Owens & Minor Q2 2025 Earnings Report

Owens & Minor EPS Results

• Actual EPS: $0.26
• Consensus EPS: $0.27
• Beat/Miss: Missed by -$0.01
• One Year Ago EPS: $0.36

Owens & Minor Revenue Results

• Actual Revenue: $681.90 million
• Expected Revenue: $2.73 billion
• Beat/Miss: Missed by -$2.05 billion
• YoY Revenue Growth: +3.30%

Owens & Minor Announcement Details

• Quarter: Q2 2025
• Date: 8/11/2025
• Time: Before Market Opens
• Conference Call Date: Monday, August 11, 2025
• Conference Call Time: 8:30AM ET

Owens & Minor (NYSE:OMI) is a healthcare solutions company, which engages in the product manufacturing and delivery, home health supply, and perioperative services to support care through the hospital and into the home. It operates through the Products and Healthcare Services, and Patient Direct segments. The Products and Healthcare Services segment includes medical distribution, the outsourced logistics and value-added services business, and global products, which manufacture and source medical surgical products through the production and kitting operations. The Patient Direct segment includes the home healthcare business, Byram and Apria. The company was founded by Otho O. Owens and G. Gilmer Minor in 1882 and is headquartered in Henrico County, VA.

Owens & Minor Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Owens & Minor has classified its Products and Healthcare Services segment as discontinued operations and plans to divest it, positioning the company as a focused, high‐margin pure‐play Patient Direct business.
• Positive Sentiment: Since its 2017 acquisition, the Patient Direct segment has grown from $450 million in revenue and $38 million in EBITDA to a projected $2.76–2.82 billion in revenue and $376–382 million in adjusted EBITDA for 2025.
• Neutral Sentiment: Continuing operations reported Q2 revenue of $682 million (up 3.3% year‐over‐year or ~4% excluding diabetes supply disruptions) and adjusted EBITDA of $96.6 million (14.2% margin).
• Positive Sentiment: Net debt stood at $1.9 billion as of June 30, and management will apply 100% of net proceeds from the upcoming divestiture toward debt reduction to maintain a 2–3× EBITDA leverage range.
• Neutral Sentiment: Stranded costs were approximately $11 million in Q2 and are expected to rise temporarily as the separation progresses, with initiatives underway to reduce these costs and improve long-term profitability.

Presentation

[Operator]

Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to Owens and Minor Reports Second Quarter twenty twenty five Financial Results. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

[Operator]

Thank you. I would now like to turn the call over to Jackie Marcus, Investor Relations. Please go ahead.

[Jackie Marcus, Senior Managing Director at Alpha IR Group]

Thank you, operator. Hello, everyone, and welcome to the Owens and Minor second quarter earnings call. Our comments on the call will be focused on the financial results for the 2025 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 that. 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 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 Paseca, Owens and Minor's President and Chief Executive Officer John Leon, the company's Chief Financial Officer and Perry Bernocchi, the company's Executive Vice President and CEO of Patient Direct. I will now turn the call over to Ed.

[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 are in the final stages of our robust process for the divestiture of the Products and Healthcare Services segment, and as a result, have classified this segment as discontinued operations. We are looking forward to concluding the sale of the business and working with a buyer who has the vision and greater flexibility to better support our customers and long term growth. I'm excited about the opportunities ahead as we transition into a focused pure play patient direct business.

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

Building on the momentum gained since we entered the patient direct space eight years ago and supported by favorable demographic trends and meaningful scale, We are confident in our ability to lead as the market continues to evolve. For more than one hundred and forty years, Owens and Minor has continuously evolved organically and through strategic acquisitions and divestitures. From its origins as a pharmacy to expanding into pharmaceutical distribution, then shifting into medical surgical distribution and manufacturing and eventually developing a small patient direct segment. The planned divestiture of our Products and Healthcare Services segment represents the next evolution in Owens and Minor, enabling us to concentrate exclusively on the higher margin, higher growth Patient Direct segment. This transition positions Owens and Minor to capitalize on strong sustainable tailwinds in the home based care market.

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

Demographic shifts and macroeconomic trends are driving increased demand for home based health According to the CDC, as of 2024, approximately forty percent of American adults live with at least one increased chronic condition, while twelve percent manage five or more. Furthermore, five of the top 10 leading causes of death in The United States are linked to preventable or treatable chronic diseases. As health care providers seek more effective models, the home has become an essential care setting, supporting longer healthier lives for patients and unlocking greater efficiency. Let me now discuss a little more about our continuing operations, Patient Direct. I'm excited about the opportunity ahead as we transition into a focused pure play patient direct business.

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

This is a business that delivers essential supplies for home based care, a business that is a proven trusted partner to providers, payers and patients alike. Since our acquisition in 2017, it has grown from an approximately $450,000,000 in annual revenue and approximately $38,000,000 in EBITDA to a projected revenue between $2,760,000,000 and $2,820,000,000 and adjusted EBITDA range of $376,000,000 to $382,000,000 in 2025. Our patient direct business is built on a strong culture of disciplined growth, one that never sacrifices returns or patient care standards in the pursuit of expansion. With favorable demographic trends, meaningful scale and leadership position, we are poised for profitable growth as the home based care market continues to evolve. At a high level, our long term strategy for Patient Direct remains firmly intact.

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

We are committed to delivering disciplined growth through both organic initiatives and strategic acquisitions, while continuing to expand our EBITDA dollars. In the near term, our priorities include completing the divestiture and focusing on our continuing operations, which includes mitigating stranded costs, reducing debt, advancing IT infrastructure and automation and executing on initiatives aimed at driving revenue and EBITDA growth. We will build on the momentum and successful efforts over the past year, including improvements in revenue cycle, the Sleep Journey program, category expansion and addition of the sales force to support both new and existing markets. On the inorganic front, in June, we announced the termination of our agreement to acquire RoTEK. While the outcome was disappointing, the path to obtain regulatory clearance for this merger proved unviable in terms of time, expense and opportunity.

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

Looking ahead, we will continue to evaluate selective acquisition opportunities that are additive to Patient Direct's capabilities, align with our strategic vision and help us maintain our leadership position in this evolving market. Finally, I am pleased to have Perry Bernocchi, our long term Patient Direct leader, join us on the call today. Perry has been the architect and operational leader of the success and growth of Patient Direct since Owens and Minor acquired Byram in 2017, a company that Perry has led for over the past twenty years. I would also like to thank our teammates who have done a great job in staying focused on serving our customers. With that, I will now turn the call over to John to discuss our financial performance in the second quarter and our outlook for the rest of the year. John?

[Jon Leon, EVP & CFO at Owens & Minor]

Thanks, Ed, and good morning, everyone. As I'm sure you saw in our press release this morning and as Ed mentioned, the divestiture of the Products and Healthcare Services segment is far enough along that we are now reporting that segment as discontinued operations. As a result, our reported financials and most of my comments today will speak only to continuing operations, which is made up of our patient direct business, certain functional operations and stranded costs stemming from the planned separation of PNHS. Details around the quarter and any discussion of the outlook for the business on this call will cover only non GAAP financial measures. But I also want to point you to the $80,000,000 in expenses from the termination of the Roadtec acquisition and the related $18,000,000 in Roadtec related financing costs, which both occurred in the second quarter.

[Jon Leon, EVP & CFO at Owens & Minor]

Each of these items has its own line in our GAAP results, but are not included in our non GAAP adjusted results. Cash cost for these items are included in the GAAP net loss on the statement of cash flows. Importantly, please note that all GAAP to non GAAP financial reconciliations can be found in the press release filed earlier this morning. With the plans of PNHS divestiture, our financial results will take some explanation and getting used to and requires a reset of expectations. So let's begin to unpack the second quarter results.

[Jon Leon, EVP & CFO at Owens & Minor]

Revenue for the quarter was $682,000,000 an increase of 3.3% versus 2024. While that is a lower growth rate than we had expected, it is important to note that in order to not disrupt our customers' critical needs during supplier disruptions, we modified customer ordering quantities and our delivery frequency for diabetes supplies throughout the quarter. Absent this headwind, our growth rate in the quarter would have been approximately 4%. Once again, the sleep category, in particular sleep supplies, led the overall growth rate and urology and ostomy showed very strong growth. Diabetes was lower than planned in the quarter as I alluded to, but we expect to see some rebound during the back half of the year, but it will remain below prior year due to the shift from DME to pharmacy.

[Jon Leon, EVP & CFO at Owens & Minor]

Smaller categories, including the new Chest Wall Oscillation line performed very well. As we've previously discussed, the investment we made in 2024 and early twenty twenty five and what we refer to as the Sleep Journey is showing a strong return. For the six months ended June 30, revenue was $1,360,000,000 a nearly 4.5 increase over the $1,300,000,000 earned in the first six months of twenty twenty four. Again, sleep, ostomy and urology showed the strongest year over year growth. For the second quarter, adjusted EBITDA was $96,600,000 or 14.2% margin rate compared to $91,100,000 or 13.8% margin rate in the 2024.

[Jon Leon, EVP & CFO at Owens & Minor]

The growth in adjusted EBITDA was driven by volume growth and improved collection rate, a margin favorable product mix, productivity gains and lower benefit costs. For the year to date period, adjusted EBITDA was $192,700,000 or 14.2% of revenue compared to $160,300,000 or 12.3% of revenue in the prior year, driven by the same factors I just described for the second quarter, although volume growth and margins favorable product mix were significantly more impactful for the year to date comparison. Stranded costs impacting adjusted EBITDA include approximately $11,000,000 in the 2025 and $14,000,000 for the year to date period, a former corporate cost that will now be absorbed by the Patient Direct business. That compares to stranded costs of $17,000,000 in last year's second quarter and about $28,000,000 in the year to date June 2024 period. The year over year change is largely due to lower compensation and benefit costs in 2025.

[Jon Leon, EVP & CFO at Owens & Minor]

These stranded costs include a number of functional area costs, including teammate expenses and previously shared third party agreements, for example. Please recognize that should the sale of PNHS be announced shortly, we would expect these stranded costs to rise before falling due to some lost economies of scale and short term spending on programs to build the proper cost structure for the optimal long term outcome. Of course, over time, we expect these expenses to decline as a percentage of the overall patient direct business and plans are being established to relentlessly focus on reducing these expenses, thereby improving profitability. Interest expense requires little explanation. In accordance with GAAP, certain qualifying interest expense is reflected in discontinued operations.

[Jon Leon, EVP & CFO at Owens & Minor]

As a result, interest expense for continuing operations for the second quarter was $26,000,000 compared to $25,600,000 in the 2024. Despite this presentation, Owens and Minor is responsible for the cash interest obligations of both the continuing and discontinued operations. Our adjusted effective tax rate for the continuing operations was 32.5 in the second quarter as compared to 28% in the second quarter last year. We now expect our annual adjusted effective tax rate to run between 40 to 45 basis points higher than it previously did due to the impact of permanent differences between book and tax income on an overall lower amount of earnings. Adjusted net income for the quarter was $20,500,000 or $0.26 per share compared to $19,300,000 or $0.25 per share last year.

[Jon Leon, EVP & CFO at Owens & Minor]

For the six months ended June 30, adjusted net income was 43,700,000.0 or $0.55 per share versus $21,900,000 or $0.28 per share in the year ago period. Now let me turn to the balance sheet. First, I want to again unequivocally state that when we sell the PNHS business, 100% of the net proceeds will be applied to debt reduction. Further, nothing about the recent strategic announcements changes our target leverage range of two to three times EBITDA. At June 30, net debt was 1,900,000,000 That's an increase of about $126,000,000 since the 2024 and an increase of $31,000,000 in the second quarter.

[Jon Leon, EVP & CFO at Owens & Minor]

That means that absent the unanticipated $100,000,000 in cash paid to terminate the RoTEK acquisition, net debt would have only been up about $25,000,000 compared to year end 2024 and down about $70,000,000 in the second quarter. I'm explaining the net debt change this way to highlight what was a very good cash flow quarter. So moving to cash flow. Please note that the statement of cash flow remains on a consolidated basis. I'm pleased that cash provided from operating activity in Q2 was $38,000,000 completely reversing the cash used in operating activity in Q1.

[Jon Leon, EVP & CFO at Owens & Minor]

Again, remember that the $100,000,000 of Roadtec related outlays is included in the $38,000,000 of cash provided from operating activity, which obviously would have been significantly higher absent the termination of the Roadtec acquisition. This improvement in cash flow was due to a significant working capital reduction of nearly $94,000,000 in the quarter, driven by lower PNHS inventory levels compared to the first quarter and improved collection rates as a result of our enhanced revenue cycle operations in Patient Direct. Similar to the sleep journey, past and ongoing investments in our already best in class Patient Direct collection rate continue to pay off. The team has been very focused on working to sell the P and H business and have also been developing our outlook for the newly defined continuing operations for the remainder of 2025. As we think about the performance of continuing operations for the full year of 2025, we expect revenue of between $2,760,000,000 and $2,820,000,000 adjusted net income per share ranging from $1.02 to $1.07 and adjusted EBITDA range of $376,000,000 to $382,000,000 To assist with modeling, that would mean that through the 2025, revenue is expected to range from $1,400,000,000 to 1,460,000,000.00 adjusted net income from $0.47 to $0.52 per share and adjusted EBITDA from $183,000,000 to $189,000,000 Also, with the assumption that a sale of the P and H business is announced shortly, we would expect the profit path for the back half of the year to not reflect the typical seasonality of the Patient Direct business.

[Jon Leon, EVP & CFO at Owens & Minor]

This is due to an anticipated increase in stranded costs as we get closer to the expected close of the divestiture. Essentially, we would expect to have to spend money early to save more money later. Again, this assumes a near term sale announcement and would only be expected to be a back 2025 issue. Please also refer to the guidance presentation with related assumptions that we filed this morning and resides on the Investor Relations section of our website. We do remain very excited about the future of the Patient Direct business and the future opportunity to be a focused pure play home based care business.

[Jon Leon, EVP & CFO at Owens & Minor]

With that, I'll now turn the call back to Kate for Q and A. Kate?

[Operator]

Your first question comes from the line of Michael Cherny with Leerink Partners.

[Michael Cherny, Senior MD & Senior Research Analyst - Healthcare Technology & Distribution at Leerink Partners]

Maybe, John, first, on the dynamics of the transaction. Obviously, we don't know exactly the timing even though it seems like it's moving along. But as you think about the dynamics of stranded costs, how long do you think that the elevated level stranded costs will take throughout the closure of the transaction? And how quickly can you flip that to some level of leverage on the back end?

[Jon Leon, EVP & CFO at Owens & Minor]

Yes, Mike. I think the first way to think about it first, the number I threw out for Q2, the $11,000,000 is a pretty good near term annualized run rate. I would expect by the time certainly by the time we get let's hypothetically say the deal would have closed before the end of the year. I would say by the time we get to the back half of 2026, we are now seeing a trajectory of those numbers starting to come down.

[Michael Cherny, Senior MD & Senior Research Analyst - Healthcare Technology & Distribution at Leerink Partners]

Okay. Thanks. That's helpful. And then maybe a question on the broader business, in particular, on the diabetes side. You talked about some of the changes in the channel.

[Michael Cherny, Senior MD & Senior Research Analyst - Healthcare Technology & Distribution at Leerink Partners]

How should we think about the, call it, medium term trajectory of the diabetes business? And are you what are your considerations? What's built in about any potential changes related to competitive bidding on various different diabetes projects products CGM etcetera?

[Jon Leon, EVP & CFO at Owens & Minor]

Yes. Certainly, a couple of things to keep in mind. Obviously, for example, everybody's talked about the shift from DME to pharmacy going off for quite some time. That will continue, albeit we think potentially at a slower rate. Keep in mind, we have a fully functioning pharmacy capability.

[Jon Leon, EVP & CFO at Owens & Minor]

We're seeing growth in that area, but it's a point of emphasis for us as we go forward to get more and more activity through our own pharmacy channel. So we're confident in that, that will happen over time. And competitive bidding, as I'm sure you've heard from some of others, it's very early. We don't know what the outlook is. Right now, as proposed, it may not be the biggest issue in the world.

[Jon Leon, EVP & CFO at Owens & Minor]

We don't we're not terribly exposed to Medicare rates. It's less than 20% of our overall revenue. And it's I'll just say it's a little early to call it, but not everything about the competitive bidding proposal as it's constructed today is a negative. But certainly, there could be future pressure, but it's far too early to call.

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

Yes. And I think the way we think about competitive bidding is from a impact on pricing, you're really looking out into, you know, really not till '28, even 2029. You know, I think the other aspect of it is, as John alluded to, you know, if we look at overall our Byrum business and our APRI business, our combined P and HS, it's probably less than 13% of our business that is going be potentially impacted by that. And then the last thing on competitive bidding is what we're seeing and what we believe too is the scale that we have can be can help us as we look at competitive bidding as it moves forward.

[Michael Cherny, Senior MD & Senior Research Analyst - Healthcare Technology & Distribution at Leerink Partners]

Great. Thank you.

[Operator]

Your next question comes from the line of Kevin Caliendo with UBS. Your line is open.

[Kevin Caliendo, Managing Director at UBS Group]

Hey, guys.

[Kevin Caliendo, Managing Director at UBS Group]

Thanks for taking my question or questions. I have a 100. I don't know where to start. If we think about if we think about this this transaction that's happening, right, we're trying to look through the balance sheet at some of the items there. The current assets versus current liabilities held for sale is $430,000,000.

[Kevin Caliendo, Managing Director at UBS Group]

You have this classification of a write down, a write down versus classification of $639,000,000. Is there anything anything there that we can read through that tells us sort of what the what the price of this asset might end up looking like? Or if you can help us think about what kind of multiple you got for this business, either on adjusted EBITDA or adjusted EBIT?

[Jon Leon, EVP & CFO at Owens & Minor]

The first part of that question, Kevin, is probably not. No. You can't read through it. It's pretty hard. We're kinda happy with that.

[Jon Leon, EVP & CFO at Owens & Minor]

And I would tell you we're still we're still very actively engaged. And what you saw there is a best estimate of the bidding process that we've been through thus far, But, we are still in a very active process at this point.

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

Yeah. We're just trying to remain diligent and thorough as we work with the parties, in in this process right now.

[Kevin Caliendo, Managing Director at UBS Group]

Okay. I I appreciate that. And then secondly, I you know, one topic that's been driving your stock was sort of perceived loss of a contract for next year at Kaiser. And when we think about the run rate of patient direct in the second half of the year of what we're looking at here, how should should we should we sort of annualize that in terms of adjusted EBITDA, try to make an assumption around what happens with Kaiser. Can you still grow, do you think, in 2026 in this business?

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

So let's let's talk a little bit about it. So we think in '25, actually, there'll be very limited impact in 2025 as a result of this, and the bulk of the transition will happen in 2026. When you talk about growth, I think the question has to be, is it top line growth or bottom line growth? And because, again, every capitated contract is different. This is really the vast majority that that contract is our really, when you when you separate the rest of it, we have very few other capitated contracts.

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

And I think the way we we think about this is being able to use the assets that we have, the equipment that we have, provides us an opportunity to go out and capture other business. And while the top line may not be the same, we think there's an opportunity to drive stronger bottom line on this as we move forward.

[Kevin Caliendo, Managing Director at UBS Group]

Okay.

[Operator]

Your next question comes from the line of Jen Stencil with JPMorgan. Your line is open.

[John Stansel, VP - Equity Research at JP Morgan]

Great. Can you spend a little bit more time talking through the factors on patient direct revenue growth in the quarter? I think even backing out the diabetes contribution, four percent will be a bit of a deceleration from recent quarters. Anything just to think about that as we then kind of progress into the second half? I appreciate, you know, it'll grow second half versus first half, but still kind of in that 4% range for full year growth.

[John Stansel, VP - Equity Research at JP Morgan]

Just anything to think about on the growth side? Thank you.

[Jon Leon, EVP & CFO at Owens & Minor]

Yes, John, it's John Leanne. I think it's fair to say we expect decent growth in the back half, not terribly dissimilar to what you just saw in the first half certainly. Diabetes, as I mentioned, we expect some rebound with us having to deal with the supply disruption. We handled that with a very customer centric way throughout the second quarter and that was the right thing to do despite the impact it had on the top line. As I mentioned, is doing very well, both sleep starts and particularly sleep supplies.

[Jon Leon, EVP & CFO at Owens & Minor]

We expect that to continue throughout the remainder of the year. We still think home respiratory is going to do okay. NIV is going to be the laggard as it has been for a number of quarters now, but oxygen is going to continue to rebound at a slow pace. And as I mentioned this quarter, Ostomy Urology will continue to be very strong as a double digit growers for us percentage wise. And we think we'll do okay in those small categories.

[Jon Leon, EVP & CFO at Owens & Minor]

So I think we're pretty much bullish. Think we'll have a little of that backup, a downside I'm sorry, a little bit of a rebound in diabetes, but it won't be crazy. But I think if you think about what we've done in the first half, which is about four point five percent, that is not dissimilar to what we expect in the second half.

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

That and just additional disclosure, when the Q comes out, we will have category we'll show the categories out there in a little more detail. So you have a little more visibility to it. And again, year to date, we're in the, call it, single digit for in diabetes and continue to see nice growth, as John alluded to, in sleep and in some of our other categories. So, you know and then I think on the diabetes side of it, John raised this in his prepared remarks that we do have the shift from DME to pharmacy, and we do have a pharmacy. So that way, when we do, we can, excuse me, maintain that business captured in pharmacy.

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

The top line revenue is lower, but, you know, we have the similar pull through within that business. So it does affect the top line, but we do have similar pull through, in in the diabetes space.

[John Stansel, VP - Equity Research at JP Morgan]

Got it. And then just looking at the quarter, you know, dollars 11,000,000 of stranded costs in 2Q twenty five, dollars 17,000,000 in 2Q twenty four. So most of the delta between the quarters on an adjusted EBITDA basis seems like it's coming from lower stranded costs. Is anything just to think about their kind of core growth, kind of diabetes was kind of weighing down kind of core performance ex stranded costs or anything else you'd just highlight?

[Jon Leon, EVP & CFO at Owens & Minor]

Yes. It was not a great growth quarter on a standalone basis. We expect that in the second half. But you're right, analyzed the stranded costs correctly. When you get to continuing ops analysis, there's also a change in allocation of functional costs as well.

[Jon Leon, EVP & CFO at Owens & Minor]

A little hard. We appreciate it a little hard for you guys to cut through all that. But the overall growth rate at an EBITDA level on legacy patient direct business before the stranded cost of functional expenses change was still in the mid single digits and we would expect them something comparable in the back half of the year.

[Operator]

Your next question comes from the line of Daniel Grosslight with Citi. Your line is open.

[Daniel Grosslight, Senior Research Analyst, Healthcare Technology at Citi]

Hi, guys. Thanks for taking the question. Just looking at guidance, I don't know if there's a way for you to help bridge new guidance versus old guidance, particularly, really, I'm looking at bottom line or EBITDA. It's being reduced by $196,000,000 Can you just bridge to us that reduction? How much is from just no longer including G and A versus stranded costs versus some of these other more fundamental items like the shift from DME to pharmacy in diabetes? Thanks.

[Jon Leon, EVP & CFO at Owens & Minor]

Yeah. I mean, I would tell you the shift from the overall shift from DME to pharmacy isn't going to be material to the change. We laid out the stranded costs, basically telling you to take what we talked about in Q the $11,000,000 roughly annualized that is a good number, though I said, as I mentioned in my remarks, could increase with the announced sale in the back half of the year. But beyond that, Daniel, really can't give you too much insight, obviously, into what P and HS would have been and what's included in discontinued ops now, just due to the way the accounting requirements and, of course, we're very active in the divestiture process.

[Daniel Grosslight, Senior Research Analyst, Healthcare Technology at Citi]

Okay. Going back to one of Kevin's questions just on the discontinued operations. So that $430,000,000 is your best estimate. What is that an estimate of? Actually, is that what you're going what you think you can get in the sale process?

[Jon Leon, EVP & CFO at Owens & Minor]

No. That is not what we think we can get in the that's not nothing to do with the projected valuation of of what we're thinking in. Yeah. That is a yes, that is unclear related to what we think we can get for the asset.

[Daniel Grosslight, Senior Research Analyst, Healthcare Technology at Citi]

Okay. And sorry, last one for me. Just on cash flow, can you maybe just break out what's kind of what the free cash flow conversion of this business looks like when we adjust for all of KNHS? It's a little bit difficult now with cash flow, including everything in income statement, just including in continuing operations PD. So maybe if you can help us think through just free cash flow conversion and of the CapEx currently on the the cash flow statement, how much of that kind of remains once this deal closes?

[Jon Leon, EVP & CFO at Owens & Minor]

Yes. So the way what we've put out in our assumptions this morning, Daniel, I mean, basically, we're looking at, as I guided to, dollars $376,000,000 to $382,000,000 of annual EBITDA on the business. That's the patient direct business, all these stranded functional costs observed. Net CapEx of 135,000,000 to $104,000,000 coming out of that. And then interest from a P and L perspective of 97,000,000 to $100,000,000 and then probably another 30,000,000 to $35,000,000 of discontinued operations interest expense that we would still be paying on a cash basis.

[Jon Leon, EVP & CFO at Owens & Minor]

So those are the pieces to think about. So you are free cash flow, don't what that adds up to, but you're probably the 60,000,070 million dollars range.

[Daniel Grosslight, Senior Research Analyst, Healthcare Technology at Citi]

Okay. Thank you.

[Operator]

Your next question comes from the line of Jay Lewis with Baird. Your line is open.

[Jay Lewis, Equity Research Analyst at Baird]

Hi. Thanks for the question. I was wondering if you could just hit a little bit on the one big beautiful bill and any expectations you have around the impact that could have on your cash flow or your cash taxes paid in 2025 and 2026?

[Jon Leon, EVP & CFO at Owens & Minor]

Yes, Jay. It's John Leo. So the one big beautiful bill is a net positive for us. We so I think the way to think about it, it's a continuation of the tax legislation that was put in place in 2017 that was at that time beneficial to the business. The continuation of that legislation from a tax perspective will continue to benefit the company from a tax, particularly cash tax basis.

[Jon Leon, EVP & CFO at Owens & Minor]

Obviously, we got a fair amount of debt on the balance sheet, so interest deductibility, 163 j helps us out as there's some other attributes of that. So I refer to the big beautiful bill as a net positive on the company financially. Operator, any other questions?

[Operator]

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

[Alan Lutz, Senior Research Analyst - Health Care Technology & Distribution at Bank of America]

Good morning and thanks for taking the questions. One for Ed. You talked a little bit about strategic acquisitions and some of the learnings from RoTEK, little bit of excess time and expenses on that deal. As we think about your pursuit of future acquisitions, I guess it makes sense for us to think that they're likely to be smaller in scope. But as you think about the learnings from RoTEK, is there any other considerations or thought that you think are important as you look at at future potential deals? Thanks.

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

Yeah. I I think, Alan, the most important one is what you alluded to there is, you know and John talked about it in his prepared remarks. I mean, we're gonna continue to focus on paying down debt. You know, if there's some smaller ones that make sense for us that can fit within within the business, we will look at those and pursue those accordingly. And, you know, really, we did do a debrief afterwards on learning on Roadtec.

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

It you know, the the time was a factor on it and several other aspects of it. But I think as we think through this going forward, it will be more focused on those smaller bolt ons as we as we focus on getting rid of our stranded costs, increasing our free cash flow, paying down debt. So that way, we can do more of those as we get into the future. The other thing since I did bring up cash flow, will add that John know John made a comment earlier too on on free cash flow. One of the things we will have is potentially some lower patient patient CapEx in the future as the capitated contract moves away and the equipment comes back.

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

We have the ability to use that equipment versus having to go out and acquire new equipment for patient CapEx for start ups. So there will be a short term benefit of that also from a cash flow standpoint.

[Alan Lutz, Senior Research Analyst - Health Care Technology & Distribution at Bank of America]

Thanks, Ed. And then one question for Jonathan. It looks like EBITDA margins are expected to step down a little bit in the second half of the year. Are there any stranded costs embedded in there? And then how should we think about, if they're not, what is embedded in that in that step down 2H? Thank you.

[Jon Leon, EVP & CFO at Owens & Minor]

Yeah. Al, that's that's a 100% related to expected increase in stranded costs assuming that there's an announced PNHS divestiture fairly soon.

[Alan Lutz, Senior Research Analyst - Health Care Technology & Distribution at Bank of America]

Perfect. So if that doesn't take place in 2025, it's reasonable to assume that that first half run rate is kind of a good ballpark for where things could be ex those potential stranded costs?

[Jon Leon, EVP & CFO at Owens & Minor]

That's correct.

[Alan Lutz, Senior Research Analyst - Health Care Technology & Distribution at Bank of America]

Thank you.

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

And that's first step, Robert. You you on your prepared remarks, and you said that that q two is probably representative of what

[Jon Leon, EVP & CFO at Owens & Minor]

q two. Yeah.

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

Of each quarter.

[Jon Leon, EVP & CFO at Owens & Minor]

Yeah. From a margin perspective. That's right. That's right. Yes.

[Operator]

I will now turn the call back.

[Jon Leon, EVP & CFO at Owens & Minor]

Go ahead, operator.

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

Great. First of all, I want to thank all of our teammates, obviously, for continuing to support our customers, supporting the patients in everything we do. And really, we look forward to continuing to move forward with a singular focus on our patient direct business, closing out this transaction and having the business laser focused as a pure play patient direct business. So thank you, everyone.

[Operator]

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

Participants

Executives

• Edward A. Pesicka, President, CEO & Director
• Jon Leon, EVP & CFO

Analysts

• Jackie Marcus, Senior Managing Director at Alpha IR Group
• Michael Cherny, Senior MD & Senior Research Analyst - Healthcare Technology & Distribution at Leerink Partners
• Kevin Caliendo, Managing Director at UBS Group
• John Stansel, VP - Equity Research at JP Morgan
• Daniel Grosslight, Senior Research Analyst, Healthcare Technology at Citi
• Jay Lewis, Equity Research Analyst at Baird
• Alan Lutz, Senior Research Analyst - Health Care Technology & Distribution at Bank of America