Owens & Minor, Inc.

Thank you, Operator. Hello, everyone, and welcome to the Owens & Miner second quarter 2024 earnings call. Our comments on the call will be focused on the financial results for the second quarter of 2024, as well as our outlook for 2024, both of which are included in today's press release. The press release, along with the 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 factors section of our annual report on Form 10-K and quarterly report on Form 10-Q. In our discussion today, we will 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, Owens & Miners President and Chief Executive Officer, and John Leon, the Interim Chief Financial Officer and Senior Vice President of Finance and Corporate Treasurer. I will now turn the call over to Ed.

Thank you, Jackie. Good morning, everyone, and thank you for joining us on the call today. It's been an exciting past few weeks here at Owens & Miner. Last Tuesday, we shared with all of you our definitive agreement to acquire Rotec Healthcare Holdings Incorporated. The addition of Rotec aligns with our strategy to strengthen and expand our existing patient-direct business as one of the premier suppliers to support home-based care. Combining our organizations allows us to improve our capabilities, broaden our reach, and ultimately improve our service levels to patients, providers, and payers. And furthermore, it accelerates our pace to achieve our long-term patient direct revenue target of $5 billion by 2028, demonstrating our commitment to sustainable growth and driving long-term shareholder value. Turning to our second quarter performance, It was business as usual for Owens & Miner, as we hit our internal expectations with another strong quarter and made progress against our long-term strategic goals we outlined during our investor day in December of 2023. The underlying strength of our business is evident, with top-line growth in both of our business segments and improved profitability. We are excited about the second half of 2024, as we expect to outperform the first half of this year. a continuation of historical trends with strong back half performances. While John Leon, our interim chief financial officer, will do a more thorough review of our financials, I would like to briefly highlight a few of our operational and financial achievements from the second quarter. Our products and healthcare service segment generated $2 billion in revenue, reflecting a 4% improvement over this time last year. Our medical distribution division's strong second quarter was the result of exceptional same-store sales growth, enhancements in our supplier funding programs, and the onboarding of new business wins. Our global products division also experienced some growth at the top line and further improvements in profitability. At our investor day, we outlined our plan to optimize the P&HS segment through, one, leveraging the scale of the channel profitability, two, growing our owns and minor branded product portfolio, and three, expanding into adjacent channels and markets. In our first two quarters of 2024, we are already making progress in these areas, with a particular focus on driving greater efficiencies that in the second quarter reduced our manufacturing, transportation, and distribution costs. These efforts, combined with inflation mitigating tactics, gave us the financial flexibility to reinvest in our business while also doing exactly what we said we would do, increasing the overall profitability of this segment. Our patient direct segment posted $660 million in revenue in the second quarter, a 4% year-over-year improvement driven by strong growth in diabetes and sleep supplies. Our growth is even more impressive given the particularly strong second quarter we had this time last year. During the quarter, we continue to focus on our key initiatives along with our alignment on the commercial organization within the APRIA division to improve growth in respiratory, oxygen, and the sleep journey. By the end of the quarter, we began to see that alignment deliver improved growth. As a reminder, we typically see stronger performance from this segment in the second half of the year, and we expect a similar outcome in 2024. From a longer-term macro perspective, Our patient direct segment has considerable tailwinds supporting our organic growth efforts. From a demographic perspective, there are an estimated 133 million Americans who suffer from at least one chronic condition, with 40% of American adults suffering from multiple chronic conditions, and many more still not yet diagnosed, particularly in diabetes and sleep apnea. These demographic trends make us excited about our patient direct segment despite the groundswell of support for weight loss medications. Moreover, we are not currently seeing an impact from the use of GLP-1s on our served patient population. The diabetic patients we serve are primarily type 1 or insulin dependent, which requires continuous glucose monitoring regardless of GLP-1 use. With respect to sleep apnea patients, while GLP-1s may help some patients, There are still 80% of the population with sleep apnea that are not yet diagnosed. As I noted earlier, we announced our intent to acquire Rotech, which will be an expansion of our patient direct segment. Rotech brings a wealth of expertise in respiratory and home medical equipment, aligning perfectly to deliver exceptional care, innovative solutions, and top-notch service levels for patients, providers, and payers. Being just a few months into our long-term strategic plan, we are progressing as expected in both segments. Our team has done a tremendous job in just the first two quarters since launching our Vision 2028 plan at Investor Day. From driving efficiencies, improving customer service, to building strong organic road channels, and the plan to add road tech to our patient direct segments, all of which proves we're on the right path and only just getting started. We remain dedicated to achieving the objectives set forth during our Investor Day in December 2023, and our performance thus far reflects that commitment. I would now like to turn the call over to our Interim Chief Financial Officer, John Leon, to discuss our second quarter financial performance in more detail. John?

Thanks, Ed, and good morning, everyone. I will be providing an overview of our financial results and some key factors that drove our performance in the second quarter as well as our outlook for the remainder of the year. Our revenue for the quarter was $2.7 billion, up 4% compared to the prior year, with solid growth in both segments. Products and healthcare services grew 4% overall as compared to the prior year, with 5% year-over-year growth in our medical distribution division as same-store sales and yet new customer wins drove the top-line change. Patient direct revenue of $660 million was up 4% compared to the second quarter of last year. Major therapy categories like diabetes, sleep supplies, and wound again had strong performance, although certain respiratory therapies such as NIV and oxygen were below expectations. Within patient direct, patient eligibility verification continued to regain momentum. However, a meaningful yet decreasing backlog of customers extended into the second quarter. We should be clear of these onboarding timing issues as we move through the second half of the year. Gross profit in the second quarter was $544 million, or 20.4% of net revenue, reflecting margin expansion of 11 basis points as compared to the second quarter of last year. This improvement is largely the benefit of investments in efficiency and productivity over the last several months. Our distribution, selling, and administrative expenses for the quarter were $469 million, up from $455 million in the second quarter of 2023. The increase is primarily due to sales growth, as DS&A was just below 18% of revenue for both this year and last year. Gas operating income for the quarter was $20.3 million, up 87% year-over-year, and adjusted operating income was $76.3 million. Adjusted operating income was up 23% year-over-year. Interest expense in the second quarter was $36 million, down 12% compared to $41 million in the second quarter of 2023. This is largely due to the nearly one full-term reduction in leverage in the last 12 months, partially offset by the impact of higher interest rates versus last year. In the second quarter, we recorded a one-time tax charge of $17 million, or 22 cents per share, related to a recent decision associated with notices of proposed adjustments that we received back in 2020 and 2021. This was just communicated to us in late June of 2024. Due to the nature of this charge, this item is included in our GAAP to non-GAAP reconciliations. The matter at hand, as we've discussed in previously filed SEC documents, is related to past transfer pricing methodology, which is no longer employed. There is an expected related cash payment to be made in the second half of the year in a range of $30 or $35 million. We believe the matter will be concluded without further impact to our financial results. Our GAAP effective tax rate reflects this charge and was negative 89.9% for the quarter. The adjusted effective tax rate was 28.9%. Our GAAP net loss for the quarter was $31.9 million, or a loss of $0.42 per share, compared to the second quarter of last year when the net loss was $28.2 million, worth $0.37 per share. Adjusted net income for the quarter doubled to $28.2 million, worth $0.36 per share, from $14.2 million, worth $0.18 per share, during the second quarter of 2023. Adjusted EBITDA was $127 million, up 12% versus the $113 million reported in the second quarter of last year. Also, we generated $116 million of operating cash for this quarter, a strong improvement versus Q1 of 24. This will allow us to reduce net debt by $70 million. We anticipate a good cash flow generation year, but that will include typical lumpiness quarter to quarter, and we remain intensely focused on cash flow generation. With respect to our current outstanding debt, we have $171 million of a series of notes which is due in December of this year. Earlier this week, we gave notice to redeem those notes at par in September and will do so with cash on hand. We remain committed to delivering our 2024 guidance. We expect revenue to be in the range of $10.5 to $10.9 billion, adjusted EBITDA to be in the range of $550 to $590 million, and adjusted EPS with a midpoint of $1.55 per share and an overall range of $1.40 to $1.70. Now, as in prior years, we expect to see modest sequential growth between the second and the third quarters, and greater sequential growth from the third to the fourth quarter. And again, I want to remind you that this guidance excludes any impact of the Rotech acquisition. With that, I'll turn the call over to the operator for the Q&A session. Operator?