Form 8-K OWENS & MINOR INC/VA/ For: Feb 19
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 19, 2019
Owens & Minor, Inc.
(Exact name of registrant as specified in its charter)
Virginia | 1-9810 | 54-1701843 | ||
(State or other jurisdiction of incorporation | (Commission File Number) | (IRS Employer Identification No.) | ||
9120 Lockwood Blvd., Mechanicsville, Virginia | 23116 | |
(Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code (804) 723-7000
Not applicable
(former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2.below):
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company o
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. o
Item 2.02 | Results of Operations and Financial Condition. |
On February 19, 2019, Owens & Minor, Inc. (the “Company”) issued a press release regarding its financial results for the year ended December 31, 2018. The Company is furnishing the press release attached hereto as Exhibit 99.1 pursuant to Item 2.02 of Form 8-K. In accordance with General Instruction B.2 of Form 8-K, the information in this Item 2.02, including Exhibit 99.1, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing.
Item 7.01 | Regulation FD Disclosure |
On February 19, 2019, the Company posted an earnings presentation on the Investor Relations section of its website.The Company is furnishing the earnings presentation attached hereto as Exhibits 99.2 pursuant to Item 7.01 of Form 8-K. In accordance with General Instruction B.2 of Form 8-K, the information in this Item 7.01, including Exhibit 99.2, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing.
Item 9.01. | Financial Statements and Exhibits. |
(c)Exhibits.
SIGNATURE
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. | ||||||||
Date: February 20, 2019 | By: | /s/ Nicholas J. Pace | ||||||
Name: | Nicholas J. Pace | |||||||
Title: | Executive Vice President, General Counsel and Corporate Secretary | |||||||
Exhibit 99.1
FOR IMMEDIATE RELEASE
February 19, 2019
Owens & Minor Reports 4th Quarter & Full-Year 2018 Financial Results
RICHMOND, VA – February 19, 2019 – Owens & Minor, Inc. (NYSE-OMI) today reported financial results for the fourth quarter and the year ended December 31, 2018, as summarized in the table shown below.
“2018 was a year of change for Owens & Minor, and, although we faced challenges, we achieved our expectations for the fourth quarter adjusted results, excluding costs associated with the exit of our former chief executive officer,” said Robert C. Sledd, chairman and interim president & chief executive officer. “We are encouraged by the opportunities we see in the future and are aggressively addressing challenges in our distribution business. We have made progress in returning our distribution and logistics services to the Owens & Minor standard, but we still have work to do in 2019. We are focused on selling more proprietary and preferred vendor products to our extensive healthcare customer base, as we work to win and retain customers. In combination with positive momentum from Halyard and Byram Healthcare and investments that will support our future efforts, we believe we have the right tools, the right team, and the right strategy to realize a bright, long-term future.”
Financial Summary | |||||||
($ in millions, except per share data) | |||||||
4Q18 | 4Q17 | FY2018 | FY2017 | ||||
Revenue | $2,543 | $2,390 | $9,839 | $9,318 | |||
% yoy growth | 6.4% | 5.6% | |||||
Operating income (loss), GAAP1 | $(266) | $(8.8) | $(392) | $89.3 | |||
Adj. Operating income (loss), Non-GAAP2 | $33.7 | $42.2 | $177 | $180 | |||
Net income (loss), GAAP1 | $(262) | $23.0 | $(437) | $72.8 | |||
Adj. Net income (loss), Non-GAAP2 | $5.3 | $21.0 | $70.4 | $97.5 | |||
Net Income (loss) per share, GAAP1 | $(4.37) | $0.38 | $(7.28) | $1.20 | |||
Adj. Net Income per share, Non-GAAP2 | $0.09 | $0.35 | $1.15 | $1.61 | |||
1. Includes impairment charge for 4Q18 and full year 2018 of $274 million and $440 million, respectively. | |||||||
2. Reconciliations of the differences between the non-GAAP financial measures presented in this news release and their most directly comparable GAAP financial measures are included in the financial tables below. | |||||||
Discussion of 2018 Results
• | When compared to prior year, quarterly revenue growth benefited from Halyard contributions of $196 million (after intercompany eliminations). Annual revenue growth benefited from Halyard contributions of $518 million (after intercompany eliminations) and revenue growth from Byram Healthcare of $340 million. |
• | On a GAAP basis, fourth quarter and annual results were significantly affected by non-cash goodwill and other intangible impairment charges of $274 million ($4.08 per share) and $440 million ($6.81 per share), respectively. |
• | Quarterly and annual results were affected by lower distribution revenues, continued pressure on distribution margins, warehouse inefficiencies in certain facilities, and increased expenses incurred for the development of new solutions, which were partially offset by positive contributions from Byram Healthcare and Halyard. |
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• | Fourth quarter and annual results included severance and related expenses totaling $4.8 million ($0.08 per share) and $7.3 million ($0.12 per share), respectively, related to the departure of certain executives during 2018. |
New Chief Executive Officer
In a separate press release issued today, Owens & Minor announced that, after a thorough search and careful evaluation of candidates, its board of directors has named Edward A. Pesicka to serve as president & chief executive officer of Owens & Minor, effective March 4, 2019. Pesicka, a formerly long-tenured executive at Thermo Fisher Scientific, joins the company with more than 25 years of business and operational experience in healthcare and related industries. He will also join Owens & Minor’s board of directors. Pesicka most recently served as chief commercial officer and senior vice president of Thermo Fisher Scientific, where he was responsible for developing and leading the company’s go to market strategies and managing the company’s commercial approach.
Amended Credit Agreement & Dividend for 1Q 2019
On February 12, 2019, the company entered into an amended credit agreement that enhances the company’s financial flexibility and, among other things, revises the financial covenants throughout the life of the agreement. As a result of this agreement, the company’s interest expense will increase going forward, which is reflected in the financial guidance for 2019.
Owens & Minor also announced that its board of directors has approved a first quarter dividend payment of $0.0025 per share. This dividend is payable on March 29, 2019, to shareholders of record as of March 15, 2019.
Financial Guidance and Outlook
“2019 is about laying the foundation for a much more profitable future, and I am confident that the company is on the right track,” said Sledd. “Our guidance encompasses the increased interest expense from the amended credit agreement, thoughtful investments for our future, and deleveraging our balance sheet.”
For 2019, the company expects adjusted net income per share to be in a range of $0.60 to $0.75 per share.
Additional details related to expectations for 2019 are provided in a presentation posted on the Investor Relations section of the company’s website.
Although the company does provide guidance for adjusted earnings per share (which is a non-GAAP financial measure), it is not able to forecast the most directly comparable measure calculated and presented in accordance with GAAP without unreasonable effort. Certain elements of the composition of the GAAP amount are not predictable, making it impracticable for the company to forecast. Such elements include, but are not limited to restructuring and acquisition charges. As a result, no GAAP guidance or reconciliation of the company’s adjusted earnings per share guidance is provided. For the same reasons, the company is unable to assess the probable significance of the unavailable information, which could have a potentially significant impact on its future GAAP financial results. The outlook is based on certain assumptions that are subject to the risk factors discussed in the company’s filings with the Securities and Exchange Commission (“SEC”).
Upcoming Investor Events
Owens & Minor plans to participate in the following investor conferences in the first quarter of 2019, and the company will post webcasts of formal presentations on its corporate website.
• | J.P. Morgan Global High Yield & Leveraged Finance; February 25 |
• | Barclays Global Healthcare; March 12 |
Investor Conference Call & Supplemental Material for 2018 Financial Results
Owens & Minor executives will host a conference call, which will also be webcast, to discuss the results at 8:30 a.m. EST on Wednesday, February 20, 2019. Participants may access the call at 866-393-1604. The international dial-in number is 224-357-2191. A replay of the call will be available for one week by dialing 855-859-2056. The access code for the conference call, international dial-in and replay is #3609149. A webcast of the event and a corresponding slide presentation will be available on www.owens-minor.com under the Investor Relations section.
Safe Harbor
This release is intended to be disclosure through methods reasonably designed to provide broad, non-exclusionary distribution to the public in compliance with the SEC's Fair Disclosure Regulation. This release contains certain ''forward-looking'' statements
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made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, the statements in this release regarding our expectations with respect to our 2019 financial performance, as well as other statements related to the company’s expectations regarding the performance of its business, growth, improvement of operational performance, and the performance of and synergies from the recently acquired Byram Healthcare and Halyard businesses. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from those projected or contemplated in the forward-looking statements. Investors should refer to Owens & Minor’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC including the sections captioned “Cautionary Note Regarding Forward-Looking Statements” and “Item 1A. Risk Factors,” and subsequent quarterly reports on Form 10-Q and current reports on Form 8-K filed with or furnished to the SEC, for a discussion of certain known risk factors that could cause the company’s actual results to differ materially from its current estimates. These filings are available at www.owens-minor.com. Given these risks and uncertainties, Owens & Minor can give no assurance that any forward-looking statements will, in fact, transpire and, therefore, cautions investors not to place undue reliance on them. Owens & Minor specifically disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.
Owens & Minor uses its web site, www.owens-minor.com, as a channel of distribution for material company information, including news releases, investor presentations and financial information. This information is routinely posted and accessible under the Investor Relations section.
About Owens & Minor
Owens & Minor, Inc. (NYSE: OMI) is a global healthcare solutions company with integrated technologies, products, and services aligned to deliver significant and sustained value for healthcare providers and manufacturers across the continuum of care. With 17,000 dedicated teammates serving healthcare industry customers in 90 countries, Owens & Minor helps to reduce total costs across the supply chain by optimizing episode and point-of-care performance, freeing up capital and clinical resources, and managing contracts to optimize financial performance. A FORTUNE 500 company, Owens & Minor was founded in 1882 in Richmond, Virginia, where it remains headquartered today. The company now has distribution, production, customer service and sales facilities located across the Asia Pacific region, Europe, Latin America, and North America. For more information about Owens & Minor, visit owens-minor.com, follow @Owens_Minor on Twitter, and connect on LinkedIn at www.linkedin.com/company/owens-&-minor.
CONTACTS:
Truitt Allcott, Director, Media Relations, 804-723-7555, [email protected]
Chuck Graves, Director, Finance & Investor Relations, 804-723-7556, [email protected]
SOURCE: Owens & Minor
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Owens & Minor, Inc.
Consolidated Statements of Income (Loss) (unaudited)
(dollars in thousands, except per share data)
Three Months Ended December 31, | ||||||||
2018 | 2017 | |||||||
Net revenue | $ | 2,542,981 | $ | 2,389,834 | ||||
Cost of goods sold | 2,178,271 | 2,074,622 | ||||||
Gross margin | 364,710 | 315,212 | ||||||
Distribution, selling and administrative expenses | 343,600 | 281,625 | ||||||
Goodwill and intangible asset impairment charges | 274,166 | — | ||||||
Acquisition-related and exit and realignment charges | 14,784 | 39,573 | ||||||
Other operating (income) expense, net | (2,143 | ) | 2,786 | |||||
Operating income (loss) | (265,697 | ) | (8,772 | ) | ||||
Interest expense, net | 24,371 | 9,556 | ||||||
Income (loss) before income taxes | (290,068 | ) | (18,328 | ) | ||||
Income tax provision (benefit) | (28,247 | ) | (41,325 | ) | ||||
Net income (loss) | $ | (261,821 | ) | $ | 22,997 | |||
Net income (loss) per common share: | ||||||||
Basic and diluted | $ | (4.37 | ) | $ | 0.38 | |||
For the Years Ended December 31, | ||||||||
2018 | 2017 | |||||||
Net revenue | $ | 9,838,708 | $ | 9,318,275 | ||||
Cost of goods sold | 8,471,745 | 8,146,409 | ||||||
Gross margin | 1,366,963 | 1,171,866 | ||||||
Distribution, selling and administrative expenses | 1,261,748 | 1,016,978 | ||||||
Goodwill and intangible asset impairment charges | 439,613 | — | ||||||
Acquisition-related and exit and realignment charges | 62,200 | 60,707 | ||||||
Other operating (income) expense, net | (4,424 | ) | 4,930 | |||||
Operating income (loss) | (392,174 | ) | 89,251 | |||||
Interest expense, net | 77,021 | 31,773 | ||||||
Income (loss) before income taxes | (469,195 | ) | 57,478 | |||||
Income tax provision (benefit) | (32,183 | ) | (15,315 | ) | ||||
Net income (loss) | $ | (437,012 | ) | $ | 72,793 | |||
Net income (loss) per common share: | ||||||||
Basic and diluted | $ | (7.28 | ) | $ | 1.20 | |||
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Owens & Minor, Inc.
Condensed Consolidated Balance Sheets (unaudited)
(dollars in thousands)
December 31, 2018 | December 31, 2017 | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 103,367 | $ | 104,522 | ||||
Accounts receivable, net | 823,418 | 758,936 | ||||||
Merchandise inventories | 1,290,103 | 990,193 | ||||||
Other current assets | 321,690 | 328,254 | ||||||
Total current assets | 2,538,578 | 2,181,905 | ||||||
Property and equipment, net | 386,723 | 206,490 | ||||||
Goodwill, net | 414,122 | 713,811 | ||||||
Intangible assets, net | 321,764 | 184,468 | ||||||
Other assets, net | 112,601 | 89,619 | ||||||
Total assets | $ | 3,773,788 | $ | 3,376,293 | ||||
Liabilities and equity | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 1,109,589 | $ | 947,572 | ||||
Accrued payroll and related liabilities | 48,203 | 30,416 | ||||||
Other current liabilities | 314,219 | 331,745 | ||||||
Total current liabilities | 1,472,011 | 1,309,733 | ||||||
Long-term debt, excluding current portion | 1,650,582 | 900,744 | ||||||
Deferred income taxes | 50,852 | 74,247 | ||||||
Other liabilities | 81,924 | 76,090 | ||||||
Total liabilities | 3,255,369 | 2,360,814 | ||||||
Total equity | 518,419 | 1,015,479 | ||||||
Total liabilities and equity | $ | 3,773,788 | $ | 3,376,293 | ||||
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Owens & Minor, Inc.
Consolidated Statements of Cash Flows (unaudited)
(dollars in thousands)
For the Years Ended December 31, | ||||||||
2018 | 2017 | |||||||
Operating activities: | ||||||||
Net income (loss) | $ | (437,012 | ) | $ | 72,793 | |||
Adjustments to reconcile net income (loss) to cash provided by (used for) operating activities: | ||||||||
Depreciation and amortization | 101,927 | 59,443 | ||||||
Share-based compensation expense | 16,376 | 11,911 | ||||||
Goodwill and intangible asset impairment charges | 439,613 | — | ||||||
Deferred income tax (benefit) expense | (35,018 | ) | (49,988 | ) | ||||
Provision for losses on accounts receivable | 9,430 | 2,674 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 11,106 | (100,010 | ) | |||||
Merchandise inventories | (65,451 | ) | (57,032 | ) | ||||
Accounts payable | 92,179 | 143,947 | ||||||
Net change in other assets and liabilities | (23,604 | ) | (33,263 | ) | ||||
Other, net | 6,043 | 6,299 | ||||||
Cash provided by operating activities | 115,589 | 56,774 | ||||||
Investing activities: | ||||||||
Acquisitions, net of cash acquired | (751,834 | ) | (366,569 | ) | ||||
Additions to computer software and intangible assets | (20,812 | ) | (16,124 | ) | ||||
Additions to property and equipment | (44,873 | ) | (34,613 | ) | ||||
Proceeds from sale of property and equipment | 1,690 | 663 | ||||||
Cash used for investing activities | (815,829 | ) | (416,643 | ) | ||||
Financing activities: | ||||||||
Proceeds from issuance of debt | 695,750 | 250,000 | ||||||
Proceeds from revolving credit facility | 105,500 | 104,600 | ||||||
Repayments of debt | (16,250 | ) | (3,125 | ) | ||||
Financing costs paid | (28,512 | ) | (1,798 | ) | ||||
Cash dividends paid | (48,200 | ) | (63,151 | ) | ||||
Repurchases of common stock | — | (5,000 | ) | |||||
Other, net | (7,217 | ) | (8,720 | ) | ||||
Cash provided by financing activities | 701,071 | 272,806 | ||||||
Effect of exchange rate changes on cash and cash equivalents | (1,986 | ) | 6,097 | |||||
Net decrease in cash and cash equivalents | (1,155 | ) | (80,966 | ) | ||||
Cash and cash equivalents at beginning of period | 104,522 | 185,488 | ||||||
Cash and cash equivalents at end of period | $ | 103,367 | $ | 104,522 | ||||
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Owens & Minor, Inc.
Summary Segment Information (unaudited)
(dollars in thousands)
Three Months Ended December 31, | |||||||||||||
2018 | 2017 | ||||||||||||
% of | % of | ||||||||||||
consolidated | consolidated | ||||||||||||
Amount | net revenue | Amount | net revenue | ||||||||||
Net revenue: | |||||||||||||
Segment net revenue | |||||||||||||
Global Solutions | $ | 2,312,989 | 90.95 | % | $ | 2,379,892 | 99.58 | % | |||||
Global Products | 360,552 | 14.18 | % | 111,373 | 4.66 | % | |||||||
Total segment net revenue | 2,673,541 | 2,491,265 | |||||||||||
Inter-segment revenue | |||||||||||||
Global Products | (130,560 | ) | (5.13 | )% | (101,431 | ) | (4.24 | )% | |||||
Total inter-segment revenue | (130,560 | ) | (101,431 | ) | |||||||||
Consolidated net revenue | $ | 2,542,981 | 100.00 | % | $ | 2,389,834 | 100.00 | % | |||||
% of segment | % of segment | ||||||||||||
Operating income (loss): | net revenue | net revenue | |||||||||||
Global Solutions | $ | 19,359 | 0.84 | % | $ | 33,457 | 1.41 | % | |||||
Global Products | 14,337 | 3.98 | % | 8,259 | 7.42 | % | |||||||
Inter-segment eliminations | 17 | 508 | |||||||||||
Goodwill and intangible asset impairment charges | (274,166 | ) | — | ||||||||||
Intangible amortization | (10,367 | ) | (6,665 | ) | |||||||||
Acquisition-related and exit and realignment charges | (14,784 | ) | (39,573 | ) | |||||||||
Other (1) | (93 | ) | (4,758 | ) | |||||||||
Consolidated operating income (loss) | $ | (265,697 | ) | (10.45 | )% | $ | (8,772 | ) | (0.37 | )% | |||
Depreciation and amortization: | |||||||||||||
Global Solutions | $ | 16,246 | $ | 15,505 | |||||||||
Global Products | 12,085 | 2,135 | |||||||||||
Consolidated depreciation and amortization | $ | 28,331 | $ | 17,640 | |||||||||
Capital expenditures: | |||||||||||||
Global Solutions | $ | 9,372 | $ | 11,897 | |||||||||
Global Products | 9,007 | 1,051 | |||||||||||
Consolidated capital expenditures | $ | 18,379 | $ | 12,948 | |||||||||
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Owens & Minor, Inc.
Summary Segment Information (unaudited)
(dollars in thousands)
For the Years Ended December 31, | |||||||||||||
2018 | 2017 | ||||||||||||
% of | % of | ||||||||||||
consolidated | consolidated | ||||||||||||
Amount | net revenue | Amount | net revenue | ||||||||||
Net revenue: | |||||||||||||
Segment net revenue | |||||||||||||
Global Solutions | $ | 9,188,066 | 93.39 | % | $ | 9,186,018 | 98.58 | % | |||||
Global Products | 1,111,322 | 11.29 | % | 504,026 | 5.41 | % | |||||||
Total segment net revenue | 10,299,388 | 9,690,044 | |||||||||||
Inter-segment revenue | |||||||||||||
Global Products | (460,680 | ) | (4.68 | )% | (371,769 | ) | (3.99 | )% | |||||
Total inter-segment revenue | (460,680 | ) | (371,769 | ) | |||||||||
Consolidated net revenue | $ | 9,838,708 | 100.00 | % | $ | 9,318,275 | 100.00 | % | |||||
% of segment | % of segment | ||||||||||||
Operating income (loss): | net revenue | net revenue | |||||||||||
Global Solutions | $ | 104,099 | 1.13 | % | $ | 141,091 | 1.54 | % | |||||
Global Products | 75,688 | 6.81 | % | 38,458 | 7.63 | % | |||||||
Inter-segment eliminations | (3,014 | ) | 243 | ||||||||||
Goodwill and intangible asset impairment charges | (439,613 | ) | — | ||||||||||
Intangible amortization | (36,514 | ) | (16,402 | ) | |||||||||
Acquisition-related and exit and realignment charges | (62,200 | ) | (60,707 | ) | |||||||||
Other (1) | (30,620 | ) | (13,432 | ) | |||||||||
Consolidated operating income (loss) | $ | (392,174 | ) | (3.99 | )% | $ | 89,251 | 0.96 | % | ||||
Depreciation and amortization: | |||||||||||||
Global Solutions | $ | 63,710 | $ | 50,809 | |||||||||
Global Products | 38,217 | 8,634 | |||||||||||
Consolidated depreciation and amortization | $ | 101,927 | $ | 59,443 | |||||||||
Capital expenditures: | |||||||||||||
Global Solutions | $ | 49,524 | $ | 46,932 | |||||||||
Global Products | 16,161 | 3,805 | |||||||||||
Consolidated capital expenditures | $ | 65,685 | $ | 50,737 | |||||||||
(1) Software as a Service (SaaS) implementation costs associated with significant global IT platforms in connection with the redesign of our global information system strategy ($0.1 million and $4.8 million for the fourth quarter of 2018 and 2017 and $3.5 million and $13.4 million for the year-to-date period of 2018 and 2017) and incremental charge to cost of goods sold for inventory fair value adjustments associated with purchase accounting ($27.1 million in the year-to-date period of 2018).
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Owens & Minor, Inc.
Net Income (Loss) Per Common Share (unaudited)
(dollars in thousands, except per share data)
Three Months Ended December 31, | For the Years Ended December 31, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Numerator: | |||||||||||||||
Net income (loss) | $ | (261,821 | ) | $ | 22,997 | $ | (437,012 | ) | $ | 72,793 | |||||
Less: income allocated to unvested restricted shares | — | (314 | ) | — | (1,060 | ) | |||||||||
Net income (loss) attributable to common shareholders - basic | (261,821 | ) | 22,683 | (437,012 | ) | 71,733 | |||||||||
Add: undistributed income attributable to unvested restricted shares -basic | — | 35 | — | 58 | |||||||||||
Less: undistributed income attributable to unvested restricted shares -diluted | — | (35 | ) | — | (58 | ) | |||||||||
Net income (loss) attributable to common shareholders - diluted | $ | (261,821 | ) | $ | 22,683 | $ | (437,012 | ) | $ | 71,733 | |||||
Denominator: | |||||||||||||||
Weighted average shares outstanding - basic and diluted | 59,974 | 59,874 | 60,014 | 60,001 | |||||||||||
Net income (loss) per share attributable to common shareholders: | |||||||||||||||
Basic and diluted | $ | (4.37 | ) | $ | 0.38 | $ | (7.28 | ) | $ | 1.20 | |||||
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Owens & Minor, Inc.
GAAP/Non-GAAP Reconciliations (unaudited)
(dollars in thousands, except per share data) | Three Months Ended December 31, | For the Years Ended December 31, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Operating income (loss), as reported (GAAP) | $ | (265,697 | ) | $ | (8,772 | ) | $ | (392,174 | ) | $ | 89,251 | |||||
Intangible amortization (1) | 10,367 | 6,665 | 36,514 | 16,402 | ||||||||||||
Goodwill and intangible asset impairment charges (2) | 274,166 | — | 439,613 | — | ||||||||||||
Acquisition-related and exit and realignment charges (3) | 14,784 | 39,573 | 62,200 | 60,707 | ||||||||||||
Fair value adjustments related to purchase accounting (4) | — | — | 27,088 | — | ||||||||||||
Other (5) | 93 | 4,758 | 3,532 | 13,432 | ||||||||||||
Operating income, adjusted (non-GAAP) (Adjusted Operating Income) | $ | 33,713 | $ | 42,224 | $ | 176,773 | $ | 179,792 | ||||||||
Net income (loss), as reported (GAAP) | $ | (261,821 | ) | $ | 22,997 | $ | (437,012 | ) | $ | 72,793 | ||||||
Intangible amortization (1) | 10,367 | 6,665 | 36,514 | 16,402 | ||||||||||||
Income tax expense (benefit) (6) | (672 | ) | (2,221 | ) | (7,677 | ) | (5,214 | ) | ||||||||
Goodwill and intangible asset impairment charges (2) | 274,166 | — | 439,613 | — | ||||||||||||
Income tax expense (benefit) (6) | (30,669 | ) | — | (32,729 | ) | — | ||||||||||
Acquisition-related and exit and realignment charges (3) | 14,784 | 39,573 | 62,200 | 60,707 | ||||||||||||
Income tax expense (benefit) (6) | (959 | ) | (14,833 | ) | (13,079 | ) | (22,200 | ) | ||||||||
Fair value adjustments related to purchase accounting (4) | — | — | 27,088 | — | ||||||||||||
Income tax expense (benefit) (6) | — | — | (5,696 | ) | — | |||||||||||
Other (5) | 93 | 4,758 | 3,532 | 13,432 | ||||||||||||
Income tax expense (benefit) (6) | (6 | ) | (1,327 | ) | (743 | ) | (3,792 | ) | ||||||||
Tax adjustments (7) | — | (34,591 | ) | (1,596 | ) | (34,591 | ) | |||||||||
Net income, adjusted (non-GAAP) (Adjusted Net Income) | $ | 5,283 | $ | 21,021 | $ | 70,415 | $ | 97,537 | ||||||||
Net income (loss) per share, as reported (GAAP) | $ | (4.37 | ) | $ | 0.38 | $ | (7.28 | ) | $ | 1.20 | ||||||
Intangible amortization (1) | 0.16 | 0.07 | 0.47 | 0.18 | ||||||||||||
Goodwill and intangible asset impairment charges (2) | 4.08 | — | 6.81 | — | ||||||||||||
Acquisition-related and exit and realignment charges (3) | 0.22 | 0.42 | 0.80 | 0.65 | ||||||||||||
Fair value adjustments related to purchase accounting (4) | — | — | 0.33 | — | ||||||||||||
Other (5) | — | 0.06 | 0.04 | 0.16 | ||||||||||||
Tax adjustments (7) | — | (0.58 | ) | (0.02 | ) | (0.58 | ) | |||||||||
Net income per share, adjusted (non-GAAP) (Adjusted EPS) | $ | 0.09 | $ | 0.35 | $ | 1.15 | $ | 1.61 | ||||||||
10
The following items have been excluded in our non-GAAP financial measures:
(1) Intangible amortization includes amortization of intangible assets established during purchase accounting for business combinations. These amounts are highly dependent on the size and frequency of acquisitions and are being excluded to allow for a more consistent comparison with forecasted, current and historical results and the results of our peers.
(2) The charges resulted from our interim goodwill impairment testing performed as a result of a decline in market capitalization of the Company and lower than projected financial results of certain reporting units due to customer losses and operational inefficiencies, which have caused us to revise our expectations with regard to future performance.
(3) Acquisition-related charges, pre-tax, were $4.3 million and $45.3 million for the three months and year ended December 31, 2018, compared to $11.0 million and $17.3 million for the same periods of 2017. Acquisition related expenses in 2018 consisted primarily of transition and transaction costs for the Halyard S&IP acquisition. Expenses in 2017 consisted primarily of transition and transaction costs for the Byram acquisition and due diligence costs for the Halyard S&IP acquisition.
Exit and realignment charges, pre-tax, were $10.5 million and $16.9 million for the three months and year ended December 31, 2018. Amounts in 2018 were associated with establishment of our client engagement centers. Exit and realignment charges were $28.6 million and $43.4 million for the three months and year ended December 31, 2017. Charges in 2017 were associated with the write-down of information system assets which are no longer used and severance charges from reduction in force and other employee costs associated with the establishment of our new client engagement center.
(4) The second and third quarters of 2018 includes an incremental charge to cost of goods sold from purchase accounting impacts related to the sale of acquired inventory that was written up to fair value in connection with the Halyard acquisition.
(5) Software as a Service (SaaS) implementation costs associated with significant global IT platforms in connection with the redesign of our global information system strategy.
(6) These charges have been tax effected in the preceding table by determining the income tax rate depending on the amount of charges incurred in different tax jurisdictions and the deductibility of those charges for income tax purposes.
(7) Includes tax adjustments primarily associated with the estimated benefits under the Tax Cuts and Jobs Act.
Use of Non-GAAP Measures
This earnings release contains financial measures that are not calculated in accordance with U.S. generally accepted accounting principles ("GAAP"). In general, the measures exclude items and charges that (i) management does not believe reflect Owens & Minor, Inc.'s (the "Company") core business and relate more to strategic, multi-year corporate activities; or (ii) relate to activities or actions that may have occurred over multiple or in prior periods without predictable trends. Management uses these non-GAAP financial measures internally to evaluate the Company's performance, evaluate the balance sheet, engage in financial and operational planning and determine incentive compensation.
Management provides these non-GAAP financial measures to investors as supplemental metrics to assist readers in assessing the effects of items and events on its financial and operating results and in comparing the Company's performance to that of its competitors. However, the non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies.
The non-GAAP financial measures disclosed by the Company should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations to those financial statements set forth above should be carefully evaluated.
11
4th Quarter 2018 Earnings February 20, 2019
Safe Harbor This presentation is intended to be disclosure through methods reasonably designed to provide broad, non- exclusionary distribution to the public in compliance with the SEC's Fair Disclosure Regulation. This presentation contains certain ''forward-looking'' statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, the statements in this presentation regarding our expectations with respect to our 2019 financial performance, as well as other statements related to the company’s expectations regarding the performance of its business, growth, improvement of operational performance, and the performance of and synergies from the recently acquired Byram Healthcare and Halyard businesses. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from those projected or contemplated in the forward-looking statements. Investors should refer to Owens & Minor’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC including the sections captioned “Cautionary Note Regarding Forward-Looking Statements” and “Item 1A. Risk Factors,” and subsequent quarterly reports on Form 10-Q and current reports on Form 8-K filed with or furnished to the SEC, for a discussion of certain known risk factors that could cause the company’s actual results to differ materially from its current estimates. These filings are available at www.owens- minor.com. Given these risks and uncertainties, Owens & Minor can give no assurance that any forward- looking statements will, in fact, transpire and, therefore, cautions investors not to place undue reliance on them. Owens & Minor specifically disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise. Owens & Minor uses its web site, www.owens-minor.com, as a channel of distribution for material company information, including news releases, investor presentations and financial information. This information is routinely posted and accessible under the Investor Relations section. This presentation contains non-GAAP financial measures related to the Company’s performance. You can find a reconciliation of these non-GAAP financial measures to their most comparable GAAP financial measure in the Appendix to this presentation. 2
2018 Highlights . Revenue . Growth of 6.4% for 2018 driven by contributions from Byram and Halyard . Global Solutions . Efficiency improvement and operating performance are top priorities . Byram continues to exceed our expectations . Global Products . Halyard revenue growth on track . Net Income per Share . Adjusted fourth quarter expectations achieved excluding costs associated with exit of former CEO 3
Global Solutions Segment Results (S in millions) 2018 2017 Net revenue $9,188.1 $9,186.0 Operating Income 104.1 141.1 . Byram, acquired in August 2017, contributed $340 million to annual revenue growth . Results negatively affected by: . Continuing distribution margin pressure . Warehouse inefficiencies in certain facilities . Increased expenses incurred to develop new customer solutions . Executive severance expenses 4
Global Products Segment Results (S in millions) 2018 2017 Net revenue $1,111.3 $504.0 Operating Income 75.7 38.5 . Results reflect Halyard revenue contribution of $664 million . Operating income increase driven primarily by Halyard contributions 5
Balance Sheet/Capital Deployment . Amended credit agreement to enhance financial flexibility; associated increase in interest expense reflected in 2019 guidance . Dividend of $0.0025 per share declared by the board for the 1st quarter of 2019 . Cash balance at December 31, 2018 was $103 million . Operating cash flow at December 31, 2018 of $116 million . Long-term debt of $1.65 billion at December 31, 2018, more than $50 million in debt reduction since close of Halyard S&IP acquisition 6
2019 Guidance & Modeling Assumptions For 2019, the company expects adjusted net income per share to be in a range of $0.60 - $0.75 per share Modeling1 Full Year 2019 Revenue Flat compared to 2018 Gross Margin 15.3-15.4% DS&A 13.7-13.8% Interest expense $100-110m Capital Expenditures $55-65m Adj. Effective Tax Rate ~29% 1. Modeling Parameters are assumptions used for initial adjusted EPS guidance for 2019, and the Company undertakes no obligation to update such assumptions/modeling parameters subsequent to the date of this presentation (February 20, 2019). Excludes acquisition-related and exit & realignment charges. 7
APPENDIX 8
Financial Summary ($ in millions, except per share data) 4Q18 4Q17 2018 2017 Revenue $2,543 $2,390 $9,839 $9,318 % yoy growth 6.4% 5.6% Operating income (loss), GAAP1 ($266) ($8.8) ($392) $89.3 Operating income (loss), Non-GAAP2 $33.7 $42.2 $177 $180 Net income (loss), GAAP1 ($262) $23.0 ($437) $72.8 Net income (loss), Non-GAAP2 $5.3 $21.0 $70.4 $97.5 Net Income per share, GAAP1 ($4.37) $0.38 ($7.28) $1.20 Net Income per share, Non-GAAP2 $0.09 $0.35 $1.15 $1.61 1. includes impairment charge for 4Q18 and full year 2018 of $274 million and $440 million respectively. 2. Reconcilations of the differences between the non-GAAP financial measures presented in this news release and their most directly comparable GAAP financial measures are included in the GAAP/Non-GAAP reconciliation slide. 9
GAAP/Non-GAAP Reconciliation (dollars in thousands, except per share data) Three Months Ended December 31, Twelve Months Ended December 31, 2018 2017 2018 2017 Operating income (loss), as reported (GAAP) $ (265,697) $ (8,772) $ (392,174) $ 89,251 Intangible amortization 10,367 6,665 36,514 16,402 Goodwill and intangible asset impairment charges 274,166 - 439,613 - Acquisition-related and exit and realignment charges 14,784 39,573 62,200 60,707 Fair value adjustments related to purchase accounting - - 27,088 - Other 93 4,758 3,532 13,432 Operating income, adjusted (non-GAAP) (Adjusted Operating Income) $ 33,713 $ 42,224 $ 176,773 $ 179,792 Net income (loss), as reported (GAAP) $ (261,821) $ 22,997 $ (437,012) $ 72,793 Intangible amortization 10,367 6,665 36,514 16,402 Goodwill and intangible asset impairment charges 274,166 - 439,613 - Acquisition-related and exit and realignment charges 14,784 39,573 62,200 60,707 Fair value adjustments related to purchase accounting - - 27,088 - Other 93 4,758 3,532 13,432 Income tax expense (benefit) (32,306) (18,381) (59,924) (31,206) Tax adjustments - (34,591) (1,596) (34,591) Net income, adjusted (non-GAAP) (Adjusted EPS) $ 5,283 $ 21,021 $ 70,415 $ 97,537 Net income (loss) per share, as reported (GAAP) $ (4.37) $ 0.38 $ (7.28) $ 1.20 Intangible amortization 0.16 0.07 0.47 0.18 Goodwill and intangible asset impairment charges 4.08 - 6.81 - Acquisition-related and exit and realignment charges 0.22 0.42 0.80 0.65 Fair value adjustments related to purchase accounting - - 0.33 - Other - 0.06 0.04 0.16 Tax adjustments - (0.58) (0.02) (0.58) Net income per share, adjusted (non-GAAP) (Adjusted EPS) $ 0.09 $ 0.35 $ 1.15 $ 1.61 10