Q3 2024 Owens & Minor Inc Earnings Call
Operator: Good day, everyone, and thank you for standing by.
Good day, everyone and thank you for standing by welcome to the Owens <unk> minor third quarter 2024 earnings conference call.
Operator: Welcome to the Owens & Minor 3rd Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question, please press star followed by the number one on your telephone keypad. To withdraw your question, press star one a second time. Please be advised that today's conference is being recorded.
At this time all participants are in a listen only mode.
After the Speakers' remarks, there will be a question and answer session.
If you would like to ask a question. Please press star followed by the number one on your telephone keypad to withdraw your question Press Star one a second time.
Please be advised that today's conference is being recorded.
Jacqueline Marcus: I would now like to hand the conference over to your first speaker today, Jackie Marcus, Investor Relations.
Speaker Change: I'd now like to hand, the conference over to your first speaker today, Jackie Marcus Investor Relations.
Jacqueline Marcus: Thank you, Operator.
Thank you operator, Hello, everyone and welcome to the Owens <unk> minor third quarter 2024 earnings call I will comment on the call will be focused on the financial results for the third quarter of 2024 as well as our outlook for 2024, both of which are included in today's press release the press release.
Jacqueline Marcus: Hello, everyone, and welcome to the Owens & Minor 3rd Quarter 2024 Earnings Call. Our comments on the call will be focused on the financial results for the 3rd quarter of 2024, 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, 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, which could cause actual results to differ materially from those projected or implied here today.
Along with the supplemental slides are posted on the Investor Relations section of our website.
Speaker Change: 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.
Jacqueline Marcus: Please refer to our SEC filing for a full description of these risks and uncertainties, including the risk factors section of our annual report on Form 10-K and quarterly reports on Form 10-Q. In our discussion today, we will reference certain non-GAAP financial measures, and information about these measures and reconciliations to the most comparable GAAP financial measures are included in our press release.
Speaker Change: Please refer to our SEC filings for a full description of these risks and uncertainties, including the risk factors section of our annual report on Form 10-K, and quarterly reports on Form 10-Q.
In our discussion today, we will reference certain non-GAAP financial measures and information about these measures and reconciliations to the most comparable GAAP financial measures are included in our press release.
Jacqueline Marcus: Today, I am joined by Ed Pesicka, Owens & Minor's President and Chief Executive Officer, and John Leon, our Chief Financial Officer.
Speaker Change: I am joined by Ed procedure, Olympian miners, President and Chief Executive Officer, and John Leon Our Chief Financial Officer, I will now turn the call over to Ed.
Edward Pesicka: I will now turn the call over to Ed.
Edward Pesicka: Thank you, Jackie. Good morning, everyone, and thank you for joining us on the call today.
Ed: Thank you Jackie and good morning, everyone and thank you for joining us on the call today.
Edward Pesicka: I'd like to begin my remarks by acknowledging our teammates who were affected by Hurricanes Helene and Milton in the southeastern portion of the United States. While our distribution facilities in the region were largely unaffected, our North Carolina Kitting operations was unable to operate regularly due to disruptions in local and regional infrastructure, which caused some delays in delivery. This kitting facility has been fully operational for the past few weeks. More importantly, our teammates and their families face significant, and in some cases, unimaginable personal losses. We are working with these teammates and their communities to help them recover.
Ed Procedure: I'd like to begin my remarks by acknowledging our teammates who were affected by Hurricanes Helene and Milton in the south eastern portion of the United States.
While our distribution facilities in the region were largely unaffected or North Carolina Kitting operations was unable to operate regularly due to disruptions in local and regional infrastructure, which caused some delays in deliveries.
Ed Procedure: Just kidding facility has been fully operational for the past few weeks and more importantly, our teammates and their families faced significant and in some cases unimaginable personal losses, we are working with these teammates and their communities to help them recover.
Edward Pesicka: Turning to our financial and operational performance in the third quarter, we achieved top line growth across both segments, highlighted by exceptional demand for sleep supplies and diabetes in our patient direct segment, as well as strong same store sales within products and health care services. Also in the quarter, we utilized some of our cash to reduce our overall debt and made additional investments in both segments to drive greater long-term efficiency. I am pleased with our progress and am confident that we will maintain this momentum, leading to good sequential growth in cash flows in the upcoming quarter.
Ed Procedure: Turning to our financial and operational performance in the third quarter, we achieved top line growth across both segments highlighted by exceptional demand for sleep supplies in diabetes, and our patient direct segment as well as strong same store sales within products and health care services.
Ed Procedure: Also in the quarter, we utilized some of our cash to reduce our overall debt and made additional investments in both segments to drive greater long term efficiencies.
Ed Procedure: I am pleased with our progress and I'm confident that we will maintain this momentum leading to good sequential growth in cash flows in the upcoming quarter.
Edward Pesicka: Our products and healthcare service segment once again reported solid mid-single-digit revenue growth. This strong performance was driven by the strengthening of our existing customer relationships and the successful onboarding of new opportunities. Additionally, we continue to see prices stabilize in several of our key product categories including gloves more recently. Our improved top-line performance is a strong indication that our recent investments in our product and healthcare services segment were the correct and prudent choices to drive long-term growth. Turning to our Patient Direct segment, we are seeing positive returns from our investments earlier this year, which will drive growth through 2025.
Our products and healthcare service segment once again reported solid mid single digit revenue growth.
Ed: This strong performance was driven by the strengthening of our existing customer relationships.
Ed: And the successful onboarding of new opportunities.
<unk>, we continue to see prices stabilize in several of our key product categories, including gloves more recently.
Ed: Our improved top line performance is a strong indication that our recent investments in our product and health care services segment, where the correct and prudent choices to drive long term growth.
Turning to our patient direct segment, we are seeing positive returns from our investments earlier, this year, which will drive growth through 2025.
Edward Pesicka: In the third quarter, we delivered mid-single-digit year-over-year top-line growth driven by strong demand across our served indications, most notably in our diabetes products and sleep supplies.
Ed: In the third quarter, we delivered mid single digit year over year top line growth driven by strong demand across our served indications most notably in our diabetes products and sleep supplies.
Edward Pesicka: Two examples of the investments to further improve our business were our Sleep Journey program as well as our enhancements to our Revenal Cycle process. The sleep journey is focused on improving the patient experience from onboarding new patients to making it easier for patients to obtain the supplies they need. Both of these programs are examples of us not resting on our success.
Ed: Two examples of the investments to further improve our business, where our sleep journey program as well as our enhancements to our revenue cycle process.
Ed: The sleep journey is focused on improving the patient experience from onboarding, new patients to making it easier for patients to obtain the supplies they need.
Ed: Both of these programs are examples of us not resting on our success.
Edward Pesicka: We also made progress with respect to our balance sheet, having reduced total debt by nearly $200 million in the most recent quarter, using cash on hand and bringing our total year-to-date debt reduction to approximately $210 million. In the coming quarters, we are committed to continuing our debt repayment while also investing in our people, products, and processes.
Ed: We also made progress with respect to our balance sheet, having reduced total debt by nearly $200 million in the most recent quarter using cash on hand, and bringing our total year to date debt reduction to approximately $210 million.
Ed: In the coming quarters, we are committed to continuing our debt repayment, while also investing in our people products and processes.
Edward Pesicka: In mid-October, we shared an update to the Rotech Healthcare Holdings Acquisition Timeline, noting that we now expect the deal to close in the first half of 2025. In a highly regulated industry like healthcare, it is common for the Federal Trade Commission to request additional information and documentary materials for their review process. Our team is working closely with the FTC and RhoTec to respond as quickly as possible and we remain confident the deal will close in the months ahead. Most importantly, though, the addition of RhoTec to our patient direct offering allows us to better support and serve patients, providers, and payers across the network.
Ed: In mid October we shared an update to the road Tech Health care Holdings acquisition timeline, noting that we now expect the deal to close in the first half of 2025.
Ed: Highly regulated industry like health care. It is common for the federal Trade Commission to request additional information and documentary materials for their review process.
Ed: Our team is working closely with the FTC and road check to respond as quickly as possible and we remain confident the deal will close in the months ahead.
Ed: Most importantly, though the addition of <unk> to our patient direct offering allows us to better support and serve patients providers and payers across the network.
Edward Pesicka: and we can more comprehensively serve patients with additional product offerings and improve service for patients with chronic conditions.
Ed: And we can more comprehensively serve patients with additional product offerings and improve service for patients with chronic conditions.
Edward Pesicka: In summary, We have delivered on our commitments for the first three quarters of 2024. Looking ahead, we are confident in our ability to demonstrate continued sequential growth and improving cash flows from the third to fourth quarter, positioning us well as we enter 2025. As we look ahead to 2025, we recognize the Chinese tariffs on key categories such as facial protection and gloves will impact our industry. However, our manufacturing footprint and sourcing profile is not dependent on China, unlike many of our competitors. This positions us well in the upcoming tariff environment.
Ed: In summary.
Ed: We have delivered on our commitments for the first three quarters of 2024. Looking ahead, we are confident in our ability to demonstrate continued sequential growth and improving cash flows from the third to fourth quarter.
Ed: Positioning us well as we enter 2025.
Ed: As we look ahead to 2025, we recognize the Chinese tariffs on key categories, such as facial protection and gloves will impact our industry. However, our manufacturing footprint and sourcing profile is not dependent on China. Unlike many of our competitors.
Ed: This positions us well in the upcoming tariff environment.
Edward Pesicka: Before I turn the call over, I want to take a moment to congratulate John Leon on his appointment as Chief Financial Officer. John has been a critical member of the team here at Owens & Minor over the last seven years, and I look forward to working with him in his official role as CFO.
Before I turn the call over I want to take a moment to congratulate Jon Leon and his appointment as Chief Financial Officer.
Ed: John has been a critical member of the team here at Owens <unk> minor over the last seven years and I look forward to working with him and his official role as CFO with.
Jonathan Leon: With that, I will now turn the call over to John to discuss our third quarter financial performance in more detail.
Ed: With that.
Ed: I'll now turn the call over to John to discuss our third quarter financial performance in more detail John Thanks, Ed.
Jonathan Leon: John? Thanks, Ed. And good morning, everyone. Good morning, everyone. I will start by providing an overview of our financial results and review some of the key drivers of our third quarter performance, as well as our outlook for the remainder of the year. Our revenue for this quarter was $2.7 billion, up 5% compared to the prior year. Once again, we saw solid growth across both sectors. The products and healthcare services segment grew 5% overall as compared to the third quarter of 2023, with nearly 6% year-over-year growth in our medical distribution division, driven by same-store sales gains as we've seen throughout the year.
John: Good morning, everyone I will start by providing an overview of our financial results and review some of the key drivers of our third quarter performance as well as our outlook for the remainder of the year.
John: Our revenue for the quarter was $2 7 billion up 5% compared to the prior year. Once again, we saw solid growth across both segments.
John: The products and health care services segment grew 5% overall as compared to the third quarter of 2023 with nearly 6% year over year growth in our medical distribution division driven by same store sales gains as we've seen throughout the year.
Jonathan Leon: There was one more selling day this year compared to Q3 2023, which accounted for 170 basis points of the segment's growth. Patient direct revenue grew by 6% compared to the third quarter of last year. Once again, diabetes and sleep supplies led the growth, and most therapy categories experienced attractive growth as well. Respiratory therapies, such as NIV and oxygen, continue to lag and are expected to begin to return to reasonable growth levels in 2025. Within Patient Direct, the backlog of new patient starts due to delays in patient eligibility verification continue to slowly shrink throughout the quarter and has been reduced to nearly half of the peak levels we saw in the spring.
John: There was one more selling day this year compared to Q3, 2023, which accounted for 170 basis points of this segment's growth.
John: Patient direct revenue grew by 6% compared to the third quarter of last year, once again diabetes and sleep supplies led the growth in most therapy categories experienced attractive growth as well.
John: Respiratory therapies, such as Ed IV oxygen continue to lag and are expected to begin to return to reasonable growth levels in 2025.
John: Within patient direct the backlog of new patient starts due to delays in patient eligibility verification continue to slowly shrink throughout the quarter. It has been reduced to nearly half of the peak levels. We saw in the spring.
Jonathan Leon: This remains largely a timing issue and we are confident the number of patients with eligibility pending will continue to steadily decline. Gross profit in the third quarter was $560 million, or 20.6% of net revenue. Margins expanded by about 20 basis points from the second quarter of this year and were about 20 basis points lower than last year's third quarter.
John: This remains largely a timing issue and we have confidence in number of patients with eligibility pending will continue to steadily decline.
John: Gross profit in the third quarter was $560 million or 26% of net revenue.
John: Margins expanded by about 20 basis points from the second quarter of this year and we're about 20 basis points lower than last year's third quarter.
Jonathan Leon: You may recall that last year's third quarter, we had a large LIFO credit due to a significant drop in inventory at that time, and this drove the current decline in year-over-year gross margins. Our distribution, selling, and administrative expenses for the quarter were 17% of revenue at $470 million, up from $453 million in last year's third quarter, when DS&A was also about 17% of revenue. The dollar increase was primarily due to sales growth. Gap operating income for the quarter was $24.2 million, up slightly from the 3rd quarter of 2023. And adjusted operating income was $84.2 million, flat with the prior year, and 10% higher than the 2nd quarter of 2024.
John: You may recall that last year's third quarter, we had a large LIFO credit due to a significant drop in inventory at that time and this drove the current decline in year over year gross margin.
Our distribution selling and administrative expenses for the quarter were 17% of revenue at $470 million up from $453 million in last year's third quarter. When <unk> was also about 17% of revenue.
John: The dollar increase was primarily due to sales growth.
John: GAAP operating income for the quarter was $24 2 million up slightly from the third quarter of 2023, and adjusted operating income was $84 2 million flat with the prior year and 10% higher than the second quarter of 2024.
Jonathan Leon: Interest expense for the third quarter was just under $37 million, down about $1.5 million compared to the third quarter of 2023. Continuing Debt Reduction, Parcel Set by Higher Interest Rates vs. Last Year drove this change. Our GAAP effective tax rate for the third quarter was 7.4% and the adjusted effective tax rate was 29.3%. Our gap net loss of the quarter was $12.8 million or a loss of $0.17 per share compared to the third quarter last year when the net loss was $6.4 million or $0.08 per share. Adjusted net income for the quarter was $33.1 million, or $0.42 per share, compared to $34.1 million, or $0.44 per share, last year.
John: Interest expense for the third quarter was just under $37 million down about $1 5 million compared to the third quarter of 2023.
John: Continuing debt reduction, partially offset by higher interest rates versus last year drove this change.
Our GAAP effective tax rate for the third quarter was seven 4% in the adjusted effective tax rate was 29, 3%.
John: Our GAAP net loss for the quarter was $12 8 million or a loss of <unk> 17 per share compared to the third quarter last year with a net loss of $6 4 million or <unk> <unk> per share.
John: Adjusted net income for the quarter was $33 1 million or <unk> 42 per share compared to $34 1 million or <unk> 44 per share last year.
Jonathan Leon: Adjusted EBITDA was $142 million, up over 5% versus $135 million reported during the third quarter last year. We generated $27 million in operating cash flow this quarter, and we expect better operating cash flow in the fourth quarter, reflecting the quarter-to-quarter lumpiness we mentioned back in August. More importantly, debt was reduced by almost $200 million, which included the retirement with cash of the $171 million that was remaining of our 2020 for notes, as well as $27 million in permanent reductions in term loans. It's also worth noting that since we closed the AFRI acquisition, we have now paid down over three quarters of a billion debt.
John: Adjusted EBITDA was $142 million up over 5% versus 135 million reported during the third quarter last year.
John: We generated $27 million in operating cash flow this quarter, and we expect better operating cash flow in the fourth quarter, reflecting a quarter to quarter Lumpiness, We mentioned back in August.
John: More importantly debt was reduced by almost $200 million.
John: Which included the retirement with cash of $171 million that was remaining of our 2024 notes as well as $27 million at permanent reductions of term loans.
John: It's also worth noting that since we closed the <unk> acquisition, we have now paid down over three quarters of a $1 billion of debt.
Jonathan Leon: Overall, we are pleased to have delivered on our expected financial performance through the first three quarters of 2024. Now, as we look toward the end of the year, the segments are in good shape and expect to realize seasonal benefits. There are, however, a few headwinds we have to consider. For example, in products and healthcare services, we continue to incur costs to manage around manufacturer supply chain problems stemming from hurricane-related infrastructure damage, which also has caused delay in procedural volume among many of our customers. Also, despite recent improvements, we had hoped by this time to have eliminated the patient eligibility backlog within PatientDirect and have those customers on board and contributing to our results.
John: Overall, we are pleased to have delivered on our expected financial performance through the first three quarters of 2024.
John: Now as we look towards the end of the year. The segments are in good shape and expect to realize seasonal benefits.
John: There are however, a few headwinds we have to consider.
John: For example in <unk>.
John: That's a health care services, we continued to incur cost to manage around manufacturer supply chain problems.
John: From Hurricane related infrastructure damage, which also has caused delay in procedural volume among many of our customers.
John: Also despite recent improvements we had hoped by this time to have eliminated that patient eligibility backlog within patient direct and have those customers onboard and contributing to our results.
Jonathan Leon: Of course, with the passage of time, we are now able to refine our guidance in modeling assumptions for the full year. We now expect revenue to be in the range of $10.6 billion to $10.8 billion. Adjusted EBITDA to be in the range of $540 million to $550 million and adjusted earnings per share with the overall range of $1.45 to $1.50. This information and other key modeling assumptions were filed this morning under Form 8K and reside on the Investor Relations section of our website.
John: Of course was the passage of time, we are not able to refine our guidance and modeling assumptions for the full year.
John: We now expect revenue to be in the range of $10 $6 billion to $10 8 billion.
John: Adjusted EBITDA to be in the range of $540 million to $550 million and adjusted earnings per share with the overall range of a $1 45 to a $1 55.
John: This information and other key modeling assumptions were filed this morning on form 8-K and reside on the industrial relations section of our website.
Jonathan Leon: Again, I want to remind you that this guidance excludes any impact of the Rotech acquisition, which we now expect to close during the first half of 2025.
John: Again, I want to remind you that this guidance excludes any impact of the <unk> acquisition, which we now expect to close during the first half of 2025.
Operator: Now I'd like to turn the call over to the operator for the Q&A session.
John: Now I'd like to turn the call over to the operator for the Q&A session operator.
Operator: Thank you. If you have dialed in and would like to ask a question, please press star followed by the number 1 on your telephone keypad to raise your hand and join the queue. To withdraw your question, please press star 1 a second time.
John: Thank you.
Have dialed in and we'd like to ask a question. Please press star followed by the number one on your telephone keypad to raise your hand and join the queue to withdraw your question. Please press star one second time.
Operator: If you have dialed in and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.
John: If you have dialed in and listening via loudspeaker out on your device. Please pickup your handset and ensure that your phone is not on mute when asking your question.
Kevin Caliendo: Our first question comes from the line of Kevin Caliendo with UBS.
Speaker Change: Our first question comes from the line of Kevin Caliendo with UBS. Please go ahead.
Kevin Caliendo: Please go ahead. Great, thanks for taking my question, guys. First one, I guess, just, Jonathan, you made a comment that your guidance is affected by manufacturing supply chains, procedural volumes, and patient eligibility timing around patient direct.
Kevin Caliendo: Great. Thanks for taking my question guys.
Speaker Change: First one I guess, just Jonathan you made a comment that your guidance is affected by manufacturing supply chains procedural volumes and patient eligibility timing around patient direct can you maybe talk about the impact of each of those HEICO meaningful each of those was when we think about the EBITDA guidance that.
Jonathan Leon: Can you maybe talk about the impact of each of those, like how meaningful each of those was when we think about the EBITDA guidance that, like, what changed, in essence, give us maybe some magnitude of that? Yeah, it's, if you want to kind of think about ranking it, Kevin, certainly we have been incurring costs throughout the quarter. A lot of our customers continue to talk about they can't get what they need for the procedure volume in the surgical procedures to continue. So I would say that's probably an unexpected driver that really made us take a second thought around the guidance for the rest of the year.
Speaker Change: What changed in essence give us maybe some magnitude of that.
John: Yes.
John: If you wanted to kind of think about ranking it Kevin.
We have been incurring cost throughout the quarter.
John: A lot of our customers continue to tell us talk about they can't get what they need for.
John: Two for their procedure volumes in the surgical procedures to continue.
So I would say, that's probably a unexpected driver of that.
John: It really made us take a second thought around the guidance for the rest of the year.
Jonathan Leon: Now that could come back very quickly, but we just don't have the light of sight as to what that will be. Now we've been living with the backlog at Patient Direct really for most of the year. That continues to get better. We expect that will get better disproportionately positively in a positive way during the fourth quarter.
John: Now that could come back very quickly, but we just don't have a line of sight as to what that is that will be now we've been living with the backlog at patient direct.
John: Really through most of it most of the year that continues to get better we expect that we'll get better disproportionately positively in a positive way during the fourth quarter.
Edward Pesicka: Obviously when you get to Q1, you start again with a lot of changing in health insurance providers at the customer level. But I would say we need to really get through the bigger impact that's going to be the cost and getting our provider customers in distribution back online and getting the procedure volume that they expect.
John: So we get to Q1, you start again with a lot of change again in health insurance providers at the customer level, but I would say, we need to really get through the bigger impact is going to be the cost and getting our provider customers and distribution back on line and getting the procedure volume that they expect.
Edward Pesicka: Yeah, and I'll add a little more color to that. That one right there that John just talked about is, you know, talk to both directly and indirectly leaders of various hospitals and IDNs across the U.S. And, you know, the hurricane-related issues and the product shortages that they've had has caused to some extent delays in procedural volume. Again, I know that manufacturers are working as hard as they can to get products back online and back out to be able to serve the patients. But as that procedural volume slows down, that could have an impact on the business.
Speaker Change: And I'll add a little more color to that that one right. There that John just talked about is.
Talk to you both directly and indirectly leaders of various hospitals and <unk> across the U S and.
Speaker Change: The hurricane related issues and the product shortages that they've had has caused us to some extent delays in procedural volume.
Speaker Change: I know that manufacturers are working as hard as they can to get products back online and back out to the to the to be able to serve the patients.
Speaker Change: But as that procedural volume slows down and that could have an impact on the business and if you think about it from our perspective the seasonality in the <unk> business is really the fourth quarter is the largest quarter from from volume that we would anticipate because it's generally the largest quarter in procedural volume.
Kevin Caliendo: And if you think about it from a perspective, the seasonality in the PNHS business is really the fourth quarter is the largest quarter from volume that we would anticipate because it's generally the largest quarter in procedural volume across the industry.
John: Across the industry.
Kevin Caliendo: Got it.
Speaker Change: Got it and if I can ask a quick follow up so was there any any impact of this on <unk>.
Kevin Caliendo: If I can ask a quick follow-up. So, was there any impact of this on 3Q? And if we didn't have the weather and this patient direct issue, would your guidance have been the same, higher, lower? Just trying to understand sort of the magnitude of what, you know, did this impact 3Q? And was there anything else?
Speaker Change: And if we didn't have the weather in this patient direct issue with your guidance had been the same higher or lower just trying to understand sort of.
John: The magnitude.
John: What.
John: This impact of <unk> and was there any.
John: Anything else like what would your guidance have been ex the weather procedure volume and patient eligibility issues.
Jonathan Leon: Like, what would your guidance have been, X, the weather, procedural volume, and patient eligibility issues? It certainly would have been higher, Kevin.
Speaker Change: Certainly would've been higher Kevin I'm not sure maybe the midpoint comes out a little bit, but I think we would have been closer to where we're at.
Jonathan Leon: I'm not sure. Maybe the midpoint would have come down a little bit, but I think we would have been closer to where we were when we last reported guidance.
Speaker Change: When we last reported guidance obviously.
Jonathan Leon: Now, obviously, we've had some EBIDTA guidance issues all year. We've acknowledged that. And that may have been a little lighter, but from an EPS perspective, not much change to maybe a little bit lighter than what we saw last time. So, definitely higher than what we put out there.
Speaker Change: We've been we've had some EBITDA guidance issues all year, we've acknowledged that and that may have been a little lighter, but from EPS perspective, not much changed from maybe a little a little bit lighter than what we saw last time, so definitely positive.
John: <unk> put out this morning.
Kevin Caliendo: Thanks, guys.
Speaker Change: Got it thanks guys.
Michael Cherny: Our next question comes from the line of Michael Cherny with Lerink Partners. Good morning, and thanks for taking the question. You know, a lot of moving pieces you mentioned. I appreciate the color regarding 4Q. How should we think about how those will set up into the jumping off point to 2025?
Speaker Change: Our next question comes from the line of Michael Cherny with Leerink partners.
John: Yes.
Good morning, and thanks for taking the question.
John: Yeah, a lot of moving pieces as you mentioned I appreciate the color regarding <unk>, how should we think about how those will set up is the jumping off point into 2025 as you sit here today, especially ahead of the road track acquisition.
Edward Pesicka: As you sit here today, especially ahead of the Rotech acquisition closing, any more detail you can give us on where you see any potential macro puts and takes, operational puts and takes into 2025? Sure, I can start and then John can add some additional information. So, if I think about the businesses, I'll talk about Patient Direct first. Obviously, the work we put into the sleep journey will all have positive impacts on us in 2025. As we've worked throughout the last several quarters to make it easier to onboard new patients, as well as make it easier to make sure that those patients can get their supplies renewed, once that base is in the system, then it just continues on somewhat as annuity.
John: Closing any more detail you can give us on where you see any potential macro puts and take operational puts and takes into 2005.
John: Sure.
Speaker Change: I can start and John can add some additional information. So if I think about the businesses talk about patient direct first.
John: Obviously the work we put into the sleep journey will all have positive impacts on us in 2025.
John: As we've worked throughout the last several quarters to make it easier to onboard new patients as well as making easier to make sure that those patients can get their supplies renewed.
John: Once that bases in the system.
It just continues on somewhat as annuity so.
Edward Pesicka: So, all the work put into that and what we saw within our Patient Direct business, again, this segment, that should continue into 2025. On our product and healthcare services segment, on some of the procedural issue volume or procedural volume because of some of the product shortages, it kind of resets on January 1. As people hit their deductibles, they have additional procedures, which is normally why Q4 is the biggest quarter. All those deductibles start beginning on January 1, so it will reset there. I think the other wild card that you really have out there, and we talked a little bit about it, is the tariffs that are coming on board.
John: The work put into that and what we saw within our patient direct business again. This segment that should continue into 2025.
John: On a product and health care services segment on some of the procedural issues in volume our procedure volume because of some of the product shortages kind.
John: Kind of resets on January one.
John: As people hit their deductibles they have additional procedures, which is normally why Q4 is the biggest quarter you know all those deductibles start beginning on January one so it will reset there I think the other wildcard that you really have out there and we've talked a little bit about it as the tariffs that around coming onboard.
Edward Pesicka: If we think about it, that facial protection is going to have a 25% tariff effective January 1st of 2025, and medical and surgical gloves is going to have a 50% tariff in 2025. We talked a little bit about it in our prepared remarks. That could have a headwind on the industry, but could also create a tailwind for us because of our manufacturing and sourcing footprint. So, that could have an impact on the PNHS segment. So, you think about the three things. One is all the work we've done with the sleep journey and our rev cycle, that momentum just carries into 2025.
John: Think about it that facial protection is going to have a 25% tariff effective January one 2025, and medical and surgical gloves is going to have a 50% tariff in 2025.
We talked a little bit about it in our prepared remarks that could have a headwind on the industry, but can also create a tailwind for us because of our manufacturing and sourcing footprint.
John: So that could have an impact on the <unk> segment. So you think about the three things one is all the work we've done with a sleep journey.
John: And our Rev cycle that momentum carries into 2025.
Edward Pesicka: Should procedure volume slow down in Q4 because of some of the product shortfalls, that resets on January 1, and then the tariffs will have an impact. It's just to what degree that's yet to be seen.
John: Procedure volume slowdown in 'twenty in Q4, because of some of the product short shortfalls that resets on January one.
John: And then the.
John: Tariffs can have will have an impact it's just to what degree that's yet to be seen.
Michael Cherny: And then if I could just ask one more, you mentioned in the press release the dynamics of some of your recent share pickup. I know the dynamics of share gain has been a bay point recently across the market. Can you give a little sense on where you're seeing your best opportunities for incremental share gains, especially, Ed, as you had previously commented about walking away from some of the lower margin business? And on that latter point, do you feel like your customer base is at a point now where that low margin exit, at least on the product and healthcare services side, is done?
And then if I could just.
Speaker Change: Ask one more you mentioned in the press release the dynamics that some of your recent.
Speaker Change: Share pickup I know the dynamics of share gains has been a base point recently across the market can you give a little sense on where youre seeing your best opportunities for.
Speaker Change: Incremental share gains, especially.
Speaker Change: You had previously commented about walking away from some of the lower margin business and on that latter point do you feel like your customer base to the point now where that low margin exit.
John: At least on the products and health care services side is done.
Edward Pesicka: I don't want to say done. It's never finite. You know, we're still assessing that. You know, but I would say on the onboarding, you know, I think there's a dynamic also on the onboarding. Like, we onboarded one of our biggest customers, and we're pretty much getting through that here in Q3, and we'll wrap up in Q4 on that one customer. You know, generally speaking, that does create a headwind in the business, you know, as you bring them on. You know, the year one is the least profitable year, I would say, out of a five-year deal.
Speaker Change: I want to say done it's never finite.
Theres still were still assessing that.
John: But I would say on the on the.
John: Onboarding I think Theres a dynamic also on the on boarding like we on boarded one of our biggest customers and we're pretty much getting through that here in Q3, and we'll wrap up in Q4 on that one customer generally speaking that does create a headwind in the business.
John: As you bring them on the year, one is the least profitable profitable year I would say out of a five year deal.
Edward Pesicka: You know, so we've got the full impact of this year of that big onboarding, which should create opportunities as we move into 2025.
John: So we've got the full impact of this year of that of that big Onboarding, which should create opportunities as we move into 2025.
Edward Pesicka: You know, from an opportunity standpoint, I think there's opportunities really in two spots in PNHS since we're talking about that business. You know, one is opportunity to expand our product portfolio. You know, I talked a little bit about gloves and our glove footprints. You know, I think, you know, as some of these tariffs go into place, you know, it does create an opportunity for us to win some new business. You know, I think we get fixated so much on winning business, on winning just distribution business, but we look at the segment as a whole. You know, whether it's winning product business, you know, at existing distribution customer or outside of the channel or inside of the channel.
John: From an opportunity standpoint, I think there's opportunities really in two spots in pn Hs since we're talking about that business.
John: One is opportunity to expand our product portfolio I talked a little bit about gloves in our glove footprints I think as some of these tariffs go into place.
Does create an opportunity for us to to win some new business.
John: We get fixated so much on winning business on winning just distribution business, but we look at the segment as a whole.
John: Whether it's winning product business at existing distribution customer or outside of the channel are inside of the channels. So we think that creates an opportunity for us in 2025. These tariffs in our footprint not being products coming out of China.
Edward Pesicka: So, you know, we think that creates, you know, an opportunity for us in 2025, you know, these tariffs and our footprints not being products coming out of China.
Allen Lutz: Thanks. Our next question comes from the line of Allen Lutz with Bank of America. Good morning, and thanks for taking the question. Really nice margin performance in patient direct. Can you talk about the sustainability of this margin moving forward? I know that you talked about moving through backlog and there's still some work to go and you're still investing in the commercial part of that, but just trying to think through margins in the quarter were really strong. How should we think about the trend from here? Thanks. I'll tell you what's nice, if you dig deeper into the business, you know, the margin expansion came really both in fixed cost leverage on OPEX, as well as on overall gross margin.
Speaker Change: Great. Thank you.
Speaker Change: Our next question comes from the line of Allen Lutz with Bank of America.
Speaker Change: Okay.
Allen Lutz: Good morning, and thanks for taking the question really nice.
Allen Lutz: <unk> performance and patient direct can you talk about the sustainability of this margin moving forward I know that you talked about moving through backlog and there's still some work to go and you are still investing in the commercial part of that we're just trying to think through margins in the quarter were really strong how should we think about that trend from here. Thanks.
Speaker Change: I'll tell you it's a nice if you dig deeper into the business. The margin expansion came really both in fixed cost leverage on opex as well as an overall gross margin.
Edward Pesicka: You know, and as we think about that business, it's because of the amount of effort we're putting into continuing to optimize the business. I know I've talked about it now two or three times, our sleep journey. You know, we really tore that apart over 2024 here to understand how do we make it easier so that way we can onboard patients faster. You know, the longer you wait to onboard and longer it takes you to onboard patients, one, it has an impact on the patient because they're not getting the products they need, but two, it has an impact on the business.
Speaker Change: And as we think about that business, it's because of the amount of effort, we're putting into continuing to optimize the business I know I talked about it now two or three times, our sleep journey.
John: We really toward that apart over 2024 here to understand how do we make it easier so that way, we can onboard patients faster.
John: The longer you wait to onboard and longer it takes you to onboard patients one it has an impact on the patient because they are not getting the products they need but two it has an impact on the business and the amount of effort that we put into that this year has shown us how we can streamline our onboarding practice.
Allen Lutz: You know, the amount of effort that we put into that this year has shown us how we can streamline our onboarding practice. You know, so that is an opportunity to continue into 2025. And the same thing with, you know, product renewal, making sure that the patients get the product when it's available to them so that way, again, they can have the high level of service. You know, I think as we really cut through all of it in our patient-directed business, ultimately the end customer is the patient. So we have to have impeccable service. You know, as long as we maintain that high level of service, we'll maintain that customer base and create the opportunity to pick up, you know, additional customers.
John: So that is an opportunity to continue into 2025, and the same thing with product renewal and making sure that the patients get the product when it's available to them. So that way again, they can have that the high level of service.
John: As we really cut through all of it in our patient direct business. Ultimately the end customer is the patient. So we have to have an impeccable service as long as we maintain that high level of service will maintain those that customer base and creates the opportunity to pick up.
Speaker Change: Additional customers so.
Edward Pesicka: So you know, the relentlessness, I would say, in our patient-directed business to not rest on our laurels and what we've already accomplished. And again, the sleep journey is a great example of that, tearing it apart of how we've done it and making sure we have it, making sure it's easier for the patients going forward. The other area of revenue or of margin expansion is really around the revenue cycle and, you know, cash collection. You know, making sure we have a rigorous process, and that's another area we worked relentlessly on this year and we're starting to see that benefit.
Speaker Change: The Relentlessness I would say in our patient direct business to not rest on our laurels and what we've already accomplished and again the slate journey is a great example of that tearing it a part of how we've done it and making sure we have it making sure it's easier for the patients going forward.
Speaker Change: The other area of revenue of margin expansion is really around the revenue cycle and cash collection, making sure we have a rigorous process and thats. Another area. We worked relentlessly on this year, we're starting to see that benefit.
Edward Pesicka: You know, every dollar that you don't collect ends up being a dollar lower on the bottom line. So that's helped us also. You know, so the expectation is, just like you've seen in the past years, you know, we would expect year over year to get some type of margin expansion, overall margin expansion in the business. And I think we also have to recognize that the business is seasonal, that we normally see improvement in the back half of the year versus the front half of the year overall because of the volume and the seasonality in the business.
Every dollar that you don't collect ends up being a dollar lower on the bottom line. So that has helped us also.
Speaker Change: So the expectation is just like you've seen in the past years, we would expect year over year to get some type of margin expansion overall margin expansion in the business and I think we also have to recognize that the business is seasonal that we normally see improvement in the back half of the year versus the front half of the year overall because of the volume and the seasonality.
Edward Pesicka: So, you know, really bullish on, you know, what we can continue to do in our patient direct business, you know, and excited about the work the team's done in 2024 to really improve our processes, which ultimately improve our service to the end user, that being the patient.
Speaker Change: And the business, so really really bullish on what we can continue to do in our patient direct business and excited about the work. The team has done in 2024 to really improve our processes, which ultimately improve our service to our to the end user that being the patient.
Speaker Change: Great. Thanks, Ed.
John Stansel: Thanks, Ed. Our next question comes from the line of John Stansel with J.P. Morgan. Great, thanks for taking my question. Just wanted to think through products and healthcare services growth on the top line. I think you called out kind of the 170 basis points from the extra working day, you know, positive commentary about the, you know, new wins contributing as well as medical distribution, same store sales.
Speaker Change: Okay.
Speaker Change: Our next question comes from the line of John Stanzel with J P. Morgan.
John Stanzel: Great. Thanks for taking my question.
John Stanzel: To think through products and health care services growth on the top line I think you've called out kind of the 170 basis points from the extra working day posit.
John Stanzel: Positive commentary about the.
Speaker Change: New wins contributing as well as medical distribution same store sales can you just kind of give some color as to how global products contributed in the quarter, and then kind of how youre thinking about that that growth going.
John Stansel: Can you just kind of give some color as to how global products contributed in the quarter and then kind of how you're thinking about that growth, you know, going forward as we kind of jump off into 25. Yeah, I mean, you know, global, again, you know, we think about the segment holistically and the two are really intertwined together, you know, overall, from a global product standpoint, though, you know, within the business, we continue, well, one, we saw stabilization and pricing for gloves. I think that's important because that is one of our bigger categories. You know, I think as we look into the future, you know, there's a lot of movement potentially on gloves and pricing with tariffs and other things impacting that part of the segment.
Speaker Change: Going forward as we kind of jump off into 'twenty five.
Speaker Change: Yes.
Speaker Change: Again.
Speaker Change: We think about the segment Holistically and then two are really intertwined together overall from a global product standpoint, though within the business. We continue while one we saw stabilization in pricing for gloves I think that's important because that is one of our bigger categories.
Speaker Change: I think as we look into the future. There's a lot of movement potentially on gloves and pricing with with tariffs and other things impacting that that that part of this segment. We continue to see albeit slow growth of our new products that we're bringing into the market. We're learning as we do this it's something that really hasn't been done.
John Stansel: You know, we continue to see, you know, albeit slow growth of our new products that we're bringing into the market. You know, we're learning as we do this. It's something that really hasn't been done, you know, at Owens & Minor and, you know, as we continue to bring the products in. So, you know, for example, we're making sure we have the inventory in stock ready to go as we're starting to launch a new product portfolio, and that continues to do well.
Speaker Change: None at Owens <unk> minor and as we continue to bring the products and so for example, we're making sure we have the inventory in stock ready to go as we're starting to launch new product portfolio and that continues to do well and then overall and just as a general comment I would say our international part of that business has improved also in the third quarter.
John Stansel: And then overall, just as a general comment, I would say our international, you know, part of that business has improved also, you know, in the third quarter, and we've seen some sequential improvement in our international business, you know, during the year.
Speaker Change: We've seen some sequential improvement in our international business.
Speaker Change: During the year.
Jonathan Leon: Great, and then just one quick one, you know, within the operating profit contribution of PNHS, you know, step down from 2Q on a margin basis, you know, is there just anything to note there particularly or just kind of normal? Now, John, there are a couple of things that popped up during the quarter, certainly. A big one would be foreign exchange. You would have seen both currencies in Thailand and Malaysia strengthening significantly during the quarter compared to the USD. That cost us a few million dollars. , as well as increases in transportation and storage costs. As Ed mentioned earlier, onboarding of new customers those first several months aren't the most profitable.
Speaker Change: Great and then just one quick one.
Speaker Change: Within the operating profit contribution from <unk>.
Speaker Change: The step down from Q2 on a margin basis is there just anything to note, there, particularly or just kind of normal course.
Speaker Change: No John there is a couple of things that popped up during the quarter certainly a big one will be foreign exchange you would have seen both currencies in Thailand, Malaysia strengthened significantly during the quarter compared to the USD, so that cost us a few million dollars.
Speaker Change: Central operating income there as well we saw increases in transportation and storage costs and as Ed mentioned earlier.
Speaker Change: Onboarding.
Speaker Change: New customers those first several months.
Jonathan Leon: Profitability tends to ramp up over time.
Speaker Change: Aren't the most profitable and the profitability tends to ramp up over time.
Speaker Change: Yes.
Speaker Change: Great. Thanks.
Stephanie Davis: Our next question comes from the line of Stephanie Davis with Barclays. Hey guys, thanks for taking my question and Jonathan, congrats on making it official. I was hoping we could call out some of the puts and take the free cash flow this quarter, just given some of the moving pieces with weather and macro. And with that in mind, are you still expecting positive free cash flow for the year, or is that moderated a bit? Here we are. And we kind of expected that the third quarter would be a little softer and the inventory would build a bit during the quarter.
Speaker Change: Our next question comes from the line of Stephanie Davis with Barclays.
Stephanie Davis: Hey, guys. Thanks for taking my question and Jonathan Congrats.
Stephanie Davis: Thanks, Jeff I was hoping we could call out some of the puts and takes to free cash flow. This quarter, just given some of the moving pieces with weather and macro.
Stephanie Davis: That in mind are you still expecting positive free cash flow for the year.
Speaker Change: Moderated a bit.
Speaker Change: Yeah, we are and we kind of expected that the third quarter will be a little softer in the inventory would build a bit during the quarter.
Jonathan Leon: Actually, you know, as I always tend to gripe about, I mean, the snapshot at September 30th doesn't necessarily reflect what's going on during the quarter. Cash flow was better during the quarter. It allowed us to pay down a lot of the debt. We obviously had the debt from the 24 notes, but we still paid out incremental debt beyond that. But inventory did rise late in the quarter with payables to a certain extent. So we do expect that to improve as we get into fourth quarter. And we do expect, you know, no change in the expectation for a much better free company cash flow and free cash flow as we get into Q4 compared to Q3.
Speaker Change: Actually I've always tend to gripe about.
Speaker Change: Snapshot at September 30th wasn't doesn't reflect what's going on during the quarter.
Speaker Change: Cash was better during the quarter allowed us to pay down a lot of the debt. We also had the debt for the 24 notes, we still pay down incremental debt beyond that.
Speaker Change: Inventory did rise late in the quarter with payables to a certain extent. So we do expect that to improve as we get into the fourth quarter.
Speaker Change: And we do expect no change in the expectation for a much better free copper any cash flow or free cash flow as we get into Q4 compared to Q3, and we're not really surprised by the I'll call. It relative softness to Q2 that we saw this past quarter.
Jonathan Leon: And we're not really surprised by the, I'll call it relative softness to Q2 that we saw this past quarter.
Jonathan Leon: So I guess following up on that, you did call it a bunch of initiatives to improve cash flows last quarter, right? You talked about like managing inventory RAMs, improving AP and AR terms. Are there any updates you can give us on that? I would say it's going as expected. Certainly on the inventory side, which is our biggest driver, we are somewhat dependent on our manufacturer supply partners. So when things get delivered and how we manage our process will dictate where we land the plane at the end of the quarter. But it was, like I said, the quarter was better than it actually looks.
Speaker Change: So I guess following up on that you did call. It a bunch of initiatives to improve cash flow last quarter, I talked about managing inventory Rams, improving AP and AR.
Speaker Change: You can give us on that.
Speaker Change: I would say, it's going as expected certainly.
Speaker Change: Inventory side, which is our biggest driver.
Speaker Change: We are somewhat dependent auto manufacturer supplier partners.
Speaker Change: So when things get delivered and how we manage that process will dictate where we land the plane at the end of the quarter, but it was like I said the quarter was better than it actually looks on September 30th we actually had fairly effective working capital management during the quarter and I think youll see more of that come to fruition as we get through the buying required for the Thanksgiving and view and holidays.
Jonathan Leon: On September 30th, we actually had fairly effective work in capital management during the quarter. And I think you'll see more of that come to fruition as we get through the buying required for the Thanksgiving and year-end holidays and manufacturer shutdowns. We have that planning well in hand. And I think by the time we get to December 31st, you'll see a much improved operating cash flow result for the fourth quarter.
Speaker Change: Manufacturer shutdowns and we have that planning well in hand, and I think by the time, we get to the December 31, you'll see a much improved operating cash flow result for the fourth quarter.
Stephanie Davis: That was super helpful.
Speaker Change: Super helpful. Thank you.
Eric Coldwell: Our next question comes from the line of Eric Coldwell with Baird. Thanks. Good morning.
Speaker Change: Our next question comes from the line of Eric Coldwell with Baird.
Eric Coldwell: Thanks, Good morning, So you've mentioned the strong growth in sleep and diabetes, a few times, but.
Edward Pesicka: So, you've mentioned the strong growth in sleep and diabetes a few times, but would you care to quantify those growth rates in those two categories? at least directionally. No, as you know, we don't want to disclose that, but I would certainly say diabetes continues to lead the way. Sleep supplies were, again, really strong, and as we talked about, as Ed mentioned also, as that backlog in patient eligibility verification clears, that was getting even stronger, and as you know, that's a little better margin business for us. But diabetes, given the size of the category, we're still seeing very strong growth there.
Eric Coldwell: Would you care to quantify those growth rates in those two categories.
Eric Coldwell: At least directionally.
Eric Coldwell: No.
Eric Coldwell: We don't disclose that but I would certainly say diabetes continues to lead the way.
Eric Coldwell: Sleep supplies, we're again really strong and it's because we've talked about as Ed mentioned also is that backlog in patient eligibility verification clears.
Eric Coldwell: Stronger and as you know Thats, a little better margin business for us but.
Eric Coldwell: <unk> given the size of the category.
Still seeing very strong growth there and as I.
Edward Pesicka: And as I mentioned, we're still not where we need to be on NIV and oxygen, but we're still really pleased with all the other categories, even the smaller categories, whether it be wound, ostomy, urology, doing very well at the same time. I was trying to get a sense on how much of this strong growth, whatever it is, is working through the backlog as opposed to... more current real-time market demand and or share capture, whatever it is. Yeah, I would suggest the third quarter was more real-time market demand. It's a high-grade problem in that we're clearing a backlog while incremental demand comes in.
Eric Coldwell: Mentioned, we are still not where we need to be on niv and oxygen but.
Eric Coldwell: We still really pleased with all the other categories in the smaller categories, whether it be wound ostomy urology doing very well at the same time.
Speaker Change: I was trying to I was trying to get a sense on how much of the strong growth whatever it is working through the backlog as opposed to.
Speaker Change: More current real time market demand <unk>.
Eric Coldwell: <unk> share capture whatever it is.
Speaker Change: And I would suggest the third quarter was more real time market demand.
Speaker Change: It's a it's a high grade problem and that we're clearing the backlog while incremental demand comes in.
Edward Pesicka: So we're working furiously to clear that backlog, but we're also pleased with the incremental demand that we see every day. And on the patient backlog that built earlier in the year, I think some was changed healthcare. We also heard rumblings in the spring about inability to get some of the sleep product over.
Speaker Change: So we're working furiously to clear that backlog, but we're also pleased with the with the incremental demand that we see every day.
Speaker Change: And on the patient backlog that built earlier in the year I think some was change healthcare we also heard.
Speaker Change: Rumblings in the spring about the inability to get some of the fleet product over where there other factors or what were the main factors that drove the patient backlog and then my last follow up is.
Edward Pesicka: Were there other factors, or what were the main factors that drove the patient backlog?
Edward Pesicka: And then my last follow-up is why has it taken longer than you expected to work through that? I would say on the first part of your question, no supply chain issues. It's still the change issue, the manual work that needs to be required, the loss of functionality some of that change did offer that we no longer have. And some of the delay is quite frankly due to the incremental demand that we're seeing. So we have a queue of backlog, we have a queue of constant new starts every day. So something we need to manage our work through, but again, a bit of a high grade problem to have.
Eric Coldwell: Why.
Eric Coldwell: Why has it taken longer than you expected to work through that.
Speaker Change: Yes, I would say on the first part of your question no supply chain issues. It is still the change issue. The manual work that needs to be required the loss of functionality. Some of that change did offer that we no longer have and some of the delay is quite frankly due to the incremental demand that we're seeing so.
Eric Coldwell: We have a queue of backlog, we have a queue of constant new starts every day so.
Eric Coldwell: Something we need to manage a work through but again a bit of a high grade problem to have.
Edward Pesicka: Got it. Okay. Thanks very much.
Speaker Change: Got it okay. Thanks very much.
Operator: Again, if you would like to ask a question, please press star 1.
Speaker Change: Again, if you would like to ask a question. Please press star one.
Daniel Grosslight: Our next question comes from the line of Daniel Grosslight with Citi. Hi, guys, thanks for taking the question. As you think about perhaps taking advantage of some of the tariffs that are coming into effect in 2025, with your current manufacturing footprint, I'm curious if there are any additional investments that you need to make, whether it's, you know, whole new plants or increasing the lines at current plants, just anything that you'll need to do in terms of CapEx to be in a good position to perhaps take share once those tariffs are in effect. Yeah, I think, you know, there is an increment.
Speaker Change: Our next question comes from the line of Daniel <unk> with Citi.
Speaker Change: Hi, guys. Thanks for taking the question as you think about perhaps taking advantage of some of the tariffs that are coming into effect in 2025 with your current manufacturing footprint I am curious if there are any additional investments that you need to make whether it's.
Eric Coldwell: All new plants or increasing the lines at current plans just anything that you'll need to do in terms of capex to be in a good position to perhaps take share once those tariffs are in effect.
Speaker Change: Yes, I think there is an increment there is not incremental capital we need to spend to be able to continue to produce the products we need.
Edward Pesicka: There is not incremental capital we need to spend to be able to continue to produce the products we need. You know, if you do recall, we did a large investment back in 2020 related to our glove factory, added 10 additional lines. You know, that facility can run 24-7, you know, at capacity. You know, we also continue to have, you know, our operations in North Carolina as well as Texas for facial protection as well as the fabric for facial protection that has capacity availability. You know, so, you know, that's how we're thinking about this as we move forward.
Eric Coldwell: If you do recall, we did a large investment back in 2020 related to our glove factory added 10 additional lines that facility can run $24 seven at capacity.
Eric Coldwell: We also continue to have our operations in North Carolina, as well as Texas.
Eric Coldwell: Facial protection as well as the fabric for facial protection that has capacity availability.
Eric Coldwell: So that's how we're thinking about this as we move forward. So there really isn't any incremental capital investment that would be required.
Edward Pesicka: So, there really isn't any incremental capital investment that would be required. Got it. Okay.
Eric Coldwell: Yes.
Speaker Change: Got it Okay, and John you mentioned that.
Jonathan Leon: And John, you mentioned that, um... There were some increase in transportation costs this quarter unexpectedly. Is that the... the cost of shipping, or maybe if you can just dig in a little bit deeper into where you're seeing the biggest increase in transportation costs and how you're handling that for the next year or so. It is shipping, as well as storage as well. We're seeing increased storage costs. I mean, as inventory fluctuates, we have to account for that and make sure we have the and the capacity in place for that. And secondly, everything from ocean freight to ground transportation has risen a little bit on us the last several months.
Speaker Change: There were some increase in.
Speaker Change: Transportation costs this quarter unexpectedly is that the.
Speaker Change: The cost of shipping or maybe if you can just dig in a little bit deeper into where youre seeing the biggest increase in transportation costs.
Eric Coldwell: How youre handling that for the next year or so.
John Stanzel: Yes, it is shipping and as well as storage as well, we're seeing increased storage costs.
Eric Coldwell: Cory fluctuates, we have to account for that and make sure we have the SaaS.
Eric Coldwell: To be in place for that.
Eric Coldwell: Everything from Ocean freight to ground transportation has risen a little bit on us.
Eric Coldwell: Several months off Neil this is not really new news.
Jonathan Leon: Not really new news, but we have to manage to do that.
Eric Coldwell: But we have to manage through that into Q4.
Eric Coldwell: 25.
Speaker Change: Got it thank you.
Operator: We have no further questions at this time.
Speaker Change: We have no further questions at this time I will now turn the call back over to Ed <unk> for any closing remarks.
Edward Pesicka: I will now turn the call back over to Ed Pesicka for any closing remarks. Thank you, Operator. Obviously, I want to thank our teammates, our teammates who were impacted by the hurricanes as well as the teammates that supported them, you know, so that way they could overcome the adversity that we had impacted, that impacted us in the third quarter. You know, when I think about the future, you know, I'm incredibly excited about what's yet to come for Owens & Minor. You know, from continuing to drive greater efficiencies across the business, a lot of that you heard about today in our patient direct and both the sleep journey as well as, you know, our rep cycle management.
Ed: Thank you operator, and obviously I want to thank our teammates and our teammates who were impacted by the hurricanes as well as the teammates that supports them so that way they could overcome the adversity that we had impact that impacted us in the third quarter.
Speaker Change: When I think about the future Omics credibly excited about what's yet to come for Owens <unk> minor from continuing to drive greater efficiencies across the business a lot of that you've heard about today in our patient direct in both the sleep journey as well as in our Rev cycle management.
Edward Pesicka: You know, as well as to the approval and integration of Rotec into our patient direct business.
Speaker Change: As well as to the approval and integration of <unk> into our patient direct business.
Edward Pesicka: You know, finally, I look forward to getting together with everyone in early next year to talk about the progress we're making, close out 2024 and clearly define where we're going in 2025. So, thank you, everyone.
Speaker Change: Finally, I look forward to getting together with you with everyone. In early next year to talk about the progress, we're making close out 2024, and clearly define where we're going in 2025. So thank you everyone.
Operator: This will conclude today's conference call. Thank you all for your participation.
Speaker Change: This will conclude today's conference call. Thank you all for your participation you may now disconnect.
Operator: You may now disconnect.
Speaker Change: Okay.
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