Q4 2023 Owens & Minor Inc Earnings Call

Operator: Good day, and thank you for standing by. Welcome to the Owens & Minor fourth quarter 2023 earnings call. All lines have been placed on mute to prevent any background noise.

Good day, and thank you for standing by welcome to the Owens <unk> minor fourth quarter 'twenty to 'twenty three earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during that time simply press star followed.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press the star followed by the number one on your telephone keypad. And if you'd like to withdraw your question, again, press star 1. Please be advised that today's conference is being recorded. I would now like to hand the conference over to the first speaker today, Jackie Marcus, Investor Relations. You may begin.

The number one on your telephone keypad and if you'd like to withdraw your question had gotten press star. One. Please be advised that today's conference is being recorded I would now like to hand, the conference over to the first speaker today, Jackie Marcus Investor Relations you may begin.

Jackie Marcus: Thank you operator, Hello, everyone and welcome to the Owens <unk> minor fourth quarter 2023 earnings call. Our comments on the call will be focused on the financial results for the fourth quarter of 2023 as well as our outlook for 2024, both of which are included in today's press release.

Jackie Marcus: Thank you, Operator. Hello, everyone, and welcome to the Owens & Minor fourth quarter 2023 earnings call. Our comments on the call will be focused on the financial results for the fourth quarter of 2023, as well as our outlook for 2024, both of which are included in today's press release. The press release, along with the supplemental slides, is posted in 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, which could cause actual results to differ materially from those projected or implied here today.

Jackie Marcus: The press release, along with the supplemental slides are posted on the Investor Relations section of our website.

Jackie Marcus: Please note that during this call we will make forward looking statements.

Jackie Marcus: The matters addressed in these statements are subject to risks and uncertainties, which could cause actual results to differ materially from those projected or implied here today.

Jackie Marcus: 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.

Jackie Marcus: 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, which are included in our press release. Today I'm joined by Ed Pesicka, President and Chief Executive Officer, and Alex Bruni, Executive Vice President and Chief Financial Officer. I will now turn the call over to Ed. Ed?

Jackie Marcus: 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, which are included in our press release.

Jackie Marcus: Today I'm joined by Ed cause he got 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>.

Edward A. Pesicka: Thank you, Jackie. Good morning, everyone, and thank you for joining us on the call today. As you saw in our press release this morning, we closed out 2023 with strong positive momentum, and we exited the year in a position of strength. Our patient direct segment continued to outpace market growth as we leveraged our proven commercial model in one of the fastest growing areas of healthcare, the home. Our products and healthcare services segment successfully pivots as we reset our approach post-pandemic.

Ed: Thank you Jackie and good morning, everyone and thank you for joining us on the call today.

Ed: As you saw on our press release. This morning, we closed out 2023 with strong positive momentum.

Speaker Change: We exited the year in a position of strength.

Speaker Change: Our patient direct segment continue to outpace market growth as we leveraged our proven commercial model and one of the fastest growing areas of health care at home.

Our products and healthcare services segments successfully pivoted as we reset our approach post pandemic.

Edward A. Pesicka: We did this by leveraging the Operating Model Realignment Program, executing at a high level, and winning new business, which collectively put our P&HS segment on a positive trajectory for revenue growth and margin expansion. We also finished the year by launching a five-year strategic plan to drive growth and enhance profitability. And we didn't wait until 2024 to begin executing on this strategy, as we began to invest in both of our segments during the fourth quarter. And finally, we launched our purpose and vision in the fourth quarter, which will continue to solidify a results-oriented culture at Owens & Minor.

Speaker Change: We did this by leveraging the operating model realignment program executing at a high level and winning new business, which collectively put our P&A segment on a positive trajectory for revenue growth and margin expansion.

Speaker Change: We also finished the year by launching a five year strategic plan to drive growth and enhanced profitability.

Speaker Change: We didn't wait until 2024 to begin executing on the strategy.

Speaker Change: As we began to invest in both of our segments during the fourth quarter.

Speaker Change: And finally, we launched our purpose and vision in the fourth quarter, which will continue to solidify our results oriented culture at Owens <unk> minor.

Edward A. Pesicka: I'll provide additional comments on our long-term strategy later in my prepared remarks, but now, let me focus on 2023. When I reflect on our performance in 2023, I'm extremely proud of how our organization continues to perform against our objectives. And the proof of that hard work and strong execution is evident across our financial results. For example, in fiscal 2023, we generated over $740 million of operating cash flow, which was an annual record for Owens & Minor.

Speaker Change: I'll provide additional comments on our long term strategy later in my prepared remarks, but now let me focus on 2023.

Speaker Change: When I reflect on our performance in 2023 I'm extremely proud of how our organization continues to perform against our objectives.

Speaker Change: And the proof of that hard work and strong execution is evident across our financial results.

Speaker Change: For example in fiscal 2023, we generated over $740 million of operating cash flow, which was an annual record for Owens <unk> minor.

Edward A. Pesicka: This cash flow performance helped to significantly strengthen our financial profile as we reduced debt by nearly $600 million during the year. And this strength and balance sheet will support many of the value creation initiatives included in our five-year strategic plan.

Speaker Change: This cash flow performance helped to significantly strengthen our financial profile as we reduced debt by nearly $600 million during the year.

Speaker Change: And this strengthened balance sheet will support many of the value creation initiative is included in our five year strategic plan.

Speaker Change: Next.

Edward A. Pesicka: During the year, we delivered more than $40 million in operating model realignment benefits, and we exited the year with more than $100 million in run rate. This program helped our product and healthcare services segment deliver meaningful revenue growth and profit improvement in the fourth quarter. Finally, we delivered significant sequential improvement in key performance areas, with adjusted EPS growing from $0.05 in Q1 to $0.69 in Q4 and adjusted operating margin improving from 1.9% in Q1 to 4.2% in Q4. Additionally, while revenue declined 8% in Q1, it increased to a positive 4.1% in Q4 on a year-over-year basis.

Speaker Change: During the year, we delivered more than $40 million in operating model realignment benefits.

Speaker Change: Exited the year with more than $100 million.

Speaker Change: Right.

Speaker Change: This program helped our product in health care services segment deliver meaningful revenue growth and profit improvement in the fourth quarter.

Speaker Change: Finally, we delivered significant sequential improvement in key performance areas with adjusted EPS growing from five in Q1 to 69 in Q4 and adjusted operating margin improving from one 9% in Q1 to four 2% in Q.

Four while revenue declined 8% in Q1 increased to a positive four 1% in Q4 on a year over year basis.

Edward A. Pesicka: With our patient direct segment leading the way with full year 2023 organic revenue growth of nearly 10% and continuing to outperform the market while remaining well positioned for further expansion as demand for home-based care accelerates. So, as you can see, we're excited about our business right now, given the substantial flexibility we've established and the strong performance in 2023. Let me close with a quick summary of each segment.

Speaker Change: With our patient direct segment, leading the way with full year 2023 organic revenue growth of nearly 10%.

Speaker Change: Changing to outperform the market, while remaining well positioned for further expansion as demand for home based care accelerates.

Speaker Change: So as you can see we're excited about our business right now given the substantial flexibility we've established and the strong performance in 2023.

Speaker Change: Let me close with a quick summary of each segments.

Edward A. Pesicka: In terms of our market-leading Patient Direct segment, we had an outstanding year. We grew the business double digits, continued to expand the overall profit contributions, further integrated APREA, and began investing in additional growth initiatives. As we look forward, we maintain our belief that we can continue to outpace the market and expand our position as a true leader in home-based care. In terms of our product and healthcare services segment, during 2023, we utilized our operating model realignment program to lower our cost to serve, expand our profits, and increase our cash flows. All of which have repositioned the business for long-term success. Before I share my thoughts on 2024 and the future for Owens & Minor, I would like to turn the call over to our Chief Financial Officer, Alex Bruni, to discuss our financial performance and our 2024 guidance. Alec, Thank you, Ed. Good morning, everyone.

Speaker Change: In terms of our market leading patient direct segment, we had an outstanding year, we grew the business double digits continuing to expand the overall profit contributions.

Speaker Change: Further the integration of Apria and began investing in additional growth initiatives as we look forward, we maintain our belief that we can continue to outpace the market and expand our position as a true leader in home based care.

Speaker Change: In terms of our product and healthcare services segments. During 2023, we utilized our operating model realignment program to lower our cost to serve and expand our profits and increase our cash flows all of which have repositioned the business for long term success.

Speaker Change: Before I share my thoughts on 2024, and the future for Owens <unk> minor I would like to turn the call over to our Chief Financial Officer, Alex Peroni to discuss our financial performance and our 2020 for guidance.

Speaker Change: Alex.

Alex Peroni: Thank you Ed good morning, everyone diving into our fourth quarter performance on the topline we posted consolidated revenue of $2 7 billion up more than 4% over the prior year.

Alex Bruni: On the top line, we post consolidated revenue of $2.7 billion, up more than 4% over the prior year. This uptick in revenue was driven by a nearly 8% year-over-year improvement in our patient-direct segment, with growth across several product categories. We also saw 3% growth in our products and healthcare services segment compared to the prior year. Notably, there was growth in both the medical distribution and global products divisions during the course. For the full year, we reported revenue of $10.3 billion, up 4% year-over-year. The fourth quarter gross margin was $570 million, or 21.5% of revenue, compared to $407 million, or 16% of revenue, in the fourth quarter of 2020. Full year gross margin was $2.1 billion, or 20.6% of revenue, up 221 basis points. Our gross margin improvement can be attributed to the growing contribution from our patient direct settlement and the efficiency and productivity gains in products and healthcare services.

Alex Peroni: This uptick in revenue was driven by a nearly 8% year over year improvement in our patient direct segment with growth across several product categories. We also saw a 3% growth in our products and health care services segment compared to the prior year.

Alex Peroni: Notably there was growth in both the medical distribution and global products divisions in the quarter.

Alex Peroni: For the full year, we reported revenue of $10 3 billion up 4% year over year.

Alex Peroni: Our fourth quarter gross margin was $570 million or 21, 5% of revenue compared to $407 million or 16% of revenue in the fourth quarter of 2022.

Alex Peroni: Full year gross margin was $2 1 billion or 26% of revenue up 221 basis points are.

Alex Peroni: Our gross margin improvement can be attributed to the growing contribution from our patient direct segment and the efficiency and productivity gains and the products and health care services segment.

Alex Peroni: Additionally, the comparison to the prior year was impacted by the non recurrence of the fourth quarter 2022 inventory valuation adjustments of $92 3 million.

Alex Bruni: Additionally, the comparison to the prior year was impacted by the non-recurrence of the fourth quarter 2022 inventory valuation adjustment of $92.3 million. Turning to expenses, distribution, selling, and administrative expenses for the quarter were $457 million, making up 17.2% of revenue, in line with the fourth quarter of 2020. For the full year, DSNA expenses were $1.8 billion, or 17.5% of revenue. The DSNA percentage of revenue reflects the growing contribution from PatientDirect, including a full year of applications. GAAP operating income for the quarter was $60 million, and adjusted operating income was $111 million.

Alex Peroni: Turning to expenses distribution, selling and administrative expenses for the quarter were $457 million, making up 17, 2% of revenue in line with the fourth quarter of 2022 for.

Alex Peroni: For the full year <unk> expenses were $1 8 billion or 17, 5% of revenue.

Alex Peroni: The <unk> percentage of revenue reflects the growing contribution from patient direct including a full year of Africa.

Alex Peroni: GAAP operating income for the quarter was $60 million and adjusted operating income was $111 million for.

Alex Bruni: For the full year 2023, GAAP operating income was $105 million, and adjusted operating income was $305 million. These results reflect a notable improvement in operating income, increasing by 212%, and a 65% growth in adjusted operating income compared to the fourth quarter of 2022. Notably, both the patient direct and products and healthcare services segments exhibited sequential increases in segment income from the third to the fourth quarter of 2020. Interest expense for the fourth quarter was $37 million, a 10% decrease from the fourth quarter of last year, largely due to our significant debt reduction during the year. Interest expense for the full year was $158 million, a 23% increase from the prior year driven primarily by the funding from the APRI acquisition in early 2020. Gap net income for the quarter was $0.23 per share, and adjusted EPS was $0.69. For the full year, the gap net loss was $0.54 per share, and adjusted EPS was $1.36.

Alex Peroni: For the full year 2023, GAAP operating income was $105 million and adjusted operating income was $305 million.

These results reflect a notable improvement in operating income increasing by 212% and a 65% growth in adjusted operating income compared to the fourth quarter of 2022.

Alex Peroni: Notably both the patient directed and products and health care services segment exhibited sequential increases in segment income from the third to the fourth quarter of 2023.

Alex Peroni: Interest expense for the fourth quarter was $37 million or 10%.

Alex Peroni: The decrease from the fourth quarter of last year, largely due to our significant debt reduction during the year.

Alex Peroni: Interest expense for the full year was $158 million or 23% increase from the prior year driven primarily by the funding from the <unk> acquisition in early 2022.

Alex Peroni: GAAP net income for the quarter was <unk> 23 per share and adjusted EPS was <unk> 69.

Alex Peroni: For the full year GAAP net loss was <unk> 54 per share and adjusted EPS was $1 36.

Alex Bruni: Justin Ibbitton, the fourth quarter was $170 million, and for the full year, it was $526 million for 5.1% of revenue. For the Operating Model Realignment Program, we delivered in excess of $40 million of adjusted operating income benefit. We are exceeding our goals of $30 million in a year and exiting the year with an annual run rate of over $100 million. Moving to cash flow on the balance sheet, we continued to generate substantial operating cash flow of $112 million for the quarter and reached a full year total of $741 million, driven by robust working capital management and operating resources. As a result of this significant cash flow, we reduced total debt by $49 million for the fourth quarter and by $403 million for the full year, bringing the balance to $2.1 billion at year end. In addition, we reduced net debt by $76 million in the fourth quarter and by $577 million for the full year, bringing the balance to $1.9 billion.

Alex Peroni: Adjusted EBITDA in the fourth quarter was $170 million and for the full year was $526 million for five 1% of revenue for.

Alex Peroni: For the operating model realignment program, we delivered in excess of $40 million of adjusted operating income benefit exceeding our goals of $30 million in the year and exited the year with an annual run rate of over $100 million.

Alex Peroni: Moving to cash flow and the balance sheet, we continued to generate substantial operating cash flow of $112 million for the quarter and reached a full year total of $741 million driven by robust working capital management and operating results.

Alex Peroni: As a result of this significant cash flow, we reduced total debt by $49 million for the fourth quarter and by $403 million for the full year, bringing the balance to $2 1 billion at year end.

Alex Peroni: In addition, we reduced net debt by $76 million in the fourth quarter and by $577 million for the full year, bringing the balance to $1 9 billion.

Net book leverage was three five times at the end of the fourth quarter.

Alex Bruni: Netbook leverage was 3.5 times at the end of the fourth quarter. Now, let's look at our full year 2024 guide. Consistent with what we discussed on the third quarter call and at investor day, we expect net revenue to be in the range of $10.5 billion to $10.9 billion, adjusted EBITDA to be in the range of $550 million to $590 million, and adjusted EPS to be in the range of $1.40 to $1.70.

Speaker Change: Now, let's look at our full year 2020 for guidance.

Speaker Change: Consistent with what we discussed on the third quarter call and at Investor Day, We expect net revenue to be in the range of $10 5 billion to $10 9 billion.

Speaker Change: Adjusted EBITDA to be in the range of $550 million to $590 million and adjusted EPS to be in the range of $1 40 to $1 70.

Alex Bruni: Also, as previously discussed, we expect the earnings trajectory to follow our normal seasonal pattern throughout the year. To help some of you with your models, we'd expect that seasonality to lead to a roughly one-third, two-thirds split across the first and second halves of the year from an earnings trend, and we'd expect to deliver improvement in each sequential quarter. Looking ahead, we remain committed to delivering the outlook for both, having outpaced market growth in our patient direct segment and delivered year-over-year profit improvement in products and healthcare services. As we enter 2024, we're excited to sustain this momentum and to continue on the initial phase of our five-year strategy and investment plan, laying the groundwork for continued future development. I'd now like to turn the call back over to Ed for his thoughts on 2024 and Owens & Minor's role in the future of health care. Thank you, Alex.

Speaker Change: Also as previously discussed we expect the earnings trajectory to follow our normal seasonal pattern throughout the year to help some of you with your models, we would expect that seasonality to lead to a roughly one third two third split across the first and second half of the year from an earnings perspective.

Speaker Change: And we would expect to deliver improvement in each sequential quarter.

Speaker Change: Looking ahead, we remain committed to delivering the outlook for both segments, having outpaced market growth in our patient direct segment and delivered year over year profit improvement in products in health care services.

Speaker Change: As we enter 2024, we're excited to sustain this momentum and to continue on the initial phase of our five year strategy and investment plan laying the groundwork for continued future success I would now like to turn the call back over to Ed for his thoughts on 2024, and Owens <unk> minors role in the future of health care Ed.

Ed: Thank you Alex So again we.

Edward A. Pesicka: So again, we had great execution in 2023, and we remain laser focused on maintaining and accelerating our business momentum as we move forward in 2024. At our Investor Day in December, we shared our Vision 2028 plan, and I outlined three key pillars that are critical to our future growth. These include accelerating growth in the high-potential areas of the business, optimizing all of our businesses to drive stronger long-term profitability, and leveraging our strong balance sheet by investing across our platforms to drive long-term value. In terms of the near-term priorities that support these pillars, let's start with our growth engine, and that's our patient direct segment. We have a proven commercial model across our core categories, including sleep, home respiratory, diabetes, ostomy, urology, and wound care.

Ed: Great execution in 2023, and we remain laser focused on maintaining and accelerating our business momentum as we move forward in 2024.

Ed: At our Investor Day in December we shared our vision 2028 plant and I outlined three key pillars that are critical to our future growth.

These include accelerating growth in the high potential areas of the business.

Ed: Optimizing all of our businesses to drive stronger long term profitability and leveraging our strong balance sheet by investing across our platforms to drive long term value.

Ed: In terms of the near term priorities that support these pillars, let's start with our growth engine and Thats. Our patient direct segment, we have a proven commercial model across our core categories, including sleep <unk> respiratory diabetes, Ostomy urology and wound care. These are areas for investment as we fill geographic.

Edward A. Pesicka: These are areas for investment as we fill geographic gaps, add commercial resources, and invest in technology to improve customer satisfaction, grow revenue, and expand margins. The technology investments will include e-commerce enhancements in our patient management platform and an innovative digital market. Overall, we will use technology to rethink the patient journey.

Ed: Traffic gaps add commercial resources and invest in technology to improve customer satisfaction grow revenue and expand margins. The technology investments will include ecommerce enhancements in our patient management platform, an innovative digital marketing.

Ed: Overall, we will use technology to rethink the patient journey.

Edward A. Pesicka: Lastly, we'll focus on growing outside of our traditional areas and into adjacencies and other comorbid conditions. The results of these investments, combined with continued strong execution, will enable the patient-directed segment to continue to grow above market rates, and we believe we can continue to do so by at least 200 basis points per year. Moving to our products and healthcare services segment, we're going to optimize this business by better leveraging our scale, growing our proprietary product portfolio, and expanding into adjacent markets and channels. As you can see from our results, we are already making progress in delivering on our promise. Andy and his team are investing where customers find differentiation, and they're taking costs out where they don't, ultimately lowering our cost to serve.

Ed: Lastly, we will focus to grow outside of our traditional areas and into Adjacencies and other comorbid conditions.

Ed: The results of these investments combined with continued strong execution will enable the patient direct segment to continue to grow above market rates and we believe we can continue to do so by at least 200 basis points per year.

Ed: Moving to our products and health care services segment, we're going to optimize this business by better leveraging our scale growing our proprietary product portfolio and expanding into adjacent markets and channels.

Ed: As you can see from our results, we are already making progress in delivering on our promises.

Ed: Andy and his team are investing where the customers find differentiation and theyre, taking costs out where they don't ultimately lowering our cost to serve.

Ed: They are also looking at our footprint to make sure our distribution and manufacturing costs are optimized while lowering our cost to serve remains a priority and pn Hs. We are also investing to expand our higher margin proprietary product portfolio combined with investments to enhance the customer experience and.

Edward A. Pesicka: They are also looking at our footprint to make sure our distribution and manufacturing costs are optimized. While lowering costs to serve remains a priority in PNHS, we are also investing to expand our higher-margin proprietary product portfolio combined with investments to enhance the customer experience. And finally, we're investing in our business and our teammates for both the short and long term. As I mentioned earlier, during 2023, we generated over $740 million of operating free cash flow. That's a tremendous number.

Ed: And finally, we're investing in our business and our teammates for both short and long term.

Ed: As I mentioned earlier during 2023, we generated over $740 million of operating free cash flow. That's a tremendous number we also had over $575 million and net debt reduction another incredible milestone for our company.

Edward A. Pesicka: We also had over $575 million in net debt reduction. Another incredible milestone for our company. So with this momentum in mind, we are focused on deploying capital both thoughtfully and timely with a focus on supporting expansion, technology, and investments in inventory to support new wind implementations, enhanced service, and portfolio expansion. We'll also continue to explore additional M&A to expand and scale our business. In conclusion, I'm incredibly excited about the momentum we're bringing into 2024, and I look forward to sharing our progress with all of you as the year progresses. I'd like to now turn the call over to the operator to open it up for questions. Operator?

Ed: So with this momentum in mind, we are focused on deploying capital both thoughtfully and timely with a focus on supporting expansion technology and investments in inventory to support new wins implementations enhanced service and portfolio expansion.

Ed: We will also continue to explore additional M&A to expand and scale our business.

Speaker Change: In conclusion I'm incredibly excited about the momentum, we're bringing into 2024 and I look forward to sharing our progress with all of you as the year progresses.

Speaker Change: I'd like to now turn the call over to the operator to open it up for questions operator.

Operator: Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Your first question comes from the line of Daniel Grossleit from Citi. Please go ahead.

Speaker Change: Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad. Your first question comes from the line of Danielle <unk> from Citi. Please go ahead.

Edward A. Pesicka: Hi, thanks for taking the question, and it's good to hear that in PNHS it's both the product fan and the distribution that's growing this quarter. I had a question just around PPE inventory levels at your clients and how that's shaping up for 24. Some of the large hospitals have commented that they're hoping to save money on inventory this year. Curious how that may impact you.

Danielle: Hi, Thanks for taking the question and it's good to hear that and Phs hits, both products and in India.

Danielle: And that distribution.

Danielle: That is growing in this quarter.

Question, just around PPE inventory levels at your clients and how that's shaping up for 'twenty four and some of the large hospitals has commented that they're going to they're hoping to save money on inventory. This year curious how that may impact you.

Edward A. Pesicka: And then on the third-party distributors who are buying your PPE, any more clarity on how their inventory levels are shaping up? Yeah, so I think probably the biggest factor, Daniel, well, first of all, thanks for joining us on the call this morning. But I think the first factor is, you know, and you alluded to that, and you said that up front is that we actually saw growth in both parts of the business this quarter, both product and healthcare services as well as patient direct. And, you know, if I think about the divisions within product and healthcare services, we have seen, you know, the, I don't want to say the bottom, but we're starting to see, we've You know, we're starting to see demand increase. While demand has been consistent, we're now starting to see that slightly higher demand. We do still have some customers that have some additional stock, and, you know, we're helping them burn through that.

Danielle: And then on the third party distributors, who are Brian your PPE any more clarity on how their inventory and inventory levels are shaping up.

Speaker Change: Yes, I think probably the biggest factor Daniel first of all Jay and thanks for joining US. This morning on the call, but I think the first factor is.

Brian: You alluded to that and you said that upfront is we actually saw growth in both parts of the.

Brian: Business this quarter.

Brian: Both product and healthcare services as well as patient directed.

Brian: Think about the divisions within product in health care services, we have seen.

Brian: But I don't want to say the bottom, but we're starting to see we've seen it level out within our products business specifically.

Brian: We're starting to see that demand while the demand has been consistent.

Brian: We're now starting to see that slightly uptick we do still have some customers that have some additional stock.

Brian: And we're helping them through that and we've also done a nice job beginning to build to burn through some of our excess inventory. During 2023. So as we look into 2024, we expect that to start to ramp in the upward direction and provide some momentum. So that's how we're thinking about the PPE specifically.

Edward A. Pesicka: You know, we've also done a nice job, you know, beginning to build through burn through some of our excess inventory during 2023. So, you know, as we look into 2024, we expect that to start to ramp in the upward direction and provide some momentum. So that's how we're thinking about the PPE specifically, you know, there are some categories where we're seeing faster growth than others. I think surgical is a great example of that. We're starting to see demand for PPE escalate as people have burned through those products, and we're seeing the surgery rate start to slightly increase. So that's how we're seeing it from a qualitative standpoint. I got it.

Brian: There are some categories, where we're seeing faster growth in other I think surgical's, a great example of that but we're starting to see demand for PPE escalate as people have burned through those products and we're seeing the surgery rates starting to slightly increase so that's how we're seeing it from.

Brian: Qualitative standpoint.

Speaker Change: Got it Okay, and then you kind of alluded to this as.

Edward A. Pesicka: Okay. And then you kind of alluded to this as well at the end here, but one of the key initiatives of the Model Realignment Plan is rethinking your manufacturing footprint, including potentially producing more products overseas. I'm curious if the current conflict in the Red Sea has changed how you're thinking about your manufacturing footprint, potentially keeping more sites in North and South and Central America, or if anything has changed. Sure, it's at a high level. I mean, one, we really haven't, you know, we didn't when we think of... let me step back a moment.

Speaker Change: As well at the end here, but.

Speaker Change: The key initiatives of the model realignment plan is rethinking your manufacturing footprint.

Speaker Change: Including potentially producing more products overseas I'm curious if the current conflict.

Speaker Change: Yes, the Red Sea has changed how youre thinking about your manufacturing footprint potentially keeping more.

Speaker Change: More sites.

In north and South and Central America.

Speaker Change: Or if anything has changed sure just at a high level I mean, one we really haven't.

Speaker Change: We didn't when we think of let me step back from it when we think about where our manufacturing footprint should be we don't think it should be in one specific geographic location, we take all the different circumstances and all the different issues that potentially can run as we look at it if you look at our footprint today, it's primarily in the Americas, Both North America.

Edward A. Pesicka: When we think about where our manufacturing footprint should be, we don't think it should be in one specific geographic location. You know, we take all the different circumstances and all the different issues that potentially could run as we look at it. And if you look at our footprint today, it's primarily in the Americas, both North America and Central America, with the one exception being our gloves, which are in Thailand. And I think if we think about where our shipping channels are today, they really are not impacted by those issues that are in the market today because we're shipping really, you know, directly to the West Coast. And if we do, we will go through the Panama Canal if we have to get to the East Coast.

Speaker Change: Central America with.

Speaker Change: The one exception is our gloves, which are in Thailand.

I think if we think about where our shipping channels are today. It really is not impacted by those issues that are in the market today, because we're shipping really directly to the west coast and if we do we go through the Panama Canal. So we have to get to the East coast and we look at our shipping partners on the Panama Canal, we have preset slots.

Edward A. Pesicka: And, you know, we look at our shipping partners on the Panama Canal. We have preset slots, you know, that enable us to get through. And we've seen about a one to three day delay, you know, at most within that. But generally speaking, you know, we have our time slots. We have it lined up, and it has an impact. As we think about the manufacturing footprint more broadly going forward, we'll continue to look at where it is, where it creates opportunities for us to, you know, get the products that we need at the right price that the customers are demanding and be able to service them. So, I guess, you know, overall, the current situation in the Suez Canal is not impacting us because it's not a primary shipping channel for us. If we think about where we are today, you know, primarily, we have to use one of those canals. We use the Panama Canal, or we ship to the West Coast.

Speaker Change: And then enable us to get through and we've seen about a one to three day delay at <unk>.

Speaker Change: Most within that but generally speaking we have our time slots, we have it lined up and it hasnt impacted us as we think about the manufacturing footprint more broadly going forward.

Speaker Change: We will continue to look at where is the where does it create opportunities for us too.

Speaker Change: Get the products that we need at the right price that the customers are demand and being able to service them. So I guess.

Speaker Change: Overall, the current situation.

Speaker Change: Suez Canal, it's not impacting us because it's not our primary shipping channel for us if we think about where we are today, primarily be happy as one of those canals, we used Panama canal, where we shipped to the west coast.

Edward A. Pesicka: And based on our footprint, you know, it's a different footprint we have today. And as we go into the future, we'll take those things into consideration, you know, as we continue to remap out our manufacturing footprint. Your next question comes from the line of Kevin Caliendo from UBS. Please go ahead. Good morning.

Speaker Change: And based on our footprint.

Speaker Change: Different footprint, we have today and as we go into the future we will take those things into consideration as we as we continue to remap out our manufacturing footprint.

Speaker Change: Your next question comes from the line of Kevin Kelly Endo from UBS. Please go ahead.

Speaker Change: Good morning, Thanks for taking my question.

Edward A. Pesicka: Thanks for taking my question. I want to go through the EBITDA guidance for 24 and just sort of understand what some of the assumptions are in there. First, how much is embedded for the cost savings realignment? You mentioned you were, you know, there was a run rate of $100 million exiting 24, and I'm, or excuse me, exiting 23. How much of that is sort of captured in the 550 to 590? And also, can you talk about the net headwinds, or is there a net headwind from the DME POS benefit versus the 75-25 rule? Maybe I can start in on that now, Alexander McCullers.

Speaker Change: I want to go through the EBITDA guidance for 'twenty, four and just sort of understand what some of the assumptions are in their first how much is embedded to the cost savings realignment. You mentioned your there was a run rate of 100 million exiting 'twenty four.

Speaker Change: Excuse me exiting 'twenty three how much of that is sort of captured in the $5 50 to $5 90.

Speaker Change: Also.

Speaker Change: Can you talk about that.

Speaker Change: Headwinds or is there a net headwind from the <unk> Pos benefit versus the $75 25 rule.

Speaker Change: And maybe I can start and then alexandrov color. So let me just talk a little bit of positive fee operating model realignment and the carryforward in the bulk of that is going to end up and actually our profits or our earnings before before the interest really earnings part of EBITDA and one of the things I think we've tried to clearly state both at Investor Day.

Edward A. Pesicka: Let me just talk a little bit about the operating model realignment and the carry forward. And the bulk of that's going to end up in our profits or our earnings before the interest, you know, the real earnings part of EBITDA. And one of the things I think we've tried to clearly state both at investor day as well as in some of our prepared remarks was the fact that, you know, the savings that we've gained from that, in addition to the run rate we have, the vast majority of that is going to be reinvested back into the business, and we're pretty comfortable in the range where we are from both EBITDA as well as EPS for 2024.

Speaker Change: <unk> as well as on some of our prepared remarks was the fact that.

The savings that we gain from that in addition to the in addition to the run rate we have.

Speaker Change: The vast majority of that is going to be reinvested back into the business and we're pretty comfortable in the range, where we are from both EBITDA as well as EPS for 2024, and if I think about some of the I think it's important to understand where are the big buckets, we're going to be investing in that and I'll talk about it into two segments. The one is on the patient direct side.

Edward A. Pesicka: And if I think about some of that, I think it's important to understand where the big buckets we're going to be investing in that. And I'll talk about it in the two segments, you know, the one is on the patient direct side, you know, so we're aggressively adding commercial people because we believe with the proven commercial model we have, as we scale that up, that can drive long-term growth. You know, and we started adding personnel in the fourth quarter, teammates in the fourth quarter. We're continuing to do that in Q1 and Q2. You know, what also should be noted is if we're going to add 70, you know, call it 70 plus, you know, teammates in the commercial organization on that side of the business. Those teammates don't have a positive return, or they break even after around 12 months, and then they start to show very strong positive returns.

Speaker Change: So we're aggressively adding commercial people because we believe with the proven commercial model, we have as we scale that up that can drive long term growth and.

Speaker Change: And we started adding personnel in the fourth quarter teammates in the fourth quarter were continuing that in Q1 and Q2.

Speaker Change: What also should be noted as if we're going to add 70 call. It 70, plus teammates in the commercial organization on that side of the business.

Speaker Change: Those teammates don't have a positive return or are they breakeven after around 12 months and then they start to show a very strong positive returns. So that's an example of taking some of that profit or savings and putting it into long term profit investments. The other thing and patient direct is really around focusing on the sleep journey and making sure that we can have unique <unk>.

Edward A. Pesicka: So that's an example of taking some of that profit or savings and putting it into long-term profitable investments. The other thing in patient direct is really around, you know, focusing on the sleep journey and making sure that we can have unique technology to capture and maintain, you know, our patients in that side of the business. So those are just two simple examples in that side of the business.

Technology to capture and maintain.

Speaker Change: Our patience in that side of the business. So those are just two simple examples on that side of the business. The other aspect on the savings is again, putting it back into investments.

Edward A. Pesicka: The other aspect of the savings is, again, pouring it back into investments, you know, and again, not just pulling it through to earnings, but on product and healthcare services. It's really around a couple areas. It's around our investment in category management. And I think the thing that's important about that is, as a company, we've been talking for years about expanding our proprietary portfolio. We're putting in the infrastructure so that way, we can do that. So there's significant investment being made in personnel to expand that proprietary product portfolio to understand marketing, partnering with our customers, and then the commercial, you know, on the front end of that.

Speaker Change: And again, not just push pulling it through to earnings but on product in health care services, it's really around a couple of areas. It's around our investment in our category management and I think the thing that's important on that is as a company we've been talking for years about expanding our proprietary portfolio, we're putting in the infrastructure. So that way we can do that so there is.

Speaker Change: Investment being made in personnel to expand that proprietary product portfolio understand the marketing partnering with our customers and then the commercial front and on the front end of that in addition to that investments in technology around some of our services, we offer as well as in data analytics, So I say that as a backdrop, because what I don't want that.

Edward A. Pesicka: In addition to that, investments in technology around some of our services we offer, as well as in data analytics. So I say that as a backdrop because what I don't want the market to get confused about is we have an operating model realignment that generated more than 40 million in benefits this year, and 100 million run rate, and all of that's just going to get pushed through to the bottom line. We're actually taking that and reinvesting it in the business, you know, for future growth and future EBITDA benefits as we move forward. So that, I think, helps capture the earnings part of EBITDA. Alex, I think if there's any other highlights outside of that, you know, besides covering the operating model realignment and how that carries through. Yeah, thanks, Ed. And good morning, Kevin.

Speaker Change: Mark they get confused on is we have operating moderate alignment that generated more than $40 million of benefit this year of $100 million run rate that all of that is just going to get pushed through to the bottom line, we're actually taking that and reinvesting that in the business.

Speaker Change: For future growth and future EBITDA benefits as we move forward. So that I think helps capture the earnings part of EBITDA, Alex I think if theres any other highlights outside of that.

Speaker Change: Besides covering in the operating model realignment and how that carries through.

Alex: Yes, Thanks, Ed and good morning, Kevin.

Alex: On adjusted EBITDA.

Alex Bruni: So, on adjusted EBITDA, we, you know, we were obviously working hard to deliver in line with our guidance last year and fell a little bit short, frankly, of where we expect it to be. And so, as we head into 2024, we do feel good about where we've reset for the year. And it does reflect, as I mentioned, the investment. It also reflects some of the normalization of P. P. E. pricing. So gloves, for instance, at the end of 2023 and into 2024, we think that that sort of normalizes here in the first half of the year. So those are a couple of areas from a broad brushstroke standpoint.

Alex: We.

Alex: We are obviously.

Speaker Change: Working hard to deliver in line with our with our guidance last year and.

Speaker Change: And fell a little bit shorter frankly, where we expect it to be and so as we head into 2024, we do feel good about where we've reset for the year and it does reflect as Ed mentioned the investment. It also reflects some of the normalization of.

Speaker Change: PPE pricing so gloves for instance at the end of 2023 and into 2024, we think that.

Speaker Change: It sort of normalizes here and in the first half of the year.

Speaker Change: So those are a couple of areas from a broad brush stroke standpoint, and then as we think about some of the more.

Alex Bruni: And then, you know, as we think about some of the more complexities around LIFO and STOCCOMP, we expect both of those to normalize this year, which should provide us greater visibility and less volatility around adjusted EBITDA. And then I'll add one last comment on the 7525 comment.

Speaker Change: The complexities around LIFO and stock comp, we expect both of those to normalize this year, which should.

Speaker Change: US greater visibility and less volatility around adjusted EBITDA and then we will add one last comment on the 70 525 comment is obviously legislation continues to be discussed our congress on that but the way we thought about it is we've built in the impact that it would have on us in.

Edward A. Pesicka: Obviously, legislation continues to be discussed throughout Congress on that, but the way we thought about it is that we built in the impact that it would have on us. In addition to that, we identified ways to offset that as we move forward throughout the year.

Speaker Change: In addition to that identifying ways to offset that as we move forward throughout the year.

Speaker Change: Got it can I ask one quick follow up I know that was a long answer but just in terms of free cash flow.

Alex Bruni: Can I ask one quick follow-up? I know that was a long answer, but just in terms of free cash flow this year, I know you had some benefits from working capital in 23AR and the like. Would you expect the free cash flow to sort of match what we did in or what you did in 2023 and 2024? Is there any directional guidance you can give us around maybe working capital if you don't want to give us the free cash flow number? Sure. Yeah, Kevin. Great question.

Speaker Change: This year I know you had some benefits from working capital in 'twenty three.

Speaker Change: Like would you expect the free cash flow to sort of match, what we did and what you did in 2023 and 2024 is there any directional guidance you can give us around maybe working capital. If you don't want to give us the free cash flow numbers.

Speaker Change: Sure.

Speaker Change: Yes, Kevin Great question so.

Edward A. Pesicka: So, in 2024, we expect cash flow to normalize. You know, we obviously had an extraordinary year in 2023. We expect to end the year with some debt paid down and just be slightly north of the three times leverage. And then I'll just add one other comment: as we start to see growth in our medical distribution and our global products business, whether that's through implementation of new wins, whether that's through expanding our proprietary product portfolio, we are going to make the appropriate investments in inventory so that way, as we scale and that business grows, we have the ability to serve our customers In addition to that, you know, just so everyone understands the cycle of bringing in new proprietary products. Generally, you're going to have them in inventory before you start to sell them in the market. In addition to that, you want to make sure you bring in the right amount so that as that ramps up, you don't have service issues. So, you know, there are going to be some investments in inventory in 2024, really related to three things. One is the new Win implementation.

Speaker Change: 2024, we expect cash flow to normalize.

Speaker Change: We obviously had an extraordinary year in 2023.

Speaker Change: We expect to end the year.

Kevin: With some debt pay down and just to be slightly north of the three times leverage.

Speaker Change: And then I'll just add one other comment is as we start to see growth in our medical distribution in our global products business, whether that's through implementation of new wins, whether that's through expanding our proprietary product portfolio. We are going to make the appropriate investments in inventory. So that we as we scale in that business grows.

Speaker Change: We have the ability to service our customers in addition to that Jim.

Jim: So everyone understands the cycle of bringing on new proprietary products generally youre going to have them in inventory before you start to sell them in the market. In addition to that you want to make sure you bring in the right amounts. So as that ramps you don't have service issue. So there are going to be some investments in inventory in 2024 really related to <unk>.

Jim: Three things one is new win implementations. The second aspect of that is proprietary product portfolio expansion and third is the ability to drive higher levels of service.

Edward A. Pesicka: The second aspect of that is proprietary product portfolio expansion. And third is, you know, the ability to drive higher levels of service. Great. Thank you so much, guys. And those are all good reasons to add inventory. Your next question comes from the line of John Stansel from J.P. Morgan. Please go ahead.

Speaker Change: Great. Thank you so much guys.

Speaker Change: And those are all good reasons to add inventory.

Speaker Change: Your next question comes from the line of John Stanfill from Jpmorgan. Please go ahead.

John Stanfill: Great. Thanks for taking the question just kind of following up on that around the new SKU launches that you highlighted at Investor day, It sounds like what Youre, saying is that part of the driver for SG&A uptick.

Edward A. Pesicka: Great. Thanks for taking the time to answer the question. Just kind of following up on that around the new SKU launches that you highlighted yesterday, it sounds like what you're saying is that, you know, this is part of the driver for SG&A uptick and it'll be more of a contributor in 2025. Is that the right way to kind of frame the significant investment you're making in product line expansion? Or should we think about it as a near-term driver? No, I think it's more of a long-term driver. And I think, you know, I used two examples, one on both sides of each segment.

John Stanfill: And it'll be more of a.

John Stanfill: Contributor in 2025 is that the right way to frame the significant investment youre, making in product line expansion or should we think that as a near term driver okay.

John Stanfill: It's more of a long term driver and I think I use two examples one in both sides of this each segment on.

Edward A. Pesicka: You know, on the personnel ads and the team aid ads on the commercial side of a patient-directed business, we know clearly that, after 12 months or so, that becomes break-even and highly profitable as it accelerates. So, yes, on the patient-directed side. And then, very similar on the product and healthcare services side of the business, you know, in building out the teams to do that, that is going to be a capital, I'm sorry, a SG&A investment up front with benefits as time progresses. Great.

John Stanfill: On the personnel adds in the teammate adds on the commercial side and our patient direct business. We know clearly that that's after 12 months or so that becomes breakeven and highly profitable as accelerates. So yes, some patient direct site and then very similar on.

John Stanfill: <unk> product in health care services side of the business.

John Stanfill: And that in building out the teams to do that that is going to be a capital I'm, sorry, SG&A investment upfront with benefit as time progresses.

Speaker Change: Great and then just going back to the Investor Day, you called out a new medical customer win I believe can you just help qualitatively frame, how that's contributing to the 2024 guide and what services are being sold there.

Edward A. Pesicka: And then just going back to yesterday, you called out a new medical customer win. Can you help qualitatively frame how that's contributing to the 2024 guide and what services are being sold there? Yeah, that's one that should start to implement or should start to implement in March. So next month, we'll start to implement that business, and that's going to, you know, we haven't quantified the dollar amount, you know, but it is a, it's a meaningful win. It'll end up being one of our top ten customers overall, you know, once we put it into the system, and it is a combination of a portion of a customer we did have and then expansion. And so it's a meaningful win, and that'll begin in March. If I can just squeeze one quick one in at the end, a more long-term question.

Speaker Change: Yes, that's one that should start to implement so I'll shut its going to start implementing in March. So next month, we will start to implement that business.

Speaker Change: And thats going to we haven't quantified the dollar amount.

Speaker Change: But it is a meaningful win it'll end up that will end up being one of our top 10 customers overall.

Speaker Change: Once once we put it into the system and it is a combination of a portion of our customers. We did have and then expansion and so as a meaningful win and that will begin in March.

Speaker Change: Great and if I can just squeeze one quick one and at the end of more of a long term question.

Alex Bruni: I know that in December there was some chatter around potential changes to CMS reimbursement for CGMs. Now, I know only 20% of your patient's direct revenue comes from government sources. You know, how are you thinking about potential changes around TGM reimbursement from someone like CMS? Is that something, you know, as you think about the years, that is meaningful or not really for the patient directly? Thanks, John. It's Alex Rooney.

I know that in December there was some chatter around potential changes to CMS reimbursement for CGM.

Speaker Change: 20% of your patient direct revenue comes from government.

Speaker Change: Sources.

Or are you thinking about potential changes around CGM reimbursement.

Someone like CMS is that something as you think about out years that is meaningful or not really been a patient direct business.

Speaker Change: Thanks, John It's Alex Rooney so.

Alex Bruni: So, yeah, this is certainly something we continue to watch. We noted the press release in November with the OIG looking into CGM reimbursement. They don't expect to have findings until 2025, so we'll continue to watch this space, but we don't expect, you know, any implications at this point for us. Perfect, thank you. Your next question comes from Stephanie Davis from Barclays. Please go ahead.

Alex Rooney: Yes. This is certainly something we continue to watch.

Alex Rooney: We noted the press release in November with.

Alex Rooney: The OID looking into CGM reimbursement.

Alex Rooney: They don't expect to have findings until 2025. So we'll continue to watch this space, but we don't expect.

Alex Rooney: Any implications at this point for us.

Perfect. Thank you.

Alex Rooney: Your next question comes from the line of Stephanie Davis from Barclays. Please go ahead.

Stephanie Davis: Hey, guys. Thank you for taking my question.

Edward A. Pesicka: Hey guys, thank you for taking my question. So, while I understand the ramp to the 2028 plan wasn't meant to be a venue, the 24EVA.guidance does imply a pretty healthy step up in the out... So, I was hoping you could help us bridge this and call any maybe one-timers or areas of potential conservatism. Yeah, I think, you know, Stephanie, you're right. It is not linear.

Stephanie Davis: While I understand the ramp into 2028 Gram wasn't meant to be done here in 2004, EBITDA guidance does imply a pretty healthy step up in the out years.

Stephanie Davis: I was hoping you could help us bridge events and any maybe one timers or areas of general conservatism.

Stephanie Davis: Yes.

Speaker Change: Stephanie right it is.

Edward A. Pesicka: And, you know, we wanted to make sure that when we talk about investor day, we give it 2028, you know, full year end of year target there. And, you know, part of it is the investments that are being made. Again, I use two different examples.

Speaker Change: It is not linear and we wanted to make sure that we talked about at Investor Day, We gave a 2028 full year end of year target there.

Speaker Change: And part of it is the investments that are being made and again I use two different examples.

Edward A. Pesicka: You know, again, one is the commercial aspect of what we're going to do in our patient-directed business. The second aspect is some of the technology we're using in patient-directed care. You know, both of those are going to have benefits associated with them. And, again, they're going to have benefits after they get implemented.

Speaker Change: Again, one is on the commercial aspect of what we're going to do.

Speaker Change: And our patient direct business. The second aspect is some of the technology, we're using and patient to direct.

Speaker Change: Both of those are going to have benefits.

Speaker Change: Benefits associated with with them and again theyre going to have benefits after they get implemented so.

Edward A. Pesicka: So, you know, those are things that have meaningful paybacks, you know, 12 months plus out. I think very similarly about the product and healthcare services business. You're absolutely right. If we think about the portfolio expansion, you know, those are things that take time to develop. You know, it's, again, something that Owens & Minor has been trying to do for years, but you have to make sure you have the investments up front.

Speaker Change: Those are things that have meaningful paybacks.

Speaker Change: <unk> months plus out I think very similar on the product and health care services business.

Speaker Change: Youre absolutely right.

If we think about the portfolio expansion those are things that take time to develop and it's.

Speaker Change: It's again, it's something that owners, who might have been trying to do for years, but you have to make sure you have the investments upfront and part of what we're leveraging is the operating model realignment savings. We have we're redeploying that back into longer term investments like the product aspect. The other aspect is network rationalization and optimization and that's something that doesn't.

Edward A. Pesicka: And part of what we're leveraging is the operating model realignment savings we have. We're redeploying that back into longer-term investments like the product aspect. The other aspect is network rationalization and optimization. That's something that doesn't happen overnight.

Speaker Change: Happen overnight and it's something that we're aggressively looking at right now, but we know that's going to take time to execute on and then that will provide material benefits as we get into the into the future. So that's why when we looked at our internal strategic plan for the five year period of time.

Edward A. Pesicka: You know, it's something that we're aggressively looking at right now, but we know that it's going to take time to execute on, and then it will provide material benefits as we get into the future. So, you know, that's why when we looked at our internal strategic plan for the five-year period of time, you know, we believe we are, you know, in 2024. If you look at our range, it provides, you know, we think pretty good, reasonable returns, but it's enabling us to make significant investments to provide those higher, longer-term returns. So if I had a bridge from here to here, your long-term guidance, is the right way to think of this as 2024 is more of an investment year, and then we'll start to see it step up in 25, or is it more of a gradual bridge of some of these things coming up? I think your first assumption is closer.

Speaker Change: We believe we are in 2024, if you look at a range of provides.

Speaker Change: We think pretty good reasonable returns, but also enabling us to make significant investments to provide those to higher longer term returns.

Speaker Change: So if I had to bridge from your long term guidance is the right way to think of this as 2024, it's more of an investment year and then Walter can you see a step up in 'twenty five or is it being more of a gradual branches R&D come down.

Walter: I think probably your first assumption is closer to 2024 is more of an investment year, but it's still going to provide we just take the midpoint of our range is still providing double digit growth in EPS adjusted EPS at the midpoint of our guidance.

Edward A. Pesicka: 2024 is more of an investment year, but it's still going to provide, if you just take the midpoint of our range, it's still providing double-digit growth in EPS, adjusted EPS at the midpoint of our guidance. In addition to that, so what we're trying to do is balance that as we go through 2024 with the right investments for the long term but still providing the right level of returns in the short term. I think as you exit 2024, and there's still some things that are going to take longer, the network rationalization and optimization, that's something that will bleed into 2025, but as we continue to come out of 2024 and into 2025 and then continue to progress, you'll see that ramp accelerate in the coming years even faster.

Walter: In addition to that I think so what we're trying to do is balance that as we get into it as we go through 2024 with the right investments for long term, it's still providing the right level of returns in the short term.

Walter: I think as you exit 'twenty four and there's still some.

Walter: Things are going to take longer the network rationalization and optimization, that's something that could that will bleed into 25, but as we continue to come out of 24% and into 25% and continued progress youll see that ramp accelerate in the out years, even faster and that's really been the beauty of what we've done with the opera.

Edward A. Pesicka: And that's really been the beauty of what we did with the Operating Monitoring Alignment Program, is it enabled us to take costs out, it enabled us to drive improved cash flow and profitability, and then take those dollars and then invest them in areas that may take a longer term to get a payback, but still not impact short-term returns. Again, taking the midpoint of adjusted EPS from 2023 to 2024, still going to be double-digit growth, and then while we're still investing materially in the business for long-term success. Thank you for helping. Thank you, Vogue. Again, if you'd like to ask a question, please press star 1. Your next question comes from the line of Eric Caldwell from Baird. Please go ahead. Thank you very much, and good morning. I had a couple here.

Walter: Monterey alignment program is it's enabled us to take cost out it's enabled us to drive improved cash flow and profitability and then take those dollars and invest them in areas that may take a longer term to get a payback, but still not impact the short term.

Walter: Returns again, using the adjust using taking the midpoint of adjusted EPS from 'twenty three to 'twenty four is still going to be a double digit growth and then while we're still investing materially in the business for long term success.

Speaker Change: Super helpful. Thank you Doug.

Speaker Change: Again, if you'd like to ask a question. Please press star One. Your next question comes from the line of Eric Coldwell from Baird. Please go ahead.

Eric Coldwell: Thank you very much and good morning, I had a couple here first on the.

Alex Bruni: First on... The commentary about cash flow normalizing in 2024. To be fair, Ed, I'm not sure there's really been a normal year since you got to the company. I mean, cash flow $114,000 in 2019, then it was $280,000, then it was $74,000, then it was $158,000. Of course, this year was a blowout. What is what is normal?

Eric Coldwell: The commentary about cash flow normalizing in 2024.

Eric Coldwell: To be fair I'm, Ed Im not sure Theres really been a normal year since you got to the company I mean cash flow $1 14 in 2019 than it was $2 80 than it was <unk> 74 than it was $1 58 of course this year was a blowout.

Eric Coldwell: What is what is normal and do we just take the simple average of the four years before this year and call it $1 50 of free cash flow or.

Alex Bruni: And, you know, do we just take the simple average of the four years before this year and call it 150 free cash flow, or is there a ratio you can share with us that you think is a normal ratio? Please see the complete disclaimer at https://sites.google.com or at https://sites.google.com this year. Yeah, thanks, Erica. This is Alex.

Eric Coldwell: Is there a ratio you can share with us that you think is a normal ratio.

Eric Coldwell: Of some sort to get a better sense on.

This year.

Eric Coldwell: Yes. Thanks, Erika this is Alex Scott Good morning, Joe.

Alex Bruni: Good morning. So, definitely a fair question and a fair observation about, you know, not having a normal year. So, as we go forward, at Investor Day, we talked about having $400 million of cash, pre-cash flow, operating cash flow in 2028. So, I think as we see the impact of the investments that Ed talked about this morning, we would expect it to ramp up over the next few years to be in line with that. We think that that reflects kind of a good goal of operating cash flow once our investments take place. So would 24 be, in theory? I know things can bounce around a lot and even, you know, calendar days can have an impact each year, but.

Alex Scott: Definitely a fair question and a fair observation about.

Alex Scott: Not having a normal year. So as we go forward at Investor Day, we talked about having $400 million.

Alex Scott: Cash free cash flow operating cash flow in 2028, So I think as we see the impact of the investments that Ed has talked about this morning.

Alex Scott: We would expect to ramp up over the next few years to be in line with that we think that that reflects kind of a good goal of operating cash flow.

Alex Scott: Once our investments take place.

Alex Scott: So with 24 be in theory, I know things can bounce around a lot and even Cal.

Alex Scott: Calendar days can have an impact each year, but.

Alex Bruni: Uh, is 24 in theory the low point and then a ramp up to that 400 million and 28 pretty linear? Is that the process? I'm not sure it's exactly linear, but I think that's a fair approximation of how I would think about it.

Alex Scott: As 2004 in theory, the low point, and then a ramp up to that $400 million and 28 pretty linear or is that the process.

Alex Scott: Process.

Speaker Change: I'm not sure what exactly linear, but I think thats, a fair approximation of how I would think about it.

Alex Bruni: Yeah. Okay, and then, um, on EBITDA, uh, I know there are some variables that are included in your EBITDA adbacks that are probably next to impossible to precisely forecast, so definitely give some hall passes on that. But technically, you did miss EBITDA by about 10 to 30 million on the range for 2023, and I think a chunk of that was a lower LIFO charge adback probably than you expected in the fourth quarter. I was hoping you could quantify that. And then for 2024 guidance, you know, again, you said LIFO would normalize them. Frankly, I'm just not sure what that means. Uh, what is the 2024 guidance? inclusion for a LIFO charge or credit or whatever it is and how does that compare to the absolute amount in? Yeah, thanks Eric.

Speaker Change: Yes.

Speaker Change: Okay and then.

Speaker Change: On EBIT.

Speaker Change: I know there are some.

Speaker Change: Variables that are included in your EBITDA add backs that are <unk>.

Speaker Change: Probably next to impossible to precisely forecast so definitely give some hall passes on that but technically you did miss EBITDA by about 10% to $30 million on the range for 2023.

Speaker Change: And I think a chunk of that was a lower LIFO charge add back probably than you expected in the fourth quarter I was hoping you could quantify that.

Speaker Change: And then for 2020 for guidance.

Speaker Change: Again, you said.

Speaker Change: LIFO would normalize.

Speaker Change: Frankly, just not sure what that means what is the 2024 guidance inclusion for a LIFO charge or credit or whatever it is and how does that compare to the absolute amount in 'twenty three.

Alex Bruni: So yeah, on this complexity here, so just to kind of go back, when we reset or redefined the adjusted EBITDA in Q1, we talked about having $25 million in 2022 and about $30 million in 2023 combined for LIFO and STOCCOMP. That is roughly where we ended the year, although I will say our projections did fluctuate, and so that was part of the difficulty in 2023. There was about $2 million of LIFO in 2023 and about $23 million of STOCCOMP. We expect that to normalize in 2024 and to be just north of $50 million combined. $50 million of ad back. Yes.

Speaker Change: Yes, Thanks, Eric.

Speaker Change: Yes.

Speaker Change: This complexity here, so just to kind of go back when we reset.

Speaker Change: Our redefined the adjusted EBITDA in Q1, we talked about having 20 $25 million in 2022 and about $30 million in 2023 combined for LIFO and stock comp that is roughly where we ended the year, although I will say our projections do fluctuate and so that was part of the difficulty in 'twenty three.

There was about $2 million of LIFO in 'twenty, three and about $23 million of stock comp, we expect that to normalize in 'twenty four and to be just north of $50 million combined.

Speaker Change: $50 million of add back.

Speaker Change: Yes.

Speaker Change: Okay.

Alex Bruni: Okay. Thank you very much for that, Alex. And the last one, I'm going to go.

Speaker Change: Thank you very much for that balance and last one I'm going to go.

Edward A. Pesicka: A little away from the call here, we did recently notice a headline that the West Virginia University WVU medicine deal has been delayed, or at least some of the ramp, the build out of the site has been delayed by a year. Can you tell us what's going on there and is that having any kind of an impact on 2024 results or outlook? Yeah, no impact at all.

Speaker Change: A little away from the call here.

Speaker Change: We did recently noticed a headline that the.

Speaker Change: West, Virginia University, WVU medicine deal has been delayed or at least some of the ramp the build out of the site has been delayed by a year can you can you tell us what's going on there and is that having any kind of an impact on the.

Speaker Change: 2024.

Speaker Change: <unk> our outlook.

Speaker Change: Eric No impact at all.

Edward A. Pesicka: You know, it's actually working with the contractor to get the facility built. That's the delay in the construction. You know, it's still a we've actually extended our long-term deal with WVU, and you know, so there's zero impact on 2024 that that business we've had for the last two years. It's been served out of another distribution center. It'll continue to be served out of the other distribution center till we get the facility completed. WVU has been an incredible partner to us. And there would be no impact at all in 2024 because we are serving the business out of another distribution center. And it's just a matter of getting the new one up and running for them. Perfect. Okay, guys. Thanks very much for the for the answer.

Speaker Change: Is actually working with the contractor to get the facility built that's the delay on the construction.

Speaker Change: Still.

Speaker Change: We've actually extended our long term deal with the WVU and so there is zero impact on 2020 for that business. We've had for the last two years. It's been served out of another distribution center. It will continue to be served out of other distribution center until we get the facility completed.

Speaker Change: <unk> has been an incredible partner to us.

Speaker Change: And there'd be no impact at all in 2024, because we are serving the business had another distribution center and it's just a matter of getting the new one up and running for them.

Speaker Change: Perfect. Okay, guys. Thanks, very much for the for the answers.

Speaker Change: And we have no further questions in our queue. At this time I will now turn the call back to Ed <unk> for closing remarks.

Operator: We have no further questions in our queue at this time. I will now turn the call back to Ed Casita for closing remarks. Thank you, Operator. First of all, I want to thank everyone who joined us on the call today. You know, besides those on the call, I want to thank our teammates across the globe who have really worked tremendously in 2023 to position us where we are today. I also want to thank our customers, our patients, our partners, as well as our shareholders. You know, as we reflect on where we are, we firmly believe that we have the right team in place. And even more than that, we have the right strategy.

Ed: Thank you operator.

Ed: First of all I want to thank everyone, who joined us on the call today.

Ed: Besides of those on the call I want to thank our teammates across the globe that have really worked tremendously in 2023 and to position us to where we are today I also want to thank our customers our patients our partners as well as our shareholders.

Ed: As we reflect on where we are we firmly believe that we have the right team in place and even more than that we have the right strategy that strategy has enabled us to continue the momentum that we've accelerated during the year as we saw tremendous progress from Q1 to Q2 to Q3 to Q4 and exited the year with strength. So as you can see them.

Operator: That strategy has enabled us to continue the momentum that we've accelerated during the year, as we saw tremendous progress from Q1 to Q2 to Q3 to Q4, and we exited the year with strength. So, as you can see, I'm pretty excited about where we are right now, but even more excited about the future. And I look forward to sharing, you know, our progress with you as the year progresses. So, just again, thank you everyone for joining us today and I look forward to talking again, you know, after the first quarter results. Thank you. This concludes today's conference call. Thank you for your participation, and you may now disconnect.

Speaker Change: I'm excited about where we are right now, but even more excited about the future and I look forward to sharing our progress with you as the year progresses. So just again. Thank you everyone for joining us today and look forward to talking again after the first quarter results. Thank you.

Speaker Change: This concludes today's conference call. Thank you for your participation and you may now disconnect.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: Yes.