Apria, Inc. (APR) Q2 2021 Earnings Conference Call August 5, 2021 5:00 PM ET Company Participants Dan Starck - Chief Executive Officer Debby Morris - Chief Financial Officer Conference Call Participants Jeff Garro - Piper Sandler Jamie Perse - Goldman Sachs Operator Good afternoon, and welcome to Apria's Second Quarter 2021 Earnings Conference Call and Webcast. [Operator Instructions]. Please note that this event is being recorded. Leading today's call are Dan Starck, Chief Executive Officer; and Debby Morr ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ________________________________________________ FORM 10-Q ________________________________________________ ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-9810 _____________________ ...

2nd Quarter 2021 Earnings Supplemental Slides August 3, 2021 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 th ...

Apria Inc. (APR) Q1 2021 Earnings Conference Call May 13, 2021 5:00 PM ET Company Participants Dan Starck - Chief Executive Officer Debby Morris - Chief Financial Officer Conference Call Participants Joanna Gajuk - Bank of America Ralph Giacobbe - Citi Chris Neamonitis - Piper Sandler Jamie Perse - Goldman Sachs Operator Good afternoon, and welcome to Apria's First Quarter 2021 Earnings Conference Call and Webcast. [Operator Instructions]. Please note that this event is being recorded. Leading today's call ...

Part I. Financial Information [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The consolidated financial statements for the three months ended March 31, 2021, show a significant turnaround, with net income reaching $69.6 million compared to a net loss of $11.3 million in the prior-year period, driven by a 9.6% increase in net revenue to $2.33 billion and substantial gross margin expansion [Consolidated Statements of Operations](index=3&type=section&id=Consolidated%20Statements%20of%20Operations) For the three months ended March 31, 2021, the company reported net revenue of $2.33 billion, a 9.6% increase from $2.12 billion in 2020, leading to a strong operating income of $146.7 million and net income of $69.6 million, reversing a prior-year net loss Consolidated Statements of Operations (Q1 2021 vs Q1 2020) | (in thousands, except per share data) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | **Net revenue** | **$2,326,534** | **$2,122,693** | | Gross margin | $442,751 | $268,559 | | Operating income | $146,692 | $10,756 | | Income (loss) from continuing operations, net of tax | $69,589 | $(8,909) | | **Net income (loss)** | **$69,589** | **$(11,324)** | | Net income (loss) per common share: basic and diluted | $0.98 | $(0.19) | [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) As of March 31, 2021, total assets increased slightly to $3.39 billion from $3.34 billion at year-end 2020, primarily due to higher merchandise inventories and accounts receivable, while total liabilities decreased to $2.60 billion and total equity rose to $786.3 million Consolidated Balance Sheet Highlights | (in thousands) | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | **Total current assets** | **$2,206,736** | **$2,135,865** | | Merchandise inventories | $1,322,897 | $1,233,751 | | **Total assets** | **$3,390,821** | **$3,335,639** | | Total current liabilities | $1,337,297 | $1,345,727 | | Long-term debt, excluding current portion | $981,342 | $986,018 | | **Total liabilities** | **$2,604,560** | **$2,623,585** | | **Total equity** | **$786,261** | **$712,054** | [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities significantly decreased to $25.4 million in Q1 2021 from $93.5 million in the prior-year period, primarily due to working capital changes, while financing activities resulted in a net cash outflow of $80.4 million reflecting debt transactions Consolidated Cash Flow Summary (Q1 2021 vs Q1 2020) | (in thousands) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | **Cash provided by operating activities** | **$25,423** | **$93,454** | | Cash used for investing activities | $(6,619) | $(5,680) | | Cash used for financing activities | $(80,394) | $(31,406) | | Net (decrease) increase in cash | $(63,729) | $56,306 | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail key accounting policies, including the divestiture of the Movianto business as discontinued operations, significant debt restructuring with the issuance of **$500 million** in new senior notes, and substantial operating income growth in the Global Products segment to **$163.6 million** - On June 18, 2020, the company completed the divestiture of its European logistics business, Movianto, for **$133 million** The results of this business are reported as discontinued operations for the three months ended March 31, 2020[28](index=28&type=chunk) - In March 2021, the company issued **$500 million** of 4.500% senior unsecured notes due in 2029 Proceeds were used to repay the Term B Loan and borrowings under the revolving credit facility A new credit agreement with a **$300 million** revolving facility was also established[41](index=41&type=chunk)[42](index=42&type=chunk) Segment Operating Income (Q1 2021 vs Q1 2020) | (in thousands) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Global Solutions | $8,892 | $7,691 | | Global Products | $163,587 | $18,571 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the strong Q1 2021 performance to increased demand for Personal Protective Equipment (PPE) due to COVID-19, which significantly boosted revenue and margins in the Global Products segment, while executing a major debt refinancing and maintaining sufficient liquidity - The divestiture of the Movianto business allows for greater focus and investment in differentiated products, services, and U.S. distribution businesses[73](index=73&type=chunk) - The company is closely monitoring the impact of COVID-19 Revenue for Q1 2021 was boosted by increased demand for PPE, which was partially offset by a reduction in elective surgical procedures[77](index=77&type=chunk)[78](index=78&type=chunk) - The company was awarded contracts under the Defense Production Act (DPA) to produce N-95 respirator masks, expanding capacity with government funding[79](index=79&type=chunk) [Results of Operations](index=20&type=section&id=Results%20of%20Operations) Net revenue increased 9.6% to $2.33 billion, driven by a 68.4% surge in the Global Products segment due to PPE demand, leading to a significant improvement in gross margin to 19.03%, despite a $40.4 million loss on extinguishment of debt Net Revenue by Segment (Q1 2021 vs Q1 2020) | (Dollars in thousands) | 2021 | 2020 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | Global Solutions | $1,849,509 | $1,847,593 | $1,916 | 0.1% | | Global Products | $658,750 | $391,192 | $267,558 | 68.4% | | **Total Net Revenue** | **$2,326,534** | **$2,122,693** | **$203,841** | **9.6%** | - Gross margin increased by **64.9%** to **$442.8 million**, with the margin rate expanding from **12.65% to 19.03%** of net revenue, driven by sales growth, favorable sales mix, and operating efficiencies in Global Products[84](index=84&type=chunk) - Interest expense decreased by **$9.7 million (41.4%)** due to a reduction of debt and lower interest rates The effective interest rate fell from **7.17% to 5.45%**[89](index=89&type=chunk) [Financial Condition, Liquidity and Capital Resources](index=23&type=section&id=Financial%20Condition%2C%20Liquidity%20and%20Capital%20Resources) The company's financial condition saw changes in working capital, with Days Sales Outstanding (DSO) increasing to 27.7 days and inventory days rising to 63.2, while maintaining liquidity through cash, a new **$300 million** revolving credit facility, and an amended **$450 million** Receivables Securitization Program Working Capital Metrics | | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Consolidated DSO | 27.7 | 26.0 | | Inventory days | 63.2 | 57.8 | - The company established a new Credit Agreement with a **$300 million** revolving credit facility maturing in March 2026 As of March 31, 2021, **$282 million** was available for borrowing[99](index=99&type=chunk)[100](index=100&type=chunk) - The company amended its accounts receivable securitization program, increasing the aggregate principal amount to **$450 million** and extending the maturity to March 2024[102](index=102&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=27&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risks including raw material price volatility, foreign currency fluctuations, and interest rate changes, with a hypothetical 100 basis point increase in interest rates reducing pre-tax earnings by approximately **$2.5 million** annually - The company is subject to price risk for raw materials, particularly polypropylene and nitrile used in the Global Products segment[121](index=121&type=chunk) - An estimated **100 basis point** increase in interest rates would result in a potential reduction in future pre-tax earnings of approximately **$2.5 million** per year based on borrowings at March 31, 2021[123](index=123&type=chunk) - Based on Q1 2021 fuel consumption, a **10-cent per gallon** increase in diesel prices would reduce Global Solutions segment operating income by approximately **$0.2 million** on an annualized basis[124](index=124&type=chunk) [Controls and Procedures](index=28&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2021, with no material changes to internal control over financial reporting during the quarter - Management, including the principal executive officer and principal financial officer, concluded that the company's disclosure controls and procedures were effective as of March 31, 2021[125](index=125&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[125](index=125&type=chunk) Part II. Other Information [Legal Proceedings](index=28&type=section&id=Item%201.%20Legal%20Proceedings) As of March 31, 2021, there have been no material developments in any legal proceedings since those reported in the company's Annual Report on Form 10-K for the year ended December 31, 2020 - There have been no material developments in any legal proceedings reported in the Annual Report for the year ended December 31, 2020[126](index=126&type=chunk) [Risk Factors](index=28&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes in the risk factors described in the company's Annual Report on Form 10-K for the year ended December 31, 2020, through the period ended March 31, 2021 - Through March 31, 2021, there have been no material changes in the risk factors described in the Annual Report on Form 10-K for the year ended December 31, 2020[127](index=127&type=chunk) [Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities](index=28&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%2C%20Use%20of%20Proceeds%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company has an at-the-market equity distribution agreement established in May 2020, allowing for the sale of up to **$50.0 million** in common stock, with no shares issued and the full amount remaining available as of March 31, 2021 - In May 2020, the company entered into an equity distribution agreement to offer and sell up to **$50.0 million** of its common stock[128](index=128&type=chunk) - As of March 31, 2021, no shares were issued, and the full **$50.0 million** remained available under the at-the-market equity financing program[128](index=128&type=chunk) [Exhibits](index=28&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including the Indenture for the new **4.500% Senior Notes**, the new Credit Agreement, amendments to the Receivables Financing Agreement, and certifications by the CEO and CFO as required by the Sarbanes-Oxley Act - Filed exhibits include the Indenture for the **4.500% Senior Notes due 2029** and the new Credit Agreement dated March 10, 2021[129](index=129&type=chunk)[131](index=131&type=chunk) - Certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Sections **302 and 906** of the Sarbanes-Oxley Act of 2002 are included as exhibits[131](index=131&type=chunk)

1st Quarter 2021 Earnings Supplemental Slides May 5, 2021 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 ...

Financial Data and Key Metrics Changes - Full year revenue for 2020 was $1.109 billion, a 2% increase over fiscal 2019 [8] - Adjusted EBITDA grew to $227 million, a 30% increase over fiscal 2019 [9] - Net income for 2020 was $46 million, a 195% increase year-over-year [28] - Adjusted EBITDA less patient equipment CapEx grew to $134 million, a 67% increase year-over-year [28] - Fourth quarter net revenues were $294 million, a 5% increase year-over-year, all organic [29] Business Line Data and Key Metrics Changes - Home respiratory revenue increased by 8%, primarily driven by oxygen demand due to COVID-19 [30] - Sleep revenue was up 4%, mainly due to sleep supplies, despite reduced demand for new patient starts [30] - Negative pressure wound therapy revenue also increased by 4% year-over-year [30] - Other equipment and services revenue decreased by 2%, largely due to lower patient flows [31] Market Data and Key Metrics Changes - New patient oxygen starts increased by 77% in Q4 2020 compared to the previous year [15] - The company provided services to over 44,000 patients with COVID-19 during 2020 [15] - The competitive bidding program by CMS did not award contracts for 13 product categories, which is favorable for the company [21] Company Strategy and Development Direction - The company aims to focus on execution, growth, and leveraging technology in 2021 [23] - Plans for organic growth and M&A activity are in place, with a small acquisition already completed in Q1 [24] - The company is committed to continuous improvement and technology investments to drive operational efficiencies [25] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to adapt to changing patient volumes and regulatory environments [19] - The outlook for 2021 includes increased guidance for net revenue and adjusted EBITDA due to favorable regulatory changes [40] - Management remains cautious about the timing and pace of COVID recovery, maintaining a conservative outlook [40] Other Important Information - The company returned all provider-released funds allocated to it shortly after receipt [28] - The balance sheet as of December 31 showed $195 million in cash and $401 million in debt, with a leverage ratio of 1.5 times [34] Q&A Session Summary Question: Clarification on CMS oxygen bump and guidance - Management confirmed that the $3 million to $4 million benefit from the CMS oxygen bump is included in the annual guidance for 2021 [46] Question: Impact of new CMS rates on commercial rates - Management stated that the new CMS rates do not directly impact commercial rates but may influence negotiations with commercial payers [48] Question: Competitive landscape and M&A activity - Management indicated that there is currently an active M&A backdrop and plans to pursue more acquisitions throughout the year [50] Question: Key drivers for growth in the latter half of 2021 - Management highlighted the potential for increased patient volumes and the impact of Project Simplify as key growth drivers [56] Question: Update on the diabetes business - Management noted early traction in the diabetes business but acknowledged challenges in patient onboarding [66] Question: Sequestration impact on financials - Management estimated that sequestration could have a $3 million to $4 million impact if it continues for the rest of the year [75]

Part I [Business](index=3&type=section&id=Item%201.%20Business) Owens & Minor operates Global Solutions and Global Products segments, providing medical supplies, distribution, and manufactured products, following its 2020 European logistics divestiture [General Overview](index=3&type=section&id=General%20Overview) Owens & Minor, a global healthcare solutions provider, serves over 70 countries and divested its Movianto European logistics business for $133 million in 2020 - The company is a global healthcare solutions provider serving customers in **over 70 countries** through integrated technologies, products, and services[9](index=9&type=chunk) - On June 18, 2020, the company divested its European logistics business, Movianto, for **$133 million** in cash consideration[11](index=11&type=chunk) [Global Solutions](index=3&type=section&id=Global%20Solutions) The Global Solutions segment provides medical and surgical supplies, distribution, and logistics to healthcare providers, including direct-to-patient delivery via Byram Healthcare - This segment provides medical and surgical supplies, supplier and inventory management, and logistics solutions to healthcare providers and manufacturers[12](index=12&type=chunk)[13](index=13&type=chunk)[14](index=14&type=chunk) - Operates a network of **46 distribution centers** across the continental United States, utilizing advanced information technology for warehouse management and supply-chain functions[15](index=15&type=chunk) - Byram Healthcare, part of this segment, focuses on direct-to-patient delivery of disposable medical supplies for conditions like diabetes, ostomy, and wound care[18](index=18&type=chunk) [Global Products](index=4&type=section&id=Global%20Products) The Global Products segment manufactures and sources medical surgical products globally, including sterilization wrap and gowns, with costs sensitive to raw material price fluctuations - This segment manufactures and sources medical surgical products, including sterilization wrap, surgical drapes, gowns, and facial protection, with manufacturing facilities in the Americas, Asia, and Europe[20](index=20&type=chunk)[21](index=21&type=chunk) - The most significant raw material purchases are polypropylene polymers and nitrile, making the segment's costs susceptible to fluctuations in global commodity prices[21](index=21&type=chunk) - Products are sold through a dedicated global sales force, strategic distribution partners, or on an intercompany basis to the Global Solutions segment[22](index=22&type=chunk)[23](index=23&type=chunk) [Our Customers](index=4&type=section&id=Our%20Customers) The company serves thousands of healthcare provider customers, with a significant portion of 2020 revenue, 72%, derived from sales to members of its three largest GPOs | GPO | Year of Renewal or Extension | Term | Sales to Members as a % of Consolidated Net Revenue in 2020 | | :--- | :--- | :--- | :--- | | Vizient | 2020 | 2 years | 36% | | Premier | 2016 | 5 years | 21% | | HPG | 2017 | 4 years | 15% | - The termination of a GPO agreement would not necessarily result in the loss of all associated members as customers, as the company often has independent contractual relationships with them[25](index=25&type=chunk) [Competition](index=5&type=section&id=Competition) The company faces intense competition in both Global Solutions and Global Products segments from national distributors and other firms, based on price, innovation, and quality - Global Solutions competitors include national distributors like Cardinal Health and Medline, regional distributors, and customer self-distribution[30](index=30&type=chunk) - Global Products competitors include Cardinal Health, Medline, Hogy Medical, and others; competition also comes from distribution partners and GPOs that direct source their own products[31](index=31&type=chunk) [Intellectual Property](index=6&type=section&id=Intellectual%20Property) The company's business growth relies on its intellectual property, holding approximately 1,100 patents and 1,100 trademarks globally, including key brands like Halyard - The company holds **approximately 1,100 patents** and patent applications, with issued patents generally expiring between 2021 and 2040[36](index=36&type=chunk) - The company has **approximately 1,100 trademarks** and trademark applications, with well-known brands including "Halyard", Aero Blue, Quick Check, Smart-Fold, and Purple Nitrile[38](index=38&type=chunk)[39](index=39&type=chunk) [Human Capital Resources](index=7&type=section&id=Human%20Capital%20Resources) As of year-end 2020, the company employed approximately 18,800 teammates globally, focusing on talent retention and implementing extensive COVID-19 safety protocols - As of year-end 2020, the company employed **approximately 6,300 full- and part-time teammates in the U.S. and 12,500 teammates internationally**[48](index=48&type=chunk) - The Board of Directors' Compensation and Benefits Committee oversees human capital management, including corporate culture, diversity, talent development, and compensation[53](index=53&type=chunk)[54](index=54&type=chunk) - In response to the COVID-19 pandemic, the company implemented numerous safety protocols, such as providing PPE to teammates, training on social distancing, implementing temperature scans, and increasing remote work[56](index=56&type=chunk)[57](index=57&type=chunk) [Risk Factors](index=9&type=section&id=Item%201A.%20Risk%20Factors) The company faces diverse risks including public health crises, intense competition, customer/supplier concentration, manufacturing interruptions, substantial debt, and regulatory compliance [Public Health Crises (COVID-19)](index=9&type=section&id=Public%20Health%20Crises%20%28COVID-19%29) The COVID-19 pandemic significantly impacted 2020 results, reducing surgical procedures but increasing PPE sales, with future impacts remaining uncertain - The significant reduction in elective surgical procedures, which began in mid-March 2020, resulted in a material negative impact on revenue for 2020[62](index=62&type=chunk) - While sales of certain products like PPE have grown significantly, there is no guarantee these growth rates will be maintained after the pandemic subsides[63](index=63&type=chunk) [Competition and Customer/Supplier Concentration](index=10&type=section&id=Competition%20and%20Customer%2FSupplier%20Concentration) The company faces intense competition and pricing pressure, with significant revenue concentration from its top three GPOs and dependence on its ten largest domestic suppliers - In 2020, **approximately 72% of consolidated net revenue** was from sales to member hospitals under contract with the three largest GPOs: Vizient, Premier, and HPG[70](index=70&type=chunk) - Sales of products from the ten largest domestic suppliers accounted for **approximately 41% of consolidated net revenue** in 2020, indicating a significant dependence on these suppliers[71](index=71&type=chunk) [Operational and Manufacturing Risks](index=11&type=section&id=Operational%20and%20Manufacturing%20Risks) Operational risks include manufacturing and distribution interruptions, with Global Products vulnerable to sole-sourced raw material supply and price volatility impacting margins - A reduction or interruption in manufacturing processes at any of the nine primary production facilities could materially harm the business[72](index=72&type=chunk) - The Global Products segment depends on sole suppliers for certain raw materials, and establishing replacement sources could be difficult and time-consuming due to regulatory requirements[73](index=73&type=chunk) [Financial and Debt-Related Risks](index=12&type=section&id=Financial%20and%20Debt-Related%20Risks) The company carries substantial debt, approximately $1.0 billion as of December 31, 2020, with servicing dependent on cash flow, subject to restrictive covenants and interest rate risk - As of December 31, 2020, the company had **approximately $1.0 billion** of aggregate principal amount of secured indebtedness[78](index=78&type=chunk) - Credit facilities and indentures contain restrictive covenants that limit the ability to incur more debt, grant liens, make acquisitions, and make certain investments or payments[86](index=86&type=chunk) - The Credit Agreement has a "springing maturity date" for the Term B Loan, which could be accelerated if the 2024 Notes are not paid off 91 days prior to their maturity[82](index=82&type=chunk) [Legal, Regulatory, and Compliance Risks](index=13&type=section&id=Legal%2C%20Regulatory%2C%20and%20Compliance%20Risks) The company faces extensive legal and regulatory risks, including healthcare fraud and abuse laws, data privacy, and product liability, with Byram under a Corporate Integrity Agreement - The company is subject to complex healthcare regulations, including the federal Anti-kickback Statute and False Claims Act, violations of which could lead to civil or criminal sanctions[101](index=101&type=chunk) - The Byram business is subject to a five-year Corporate Integrity Agreement with the OIG, and failure to comply could result in monetary penalties or exclusion from federal healthcare programs[105](index=105&type=chunk)[107](index=107&type=chunk) [Properties](index=18&type=section&id=Item%202.%20Properties) As of December 31, 2020, the company operated 99 principal facilities globally, with 8 owned and 90 leased, including its corporate headquarters and various production and distribution centers | | Owned | Leased | Other | Total Location | | :--- | :--- | :--- | :--- | :--- | | Production | 6 | 3 | — | 9 United States, Europe, Honduras, Mexico and Thailand | | Distribution | 1 | 48 | 1 | 50 United States, Canada and India | | Storage | — | 10 | — | 10 United States, Honduras and Mexico | | Office | 1 | 29 | — | 30 United States, Asia, Australia, Canada and Europe | | Total | 8 | 90 | 1 | 99 | - The company owns its corporate headquarters building in Mechanicsville, Virginia[122](index=122&type=chunk) [Legal Proceedings](index=19&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in various legal actions incidental to its business, with management believing their outcome will not materially adversely affect financial condition or operations - The company is subject to various legal actions that are ordinary and incidental to its business[124](index=124&type=chunk) - Management believes that the outcome of currently pending matters will not have a material adverse effect on the company's financial condition or results of operations[124](index=124&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=19&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Owens & Minor's common stock trades on the NYSE (OMI); in 2020, the company completed a $190 million equity offering, using proceeds to repay outstanding debt - In May 2020, an at-the-market equity program was established to offer and sell up to **$50.0 million** of common stock; no shares were issued under this program as of December 31, 2020[128](index=128&type=chunk) - On October 6, 2020, a follow-on equity offering was completed, selling **8,475,000 shares** at **$20.50 per share**, resulting in net proceeds of **approximately $190 million** after the underwriters exercised their option in full[129](index=129&type=chunk)[166](index=166&type=chunk) - The proceeds from the equity offering were used to repay **$109 million** of Term Loan A-1, **$51.7 million** of Term Loan A-2, and **$30.0 million** of borrowings under the revolving credit facility[129](index=129&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2020, net revenue decreased 7.9% to $8.5 billion, while operating income significantly increased, and debt was reduced by over $530 million through divestiture proceeds and an equity offering [Overview](index=21&type=section&id=Overview) The company divested Movianto for $133 million in June 2020, with income from continuing operations rising to $1.39 per diluted share, driven by Global Products' strong PPE demand - Completed the divestiture of the Movianto business on June 18, 2020, for **$133 million**, resulting in a recorded **loss of $65.5 million**[132](index=132&type=chunk) - Income from continuing operations per diluted share increased to **$1.39** in 2020 from a loss of **($0.37)** in 2019[134](index=134&type=chunk)[139](index=139&type=chunk) - Global Products operating income surged to **$260 million** from **$65.1 million** in 2019, driven by PPE demand, while Global Solutions operating income fell to **$30.9 million** from **$83.6 million**[134](index=134&type=chunk) [COVID-19 Update](index=22&type=section&id=COVID-19%20Update) COVID-19 reduced surgical procedures but boosted PPE demand, leading to expanded production and government contracts, while the full future impact remains uncertain - Revenue in 2020 was impacted by a reduction in surgical procedures, which was partially offset by greater demand for Personal Protective Equipment (PPE)[136](index=136&type=chunk) - The company was awarded a contract under the Defense Production Act (DPA) to produce N-95 respirator masks and received funding to expand capacity[137](index=137&type=chunk) - Utilizing the CARES Act, the company filed for and received income tax refunds related to the carryback of net operating losses (NOLs) from 2018 and 2019, resulting in a **$12.5 million** income tax benefit in 2020[137](index=137&type=chunk) [Results of Operations](index=23&type=section&id=Results%20of%20Operations) In 2020, consolidated net revenue decreased 7.9% to $8.48 billion, while gross margin improved to 15.10%, and operating income more than doubled to $204.1 million | (Dollars in thousands) | 2020 | 2019 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | **Net Revenue** | | | | | | Global Solutions | **$7,212,011** | **$8,243,867** | **$(1,031,856)** | **(12.5%)** | | Global Products | **$1,810,331** | **$1,433,977** | **$376,354** | **26.2%** | | **Total Net Revenue** | **$8,480,177** | **$9,210,939** | **$(730,762)** | **(7.9%)** | | (Dollars in thousands) | 2020 | 2019 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | **Gross Margin** | **$1,280,834** | **$1,128,491** | **$152,343** | **13.5%** | | As a % of net revenue | **15.10%** | **12.25%** | | | - Interest expense decreased by **$14.7 million (15.0%)** year-over-year due to a reduction in debt[148](index=148&type=chunk)[149](index=149&type=chunk) [Financial Condition, Liquidity and Capital Resources](index=26&type=section&id=Financial%20Condition%2C%20Liquidity%20and%20Capital%20Resources) The company's financial condition strengthened in 2020, reducing total debt from $1.56 billion to $1.03 billion, with operating cash flow increasing to $339.2 million | (Dollars in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | **Net cash provided by (used for):** | | | | Operating activities | **$339,223** | **$166,085** | | Investing activities | **$80,073** | **$(51,897)** | | Financing activities | **$(379,386)** | **$(130,197)** | - Total debt decreased from **$1,559.7 million** at year-end 2019 to **$1,026.0 million** at year-end 2020[139](index=139&type=chunk) - At December 31, 2020, the company had **$283 million** available for borrowing under its revolving credit facility[159](index=159&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=28&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks from commodity prices, foreign currency, and variable interest rates, with a 100 basis point rate increase potentially reducing pre-tax earnings by $4.8 million - The company is subject to price risk for raw materials, particularly polypropylene and nitrile, used in the Global Products segment[184](index=184&type=chunk) - A 100 basis point increase in interest rates would result in a potential reduction in future pre-tax earnings of **approximately $4.8 million** per year, after considering interest rate swaps[186](index=186&type=chunk) - A **10-cent per gallon increase** in diesel fuel prices would reduce Global Solutions segment operating income by **approximately $0.2 million** on an annualized basis[187](index=187&type=chunk) [Controls and Procedures](index=29&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2020, with no material changes in the fourth quarter - Management, including the principal executive and financial officers, concluded that disclosure controls and procedures were effective as of December 31, 2020[190](index=190&type=chunk) - Management assessed internal control over financial reporting using the COSO criteria and believes it was effective as of December 31, 2020[194](index=194&type=chunk) Part III [Directors, Executive Officers, Executive Compensation, Security Ownership, and Principal Accountant Fees](index=31&type=section&id=Items%2010-14) Information for Items 10-14, covering directors, executive compensation, and security ownership, is incorporated by reference from the company's 2021 Proxy Statement - Information required by Items 10-14 is incorporated by reference from the registrant's 2021 Proxy Statement[206](index=206&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=32&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the Consolidated Financial Statements and other documents filed as part of the Form 10-K report, with a complete index to all exhibits - This item lists the financial statements and schedules filed with the report and provides an index to all exhibits[210](index=210&type=chunk) Consolidated Financial Statements [Financial Statements](index=33&type=section&id=Financial%20Statements) For 2020, net revenue was $8.48 billion, with operating income rising to $204.1 million and net income reaching $29.9 million, while total equity increased to $712.1 million | (in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | Net revenue | **$8,480,177** | **$9,210,939** | | Gross margin | **$1,280,834** | **$1,128,491** | | Operating income | **$204,118** | **$73,151** | | Net income (loss) | **$29,871** | **$(62,371)** | | Net income (loss) per share | **$0.47** | **$(1.03)** | | (in thousands) | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total assets | **$3,335,639** | **$3,643,084** | | Total liabilities | **$2,623,585** | **$3,180,930** | | Total equity | **$712,054** | **$462,154** | [Notes to Consolidated Financial Statements](index=38&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies, business segments, and financial items, including the Movianto divestiture, debt composition, segment performance, and income taxes [Note 3—Discontinued Operations](index=44&type=section&id=Note%203%E2%80%94Discontinued%20Operations) The company divested its Movianto business on June 18, 2020, for $133 million, reporting its results as discontinued operations with a $65.5 million loss on divestiture - On June 18, 2020, the company completed the divestiture of its Movianto business for cash consideration of **$133 million**[279](index=279&type=chunk) | (in thousands) | 2020 (through Divestiture Date) | 2019 | | :--- | :--- | :--- | | Net revenue | **$226,759** | **$439,104** | | Loss on divestiture | **$65,472** | — | | Loss from discontinued operations, net of taxes | **$(58,203)** | **$(39,787)** | [Note 10—Debt](index=50&type=section&id=Note%2010%E2%80%94Debt) As of December 31, 2020, total debt decreased to $1.03 billion from $1.56 billion, funded by the Movianto sale, an equity offering, and operating cash | (in thousands) | Carrying Amount Dec 31, 2020 | Carrying Amount Dec 31, 2019 | | :--- | :--- | :--- | | 4.375% Senior Notes, due 2024 | **$244,780** | **$273,978** | | Term Loan A-2 | **$33,865** | **$170,899** | | Term Loan B | **$477,525** | **$480,337** | | Revolver | **$103,200** | **$177,900** | | Receivable Securitization | **$152,929** | — | | **Total debt** | **$1,025,967** | **$1,559,652** | - In 2020, the company used **$269 million** in cash to repurchase **$267 million** aggregate principal of its 2021 and 2024 Notes, including fully retiring the 2021 Notes[307](index=307&type=chunk) - In February 2020, the company entered into a **$325 million** accounts receivable securitization program and drew **$150 million** to repay portions of its Term A Loans[312](index=312&type=chunk)[313](index=313&type=chunk) [Note 20—Segment Information](index=61&type=section&id=Note%2020%E2%80%94Segment%20Information) In 2020, Global Solutions generated $7.21 billion in revenue and $30.9 million in operating income, while Global Products generated $1.81 billion in revenue and $259.9 million in operating income | (in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | **Net Revenue** | | | | Global Solutions | **$7,212,011** | **$8,243,867** | | Global Products | **$1,810,331** | **$1,433,977** | | **Operating Income** | | | | Global Solutions | **$30,946** | **$83,592** | | Global Products | **$259,929** | **$65,054** | | (in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | **Net Revenue by Geography** | | | | United States | **$8,130,411** | **$8,871,599** | | International | **$349,766** | **$339,340** |