- Diluted EPS for the year was $1.20,
while adjusted diluted EPS was $1.61
- Pre-closing activities for the Halyard
Health S&IP acquisition continue according to plan
Owens & Minor, Inc. (NYSE: OMI) today reported financial
results for the year ended December 31, 2017, including
consolidated revenues of $9.32 billion compared to the prior year’s
revenues of $9.72 billion. Consolidated operating earnings for 2017
were $89.3 million versus $200 million last year. Adjusted
consolidated operating earnings (non-GAAP) for 2017 were $180
million compared to adjusted operating earnings of $234 million for
the same period last year. Net income for the year was $72.8
million, or $1.20 per share, versus $109 million, or $1.76 per
share, for the same period last year. Adjusted net income
(non-GAAP) was $97.5 million, or $1.61 per share, compared to $134
million, or $2.17 per share, in 2016. Excluded from adjusted net
income, was a benefit of $0.58 per share associated with recently
enacted tax reform legislation. 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.
While the company focused on executing the transformation
strategy it launched in 2017, a number of external factors and
market forces continued to affect overall performance throughout
the year. Revenue shortfalls, ongoing margin pressure in the
domestic distribution business, and increased costs to support new
business in Europe negatively affected operating earnings.
Partially offsetting these factors were benefits derived from
expense control and productivity initiatives, as well as positive
contributions from Byram Healthcare, which the company acquired on
August 1, 2017.
“2017 was a very challenging year for Owens & Minor,” said
Phipps. “In order to deal with these challenges in 2018, we are
taking aggressive steps to accelerate the transformation of our
business toward a new future. We are reducing certain expenses
while improving operational efficiency. At the same time, our teams
are focused on serving our customers across our expanding
geographic network. We are pleased with the contributions from our
Byram Healthcare team, and we are all working intently to close the
Halyard Health S&IP transaction. We believe that both of these
transactions will strengthen and diversify our business model and
will improve profitability.”
Fourth Quarter 2017
Results
For the fourth quarter of 2017, consolidated revenues were $2.39
billion, compared to revenues of $2.37 billion in the fourth
quarter of 2016. Quarterly net income was $23.0 million, or $0.38
per diluted share. Adjusted net income (non-GAAP) for the quarter
was $21.0 million, or $0.35 per diluted share. Adjusted net income
excludes the benefit of the recently enacted tax reform act of
$0.58 per share.
For the fourth quarter of 2017, Owens & Minor reported a
consolidated operating loss of $8.8 million compared to operating
earnings of $49.0 million in the same period last year. Adjusted
consolidated operating earnings (non-GAAP) for the fourth quarter
of 2017 were $42.2 million, compared to $56.2 million in the prior
year. Performance during the fourth quarter of 2017 was affected by
increased price and margin compression, longer than expected sales
cycles for the company’s fee-for-service businesses, and, more
recently, product supply issues with certain larger
manufacturers.
Asset Management
The balance of cash and cash equivalents was $105 million at
December 31, 2017, compared to $185 million at December 31, 2016.
For the year, the company reported operating cash flow of $56.8
million, compared to $188 million in the prior year. The decrease
was driven primarily by changes in working capital. As of year-end,
asset management metrics included consolidated days sales
outstanding (DSO) of 28.7 compared to 23.1 days for 2016;
consolidated inventory turns were 8.5 for 2017, compared to 9.2 for
2016. These metrics in 2017 were affected by changes in business
mix along with changes in contractual terms with certain customers
and suppliers.
Segment Results
Segment financial results for the year and the quarter are shown
in the financial tables included with this release. Segment results
include:
- Domestic Segment annual revenues
were $8.79 billion compared to revenues of $9.19 billion a year
ago. Fourth quarter 2017 revenues for the Domestic Segment were
$2.28 billion, compared to $2.24 billion in the fourth quarter of
2016. For the year, segment operating earnings were $134 million
compared to $165 million the year before, while quarterly operating
earnings were $31.2 million compared to $39.3 million in the prior
year. In the Domestic Segment, price and margin compression in the
market negatively affected revenue and gross margin results. In
addition, during the fourth quarter, the Domestic Segment incurred
higher than expected healthcare costs and LIFO expense. Partially
offsetting these results, were benefits derived from the company’s
transformation and expense reduction initiatives. Byram Healthcare,
which was acquired in August of 2017, positively affected annual
results with a contribution of $209 million to net revenues.
- International Segment annual
revenues were $392 million compared to prior year revenues of $344
million last year. Fourth quarter revenues were $104 million
compared to 2016 fourth quarter revenues of $87.8 million. For the
year, the segment operating loss was $3.9 million, compared to $5.6
million of operating earnings last year. For the fourth quarter,
the International Segment had an operating loss of $3.1 million
compared to operating earnings of $2.2 million in the prior year.
The International Segment experienced a less favorable revenue mix,
increased costs to onboard new customers, and a lag in implementing
cost reduction activities.
- Proprietary Products Segment
annual revenues were $504 million compared to $540 million last
year. For the quarter, the segment provided revenues of $111
million, compared to $131 million in the fourth quarter a year ago.
For the year, segment operating earnings were $33.0 million
compared to $53.8 million the year before, while quarterly
operating earnings were $6.9 million compared to $11.9 million in
the prior year. The operating earnings decline in the Proprietary
Products Segment resulted from lower revenues from sourced
products, as well as inventory write-offs. After stabilizing the
production environment in 2017, the company has renewed its focus
on growing the business.
Financial Guidance and
Outlook
Owens & Minor expects to provide its financial outlook for
2018 following the closing of the Halyard Health S&IP
transaction, once final transaction details are known. The formal
closing activities are expected to occur on or about April 1,
2018.
Investor Conference Call &
Supplemental Material for 2017 Financial Results
Owens & Minor executives will host a conference call, which
will also be webcast, to discuss the results at 8:30 a.m. today
(Wednesday, February 14, 2018). 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 #4198177. 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, which are made pursuant to the Safe Harbor provisions
of the Private Securities Litigation Reform Act of 1995. These
statements include, but are not limited to, statements related to
the Company’s expectations regarding the performance of its
business, the transformation of its business, its liquidity and
capital resources, the Company’s ability to complete the
transaction with Halyard referenced herein and any projections of
earnings, revenues or other financial or operational items related
to the transaction or Halyard S&IP business following the
closing of the transaction, and other non-historical statements.
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 our annual
report on Form 10-K for the year ended December 31, 2016, filed
with the SEC 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 other known risk factors that could cause
our actual results to differ materially from our current estimates.
These filings are available at www.owens-minor.com. Given
these risks and uncertainties, we can give no assurance that any
forward-looking statements will, in fact, transpire and, therefore,
caution investors not to place undue reliance on them. We
specifically disclaim 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 dedicated to Connecting the World of Medical
Products to the Point of CareSM by providing vital supply chain
services to healthcare providers and manufacturers of healthcare
products. Owens & Minor provides logistics services across the
spectrum of medical products from disposable medical supplies to
devices and implants. With logistics platforms strategically
located in the United States and Europe, Owens & Minor serves
markets where three quarters of global healthcare spending occurs.
Owens & Minor’s customers span the healthcare market from
independent hospitals to large integrated healthcare networks, as
well as group purchasing organizations, healthcare products
manufacturers, the federal government, and healthcare patients at
home through its Byram Healthcare subsidiary. A FORTUNE 500
company, Owens & Minor is headquartered in Richmond, Virginia,
and has annualized revenues exceeding $9 billion. 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.
Owens & Minor, Inc.
Consolidated Statements of Income
(unaudited)
(dollars in thousands, except per share
data)
Three Months Ended December 31, 2017
2016 Net revenue
$ 2,389,834 $
2,368,361 Cost of goods sold
2,074,622 2,073,381
Gross margin
315,212 294,980 Distribution, selling
and administrative expenses
281,625 243,480
Acquisition-related and exit and realignment charges
39,573
4,701 Other operating (income) expense, net
2,786
(2,209 ) Operating earnings
(8,772 ) 49,008 Interest
expense, net
9,556 6,733 Income before income
taxes
(18,328 ) 42,275 Income tax (benefit) provision
(41,325 ) 15,170
Net income $
22,997 $ 27,105
Net income per
common share: Basic and diluted $ 0.38 $
0.45
Twelve Months Ended December 31,
2017 2016 Net revenue
$ 9,318,275 $
9,723,431 Cost of goods sold
8,146,409 8,536,121
Gross margin
1,171,866 1,187,310 Distribution,
selling and administrative expenses
1,016,978 970,424
Acquisition-related and exit and realignment charges
60,707
24,675 Other operating (income) expense, net
4,930
(7,388 ) Operating earnings
89,251 199,599 Interest expense,
net
31,773 27,057 Income before income taxes
57,478 172,542 Income tax (benefit) provision
(15,315
) 63,755
Net income $ 72,793
$ 108,787
Net income per common share:
Basic and diluted $ 1.20 $ 1.76
Owens & Minor, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
(dollars in thousands)
December 31, 2017
December 31, 2016
Assets Current assets Cash
and cash equivalents
$ 104,522 $ 185,488 Accounts
receivable, net
758,936 606,084 Merchandise inventories
990,193 916,311 Other current assets
328,254 254,156
Total current
assets 2,181,905 1,962,039 Property and equipment, net
206,490 191,718 Goodwill, net
713,811 414,936
Intangible assets, net
184,468 82,511 Other assets, net
89,619 66,548
Total
assets $ 3,376,293
$ 2,717,752
Liabilities and equity Current
liabilities Accounts payable
$ 947,572 $ 750,750
Accrued payroll and related liabilities
30,416 45,051 Other
current liabilities
331,745
238,837
Total current liabilities 1,309,733
1,034,638 Long-term debt, excluding current portion
900,744
564,583 Deferred income taxes
74,247 90,383 Other
liabilities
76,090 68,110
Total liabilities 2,360,814 1,757,714
Total
equity 1,015,479
960,038
Total liabilities and equity $
3,376,293 $ 2,717,752
Owens & Minor, Inc.
Consolidated Statements of Cash Flows
(unaudited)
(dollars in thousands)
Twelve Months Ended December 31,
2017 2016 Operating
activities: Net income
$ 72,793 $ 108,787
Adjustments to reconcile net income to cash provided by operating
activities: Depreciation and amortization
59,443 55,393
Share-based compensation expense
11,911 12,042 Provision for
losses on accounts receivable
2,674 377 Deferred income tax
(benefit) expense
(49,988 ) 4,218 Changes in
operating assets and liabilities: Accounts receivable
(100,010 ) (25,244 ) Merchandise inventories
(57,032 ) 22,589 Accounts payable
143,947
43,430 Net change in other assets and liabilities
(33,263
) (37,559 ) Other, net
6,299
3,662
Cash provided by operating
activities 56,774
187,695
Investing activities: Acquisitions,
net of cash acquired
(366,569 ) — Additions to
property and equipment
(34,613 ) (20,302 ) Additions
to computer software and intangible assets
(16,124 )
(9,819 ) Proceeds from sale of property and equipment
663 5,375
Cash used for
investing activities (416,643 )
(24,746 )
Financing activities:
Proceeds from debt issuance
250,000 — Borrowing under
revolving credit facility
104,600 — Repayment of debt
(3,125 ) — Financing costs paid
(1,798
) — Cash dividends paid
(63,151 ) (63,382 )
Repurchases of common stock
(5,000 ) (71,028 ) Other,
net
(8,720 ) (8,294 )
Cash provided by (used for) financing activities
272,806 (142,704 )
Effect of exchange rate
changes on cash and cash equivalents 6,097
4,223
Net (decrease) increase
in cash and cash equivalents (80,966 ) 24,468
Cash and cash equivalents at beginning of period
185,488 161,020
Cash
and cash equivalents at end of period $
104,522 $ 185,488
Owens & Minor, Inc.
Summary Segment Information
(unaudited)
(dollars in thousands)
Three Months Ended December 31, 2017
2016 % of % of
consolidated consolidated
Amount net revenue
Amount net revenue
Net revenue: Segment net revenue Domestic
$ 2,275,819 95.23 % $ 2,236,887 94.45 %
International
104,073 4.35 % 87,813 3.71 %
Proprietary Products
111,373 4.66 %
130,558 5.51 % Total segment net revenue
2,491,265
2,455,258 Inter-segment revenue Proprietary Products
(101,431 ) (4.24 )% (86,897 ) (3.67 )%
Total inter-segment revenue
(101,431 ) (86,897
) Consolidated net revenue
$ 2,389,834
100.00 % $ 2,368,361 100.00 %
% of
segment % of segment
Operating earnings (loss): net
revenue net revenue Domestic
$ 31,248 1.37
% $ 39,293 1.76 % International
(3,107 )
(2.99 )% 2,193 2.50 % Proprietary Products
6,910 6.20 % 11,933 9.14 % Inter-segment
eliminations
508 290 Acquisition-related and exit and
realignment charges
(39,573 ) (4,701 ) Other (1)
(4,758 ) Consolidated operating earnings
$ (8,772 ) (0.37 )% $ 49,008
2.07 %
Depreciation and amortization: Domestic
$ 11,251 $ 7,070 International
4,254 3,992
Proprietary Products
2,135 2,149 Consolidated
depreciation and amortization
$ 17,640 $
13,211
Capital expenditures: Domestic
$
9,482 $ 4,059 International
2,415 4,820 Proprietary
Products
1,051 478 Consolidated capital
expenditures
$ 12,948 $ 9,357
Owens & Minor, Inc.
Summary Segment Information
(unaudited)
(dollars in thousands)
Twelve Months Ended December 31 2017
2016 % of % of
consolidated consolidated
Amount net revenue
Amount net revenue
Net revenue: Segment net revenue Domestic
$ 8,794,390 94.38 % $ 9,191,574 94.53 %
International
391,628 4.20 % 343,674 3.53 %
Proprietary Products
504,026 5.41 %
539,580 5.55 % Total segment net revenue
9,690,044
10,074,828 Inter-segment revenue Proprietary Products
(371,769 ) (3.99 )% (351,397 ) (3.61 )%
Total inter-segment revenue
(371,769 )
(351,397 ) Consolidated net revenue
$
9,318,275 100.00 % $ 9,723,431
100.00 %
% of segment % of segment
Operating
earnings (loss): net revenue net revenue Domestic
$ 134,059 1.52 % $ 165,495 1.80 %
International
(3,861 ) (0.99 )% 5,596
1.63 % Proprietary Products
32,950 6.54 %
53,799 9.97 % Inter-segment eliminations
243 (616 )
Acquisition-related and exit and realignment charges
(60,707
) (24,675 ) Other (1)
(13,433 ) —
Consolidated operating earnings
$ 89,251
0.96 % $ 199,599 2.05 %
Depreciation
and amortization: Domestic
$ 34,482 $ 29,469
International
16,327 17,117 Proprietary Products
8,634 8,807 Consolidated depreciation and
amortization
$ 59,443 $ 55,393
Capital expenditures: Domestic
$ 32,858 $
14,333 International
14,074 12,874 Proprietary Products
3,805 2,914 Consolidated capital expenditures
$ 50,737 $ 30,121
December 31,2017
December 31,2016
Total assets: Domestic
$ 2,437,485 $ 1,778,481
International
433,513 352,898 Proprietary Products
400,773 400,885 Segment assets
3,271,771 2,532,264 Cash and cash equivalents
104,522
185,488 Consolidated total assets
$
3,376,293 $ 2,717,752
(1)
Software as a Service (SaaS)
implementation costs associated with the upgrading of global IT
platforms in connection with the redesign of our global information
system strategy.
Owens & Minor, Inc.
Net Income Per Common Share
(unaudited)
(dollars in thousands, except per share
data)
Three Months EndedDecember
31,
Twelve Months EndedDecember
31,
2017 2016 2017
2016 Numerator: Net income
$ 22,997 $ 27,105
$ 72,793 $ 108,787 Less: income allocated to unvested
restricted shares
(314 ) (289 )
(1,060
) (1,147 ) Net income attributable to common shareholders -
basic
22,683 26,816
71,733 107,640
Add: undistributed income attributable to
unvested restricted shares - basic
35 79
58 297
Less: undistributed income attributable to
unvested restricted shares - diluted
(35 ) (79 )
(58 ) (297 )
Net income
attributable to common shareholders - diluted $
22,683 $ 26,816
$ 71,733
$ 107,640 Denominator:
Weighted average shares outstanding - basic and diluted
59,874 60,259
60,001 61,093
Net income per share attributable to common
shareholders: Basic and diluted
$ 0.38 $ 0.45
$ 1.20 $ 1.76
Owens & Minor, Inc.
GAAP/Non-GAAP Reconciliations
(unaudited)
(dollars in thousands, except per share data)
Three Months EndedDecember
31,
Twelve Months EndedDecember
31,
2017 2016
2017 2016
Operating earnings, as reported (GAAP)
$ (8,772
) $ 49,008
$ 89,251 $ 199,599
Acquisition-related intangible amortization (1)
6,665 2,450
16,402 10,002 Acquisition-related charges (2)
10,972
286
17,265 1,211 Exit and realignment charges (3)
28,601 4,415
43,442 23,464 Other (4)
4,758
—
13,432 — Operating earnings,
adjusted (Non-GAAP)
$ 42,224
$ 56,159
$ 179,792
$ 234,276 Net income, as
reported (GAAP)
$ 22,997 $ 27,105
$
72,793 $ 108,787 Acquisition-related intangible amortization
(1)
6,665 2,450
16,402 10,002 Income tax expense
(benefit) (5)
(2,221 ) (633 )
(5,214 )
(2,592 ) Acquisition-related charges(2)
10,972 286
17,265 1,211 Income tax expense (benefit) (5)
(4,208
) 67
(5,976 ) (165 ) Exit and realignment
charges (3)
28,601 4,415
43,442 23,464 Income tax
expense (benefit) (5)
(10,625 ) (289 )
(16,224
) (6,670 ) Other (4)
4,758 —
13,432 — Income
tax expense (benefit) (5)
(1,327 ) —
(3,792
) — Tax reform impact (6)
(34,591 ) —
(34,591 ) — Net income, adjusted (Non-GAAP)
$ 21,021 $ 33,401
$ 97,537 $
134,037 Net income per share, as reported (GAAP)
$ 0.38 $ 0.45
$ 1.20 $ 1.76
Acquisition-related intangible amortization, after-tax (1)
0.07 0.03
0.18 0.12 Acquisition-related charges,
after-tax (2)
0.12 —
0.19 0.02 Exit and realignment
charges, after-tax (3)
0.30 0.07
0.46 0.27 Other,
after-tax (4)
0.06 —
0.16 — Tax reform impact (6)
(0.58 ) —
(0.58 ) — Net
income per share, adjusted (Non-GAAP)
$
0.35 $ 0.55
$ 1.61 $ 2.17
The following items in the current quarter have been excluded in
our non-GAAP financial measures:
(1) Acquisition-related intangible
amortization includes amortization of certain 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. We began to exclude these charges from our
non-GAAP results in the second quarter of 2017 and thus prior year
amounts have been recast on the same basis.
(2) Acquisition-related charges in 2017 were
primarily transaction and transition costs associated with the
acquisition of Byram and the upcoming Halyard S&IP transaction.
The prior year amounts related primarily to costs incurred to
settle certain obligations and address other on-going matters
associated with the acquisitions of ArcRoyal and Medical
Action.
(3) Exit and realignment charges in 2017 were
associated with severance from reduction in force and other
employee costs associated with the establishment of our new client
engagement centers, the write-down of information system assets
which are no longer used and other IT restructuring charges.
Charges in 2016 included severance activities and other costs
associated with our strategic organizational realignment which
included certain professional fees and costs to streamline
administrative functions and processes in the United States and
Europe.
(4) Software as a Service (SaaS)
implementation costs associated with the upgrading of global IT
platforms in connection with the redesign of our global information
system strategy. SaaS implementation costs are recorded in other
operating (income) expense, net.
(5) 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.
(6) Includes a recognized income tax benefit
of $34.6 million for the year ended December 31, 2017 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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20180214005495/en/
Owens & Minor, Inc.Truitt Allcott, 804-723-7555Director,
Investor & Media Relationstruitt.allcott@owens-minor.comorChuck
Graves, 804-723-7556Director, Finance & Investor
Relationschuck.graves@owens-minor.com
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