Q2 2021 Owens & Minor Inc Earnings Call

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Good day and thank you for standing by welcome to the Owens <unk> minor of second quarter 2021 earnings conference call at.

At this time, all participants on a listen only mode. After the speaker presentation, there will be a question and answer session.

Ask the question during the session you will need to press star 1 on your telephone please.

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Not like the hand, the conference over to your first speaker today to share and Drinker Mcdonald director of Investor Relations. Mr. Mcgough, you may begin.

Thank you operator.

Hello, everyone and welcome to Owens <unk> minor of second quarter 2021 earnings call on.

Comments on the call will be focused on financial results for the second quarter of 2021, and our outlook from 2021 and 2022 all of which are included in today's press release.

Also like to call your attention to supplemental slides related to our 2021 outlet the posted on our website in the Investor Relations section. Please.

Please note that certain statements made on this call of forward looking statements, which are subject to risks and uncertainties. These forward looking statements are intended to qualify for the safe Harbor from liability established by the private Securities Litigation Reform Act of 1995.

All statements made on this call today other than statements of historical facts are forward looking statements and include statements regarding our anticipated financial and operational performance.

Statements made on this call represent management's current expectations and are based on information available at the time such statements from my forward looking statements involve numerous known and unknown risks uncertainties and other factors that may cause our actual results to differ materially from any results predicted assumed or implied by the fall.

We're looking statements. The company has explained some of these risks and uncertainties in its SEC filings, including the risk factors section of its annual report on form 10-K, and quarterly report on form 10-Q, except as required by law or the listing rules of the New York Stock Exchange the company expressly disclaims any.

Any intent or obligation to update any forward looking statements. Additionally, in our discussion today, but even the reference certain non-GAAP financial measures and information about these measures and reconciliations to the most comparable GAAP financial measures are included in our press release and our annual report on form 10-K.

Today I'm joined by Ed The Sika, our President and Chief Executive Officer, and Andy Long, our executive Vice President and Chief Financial Officer, I would now like to turn the call over to Ed who will start things off Ed.

Thank you Sandra and good morning, everyone and thank you for taking the time to join us on the call today.

I would like to start with a high level recap of the strategic priorities that the Owens <unk> minor leadership team and I outlined during our Investor day meeting in late May I.

I spoke about our transformation based on our business blueprint that focused on 1 of our culture a.

The culture that is based on hard work stellar execution and an unrelenting focus on our customer.

Being <unk> by our mission and our ideal values.

Next our discipline, which is based upon the Owens <unk> minor business system that is laser focused on continuous improvement and.

Third our investments are investments that are implemented in a disciplined manner, enabling us to achieve our strategic priorities.

These 3 elements are ingrained in our corporate DNA has set the foundation of our business blueprint and have enabled us to ignite long term profitable growth.

As committed during the Investor day meeting I will provide periodic updates today, let me start with an update on some of our investments, which we spent time at our Investor day detailing the.

These investments remain on track and are designed to provide attractive returns for our stakeholders. Let me remind you of a few 1 we continue to expand our own manufacturing capability for nitrile gloves in our existing facility in Thailand.

This will put us in an advantaged position, allowing us to have greater control and improved cost structure on.

The new capacity is expected to go live in early 2022.

2 we remain focused on leveraging our manufacturing strength and brand value through the expansion of our product portfolio.

During the second quarter, we doubled our wound care product line and we remain on track to expand our incontinence care portfolio later this year.

Furthermore, we continue to identify additional product category opportunities to expand our proprietary product offering in the future.

3 we are also diversifying into new verticals to sell specialty higher margin products into new end markets. For instance, we expanded into clean room glove market space under the how your peers Zero brand. In addition, we recently launched our safe skin consumer brand of gloves.

Next we continue to invest in technology based offerings that provide our customers with actionable data through our service solutions and finally, we are focused on the balance between technology and touch on our distribution centers with continued investment in automation, AI and human capital all of which <unk>.

<unk> are leading the ability to be flexible and scalable to provide best service for our changing customer demands.

These initiatives are just a few examples of how we are investing to generate long term profitable growth, while providing significant benefits for our customers.

In addition of having the Owens <unk> minor business blueprint in place and the investments that I just discussed I'm equally proud of our focus on corporate social responsibility.

We are committed to delivering on both our financial and our corporate social responsibility obligations.

So far this year, we have launched the Owens <unk> minor foundation, which is committed to improving our communities in which we operate and live.

2 we released our first sustainability report detailing the advancement that Owens <unk> minor has made in ESG and 3 we undertook our first step in reducing our carbon footprint with our electric fleets pilot initiative.

Our ESG efforts just like our business blueprint are part of who we are and the good corporate citizenship is fundamental to our mission and values.

Let me now shift gears to our second quarter performance.

I'm extremely pleased to reported another strong quarter that continues to build upon the solid performance from 2020, a year ago, we were in unchartered waters due to the pandemic, but our ability to be flexible and adjust to meet the critical needs of our customers and the nation helped to establish momentum that has carried into the second.

Order of.

Additionally, we continue to find ways to keep driving efficiency and be more productive as markets begin to return to pre pandemic for them.

Now, let me update you on the segments and I'll start with our global solutions segment within this segment the medical distribution business performed well and posted much improved results. We continue to bring in net positive wins as a result of our market leading service combined with the trust we gained during the pandemic in <unk>.

We saw volumes associated with the electric procedures return to pre pandemic levels during the second quarter.

Related to our patient direct business, we continue to grow through new patient capture in this rapidly growing patient direct markets and finally, our ongoing investments in our global solutions segment are expected to provide continued growth and an attractive long term outlook.

Moving on to the global products segment. This segment produced significant top line growth as sales of our surgical infection prevention products, including PPE remained strong. The strong sales are a result of our increased output of previously added capacity to fulfill continued high usage share gains made during the.

The pandemic stockpiled fulfillment and increased electric procedures. In addition, we saw favorable timing for cost pass through on gloves, adding to the top line growth.

In addition to the solid performance in our 2 reporting segments, our balance sheet remains strong with net leverage at 1.8 times and total net debt of less than $1 billion.

This gives us the latitude to continue to make well thought out investments to improve our operations and drive growth.

Moving from the second quarter and looking to the rest of 2021 of them beyond we are excited about the long term future. We expect the rest of the year to be driven by S and IP utilization elective procedures opportunity pipeline and continued strength of our patient direct business.

In addition to this we will continue to have of tenacious focus on operational excellence and continuous improvements.

Starting with <unk> IP.

As we have said, we believe that the usage for S and IP products, including PPE will be defined by the new normal.

The new normal in the health care industry, we continue to believe that usage from many PPE categories will settle somewhere below the peak of the COVID-19 outbreak, but in excess of the pre pandemic levels. As a result of established health care protocols stockpile of requirements and our share gains obtained during the pan.

Downtick. In addition, we expect the expansion of our P. P into new markets like clean room, and consumer to provide incremental opportunity. However, as the year progresses, we expect moderation in both pricing and demand for PPE, but let's not forget another factor to consider that is the elimination.

On a P. P E emergency use authorization, which will create opportunity for our Americas based manufactured medical grade PPE.

Let me give you a few examples first most recently the FDA revoke the emergency use authorization for non niosh approved disposable respirators, which will prohibit the use of these devices in the health care setting.

Second the CDC has recommended that health care facilities returned to conventional practices and no longer use crisis capacity strategies like bringing in non medical grade supplies and third the EUA for decontamination and bio burden reduction systems has been revoked.

All of these actions by the federal agencies bring to light the significance of authorized medical great PPE and the health care setting.

Our unique value chain of vertically integrated of Americas based manufacturing footprint and supply chain will remain a distinct advantage for us as we continue to work closely with the government and industry to help the address the current and future needs for PPE requirements.

Next on elective procedures.

By the end of the second quarter, we saw elected procedures return to pre pandemic levels and we expect this to continue through the second half of the year.

This expectation is consistent with our customers' outlook and assumes COVID-19 rates don't get markedly worse across the country.

Moving on to our pipeline our medical distribution continues to provide best in class service and is backed by our complete suite of products and services. These together provide 1 of the industry, leading offering to best serve our customers. We will continue to advance of the large pipeline of opportunity, while capturing net new wins.

Again, our medical distribution continues to provide market, leading operational performance and stability that supports our customers' need for continuity of supply and supply chain resiliency.

And lastly, our patient direct business, our patient direct business enjoys the leading national presence as the partner of choice for our referral sources, we are uniquely positioned to meet the needs of our customers in this fast growing home health space.

We expect this business to continue to grow across our major product categories within the annuity like recurring revenue model.

I'd like to conclude by underscoring the success, we've achieved during the quarter, our strong second quarter gives us the confidence to affirm the range of our 2021 guidance for adjusted EPS of $3.75 to $4.25.

And adjusted EBITDA of $450 million to $500 million.

As well as affirm our previously issued 2022 guidance, we continue to be excited about what's ahead.

We have 1 of the strongest value change in the health care solutions market, while having the ability to be flexible and scale along with the financial flexibility to invest as appropriate and finally, we have our great teammates that exemplify our ideal values every day and live our humble mission to empower our customers to.

Healthcare as we continue to deliver on our commitments to our stakeholders.

Thank you and now I'll turn the call over to Andy for a discussion of our financial results Andy.

Thank you Ed and good morning, everyone. Today I'll review, our financial results for the second quarter and the key drivers for our quarterly performance and then ill discuss our expectations and assumptions for the balance of the year.

I'd like to start by saying that we are delighted to report a record second quarter with solid growth in revenue EBITDA and earnings per share, we're maintaining our expectation for adjusted EPS in 2021 to be in a range of $3.75 to $4.25 net.

Net adjusted EBITDA in the range of $450 million to $500 million.

Also we are affirming our previously announced the guidance for 2022.

I will provide additional color on this later in my remarks.

Let's begin with the results for the second quarter, starting with the top line revenue for the second quarter was $2.5 billion compared to $1.8 billion for the prior year.

This represents 38% growth with strong performance in both of our segments.

Top line growth in the quarter was driven by ongoing recovery of elective procedures glove cost pass through and higher levels of PPE.

Gross margin in the second quarter was 16, 1% an improvement of 117 basis points of her prior year due to revenue mix from higher margin sales in the global products segment and patient direct business.

Many of the pass through of glove costs and improved operating efficiency. These.

These were partially offset by higher commodity prices and global products and transportation costs across the business.

Also compared to Q1 gross margin was lower by nearly 300 basis points due to margin compression and gloves as anticipated and discussed last quarter.

We also began to see commodity and transportation inflationary pressures in the beginning of the quarter and expect this to continue through Q3.

Distribution, selling and administrative expense of $294 million on the current quarter was $52 million higher compared to the second quarter of 2020.

The increase represents higher variable cost to support top line growth <unk>.

<unk> of ongoing investments across all business lines and higher incentive compensation driven by our financial performance.

This performance coupled with the efficiency gains from enterprise wide continuous improvement led to adjusted operating income for the quarter of $116 million, which was $77 million higher or 3 times the same period last year.

Adjusted EBITDA for the second quarter was $128 million, which increased by $76 million or over 2 times year over year.

Interest.

<unk> of $12 million in the second quarter was down 47% or $10 million compared to last year, driven by lower debt levels and effective interest rates.

On a GAAP basis income from continuing operations for the quarter was $66 million or <unk> 87, a share.

Adjusted net income for the second quarter was $80 million, which yielded an adjusted EPS for the quarter of $1.6 which was over 5 times our performance from Q2 of last year the year over year foreign currency impact in the quarter was unfavorable by <unk> <unk> in the second quarter. The average dilutive shares outstanding were $14.7.

The higher year over year as a result of our equity offering in the fourth quarter of prior year and the impact of restricted shares for compensation.

Now I will review results by segment for the second quarter.

Mobile solutions revenue of $1.98 billion with.

It was higher by $429 million or 28% year over year.

The segment experienced continued growth driven by ongoing recovery in volumes associated with elective procedures of approximately $300 million along with higher sales of PPE as well as continued strong growth in our patient direct business during.

During the quarter elective procedures continued to move towards pre pandemic levels, while we recognize that a number of COVID-19 hotspots remained throughout the country.

Global solutions operating income was $18.5 million.

Which was $29 million higher than prior year as a result of higher volumes, coupled with productivity and efficiency gains in our medical distribution business.

And our global product segment net revenue in the second quarter was $689 million compared.

Compared to $370 million last year, an increase of 86%, which was led by higher <unk> sales, particularly PPE volume as we benefited from our previous investments to expand capacity and the previously discussed impact of passing through higher glove acquisition costs of approximately $200 million on.

Operating income for the global products segment was $95 million, an increase of 84% versus $52 million in the second quarter of last year.

This was driven by higher PPE sales favorable timing of cost pass through on gloves productivity initiatives and improved fixed cost leverage.

These were partially offset by higher commodity prices and elevate the transportation costs.

Next let's review cash flow of the balance sheet and capital structure.

In the second quarter, our cash flow was negatively impacted by our investment in working capital to support top line growth.

Inventory build to ensure supply given the numerous supplier issues global transportation delays and continued on favorable payment terms with club manufacturers.

We expect working capital to improve throughout the second half of the year as global supply chain issues subside and as payment terms to glow of manufacturers returned to historical levels. As a result, we continue to expect 2021 cash flow to be back half loaded.

Total net debt at the end of the second quarter was $964 million and total net leverage was 1.8 times trailing 12 months adjusted EBITDA.

I'd like to highlight the despite our working capital consumption, we maintained our leverage profile of below 2 times adjusted EBITDA.

Still the improvements we've made to enhance our capital structure provide us with the operational flexibility and put us on a strong financial position to implement our growth strategy.

Our achievement in this regard was recently rewarded with another credit upgrade from S&P last month.

Finally, turning to the outlook earlier today, we affirmed our guidance for 2021 and 2022.

The confirmation of our guidance range for 2021 is the result of our strong Q2 performance and improved visibility into the second half of the year.

Let me provide some context on the assumptions for our outlook of.

Our recently installed PPE related capacity has been fully deployed and our previously announced the glove manufacturing capacity expansion is on track to begin contributing to our financial results in early Q1 of next year.

We now expect the full year top line impact of love cost pass through to be in the range of $675 million to $725 million.

Any sudden unforeseen declines in the market price of gloves could result in downside to our revenue and adjusted EPS projections.

In addition, we believe our patient direct business will continue to perform above market and demonstrate the attractive patient capture and retention rates.

As I mentioned earlier elective procedure related volumes are at or very close to pre pandemic levels and much of the country and we expect the trend to continue in the second half of the year.

As experienced in Q2, we are now including the headwind from elevated commodity pricing in transportation costs and expect this to continue through Q3.

Guidance for adjusted EPS is based on 75.5 million shares outstanding the.

The increase in our dilutive share count is related to the treatment of certain performance share grants and incremental restricted stock grants driven by our strong financial results.

Even with the 6% increase in shares and new inflationary headwinds, we are confirming our outlook for 2021.2022 and targets for 2026.

In terms of the calendar innovation of our guidance starting with revenue. We expect Q3 revenue to decline slightly from Q2 as the pass through of love cost begins to ease.

The 2021 quarterly earnings pattern is contrary to our typical seasonality with most of the year's profitability weighted towards the first half of the year spin.

Specifically, we continue to expect Q3 earnings to be softer than Q2 due to the timing of glove cost pass through however, we expect Q4 to improve due to the seasonal impact of the health care utilization across our businesses.

Also remember the cash flow is expected to improve in the back half of the year as working capital headwinds softened as previously discussed.

Please note that these key modeling assumptions for full year 2021 have been summarized on supplemental slides filed with the SEC on form 8-K earlier today and have been posted to the Investor Relations section of our website.

In closing I'm delighted with another strong quarter and proud of the efforts of our teammates around the world.

As we further and better business blueprint into our day to day activities will be well positioned to deliver on our long term objectives.

And with that I'll turn the call back over to the operator to begin the Q&A session operator.

Thank you Sir.

As a reminder to ask a question you would need to press star 1 on your telephone.

So which of your question. Please press the pound key.

The standby, while we compile the Q&A roster.

I show. Our first question comes from the line of Michael Cherny from Bank of America. Please go ahead.

Yes.

Good morning, and thanks for all of the color so far.

First a quick housekeeping question and I'll make sure I heard that correctly regarding the <unk> trajectory the sequential but the sequential.

The decline that you're expecting on the year over year in terms.

The revenue correct.

Can you repeat the question you broke up the sorry Michael.

Sorry, the comment you just made about the <unk> revenue trajectory that the sequential decline youre expecting not year over year of measure of that Clinton, Yes. Mike. This is Andy that's correct. The is in terms of just trying to help you.

Look at the back half of the year in terms of our guidance just trying to help you understand because.

Again this year has been very typical in terms of seasonality, but youre absolutely correct on the top line, we expect that to be of a slight decline in Q2 to Q3 sequentially.

Okay.

That makes sense I appreciate that and so you're taking up the bigger picture of approach you know when you think about the moving pieces of your business against the backdrop of the uncertain Delta variant rollout clearly there could be some potential pressures on elective if we do go back to some level of.

Of increased hospitalizations, but I would assume I would think that would be offset by another potential spike in PPE demand as people worry about.

Are there any local pockets, where you're seeing any of those trends where there isn't the increased delta variant approach and how do you think about the variability in your guidance.

Against the backdrop with that.

Michael This is Ed I'll take that 1 and then Andy can add some color afterwards, if necessary. So we have seen pockets of it so in Florida, we've seen some pockets of that where we have seen a drastic increase in demand for PPE from us even from levels that were already elevated and.

Addition to that we have seen some tightening on the electric procedures, there, but here's the other thing we saw so during the during the pandemic, we worked with our customers for some of the unique solutions and.

We have subscription based models, where customers have access to product as they need. It. So we can since we're producing it ourselves we're producing stuff like on 90 fives in Texas as well as in Lexington, North Carolina.

They've called in on their subscription model and said, we need the triple of what our usage for example, and we've been able to fulfill that so youre absolutely right.

A lot of Varian does increase in actual hospitalizations increase which is what we're seeing we are seeing that increase in demand for that PPE, but again, what makes us unique Michael versus others is we're making the fabric in the United States, We're finishing the FTP of all relatively speaking close where it can be delivered by truck.

All of the fabric based up so we have been able to flex very quickly as the Delta Varian has hit and has certain locations of the United States has knee have needed the product.

And then Mike and Andy just to take the second part of your question on the implications for the full year forecast regarding on elective procedures.

So we did see electric procedures get back to near pre pandemic levels in Q2, as we expected and the balance of the year contemplates really staying at that level of near pandemic levels, we do not.

We have an anticipation or we've not built into the forecast and any downside due to the adult the variance in terms of elective procedures, but on the other hand on the on.

Other sign of PPE, we have not built in a significant spike in demand so should those occurred.

See those adjusted accordingly in our forecast the we've pretty much assumed.

The pandemic for elective procedures at pre pandemic levels and I.

No spike in PPP.

And then 1 more just quick housekeeping question can you minus what you of share count guidance was before it looks like it went higher despite EPS not moving so just curious what it was prior to today.

Yes, Mike. So this is the last guidance. We gave was 71 million shares in the current guidance is $75.5 million shares and again Thats really the increase is really due to the.

A result of the the treatment of restricted shares as well as the issuance of some additional restricted share grants performing share performance shares.

No helpful to understand the against the maintaining of EPS guidance. So thanks, so much.

Thank you I show on next question comes from the line of Daniel Gross line from Citi. Please go ahead.

Hi, guys. Thanks for taking the question I was hoping you could put a finer point on the quarterly cadence of the glove pass through.

And the relative benefit in the first half of this year versus the second half I think you mentioned $200 million of top line benefit this quarter.

And you are still seeing some positive timing benefit too to the EBIT line can you help quantify the EBIT benefit this quarter and your quarterly expectations for the remainder of the year and if you still expect a net neutral impact from that pass through for the full year.

Sure Daniel Yeah. This is Andy happy to take that question. So just to ground you.

Just make sure we're kind of level a level set on of what we know at this point. So we didn't change our full year top line revenue guidance.

It used to be $700.800 million, we've now fine tuned debt to about 675% to $725 million and we've done that is the result of seeing some cost pressures starting to ease in the marketplace.

And in the quarter.

Ignited the about $200 million of higher cost pass through on the top line and as a reminder, Q1 net equivalent number was about $160 million. So year to date, we've seen about $360 million on the top line. So roughly halfway through the year, we're roughly at the midpoint of our full year guidance.

And in terms of the impact on the bottom line. So you are right in Q1, we did see a favorable impact.

As I talked about how the price impact of raising prices is realized sooner than the cost impact as costs have to work their way through inventory and again as we discussed on the Q1 call. We set the expectation that in Q2 of those costs would catch up would begin to catch up.

And we did see that in Q2, and albeit we still had some favorability in the quarter, but it was at a much.

Lower rates right with much much lower level and you could see the 300 basis point decline sequentially on our gross margins and then going forward into our forecast.

I would say Q3 would be the most significant impact of costs.

So I would expect gross margins and adjusted operating income margins to decline further in Q3 Youll.

Youll see that in the global products segment, and then as we get the Q4 I would expect a slight improvement and really by the end of the year, we expect to be pretty well.

Through the issue of the <unk>.

Cost of price dynamics that that would be our expectation.

Thanks, very very helpful and as you have new glove capacity come on line in the first quarter of 'twenty..2 can you help us think about what the margin profile of of those.

Those gloves will be relative to your overall products margin profile.

So again, we don't really give guidance and you know the specific margins by product, but what I will say is that as we made that investment to expand gloves, we've done that within the 4 walls of our existing facility and so again like the capacity that we've added during the course of 2022 expand PPE.

<unk> in our Americas based facilities.

The we're bringing on with gloves should benefit from some fixed cost leverage again, because we're not adding.

Additional square footage to produce those laws.

Dan This is Ed I think 2 things I'll add on to that 2 things 1 Andy covered youre right, absolutely, we're going to get fixed cost leverage on that because of we're able to put it in our existing facilities. The second we have we'll have the capability of that may make the more technical glove, there whether that's for surgery, whether thats chemo rated and other aspects of the Glove Inc.

<unk> within those loves also have a different margin profile versus just your standard glove.

Got it very helpful. Thanks for all of the color guys.

Thank you.

I show on next question comes from the line of Eric Coldwell from Baird. Please go ahead.

Thanks, Thanks, very much stickier.

Sticking with the gloves question $200 million of revenue this quarter $1.60 last you said it was still positive on profit, but less though than the first quarter I think what we're probably going to get the most questions on today is the.

The operating margin in global products, 25% last quarter of 2014%. This quarter, what can you give us any sense of what the underlying base might of been absent the gloves and then.

I guess, when I think about the margin being down.

11 points quarter over quarter, how much of that was related to the cost pass through or the the cost increase I mean to say in commodity costs transportation costs versus the mix shift in your product lines or changes in the the glove pass through impact and then I have 1 more follow up thanks.

Yeah, Eric This is Andy so I'll try to address that so you're right sequentially as expected.

With that increase of the costs being recognized.

We did see about an 11 percentage point drop sequentially in the global products segment.

And I still expect Q3 to see an even greater impact due to the higher cost and gloves as those work their way through and we tried to normalize throughout the year. So I would expect margins to drop further in Q3 from where we are on Q4 and then.

As we go into Q4, I would expect that to rebound slightly and then start to stabilize so while we're not giving exact guidance on quarterly margin rates, but.

I would say that that will largely be working its way through the system and hopefully going into 2022 as I said not talking about love of pass through that time of issues.

So could you give us the since on the impact of the commodity cost increases in transportation cost increases that you mentioned on the call.

Sure, Yes, so again.

When we talk commodity cost increases were specifically, referring to the polypropylene and again polypropylene is what's used in the manufacturing of our key some of our key comments and masks as we started to see some of that impact Eric in the first quarter towards the end.

By the time, we got to the end of the second quarter, we have seen prices of this commodity almost double and.

And we expect net to continue into the third quarter and starting to see some easing as we go into the fourth quarter, but.

It's big enough to call out Eric we don't quantify that but it was I think it was worth mentioning but I think the important thing to note is that the.

Overall with the inflation inflationary items that we've been experiencing freezing commodities as well as the share count change that we are able to maintain our full year guidance for.

For EPS adjusted EPS in 2022 guidance given the strength in other areas of the business.

Mike.

My other question's a bit bid off the quarter, but.

You had your your IR day in late May and then in early June your closest market peer Medline was.

Received the investment by a consortium of really highly respected p/e firms valuing the company at 34 billion.

That's 8 times your enterprise value.

Mm, 100% certain Medline is an 8 times larger than you on probably 99% certain theyre not 8 times more profitable.

I know they don't Ray K times better in our survey work so.

I'm just hopeful you could do a compare and contrast of your offering versus that close competitor, it's sort of a quiet company people don't know much about them.

I'm wondering if you could provide any thoughts on the impact of that deal to you whether that might be fundamental if you see any fundamental impact or.

Regarding your thoughts on maximizing shareholder value I mean, that's just such a stunning.

Comparison to how the market values, the Rmi I'd love to get your insights of possible.

So all other.

So let me talk about I think what makes us unique going on what makes us different versus them.

Think of the pandemic has proven that out so Eric on the last month I've spent a tremendous amount of time back on the road because <unk> been able to go visit customers I've been out on our distribution centers and here's what's made us different which I think is unique and I think is extremely valuable to our customers in an extremely valuable too.

The shareholders.

So it's really our vertical integration from manufacturing all the way to delivery of the product and then even on to the home.

That's a little bit different I think others in the market talked about them in sales being manufacturing day manufactured but the reality is primarily most of their products are made overseas and then their labels are put on them versus you take our PPE. The bulk of our P. P. We're making it ourselves in our factories and with our with our products with.

Raw material of our quality control with our regulatory affair.

With our teammates so that way, we have great control over its reduced substantially greet calls it's created our ability to service the customers with the great at a greater level. So is that several customers over the last month and here's what they were surprised that and they told me is that our service level for our core products was at 99.

8% on average last year during the pandemic again during the pandemic, we were able to get the customers what they need it when they need it on time delivery 99, 9% our accuracy of 99, 8% to 99.9 so that's really what's made us different and in full transparency here we weren't.

That way in 2017 and 2018 in 2016, we changed the business in 2019 with this tremendous focus around continuous improvement with our blueprint to improve the way we operate and Thats been the result of all of that hard work and then capitalizing on our strengths during the <unk>.

During the pandemic.

That has created goodwill <unk> you see in this quarter of the improvement of our global solutions business from a profitability standpoint of 29% growth of 28% growth year over year Thats, both in medical distribution and in our patient direct business all of that has really changed the trajectory of where we're going.

And look they got their valuation of what their valuation is.

I think from our standpoint, and our company what we do is unique what we do is different.

We operate with great values and a clear mission of how we're going to do it. So those are some of the Differentiators is really where a manufacturer or distributor. We have this great home health business and diverse as really just primarily being more sourcing company. We do sourcing, we do that to mitigate risk and reduce reduce.

Some of that risk, but on the same sense. It played out our service levels were significantly stronger than most during the pandemic.

Not an investment banker I am not in the somebody who is making those decisions on what multiple of the paper on our company, but I think our company is extremely valuable and.

We've talked about this on the Investor day, you put those pieces together as well as the bright future. We have there is tremendous opportunities for us to continue to grow so.

You could probably hit on my voice I get excited about what we do I'm passionate about it our team is passionate about it and these are those of the reasons why I think we are tremendously valuable not just today, but for the long term.

I'll take that.

Thank you.

As shown on next question comes from the line of July interest, Inc. From Credit Suisse. Please go ahead.

Yes. Thank you just trying to better understand your comments around second half outlook whats the first half reported numbers.

You're implying the trends you saw on revenue and margins in global solutions business in first half continue in second half, but majority of the decline you're expecting on revenue and margins of profitability and second half versus first half is in global products business I want to make sure I understand the comment.

Good morning to lender, it's Andy I'll take that question. So in global solutions, what you saw.

Significant growth year over year of about 28% increase and as you recall last quarter when I talked to you that second quarter of last year is when you elected procedures dropped significantly and we talked about on a $300 million.

Estimated decline as a result of that so with 400, almost $430 million increase year over year happy to say that we've made up for that shortfall and really continued to grow on top of that so real strong performance on the top line.

So that certainly we're not going to grow 30% continue because our comps get tougher in the second half of the year, but.

I would expect that to level off but youre absolutely correct in terms of global products in the second half of the year profitability.

Yes, so our profit is kind of be more weighted towards the first half of the year, which is very the typical of the seasonality of this business, but its been largely driven by the fact that the.

The timing of the glove cost pass through with the favorability being recognized more on Q1 in particular of little bit in Q2, and then the <unk>.

The winding up of that in Q3 Q4. So you can expect the.

The low points of the margins for the business, which is driven by global products to occur in Q3.

Okay, and then going back to the Delta of variant impact.

I understand.

No youre not having anything in the numbers right now, but are you seeing any implications on your customers or potential of customers.

In terms of the willingness to come out with Rfps in with respect to the global solutions business right now.

No we have not seen the delta varian impact that at all.

Okay. Then the 1 last 1 on the bottom business I mean can you provide any color like what's that a significant contributor to the margin trend in the quarter and what are your expectations of data for the second second half.

Yes, I'd say, our patient direct business.

<unk> to be strong I made the comment earlier I think from Eric's question as well.

We saw the global solutions segment grow at 28% very strong segment. The bulk of that growth came from global solutions, but another significant portion of a very very very strong growth also came from our patient direct business.

So you don't post up of 28% growth in the segment without both of those businesses performing extremely well.

That business continues to perform well they've expanded the relationships kind of relationships with other other other suppliers as well as we continue to win new business and that patient direct business.

So frankly I believe they are growing at rates well above what the market rate is growing today in that space. So really excited about the future of that business too.

Great. Thanks, a lot.

Thank you.

Yes.

I show. Our next question comes from the line of Kevin Caliendo from UBS. Please go ahead.

Yes.

Thanks.

Good.

Can you talk a little bit you mentioned it briefly in your prepared remarks about net customer wins and global solutions is that showing up in 2021, and whether you anticipate for 2022 at this point I'm guessing most of the RFP activities.

Probably completed.

Yes so.

Kevin I think a couple of things that is starting to show up in 2021.

Some business, we actually won during the pandemic.

Customers were looking at their options and saying Hey, you guys have the ability to support us let's move to the business. So there was there were several customers.

Add up that we won late last year that started into this year. The expectation is those continue and then actually more momentum into 2022 because of that I've talked in the past.

We've streamlined down our ability to onboard customers the less than 90 days, probably on the and depending on the size of complexity, we have seen that as much as of year down to I think where we come in and be able to do to 90 day. So we're already starting to see that we would expect to see that as we continue through the year.

Okay. Thank you.

Also.

On in terms of your capacity, excluding the incremental glove capacity, which you talked about already when we talk about the manufacturing.

Increases in getting into some higher specialty products and the like.

You talked about in your opening remarks can you go a little deeper and help us understand sort of what that means the potential for that.

My guess is 2022, it's not going to be incredibly meaningful but help us understand sort.

Of the opportunity set the Pam how big how big.

Terms of revenue potential of this could be and how we should think about it on modeling.

Okay.

From from a modeling standpoint, let me just first go back to where it is so we talked about in the speech and I talked about in the Investor day.

Mix of 2 things on the <unk>.

1 is the mix of existing products, we have today with some unique packaging to go into other markets and other industries, we've talked about the consumer of the retail market. We just launched our safe skin pop 'n go gloves.

That is the different margin profile than what we provide into the acute care space and its actually from a positive standpoint from a margin standpoint that opportunity is going to continue to grow. We also have the ability with that for REIT in the retailer of consumer market to also private label it for big boxes and brands, which we're in process of with today.

<unk>.

And then in addition to that it's other new products that we've launched not just wound care incontinence, but additional products within our own manufacturers like gloves.

Where we have as I mentioned earlier, whether it's the chemo rated glove of surgeons gloves. Other unique gloves that we have the ability to go out and launch and.

And we continue to do that we haven't sized it for the market yet we haven't gone out publicly with that yes.

So from a modeling standpoint, I think the way to just think about it is those are incremental dollars at much higher pull through of than what we have today.

Great Alright, thank you very much.

I'll, let I'll add 1 last thing as I think about load of further 2 is really think about 2026 that's true.

Kind of when we gave the targets of 26, that's a good view of where where our margin profile would be as these become.

Involved are developed and included more broadly into our overall revenue targets.

Thank you.

I am showing no further questions in the queue at this time I'd like to turn the call back over to Mr. At the CCAR for closing comments. Please go ahead.

Thank you let me just first discuss 1 thing and then on and then on flows and know we spent a lot of time today talking about glove cost pass through.

I think the way to really think about that.

On the highest macro level is first half of the year, we had favorability in that from both the revenue and the pull through the back half of the year that will be primarily offset even in light of that positive in the first half negative in the second half of all balancing out kind of on a go forward basis, we're still generating beta.

$375.4 on a quarter earnings per share adjusted earnings per share. So I think thinking that in the context is yes sequentially there'll be on impact on it but overall EBIT with that netting out in essence overtime. This year, we're still at the 375% of $4.25 and in addition also to the share count is still at the.

The 375% of 425, which is really where I would close on is and this is why.

Look at the robust performance I look at the strength that we've shown and global solutions.

Sequential growth I look at overall revenue and the operational efficiencies, we've driven in our global products business and our patient direct business as well as our as well as our global solutions medical distribution business. That's why I can't I am So excited about where we are what's ahead this year and even beyond this year I had the opportunity to talk.

A little about it with the question of from Eric We believe and we've proven that we have 1 of the strongest value change in the health care solutions market not only of a strong value chain right. Now we have the ability to flex and scaled very quickly because we still have a quickly changing marketplace.

And then finally, what we haven't had and we have now is the financial flexibility we're down at a $1.8.

Debt to EBITDA ratio, which enables us to continue to invest in our business and invest wisely and diligently to provide that long term growth Investor day, we talked about 2026 I'm excited to get there I don't want I don't want to live my life and pass it over very quickly, but I'm excited at where we are on where we're going so that's what really gives.

Does the excitement about what we have into the future. So I appreciate the time from everybody today I look forward to talking to you over the next few months and for sure in the next quarter of the earnings call. So thank you everyone.

Thank you.

This concludes today's conference call. Thank you for participating you may now disconnect good day.

Okay.

Okay.

On the call.

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