Owens & Minor, Inc.

Good day and thank you for standing by. Welcome to the Owens & Miners Third Quarter 2022 Earnings Conference Call. At this time, all participants are on the listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, to Alex Jost, Director, Investor Relations.

Thank you. Hello, everyone, and welcome to the Owens & Miner third quarter 2022 earnings call. Our comments on the call will be focused on the financial results for the third quarter of 2022, as well as our outlook for 2022, both of which are included in today's press release. The press release, along with supplemental slides, are posted on the Investor Relations section of our website. Please note that during this call, we will make forward-looking statements. The matters addressed in these statements are subject to risks and uncertainties, which could cause actual results to differ materially from those projected or implied here today. Please refer to our SEC filings for a full description of these risks and uncertainties, including the risk factor section of our annual report on Form 10-K and quarterly reports on Form 10-Q. In our discussion today, we'll reference certain non-GAAP financial measures And information about these measures and reconciliations to the most comparable GAAP financial measures are included in our press release. Today, I'm joined by Ed Pasica, President and Chief Executive Officer, and Alex Bruni, Executive Vice President and Chief Financial Officer. And Andy Long, Executive Vice President and Chief Executive Officer of Product and Healthcare Services, will be joining us for the Q&A section. With that, I'll turn the call over to Ed. Ed?

Thank you. Good morning, everyone, and thank you for joining us on the call today. I'd like to start this call by addressing the factors that were in line with our expectations, as well as the unanticipated factors that drove the recent change in our outlook. While there were some new challenges combined with the continuation and acceleration of existing challenges, many key aspects of the third quarter occurred as expected. Starting with one, we continued gaining momentum in our patient direct segments. growing organically in the mid to high teens across all major categories. We also continue to see improvement in our ability to access equipment, which allowed us to meaningfully reduce our overall backlog of orders in our sleep product line. Two, as planned, we successfully onboarded new acute care customers in our product and healthcare services segment, with the investments made in Q3 and Q4 providing benefits in the future. Three, as a result of our investments in predictive analytics, AI, and inventory optimization, we continue to improve our already market-leading service levels. And four, as expected and discussed last quarter, procedural volumes in Q3 were soft and well below the 2019 pre-pandemic levels. Now let me discuss the unanticipated factors in Q3 that drove our recent change in our outlook. One, As the third quarter progressed, we saw more and more of our acute care customers delay reorders, choosing to deplete their stockpiled items, including our higher margin SNIP products. Simply put, our previous guidance did not factor in. Hello, this is Ezekiel. I apologize about the connectivity issues, but let me continue back to where I left off at. So now let me discuss the unanticipated factors in Q3 that drove the recent changes in our outlook. First, As the quarter progressed, we saw more and more of our acute care customers delay reorders, choosing to deplete their stockpiled items, including our higher margin SNIP products. Simply put, our previous guidance did not factor this in as an assumption. Second, from a macroeconomic standpoint, the Federal Reserve actions were more aggressive than expected. The U.S. dollar strengthened and fuel prices reversed course and began to increase towards the end of Q3. As we ended the third quarter, we concluded that the execution and velocity of the actions we were taking in our product and healthcare services segment were insufficient to offset the future impact of macroeconomic headwinds, as we successfully had done in the past. And finally, while we were beginning to see slight improvements in procedural volume, we did not see the extent of the ramp-up of procedural volumes we expected at the end of the third quarter and into Q4. Accordingly, have made changes to address these shortfalls and the good news here is that there are numerous short-term and long-term opportunities in this segment that will allow us to operate more efficiently and more cost effectively here are just a few of them one we will continue to leverage our industry-leading service levels this has helped retain existing customers and win new business with attractive customers this is an important distinction since as we have said in Q1 and Q2, not every customer is going to make financial and operational sense for us. We remain focused on profitable growth. Two, we are refocused on expanding our portfolio of products, which provide longer term benefits. Three, we are implementing changes in the way we incentivize our sales team to drive proprietary product penetration and conversion, along with supporting our key supplier partners. And finally, going forward, we will more aggressively implement the Owens & Miner business system into this segment. Simply put, we must execute better and faster. Moving on to the patient direct segment. The effectiveness of our business system is readily apparent in our patient direct segment. We have experienced many of the same macroeconomic pressures on this side of the business as well, but have been able to offset some of these same challenges. The difference is simply in the execution. In the third quarter, our patient direct segment achieved organic revenue growth in the mid to high teens across sleep, diabetes, urology, ostomy, incontinence, and wound care. On a pro forma basis, this segment grew at 11.4% year over year. Also, our ability to procure sleep equipment was better than expected, which enabled us to grow our census of sleep patients and meaningfully reduce our backlog of orders. This highly recurring revenue base will compound nicely as we head into 2023. With the backlog of sleep patients clearing and the patient census growing, we will see more sleep supplies sold in the future, and this will benefit the bottom line. Finally, from an integration and synergy perspective, we are ahead of our internal targets. Overall, the patient direct segment will continue to be a larger and larger portion of the total company earnings and cash flow. We believe that the attractiveness of this faster-growing, higher margin segment is overlooked by the market, and the near-term and long-term perspectives of this segment is very exciting. Before I turn the call over to Alex to take you through the quarterly financials and our recently revised outlooks, I want to emphasize a few points. First, our commitment to the hospital customer and our industry-leading service is paying off in new wins. Again, we will remain selective in pursuing the share gains that are most impactful to the bottom line. Next, the use of stockpiled items for current activities by our customers is temporary. And as these stockpiles are depleted, demand for our SNIP products should return to normal. Three, you will see a more rapid and fulsome deployment of the Owens & Miner business system in the product and healthcare services segment. Four, I believe there will be an even greater appreciation for the strength steadiness of our patient direct business more and more of our earnings and EBITDA will be coming from a patient direct segment and I believe the recurring revenue nature and growth rates of the segment will become properly valued and finally I am confident that our core business fundamentals remain strong and we have the correct strategy across both business segments with that I will turn the call over to Alex for discussion of our financial results Alex