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OMI Owens & Minor

Participants
Chuck Graves Director, Finance & Investor Relations
Ed Pesicka President & Chief Executive Officer
Jon Leon Senior Vice President & Corporate Treasurer
Mike Lowry Senior Vice President, Chief Accounting Officer & Interim Chief Financial Officer
Erin Wright Credit Suisse
Anne Samuel JPMorgan
Jack Rogoff Goldman Sachs
Brett Gasaway UBS
Call transcript
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Operator

Good morning ladies and gentlemen and welcome to Owens & Minor's Third Quarter 2019 Financial Results Conference Call. My name is Gigi and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call; Mr. Chuck Graves. Mr. proceed, Please Graves.

Chuck Graves

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

comments call this press our be release issued earlier today Our focused for results in financial on are quarter third included the morning. the of will on XXXX, which we

a changes will release. separate also in be were We press organizational which certain included discussing

Please this forward other risk note established made facts operational liability the call of statements are on this statements historical the financial which statements our looking statements today XXXX. for call looking Securities from that Private Reform certain on Act than These are by statements are are Litigation and include and looking qualify Harbor forward of anticipated, subject statements forward to and to intended performance. regarding Safe uncertainty. made All statements

Forward looking made. are the are call statements current statements time such available management's this on information based made at on expectation and represents

numerous implied involve looking statements materially our any uncertainties differ unknown assumed results and that forward may looking Forward cause and other actual predicated, results from by to risks, the or factors known statements.

statements. or explained York required Except any filing, of disclaims Stock rules on has Form XX-Q. and to or of including company XX-K New section intend Form some uncertainties its looking law company SEC and as report annual Exchange, The report the expressly in these the forward factor update in its risks any of the risk by quarterly the listing obligation on

reconciliations and measures financial reference release will quarterly Additionally, our about measures report in included Form comparable GAAP financial today, most these the our non-GAAP our and press to in discussion information on XX-Q. measures are certain we and

Interim as President commentary results well on third outlook for Pesicka, who the morning business I will and Ed SVP, the and Jon who changes. discuss Mike Chief Financial organizational and our joined Treasurer. SVP And am quarter Officer Officer, third this our Leon, Lowry; CEO, and Chief and as results by; recent will provide quarter Accounting

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

Ed Pesicka

Good make Owens thank supplier, you demands and organization for this spending of & of our Chuck. our significant customers earlier everyone call marketplace. became on with and customers, morning changes today. you, the the Minor strengthen the Thank teammates clear needs us to alignment and time joining since joining year, need and the our partners to we it with After

announced I This as Zacur, morning the few Operating Chief and changes including; Jochims as Chief Officer. Mark Officer Commercial Jeff

Mark best will customers. decision-making, our needs all customers, more and integrate more benefit of of our new the operating on quickly in our our for speed and the keenly provide on our entire and efficiently Jeff solutions productivity Our stakeholders. team remain initiatives drive us of to and improvement the and structure efficiency to enable closely the focused industry and ongoing serving

long thank his distribution, Owens and Minor to Officer. appreciate including Financial welcome sectors. industrial models, business important biopharma acumen financial also addition, with to transition. Robert's with together life many skilled including I of We closely our health leader to Andy years, and In a assist a and and Scientific. Andy is Robert Fisher wide in working pleased deep manufacturing Chief Thermo science, in commitment as have Snead. I unwavering am services Long experience to in to He I known range dynamic and this care, willingness want & team for at

in sequential third quarter quarter. with back-to-back that a and Lowry and few on significant third discuss my I We in will quarter had performance the of Mike move results provide me performance announce another quarters to detail successful let the excited quarter. improvement. will I'm So minutes. the perspective we third to the financial had on results

a just few are quarter. highlights of Here the from the third

First, and to compared we previous growth quarter. both saw EPS in the operating sequential income continued

grew share while grew income share EPS, both to increased adjusted XX%. operating or $X.XX, XXX% operating per Our by adjusted income net increased by income by Related increasing XX%, income net $X.XX while per more.

cash flow of working to to flow income time cash emphasize alone combined able that improvements and flow. over results and metrics, $XXX operating working quarter levels. the improving to flow, key And were quarter at cash like both continue cash we same generated Second, million. strong $XXX in These the operating third by operating while service third I'd generate major We in capital million operating improve second was driven were we and capital the worth management.

I this, quarter. on by that more million. third the $XXX be Third, clear sheet. We to we continued debt than strengthen reduced balance we sheet. last committed that balance by over report Based to And $XX to it our am debt the have our two are quarters, reduced we our million in should pleased deleveraging the

have million debt year so the in with other many along reduction, improvements in $XX this to we invested far noncapital incremental addition nearly business capital In investments. the

to we continue levels. Fourth, service our improve

known to the examples is a As let this, & levels high To Owens levels matter fact, few understand now of our historical a are you. service for. better share that with me Minor back

nearly XX.X%. accuracy now First, shipping our is

So put into me let perspective. this

If that Owens quantity would three incorrect you you Minor or an day would product nearly of time. over years, & once receive from order only period products for every

level and issues fill improved and receiving, notice, Next, on-time working factors in consistency initiatives confidence rates information with strong and our service our advanced improved along gives been inbound This productivity past other the many proactively have performance on with has resolved. partners and we are This scheduling external us delivery. of resulted which with into improvement both supplier collaboration such initiatives. pallet of as of service shipping that

provide and to However, innovative improve to drive services. continue further we will initiatives additional

segment. its fast-growing in And fifth, performance the Byram continues health strong home care

and is five actively it are discussed improved resulting service. these our As clear just customers you productivity teammates our driving our that can profitability and embracing around serving focus in see, items

am in I the to two impact in the diligence we with and non-renewals mitigate momentum our focus pleased we must of quarters that past customer the maintain to FusionX. positive over continue the have displayed business, While

For previously the into year and the remainder revenue of profit continue XXXX, customer will related on offset the we non-renewals. to improvements focus to to headwinds discussed

in to from and year's comparisons. we fourth revenue this in fact additional quarter quarter large quarter this of we in and impact the In mentioned expect first the exit to began impact next customer see exit the the customer feel

customer mix shift higher into an through ongoing productivity more new growth wins, and businesses. We will profitable continue to mitigate this impact improvements,

be additional In variable. annual revenues have mentioned business provide And to our early-stage our Mike impact expect it guidance. related as $X.XX value-based we previously, have addition, XXXX financial we will management a continues of per on minutes. timing few to care details FusionX an of share in a to

that to and I our may to You mentioned grow business. recall stabilize four in we the call, need earnings prioritize areas last

So, provide an update on progress. me let our

while First, I of drastically serving continue on to to a intensity, challenge customers. our our intention team maintaining and increase level high myself our

enhancing offer company's responsible best the Commercial in importance relevant of for Officer Mark as most strategy, the the changing to is be health and solutions focus. ability Minor to of example go-to-market customer adapt will the Mark aligning Appointing landscape, the Owens and industry. the & an Zacur Chief care

We clear, in deliver to on presentations. meetings, personally will I reviews, customers let RFP customers, will to engage business and customers customers continue organization continue never want listen will I However, continue our promises, for customer our be interaction with make up. will not granted. quarterly as take to our I to and I priority. our to significant including an

with world-class by talent as well in as into the of bringing to a solutions to appropriate. as we as efficiently today, needs announcement is ability structure organization capable more and integrate announcement example been closely our the Second, enables as successful of promoting from customers. evidenced more us organization of this of continue and speed of best well to level increasing executing the in bring quickly The strategy, our provide more our as today our have while industry our Doing an talent the so in the decision-making. in streamlined within

we serve to operational innovative improved profit of is drive to efficiencies, improvement, with amount vast that our and customers. used collect best the Third, now services being along data

We will discuss more this in the quarters. future

authority Finally, level and of we stakeholders, to commitments are our to and accountability our customers, honor a instilling higher teammates.

In in closing, I momentum the the positive business. am with pleased

albeit Looking a at this continue forward pace. quarter, slower improvement and much trends sequential excluding the FusionX, we into fourth quarter from expect to

required addition we quarter and the remain holiday flu at to use of expect in levels. buy assurance In of invest capital provide first will in the working that inventory both to service the XXXX, appropriate

improvements operating focus Also, diligence acute care, we our continued product and businesses, our in core distribution health customer initiatives drive channel, the with manufacturing, services. care productivity our around home to our expect

recovery joined ahead. envisioned I While we of when recognize still we the work are long-term ahead plan I amount in there that significant are March, of

our while integrity. We focus maintaining of take industry-leading granted and for highest will will level customer not we the provide customers

to Finally, Mark add opportunity and Bob I'd like expertise leadership our to Beck & to Owens the will and operational perspective welcome Their Minor this take depth and to experience Henkel board. Board.

the now quarter Thank for Mike and year. outlook for your results call discussion third you for turn of and I the of will our rest time today, to a over Mike? the

Mike Lowry

financial I'll start results review of then with comment outlook good the on third and Today Thanks, for and Ed, year. our quarter morning, our a everyone.

to $X.XX increase last For Year-to-date year. $X.X revenue the was of year. a X.X% decrease third X.X% billion, compared compared quarter, billion, prior to a revenue was

both segment. and offset from year-to-date. Solutions on impact revenue Products for in negative Global a growth the in by growth quarter basis had currency third quarter of partially The the lower Global points XX Foreign decline revenue was the

on regarding $XX sales I'll a segment April discussing were bit April provide we results. further of XXXX. a revenue net $XXX million January Halyard comments As through million, XXXX when of later Halyard reminder, acquired intercompany XX, from sales.

Year-to-date income quarter million the the or constant share and for for was share basis, $X.XX per $X.XX $XX.X year-to-date. income was net was $X.X million adjusted net or $X.XX income or net $X.XX million share. income per $XX.X share. per quarter adjusted Net $X.XX third per the for quarter was currency a adjusted On and

in by Byram at look in billion our $X.XX business let's compared prior offset third This in primarily strong in our distribution Now, revenue the was growth decline business, third growth was for partially $X.XX quarter and quarter. solutions billion Europe. to Global manufacturing in the revenue solid segment year. our results Solutions

customer transition this primarily The customer distribution revenue non-renewals, decline impact of the initial earlier including from large that mentioned was the was year.

We transition be which headwind the fourth completed be year will balance will through of XXXX. and expect for a quarter, during this the the

partially lines, quarter from consistent gross our to by change primarily expenses This was compared revenue mix Segment in for among $XX business our was $XX million business in lines. growth margin operating these increase the the income offset year. last expansion million with increased support to revenue

Global Turning and million favorable to by offset last last million was the pressure Products operating quarter currency revenue to negatively compared was compared price to by foreign million revenue income year segment, $XX $XXX affected and margin Operating $XX trends. was income partially commodity mix, year. million third $XXX

flow quarter, driven operating cash let's sheet. the quarter, Now cash the capital operating increased of million third with working $XXX operating In flow balance cash was turn by to second flow. generated primarily Consistent improvement and and income. we the

two million $XXX operating quarters. been has last generated the fact, in cash over In flow

holidays season As Ed from working flu our is flow build we to and capital ensure as as for perspective quarter cash typically supply due for on seasonal strong inventory impacts customers. the not continuity the of for mentioned, fourth to the a

at debt quarters. $XXX of two million of the we reduction $X.XX was XX, and September the representing debt to paid have million $XX in last billion quarter compared down a Total second

be balance are achieving management debt priorities. reduction. of to we're quarter capital sheet quarter quarter operations, the in we results the progress one with our the pleased Deleveraging and continues Overall, continued after working third and top

revenues. turn our catalyst and the the of for to rest adjustment outlook for which Let's is our guidance the year FusionX's

During last mentioned call, FusionX's quarter's we to revenue. the related following

achieved revenues CMS under of savings BPCI bundled care as First, projected the program FusionX's a based are on portion Advanced. known large

financial Therefore, estimate case. FusionX associated revenue to And year. share. these this previously quarter has of with left To-date during to this savings-based quarter we released and and fourth CMS first of the are about in the X-month indeed impact has expect period the predict $X.XX XXXX this fourth fourth Second, not revenues quarter. guidance are the realize to revenue information a the it program the been difficult initial negative to revenue have necessary will record to the less of the our issued during we per third,

of per in FusionX share adjusted a the company to $X.XX income net range expects guidance foreign of In summary, the to impact now $X.XX be excludes XXXX and currency. which

with to back the that the session. turn Operator? And over I'll Q&A operator the call begin you. to Thank

Operator

Erin question first Your Instructions] Wright [Operator comes Suisse. from from Credit

Your line open. now is

Erin Wright

should How in loss about of that that announced? the guess when that how the was Thanks. quarter? we think customer fully guess think about I then next And how Thanks. from Great. large will much the in we quarterly previously year? impact impact? impact And we should of progression it the lap you I

Ed Pesicka

you, Yes. Erin. Thank

quarter we So think it quarter next in that out began the about continue should it is, then in third began moving completely and last will in the away. business -- will way biggest year. the fourth That we to finish through

different line, impact the about that. look initiatives not way the it. continued at the to in continuing productivity line short ways to to the top drive the offset bottom really we've on to that's mitigate think necessarily So we've What is, but to done term of

Erin Wright

FusionX right. we as a just And is how down should be best XXXX that few to should the impact it issue on here? much model can All and over timing how out not And what is? figure versus you think And how trying how quarters the break of -- then next about Okay. we that we revenue well? I'm should into

Ed Pesicka

Yes.

episodes think that, data So revenue. on -- government for us has we're the to modeling a And impact reconciliations is a fact actually data to of being coming has about the FusionX that year. the really way really minimal it last CMS it in provide really this group year and on between potentially. of the that and very waiting the is first handled we the That sometime the of information care March of October should the and be December for

It's from we timing transparency times. wanted the think delayed. of disclose several delayed I already may And be that the been we to openly -- that a fact

the timing $X.XX the share. on really minimal has top of the back that top that's But from question has It's to So really a initial our from reconciliation. what's very going per it the standpoint to to impact the related ability the and revenue do it line. line, part --

Erin Wright

That’s right. helpful. you. Thank All Okay.

Operator

is next Lisa from Gill JPMorgan. Our question from

Anne Samuel

Samuel Anne Lisa. for on It's

else give Thanks. on FusionX could out lapping just think us about? tailwinds to color and we currency? I As XXXX, headwinds little guess, think to we look our build versus as you the a how bit about between of Anything to models

Ed Pesicka

Yeah.

fact going standpoint in mix to from it -- and continuing quarters we at driving and and a quarters to about large into So business, think I XXXX, to think as But an talked you productivity already business about recognizing win win think the about start time. for will starting bottom of drive customer the continuation have to plus of a several this, mix driving the XXXX that and take non-renewal be when shift line on the that looking you when -- really I think I've does impact the three it's first of XXXX. business,

that delay There the for revenue to us is into because transition in business periods. time a the translate of lag starts until

to think on think larger way first customer through continues that that next I So is quarters about three the year. the of non-renewal

Anne Samuel

then the And currency. Thanks. on Great. just

at $X.XX being Looking year? full year $X.XX, currency the to much for the excluded guide how is the full

Ed Pesicka

Good. I'll let that. take Mike

Mike Lowry

is at currency But or again headwind. indicate difficult point. our as fourth But a currency foreign a was same year-to-date, So for to $X.XX in we would be our well from that predict. currency. And first will half adjustment. quarter that's There this and had be $X.XX year. the was that that impact nominal expectations $X.XX the quarter, the actually the -- it of impact share about And a third projections with for it

Anne Samuel

you. Okay. Thank Great.

Operator

Instructions] Sachs. question [Operator from you. is Goldman Robert Our from Jones Thank next

line open. Your now is

Jack Rogoff

on Thanks, Hi. for This guys. is Jack Bob.

you this another Just as looking good any one around about out there? you that, provide to guys flag numbers you guys a opportunity the XXXX thinking if the that Byram on how are just detail and guy business, or quarter? Can could

Ed Pesicka

Yes.

So to Byram perform. continues

has that business top also of haven't -- business profitability we disclosed The -- segments and/or us, the but business units impacts because has year. the continued of that the to us don't benefit line provide next actually mix then from our business profile perform individual of overall that business been of helps in it expect to historically individually. company. And that growth, the into shift We a -- to continue

Jack Rogoff

year? just And anything worth commodity, tactical on a more like input approach flu thing, the of flagging costs fiscal and just we end the as

Ed Pesicka

Yeah.

the quarter. into third flu here expect anticipating it saw in quarter. traditional flu fourth your in the And we're the be consistent So then season we the to commodity be that relatively quarter to impact fourth we

So in QX. QX expect differences significant and between we don't any major that

Jack Rogoff

you. Thank Awesome.

Operator

Instructions] Kevin Thank is Caliendo [Operator from from And our next you question UBS.

now Your line open. is

Brett Gasaway

This question. little trends want comment get the quarter? a I Gasaway utilization you've take for guys. acute volume on Hey, Could for market coming care my taking marketplace. on in seeing Caliendo. in that, just the your Brett on is the what to in XQ. strong there's been bit you some Kevin competitor Thanks the during said A

Ed Pesicka

standpoint, From that see full and you it deductibles. fourth to for all ramp-up that as we standpoint, first you in our the From thanks closer their Brett a get question. the Yeah. people at quarter traditionally third business do well, if look in of

our to their and So we our people that see in we business deductibles. as in anticipate acute that base lift full that that business care – get

some quarter going into in expect saw fourth we of and that third with the we the So that quarter. consistency

Brett Gasaway

Great. Thanks.

Operator

will Mr. back Ed no his at for to further time. call questions this There closing Pesicka you. remarks. now are I over Thank turn the

Ed Pesicka

want thank this time morning. for everyone I the to So

that that drive improve by fact more And be were it the this the sheet amount share pleased well debt two we by operating as we the pay down overlooked that XXX%. close down significantly well operating as I $XXX to to invest of paid of quarters us from in $XXX As want income been don't operating than earnings both in as per million work third profit everyone we to enabling to that's and it I paydown reminding done management debt on of our out working flow quarters both which and the balance very significant place. very, the increasing cash initiatives that operating with debt quarter last able us enabled million have and improvement and combined, generated in of nearly into second capital as

to and thanks the I to for after today. fourth talking time the everybody quarter look forward

Operator

Thank participation conference. you for This your the call. in today's concludes

disconnect. now may You