Owens & Minor Q1 2025 Earnings Call Transcript

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Operator

Good day, and thank you for standing by.

Operator

Welcome to the Owens and Minor First Quarter twenty twenty five Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer Thank you. And please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jackie Marcus, Investor Relations.

Jackie Marcus
Senior Managing Director at Alpha IR Group

Thank you, operator. Hello, everyone, and welcome to the Owens and Minor First Quarter twenty twenty five Earnings Call. Our comments on the call will be focused on the financial results for the first quarter twenty twenty five 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 the current views of Owens and Minor about our business, financial performance and future events.

Jackie Marcus
Senior Managing Director at Alpha IR Group

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 ks and our 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.

Jackie Marcus
Senior Managing Director at Alpha IR Group

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 Pesica, Owens and Minor's President and Chief Executive Officer and John Leon, the company's Chief Financial Officer. I will now turn the call over to Ed.

Edward A. Pesicka
Edward A. Pesicka
President, CEO & Director at Owens & Minor

Thank you, Jackie. Good morning, everyone, and thank you for joining us on the call today. We hit the ground running in 2025, and we continue to progress forward on our broader long term strategy. Starting with our Patient Direct segment. We've had a tremendous start to the year.

Edward A. Pesicka
Edward A. Pesicka
President, CEO & Director at Owens & Minor

Our top line grew in the mid single digits in the first quarter and our operating income grew by 31% or $14,000,000 resulting in a 173 basis point expansion. This exceptional performance was supported by many items. Let me share a few of them with you. Over the last year, we made an investment in the sleep journey. The objective of the sleep journey was to streamline the new start process and improve adherence for resupply, making it easier for customers to reorder needed products.

Edward A. Pesicka
Edward A. Pesicka
President, CEO & Director at Owens & Minor

The result of this investment can be seen in the first quarter results, which showed a meaningful increase in our sleep starts and high single digit revenue growth in our sleep supplies for the first quarter. In addition, over the last year, we've invested in additional commercial resources. This has enabled us to streamline territories while expanding the sales reps' bag, resulting in double digit growth in three categories: wound supplies, ostomy and urology. Additionally, we continue to identify therapy categories for expansion. For example, within home respiratory space, we launched an organic expansion into chest wall oscillation therapy.

Edward A. Pesicka
Edward A. Pesicka
President, CEO & Director at Owens & Minor

Finally, during 2024, we began to invest in our already strong revenue cycle management process with the goal of enhancing our collection rates. These efforts began with a focus in our Byram division. I am pleased to report that these efforts resulted in a record collection rate in Q1. We are now moving the learnings to our Apria division and anticipate this program will be completed by the end of the year. With respect to our planned acquisition of RoTEK, we are awaiting a final decision from the regulators and still expect to close in the first half of twenty twenty five.

Edward A. Pesicka
Edward A. Pesicka
President, CEO & Director at Owens & Minor

We have our financing in place and we are ready to move forward. Moving on to our Products and Healthcare Services segment. As a reminder, in February, we disclosed that we entered discussions regarding the potential sale of our Products and Healthcare Services segment. We remain actively engaged with a number of parties in the sale process for this segment, and I look forward to providing more information when it is prudent to do so. In the meantime, we continue to run this segment with the same level of commitment and attention to detail around serving our customers and delivering high quality products.

Edward A. Pesicka
Edward A. Pesicka
President, CEO & Director at Owens & Minor

I also recognize that the sale process creates a bit of distraction in the day to day execution. Despite the effort needed to move the sale process forward, there were some great accomplishments in the quarter. Within our Medical Distribution division, we saw continued growth in same store sales and an increase in proprietary product penetration. In addition, we have begun our distribution network automation efforts to drive long term efficiencies. We successfully opened a new state of the art distribution center in Morgantown, West Virginia to serve the state of West Virginia and surrounding areas, anchored by a long term agreement with WVU.

Edward A. Pesicka
Edward A. Pesicka
President, CEO & Director at Owens & Minor

We also recently opened another distribution center in Sioux Falls, South Dakota to serve the Upper Midwest. Finally, let me address tariffs. I will start by saying that at Owens and Minor, we are dedicated to delivering high quality medical products to support patient care. To date, we have worked extremely hard to mitigate the impact of tariffs to our customers through cost reductions, investment in inventory, utilization of our U. S.

Edward A. Pesicka
Edward A. Pesicka
President, CEO & Director at Owens & Minor

Manufacturing footprint, our multi country sourcing approach as well as offering un tariff product substitutions. However, in a business that operates at less than 1% profit margin, we can no longer absorb these costs. The costs absorbed to date include the 2024 tariffs on Chinese facial protection and gloves ranging from 25% to 50%. The tariffs implemented in March and April of this year ranging from 145% for imports from China to 25% for non USMCA imports from Mexico and Canada and 10% or more for imports from most other countries. We anticipate the annual exposure of current tariffs on our products to be in the range of $100,000,000 to $150,000,000 Accordingly, we are currently beginning to implement price increases in our P and HS segment that will be effective in early June.

Edward A. Pesicka
Edward A. Pesicka
President, CEO & Director at Owens & Minor

We have elected to impact only products affected by tariffs and not blend or use a weighted average method to spread tariffs across product categories. That said, we are using our diverse manufacturing footprint and our strategic sourcing options to offer our customer alternative products with lesser impact from tariffs. Our primary goal is to ensure our customers receive the high quality and critical supplies and services that their providers and patients rely on every day. I'm excited about what's ahead for our company, and I will now turn the call over to John to discuss our financial performance in the first quarter. John?

Jon Leon
Jon Leon
EVP & CFO at Owens & Minor

Thanks, Ed, and good morning, everyone. As we walk through details of the quarter and discuss the outlook for the business, please note that my remarks on today's call will cover only non GAAP financial measures. All GAAP to non GAAP financial reconciliations can be found in the press release filed earlier this morning. Now let's turn to our first quarter results. The business delivered on almost all of our expectations and the Patient Direct segment performed exceedingly well.

Jon Leon
Jon Leon
EVP & CFO at Owens & Minor

Our revenue for the quarter was $2,600,000,000 up just under 1% as reported, but up 2.3% compared to the prior year on a same days basis noting that there was one less selling day in Q1 twenty twenty five versus 2024. Patient direct revenue of six seventy four million dollars grew by 6% compared to the first quarter of twenty twenty four. On a same days basis, the year over year growth was 7.3%. I am pleased to say that almost every therapy category showed good growth and sleep supplies and diabetes once again led the way. Smaller categories like Ostomy, Wound and Urology also performed very well.

Jon Leon
Jon Leon
EVP & CFO at Owens & Minor

We were encouraged by the continued improvement in oxygen therapy growth, which began in the fourth quarter and feel comfortable saying that we have seen the bottom for that category and expect growth throughout 2025. The reported revenue for the Products and Healthcare Services segment showed a decline of 0.8%, while on a same sales day basis grew 0.7% compared to the first quarter last year. Segment revenue totaled $1,960,000,000 for the quarter. The Medical Distribution division again showed good same store sales, but lower year over year glove prices and lower international sales offset the Med Distribution same store sales growth. We were encouraged to again see an increase in the amount of our proprietary product sales running through our distribution channel, a key strategic initiative of ours.

Jon Leon
Jon Leon
EVP & CFO at Owens & Minor

Gross profit in the first quarter was $526,000,000 or 20% of net revenue. Although gross margin expanded by 40 basis points in patient direct, a rise in commodity input costs, particularly nitrile, and an abnormally large and adverse change in foreign currency rates within PNHS drove the consolidated gross margin rate down by about 50 basis points. Our distribution, selling and administrative expenses for the quarter were $462,000,000 or 17.6% of revenue compared to $478,000,000 in last year's first quarter, was 18.3% of revenue. Lower benefits costs and focused expense reduction and efficiency efforts drove the improvement in DS and A. These lower expenses were partially offset by costs related to the build out of our two new state of the art medical distribution facilities.

Jon Leon
Jon Leon
EVP & CFO at Owens & Minor

Adjusted operating income was $61,000,000 in the first quarter, an improvement of about 7% versus Q1 twenty twenty four. This included 31% segment operating income growth at Patient Direct. The Products and Healthcare Services segment realized a larger impact from foreign currency in the first quarter than we usually see and this negatively impacted consolidated adjusted operating income by $3,000,000 Interest expense in the first quarter was just under $34,000,000 down $1,700,000 compared to the prior year's first quarter. This change was driven by lower average borrowings throughout the course of the quarter, partially offset by less interest income than we had in the first quarter of twenty twenty four. Our adjusted effective tax rate was 31.9% as compared to 29.2% in the first quarter last year.

Jon Leon
Jon Leon
EVP & CFO at Owens & Minor

The increase is primarily due to the impact of a lower share price on equity compensation. Adjusted net income for the quarter was $18,000,000 or $0.23 per share compared to $15,000,000 or $0.19 per share last year, representing about 20% growth. Adjusted EBITDA grew 5% to $122,000,000 versus $116,000,000 reported during the first quarter of twenty twenty four. As expected and discussed last quarter, we have what we believe will be the weakest cash flow quarter of the year. The consumption of working capital was driven by a number of factors, none larger than increase in products and healthcare services inventory ahead of the opening of the previously mentioned new distribution centers as well as in anticipation of tariffs.

Jon Leon
Jon Leon
EVP & CFO at Owens & Minor

Additionally, the first quarter always marks the payment of incentive compensation to a number of our teammates. And this year, due to the timing of payroll at the end of the first quarter, accrued salaries declined by $22,000,000 as compared to year end. Also, cash expenses related to both the planned Roadtec acquisition and the potential sale of the Products and Healthcare Services segment totaled approximately 23,000,000 Cash outlays from most of these items are expected to reduce over the course of the year. This fact, along with the seasonal profit growth and seasonal improvement in the already best in class collection rates of Patient Direct, should lead to marked improvement in cash flow, which will be used for debt reduction as we continue to focus on returning to the targeted leverage debt range of two to three times EBITDA. As you heard from Ed, we're actively making pricing changes to pass along the impact of tariffs in addition to reworking sourcing strategies.

Jon Leon
Jon Leon
EVP & CFO at Owens & Minor

We also are prepared to leverage our U. S. Manufacturing footprint. The vast preponderance of potential tariff exposure resides in products and healthcare services and the margin profile of that business obviously makes any tariff absorption impossible. While we believe we will be well positioned to protect the business from a tariff impact, the possibility exists of at least an adverse timing impact on working capital as tariffs are paid ahead of AR collections.

Jon Leon
Jon Leon
EVP & CFO at Owens & Minor

Importantly, as noted in this morning's press release, we have reaffirmed guidance for the year and continue to expect improving results in each subsequent quarter and we still see at least 70% of earnings and cash flow generated in the second half of the year. Overall, it's pleasing to have the business start the year largely as expected and we remain bullish on the outlook for earnings and cash flow for the remainder of 2025. I'll now turn the call over to the operator for questions. Operator?

Operator

Thank you. We will now begin the question and answer session.

Operator

Session.

Operator

Your first question comes from the line of John Stansell of JPMorgan. Your line is now open.

John Stansel
John Stansel
VP - Equity Research at JP Morgan

Great. Thanks for taking the question. Just want to dig in on the tariff side of this. Can you just talk about the discussions you're having with your customers and how they are or not planning around this potentially changing behavior or approaching their sourcing? Thank you.

Edward A. Pesicka
Edward A. Pesicka
President, CEO & Director at Owens & Minor

Yeah. Sure, John. Excuse me. Sorry. So let me again rescope the tariff exposure.

Edward A. Pesicka
Edward A. Pesicka
President, CEO & Director at Owens & Minor

We think it's in the 100,000,000 to $150,000,000 range. We think it's as of right now, it's on that lower end of the range. But obviously, as product mix changes, that could change. That's why we have the range on it. And the bulk of ours is really coming from China and Thailand, obviously, where we make our gloves and then some of the sourcing of more of the commodity type products.

Edward A. Pesicka
Edward A. Pesicka
President, CEO & Director at Owens & Minor

And smaller, very small impact really related to USMCA type products coming from Mexico. Regarding our customers, look, we've got various contractual opportunities or contractual ability to be able to adjust prices going forward. We recognize from a customer standpoint, it's a difficult conversation. We've done, I think, really a good job over the last several months absorbing a significant portion of it. Again, as a reminder, there were tariffs that went on facial protection as well as gloves that were effective at the end of last year as well as in January 1, plus the additionals.

Edward A. Pesicka
Edward A. Pesicka
President, CEO & Director at Owens & Minor

Some of the things we've done to help mitigate that for our customers as we increased our inventory significantly in the first quarter of the year to make sure we have product on on hand. You know, but then again, you know, at 1% selling margin in this business, we can't afford to take on, you know, a 45% tariff, and we have to work together with our customers, you know, to work through that. You know, we are working with our customers to identify alternatives, you know, products that can be substituted out at a lower cost, But that's those are the conversations we're we're having and we'll have going forward. I think the other thing we're trying to do is because this is such an administrative burden for customers and they're getting it from various suppliers, not just us, is to try to do it infrequently so you don't have, you know, so much administrative work associated with it. So that's where we are in the process, you know, and it's a pretty fluid environment too.

Edward A. Pesicka
Edward A. Pesicka
President, CEO & Director at Owens & Minor

But, you we're gonna have the ability to react as things change within the policies and the tariffs. And that's the way we're approaching it.

John Stansel
John Stansel
VP - Equity Research at JP Morgan

Great. And then just quickly on FX. Obviously, a headwind, it sounds like in the first quarter, the dollar has moved around a fair amount in March, April. I just you reaffirmed FX, I think, as of the end of last year. Just how should we think about the impact progressing through the remainder of the year versus your expectations?

Jon Leon
Jon Leon
EVP & CFO at Owens & Minor

John, it's John Lena. Yes, think we saw a lot of volatility in the dollar, particularly in the month of March, particularly in the Asian currencies where we do a lot of our manufacturing and sourcing. That has since subsided quite a bit. You're right, the dollar still moves quite a bit. But relative to what we saw in March, things are much, much calmer now.

Jon Leon
Jon Leon
EVP & CFO at Owens & Minor

And we if we stay where we are today, think the guidance will be fine. We don't expect too much more volatility like we saw in March. And reminder, it's just in the P and H segment only where we see that. So, well, what we know today, think we're comfortable with the guidance for the rest of the year around FX.

Operator

Your next question comes from the line of Michael Cherny of Leerink Partners. Please go ahead.

Ahmed Muhammad
Associate at Leerink Partners

Good morning. This is Ahmed on for Mike Cherny. Thank you for the color that you gave on tariffs. I just wanted to clarify, is the 100,000,000 to $150,000,000 the direct impact of tariffs, or is it just the exposure, the potential exposure? And just to be clear, what exactly is embedded in the guidance?

Ahmed Muhammad
Associate at Leerink Partners

And, just if there's any more color you could give there. And as you think about price increases, will you be able to preserve spread or is the goal just to preserve GP dollars? Thank you.

Edward A. Pesicka
Edward A. Pesicka
President, CEO & Director at Owens & Minor

Yeah. So the the tariff exposure in an essence, if you if you look at it at a SKU level, you try to take it to that level of detail, gone through it by country of origin, knowing what the tariff is, knowing what our product cost would go up, know, that's what it is in totality. And then from there, the expectation is that we're gonna cover those dollars that come through. So that's what we're expecting on an aggregate basis. So hopefully, that helps when I talk about the 50,000,000 exposure.

Edward A. Pesicka
Edward A. Pesicka
President, CEO & Director at Owens & Minor

That is what is getting passed through so that way it can cover our cost increases.

Operator

Your next question comes from the line of Daniel Grosslight of Citi. Please go ahead.

Luismario Higuera
Luismario Higuera
Analyst at Citigroup

Hey, this is Luis on for Daniel Grosslight. Just a quick follow-up. What is the split between the 100 and 1 hundred and 50 tariff exposure between the PNHS segment and the PD segment? Thank you.

Edward A. Pesicka
Edward A. Pesicka
President, CEO & Director at Owens & Minor

Yeah. It's virtually all PNHS segment. I mean, we've gone through in detail analysis for our patient direct segment. And within the patient direct segment, the vast majority of the products are either made in The US or qualify under the Nairobi protocol. So there is very little exposure within our patient direct segment today associated with it.

Edward A. Pesicka
Edward A. Pesicka
President, CEO & Director at Owens & Minor

You know, the one areas, and it's a small category for us, you would think would be something like a bet metal area where you do have some of that stuff made overseas. But again, the 100,000,000 to $150,000,000 it's virtually all in our P and HS segment.

Luismario Higuera
Luismario Higuera
Analyst at Citigroup

It. Thank you.

Edward A. Pesicka
Edward A. Pesicka
President, CEO & Director at Owens & Minor

Other

Edward A. Pesicka
Edward A. Pesicka
President, CEO & Director at Owens & Minor

common one sorry. I'll just add one more comment on tariffs. And, you know, again, recognizing that, you know, there's a lot of conversation we have to have with customers. But in in the industry today, we're not the only ones trying to pass this on and needing to pass it on. So really across the industry, you know, it's it's most manufacturers and or distributors and or suppliers that are needing to do this because of such the margin rates we have within the space.

Operator

All right. Your next question comes from the line of Kevin Caliente of UBS. Please go ahead.

Kevin Caliendo
Kevin Caliendo
Managing Director at UBS Group

Good morning, guys. Thanks for taking my questions. First one, I just want to understand a little bit on the guidance. The RoTEK financing is in place, but, it doesn't look like the interest expense has changed. So is that like, how are you accounting for that in the guidance?

Kevin Caliendo
Kevin Caliendo
Managing Director at UBS Group

Or do you are you just not gonna is the financing set up such that it won't really start to pay until the deal closes? And so you'll update the guidance then. I just wanna understand how how that dynamic works.

Jon Leon
Jon Leon
EVP & CFO at Owens & Minor

Yeah. Kevin, it's John. So the none of the debt comes on to the balance sheet until we actually close the deal. The b loan, the term B loan will begin to accrue interest before the May, keeping in mind that we are expecting to hear from the FTC in early June. So, at that point, once we hear from the FTC, then it gives us opportunity to close the deal to to re review the guidance.

Jon Leon
Jon Leon
EVP & CFO at Owens & Minor

But without knowing exactly that outcome and not having the debt on the balance sheet right now, we've left the guidance alone and not impact any the the EBITDA from Rotek or the or the debt. That that makes sense to you?

Kevin Caliendo
Kevin Caliendo
Managing Director at UBS Group

Yeah. No. That that that's helpful. I know the debt came in more maybe met a higher rate than you had expected. Are any of your assumptions around, you know, Roadtec accretion changed in any way, shape, or form?

Kevin Caliendo
Kevin Caliendo
Managing Director at UBS Group

Or, you know, how should we think about that? It's not in people's models or most people's models yet, but I'm just wondering how you're thinking about it. Are you gonna just plan to update us when the deal closes?

Jon Leon
Jon Leon
EVP & CFO at Owens & Minor

Yeah. Well, you'll recall that we had it neutral the first full year, then accretive in the second year. It was like ten, fifteen, so that's an exact number. But we'll certainly update upon closing. But you are correct.

Jon Leon
Jon Leon
EVP & CFO at Owens & Minor

The debt came in roughly 50 basis points than we had anticipated at the time of the deal.

Kevin Caliendo
Kevin Caliendo
Managing Director at UBS Group

Okay. And just one last one on free cash flows or if I'm hogging the phone here a little bit. But on our last in the last quarter, you gave kind of a cash flow bridge, right? EBITDA with CapEx of around $260,000,000 and the interest expense guidance just remains the same. The one thing, I guess, that's different now is, obviously, the working capital looks a lot different than maybe you had anticipated.

Kevin Caliendo
Kevin Caliendo
Managing Director at UBS Group

The last commentary you made to us publicly was that there would be like 100,000,000 to $150,000,000 of cash flow available depending on working cap. Do you still anticipate, given what you did with inventory, that the free cash flow this year would be meaningful or $100,000,000 or more. Is that still in play?

Jon Leon
Jon Leon
EVP & CFO at Owens & Minor

Yes, that's still in play. No change to the outlook for the cash flow. You're right, there's a lot of numbers in play this quarter. I would say most were largely anticipated. I would offer probably the cost around the strategic initiatives, both the planned RoTEK acquisition and the potential sale of P and A just a little higher than we thought, particularly on the RoTEK side.

Jon Leon
Jon Leon
EVP & CFO at Owens & Minor

But other than that, it's as we expected. So there's no change in the outlook for cash flow for the year. We still expect to be able to generate good free cash flow and use it to pay down debt.

Kevin Caliendo
Kevin Caliendo
Managing Director at UBS Group

Fantastic. Thank you so much.

Operator

Your next question comes from the line of Eric Caldwell of Baird. Please go ahead.

Eric Coldwell
Senior Research Analyst at Baird

Thanks. Good morning. I have few. I'm curious if you could share with us the incremental tariffs that you actually realized in q one from those that were all in effect and those that went into effect, January 1. What was the what was the impact on the quarter itself?

Eric Coldwell
Senior Research Analyst at Baird

Obviously, some of the pricing decisions hadn't gone into effect at that point on your side.

Edward A. Pesicka
Edward A. Pesicka
President, CEO & Director at Owens & Minor

Yeah. Really didn't you know, based on the inventory we had in place, Eric, it really did not have an impact on q one.

Eric Coldwell
Senior Research Analyst at Baird

Okay. Good. And then the the second quarter here, the quarter that we're in, I'm I'm curious just from an easing standpoint with the models, you know, you were just asked about the, the Roadtec debt and when the financing comes in. And it sounds like maybe there could be a slight mismatch on timing on the term the term, coming in in May, but there's also the tariff, increases. And you're talking about pricing that starts to go into effect, I believe, in early June.

Eric Coldwell
Senior Research Analyst at Baird

So is there a bit of a gap here for a couple of months before your pricing efforts take effect? And, you know, if so, what is the what is the potential impact of tariffs here in the second quarter? Or would you be on still a a bit of a delay because of the timing of when inventory flows?

Edward A. Pesicka
Edward A. Pesicka
President, CEO & Director at Owens & Minor

Yeah. I I think at a high level, Eric, the way we think about it, way we thought about it, and the way we've done it from a timing standpoint, you know, by having the new pricing in in early June based on what the inventory and what our normal flow through should be and based on the inventory we had in the first quarter, that's when we need to start to to do it as the higher price stuff starts to flow through our system. So that timing lines up pretty pretty good on on when the products go flow through our system and when those price increases go, you know, go into effect.

Eric Coldwell
Senior Research Analyst at Baird

Got it. And then what happens in a scenario I I completely understand what you're saying and most others are saying in terms of having to pass the pricing on, to, you know, a large or entire extent. Some of your competitors may not pass all of the pricing on. They may use that as, you know, a bit of a competitive advantage or, take advantage of a tough situation for clients and use that to to gain share. Some manufacturers have said they're not going to raise prices or not going to raise them fully.

Eric Coldwell
Senior Research Analyst at Baird

And then some manufacturers have also said they're going to spread tariffs across all products and so not go SKU by SKU, country by country. So there could be some mismatch in the pricing on specific products if you're, for example, taking, you know, a 45% on a certain China product, but a competitor might be, you know, taking a lesser amount on that particular product. So we also have a hospital, and maybe more health systems that have said they're just not gonna take price increases. I mean, Vanderbilt's been pretty clear on this. So what happens, if a customer says no?

Eric Coldwell
Senior Research Analyst at Baird

Do you do you just lose the sale, or do you, you know, do you bend a bit? I'm just I'm just curious what happens in these situations where maybe the the pushback is is is is great.

Edward A. Pesicka
Edward A. Pesicka
President, CEO & Director at Owens & Minor

Let me let me take there's a lot in that questionnaire. So let me just take first is the approach on tariffs. If others are blending or using a weighted average tariff approach, it's completely not aligned with what the tariffs are this were were were implemented or designed to do. So I'll give an illustrative example here. If you've got a Chinese product selling for a dollar and a US product selling for a dollar 30, and the company decides to do instead of doing the 45% tariff on that dollar product decides to just spread it at 25% across everything, that means that dollar product goes up to a dollar 25 and it's still below The US made product price.

Edward A. Pesicka
Edward A. Pesicka
President, CEO & Director at Owens & Minor

And you're still encouraging people to buy the lower cost Chinese product. That is not the intent of the tariffs. In tariff the tariffs, you know, they're increasing costs for Chinese made products that ultimately will help lean towards buying products that are either made in The US or in tariff friendly or US friendly countries. So that's why we've taken the approach to actually implement the tariffs based on the way they have been laid out, not use not turn around and blend it and raise prices on every product regardless of where it's made. So we've taken a pretty direct approach on that.

Edward A. Pesicka
Edward A. Pesicka
President, CEO & Director at Owens & Minor

Second of all, you know, there's requirements that that don't enable that will will stop us from selling products at a loss, you know, and we just we just can't do that, due to various requirements that are out there. You know? And I and I think with our customers, we're gonna work with them. We're gonna work with them aggressively to find them other products potentially that are lower cost than what the tariff implemented product is and and focus on that. You know, that's what we have to do because, again, what we can't do is sell products and that have significant loss on them because we're we're we're absorbing the tariff cost.

Edward A. Pesicka
Edward A. Pesicka
President, CEO & Director at Owens & Minor

So that's the intent of what we we're gonna do with within this.

Eric Coldwell
Senior Research Analyst at Baird

And then the, the thank you for that. The the last one for me, Roadtec, the you you John mentioned the the debt was about 50 bps higher than originally, forecast. That that process, since you first announced the deal has been going on for, you know, nearly a year now, as you've reported in your, you know, various debt and financing presentations. As you reported over time, RoTEK's financials actually did deteriorate a bit. Revenue and margin profile came in.

Eric Coldwell
Senior Research Analyst at Baird

I'm curious now that a year has passed, is the acquisition target performing at the levels you built into your original base case of neutral in year one and $0.15 accretive in year two?

Jon Leon
Jon Leon
EVP & CFO at Owens & Minor

Eric, it's John. Yes, the answer to question is yes. Roadtec continues to perform as we expected. 2024 came in very much right on top of our deal model. The declines that people saw were largely anticipated and largely resulted from a lot of COVID era benefits that the industry got to realize that fell off in early twenty twenty four, like '75, '20 '5 PHE going away.

Jon Leon
Jon Leon
EVP & CFO at Owens & Minor

We saw the same thing in our current patient direct business. So we fully anticipated those changes in 2024 and overall ROTEK performed exactly as we expected in the deal model and doing so through the first quarter of twenty twenty five.

Eric Coldwell
Senior Research Analyst at Baird

Okay. Thanks very much.

Operator

And that concludes our Q and A session. I will now turn the conference back over to Ed for closing remarks.

Edward A. Pesicka
Edward A. Pesicka
President, CEO & Director at Owens & Minor

So thank you everyone. And, you know, really, appreciate you taking the time to join us this morning. You know, I'm excited about where we're going as a company. And we really have, you know, a bright future ahead of us, you know, as we continue to operate and execute on our long term strategy. With that, I look forward to sharing progress with you later this summer.

Edward A. Pesicka
Edward A. Pesicka
President, CEO & Director at Owens & Minor

Thank you.

Operator

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Executives
Analysts

Key Takeaways

  • Owens & Minor delivered strong Q1 results with total revenue of $2.6 billion, Patient Direct revenue up 7.3% on a same-days basis and operating income up 31%, driving adjusted EPS of $0.23, a 20% increase year-over-year.
  • The Patient Direct segment benefitted from investments in the “sleep journey,” expanded commercial resources yielding double-digit growth in wound supplies, ostomy and urology, new therapy category launches, and a record collection rate that will be extended across divisions by year-end.
  • Management is awaiting final regulatory approval for the RoTEK acquisition (expected H1 2025) with financing secured, while actively pursuing the sale of its Products & Healthcare Services segment alongside ongoing distribution network automation and new state-of-the-art distribution centers.
  • Amid escalating tariffs—which could cost $100–150 million annually—Owens & Minor will implement targeted price increases on affected Products & Healthcare Services SKUs in early June, supported by US manufacturing and diversified sourcing to mitigate customer impact.
  • Q1 represented the company’s weakest cash flow due to inventory buildup for new distribution centers and tariff preparation, but management has reaffirmed full-year guidance, expects cash flow and earnings to improve each quarter, and plans to use excess cash to reduce debt toward a 2–3× EBITDA leverage target.
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Earnings Conference Call
Owens & Minor Q1 2025
00:00 / 00:00

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