Q1 2023 Owens & Minor Inc Earnings Call
Hello.
My name is Jody welcome to the <unk>.
Owens <unk> minor first quarter 2023 earnings call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question and answer session loved.
You'll have to ask any questions. During this time simply press star one on your telephone keypad, if you'd like to withdraw your question again Press Star One I will now turn the conference over to Jackie Marcus of Investor Relations.
Scott.
Thank you operator, Hello, everyone and welcome to the Owens <unk> minor first quarter 2023 earnings call or comments on the call will be focused on the financial results for the first quarter of 2023 as well as our updated outlook for 2023, both 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.
The matters addressed in these statements are subject to risks and uncertainties and could cause actual results to differ materially from those projected or implied here today.
Please refer to our SEC filings for a full description of these risks and uncertainties, including the risk factors section of our annual report Form 10-K, and quarterly reports on Form 10-Q.
In our discussion today, we will reference certain non-GAAP financial measures.
Information about these measures and reconciliations to the most comparable GAAP financial measures are included in our press release.
Today I'm joined by at the Sika, President and Chief Executive Officer, and Alex Bruni, Executive Vice President and Chief Financial Officer.
I will now turn the call over to Ed <unk>.
Thank you Jackie and good morning, everyone and thank you for joining us on the call today.
I am pleased with the performance of the business and the team's execution through the first quarter of the year.
As we took the necessary steps to initiate the realignment of our business improve our overall cost structure and leverage our strengths and here are just a few examples.
One in the first quarter, we generated $158 million of cash from operations. This is a testament to the execution of our strategy and delivering on our commitment to further strengthen our financial profile, having the ability to produce cash flow at these levels will allow us to <unk>.
Allocate capital towards debt reduction.
And pursue initiatives that promote growth innovation and commercial excellence.
Our operate operating model realignment program is on track to meet our target of $30 million of adjusted operating income in 2023.
And we are confident that we will achieve significant long term profit improvements and cost savings from these efforts.
Our outline these efforts in a little more detail further in my prepared remarks next.
Next our patient direct segment continues to outpace the market and deliver significant margin expansion as the strength of the Byrom in Africa brands continued to accelerate in.
And finally, we have already paid down $117 million of debt in the first quarter, which aligns with our focus on debt reduction and further improving our balance sheet and we expect continued strong debt reduction throughout the year.
Now I will provide a closer look at our segment performance and I'll start with our patient direct segment.
The patient direct segment had another strong quarter as it continued to outpace the market as revenues grew by 10, 4% year over year on a pro forma basis in it.
It should be noted that we again achieved double digit growth in nearly all of our major product categories.
The continued strong revenue growth was driven by one the <unk>.
Proven commercial model with a comprehensive focus on the patient provider and payer.
Two and expanding use of technology to improve overall service and satisfaction and three the powerful combination of the Africa and Byron brands.
As expected when we completed the <unk> acquisition just over a year ago. The addition of <unk> has significantly improved our already strong patient direct offering.
By broadening our product categories, expanding our services, increasing our footprint and deepening our payer and provider relationships.
And we expect our patient direct segment to continue to deliver growth for the total company.
Serving the patient in the home continues to grow at a rapid pace.
This rapid pace growth is due to demographics, such as an aging population and the rise in the number of patients with chronic conditions.
An increase in available home treatments.
And the growing acceptance of patient care in the home.
It is these industry dynamics combined with our patient direct strength and fierce execution that leaves us thrilled about the future prospects for patient direct and the expectation of continued positive momentum.
Now moving on to our product and healthcare services segments, our product in health care services segment declined year over year, primarily due to extremely difficult comps coming off the tail winds of COVID-19 related sales in the prior year and continued headwinds related to destocking of PPE in the current year.
This significantly impacted both revenue and margin in our global products Division. However, excluding the year over year impact of distributed PPE products, our medical distribution division delivered mid single digit growth for the quarter.
This growth was a result of stronger same store sales along with the implementation of new wins offset by previous losses. We are pleased with the continued progress being made by our medical distribution Division.
And finally related to product and health care services segment.
You may be aware of recent communications from the FDA regarding certain of our facial protection products. We are actively working with the FDA to address this issue and during this process, we will remain focused on customer safety and transparency.
Moving on to our operating model realignment program.
I'm thrilled with the progress that has been made since the launch of this initiative about eight weeks ago.
It is progressing well and I'd like to take a moment to provide a brief update on the four key components of the program.
First sourcing and demand management, which includes direct materials indirect materials and purchased finished goods. The goal of this work stream is to aggressively reduce the acquisition cost and minimize waste I am pleased with the progress made to identify the opportunities, but more importantly, I am pleased with the strategies already.
<unk> being implemented to deliver savings in 2023 and beyond the.
The implemented strategies and tools will be iterative not just for 2023, but for years to come.
Second we are making progress on organizational structure redesign and to improve the efficiency throughout the business.
We are assessing structure spans and layers and activities we.
We have already taken action to de layer parts of the organization.
As this work stream continues we will further evaluate the structure spans and layers and activities to reduce cost and deploy resources where needed for growth and to fill gaps.
Third network rationalization and operational excellence, which includes the optimization of our manufacturing footprint and supply chain.
It is a focus for the management team as we move further into 2023.
Improving our manufacturing efforts to more efficiently operate will greatly benefit us as we work to right size the business and ensure the return on capital invested as being maximized.
Due to the complexity of this work stream, we are carefully assessing the options and facing however, we have already made adjustments in parts of our business to improve service output quality and in year cost reductions.
Lastly, our commercial excellence and product profitability enhancement portion of the program is in its early stages.
The primary objective for this component is twofold, one to ensure that the price we charge for our products and services reflects the value provided and <unk>.
Two expanding our product portfolio to broaden our offerings.
And we have already begun to adjust our pricing to reflect the value of our services and offerings.
Overall, the operating model realignment program is on pace to achieve $30 million of benefit in 2023 and exited the year with approximately $100 million run rate of profit improvement.
We're expected to be at this stage and encouraged by the path forward already identified in the quarters ahead.
With our performance in Q1, and the advancement of our operating model realignment program. We are refining our guidance for 2023, Alex will talk more about the drivers contributing to these revisions in our guidance.
But I'd like to briefly talk about the outlook for the remainder of the year at a high level.
The upward revision to our guidance are supported by our confidence in our performance thus far in 2023 to.
To reiterate our patient direct segment has continued to outpace the market growth and expand margins our medical distribution division continues to strengthen.
Our operating model realignment program is on track, we will continue to work through Destocking of PPE and our exceptional cash flow generation allows us to be nimble in today's macroeconomic environments.
I'm excited about what the future holds for Owens <unk> minor and we look forward to updating you on the progress through the remainder of the year with that I'd like to turn the call over to Alex to discuss our financial results in greater detail Alex.
Thank you Ed good morning, everyone I'll begin by providing an overview of our financial results and the primary factors that drove our performance in the first quarter of 2023.
Following that I'll delve into our revised expectations and assumptions for the full year outlook.
And finally, I'll discuss our key guidance assumptions and the cadence for the remainder of the year.
Starting with our first quarter results our revenue for the quarter was $2 5 billion.
Which was higher than anticipated due to stronger sales in medical distribution and outperformance in the patient direct business driven by solid results from both of Apria and Byron brands.
On a pro forma basis, our top line declined by 6% versus prior year.
But this was largely due to the notable tailwind in the first quarter of 2022 from Covid related sales in our products and health care services segment.
<unk>, we continue to experience some pressure on sales during the quarter related to customer inventory levels.
Consolidated topline results were relatively in line with the fourth quarter of 2022.
First quarter gross margin was $497 million or 19, 7% of revenue.
Paired to $373 million or 15, 5% of revenue.
In the first quarter of 2022.
The gross margin expansion was driven by continued patient direct sales growth in the power of combining apprehend byrom.
As well as margin expansion in our medical distribution division, partially offset by the impact from lower PPE sales from our global products Division.
Our distribution selling and administrative expense for the quarter was $449 million, making up 17, 8% of revenue.
This expense increased by $179 million in the quarter, primarily due to the costs associated with servicing patient direct sales growth.
Including the <unk> acquisition.
GAAP operating income for the quarter was $9 8 million and adjusted operating income was $47 7 million.
Ahead of expectations for Q1 <unk>.
Adjusted EBITDA was also ahead of expectations for the quarter at $109 million with a margin of four 3%.
As I just discussed the revenue and margin performance were key drivers in achieving these results.
In addition, as Ed mentioned, we're also on pace to achieve the $30 million adjusted operating income contribution for 2023 from our operating model realignment efforts. Accordingly, we've raised our guidance for adjusted EBITDA, which we'll discuss later in the call.
Interest expense for the quarter was $42 million and the GAAP effective tax rate was 27, 7%.
Both in line with expectations.
Our GAAP net loss for the quarter was $24 million.
Or a loss of <unk> 32 per common share adjusted net.
Net income for the quarter amounted to $3 6 million or <unk> <unk> per share.
On a segment basis products and healthcare services first quarter revenue was $1 9 billion.
Which represents a 10, 2% decline versus the prior year due to <unk> in the first quarter of 2022, driven by higher sales from Covid related products.
Looking at the patient direct segment, we had another quarter of strong results.
Once again, we saw growth across nearly all key product categories patient direct accounted for $607 million in revenue during the quarter representing growth of 10, 4% versus the first quarter of 2022 on a pro forma basis.
Shifting gears, let's look at cash flow the balance sheet and our capital structure in the first quarter, we generated $158 million of cash from operations. Our business is capable of producing strong cash flow results, which is evidenced by the past few quarters.
As patient direct becomes a larger part of the overall business and as we continue to optimize working capital we expect to produce significant operating cash flow that will be used for debt reduction and reinvestment in the business.
To that end, we paid down $117 million of debt during the first quarter, bringing total debt reduction to over a quarter of a $1 billion since the finalization of the <unk> acquisition.
At the end of Q1, our total debt was $2 4 billion.
We remain focused on delevering and strengthening the balance sheet as we progress toward our long term leverage target of two to three times.
I would now like to discuss our improved guidance for 2023, we are raising our revenue guidance to $10 2 billion to $10 6 billion.
Representing an increase of $100 million at the midpoint versus previous guidance.
This reflects the encouraging trends, we're currently seeing within our patient direct segment and medical distribution Division.
We're also increasing our adjusted EBITDA range to $540 million to $590 million, reflecting an increase of $45 million at the midpoint versus prior guidance.
Which reflects stable margins on the improved expectations for the top line.
And inclusive of the modifications to our adjusted EBITDA definition as detailed in our April 17 to 8-K.
Finally, we are increasing the bottom end of our adjusted EPS range from $1 15.
To $1 30 to reflect Q1 performance the new range for adjusted EPS is $1 30 to $1 65.
We remain enthusiastic about the outlook for the patient direct segment as well as the opportunities and the products and health care services segment and the overall operating model realignment, while remaining cautious around the outlook for PPE for the remainder of the year.
As we think about cadence for the year and as previously discussed our earnings will be heavily weighted to the back half of the year.
And it's reasonable to expect about 85% of earnings in the back half of the year due to traditional seasonality.
<unk> of the operating model realignment benefits.
And anticipated easing of Destocking later in the year.
Overall, we're pleased with the results from the first quarter of the year and are excited about where the company is heading before turning the call over to the operator for Q&A I'd like to thank all of our dedicated teammates for their efforts and enabling Owens <unk> minor to provide the highest quality of service to our customers with that I'll now turn the call over to the operator for.
<unk> operator.
Actually operator before we start this is at the sake I'd.
I would like to personally on behalf of all of our teammates extend our thoughts and prayers out to the family of Gil minor.
Bill passed away earlier this week <unk>, our chairman Emeritus and long time CEO of Owens <unk> minor and his family the namesake component of the miner.
<unk> life. He made a positive impact on so many people and it's great to know that his impact will continue into the future.
So with that I will turn it back over to the operator, so we can begin Q&A.
Mr <unk>.
We'll begin the question and answer session. If you have a question. Please press star one on your telephone keypad.
Your first question comes from the line of Kevin Kelly Endo of UBS. Please go ahead.
Hi, Thanks for taking my question. So wanted to talk a little bit about the products and health care services business, It's nice to see the progression there and the progress.
You talked about.
The visibility you had last quarter in terms of PPE inventory ordering and the like.
This week, we've had sort of mixed messaging from some of the public companies, who compete or work in this sector.
Can you talk a little bit about what youre seeing in terms of utilization and demand as it does it changing by geography, our customer and where we sit.
In terms of your line of sight on PPE inventory levels and reordering.
Sure. So there's really a couple of parts of that question. One is on utilization within the hospitals, we're not seeing the utilization slowdown through.
As we do our checks with hospitals and I personally go out to visit those hospitals, probably the one of the products across the portfolio where utilization is slower.
I'm sorry, it was slowed down slightly as 95%, but if you look at it across the board utilization. We believe is now consistent with where it was pre pandemic level, if not slightly elevated from that because of the protocols that are in place. So that's what we're seeing through conversations with our customers as well as personally visiting them.
The Destocking side, we've done a couple of things one is obviously, we've done some some checks without with the market as well as had some outside help getting some checks on this and I think it's still consistent with what we said last quarter is the fact that we still believe destocking is going to continue to have occurred through the first half of this year and it will start to come out in the back.
Half of the year.
So that's where we're seeing it and again back to the rationality of regional all of this we're not really seeing that so again to recap is we are seeing PPE usage in the hospital.
<unk> 2019 levels and Thats actually the usage in a hospital, we see the destocking continuing through the front half of the year and an easing in the back half of the year.
And that's really what we're seeing in the market today.
Okay. That's helpful. If I can ask a quick follow up David.
Or frame for us the risk.
From the FDA action like sort of what's the worst case, what's the best case and what have you assumed in your guidance around any potential impact from it.
Yes, I think obviously, we've got our disclosures that we have in the 10-K that were filed this morning and really what we're doing right. Now is we're just going to continue we're continuing to work with the FDA on this we're going to work with them.
<unk>. The fact that we want to work with them to address the issue during the process.
We are our primary focus here is around customer safety and transparency.
It's a fluid process and Thats, where we are in ever on it right now.
Thank you. Your next question comes from line of Michael Cherny of Bofa. Please go ahead.
Good morning, Thanks for taking the call and congratulations on a nice quarter.
Maybe if I can unpack the guidance changes a bit as you think through maybe in particular on EBITDA I think the EPS contributions are similar.
Relative to the $30 million of operating expense savings or improvement savings how does that factor in in terms of realignment costs that get baked in and where will you be exiting the year on some of those realignment costs in that $30 million, you essentially run rate into 2004 and beyond.
Maybe I think the question at a high level is so the expectation we have is to get set a minimum or $30 million in 2023 actual savings to our adjusted operating income we expect to exit the year at least at $100 million run rate to.
That going into 2023, Im sorry 2024.
Costs associated with realignment would be an exit and restructuring costs in the P&L.
But thats, where we expect it to be from a dollar standpoint. This year and there is nothing coming off of that and then going into 2024, and our run rates I don't know if that answers the question exactly.
No it does and Thats helpful and unpacking the pieces on the guide changed and if I could just throw in a second one here maybe building on Kevin's first question a bit what do you see right now in the competitive side of your market. Both I would say on core hospital distribution as well as the patient direct side and where do you see <unk>.
Strength shining through versus other opportunities you have to pick up over time.
Sure. So I'll take the two different segments. So in the product and health care services segment, we see it continue to be very competitive we recognize that customers that being the ibms and the hospitals are struggling from a financial standpoint, they are looking for ways to help them with reducing <unk>.
Labor costs, reducing overall costs and putting in additional technology in place that can help them do that.
We're also seeing them looking to have potential more choice on what product and offering that is out there for them. So they have more flexibility. So that's what we're seeing in that sense and I think a lot of the things we do within our medical distribution business fit into those categories.
I'll move onto the patient direct business and our patient direct business. We continue to see the fact that what our customers are looking for.
And that business, it's really three different customers, it's really the aspect of the customer being the patient the provider as well as the payer.
And when we think about the patient the provider one of the things that they're looking for us to continue to provide value to them and one of the ways. We do that and I think the number is really just prove that out.
They're looking for a commercial model that is comprehensive focused around those three things the patient provider and the Payor theyre looking for technology to make their life easier and we're doing that through a technology that helps the patient.
Whether it's reorder check their accounts.
That much easier and then really I think the last thing is they're looking for ways to again tie all that together and I think thats one of our patient direct business does and when we add in an app right on top of our firearm business and you put those together it really strengthen those key things about one our proven commercial.
<unk> model, which now we have across the entire business that is comprehend solely focused on the patient provider and the Payor and then really the technology that continues to advance and makes it easier for them.
But ultimately we see the patient direct marketplace growing at a rapid pace really because the demographics the increase in home treatments and really the acceptance of patient care.
Yeah.
Thank you.
Our next question comes from the line of Daniel Crosslight of Citi. Please go ahead.
Hey, guys. Thanks for taking the question.
The products and services business had a pretty significant relative to the street's expectations than some of the directional commentary you gave on the prior earnings call. It seems like PPE Destocking is kind of going as you had expected so.
Curious if you could just spike out some of the.
Sources of strength out of that and PPE.
Stocking going as you expected that led to the.
Significant beat this quarter.
Sure I think one of the things we've talked a little bit about in my prepared remarks about the org redesign and how we've already taken some cost out and de layered the organization.
That came out early in the first quarter and that was part primarily part of product and health care services segment. So thats one aspect of it too.
<unk> is again I'll go to the operating model redesign some of the stuff we've done with the network rationalization operational excellence again was focused primarily in product in health care services.
Which enabled us to actually take some cost out of that the operations. While at the same time revenue was actually better than we had anticipated and I tried to signal that and the fact that when you look at our product and health care service and you look at the medical distribution Division when you pull out the PPE distributed products.
Year over year, we grew that business in the same store sales in the mid single digits.
So thats. Another reason why so those are the couple of reasons, primarily in the product and health care services associated with the better than.
The better than expected performance.
Got it.
And really that comes down to it comes down to just strong strong execution by Andy who leads that team along with his entire team.
Yes makes sense.
If you look at.
It will be relatively the street it was about $14.15. This quarter and then youre raising the bottom end of your guidance by around the same amount in 2015.
And just why you're not raising EPS more given the strength that you're seeing was there any non recurring items or perhaps some pull through from <unk>.
Some of the strength this quarter.
I just think from our standpoint, it's only one quarter and it's early in the year we.
We felt very comfortable raising the bottom based on the based on.
What we did relative to our internal plan in Q1. So that's why we took the bottom up and Thats based on some of the things I just talked about some of the.
Faster growth, we're seeing in our medical distribution business the cost that we're taking out in our operating model realignment and look I don't want I don't want to overlook the performance of our patient direct business in the first quarter I mean, just a phenomenal quarter in the fact that pro forma grew at over 10%. So again another quarter of double digit year over year growth on a pro forma <unk>.
<unk> and frankly virtually every category is growing in double digits outside of really the home respiratory side, which is coming off of some strong tailwind as October last year. So.
Those things and then the other thing is we didn't really talk a lot about so far is our operating cash flow and the debt Paydown, which is going to have an implication on benefit longer term uninteresting expense reduction.
Yes.
Thank you.
If you would like to ask a question press Star one on your telephone Keypad. Your next question comes from the line of Eric Coldwell of Baird. Please go ahead.
Thank you I actually have a few and planned to be a bit greedy. This morning, if you'll allow me.
First Ed on the the last comment there on <unk>.
<unk> direct with every category growing double digits.
But for home respiratory.
Struggle with that math, a bit because Europe I mean, 10% is great don't get me wrong, but if every category is double digits and yet the segment is it 10 home respiratory had to be.
It had to be pretty low could you, possibly remind us what the size of that is and what the what the direction was.
Yes, so I think the way to think about it is and Eric and all of those if all the other categories are in when you say double digits anywhere from 10 to the mid to high teens.
And you have one category that is down that's going to bring the overall down to just north of 10%.
And I'm, just trying to get a sense on how much home respiratory is as a percent of your mix last year on a pro forma basis, and just to have an era of sets, yet and thats something thats, something we havent gone out and disclose as what what each category makes.
It makes up out of the total patient direct revenue.
Okay.
And then <unk>.
On the.
FDA portfolio.
Heard your comments on the call went and looked at the 10-Q I didn't see any numbers in there and it looks like there is a comment that you are unable to reasonably estimate the amount of any possible loss or range of possible losses. So I.
The question May be again is twofold, if you could.
One could you possibly size these categories that are affected by.
Not recall, but the FDA communications and then.
And then too.
With your guidance I'm curious how you.
Treated guidance for potential.
Losses.
So you can't quantify them in the 10-Q, but I'm curious what you've embedded in the outlook if anything.
Yes, So let me just talk a little bit about it and obviously.
We are continuing to work with the FDA to address the issue and this has been a process that's going to continue and but we're going to continue to focus on safety transparency I will say.
Current status I mean, the reality is.
From a historical revenue status and even currently as I said it earlier than 90, fives, which is one of its one of the areas that we've talked about those prospective revenues are probably back to 2019 levels, which are very very very low.
So that's the way, we think about that and again, it's us continuing to work with them on testing and the reason there is not a range is.
It could be zero or it could be something else and we're continuing to work with them and it just depends on where we end up with this and regarding our guidance.
We continue our guidance continues to assume that.
Our products are who stand behind our products, they're great products and we're going to continue to move forward with them, but again, we're working closely with the FDA to make sure that we get through all of this.
And over the next I don't know if you can't even put a timeline on it yet.
Thank you. Your next question comes from the line of Lisa Gill Jpmorgan. Please go ahead.
Hi, Good morning. This is John <unk> on for Lisa.
Just a quick maybe a bit more granular question I know you've changed your methodology around how you are calculating EBITDA going forward I think looking at the first quarter. There is about $11 million of incremental adjustments for stock comp and LIFO.
Yes can you size how much of the increased guidance is around changes in methodology, and then kind of following that through to the raised guidance elsewhere, how your expectations for margins have changed a little bit or not.
Thank you.
Thank you. Good morning, this is Alex Bernie.
So in our guidance, we've assumed about $30 million of benefit from the definition change.
And I am sorry, I kind of missed the second part of your question there.
Can you repeat that yes, sure just how that flows through to the margin assumptions.
Assumptions given the other guidance increases.
It seems like it probably just maintaining them relatively stable or anything else notable.
Yes, I mean, the guidance change just really for adjusted EBITDA reflects that definition change as well as the pull through of the Q1 beat.
Okay, great. Thank you very much.
Thank you. Your next question comes from the line of Eric Coldwell from Baird. Please go ahead.
I can't let you off the hook that easy.
So sorry, sorry about that Eric No go ahead.
Thank you.
The.
Those last two parter here.
Wanted to hit on was the distribution net wins communications and how that was part of the X PPE growth in core medical product distribution I'm curious what what portion of your recent wins have fully on boarded at this point where are you in ramping some of those wins you were alluding to.
Last year have there been new wins of size recently.
And.
I'm just curious if you could give us a better sense of what your ex PPE growth might have been.
If your net wins and losses position was neutral I E. What you would've just natural market growth X X share capture would be great.
And Eric the mid single digit same store sales its not any channel swap that's just opening accounts.
Accounts, we had last year versus accounts, we had this year okay I.
I misunderstood so thats great.
I apologize good clarification on my point from my standpoint, and then the other side of it is.
Of our wins.
There are starting to ramp like our largest win last year just started to generate revenue in December of last year.
In March I don't have the final April numbers, yet, but in March it was probably about 80% to what the run rate should be that was our largest one last year.
And then the other ones from last year are also ramping which is also why as we look to the back half of the year in our calendar nation.
Addresses a portion of that.
New wins that are potentially in the pipeline.
It is our pipeline is as large as it has ever been we have a dedicated business development team that does an incredible job going out and talking about the value that the Owens <unk> minor medical distribution division brings in.
That is starting to resonate and has resonated with customers. We did have another recent one in the fourth quarter, which was.
Not necessarily a new win but it was a customer where we had half of their business and they just self distribution on the other half of their business. There was one of our very large customers.
They liked what they saw from us and our ability and they've now moved away from self distribution and we've taken that on.
And that's one that will transition a little quicker that has started already I was actually at the facility on the first day, when we kicked off the transition about a month ago. So.
Those are a couple of examples Ford, but look I mean, the market is competitive and we have to continue to make sure. We're doing everything we can to protect our base business and then continue to grow our share of wallet at those customers and then drive business development and I would tell you under Andy's leadership. There is a tremendous focus around that that continues forward.
And then last one for me it sounds like there aren't many in queue here.
Free cash flow.
Don't believe you you guide to cash flow or if I missed it in the looking at the slides quickly I apologize but.
What is your outlook for free cash flow this year with and without the patient Capex.
Impact if you don't mind.
Sure.
Yes, Thanks, Ed Good morning, Eric.
Yes, so so while we haven't guided on the cash flow just a few comments on that and we are pleased with our ability to pay down $117 million here in Q1.
We do expect to continue to pay down significant.
Significant debt throughout the year.
We did talk about on the last call that we expect operating cash flow to be in line at least with 2022.
The operating model realignment as part of that we continue to focus.
In addition to the work streams on working capital benefits. There that we think will aid in our efforts here from a cash flow perspective, and paying down debt.
Thank you there are no further questions at this time.
Turn the call over to John for closing remarks.
Actually this is at the sake I will close it out so first of all I want to thank everyone for joining us on the call today.
Participation is greatly appreciated and we value that your interest in the company, but as I think and look forward there.
There are a lot of things that.
We are excited about the company going forward in the year and as the year continues on and even beyond that it starts with our patient direct segment that it's continue to outpace market growth.
We talk about market growth, but it also has driven significant margin expansions within that segment. In addition to that our operating I'm sorry medical distribution division. They can dig continues to strengthen as we talked about today in the prepared remarks, and the Q&A. Our operating model realignment. We're extremely excited about that it's on track it's already taking hold we know it's going to ramp.
In the back half of the year as we gain traction on the initiatives, we're going to continue to aggressively work through the Destocking PPE and what you saw in this quarter was exceptional cash flow and we expect that exceptional cash flow to continue through the remainder of the year, which enables us to be nimble and deploy capital to both pay down debt as well as invest in opportunities for.
Strong growth so with that I. Thank everyone for the time on the call today, and we look forward to talking to you at the end of next quarter. Thank you.
This concludes today's conference call you may now.
Disconnect.
Yes.
Yes.
Yes.
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Sure.
[music].
Okay.
Yes.
Okay.