Yahoo Finance Owens & Minor Inc (OMI) Q1 2024 Earnings Call Transcript Highlights: Navigating Challenges ...
Revenue: $2.6 billion, up 4% year-over-year.
Gross Profit: $536 million, representing 20.5% of revenue.
Gross Margin Expansion: Increased by 79 basis points.
Operating Income (GAAP): $10 million.
Adjusted Operating Income: $57 million, up more than 20% year-over-year.
Adjusted EBITDA: $116 million, an increase of $8 million from Q1 2023.
Net Loss (GAAP): $22 million, or a loss of $0.29 per common share.
Adjusted Net Income: $15 million, or $0.19 per common share.
Total Debt: $2.2 billion as of March 31.
Net Debt: $1.9 billion, up about 3% from year-end.
2024 Revenue Guidance: Expected to be between $10.5 billion and $10.9 billion.
2024 Adjusted EBITDA Guidance: Anticipated to be between $550 million and $590 million.
2024 Adjusted EPS Guidance: Projected to be between $1.40 and $1.70.
Release Date: May 03, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Revenue for Q1 2024 was $2.6 billion, a 4% increase year-over-year, with growth in both business segments.
Gross profit in Q1 2024 was $536 million or 20.5% of revenue, showing a gross margin expansion of 79 basis points year-over-year.
Adjusted operating income was up more than 20% year-over-year, driven by overall improvements in the Products and Healthcare Services segment.
Interest expenses decreased by 16% from the first quarter of last year, reflecting efforts to reduce total debt.
Investments in inventory and commercial capabilities are being made to support onboarding new customers and maintaining high service levels.
Negative Points
Net debt expected to remain roughly the same through the remainder of 2024 due to ongoing investments.
The Patient Direct segment faced challenges due to the Change Healthcare cyber incident, impacting the ability to onboard new patients and renew eligibility for existing ones.
Operating margins in the Patient Direct segment fell about 35-36 basis points year-over-year due to investments and operational disruptions.
GAAP net loss for the quarter was $22 million, or a loss of $0.29 per common share.
Free cash flow is expected to be minimal for the remainder of the year, reflecting significant ongoing investments.
Q & A Highlights
Q: Can you provide more details on the impact of the Change Health incident on the Patient Direct segment? A: Edward A. Pesicka, President, CEO & Director of Owens & Minor, mentioned that the Change Health incident had minimal impact on top-line revenue but affected collections. The incident required more manual labor, impacting operating expenses and cash flow. However, improvements were expected as the situation resolved into Q2.
Q: How are the recent developments in the CPAP market affecting your sleep franchise? A: Edward A. Pesicka explained that despite Philips' product issues, other manufacturers have increased production to meet demand, ensuring no impact on Owens & Minor. The company continues to see strong demand in sleep starts, with sleep and diabetes being the fastest-growing categories.
Q: What factors contributed to the decline in operating margins in the Patient Direct segment? A: Edward A. Pesicka attributed the margin decline to investments in commercial resources and the manual processes required due to the Change Health incident. He emphasized that these investments are expected to break even in about 12 months, and the company is ahead of schedule in adding these resources.
Q: Can you update us on the onboarding of a large client in the P&HS segment and the investments across that segment? A: Edward A. Pesicka discussed ongoing investments in proprietary product portfolio expansion, commercial capabilities, and operational efficiencies such as optimizing the manufacturing footprint and supply chain. These investments are expected to drive margin improvement as they progress.
Q: How are regulatory changes impacting the Patient Direct segment? A: Alexander J. Bruni, EVP & CFO, referred to changes in funding, which were anticipated and incorporated into the operating plan. The company has strategies to offset potential impacts from these regulatory changes.
Q: What is the expected progression of gross margin over the year, and what are the main drivers? A: Alexander J. Bruni mentioned that gross margin is expected to improve throughout the year, driven by sourcing savings, improvements in collections, and favorable mix shifts between Patient Direct and Products & Healthcare Services. Increased top-line growth and operating leverage in the latter half of the year should further aid margin expansion.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
