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OMI Owens & Minor

Participants
Chuck Graves Director-Finance & Investor Relations
Ed Pesicka President & Chief Executive Officer
Robert Snead Executive Vice President & Chief Financial Officer
Steven Valiquette Barclays
Kevin Caliendo UBS
Call transcript
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Operator

Good morning, ladies and gentlemen, and welcome to the Owens & Minor's First Quarter 2019 Financial Results Conference Call. My name is Amanda, and I'll be your operator for today. At this time, all participants are in a listen-only mode.

We will be facilitating a question-and-answer session towards the end of this conference call. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. to call, presentation Mr. like host to now today's for would turn over the your I Chuck Graves. Mr. proceed, Please Graves.

Chuck Graves

Thank you, we I'm operator. Owens Good Safe team, morning, everyone, and read to first on of a XXXX I'd and like & statement welcome quarter earnings Graves, call. before Chuck Harbor behalf the begin. Minor to the

an Please from morning and SEC full will for a those materially and on provide comparable certain our more results the an in to forward-looking non-GAAP we business subject CEO, most release XXXX, Officer, call differ of these on to details statements. which of of In the the our Our will provide who and results Chief GAAP and focused update EVP Participating our be press our projected. business our course the actual our President filings making; are quarter statements about risk will discussion, to Information financial Ed the and comments measures. our measures on included factors. financial included progress Financial the Pesicka, make quarter first our of first press on These see discussion who insight Robert Snead, in into our these overview today uncertainty and will reconciliations are we're In discussion, that press reference financial results may we cause release. risk for could and release. and are performance. are; measures this

off like start over this Ed? Now, to to I Ed, things call the will would morning. turn who

Ed Pesicka

exactly Since in want observations good to & the of an I with on I give what call based everyone our today to of operating I've changes well of quarterly you our my seen to to as have first I in-depth morning, Today, for like today. stand XXXX. in the and teammates, that I one, were to our and face-to-face is a focused March, about a we I days. Robert talk our important as my plan felt to our internal are do was on sense well line with But as this first day I'd everyone. value and you, about could spend thank company. had XX what I'd us from talking From will and where customers, that's firsthand, we within give on like the thing done. you dialogue meet And the pleased have I've earnings proposition results. firsthand on Minor These basis. for the the to the customers, in analysis our I've future. our as we are will discuss honest first am most open going interactions me you joining quarter most Thank joined our to of I opportunity time allowed where company. Owens Chuck,

initial have perspectives. In to our well my helped as of meetings some addition, me strategies, the as conversations validate and

that be helped the shape to the the actions made meetings Specifically, adjustments me and to initial business. to needed

needs. our a drive growth customers, ability solutions these We broad customers continue we our I based information the meet as The more others that and our foundation great main changes have products, some how gain of needs best service insight will already to the future. and offering I'm can made to increasingly and on our these around confident that's well come and interactions we as in profitable takeaway our of services their have in as from and is

a quickly ability of changing customers environment, our in our with we to offerings have our combine a healthcare the rapidly for demands you to If adjust unique success. recipe

gained existing customers. extremely our well my I have with priority been me I've Over prospective Owens improvement me are at conversations can Relating customers, Minor why customers, current in relationships understanding the expand opportunities as two date, two, talk seeking to have as existing Minor; as the XX we Owens have existing our focus approximately an and their change learn can to let been I we as that $X as best These allowed as & represent it to first To for & days, valuable. ways has and of well customers. identify visited healthcare to meet they our of with customers, customers. serve networks first start how well on facility, as a I've with needs. customers' meet prospective made our well able things; needs. how This wants, revenue. one, So we leaders to billion at their as our

finally, represent met customers these number Next, members I've GPOs, whose our I've with Minor. with $X.X $X of & for Owens billion prospective significant represent over then our potential customers, annual of met approximately And of revenue. major revenue billion

articulated adapt to changes early solve in industry to increase the risk, their While improve business our through to move of equal of the learned and the flexible, value closed that and to one, two, XXXX at wanted solutions that's challenges; to change. two, a three, them pace we be and Vivian solutions one, their revenue; that ability quickly $XXX terms. have the customize incremental also extended mitigate clinicians experience; that services know ultimately and ability customers to million speed our you our have help and already value; August we to bring our our let when may have that; I process, no in in contract on properly with to us I significant up integrated

their expect be partners level to and move our customers want of also they While high quickly, service. flexible a

in to basic different the compete. able admission way, of a If you about to is this think it price be just

had well-deserved For Owens providing many years, a & reputation exceptional leading Minor market service.

and lag, service at levels our customer times XXXX, and led XXXX dissatisfaction. to during However,

our These investments services. improve operations investments in made have a However, significant we changes resulted to compared levels, in have service number to of improvement and in XXXX.

addressing are the service our as We more arise meeting course and issues they aggressively of targets business. consistently in now overall level

also We drive with led first has XXXX XXXX to net the of in improvements The losses, from continued operations the challenges into XXXX. service beginning quarter which productivity our customer in are levels.

renew be includes had we previous because of impact results. had And wins on our profitability, transition Let's in our low XXXX with Those this customers a parts both clear, this XXXX late ends and customer is not our contract, so share have have our customer meaningful large small. that will of away not the end customer and largely challenges. contract of and service its this because a at in large moved the losses that will done

which the in pipeline However, we multi-pronged approach have a robust offset in mentioned the includes part customer one to a pursuits, as of impact future, earlier. I

day levels contact high I must proposition And service, solutions the or service gains and customers' improves. that stress our every for tested demonstrate Going forward, a we it our point, we above we level personally of Also, at customer appropriate customer and at know, expectations. value that consistently deliver resonates. in the opportunity retention service

more can with five coordination risk, solutions. and times, their patient deliver was opportunity broader care experience, even the a the great Halyard along Once Healthcare. meeting this FusionX. I at improve phase as continuum, into a QSight provide mitigate return value, where with We the of our at We also consider care on of attention. commission serve discuss provide future. with customer can our products health QSight how you we Home pilot For the brands. for customer, of specifically example we with our role we if home, providers. in offer we one patients Currently can customer greater the example, show value than portfolio capture are leading the a MediChoice application the the we a a Then, we in recently and from And play to investment

we great again, done job to to This have is Here value the our going to in change. ability messaging not healthcare providers. bring the a

make continue intensity, the profitable develop a higher customer, we drive growth. level to better to As and serve and changes

teammates. the teammates, of months, facilities last I to a our our on visited met moving and Now of two our with many over number

about business, serve most our and the As learning I more workings travel inner around culture. country, current we of markets the our importantly the am I

culture & focus and Owens teammate Minor defines us. sustains Our

that coach or understand a are is teammates And with we must the captain. integrity. while we we must However, we have, as that whether we also of highest, always leaders, to as operate be level continue will

to can needs with I've frank what As our we further business. that frank. our change, about I've met so I've been been teammates, stabilize

to a also must We customers, on our business increase focus First, need running we serving our firm intensity. our effectively and efficiently. drastically while maintain

care health that ensure ability to rapidly our the continue changing industry. a develop to must to we Second, we serve have teammates

commitments have Third, stakeholders the of we that honor to of accountability to serve level vast customers, we authority leverage data improve will to will and Fourth, to customers. teammates. collect we higher our amount our and our a ability our

goals are one we the in confidence, direction company, of renewed through are are of operating a Next, priorities. a team one focused as sense and at -- we alignment that our

high. we improved for cash sustained and sense Our of flow. growth laying And urgency lastly, is are foundation the

as to working deleverage smart possible, to investments business. the while in our sheet as balance are quickly continuing We make

am guidance plan, also the closing, reconfirm that serving in in allowing its history range are for & opportunity and XXXX on operating line long overall of to the with internal pleased incredibly excited the of to to So, year. the lead build quarter for And I Minor. results our I healthcare. Owens first am our proud have us

experience. with that These I to and customers, on efficient, to be offering risk, and our meetings with customers. our heard that these with As are face-to-face no spent ability increase I've I We extremely value joining customers firsthand, to letup. the mitigate continue in the providers. valuable, significant solution improve I the fly, allows will there meet resonates customized regularly March. will their company mentioned, adjust time with since provide healthcare

with you. of first fact, his to I And results. now, suppliers mid-Atlantic customers, over and the teammates forward few for look Thank I'll next quarter meetings. I weeks, regions. the will call-in throughout and meeting these Northeast be In Robert? assessment our Robert

Robert Snead

year. Ed. I results, first Today, results a you, for including morning segment the will everyone. Thank an our update discussion and quarter our provide Good outlook on of

net net $X.X first declining of quarter intercompany for growth For and quarter, $X.XX compared the includes million, was distribution $X.XX prior income or of from offset was were $X X.X%, share. business. sales an the from partially increase strong the adjusted billion, revenues year. net and growth contributions share for or million by Byram. $XXX per revenue Halyard Quarterly $XX.X per The lost revenue growth million gap was consolidated to loss quarter first Revenue of

of our with first the our in You for may earnings minimal and recall that line quarter in were February, very expectations. we spoke results

$XX Global The offset to were quarter. let's segment was decreases lower to the income offset increased growth in and Operating Now warehouse The million the solutions. compared segment by year. growth $X.X expenses prior and turn business. revenue, Byram. our revenues pressure, partially develop Byram a X.X% revenue customer by were by million in solutions representing our to from affected expenses, distribution margin ongoing These distribution to from manufacturer resulted compared new were last Solutions decrease $XX delivery for performance billion, increased and decline Results positively contributions year.

metrics, Ed As at in our service positive or are which levels. above we targeted trends are discussed, now seeing customer

our a also through and saw we the that year. still headwind distribution improvement sequential continue While expect to productivity in year-over-year, operations we

the to Product Global Turning segment.

were the $XXX compared expense price for million million the increases, control. compared impacted income by $XXX commodity included For for $X.X were last Results Halyard quarter quarter softness year. million contributions was were offset revenues to in the last Revenues quarter, which $XX.X to Operating year. of by million sales, million. $XXX

end In million. product addition, segment include occurs our of our exceed as and This shown market income sales attributable in segment income segment to sales. product when results product $X.X also is information, summary inter-segment our

earnings segment expectations. were line Our our in with

billion quarter. cash to cash the by the was Operating lower Turning long-term at use changes. This of operating the impact the capital capital. of inventory net flow sheet affected with $XX was XX Consolidated the normal of the a flow. was in flow due balance to March timing we level cash debt and season, combined during million $X.X and build, resulting working income, higher timing plus working flu of holiday

the to working have positive much be we We and of already in normalize for a April flow cash to capital seen expect contributor year. this

Now on the standard adopted new this accounting lease let briefly touch me we quarter.

includes approximately sheet flow. value operating on liabilities, first quarter and balance the standard Our has assets The million present leases. our of of no $XXX new the representing impact cash

our and outlook investments, pace last -- everyone mentioned manufacturer and customer cadence and factors our several of on-boarding Finally, planned healthcare FusionX I'd like typical including remind provider solutions the to seasonality, quarter, expected of of businesses. the impacting I deductible,

In that earnings of second mid over quarter with the per we a course share the will year will to in single-digits. our be to Thanks. believe earnings the year. commitments factors, to to flow our expect these I improvement of But the of over the in balance turn the result operator closing, the As I'd late we and to call back the the begin of driving for like deleveraging the that, adjusted And with XXXX the bulk sheet. Q&A session. cash high reiterate

Operator

[Operator comes Steven from the question Valiquette of you. Instructions] Your of Thank first Barclays. line

is open. line Your

Steven Valiquette

for morning, taking and guys Great. question. Good thanks Thanks. the

much you So, in I line described. as are guess results for guys us, maybe pretty the

And that stand that to ramp as that update this manufactured. on year Thanks. part an SKUs you're right over well throughout the the or up I'm do of an years, either you continue approximate So of curious just distributing you on where around self of percent strategy? now couple also are think whole next just that will the for update

Robert Snead

mid-teens when increase increase grow able MediChoice place well self We now is next ways. a revenue SKUs, that to There revenue to talk in and the at the to two revenue percentage portfolio manufactured that months. look a Yeah, in both distribution our SKUs and look the of the business. be as let's actively continue as the and with you total brand our Halyard at as plan of think this are and Sure. in year, specifically the it steadily expectation about own probably over to being the we brand, product the XX both right it

Steven Valiquette

That's helpful. Okay. Great. Thanks.

Operator

you. Thank

from question Goldman comes Our of of line Robert next the Sachs. Jones

Your line is open.

Unidentified Analyst

Thank for questions. This taking Bob you on is Kevin the today.

you towards you say, you guidance and you $X.XX of guys $X.XX be for – know into contributing of could have guidance? factors Thanks. mentioned that outlined you items would deductibles, the would moving more have number different factors which Which say that's significant these quickly and you ramp the line Just I meaningful seasonality swing of that cetera. I am sight between guys are impart like had et

Ed Pesicka

Robert it. let and Yeah. add start onto I'll I'll then color the

Robert Snead

Yeah.

was fourth quarter, we than higher developing So prepared be is healthcare by as is the a tends big through that. impacted to in big reasonable that quarter. a how a deductibles that's that factor. insight in I mentioned Their Byram have remarks plan the of quarter and that first based so significantly contributor on first one are the revenues

is one impacts the customer that's we our as see the signed as The well mentioned our just other with look in seasonality solutions as to not well. of its that on-boarding that into That manifests is both one business. exists in the as we've manufacturers business Europe season, The some our that is that how provider another partly and pace that some visibility historical flu itself. contracts U.S. at business, I have also data pattern business by driven a the global can we

so the shapes of up we're see quarter less way of we in as one And FusionX our business factor we're thing, working really remarks where to it's ultimately and do prepared so been about and that in some expect the coming phase more spot had quarter it's that where that the terms last to it's business abatement business we in where a a recent in on-boarding more that still, about, terms fourth phased because in and through And the fourth to it's the we first business the on quarter year. a we're investment impact -- in that fourth later in expecting Little know, ends year. and clarity There gone, we've this and quarter products later that's how that, that last newer the recent price in the headwinds more we one of up. that next event that next of oriented. but our have is an be, I about And quarter, that's in talked be prices quarters year. saw then our is improvement talked is in that saw has more talk then those, year, you commodity the didn't in the results

Ed Pesicka

And then let color, me the think just is add it little about consistent. a bit way I

that more year-end really that, If you From the profit than their buys. we the helps to year, significant fourth substantially about do have do quarter, have of businesses, of the care, buys, the and improvements first maxes profit quarter the to seasonality deductible global think issue products, specifically our more where Byram hit they manufacturing quarter substantially their a in increase as home drives in in health end the business. to -- the then continue fourth related deductible they'll start generate people which

business, the going quarter, in is and of operating a FusionX profit. here investment progressed and has distribution, October the start so started year going it's second the based on continued see occurrences government that the that, year continuing of pull-through into reconciliation And we've on through the last the On to in the March efficiencies, fourth beginning here as the last occurred to the in is and stated year the quarter, to to first Robert see we've FusionX, see as that revenue into we'll then to which the the quarter. beginning it we're through the be then core

major the of So our that's the way you business. think in about portions it four

Unidentified Analyst

the of which helpful. on flow. hopefully capital working just you quarter. really next know I free couple cash a quick had benefit one And That's should mentioned a Great. guys then, items,

Or free of expecting just growth Thanks. high helpful be level, guys a there? any year? trends flow in this to sense you would see cash at Just are

Robert Snead

Yes.

We management last talked We've our working are. been we've has expanded We efforts about focused business calls. we've domestic that in year globally. on that as past had. capital probably that something was This for

So with headwind we've Halyard had part the TSAs is the just the business. of off getting

driving getting kind those the quarter that's here first temporary an the so and given of a control that really opportunity more we've issue, at access business. some of transitions as is in us And some through over that's that issue gone of

year. cash the expect to we so balance a capital And through for the flow of the have drive that operating positive and to be working contributor year

Operator

UBS. Thank you. Kevin [Operator Instructions] Our Caliendo of of next from line is the question

might on mute. Your And line phone your be open. is

Kevin Caliendo

apologize I was on my sheet. talk I if contemplated any kind near-term Thanks is a Is that asset to Sorry Can help you you've that's -- about necessary mute. about opportunistic something securitization could you? taking for on be little balance call. doing that something or bit the for of that

Ed Pesicka

Yes. then the and I'll specifics. talk Robert start, on

I So constantly, we've from additionally ways mean begun more ways to continue look the sheet. different balance cash and let about goal that, to to different this. think our I at talk Robert to provide to deleverage continue specifically

Robert Snead

Sure.

We are we are certainly our ability asset have and that. at a credit looking do -- within securitization, agreement to and we

be main help would lower us expenses in and a result the tend that cash towards interest of then improve driving those deleveraging. savings financings from think focus geared types -- for generate I that of to savings interest would

focused of top mind something So that that's on. certainly and we're

Kevin Caliendo

question was broadly the this And sort bit industry a just dynamics. about little second more of

a or participate that know are campus, providers talking to also on-campus. their really wondering out guys positioned and entire hospitals of and to sites combining we had kind if also their alternate if happening take dynamic meaning that both you a advantage little or RFP in some the of scripts and I sort the RFP? are positioned trend, is acute you some you some just care to of that's I able a care was about be in Can are it? that checks to how that's physician heard We've to of contemplating wholesalers, we've done the talk bit acute hospitals. And their side using to guys

Ed Pesicka

Okay.

are a part our we at different service I and those it's It's So And great can ability looking absolutely service their time solutions to it as with acute businesses. well in a a better but different spending customers unique external of provide be out customers. serving how centers there is model. delivery their care, example that the -- as flexible happening They it's a space. from point, and and -- their of is scripts similar call believe ambulatory with others

sense, field. have If about within and just them in it the And customize to, where to think it dock. where have is of basic as ability a healthcare some locations don't a serve enables those believe loading docks, with us and solution, better I our loading to does you deliver change remote continues hospital a that the

believe based we a seeing IDN well positioned, IDN It's So to as the structured, way as be serve continues that direction. able by we are to -- specific migrate very it. to but industry in on they're the I that are

Kevin Caliendo

What you do direction? hospital think in percentage systems that of are actually moving

Ed Pesicka

early still It's on.

right So seeing increase. the trend we're low, been it's now but

Kevin Caliendo

you Great. so Guys, thank much.

Operator

to you. time. for would closing turn to over back Pesicka Mr. Thank there like questions call [Operator I remarks. no his And Instructions] the at further are this

Ed Pesicka

So want everyone thank for the call us joining today. on I to

on As to to in the future. earlier, you continue & forward to extremely build progress Minor, I updating mentioned company's healthcare as lead the strong legacy in we our excited Look field. upon the Owens I'm

everyone. you thank So

Operator

and does conference. the This thank you conclude Ladies in gentlemen, for program. today's participation your

have day. now disconnect. a may Everyone great You