Q4 2021 Owens & Minor Inc Earnings Call
Thank you for standing by please continue to hold your conference call will begin momentarily.
[music].
Good day, and thank you for standing by welcome to the Owens <unk> minor fourth quarter and full year 2021 earnings conference call.
At this time all participants are in a listen only mode.
After the speaker presentation that will be a question and answer session to ask a question. During this session you will need to press star one on your telephone please.
Please be advised that today's conference is being recorded.
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I would now like to hand, the conference over to your first speaker today to Mr. Alex Joe <unk> of Investor Relations you may begin.
Thank you operator, Hello, everyone and welcome to the Owens <unk> minor fourth quarter and full year 2021 earnings call.
Comments on the call will be focused on the financial results for the fourth quarter of 2021, and the full year 2021, as well as our outlook for 2022, 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 during this call we will make forward looking statements.
The matters addressed in the statements are subject to the risks and uncertainties that could cause actual results to differ materially from those projected or implied.
Please refer to our SEC filings for a full description of these risks and uncertainties, including the risk factors section of our annual report on Form 10-K , and quarterly reports on Form 10-Q .
In our discussion today, we will 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 on our annual report on Form 10-K .
I'm joined by Ed <unk>, our President and Chief Executive Officer, and Andy Long, our executive Vice President and Chief Financial Officer.
My pleasure to now turn the call over to Ed.
Ed.
Thank you Alex good morning, everyone and thank you for joining us on the call today.
To start with a high level recap of volunteer miners exceptional performance in 2021.
2021 was a record setting year for our company and it all starts with our teammates our teammates have continued to leverage our owns a minor business blueprint.
Blueprint, which starts with our culture that is based on our humble mission to empower our customers to advance health care.
Along with the guiding principles of our ideal values.
And this is then combined with our Owens <unk> minor business system of continuous improvement and our investment strategy that is disciplined and focused on making the right investments to provide long term profitable growth.
The execution of the Owens <unk> minor business blueprint has resulted in another successful quarter.
To close out to a record year.
And further in positioning our company for long term profitable growth.
So all of our teammates congratulations and thank you for a job well done.
If you recall at our Investor day in May we presented our long term strategy to drive sustainable and profitable growth.
We presented the strength of Owens <unk> minor as an integrated healthcare solutions company with a scalable value chain that starts with our Americas based manufacturing from raw materials, all the way to finished goods.
Then move to our distribution channel that provides flexibility based on the right balance between technology and touch.
And finishes with our broad based patient direct business to serve the patient in the home.
Overall, this provides zones and minor, but the ability to serve our customers through the hospital and into the home.
Based on this we believe that our scalable value changed strategically positions us to drive robust long term profitable growth.
2021 is a great example of our ability to leverage the Owens <unk> minor business system, along with the strength of our unique value chain.
So let's start with the full year 2021.
I'm proud to announce that in 2021, we won delivered on our 2021 guidance and achieved record EPS and EBITDA to showed strong revenue growth and three continue to pay down debt, while reinvesting in our business.
However, what I don't want you to Miss is the fact that we had a record year, even in a market filled with global supply chain challenges inflationary pressures pricing anomalies and other headwinds.
While these items impacted our industry. It is our unique business model combined with our execution that enabled us to manage through these headwinds.
We continue to pull the appropriate levers to maximize service deliver strong financial results, while strengthening our platform for long term profitable growth.
Again, it all starts with our vertically integrated business model that provides us with a distinct competitive advantage.
And that continues to be apparent in the fourth quarter.
Our Americas owned manufacturing footprint allows us to self manufacture the bulk of our proprietary products, which provides capacity flexibility resilience against supply chain pressures and significant fixed cost leverage.
In short our 2021 success was driven by our ability to meet the needs of our customers for these products when others couldn't.
During 2021, we do not just focus on our existing proprietary products, but work to provide better solutions as we expanded our product categories and made important investments in technology to provide more visibility and drive greater efficiencies for our customers.
Great example of this was the launch of our smart card.
Which stands for supplier metrics and accountability reporting tracker and provides our customers with updates on several areas that include but is not limited to the current supply chain situation.
Commodity market information supplier backlog issues and possible product substitutions.
The visibility that our smart card provides enables our customers to adjust in advance and better serve their constituents.
In 2021, we also published our inaugural ESG report, which provides visibility into the performance metrics and achievements that our company supports an ESG focus.
In addition, we launched the Owens <unk> minor foundation, which is dedicated to impacting and empowering communities by providing support to numerous organizations focused on health care the environment diversity and inclusion.
The momentum from 2021 has continued to strengthen our company and has enabled our ability to recently announce the definitive agreement to acquire Apria for one 6 billion.
Which upon closing will represent the largest acquisition in our company's 140 year history.
<unk> is a leading provider of integrated home healthcare equipment and services and operates in the highly fragmented home health care market, which is valued at over $50 billion and growing at 6% annually.
When combined with our Byrom health care business. These complementary entities will enable us to better serve the entire patient journey through the hospital and into the home.
Closing of this transaction is progressing as expected and our integration plan is well underway I am looking forward to welcoming the <unk> team to Owens <unk> minor in the first half of 2022.
Now, let me share just a few highlights from our fourth quarter.
One all of our major businesses grew led by patient direct global products in medical distribution.
Two our vertically integrated business model allowed us to offset macroeconomic pressures, while continuing to capture both PPE and S and IP sales back.
In fact, both were up on a year over year basis, and three we continue to capture operating leverage through our investments in expanding manufacturing capacity utilizing technology strengthening infrastructure and of course continuous improvement.
While Andy will do a deep dive on our balance sheet in a moment I want to discuss one area that is our improved debt position.
Let me take you back in time less than three years ago, when I joined Owens <unk> minor our net leverage ratio was about seven times.
It was seven times now at the end of 2021, just three short years later, our net leverage ratio was only one eight times.
It should be noted that we accomplish this reduction while still making significant investments in our business for infrastructure capacity expansion teammates and technology just to name a few.
We were able to accomplish this due to our disciplined approach to capital deployment and the strength of our company's free cash flow profile.
So while we will increase our net leverage to around four times. After the pending close of Apria, We will take the same disciplined approach to pay down debt.
Continuing to make appropriate investments in our business and we will continue to maximize the strength of our company's free cash flow.
Our overall current balance sheet will be discussed in more detail by Andy in a few moments.
Now moving from 2021% to 2022, I believe that we are well on our way to another successful year, regardless of the current macroeconomic conditions. Accordingly, we are reiterating our previously issued guidance for the full year of 2022 in the range of $3 two.
$3 50.
Adjusted EPS and.
And adjusted EBITDA in the range of $400 million to $450 million, both of which exclude any 2020 to contributions from our pending acquisition of <unk>.
So in closing I am extremely proud of our strong finish to a record year and even more excited about our future. We delivered on our commitments to all stakeholders and took major steps to help ensure the future growth of Owens <unk> minor I'll now turn the call over to Andy for a discussion of our financial results and our expert.
Patients for 2022, Andy.
Thank you Ed and good morning, everyone. Today, I'll review, our financial results and key drivers for our performance in the fourth quarter and for the full year, and then I'll discuss our expectations and assumptions for 2022.
As Ed mentioned, our team worked tirelessly to continue executing on our overall business strategy. Despite the broader macro issues I am pleased that we were able to deliver on our guidance for the year, both in terms of results and quarterly cadence.
As we entered the fourth quarter, we knew we were facing a very tough comp as Q4 of 2020 was the strongest quarter of last year, but I'm very happy we were able to deliver a record setting year, while generating great momentum as we enter 2022, let's.
Let's start by reviewing our financial performance.
Our total fourth quarter revenue was $2 5 billion.
Compared to $2 4 billion or four 5% growth versus the prior year.
This positive trend resulted from our ability to overcome the continued challenges that COVID-19 has placed on our health care system and supply chain and was driven by continuing strength in our patient direct business and the pass through of elevated costs. It is important to note that Q4 of this year had one fewer selling day than last year, which had an.
<unk>, one 5% negative impact on growth sequentially.
Sequentially revenue was down as previously indicated due to two fewer selling days and a reduction in glove cost pass through for a combined headwind of approximately $100 million versus the third quarter.
However, good business performance led to fourth quarter revenue only being down $35 million sequentially.
For the full year total revenue was up 15, 4% to $9 $8 billion.
Compared to $8 5 billion in 2020.
From a gross margin perspective, the calendar <unk> played out as we expected related to the impact of lost cost pass through yielding a gross margin in the fourth quarter of 13, 8%.
This was a sequential improvement of 70 basis points versus the third quarter. However.
However, this was lower than prior year fourth quarter gross margin of 16, 9%, which did not have the headwinds associated with gloves cost pass through and was favorably impacted by record levels of PPE sales in the midst of the pandemic.
Looking ahead, we expect gross margin to continue to improve from the 13, 8% in the fourth quarter with the full year 2022 gross margin expected to be approximately 15%.
Our full year 2021 gross margin was 15, 5%, which was approximately 40 basis points higher than 2020.
Our fourth quarter distribution, selling and administrative expense was $267.
$6 million.
Versus $283 million in the prior year.
The reduction was due to timing of certain expenses and productivity gains partially offset by ongoing investments in the business.
For the full year <unk> expense was $1 $1 billion.
Compared to $1 billion in the prior year.
Fourth quarter interest expense was $11 3 million compared to $17 5 million in the prior year and for the full year interest expense was $48 1 million a decrease of 42, 3%.
Both periods reflect lower debt levels as well as lower interest rates, resulting from our debt refinancing in March of 2021.
Our GAAP income from continuing operations for the quarter was $42 million or <unk> 55, a share.
And for the full year was $221 6 million or $2 94 per share up 112% from $1 39 in 2020.
Meanwhile, adjusted net income in the fourth quarter was $61 $2 million and adjusted EPS was <unk> 81.
Compared to the prior year of $1 14.
For the full year adjusted income from continuing operations was $309 million.
With adjusted EPS up 81% to a record $4 10.
Impaired to $2 26 in 2020.
Versus prior year, the foreign currency impact on EPS for the fourth quarter was <unk> <unk> unfavorable and for the full year 2021, it was five unfavorable.
On a segment basis, our global solutions fourth quarter revenue was $2 billion.
Up 3% year over year.
For the full year revenue was $7 9 billion compared to $7 2 billion in 2020, representing a 9% increase.
Global solutions operating income for the quarter was $18 9 million.
Compared to $22 4 million in the prior year's fourth quarter.
The decline versus prior year was largely due to inflation, primarily in the form of higher transportation and delivery costs, which was partially offset by productivity improvements.
For the full year global solutions operating income more than doubled to $66 6 million compared to $39 million last year.
The increase was a result of leveraging our fixed costs, given our strong revenue growth and improving our operating efficiencies, partially offset by inflationary pressures later in the year.
Turning to global products, our net revenue in the fourth quarter was $629 3 million, an increase of nine 5% year over in Europe .
On a full year basis revenue was $2 7 million compared to $1 8 billion in 2020 representing growth of 47%.
In the quarter the revenue lift from cost pass through was approximately $130 million and for the full year was approximately $660 million.
Adjusting for the full year top line impact of club cost pass through year over year growth was 10%.
Operating income for the quarter was $61 7 million.
Compared to the tougher comp in last year's fourth quarter up $99 7 million as we saw lower capacity utilization as compared to last year's peak pandemic levels.
Global products operating income for the full year was up a very strong 43% to $371 9 million.
Compared to $259 9 million last year.
This considerable improvement was the result of greater PPE sales productivity initiatives favorable product mix and fixed cost leverage.
These items were partially offset by higher commodity prices and rising transportation costs.
It is important to recognize that sequentially as we communicated during our last earnings call margins. In this segment increased from seven 6% in Q3 to nine 8% in Q4 as the unfavorable timing impact related to gloves cost pass through realized in the back half of the year comes to an end.
Overall, I expect favorable utilization profit and margin rate momentum to carry into Q1 of 2022.
Finally, the year over year foreign currency impact on revenue was unfavorable $4 million in Q4, it was favorable $19 5 million for the year.
The FX impact on operating income was unfavorable $2 $5 million in the quarter, an unfavorable $5 5 million for the year.
Moving now to cash flow the balance sheet and capital structure.
For the full year, we generated $124 $2 million of operating cash flow as a result of strong earnings along with stabilization in working capital in the second half of the year.
Total debt was down $76 million for the year and our net debt was $893 $9 million as of the end of the year the lowest level in nearly four years.
Net leverage finished at one eight times, which is below our target of two to three times.
Our progress in reducing debt over the last three years has been achieved while we have executed on our balanced approach to capital deployment as we continue to invest in organic growth opportunities.
As I transition to discuss our guidance for the year note that all projections for 2020 to exclude the impact of the pending acquisition of <unk>. We expect revenue for the full year to be in the range of nine 2% to nine 6 billion.
This projection reflects an estimated $400 million to $450 million drop in revenue driven by lower purchase cost of externally sourced gloves, and lower nitro commodity prices being passed onto the customer.
Can refer to slide number four in the slides we posted to our website. This morning for an illustration of this dynamic.
After normalizing our revenue for the pass through of fluff cost changes, our 2022 revenue guidance is up about 1% year over year.
This reflects the combination of continued growth in patient direct the launch of new products, expanding our portfolio and further penetration into industrial retail and international markets.
This growth was partially offset by the completion of our 95 federal government stockpile program, which wrapped up on schedule in December and the expectation that overall PPE volumes will ease throughout the year.
We continue to fully expect the new baseline level to be meaningfully above pre pandemic levels due to new PPE protocols in the healthcare industry and expansion of our customer base due to new wins over the last two years.
We also assume that elective procedures will stay flat year over here.
Additional assumptions for 2022 include our gross margin rate of approximately 15% interest expense in the range of $42 million to $46 million, which of course excludes the financing related to Africa.
<unk> effective tax rate of 24% to 26%.
Our range of adjusted net income for 2022 of $3 to $3 50 per share assumes FX rates as of December 31, 2021, and is based on a full year average diluted share count of approximately $77 million.
This guidance also includes an assumption that we will be able to continue to effectively manage inflationary pressures.
It's worth noting that our solid momentum exiting 2021 sets us up for a strong first half of 2022.
Finally, we expect adjusted EBITDA for 2022 to be in a range of $400 million to $450 million again. This excludes the benefit of the <unk> acquisition.
Please be aware that these key modeling assumptions had been summarized on supplemental slides filed with the SEC on form 8-K earlier today and are posted to the Investor Relations section of our website.
As a reminder, we will begin reporting under two new segments. When we report our first quarter results, those new segments or products and health care services and patient direct.
Now a few items regarding the pending <unk> acquisition, we continue to expect that the transaction will close in the first half of 2022.
Although this is primarily a growth driven acquisition, we continue to identify cost synergy opportunities and we will provide updates as this gets finalized.
In addition, we continue to expect the acquisition to contribute annualized revenue of at least $1 2 billion and annualized adjusted EBITDA in excess of $230 million.
The transaction should be modestly accretive in 2022 subject to final purchase price allocation financing terms and our review of potential tax benefits.
We intend to provide greater details once the deal closes.
As I reflect on 2021, the events of the year played out very differently than what we envisioned when we issued our guidance at the beginning of the year.
<unk> and the global supply chain crisis began and inflation accelerated through the end of the year.
I am proud of our teammates and how they responded to these obstacles and their dedication to providing the highest levels of service to healthcare providers across the industry during another challenging year.
Im also very pleased to be part of an organization that continues to find ways to deliver on its commitments.
As we build on this success and with the investments that we've made in our future I am excited about the year ahead of US as we continue on the path to achieving our long term vision I look forward to sharing our progress with you on these important initiatives and I look forward to welcoming our new App <unk>.
At this point 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 one on your Touchstone telephone so which are your question. Please press the pound key.
Please 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.
Hi, good morning, congratulations on a strong until year and obviously the reiterated guidance.
I wanted to dive in a little bit on how to think through not only 22, but beyond especially given the long term trajectory that you have.
Andy You mentioned, 15% gross margins are baked into this year's guidance as we think through whatever the future is in a post COVID-19 world New normal in PPE is this a gross margin level thats sustainable.
Good morning, Mike, Yes, because now this is Andy so to address that.
It's great to be able to reaffirm 2022 guidance that we established in early in early 2021, and yes, I think the margin assumptions really reflect two things one is not just the absolute value of 15%, but it's the.
We're moving past the volatile quarterly volatility that we had in 2021, so it's nice to have that volatility behind us.
Due to glove cost pass through.
I think the 13, 8% keeps us in the right trajectory from where we were in Q3, So we're moving.
Forward in Q4, and not just in total company, but specifically with mobile products. The increase in margins in that segment and I think we've got really strong momentum as we go into 2022.
I do think that that 15% youll see less volatility quarter by quarter in 2022, and I think that is a <unk>.
More reasonable kind of long term.
Right going forward.
Got it and then just I guess diving into that a bit further and especially given the complexity.
Moving pieces you had around the globe pass through this year. Two part question I guess, one are you done on the pass through side and two when should we start to see what your normalized product margins will be like based on the moving pieces you had in 'twenty, one tied to that club caster.
Yes, So my part one of that question is.
Yes, I think the very volatile quarterly swings that we saw in 2021 will be behind us So I do not expect.
A very large quarter to quarter swings. So I think that is behind us. It's another way of saying that price movements and cost movements will largely be.
More closely to mind than they were in 2021.
Got it thank you.
Thank you.
Our next question comes from the line of Kevin Caliendo from UBS. Please go ahead.
Alright, thank you.
Just to expand on that on Michael's question, a little bit.
How should we think about the cadence for the year then.
It should it look more like a traditional normal cadence first half growing into the second half.
In terms of EBIT and revenues.
Outline of how you think 2022 progresses and is that the sort of new guidelines for 'twenty three and beyond in terms of cadence you're talking about a more normal.
Quarterly progression.
Yes, good morning, Kevin its Andy again so.
Start on this one and just say I don't think 2022 is going to have the typical guidance.
Typical cadence that we experienced pre pandemic right. So historically first quarter was our weakest quarter and then we ended the fourth quarter is really on a high note.
Typically based on end of year flu.
And as elective procedures peaked in the fourth quarter.
I don't see that typical seasonality playing out to 2022 and specifically.
See the very strong momentum that we had exiting the fourth quarter carrying into the first quarter and I do see a strong first half of the year, which is very unusual for this business again unusual be compared to pre pandemic cadence. So I do see the the first half being strong the other thing I'll add to that in the first half as we still see a buildup of elective procedures and we start.
We're starting to see that here in February come through so our electric procedures in February are starting to ramp up I know from talking to a lot of the customers. They do have pent up demand and some of that will flush through earlier in the year versus like Andy said, a traditional year, where you have less in the beginning of the year and more in the back half of the year, that's going to be another impact in 'twenty.
'twenty.
Two.
Alright, that's helpful. I guess the question that a lot of investors have is.
How much visibility do you have on the product side, we see the macro slowdown and mask usage, we hear some manufacturing peers say that demand is off 50% I know yours is much more customer specific and contract specific but how much visibility do you have into demand on the product.
Side going forward is it six months nine months 12 months two years.
Any color on that I think would be helpful.
Yes, we do have long term visibility on it and that's for a lot of reasons I think first and foremost during the pandemic and even into this year. We continued to sign long term contracts committed contracts with many many of our customers. In addition to that I think if you just look at our performance in the fourth quarter relative to potentially others, where we actually.
<unk> strong performance in our product sales.
And partially it really comes down to what we've been able to do during the pandemic. It comes down to the fact that we still see protocols at much higher levels than what they were pre pandemic.
We continue to see customers looking to get rid of products that are in their emergency use authorization quality products for medical great quality products.
For all those reasons, we see that we see that continuing out there.
Other thing I want to focus a little bit on if some of the expansion we did over the last year by taking those PPE products and putting them into new market. So great example of that is our retail papago gloves, where we're taking the same gloves that we're making on our factories putting them in different packaging focusing on the retail market. We think about the long term growth we're seeing there.
The ability for us to start to grow internationally again when in the height of the pandemic in 'twenty and even into 'twenty. One we are focused on serving the U S customers specifically when we werent allowed to export product made in the U S. So we're seeing that as a growth opportunity and our products business and in addition to that taking products and using it.
Specialty gloves and specialty products that we've expanded into so we have a lot of different factors impacting why we continue to see strength in our product it comes down to higher than past protocol. It comes down to agreements and contracts, we have with many of our customers. It comes down to the expansion of those products into new categories into new markets as well.
Well as.
The continued high demand for it in addition to that I think in our products. What we try to model N is the fact that elective procedures. Many of those same essent IP products that were used as part of the PPE and pandemic are also used and needed in elective procedures. In addition to that the raw material, we use and we make that is.
Either for RAF drapes or traditional PPE, some of thats going to be.
Redirected into wraps and drinks and other things as elective procedures accelerate so we have visibility out longer term into that and it's also those are a lot of the reasons why we have such a strong fourth quarter relative to maybe others in the market our market conditions and why we're continuing to see the strength going into.
And through 2022.
And Kevin This is Andy just one further point on that too is just looking at the global products revenue performance sequentially Q3 to Q4 and again keep in mind. So what we're reporting is actually.
A decline in revenue, but again don't forget to adjust for two fewer selling days in global products. Each day is worth about $10 million and again the glove cost pass through in Q3 was $170 million I think loss cost pass through in Q4 was $130 million. So you've got those two sequential headwinds to adjust to get to a true underlying rate there.
Growth in the underlying rate when you pull those out is around 2% for the fourth quarter.
Okay.
That's all really really helpful. Thanks, guys.
Okay.
Thank you.
I show. Our next question comes from the line of Joanne Drive Sync from Credit Suisse. Please go ahead.
Thank you and good morning, everyone.
Actually I want to get some clarification on gloves cost pass through you had 660 million impact in revenue in 'twenty, one I want to make sure that while it is still a net neutral to profitability as you expected for the year and then for 'twenty to 'twenty two guidance. When you include $235 million revenue impact I know you said that.
It's kind of match with Costco, no EBIT impact, but how should we think about the make up.
Cadence throughout the year should we expect that Q1, Q2, Q3, Q4 latest stimulus impact from revenue point of view.
<unk> Andy so.
In terms of the glass cost pass through you're absolutely right topline impact of $660 million in 2021 year over year I would say the margin impact as we ended the year was probably just slightly favorable and again, that's a timing issue between 'twenty, one and 'twenty two.
But again the timing issue is small enough that it's not going to throw off or.
Guidance for the year. Its I don't think its going to have a material impact on the quarterly cadence, but just so you've got that as a data point and again.
In terms of how I see the cadence of the <unk>.
<unk> as we move into 2022, I think the very strong momentum that we have particularly in global products right from.
Seven 6% margin in Q3 to nine 8% margin improving in Q4, and I see that momentum continuing into Q1 next year.
And that momentum far overshadowing any of the timing effect.
Talked about on the club cost pass throughs, so relatively more stable margins quarterly in 2022 than what we saw in 2021.
Okay and then on my two.
Two part question on your 2022 outlook, which is unchanged what you shared.
At your Investor Day last year.
You mentioned this about some assumptions might have changed underlying maybe flesh out a little bit like what.
What.
What are those expectations, what individual items change in terms of redemptions for 'twenty two.
What's the feedback and the second part is that so if you can give some color around what is reflected in near the lower end of your guidance range was higher than just trying to understand the swing on swing factors captured in some of the items deal.
Yes, John happy to take that so just maybe a quick refresher on what is going into our 2022 guidance and what's the same and what's changed so just real quickly ticking through the revenue drivers related to portfolio expansion and that includes the debt for.
For example, it's the glove capacity that comes online at the end of Q1. So that's continued to be unchanged. It's our expansion into adjacent markets like industrial and retail with gloves. Its expansion and continued growth internationally on the top line fueling top line growth.
Continued growth in patient direct E strong growth of patient direct.
In terms of elective.
We've assumed electives are flat year over year and that's in line with where we've been in the second half of 2021.
We continue.
Our assumption was at 10, 95% Federal Stockpiling program that come to an end and it did come to an end in December .
We've assumed that does not continue and as I said in my prepared remarks that we've assumed an easing of PPE volumes in terms of swing factors you know those last three assumptions on revenue right should we.
Experienced as Ed talked about some pent up demand and electric procedures, if that were to come through that would be upside. If we were to win new government contracts supplying PPE that could be upside and against PPD volumes hold steady that could also be upset.
In terms of margins, that's where we see a little bit of a change from where we were in may because again, when we announce that the 2022 guidance back at our Investor day that was largely before.
Anyone we're starting to experience.
Inflationary pressures so we have baked in an element of inflation and the key drivers here are transportation inflation, we assume that's going to remain high labor inflation, we assume that's not going to worsen and.
Overall, we've put in actions to mitigate these as well in order to hold our guidance. So we've got proactive actions like pricing freight and.
<unk> pass through identifying alternate sources for commodity sourcing and continued strength in our.
Our continuous improvements in efficiency efforts to help mitigate those headwinds.
Alright, great. Thanks, a lot.
Thank you.
As a reminder to ask a question you would need to press star one on your telephone to which are your question. Please press the pound key.
I show. Our next question comes from the line of Eric Coldwell from Baird. Please go ahead.
Thank you good morning, I was hoping to get a little bit of color on the.
Our legacy core.
Distribution business you.
It seemed to have done a better job with customer retention and share capture last year.
I know you had a few accounts coming online. This year you gave some numbers around net wins I was hoping we could get an update on that what youre seeing in the current environment and then I have a follow up thank you.
Sure Eric.
Let me talk first about constant customer Retentions and the reality is we had a really strong year in customer Retentions in 2021, and we're pleased with the high rate of customer retention, we had and the reality is we had no what I would call regrettable churn in 2021.
Think about wins, we did have a strong year also in wins.
Our pipeline continues to be strong.
Continue to focus on high quality customers, we continue to focus on customers that value. What we can provide in our value chain and I think a great example of that is the most recent announcement, we have with West Virginia University, where we did a public announcement, we signed a long term deal to support West, Virginia University of West, Virginia, as well as the rest of the state.
<unk> and others in that vicinity were going to add a new facility. Our new center there that can provide a lot of different offerings. Besides distribution.
It's that it's our ability to look at that entire value chain and continue to work closely closely with customers. I think those are a couple of great. Examples of where we are.
In the same sense, Eric we're going to be extremely disciplined we're going to make sure. We have to make sure. We get a return on accounts and accounts that are higher cost to serve we're going to continue to look of how we can drive efficiencies to serve those customers.
And be responsible as we do that but overall I would say the full year of 2021 was <unk>.
Successful related to that and <unk> was just the most recent example of a new win and expansion.
Ed any.
Any updated color comments on the RFP environment the pipeline.
Yes, the pipeline still space is still strong Eric.
RFP environment is different you know you have you have obviously in our industry and any industry you have different types of customers looking for different things.
I think our team has gotten much better at honing in on those customers that value what we provide.
And thats become critical and I think it's been important that they also we've also seen in the RFP process continuity of supply and supply chain resiliency is becoming more and more and more important and our ability to provide that in those products that we manufacture we don't source has been strong and.
Has gotten great receptivity I think our transparency has been has been helpful. I talked a little bit about the smart card, which is a value add that we give just to our customers that is open and transparent about market dynamics, our customers can make decisions quicker and better serve their constituents those are what we're seeing.
In the marketplace today.
Okay last one for me.
The new glove manufacturing capacity any any additional updates on the facility. The I know you said late Q1 timing I'm curious if your.
Production will be at full scale coming out of the gates or will it ramp through the year end.
Thoughts on.
The impact in <unk> in particular, how that might impact the model if it if it could at all in the second quarter.
Eric what we a plan just like any new facility expansion in that new facility in each facility expansion.
We haven't we haven't ramped through starting production at the end of the first quarter ramping through the second and into the third quarter and it's like anything it's no different than when we added the new additional lines to make N 95, you put the lines and get them producing and then you have to fine tune them over time to continue to get to the optimal output on those.
So we'll get product off the line at the end of Q1 that will ramp during Q2 and into Q3.
Hey, Thanks, guys good job congrats on the outlook.
Okay. Thank you.
Thank you.
I'm showing no further questions in the queue at this time I would like to turn the call back over to Mr. At the secret President and CEO for closing remarks.
So first of all thanks, everyone for joining on the call today.
Im extremely pleased with the progress that we made in 2021, but while I'm pleased with that progress that we made in 2021 I'm even more excited about the healthy momentum that we're bringing into 2022. The team has done an excellent and exceptional job.
And we continue to strengthen our value chain, along with our future. We're going to continue to do once we close on the pending acquisition of <unk> continued growth in that home health care or as we like to look at it really the patient direct space.
We're making the right financial decisions as a company to drive long term profitable growth and again I can't thank the great teammates we have at Owens <unk> minor for all their effort in 2021 as well as the great work they've already accomplished as we're nearly two months into 2022.
I'd also like to thank our customers for all the support that they provided us over the last several years and our commitment to them to continue to support them as we go forward into the future.
On this call I look forward to updating on the progress later in the spring and thank you everyone.
This concludes today's conference call. Thank you for participating you may now disconnect.
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