Owens & Minor(OMI) - 2021 Q1 - Quarterly Report

Part I. Financial Information Financial Statements 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 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 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 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 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] - 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][42] 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 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] - 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][78] - The company was awarded contracts under the Defense Production Act (DPA) to produce N-95 respirator masks, expanding capacity with government funding[79] Results of Operations 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] - 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] Financial Condition, Liquidity and Capital Resources 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][100] - The company amended its accounts receivable securitization program, increasing the aggregate principal amount to $450 million and extending the maturity to March 2024[102] Quantitative and Qualitative Disclosures About Market Risk 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] - 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] - 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] Controls and Procedures 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] - 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] Part II. Other Information Legal Proceedings 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] Risk Factors 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] Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities 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] - 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] Exhibits 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][131] - 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]