Owens & Minor, Inc.

Investor Relations. Please go ahead.

Thank you, Operator. Hello, everyone, and welcome to the Owens & Miner fourth quarter and full year 2024 earnings call. Our comments on the call will be focused on the financial results for the fourth quarter and full year 2024, as well as our outlook for 2025, all 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 that reflect our current views of Owens & Miner about our business, financial performance, and future events. 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. Our expectations, beliefs, and projections are expressed in good faith, and we believe there is a reasonable basis for them. However, there can be no assurance that our expectations, beliefs, and projections will result or be achieved. 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 reports on Form 10-Q. Any forward-looking statements that we make on this call or in our earnings press release are as of today, and we undertake no obligation to update these statements as a result of new information or future events, except to the extent required by applicable law. In our discussion today, we will refer to non-GAAP financial measures and believe they might help investors to better understand our performance or business trends. Information about these measures and reconciliations to the most comparable GAAP financial measures are included in our press release. Today, I am joined by Ed Pasica, Owens & Miner's President and Chief Executive Officer, and John Leon, the company's Chief Financial Officer. 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. 2024 was an important year for Owens & Miner, and I am pleased with the progress that we have made against the strategy we outlined at our investor day in December of 2023. As a reminder, we committed to optimizing our product and healthcare services segment, leveraging our leading patient direct platform, and building balance sheet flexibility through deleveraging. Within P&HS, we continue to see momentum in the broadening of our product portfolio, developing a streamlined and efficient manufacturing footprint, and enhancing our distribution capabilities. Within PatientDirect, we continue to leverage our footprint and broad product offering to support home-based care for millions of patients with chronic conditions. Those capabilities combined with the positive demographic trends and expanding home treatment options leaves us very bullish on the future of this business. Finally, we repaid $647 million of debt over the last two years. which helps provide the financial flexibility to pursue the acquisition of Rotech, which we believe will drive long-term shareholder value. As we mentioned in our press release published this morning, we have been actively engaged in robust discussions regarding the potential sale of our product and healthcare services segment and are already well along in the process. Over the past few years, we have focused our capital reinvestment on the higher growth, higher margin patient direct segment. Accordingly, over the past 18 months, we have considered many strategic options while continuing to work to enhance the product and healthcare services segment. The actions we have taken on realigning PNHS has made it a stronger entity and well-positioned for future growth. We are excited and encouraged by the strong interest in PNHS business and ongoing conversations we are having in the process. In addition, the press release published this morning also mentioned that our Board of Directors has authorized the share repurchase program of up to $100 million. John will provide more detail later during his prepared comments. Regarding our planned acquisition of Rotech, we are awaiting a final decision from the regulators and we remain diligent in our planning process as we expect to close in the first half of 2025. We remain incredibly excited by the prospect of a united future together. It is our plan to leverage the existing AFRIA platform we acquired nearly three years ago to improve service while delivering synergies through the optimization of our operations and interface with our customers. To the extent possible, we have been using the past few months to further understand the synergy opportunities and create the ability to expedite synergies post-close. Based on what we already know and the work we have done to date, we now believe that our previously discussed cost synergy projections of $50 million in year three is conservative in both terms of value and time. Before I discuss our performance in 2024 and our goals for 2025, I want to take a moment to commend our teammates at Owens & Miner. We saw many difficult and heartbreaking situations in 2024 and earlier this year. including the record-setting hurricanes and historic flooding in the Southeast, the significant winter storms across the Midwest and Northeast, and the devastating fires in Los Angeles. Facing these extraordinary circumstances, our teammates ensure that our customers and patients receive the critical and vital medical supplies they needed. I am incredibly proud of the team that we have assembled at Owens & Miner. and that our teammates embody our core belief that life takes care. Now moving on to 2024. While we focused on our long-term strategy, we also delivered mid-single-digit top-line growth and 13% growth in adjusted EPS, while continuing to reinvest in the business to drive greater operational efficiencies, improve customer experience, expand our technology offering, and set ourselves up for long-term sustainable growth. starting with PatientDirect. Our PatientDirect business outpaced market growth with mid single digit growth for the quarter and for the year. In addition, it delivered over $13 million of incremental operating income year over year, while making significant progress with revenue cycle management and our sleep journey program, which helped deliver strong sleep supply growth for the year and the fourth quarter. The addition of sales teammates also helped us deliver double-digit growth in many of our smaller categories. Finally, our investments in technology continued as we launched Byram Connect, a digital health coach to help manage diabetes. Overall, significant progress was made in 2024, but we still have ample opportunity for advancement as well as improvement across all of our therapy categories. And we remain excited about the future of PatientDirect. So now moving on to our P&HS segment. Our products and healthcare services segment for the full year and quarter continue to show solid same-store sales growth in our medical distribution division, partially offset by lower glove pricing. Next, I want to recognize that the P&HS team continues to make significant progress in capturing savings and subsequently reinvesting those dollars into driving even more efficiencies and improving our operations. During 2024, we have advanced our proprietary product portfolio, made progress with DC automation, continued with the construction of new distribution centers, and began the consolidation of our kitting footprint. Overall, we made great progress related to our long-term strategy to optimize our PNHS segments. As I look ahead into 2025, the team and I are keenly focused on these areas. One, We will focus on expanding our free cash flow to strengthen our balance sheet, invest in our business, and support our stock as needed should it continue to be undervalued. Two, we will continue to be disciplined while driving profitable growth. Three, we will continue to take all steps to gain clearance from regulators. And upon approval, we will quickly begin the integration of Rotech into the patient direct segment. And finally, we will work through the process related to our products and healthcare services segments. As I look forward, I'm excited to build upon the progress we made in 2024 to advance our long-term strategy that we outlined at Investor Day in December of 2023. With that, I'll turn it over to John to discuss our financial performance in 2024 and financial guidance for 2025 in more detail. John?

Thanks, Ed, and good morning, everyone. I will start with a review of our fourth quarter financial results and cover some of the key drivers and trends from last year, and then dive into our outlook for 2025 in greater detail. Please note that during my remarks on today's call, I will discuss only non-GAAP financial measures. All GAAP to non-GAAP financial reconciliations can be found in the press release filed earlier this morning. With that, let's turn to fourth quarter results. Our revenue for the quarter was $2.7 billion, up 1.5% compared to the prior year. The products and healthcare services segment grew 0.5% overall compared to the fourth quarter of 2023. There was one more selling day this year compared to last year's fourth quarter, which accounted for the segment's growth. While same-store sales in the medical distribution division have continued to grow nicely year over year, it was offset by lower glove prices and the knock-on effects of the IV fluid shortages during the quarter. IV fluid shortage impacted procedure volume and subsequently our sales volume to some of our distribution customers. Patient direct revenue grew by 5% compared to the fourth quarter of 23. Sleep supplies and diabetes once again demonstrated strong growth. As discussed in previous quarters, home respiratory therapies, such as NIV and oxygen, declined on a year-over-year basis. We expect these therapy categories to return to growth during 2025, and we saw encouraging signs toward this turnaround late in the fourth quarter. Gross profit in the fourth quarter was $580 million, or 21.5% of net revenue. Margin was essentially flat with last year's fourth quarter and expanded by 93 basis points compared to the third quarter of 2024 and benefited from a $10 million LIFO credit as inventory levels were meaningfully lower at December 31st compared to September 30th. Our distribution, selling, and administrative expenses for the quarter were 18.3% of revenue at $493 million, up from $457 million in last year's fourth quarter when DS&A was 17.2% of revenue. The increase in DS&A was primarily due to increases in teammate benefit expenses and higher workers' compensation costs. Adjusted operating income was $95 million in the fourth quarter, an $11 million increase compared to the third quarter, and $15 million less in the fourth quarter of 2023. The year-over-year change in adjusted operating income can be attributed to modest revenue growth, which was offset by higher GS&A expenses. Interest expense for the fourth quarter was just under $36 million, down about $1.2 million compared to the prior year's fourth quarter. This change was driven by a continuing debt reduction and was partially offset by less interest income earned versus the prior fourth quarter. Our adjusted effective tax rate was 26.5%, largely unchanged from the 26.8% in the fourth quarter of 2023. Adjusted net income for the quarter was $43 million, or $0.55 per share, compared to $54 million, or $0.69 per share, last year. Adjusted EBITDA was $138 million versus the $170 million reported during the fourth quarter of 2023. As previously disclosed earlier this month, we recorded a $305 million net of tax goodwill impairment charge in the fourth quarter. This non-cash charge was primarily related to adverse financial market changes during the quarter and, to a far lesser extent, anticipated future changes in a capitation contract at the AFRI Division. We do not expect the assumed contract pricing change, including the financial projections that were used in the impairment analysis, to have a significant impact on 2025 results. And more importantly, nothing about our positive outlook for average prospects has changed because of this. We generated $71 million of operating cash flow in the fourth quarter, primarily driven by changes in working capital. As often happens, our working capital management yielded better cash flow throughout the quarter that was represented on the last day of the quarter, which allowed us to reduce debt by $31 million. For the four-year, debt was reduced by $244 million, and we have paid down $647 million in debt over the last two years, demonstrating the cash flow capabilities of the business and our commitment to reducing leverage. Now, with the wrapping up of 2024 and start of the new year, we will provide guidance for the four-year 2025. As a reminder, Our guidance does not include any impact of the low-tech acquisition, which we still expect to close in the first half of 2025. Also, our guidance shared here today does not include any potential sale of our products and healthcare services segment and does not include any potential impact from future share repurchase activity. So with that, for the full year 2025, we expect revenue to be in a range of $10.85 billion to $11.15 billion, yielding a midpoint of even $11.0 billion. Most of the growth will come from mid-single-digit percentage growth in our patient direct segment. Adjusted EBITDA is expected to be in the range of $560 million to $590 million, with a $575 million midpoint, representing approximately 10% growth over 2024. Adjusted EPS has a guidance range of $1.60 to $1.85 per share, and a midpoint of $1.73 representing approximately 13% growth. As we think about cash flow in 2025, we expect to see marked improvement from last year. We expect to have at least $200 million available for further debt reduction in 2025. We believe this is a reasonable expectation as it would be the result of the $575 million midpoint of our adjusted EBITDA guidance minus the midpoints of our gross CapEx guidance of $260 million an interest expense of $140 million, as well as less cash expected to be spent on items included in exit and realignment and acquisition-related charges. Those items I just detailed provide approximately $125 million of cash flow, and we believe another $100 million can be taken out of working capital, a task we have demonstrated in the past that we can achieve. So the year-over-year cash flow improvement is expected to largely come from the adjusted EBITDA growth included in our 2025 guidance, the expected lower cash spend on items included in exit and realignment and acquisition related charges, and the anticipated improvements in working capital management. We will remain diligent in our efforts to reduce debt levels and intend to use free cash flow to do so. There is no change to our goal of maintaining debt to EBITDA leverage between two and three times After the close of the Rotech acquisition, we will work quickly to bring down incremental debt levels. As Ed mentioned, our Board of Directors has authorized a share repurchase program of up to $100 million. We will prudently manage between using cash flow for debt reduction, which remains our leading objective, and share repurchase activity. However, with all my shares currently so undervalued, and especially so in the last few weeks, we believe share repurchase is a very sound use of cash flow. But thinking about how our four-year guidance will trend over the course of the year, and as is increasingly typical given the nature of our business, we expect at least 70% of the earnings and cash flow to occur in the last two quarters of the year, with the fourth quarter being the strongest. We also expect the usual pattern of our first quarter being the lowest earning quarter, and as we often see, we expect to be a net borrower during the first quarter. As a reminder, our guidance information and other key modeling assumptions were filed this morning under Form 8K and reside on the Investor Relations section of our website. I will now turn the call back to the operator for questions. Operator?

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. Please ensure you are not on speakerphone and that your phone is not on mute when called upon. Thank you. Your first question comes from Kevin Caliendo with UBS. Your line is open.

Good morning, guys. Thanks for taking my question, and thanks for all the details. I guess, why don't we start first with Rotech? Because I think, you know, when the deck came out, the 8K came out, I think people were a little bit alarmed to see some of the trends at Rotech. And I just want to ask you, knowing what you know now versus knowing what you knew when the deal was announced. Is there anything surprising in the Rotech results over the last year or so? I appreciate, Ed, you making the comment that there's cost synergies could be greater than the $50 million and could come sooner. But when I just looking at the margins of that business and the growth of that business, is there anything there that's surprising, different at all?

Hey, good morning, Kevin. It's John. The answer to the question is no. There's no surprises in what we've seen, but I think a lot of people forget that for all of us, 2024 versus 2023 saw a significant impact of the 75-25 legislation leaving, and that had an impact on all of us. I think it's been stated Rotech has a little bit more exposure than we do to government reimbursement, so maybe a greater impact there. But I would say overall, and now that we've got a little more clarity, we have a really active, healthy dialogue with the Rotech team. We know how their year's ending up. And no surprise whatsoever, that's very consistent with our deal model.

Okay, that's helpful. If I can ask a follow-up on the free cash flow, I appreciate the $200 million expected that you can redeploy back for debt repayment. You also have $100 million share repurchase. Should we be thinking about those in conjunction? Like, how should we think about that $100 million of buyback? Is that the priority first? Or is it something over the course of time? And should we just assume the $175 to $200 million of free cash flow goes to pay down debt and the buyback is more opportunity? Just help me understand how you're thinking about deploying that capital this year.

Yeah, so I think first primary objective of the business is to continue to pay down debt. You know, that's extremely important. But in the same sense, you know, should the stock continue to be meaningfully undervalued, you know, we would be opportunistic on that also throughout the year. I think that's the way to think about it.

Okay, thanks. I'll go back and queue. Thanks.

The next question comes from Michael Cherney with LeRink Partners. Your line is open.

Good morning. Thank you for taking the question. Maybe if we can just start on patient direct and some of the underlying trends. Don, you talked about mid single digit growth expectations on an organic basis over the course of the year. Can you parse that out a little bit in terms of what you expect to see on, roughly speaking, volume versus price versus market gains, the market share gains? I want to try and get a sense on where you see this business evolving and continuing to position itself, given your commentary about outgrowing the market in 4Q and the rest of 24.

Yeah, maybe I'll start and then John can add some commentary to it. You know, look, I thought the patient direct business had a really strong year. I mean, if I think about it again, we had double digit, I'm sorry, mid single digit growth in the business for the entire year, as well as the fourth quarter. You know, and not only that, we actually increased full year over $13 million of op income. If I think about some of the areas where we've had some pretty good success, you know, we've had really nice success continuing with growth in diabetes as well as in sleep supplies. You know, the other area I touched on a little bit in my comment was we did add some resources, and in some of the smaller categories, we saw, you know, close to double-digit growth in those smaller categories where we've added resources. You know, the 1 area of, you know, we're still, I would say underperforming and to be completely direct on this. It's really in the home respiratory and oxygen space. You know, it's an area where we're going to continue to focus on it in 2025 and look to make that actually a growth category for us, which then can help lift the entire business as a whole from an organic standpoint. But again, I think, you know, you look at our mid single digit growth for the year as well as the quarter, relatively strong, we believe, compared to the market and some strong pockets of where we're seeing where some of the investments we've made are starting to pay off, like the sleep journey and some of the additional people we've added. John, I don't know if you want to add any more.

Yeah, the only thing I would add, Mike, to your comment, you know, broad strokes, look at the big picture of the industry. The demographic tailwinds remain very strong for us in the entire space. I think as you heard and seen from us and others, Regardless of the therapies that keep coming out, we still see really good demand for our supplies and services. So broad-based, and I think there's plenty of share yet to be gained across all of this for years to come. And the demographics are just overwhelmingly positive for us.

Appreciate that. And maybe a follow-up to Kevin's question regarding capital deployment and the buyback. Very much appreciate the dynamic of instituting a new buyback given the recent performance of the stock. You know, that being said, you obviously talked about the beginning of the year being a use of cash component, assuming, as you've said, that the Rotech deal closes. You'll be taking on a meaningful amount of debt near term as you work to pay that down. How should we think about the cadence potential, knowing it's not in guidance of the buyback against your cash flow needs? And why is $100 million the right number given – where you see the dislocation in the stock currently?

Yeah, from a cadence perspective, Mike, I think when we think about it, one, as Ed said, we all believe the stock is just way, way undervalued right now. And so, we don't know if there's a better ROI out there than buying back our own shares. So, Q1, as I mentioned, we tend to be a net debtor. Being a little more of a net debtor during the Q1 doesn't bother us that much. We're confident in the cash flow as we move throughout the year. Um, so that, that, that would be initially a problem for us. Um, and we'll just see how the stock performs, keeping in mind, you know, the rules around buyback, um, and given our average daily trading volume, we couldn't get through it all that quickly anyway. Uh, but we wanted to be aggressive. The stock remains so oversold. Um, and then as we think about, you know, overall cadence, um, why a hundred million dollars, I was again, just given the market cap of where we are today, unfortunately, And given what we see as the cash flow, as Ed said, debt repayment remains a priority given the market cap of $100 million felt right. And we believe the stock will rise, but obviously if we get through $100 million and the stock isn't where we think it should be, the board can certainly revisit a future consideration of greater value.

It's helpful, John. Thank you.

The next question comes from John Stancil with JP Morgan. Your line is open.

Great. Thanks for taking my question. Just wanted to quickly touch, I don't know if you framed it completely, but on tariffs, you know, I appreciate the commentary changes by the day, but is there anything you can just help size, you know, impact essentially from Mexico-based tariffs?

Thank you. Yes. Yes. So, you know, again, I'll start, and then John can add, you know, additional comment at the end. So, if you think about tariffs, so tariffs for us, you know, aren't as significant as they may be for other players in the industry. However, I think, first of all, we got to be clear that as tariffs come in and increase our product costs, we're going to have to pass those on to the customers. Because in our P&HS segment business with margin profile as tight as it is, those are costs that we will have to pass on. If we think about impact overall on the business, you know, the vast majority of our products, you know, are not made in China. So let's first take that off the table because that had the highest tariff increases last year with close to 100% on gloves coming through over this year combined with next year, as well as significant on facial protection. So that's not an impact to us. You know, when we do make our products, we do make some of our products in Southeast Asia, as well as in the US and Mexico and Honduras. You know, I think that's a pretty fluid situation. But if we think about it, You know, our Mexican footprint is really in low single digits of what we make in our products that we sell, you know, through our P&HS segment. John, I don't know if there's anything else.

Yeah, no, that's right. Put a little bit of color on that. So you think about our Mexican facilities and what comes back into the U.S. is about 1.5% of the total revenue of the P&HS segment. So that's a really small exposure to both Mexico and China.

Great. And if I can just slide one more in. The looks like SG&A is roughly flat as a percent of sales for 25 based on the guidance with gross margins and just EBITDA kind of stepping up relatively proportionally. Is there anything you should call out about how you're thinking about investment and kind of the SG&A spend for next year?

Yeah, I think from an SG&A standpoint, it's, you know, we're going to continue to look at ways to optimize it, continue to look at ways to take costs out. But obviously we can't impact our service to our customer base, so that's how we thought about it as we get in going to 2025.

The next question comes from Daniel Grossley with Citigroup. Your line is open. Daniel, perhaps your line is on mute.

Sorry about that. Thanks for taking the question, guys. Just a high-level one on the P&H self-process. Completely get that you're redeploying capital to higher margin, higher growth, the patient direct. But I'm curious why now is the right time to do this. And then as we think about a few years down the line, are you going to be 100% dedicated to patient direct, or are there other areas you may look to deploy capital into? Thank you.

Yes, I guess on the question why now, I mean, why now really comes back to we had received inbound interest, so multiple inbound interest on the asset of our P&HS segment. You know, in addition to that, then we worked with advisors as well as our board, and the decision was made to say, okay, if we've got this much inbound interest, let's look at a broader process. which we've done, which would, that is what we've undertaken. And we thought it was important now to make sure we, that, that we disclose that this is in process as we move forward, you know, because of what we, you know, where we are in that stage of it. And the fact that one, again, significant inbound interest brought in the pot process that actually expanded the interest, you know, and we're moving through this now. So that way we could have open dialogue about it, you know, frank conversations with our customers. with our supplier communities within our own internal teammates and be able to move this forward and reach decision quickly versus trying to continue to slow walk this.

And then as you think about kind of where do you deploy capital next, more so in the medium term, will you be dedicated 100% to patient direct or are you thinking about other areas of potentially getting into?

I think in the near term, you know, should the transaction happen with our P&HS segment, you know, we will continue to focus on paying down debt. You know, should the regulators, we get through that with Rotech, it'll be focused on our patient direct segment, paying that debt down, you know, optimizing that business as we move forward. And I think we think about our longer strategy as we disclosed in 2023 in December. was we expect that PD business by 2028 to be a $5 billion revenue business through both organic growth and through acquisition. Whether we expand out into other areas, that's yet to be determined. Got it. Okay.

And then on your commentary around the $50 million of cost synergy from the Rotech deal being conservative in year three, I'm curious if there's going to be any pull forward of that to years one and two, and if there's any change in how you're thinking about accretion from the deal in year one and year two. I think previously you said it was neutral in year one and 15 cents accretive in year two. Any change in how you're thinking about that?

Yeah, I think here's what we've done. I think it's important to really step back from this. So obviously, the process has been delayed months now. So during that period of time, we've really used these last few months to understand how the two businesses can work together within the guidelines of available information of what we can see and how we can have those conversations. Based on that, we actually believe that there are additional synergies and that the speed to getting them should be faster. Some of the work that would have been done had we closed back in October, November of last year, we were able to do some of that during this next period of time. which is why we think from a time frame, by the end of year three, we originally talked about 50 million, we think that that's actually light and we can bring it up forward. In year one, I think there's still some impact of, as we look through things, there's still going to be some decisions that have to be made in year one that may not expedite it in the first three to six months, but in that back half of that first full year is when we should start to be able to see that You know, and I think, you know, once we get the regulatory approval on this, we'll come back with adjustments on timing and as well as dollars on synergies and the impact it has on the overall financials.

Got it. Thank you.

Once again, ladies and gentlemen, this is Star 1 on your telephone keypad to ask a question. Your next question comes from Eric Caldwell with Baird. Your line is open.

Thanks very much. First one on the ABRIA capitated contract. John, I heard you say that you don't expect it to have an overly material impact on 2025. So my question is, is that because the pricing change happens later in the year, so it's more of a 26 impact, or just that the pricing change anticipated or maybe it's already in effect? is just not that material in aggregate. I'm just hoping to get more details on that as well as, you know, any discussion you can provide on the size of that contract or how much capitated revenue you have to patient direct today overall, what the mix is.

You know, maybe I can start and John can talk a little bit about in detail. So I think, Eric, appreciate the question. You know, let's step back from this. So, you know, first of all, you know, big picture wise in our patient direct business, Outside of this contract, we have very few capitated contracts. And overall in the industry today, you know, capitation is really a smaller portion of the industry. So I think that that's got to be, we accept that as a backdrop. I'm not saying that this is a small capitated contract. This is a large capitated contract. You know, and I want to talk a little bit about our approach to this, and it'll tie into John's comments about the impact on 2025. So we've modeled in assuming either direction, whether we retain it or not retain it, relatively speaking. And when we go through a capitated contract, or any contract for that matter in our business, we take an extremely disciplined approach to the contract negotiations. And we look at all factors. We look at what's the service level that's going to be required to serve the customer. Where is our deleveraging point and where can we go to until we get to the point where it starts to deleverage the business? In this contract, we had the luxury of having current volume and we know the trending of the volume. We know that and we see that it's increasing. It gives us the ability to make sure we put a capitated contract out there that's fair and reasonable versus others that may not. Let me talk a little bit about where this has had historically. We've had other capitated contracts. There was another group that came out with a capitated contract, and we did not win that contract. Others did win the contract. However, within a year or two, the service wasn't where it needed to be, and they came back and reopened it. Specifically in the state of California, they reopened it, and we retained business and regained business on a fee-for-service type model. So I think when we go through this process, I try to paint that picture because of the discipline we take in putting together our bid and our offering. I think the other thing that benefits us overall on this is that rigor and discipline that we have within the business. So with that, John, maybe we can talk a little bit about how we look at 25 and say, okay, the impact 25, it's already baked into the numbers that we have, and it's not going to have a meaningful impact for us.

No, that's right. Obviously, we're two months into the year already under the current contract with the older pricing, if you will, Eric. These, as I said, it's a large contract. The time to switch, the switching costs on these things are very, very high. It takes a lot of time. So the time to actually switch out under a new contract, and should we lose it, it would take a long time to switch it out. And quite frankly, capitation contracts of this size have a lot of dedicated resources to them. So our ability to flex that and still serve the customer effectively is pretty well known. So we feel pretty good about the time included to, if there is a change in pricing, if we were to lose the contract, we can pretty much manage that fairly effectively. At the end of the day, we feel pretty good about what we've modeled in for this in 2025 and our ability to manage it, whether it's just lower pricing and or should we happen to lose it, our ability to take the cost out.

Fair enough. And then on... the two segments for 2025 continuing ops guidance here. Can you give us any framework on what you're thinking for top line and EBITDA performance across the two segments? Any loose ballpark on, you know, growth margin profile?

Yeah, as I mentioned, I mean, if you're using the midpoint of revenue guidance, I think actually the bulk of that growth is going to come from patient direct. Um, we, you know, patient direct top line, we expect to be better growth wise than it was in 2024. Um, you may recall back in our investor day, Eric, you know, we didn't expect much in the way, the way things for sales and medical distribution going forward. We got a nice pleasant surprise on that in 2024. Not sure that will continue into 2025. So the bulk of the list over on a consolidated basis will come out of patient direct. From an EBITDA perspective, I think you'll see margins improve a little bit at both segments, but not significant margin improvement across either. Maybe a little margin lift, just given there's more room to grow in PNHS than there is in patient direct. There'll be a little bit of margin lift at the EBITDA line for both segments.

And I know the way you treat LIFO charges and credit has an impact on your report at EBITDA. I think, what was it, a $10 million credit this quarter, if I'm remembering? Sorry, I'm toggling.

$10 million credit for the quarter. It was basically flat to a $1 million charge for the year. And we are expecting a relatively small charge in 2025. Okay.

Can I keep going?

Sure. You got the mic.

All right. Sorry. Apologies to the others. Would you be willing to share last 12-month adjusted EBITDA on the PHS segment? I mean, we've tried to ballpark an estimate, but there are, you know, clearly some uncertainties between what's reported in your filings versus what you give in your press releases and, you know, allocations of certain expenses, et cetera. So I'm just curious if you could give us your framework of what LTM EBITDA was in PHS.

I was framing that PHS is between 20% and 25% of the consolidated EBITDA.

Okay. And yeah, it's about in line. And then last one for me for now is, are you willing to talk about how your debt financing roadshow went, what you're anticipating for debt cost on road tech? Has that changed from the expectations that were set in, what was it, July of last year?

So one of the benefits of a release that was chock full of news this morning is that we get all this information out into the markets. I think that will help us have more fulsome, efficient conversations with the debt market. But right now, we're going to remain very flexible in the weeks ahead. That pre-marketing effort went very well. I think we got very good receptivity. But as we get into the weeks ahead and actually begin to market, we'll remain open to different structures and expect basically a cost of debt that's still in line with the overall Root Take Deal model.

Okay. Thanks very much, guys.

The next question comes from Alan Lutz with Bank of America. Your line is open.

Good morning, and thanks for taking the questions. John, you mentioned some encouraging signs in the fourth quarter around NIV and oxygen. Can you unpack that a little bit? What are you seeing, or what did you see in 4Q early in 2025, and what needs to happen to get those categories back to growth?

Yeah, you know, Alan, you know, we did, we saw the starts in both for non-invasive events and officers who begin to pick up late. You know, I think, I think I've talked pretty publicly before. We got a little flat footed at the start of the year. Obviously, the requirements around reimbursement for those categories changed dramatically post-pandemic. We were a little caught flat footed, really getting ourselves up and geared up for that. And, you know, others in the states have as well. So it took us a while to really adjust to that, and I think we're in a good spot now to begin to capture that growth. And that's important growth. You know, if you talk about margin across that business, those categories are very high gross margin products. We like them a lot. We're good at it, and we want to see that growth. So I will tell you, we didn't build, you know, we built some of that improvement into our 2025 expectations. But the more we can accelerate that growth of those two categories, it'll be just this upside to us.

Thanks for that. And then last question from me, lower glove pricing, you know, has obviously been a focal point over the past few years. I guess where are we in that cycle today and what's embedded in the guide for glove pricing in 2025?

Thanks. At a macro level, yeah, we have seen glove prices come down and, you know, a significant portion of what we did with our operating model realignment to reduce our cost structure and I'm helping offset a portion of that but it still did hit the top line and did have some pull-through effect you know I think with some of the what we're seeing in the market right now is we're starting to see prices go the other direction and a good portion of that is related to tariffs that are driving that you know so I would say we've somewhat leveled out on those love pricing you know and there may be an opportunity as things proceed forward to actually look at price depending on input costs, you know, to adjust that based on those factors.

Thanks, Ed. Appreciate it.

This concludes the question and answer session. I'll turn the call to Ed Pasicka for closing remarks.

First of all, I want to thank everyone for joining on the call today. I also want to thank our teammates for an incredible 2024, you know, some great accomplishments as we move through the year. You know, I'm excited as we look forward into 2025. You know, 2025 is going to be an exciting year for our organization. And I look forward to sharing our progress with everyone on this call and the rest of the organizations later in the spring. So thank you, everyone.

This concludes today's conference call. Thank you for joining. You may now disconnect.