Owens & Minor(OMI) - 2022 Q1 - Quarterly Report

Part I Financial Statements This section presents the unaudited consolidated financial statements, including operations, balance sheets, cash flows, and notes on the Apria acquisition and segment reorganization Consolidated Statements of Operations Net revenue increased 3.5% to $2.41 billion in Q1 2022, but gross margin, operating income, and net income significantly declined, with diluted EPS dropping to $0.52 Consolidated Statements of Operations (Q1 2022 vs Q1 2021) | Metric | Q1 2022 (in thousands) | Q1 2021 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Net revenue | $2,406,952 | $2,326,534 | 3.5% | | Gross margin | $373,448 | $442,751 | (15.7)% | | Operating income | $61,059 | $146,692 | (58.4)% | | Net income | $39,279 | $69,589 | (43.6)% | | Diluted EPS | $0.52 | $0.98 | (46.9)% | Consolidated Balance Sheets Total assets significantly increased to $5.71 billion by March 31, 2022, primarily due to the Apria acquisition, which also drove a sharp rise in total liabilities to $4.76 billion Consolidated Balance Sheet Highlights | Metric (in thousands) | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total current assets | $2,553,349 | $2,321,812 | | Goodwill | $1,657,159 | $390,185 | | Total assets | $5,707,969 | $3,536,551 | | Total current liabilities | $1,654,295 | $1,344,021 | | Long-term debt | $2,635,314 | $947,540 | | Total liabilities | $4,760,347 | $2,598,050 | | Total equity | $947,622 | $938,501 | Consolidated Statements of Cash Flows Operating cash flow significantly improved to $79.7 million in Q1 2022, while investing activities used $1.59 billion for the Apria acquisition, largely funded by $1.66 billion from financing activities Cash Flow Summary (Three Months Ended March 31) | Activity (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Cash provided by operating activities | $79,699 | $25,423 | | Cash used for investing activities | $(1,587,236) | $(6,619) | | Cash provided by (used for) financing activities | $1,664,194 | $(80,394) | | Net increase (decrease) in cash | $155,988 | $(63,729) | - The primary use of cash in investing activities was the acquisition of Apria, net of cash acquired, for $1.58 billion[16] - The company raised $1.69 billion from the issuance of new debt to fund the acquisition and other corporate purposes[16] Notes to Consolidated Financial Statements The notes detail accounting policies, the company's reorganization into Products & Healthcare Services and Patient Direct segments, the $1.7 billion Apria acquisition, and specifics on goodwill, debt, and segment performance - The company reorganized its business into two new segments: Products & Healthcare Services and Patient Direct, effective Q1 2022[22][76] - On March 29, 2022, the company acquired 100% of Apria, Inc. for approximately $1.7 billion, adding $1.27 billion to goodwill, assigned to the Patient Direct segment[23][31][34] - To fund the Apria acquisition, the company issued $600 million of 6.625% senior notes due 2030 and entered into new credit facilities for a $500 million Term Loan A and a $600 million Term Loan B[46][49] Segment Performance (Three Months Ended March 31) | Segment (in thousands) | Net Revenue 2022 | Net Revenue 2021 | Operating Income 2022 | Operating Income 2021 | | :--- | :--- | :--- | :--- | :--- | | Products & Healthcare Services | $2,134,041 | $2,109,445 | $89,083 | $150,418 | | Patient Direct | $272,911 | $217,089 | $15,793 | $12,263 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2022 performance, highlighting the Apria acquisition, segment reorganization, revenue growth driven by Patient Direct, and declining profitability due to inflationary pressures and glove pricing dynamics - The company completed the acquisition of Apria, Inc. on March 29, 2022, for approximately $1.7 billion, integrating it into the Patient Direct segment[88] - The Products & Healthcare Services segment's operating income decreased from $150.4 million to $89.1 million year-over-year, primarily due to glove price changes and accelerating inflationary pressures[89] - The Patient Direct segment's operating income increased from $12.3 million to $15.8 million year-over-year, driven by strong revenue growth and operating efficiencies, partially offsetting inflationary pressures[89] - The company is monitoring the impact of the June 2021 Philips Respironics recall, which affects the Apria business and may lead to significant costs, revenue loss, and patient hesitancy[92][93] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from commodity price volatility, shipping costs, foreign currency, and interest rate changes, with a 100 basis point rate increase potentially reducing pre-tax earnings by $9.4 million annually - The company is exposed to price risk for raw materials like polypropylene and nitrile, as well as volatile shipping and freight costs[132][134] - A hypothetical 100 basis point increase in interest rates would result in a potential annual reduction in pre-tax earnings of approximately $9.4 million, based on debt levels at March 31, 2022[136] - Every 10-cent per gallon increase in diesel fuel prices is estimated to reduce the Products & Healthcare Services segment's operating income by approximately $0.2 million on an annualized basis[137] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of March 31, 2022, excluding the newly acquired Apria, Inc. as permitted by SEC guidance - Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2022[138] - The evaluation of internal controls over financial reporting for the period excludes the recently acquired Apria, Inc., which represented $2.1 billion of total assets at the time of acquisition[139] Part II Legal Proceedings There have been no material developments in any legal proceedings since the disclosures made in the 2021 Annual Report on Form 10-K - Through March 31, 2022, there have been no material developments in any legal proceedings previously reported in the 2021 Annual Report[141] Risk Factors This section updates risk factors, highlighting increased exposure to the home healthcare industry post-Apria acquisition, intense competition, reliance on limited vendors, and complex regulatory requirements including a Corporate Integrity Agreement - The acquisition of Apria has materially increased the company's exposure to risks within the highly competitive and fragmented home healthcare industry[167] - The company faces significant competition and pricing pressure from national, regional, and local distributors, as well as potential new entrants like large technology companies[143][144] - The business is subject to extensive and complex healthcare laws (e.g., Anti-kickback Statute, False Claims Act, HIPAA), and the acquired Apria business must comply with a five-year Corporate Integrity Agreement (CIA)[152][156][157] - The company's medical gas facilities are subject to stringent FDA and state regulations, and operations involving compressed oxygen carry inherent risks of accidents[161][165] Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities As of March 31, 2022, no shares were issued under the company's $50.0 million at-the-market equity financing program, leaving the full amount available - As of March 31, 2022, no shares were issued under the company's $50.0 million at-the-market equity financing program, leaving the full amount available[168] Exhibits This section lists all exhibits filed with the 10-Q report, including the Apria merger agreement, new debt indentures, credit agreement amendments, and officer certifications - Key exhibits filed with this report include the merger agreement for the Apria acquisition, various debt and credit agreements, and officer certifications[169][170][172]