $ | — | $ | (40,591) | |||||||||||||||
Other comprehensive (loss) income before reclassifications | — | (19,618) | 2,044 | (17,574) | |||||||||||||||||||
Income tax | — | — | (532) | (532) | |||||||||||||||||||
Other comprehensive (loss) income before reclassifications, net of tax | — | (19,618) | 1,512 | (18,106) | |||||||||||||||||||
Amounts reclassified from accumulated other comprehensive loss | 635 | — | 1,692 | 2,327 | |||||||||||||||||||
Income tax | (149) | — | (440) | (589) | |||||||||||||||||||
Amounts reclassified from accumulated other comprehensive loss, net of tax | 486 | — | 1,252 | 1,738 | |||||||||||||||||||
Other comprehensive (loss) income | 486 | (19,618) | 2,764 | (16,368) | |||||||||||||||||||
Accumulated other comprehensive (loss) income, June 30, 2022 | $ | (14,111) | $ | (45,612) | $ | 2,764 | $ | (56,959) |
We include amounts reclassified out of accumulated other comprehensive (loss) income related to defined benefit pension plans as a component of net periodic pension cost recorded in Other expense, net.
Note 12—11—Segment Information
We periodically evaluate our application of accounting guidance for reportable segments and disclose information about reportable segments based on the way management organizes the enterprise for making operating decisions and assessing performance. We report our business under two segments: Products & Healthcare Services and Patient Direct. The Products & Healthcare Services segment includes our United StatesU.S. distribution division (Medical Distribution), including our outsourced logistics and value-added services businesses, 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 (Byram and Apria).
17
We evaluate the performance of our segments based on their operating income excluding acquisition-related charges and intangible amortization and exit and realignment charges, net, along with other adjustments, that, either as a result of their nature or size, would not be expected to occur as part of our normal business operations on a regular basis. Segment assets exclude inter-segment account balances as we believe their inclusion would be misleading and not meaningful.
The following tables present financial information by segment:
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2024 |
| 2023 | ||
Net revenue: |
| |
|
| |
|
Products & Healthcare Services | | $ | 1,974,837 | | $ | 1,915,489 |
Patient Direct | |
| 637,843 | |
| 607,360 |
Consolidated net revenue | | $ | 2,612,680 | | $ | 2,522,849 |
| | | | | | |
Operating income: | |
|
| |
|
|
Products & Healthcare Services | | $ | 11,486 | | $ | 1,820 |
Patient Direct | |
| 45,879 | |
| 45,849 |
Acquisition-related charges and intangible amortization | |
| (20,313) | |
| (22,188) |
Exit and realignment charges, net | | | (27,356) | | | (15,674) |
Consolidated operating income | | $ | 9,696 | | $ | 9,807 |
| | | | | | |
Depreciation and amortization: | |
|
| |
|
|
Products & Healthcare Services | | $ | 23,366 | | $ | 18,566 |
Patient Direct | |
| 50,729 | |
| 52,360 |
Consolidated depreciation and amortization | | $ | 74,095 | | $ | 70,926 |
| | | | | | |
Share-based compensation: | | | | | | |
Products & Healthcare Services | | $ | 4,769 | | $ | 4,498 |
Patient Direct | |
| 1,407 | |
| 1,852 |
Other(1) | | | 690 | | | 113 |
Consolidated share-based compensation | | $ | 6,866 | | $ | 6,463 |
| | | | | | |
Capital expenditures: | |
|
| |
|
|
Products & Healthcare Services | | $ | 8,250 | | $ | 6,332 |
Patient Direct | |
| 41,158 | |
| 45,158 |
Consolidated capital expenditures | | $ | 49,408 | | $ | 51,490 |
(1) | Other share-based compensation expense is captured within exit and realignment charges, net or acquisition-related charges for the three months ended March 31, 2024 and 2023. |
| | | | | | |
|
| March 31, 2024 |
| December 31, 2023 | ||
Total assets: |
| |
|
| |
|
Products & Healthcare Services | | $ | 2,456,341 | | $ | 2,359,825 |
Patient Direct | | | 2,506,786 | | | 2,490,460 |
Segment assets | | | 4,963,127 | | | 4,850,285 |
Cash and cash equivalents | |
| 244,866 | |
| 243,037 |
Consolidated total assets | | $ | 5,207,993 | | $ | 5,093,322 |
For the three months ended March 31, 2024 and 2023, 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 Products & Healthcare Services segment were $5.4 million and $4.9
18
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
Net revenue: | |||||||||||||||||||||||
Products & Healthcare Services | $ | 1,930,723 | $ | 1,927,388 | $ | 3,846,212 | $ | 4,061,429 | |||||||||||||||
Patient Direct | 632,503 | 572,627 | 1,239,863 | 845,538 | |||||||||||||||||||
Consolidated net revenue | $ | 2,563,226 | $ | 2,500,015 | $ | 5,086,075 | $ | 4,906,967 | |||||||||||||||
Operating income: | |||||||||||||||||||||||
Products & Healthcare Services | $ | 2,940 | $ | 61,243 | $ | 4,761 | $ | 150,325 | |||||||||||||||
Patient Direct | 59,065 | 52,332 | 104,914 | 68,125 | |||||||||||||||||||
Acquisition-related charges and intangible amortization | (22,203) | (37,276) | (44,392) | (79,410) | |||||||||||||||||||
Exit and realignment charges | (28,963) | (1,214) | (44,637) | (2,896) | |||||||||||||||||||
Consolidated operating income | $ | 10,839 | $ | 75,085 | $ | 20,646 | $ | 136,144 | |||||||||||||||
Depreciation and amortization: | |||||||||||||||||||||||
Products & Healthcare Services | $ | 18,772 | $ | 19,209 | $ | 37,338 | $ | 38,203 | |||||||||||||||
Patient Direct | 53,290 | 53,952 | 105,650 | 59,083 | |||||||||||||||||||
Consolidated depreciation and amortization | $ | 72,062 | $ | 73,161 | $ | 142,988 | $ | 97,286 | |||||||||||||||
Capital expenditures: | |||||||||||||||||||||||
Products & Healthcare Services | $ | 6,602 | $ | 18,418 | $ | 12,934 | $ | 29,061 | |||||||||||||||
Patient Direct | 42,887 | 36,320 | 88,045 | 36,638 | |||||||||||||||||||
Consolidated capital expenditures | $ | 49,489 | $ | 54,738 | $ | 100,979 | $ | 65,699 |
million. The net book value of patient service equipment dispositions were $9.6 million and $9.0 million for the three months ended March 31, 2024 and 2023, within the Patient Direct segment.
June 30, 2023 | December 31, 2022 | ||||||||||
Total assets: | |||||||||||
Products & Healthcare Services | $ | 2,492,214 | $ | 2,809,600 | |||||||
Patient Direct | 2,509,479 | 2,507,216 | |||||||||
Segment assets | 5,001,693 | 5,316,816 | |||||||||
Cash and cash equivalents | 286,307 | 69,467 | |||||||||
Consolidated total assets | $ | 5,288,000 | $ | 5,386,283 |
|
The following table presents net revenue by geographic area, which were attributed based on the location from which we ship products or provide services:
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
Net revenue: | |||||||||||||||||||||||
United States | $ | 2,498,536 | $ | 2,376,573 | $ | 4,951,472 | $ | 4,638,592 | |||||||||||||||
International | 64,690 | 123,442 | 134,603 | 268,375 | |||||||||||||||||||
Consolidated net revenue | $ | 2,563,226 | $ | 2,500,015 | $ | 5,086,075 | $ | 4,906,967 |
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2024 |
| 2023 | ||
Net revenue: |
| |
|
| |
|
United States | | $ | 2,550,610 | | $ | 2,452,936 |
International | |
| 62,070 | |
| 69,913 |
Consolidated net revenue | | $ | 2,612,680 | | $ | 2,522,849 |
Note 13—12—Recent Accounting Pronouncements
In June 2016,November 2023, the FASB issuedFinancial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13 Financial Instruments - Credit Losses, Measurement2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which will require disclosure of Credit Losses on Financial Instruments, which changes the way entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net earnings. Subsequentadditional detailed information about a reportable segment’s expenses, including significant segment expenses regularly provided to the issuance of ASU No. 2016-13,Chief Operating Decision Maker (CODM), the FASB issued various ASUs related to Credit Losses, Measurement of Credit Losses on Financial Instruments. These ASUs do not change the core principletitle and position of the guidanceCODM, and how the CODM uses the reported measure(s) of a segment’s profit or loss. This ASU is effective for us in annual periods beginning after December 15, 2023 and interim periods within annual years beginning after December 15, 2024. The amendments in this ASU No. 2016-13. Instead these amendments are intendedmust be applied on a retrospective basis to clarify and improve operability of certain topics included withinall prior periods presented in the credit losses standard. We adopted ASU No. 2016-13 and subsequent amendments beginning January 1, 2023. The adoption did not have a material impact on our consolidated financial statements and related disclosures.
In December 2023, the FASB Issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which will require additional annual income tax disclosures, including asdisclosure of reconciling items by jurisdiction and nature to the extent those items exceed a result of a significant volume of customer product returns and/or recall of products, implementation of corrective action plans, and/or other costly remedial actions in the US and elsewhere.specified threshold. In addition, these matters could potentially havethis ASU will require disclosure of income taxes paid, net of refunds received disaggregated by federal, state, and foreign and by jurisdiction if the amount is more than 5% of total income tax payments, net of refunds received. The amendments in this ASU are effective for us in annual periods beginning after December 15, 2024. The amendments in this ASU are required to be applied on a prospective basis and retrospective adoption is permitted. We expect this ASU to only impact our disclosures with no impacts to our results of operations, financial condition and cash flows.
Note 13—Commitments, Contingent Liabilities, and Legal Proceedings
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 negative impacts including: government investigations and enforcement actions by the FDA or other US or international regulators or governmental entities; the suspension or revocation of the authority to produce, distribute or sell products, and other sanctions; losses due to patient claims, including product liability claims and lawsuits; and customer claims related to their direct costs arising from supply disruption.
We are party to various legal claims that are ordinary and incidental to our business, including ones related to commercial disputes, employment, workers’ compensation, product liability, regulatory and other matters. We maintain insurance coverage for employment, product liability, workers’ compensation and other personal injury litigation matters, subject to policy limits, applicable deductibles and insurer solvency. We establish reserves from time to time based upon periodic assessment of the potential outcomes of pending matters.
Based on current knowledge and the advice of counsel, we believe that the accrual as of June 30, 2023March 31, 2024 for currently pending matters considered probable of loss, which is not material, is sufficient. In addition, we believe that other currently pending matters are not reasonably possible to result in a material loss, as payment of the amounts claimed is remote, the claims are immaterial, individually and in the aggregate, or the claims are expected to be adequately covered by insurance, subject to policy limits, applicable deductibles, exclusions and insurer solvency.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis describes results of operations and material changes in the financial condition of Owens & Minor, Inc. and its subsidiaries since December 31, 2022.2023. Trends of a material nature are discussed to the extent known and considered relevant. This discussion should be read in conjunction with the consolidated financial statements, related notes thereto, and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2022.
Overview
Owens & Minor, Inc., along with its subsidiaries, (we, us, or our) is a global healthcare solutions company. Our business has two distinct segments: Products & Healthcare Services and Patient Direct. Products & Healthcare Services provides distribution, outsourced logistics and value-added services and manufactures and sources medical surgical products through our production and kitting operations. The Patient Direct expandssegment includes our business along the continuum of care through delivery of disposable medical supplies sold directly to patients and home health agencies and is a leading provider of integrated home healthcare equipmentdivisions (Byram and related services in the United States.
Net (loss) per share was $(0.37) and $(0.70)$(0.29) for the three and six months ended June 30, 2023March 31, 2024 as compared to net income(loss) per diluted share of $0.37 and $0.89$(0.32) for the three and six months ended June 30, 2022. The decreases reflectedMarch 31, 2023. This improvement reflects the operating results of our two segments as described below and lower demand for personal protective equipment (PPE), including reduced COVID-19 related product purchases, in our Products & Healthcare Services segment,interest expense, partially offset by increased exit and realignment charges associated with our Operating Model Realignment Program, and inflationary pressures, partially offset by the inclusion of Apria in our results since the Acquisition Date, a reduction in acquisition-related charges, strong revenue growth in our Patient Direct segment, and productivity gains derived from operating efficiencies.Program. Net (loss) per share was unfavorably impacted as compared to the prior year by foreign currency translation in the amount of $0.01 and $0.02$(0.02) for the three and six months ended June 30, 2023.
Products & Healthcare Services segment operating income was $2.9 million and $4.8$11.5 million for the three and six months ended June 30, 2023,March 31, 2024, compared to $61.2 million and $150$1.8 million for the three and six months ended June 30, 2022. The decreases reflectedMarch 31, 2023. This increase was primarily from revenue growth of 3.1%, savings derived by our Operating Model Realignment Program in excess of $25 million, partially offset by changes in product sales mix, lower demand for PPE, including reduced COVID-19 related product purchases,increased costs to support future revenue growth, and inflationary pressures, partially offset by productivity gains derived from operating efficiencies.$5.0 million of increased teammate benefit costs. Patient Direct segment operating income was $59.1 million and $105$45.9 million for the three and six months ended June 30, 2023,March 31, 2024, compared to $52.3 million and $68.1$45.8 million for the three and six months ended June 30, 2022. The increases were primarily the result of the inclusion of Apria in ourMarch 31, 2023. This segment’s results since the Acquisition Date and strongreflect revenue growth partiallyof 5.0% and cost savings from information technology (IT) strategic initiatives and other operating efficiencies, which were virtually offset by inflationary pressures.
Refer to 'Results‘Results of Operations'Operations’ for further detail of quantitative and qualitative drivers of our results.
Philips Respironics Recall
In June 2021, one of Apria'sApria’s suppliers, Philips Respironics, announced a voluntary recall forof its continuous and non-continuous ventilators (certain CPAP, BiLevelbilevel positive
We continue to closely monitor the substantial numberimpact of impacted devices,the Recall and subsequent consent decree on our business. To date, we have devoted, and will likely continue to devote, substantial time and resources toincurred significant costs coordinating Recall-related activityactivities, and to supporting our home healthcare patients’ needs. The Recall has caused us, andwe may continue to cause us, to incur additional significant costs some(including costs in completing the replacement of devices subject to the Recall). Some or all of whichthese costs may not be recoverable from the product manufacturer. The Recall
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Results of surgical N95 respirator manufactured by O&M Halyard did not pass laboratory tests for fluid resistance and for filtration efficiency, and that products from one lot of another model (No. 46727) did not pass fluid resistance testing, but did pass filtration efficiency testing. At present, our investigation has determined that there are a limited number of lots potentially implicated by the results of the NIOSH particulate filtration testing on model 46827. Operations
Net revenue.
| | | | | | | | | | | | |
|
| Three Months Ended | | | | | |
| ||||
| | March 31, | | Change |
| |||||||
(Dollars in thousands) | | 2024 |
| 2023 |
| $ |
| % |
| |||
Products & Healthcare Services | | $ | 1,974,837 | | $ | 1,915,489 | | $ | 59,348 | | 3.1 | % |
Patient Direct | |
| 637,843 | |
| 607,360 | | | 30,483 | | 5.0 | % |
Net revenue | | $ | 2,612,680 | | $ | 2,522,849 | | $ | 89,831 | | 3.6 | % |
The vast majority of the products in those lots remain in our possession and under our control, and those lots that had products that did reach the market have passed internal follow-up testing.
Three Months Ended June 30, | Change | ||||||||||||||||||||||
(Dollars in thousands) | 2023 | 2022 | $ | % | |||||||||||||||||||
Products & Healthcare Services | $ | 1,930,723 | $ | 1,927,388 | $ | 3,335 | 0.2 | % | |||||||||||||||
Patient Direct | 632,503 | 572,627 | 59,876 | 10.5 | % | ||||||||||||||||||
Net revenue | $ | 2,563,226 | $ | 2,500,015 | $ | 63,211 | 2.5 | % | |||||||||||||||
Six Months Ended June 30, | Change | ||||||||||||||||||||||
(Dollars in thousands) | 2023 | 2022 | $ | % | |||||||||||||||||||
Products & Healthcare Services | $ | 3,846,212 | $ | 4,061,429 | $ | (215,217) | (5.3) | % | |||||||||||||||
Patient Direct | 1,239,863 | 845,538 | 394,325 | 46.6 | % | ||||||||||||||||||
Net revenue | $ | 5,086,075 | $ | 4,906,967 | $ | 179,108 | 3.7 | % |
Foreign currency translation had an unfavorable impact on net revenue of $1.5 million and $6.7$1.3 million for the three and six months ended June 30, 2023March 31, 2024 as compared to the prior year periods.
Cost of goods sold.
Three Months Ended June 30, | Change | ||||||||||||||||||||||
(Dollars in thousands) | 2023 | 2022 | $ | % | |||||||||||||||||||
Cost of goods sold | $ | 2,043,794 | $ | 1,967,510 | $ | 76,284 | 3.9 | % |
Six Months Ended June 30, | Change | ||||||||||||||||||||||
(Dollars in thousands) | 2023 | 2022 | $ | % | |||||||||||||||||||
Cost of goods sold | $ | 4,069,336 | $ | 4,001,014 | $ | 68,322 | 1.7 | % |
| | | | | | | | | | | | |
|
| Three Months Ended | | | | | |
| ||||
| | March 31, | | Change |
| |||||||
(Dollars in thousands) | | 2024 |
| 2023 |
| | $ |
| % |
| ||
Cost of goods sold | | $ | 2,077,151 | | $ | 2,025,542 | | $ | 51,609 | | 2.5 | % |
The increase in cost of goods sold for the three months ended June 30, 2023March 31, 2024 reflects higher costs of goods sold driven by changes in product sales mix andthe increased cost associated with net revenue growth of 3.6%, partially offset by a favorable change in the last in, first out (LIFO) credit or provision of $6.7 million, as compared to the period year.
Foreign currency translation had a favorablean unfavorable impact on cost of goods sold of $0.6 million and $4.0$1.0 million for the three and six months ended June 30, 2023March 31, 2024 as compared to the prior year periods.
Gross margin.profit.
Three Months Ended June 30, | Change | ||||||||||||||||||||||
(Dollars in thousands) | 2023 | 2022 | $ | % | |||||||||||||||||||
Gross margin | $ | 519,432 | $ | 532,505 | $ | (13,073) | (2.5) | % | |||||||||||||||
As a % of net revenue | 20.26 | % | 21.30 | % |
Six Months Ended June 30, | Change | ||||||||||||||||||||||
(Dollars in thousands) | 2023 | 2022 | $ | % | |||||||||||||||||||
Gross margin | $ | 1,016,739 | $ | 905,953 | $ | 110,786 | 12.2 | % | |||||||||||||||
As a % of net revenue | 19.99 | % | 18.46 | % |
| | | | | | | | | | | | |
|
| Three Months Ended | | | |
| |
| ||||
| | March 31, | | Change |
| |||||||
(Dollars in thousands) | | 2024 |
| 2023 |
| | $ | | % |
| ||
Gross profit | | $ | 535,529 | | $ | 497,307 | | $ | 38,222 | | 7.7 | % |
As a % of net revenue | |
| 20.50 | % |
| 19.71 | % |
|
| |
| |
The changes in gross marginprofit for the three and six months ended June 30, 2023March 31, 2024 was driven by the same factors impacting net revenue and cost of goods sold. The gross margin for the six months ended June 30, 2023 includes incremental Apria gross margin in the first quarter of 2023 of $195 million as compared to the first quarter of 2022. Foreign currency translation had an unfavorable impact on gross marginprofit of $0.9 million and $2.7$2.2 million for the three and six months ended June 30, 2023March 31, 2024 as compared to the prior year periods.period.
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Operating expenses.
Three Months Ended June 30, | Change | ||||||||||||||||||||||
(Dollars in thousands) | 2023 | 2022 | $ | % | |||||||||||||||||||
Distribution, selling and administrative expenses | $ | 455,030 | $ | 421,925 | $ | 33,105 | 7.8 | % | |||||||||||||||
As a % of net revenue | 17.75 | % | 16.88 | % | |||||||||||||||||||
Acquisition-related charges and intangible amortization | $ | 22,203 | $ | 37,276 | $ | (15,073) | (40.4) | % | |||||||||||||||
Exit and realignment charges | $ | 28,963 | $ | 1,214 | $ | 27,749 | 2,285.7 | % | |||||||||||||||
Other operating expense (income), net | $ | 2,397 | $ | (2,995) | $ | 5,392 | 180.0 | % |
Six Months Ended June 30, | Change | ||||||||||||||||||||||
(Dollars in thousands) | 2023 | 2022 | $ | % | |||||||||||||||||||
Distribution, selling and administrative expenses | $ | 903,752 | $ | 691,397 | $ | 212,355 | 30.7 | % | |||||||||||||||
As a % of net revenue | 17.77 | % | 14.09 | % | |||||||||||||||||||
Acquisition-related charges and intangible amortization | $ | 44,392 | $ | 79,410 | $ | (35,018) | (44.1) | % | |||||||||||||||
Exit and realignment charges | $ | 44,637 | $ | 2,896 | $ | 41,741 | 1,441.3 | % | |||||||||||||||
Other operating expense (income), net | $ | 3,312 | $ | (3,894) | $ | 7,206 | 185.1 | % |
| | | | | | | | | | | | |
|
| Three Months Ended | | | |
| |
| ||||
| | March 31, | | Change |
| |||||||
(Dollars in thousands) | | 2024 |
| 2023 | | $ |
| % |
| |||
Distribution, selling and administrative expenses | | $ | 477,613 | | $ | 448,722 | | $ | 28,891 | | 6.4 | % |
As a % of net revenue | |
| 18.28 | % |
| 17.79 | % |
|
| |
| |
Acquisition-related charges and intangible amortization | | $ | 20,313 | | $ | 22,188 | | $ | (1,875) | | (8.5) | % |
Exit and realignment charges, net | | $ | 27,356 | | $ | 15,674 | | $ | 11,682 | | 74.5 | % |
Other operating expense, net | | $ | 551 | | $ | 916 | | $ | (365) | | (39.8) | % |
The increase in Distribution, selling and administrative expenses (DS&A) expenses include labor and warehousing costs associated with our distribution and outsourced logistics services and all costs associated with our fee-for-service arrangements in our Products & Healthcare Services segment. Shipping and handling costs are primarily included in DS&A expenses and include costs to store, move, and prepare products for shipment, as well as costs to deliver products to customers. The increase in DS&A expenses for the three months ended June 30, 2023March 31, 2024 was driven primarily by incremental costs to support the $63$89.8 million, or 2.5%,3.6% of net revenue growth, along with future revenue growth and an increase of $9.2approximately $11 million in teammate benefit costs, including incentives, and inflationary pressures negatively impacting wages and occupancy costs, which increased approximately 5% and 11%, partially offset by approximately $5 million of personnel cost savings related to 2023 organizational changes, approximately $8 million in expense savings from our IT strategic initiatives, and other productivity gains derived from operating efficiencies.
Foreign currency translation had a favorable impact on DS&A of $0.2 million and $1.1$0.3 million for the three and six months ended June 30, 2023March 31, 2024 as compared to the prior year periods.
Intangible amortization was $20.3 million for the three months ended March 31, 2024 and $20.9 million for the three months ended March 31, 2023 related primarily to intangible assets acquired in the Apria, Halyard and Byram acquisitions. Acquisition-related charges were $1.3 million and $2.5 million for the three and six months ended June 30,March 31, 2023 and $6.4 million and $38.3 million for the three and six months ended June 30, 2022 consisting primarily of costs related to the acquisition of Apria, Acquisition.Inc. The declinesdecline from the prior year periodsperiod reflect the incurrence of most of these costs within the first year after the Acquisition Date. Intangible amortization was $20.9 millionMarch 29, 2022 acquisition date.
Exit and $41.8realignment charges, net were $27.4 million for the three and six months ended June 30, 2023 and $30.9 million and $41.2 million for the three and six months ended June 30, 2022 related primarily to intangible assets acquired in the Apria, Halyard and Byram acquisitions. Intangible amortization for the second quarter of 2023 declined as compared to the prior year primarily from purchase price accounting changes to the estimated value assigned to certain intangible assets.
The increaseschange in other operating expense, (income), net for the three and six months ended June 30, 2023March 31, 2024 as compared to the prior year periods reflect $1.4reflects $3.3 million andof losses on sales of accounts receivable under the Master Receivables Purchase Agreement (RPA) as compared to $0.8 million of losses for the three months ended March 31, 2023. During the three months ended March 31, 2024, we incurred a favorable change of $2.5 million unfavorable changes in foreign currency transaction gains and losses, net of derivative adjustments, as compared to the prior year periods. During the three and six months ended June 30, 2023 we incurred $2.9 million and $3.6 millionyear.
Interest expense, net.
| | | | | | | | | | | | |
| | Three Months Ended | | | | | |
| ||||
| | March 31, | | Change |
| |||||||
(Dollars in thousands) |
| 2024 |
| 2023 |
| $ |
| % |
| |||
Interest expense, net | | $ | 35,655 | | $ | 42,198 | | $ | (6,543) | | (15.5) | % |
Effective interest rate | |
| 7.13 | % |
| 6.83 | % |
|
| |
| |
22
Interest expense, net.
Three Months Ended June 30, | Change | ||||||||||||||||||||||
(Dollars in thousands) | 2023 | 2022 | $ | % | |||||||||||||||||||
Interest expense, net | $ | 40,728 | $ | 35,839 | $ | 4,889 | 13.6 | % | |||||||||||||||
Effective interest rate | 6.93 | % | 5.26 | % |
Six Months Ended June 30, | Change | ||||||||||||||||||||||
(Dollars in thousands) | 2023 | 2022 | $ | % | |||||||||||||||||||
Interest expense, net | $ | 82,926 | $ | 47,858 | $ | 35,068 | 73.3 | % | |||||||||||||||
Effective interest rate | 6.86 | % | 5.12 | % |
Other expense, netnet.
| | | | | | | | | | | | |
| | Three Months Ended | | | | | |
| ||||
| | March 31, | | Change |
| |||||||
(Dollars in thousands) |
| 2024 |
| 2023 |
| $ |
| % |
| |||
Other expense, net |
| $ | 1,153 |
| $ | 1,387 |
| $ | (234) |
| (16.9) | % |
.
Three Months Ended June 30, | Change | ||||||||||||||||||||||
(Dollars in thousands) | 2023 | 2022 | $ | % | |||||||||||||||||||
Other expense, net | $ | 1,072 | $ | 783 | $ | 289 | 36.9 | % |
Six Months Ended June 30, | Change | ||||||||||||||||||||||
(Dollars in thousands) | 2023 | 2022 | $ | % | |||||||||||||||||||
Other expense, net | $ | 2,458 | $ | 1,565 | $ | 893 | 57.1 | % |
Other expense, net for the
threeIncome taxes.
Three Months Ended June 30, | Change | ||||||||||||||||||||||
(Dollars in thousands) | 2023 | 2022 | $ | % | |||||||||||||||||||
Income tax (benefit) provision | $ | (2,720) | $ | 9,859 | $ | (12,579) | (127.6) | % | |||||||||||||||
Effective tax rate | 8.8 | % | 25.6 | % |
Six Months Ended June 30, | Change | ||||||||||||||||||||||
(Dollars in thousands) | 2023 | 2022 | $ | % | |||||||||||||||||||
Income tax (benefit) provision | $ | (12,079) | $ | 18,837 | $ | (30,916) | (164.1) | % | |||||||||||||||
Effective tax rate | 18.7 | % | 21.7 | % |
| | | | | | | | | | | | |
| | Three Months Ended | | | | | |
| ||||
| | March 31, | | Change |
| |||||||
(Dollars in thousands) |
| 2024 |
| 2023 |
| $ |
| % |
| |||
Income tax benefit |
| $ | (5,226) |
| $ | (9,360) |
| $ | 4,134 |
| 44.2 | % |
Effective tax rate |
| | 19.3 | % | | 27.7 | % | | | | | |
The change in the effective tax rate for the three and six months ended June 30, 2023March 31, 2024 compared to the same periodsperiod in 20222023 resulted primarily from changes in incomeresults of operations in the jurisdictions in which we operate and losses.
Financial Condition, Liquidity and Capital Resources
Financial condition. We monitor operating working capital through days sales outstanding (DSO) and merchandise inventory days. We estimate a hypothetical increase (decrease) in DSO of one day would result in a decrease (increase) in our cash balances, an increase (decrease) in borrowings against our Revolving Credit Agreement or Receivables Financing Agreement, or a combination thereof of approximately $28$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. Changes in our working capital can vary in the normal course of business based upon the timing of inventory purchases, collections of accounts receivable and payments to suppliers.
| | | | | | | | | | | | |
| | | | | | | | Change |
| |||
(Dollars in thousands) |
| March 31, 2024 |
| December 31, 2023 |
| $ |
| % |
| |||
Cash and cash equivalents | | $ | 244,866 | | $ | 243,037 | | $ | 1,829 | | 0.8 | % |
Accounts receivable, net | | $ | 669,861 | | $ | 598,257 | | $ | 71,604 | | 12.0 | % |
DSO (1) | | | 23.1 | | | 20.5 | | | | | | |
Merchandise inventories | | $ | 1,144,597 | | $ | 1,110,606 | | $ | 33,991 | | 3.1 | % |
Inventory days (2) | | | 50.1 | | | 49.0 | | | | | | |
Accounts payable |
| $ | 1,218,817 |
| $ | 1,171,882 |
| $ | 46,935 |
| 4.0 | % |
June 30, 2023 | December 31, 2022 | Change | |||||||||||||||||||||
(Dollars in thousands) | $ | % | |||||||||||||||||||||
Cash and cash equivalents | $ | 286,307 | $ | 69,467 | $ | 216,840 | 312.1 | % | |||||||||||||||
Accounts receivable, net of allowances | $ | 672,511 | $ | 763,497 | $ | (90,986) | (11.9) | % | |||||||||||||||
Consolidated DSO (1) | 23.5 | 27.0 | |||||||||||||||||||||
Merchandise inventories | $ | 1,168,227 | $ | 1,333,585 | $ | (165,358) | (12.4) | % | |||||||||||||||
Inventory days (2) | 52.0 | 57.2 | |||||||||||||||||||||
Accounts payable | $ | 1,194,173 | $ | 1,147,414 | $ | 46,759 | 4.1 | % |
23
Liquidity and capital expenditures. The following table summarizes our consolidated statements of cash flows for the sixthree months ended June 30, 2023March 31, 2024 and 2022:2023:
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
(Dollars in thousands) |
| 2024 |
| 2023 | ||
Net cash (used for) provided by: |
| |
|
| |
|
Operating activities | | $ | (52,962) | | $ | 158,398 |
Investing activities | |
| (1,870) | |
| (34,184) |
Financing activities | |
| 53,320 | |
| (127,489) |
Effect of exchange rate changes | |
| (618) | |
| 284 |
Net decrease in cash, cash equivalents and restricted cash | | $ | (2,130) | | $ | (2,991) |
(Dollars in thousands) | 2023 | 2022 | |||||||||
Net cash provided by (used for): | |||||||||||
Operating activities | $ | 471,510 | $ | 169,524 | |||||||
Investing activities | (65,668) | (1,745,299) | |||||||||
Financing activities | (183,120) | 1,580,633 | |||||||||
Effect of exchange rate changes | 196 | (3,864) | |||||||||
Net increase in cash, cash equivalents and restricted cash | $ | 222,918 | $ | 994 |
Cash used for operating activities in the first three months of 2024 reflected a net loss and unfavorable changes in working capital. Cash provided by operating activities in the first sixthree months of
Cash used for investing activities in the first sixthree months of 2022. The increase2024 included capital expenditures of $49.4 million for patient service equipment and our strategic and operational efficiency initiatives associated with property and equipment and capitalized software, offset by $49.5 million in cash provided by operating activitiesproceeds from sale of property and equipment, which included sales of patient service equipment and $33.5 million in 2023 as comparedgross proceeds related to 2022 reflected changes in working capital including cash proceeds from the sale of accounts receivables, as described in Note 1 of Notes to Consolidated Financial Statements and the inclusion of Apria in our results since the Acquisition Date.
Cash used for investing activities in the first six months of 2022 included cash paid for the acquisition of Apria of $1.7 billion and capital expenditures of $65.7 million for patient equipment and our strategic and operational efficiency initiatives associated with property and equipment and capitalized software.
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 $65.7 million in principal outstanding and no borrowings atThe Revolving Credit Agreement provides a revolving borrowing capacity of $450 million. We have $1.0 billion$906 million in outstanding term loans under a term loan credit agreement (the Credit Agreement). The interest rate on our Revolving Credit Agreement is based on a spread over a benchmark rate (as described in the Revolving Credit Agreement). The Revolving Credit Agreement matures in March 2027. The interest rate on the Term Loan A is based on either the Term SOFR or the Base Rate plus an Applicable Rate which varies depending on the current Debt Ratings or Total Leverage Ratio, determined as to whichever shall result in more favorable pricing to the Borrowers (each as defined in the Credit Agreement). The interest rate on the Term Loan B is based on either the Term SOFR or the Base Rate plus an Applicable Rate. The Term Loan A matures in March 2027 and the Term Loan B matures in March 2029.
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At June 30, 2023March 31, 2024 and December 31, 2022,2023, our Revolving Credit Agreement was undrawn, and we had letters of credit, which reduce Revolver availability, totaling $27.9$26.7 million and $27.4 million, leaving $422$423 million available for borrowing. 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 $2.1 million and $2.3$3.0 million as of June 30, 2023March 31, 2024 and December 31, 2022.
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 (the Secured Parties) 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.
The Revolving Credit Agreement, the Credit Agreement, the Receivables Financing Agreement, the 2024 Notes, the 4.500% senior unsecured notes due in March 2029, (the 2029 Unsecured Notes), and the 6.625% senior unsecured notes due in April 2030 Unsecured Notes 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, 2023.
On March 14, 2023, we entered into athe 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 (Purchaser) (the Purchaser) in exchange for cash. During the three months ended June 30, 2023, weCash received net cash proceeds of$409 million from the salesales of accounts receivable, under its RPA whichnet of payments made to the Purchaser, is includedreflected in the change in accounts receivable within cash provided by operating activities in the consolidated statements of cash flows. As of June 30, 2023 thereTotal accounts receivable sold under the RPA and net cash proceeds were a total of $115$515 million and $512 million during the three months ended March 31, 2024. We collected $536 million of uncollectedthe sold accounts receivable that had beenfor the three months ended March 31, 2024. 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 $3.3 million and removed$0.8 million for the three months ended March 31, 2024 and 2023. The RPA is separate and distinct from our consolidated balance sheet.
We regularly evaluate market conditions, our liquidity profile and various financing alternatives to enhance our capital structure. We have from time to time, entered into, and from time to time in the future, we may enter into transactions to repay, repurchase or redeem our outstanding indebtedness (including by means of open market purchases, privately negotiated repurchases, tender or exchange offers and/or repayments or redemptions pursuant to the debt’s terms). Our ability to consummate any such transaction will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. We cannot provide any assurance as to if or when we will consummate any such transactions or the terms of any such transaction.
We believe cash generated by operating activities, including available cash proceeds from the RPA, available financing sources, and borrowings under the Receivables Financing Agreement and Revolving Credit Agreement, as well as cash on hand, will be sufficient to fund our working capital needs, capital expenditures, long-term strategic growth, payments under long-term debt and lease arrangements, debt repurchases and other cash requirements. While we believe that we will have the ability to meet our financing needs in the foreseeable future, changes in economic conditions may impact (i) the ability of financial institutions to meet their contractual commitments to us, (ii) the ability of our customers and suppliers to meet their obligations to us or (iii) our cost of borrowing.
We earn a portion of our operating income in foreign jurisdictions outside the United States.U.S. Our cash and cash equivalents held by our foreign subsidiaries subject to repatriation totaled $44.1$26.8 million and $26.3$22.0 million at June 30, 2023March 31, 2024 and December 31, 2022.2023. As of June 30, 2023,March 31, 2024, we are permanently reinvested in our foreign subsidiaries.
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Contractual obligations
Commitments include $48.4 million of legally binding lease payments for the year ended December 31, 2022, will no longer be material as a resultMorgantown, West Virginia center of executed contract terminations, expected contract terminations,excellence for medical supplies and insourcing of information technology operations. logistics lease signed, but not yet commenced. Refer to our Annual Report on Form 10-K for the year ended December 31, 20222023 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 65 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“the Guarantor Group"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
| | | |
|
| Three Months Ended | |
(Dollars in thousands) | | March 31, 2024 | |
Net revenue(1) | | $ | 2,573,239 |
Gross profit | |
| 513,541 |
Operating income | |
| (315) |
Net loss | |
| (26,542) |
(1)(1)Includes $63.6$28.4 million in sales to non-guarantor subsidiaries for the sixthree months ended June 30, 2023.March 31, 2024.
Summarized Consolidated Balance Sheets - Guarantor Group
| | | | | | |
(Dollars in thousands) |
| March 31, 2024 |
| December 31, 2023 | ||
Total current assets | | $ | 1,563,189 | | $ | 1,472,999 |
Total assets | |
| 4,689,762 | |
| 4,601,026 |
Total current liabilities | |
| 2,035,285 | |
| 2,002,468 |
Total liabilities | |
| 4,318,284 | |
| 4,243,230 |
Summarized Consolidated Balance Sheets - Guarantor Group | June 30, 2023 | December 31, 2022 | |||||||||
(Dollars in thousands) | |||||||||||
Total current assets | $ | 1,566,927 | $ | 1,442,661 | |||||||
Total assets | 4,726,801 | 4,658,382 | |||||||||
Total current liabilities | 1,745,464 | 1,613,228 | |||||||||
Total liabilities | 4,410,080 | 4,360,673 |
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“the Collateral Group"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 | June 30, 2023 | December 31, 2022 | |||||||||
(Dollars in thousands) | |||||||||||
Total current assets | $ | 1,643,155 | $ | 1,523,290 | |||||||
Total assets | 4,668,692 | 4,614,380 | |||||||||
Total current liabilities | 1,688,001 | 1,562,680 | |||||||||
Total liabilities | 4,388,132 | 4,343,750 |
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Summarized Consolidated Balance Sheets - Collateral Group
| | | | | | |
(Dollars in thousands) |
| March 31, 2024 |
| December 31, 2023 | ||
Total current assets | | $ | 1,394,046 | | $ | 1,280,045 |
Total assets | |
| 4,318,289 | |
| 4,220,357 |
Total current liabilities | |
| 1,866,536 | |
| 1,821,030 |
Total liabilities | |
| 3,883,431 | |
| 3,801,549 |
The results of operations of the Collateral Group are not materially different from the corresponding amounts presented in our consolidated statements of operations.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see our Annual Report on Form 10-K for the year ended December 31, 20222023 andNote 1312 in the Notes to Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for the period ended on June 30, 2023.
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:
● | increasing competitive and pricing pressures in the marketplace; |
● | our ability to retain existing and attract new customers and our dependence on sales to certain customers; |
● | our dependence on certain vendors, suppliers and third-parties for key components, raw materials, finished goods, equipment and services; |
● | our ability to successfully identify, manage or integrate acquisitions, including Apria; |
● | our ability to successfully implement our Operating Model Realignment Program and our strategic initiatives; |
● | our ability to successfully manage our international operations, including risks associated with changes in international trade regulations, foreign currency volatility, adverse tax consequences, and other risks of operating in international markets; |
● | uncertainties related to, and our ability to adapt to and comply with, changes in government regulations, including healthcare, tax and product licensing laws and regulations; |
● | risks arising from possible violations of legal, regulatory or licensing requirements of the markets in which we operate; |
● | uncertainties related to general economic, regulatory and business conditions and our ability to adapt to changes in product pricing and other terms of purchase by suppliers of product; |
● | our ability to meet the terms to qualify for supplier funding programs; |
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● | the ability of customers and suppliers to meet financial commitments due to us; |
● | changes in manufacturer preferences between direct sales and wholesale distribution; |
● | changing trends in customer profiles and ordering patterns; |
● | our ability to manage operating expenses and improve operational efficiencies; |
● | availability of, and our ability to access, special inventory buying opportunities; |
● | our ability to continue to obtain financing at reasonable rates and to manage financing costs and interest rate risk, and our ability to refinance, extend or repay our substantial indebtedness; |
● | our ability to attract and retain talented and qualified teammates; |
● | recalls of any of our products, or safety risks or the discovery of serious safety issues with our products; |
● | changes, delays and uncertainties in the reimbursement process; |
● | our ability to adequately establish, maintain, protect and enforce our intellectual property and proprietary rights as well as avoid infringement, misappropriation or other violations of the intellectual property and proprietary rights of third parties; |
● | our ability to engage in transactions that may be limited by the restrictive covenants in our credit facilities and existing notes; |
● | the risk that information systems are interrupted or damaged or fail for any extended period of time, that new information systems are not successfully implemented or integrated, or that there is a data security breach in our information systemsor a third party’s information systems that impacts our business; |
● | risks related to public health crises or future outbreaks of health crises or other adverse public health developments such as the novel coronavirus (COVID-19) global pandemic; |
● | the risk of an impairment to goodwill or other long-lived assets; |
● | our ability to timely or adequately respond to technological advances; |
● | our failure to adequately insure against losses, including from substantial claims and litigation; |
● | our ability to meet performance targets specified by customer contracts under contractual commitments; |
● | our capitation arrangements may prove unprofitable if actual utilization rates exceed our assumptions; |
● | the outcome of outstanding and any future litigation, including product and professional liability claims; |
● | volatility in the price of our common stock and securities; and |
● | other factors detailed from time to time in the reports we file with the SEC, including those described in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023. |
We undertake no obligation to update or revise any forward-looking statements, except as required by applicable law.
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Item 3.
Quantitative and Qualitative Disclosures About Market RiskCertain quantitative and qualitative market risk disclosures
Item 4. Controls and Procedures
We carried out an evaluation, with the participation of management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (pursuant to Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon that evaluation, the principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of June 30, 2023. Beginning with the first quarter of 2023, management's evaluation and conclusion as to the effectiveness of the design and operation of our disclosure controls and procedures as of and for the period covered by this report includes the evaluation of the internal control over financial reporting of Apria, Inc.March 31, 2024. There werewas no other changeschange in our internal control over financial reporting that occurred during the period of this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 1. Legal Proceedings
Certain legal proceedings pending against us are described in our Annual Report on Form 10-K for the year ended December 31, 2022.2023. Through June 30, 2023,March 31, 2024, there have been no material developments in any legal proceedings reported in such Annual Report.
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities
None.
Item 5. Other Information.
On March 1, 2024, Alexander Bruni, Executive Vice President & CFO, adopted a trading plan intended to satisfy Rule 10b5-1(c) to sell up to 16,812 shares of Owens & Minor, Inc. common stock between June 3, 2024 and August 30, 2024, subject to certain conditions.
On March 4, 2024, Mark Beck, a Director of the Company, adopted a trading plan intended to satisfy Rule 10b5-1(c) to sell up to 9,344 shares of Owens & Minor, Inc. common stock between June 5, 2024 and June 28, 2024, subject to certain conditions.
On March 4, 2024, Perry Bernocchi, Chief Executive Officer, Patient Direct, adopted a trading plan intended to satisfy Rule 10b5-1(c) to sell up to 40,977 shares of Owens & Minor, Inc. common stock between June 6, 2024 and June 28, 2024, subject to certain conditions.
On March 4, 2024, Michael Lowry, Senior Vice President, Corporate Controller & Chief Accounting Officer, adopted a trading plan intended to satisfy Rule 10b5-1(c) to sell up to 57,148 shares of Owens & Minor, Inc. common stock between June 4, 2024 and June 2, 2025, subject to certain conditions.
On March 4, 2024, Snehashish Sarkar, Executive Vice President, Chief Information Officer, adopted a trading plan intended to satisfy Rule 10b5-1(c) to sell up to 17,553 shares of Owens & Minor, Inc. common stock between June 4, 2024 and November 29, 2024, subject to certain conditions.
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Item 6. Exhibits
(a) | Exhibits |
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10.1 | | ||||||
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22.1 | |||||||
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22.2 | | ||||||
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31.1 | |||||||
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31.2 | |||||||
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32.1 | |||||||
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32.2 | |||||||
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101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL | ||||||
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101.SCH | Inline XBRL Taxonomy Extension Schema Document | ||||||
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101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||||||
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101.DEF | Inline XBRL Taxonomy Definition Linkbase Document | ||||||
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101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | ||||||
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101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||||||
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104 | | Cover Page Interactive Data File (formatted as | |||||
| | | |||||
| | *Management contract or compensatory plan or arrangement |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | |||||||||||||
| Owens & Minor, Inc. | |||||||||||||
| (Registrant) | |||||||||||||
| | |||||||||||||
Date: May 3, 2024 | /s/ Edward A. Pesicka | |||||||||||||
| Edward A. Pesicka | |||||||||||||
| President, Chief Executive Officer & Director | |||||||||||||
| | |||||||||||||
Date: May 3, 2024 | /s/ Alexander J. Bruni | |||||||||||||
| Alexander J. Bruni | |||||||||||||
| Executive Vice President & Chief Financial Officer |
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