Q4 2024 Owens & Minor Inc Earnings Call
After the speaker's remarks, there will be a question and answer session, and if you would like to ask a question during this time, please press star 1 on your telephone keypad.
Speaker Change: Any forward looking statements that we make on this call or in our earnings press release are as of today and we undertake no obligation to update these statements as a result of new information or future events, except to the extent required by applicable law.
Speaker Change: In our discussion today, we will refer to non-GAAP financial measures and believe they might help investors to better understand our performance or business trends.
Speaker Change: Information about these measures and reconciliations to the most comparable GAAP financial measures are included in our press release.
Speaker Change: Today, I'm joined by Ed placebo, but wasn't Myers, President and Chief Executive Officer, and John <unk>, The company's Chief Financial Officer, I will now turn the call over to Ed.
Speaker Change: Thank you Jackie good morning, everyone and thank you for joining us on the call today.
Speaker Change: 2024 wasn't important year for Owens <unk> minor and I am pleased with the progress that we've made against the strategy, we outlined at our Investor day in December of 2023.
Speaker Change: As a reminder, we committed to optimizing our product and health care services segment.
Speaker Change: Leveraging our leading patient direct platform.
Building balance sheet flexibility through deleveraging.
Within P&A Jess we continue to see momentum in the broadening of our product portfolio, developing a streamlined and efficient manufacturing footprint and enhancing our distribution capabilities.
Speaker Change: Within patient direct we continue to leverage our footprint and broad product offering to support home based care for millions of patients with chronic conditions.
Speaker Change: Those capabilities combined with the positive demographic trends and expanding home treatment options leaves us very bullish on the future of this business.
Speaker Change: Finally, we repaid $647 million of debt over the last two years, which helps provide the financial flexibility to pursue the acquisition of <unk>, which we believe will drive long term shareholder value.
Speaker Change: As we mentioned in our press release published this morning, we have been actively engaged in a robust discussions regarding the potential sale of our product in health care services segment.
Speaker Change: And are already well along in the process.
Speaker Change: Over the past few years, we have focused our capital reinvestment on the higher growth higher margin patient direct segment.
Speaker Change: Accordingly over the past 18 months, we have considered many strategic options, while continuing to work to enhance the product and health care services segment the.
Speaker Change: The actions we have taken on realigning P&A chess has made it a stronger entity and well positioned for future growth. We are excited and encouraged by the strong interest in P&A SaaS business and ongoing conversations we are having in the process.
Speaker Change: In addition, the press release published this morning also mentioned that our board of directors has authorized a share repurchase program of up to $100 million John will provide.
Speaker Change: <unk> more detail later during his prepared comments.
Speaker Change: Regarding our planned acquisition of ROE Tech we.
Speaker Change: We are awaiting a final decision from the regulators and we remain diligent in our planning process as we expect to close in the first half of 2025.
Speaker Change: We remain incredibly excited by the prospect of a United future together.
Speaker Change: It is our plan to leverage the existing App Ria platform, we acquired nearly three years ago to improve service, while delivering synergies through the optimization of our operations and interface with our customers.
Speaker Change: To the extent possible, we have been using the past few months to further understand the synergy opportunities and create the ability to expedite synergies post close.
Speaker Change: Based on what we already know and the work we have done to date, we now believe that our previously discussed cost synergy projections of $50 million in year three is conservative in both terms of value and time.
Speaker Change: Before I discuss our performance in 2024, and our goals for 2025 I want to take a moment to commend our teammates at Owens <unk> minor, we saw many difficult and heartbreaking situations in 2024 and earlier this year.
Including the record setting Hurricanes and historic flooding in the southeast the significant winter storms across the Midwest and northeast and the devastating fires in Los Angeles facing these extraordinary circumstances, our teammates ensured that our customers and patients received the critical and vital medical supplies they need it.
Speaker Change: Yeah.
Speaker Change: I am incredibly proud of the team that we've assembled at Owens <unk> minor and that our teammates embody our core belief that life takes care.
Speaker Change: Now moving on to 2024, while we focused on our long term strategy. We also delivered mid single digit top line growth and 13% growth in adjusted EPS, while continuing to reinvest in the business to drive greater operational efficiencies improved customer experience expand our technology offering.
Speaker Change: And set ourselves up for long term sustainable growth.
Speaker Change: Starting with patient direct our patient direct business outpaced market growth with mid single digit growth for the quarter and for the year in.
Speaker Change: In addition, it delivered over $13 million of incremental operating income year over year, while making significant progress with revenue cycle management, and our sleep journey program, which helped deliver strong sleep supply growth for the year and the fourth quarter.
Speaker Change: The addition of sales teammates also helped us deliver double digit growth in many of our smaller categories.
Speaker Change: Finally, our investments in technology continued as we launched Byrom connect a digital health coach to help manage diabetes overall significant progress was made in 2024, but we still have ample opportunity for advancement as well as improvement across all of our therapy categories and we remain.
Speaker Change: Cited about the future of patient direct.
Speaker Change: So now moving onto our <unk> segments or products in the healthcare services segment for the full year and quarter continued to show solid same store sales growth in our medical distribution division, partially offset by lower glove pricing.
Speaker Change: Next I want to recognize that the <unk> team continues to make significant progress in capturing savings and subsequently reinvesting those dollars into driving even more efficiencies and improving our operations.
Speaker Change: During 2024, we have advanced our proprietary product portfolio made progress with DC automation continued with the construction of new distribution centers and began the consolidation of our kitting footprint.
Speaker Change: Overall, we made great progress related to our long term strategy to optimize our pnas segments.
Speaker Change: As I look ahead into 2025, the team and I are keenly focused on these areas.
Speaker Change: One we will focus on expanding our free cash flow to strengthen our balance sheet invest in our business and support our stock as needed should it continue to be undervalued.
Speaker Change: Two we will continue to be disciplined while driving profitable growth.
Speaker Change: Three we will continue to take all steps to gain clearance from regulators and upon approval. We will quickly begin the integration of <unk> into the patient direct segment and.
And finally, we will work through the process related to our products and healthcare services segments.
Speaker Change: As I look forward I'm excited to build upon the progress we made in 2024 to advance our long term strategy that we outlined at Investor day in December of 2023.
Speaker Change: With that I'll turn it over to John to discuss our financial performance in 2024 and financial guidance for 2025 in more detail John.
John: Thanks, Ed and good morning, everyone.
John: We'll start with a review of our fourth quarter financial results and cover some of the key drivers and trends from last year, and then dive into our outlook for 2025 in greater detail.
John: Please note that during my remarks on today's call I will discuss on a non-GAAP financial measures all GAAP to non-GAAP financial reconciliations can be found in the press release filed earlier this morning.
John: With that let's turn to fourth quarter results.
John: Our revenue for the quarter was $2 7 billion up one 5% compared to the prior year.
John: The products and health care services segment grew 0.5% overall compared to the fourth quarter of 2023.
John: There was one more selling day this year compared to last year's fourth quarter, which accounted for the segment's growth.
John: While same store sales in our medical distribution Division has continued to grow nicely year over year. It was offset by lower workplaces and the knock on effects of the IV fluids shortages during the quarter.
John: The IV fluid shortage impact of procedure volume and subsequently our sales volume to some of our distribution customers.
John: Patient direct revenue grew by 5% compared to the fourth quarter of 'twenty three.
John: Slip supplies in diabetes once again demonstrated strong growth.
John: As discussed in previous quarters home respiratory therapies, such as an IV and oxygen declined on a year over year basis.
John: We expect this therapy categories to return to growth during 2025, and we saw encouraging signs towards this turnaround late in the fourth quarter.
John: Gross profit in the fourth quarter was $580 million or 21, 5% of net revenue.
John: Margin was essentially flat with last year's fourth quarter expanded by 93 basis points compared to the third quarter of 2024 and benefited from a $10 million LIFO credit as inventory levels were meaningfully lower at December 31, compared to September 30.
John: Our distribution selling and administrative expenses for the quarter were 18, 3% of revenue at $493 million up from $457 million in last year's fourth quarter with DSA was 17, 2% of revenue.
John: The increase in <unk> was primarily due to increases in teammates benefit expenses and higher workers compensation cost.
John: Adjusted operating income was 95 million in the fourth quarter and $11 million increase compared to the third quarter and $15 million less in the fourth quarter of 2023.
John: The year over year change in adjusted operating income can be attributed to modest revenue growth, which was offset by higher <unk> expenses.
John: Interest expense for the fourth quarter was just under $36 million down about $1 2 million compared to the prior year's fourth quarter.
John: This change was driven by a continuing debt reduction it was partially offset by less interest income earned versus the prior fourth quarter.
John: Our adjusted effective tax rate was 26, 5% largely unchanged from the 26, 8% in the fourth quarter of 2023.
John: Adjusted net income for the quarter was $43 million or <unk> 55 per share compared to $54 million or <unk> 69 per share last year.
John: Adjusted EBITDA was $138 million versus the $170 million reported during the fourth quarter of 'twenty three.
John: As previously disclosed earlier this month, we recorded $305 million net of tax goodwill impairment charge in the fourth quarter.
John: This noncash charge was primarily related to adverse financial market changed during the quarter and to a far lesser extent anticipated future changes in our capitation contract at the <unk> Division.
John: We do not expect the assumed contract pricing change, including the financial projections that were used in the impairment analysis you have a significant impact on 2025 results.
John: And more importantly, nothing about our positive outlook for average prospects has changed because of this.
John: We generated $71 million of operating cash flow the fourth quarter, primarily driven by changes in working capital.
John: As often happens our working capital management yielded better cash flow throughout the quarter that was represented on the last day of the quarter, which allowed us to reduce debt by $31 million.
John: For the full year debt was reduced by $244 million and we have paid down $647 million of debt over the last two years demonstrated was cash flow capabilities of the business and our commitment to reducing leverage.
John: Now with the wrapping up of 2024 and started the new year, we will provide guidance for the full year 2025.
John: As a reminder, our guidance does not include any impact of the <unk> acquisition, which we still expect to close in the first half of 2025.
John: So our guidance shared here today does not include any potential sale of our products the healthcare services segment.
John: And does not include any potential impact from future share repurchase activity.
John: So with that for the full year 2025, we expect revenue to be in the range of $10 85 billion to $11, one 5 billion, yielding a midpoint of and even 11.0 billion Boe.
John: Most of the growth will come from mid single digit percentage growth in our patient direct segment.
John: Adjusted EBITDA is expected to be in the range of $560 million to $590 million with a $575 million midpoint, representing approximately 10% growth over 2024.
John: Adjusted EPS has a guidance range of $1 60 to $1 85 per share and a midpoint of $1 73, representing approximately 13% growth.
John: As we think about cash flow in 2025, we expect to see marked improvement from last year, we expect to have leased $200 million available for further debt reduction in 2025.
John: We believe this is a reasonable expectation as it would be the result of the $575 million midpoint of our adjusted EBITDA guidance.
John: This the midpoint of our gross capex guidance of $260 million and interest expense of $140 million as well as less cash expected to be spent items, including an exit and realignment and acquisition related charges.
John: Those items I, just detailed provide approximately $125 million of cash flow and we believe another 100 million can be taken out of working capital a task we have demonstrated in the past that we can achieve.
John: So the year over year cash flow improvement is expected to largely come from the adjusted EBITDA growth, including our 2025 guidance.
John: We expect lower cash spend on items included exit and realignment and acquisition related charges and the <unk>.
John: Dissipated improvements and working capital management.
John: We will remain diligent in our efforts to reduce debt levels and intend to use free cash flow to do so.
John: There is no change to our goal of maintaining debt to EBITDA leverage between two and three times and after the close of the biotech acquisition, we will work quickly to bring down the incremental debt levels.
John: As Ed mentioned, our board of directors has authorized a share repurchase program of up to $100 million.
John: We will prudently manage between using cash flow for debt reduction, which remains our leading objective and share repurchase activity.
John: However, with all my shares currently so undervalued and especially so in the last few weeks, we believe share repurchase is a very sound use of the cash flow.
John: We're thinking about how our full year guidance will trend over the course of the year and as is increasingly typical given the nature of our business we.
John: We expect at least 70% of the earnings and cash flow to occur in the last two quarters of the year with the fourth quarter being the strongest.
John: We also expect the usual pattern of our first quarter being the lowest earnings quarter and.
John: As we often say we expect to be a net borrower during the first quarter.
John: As a reminder, our guidance information and other key modeling assumptions were filed this morning under form 8-K and reside on the Investor Relations section of our website.
John: I will now turn the call back to the operator for questions.
John: Later.
John: Thank you if you would like to ask a question. Please press star one on your telephone keypad. If you would like to withdraw your question simply press Star One again please.
John: Please ensure you are not on speaker phone and that your phone is not on mute when called upon thank you.
Speaker Change: Your first question comes from Kevin Caliendo with UBS. Your line is open.
Kevin Caliendo: Good morning, guys. Thanks for taking my question and thanks for all the details.
Kevin Caliendo: I guess why don't we start first with road Tech because I think.
Kevin Caliendo: When the deck came out.
Kevin Caliendo: K came out I think people were a little bit of alarm to see some of the trends that road tech.
Kevin Caliendo: And I just wanted to ask you knowing what you know now versus knowing what you knew when the deal was announced.
Kevin Caliendo: Is there anything surprising in the road tech results over the last year or so.
Kevin Caliendo: I appreciate you, making the comment that there is the cost synergies or could be greater than the $50 million could come sooner, but we're not just looking at the margins of that business and the growth of that business is there anything there that's surprising different.
Kevin Caliendo: At all.
Jon: Hey, good morning, Kevin It's Jon.
Answer the question is no there's no surprises on what we've seen with.
But I think people a lot of people forget that for all of US 2024 versus 2023.
Jon: The significant impact of the 70 525 legislation, leaving that had impacted all of US I think it's been stated ROE Tech has a little bit more exposure than we do to government reimbursement, so maybe a greater impact there, but I would say overall and now that we've got a little more clarity, we haven't really active healthy dialogue.
Jon: With the road Tech team, we know how the year is ending up and no surprise whatsoever, thats very consistent with our dual market our deal model.
Speaker Change: Okay. That's helpful. If I can ask a follow up on the on the free cash flow I appreciate that.
Jon: The $200 million.
Speaker Change: <unk> that you can redeploy back.
Jon: For debt repayment.
Jon: So $100 million share repurchase.
Speaker Change: Should we be thinking about those in conjunction like how should we think about that $100 million of buyback is that the priority one or is it something over the course of time.
Speaker Change: And should we just assume the $175 million to $200 million of free cash flow.
Speaker Change: Goes to pay down debt and the buyback is more opportunistic just help me understand what how you're thinking about deploying that capital this year.
Speaker Change: So.
Speaker Change: I think first primary objective of the businesses to continue to pay down debt that's extremely important but in the same sense senior should the stock continued to be meaningfully undervalued.
Speaker Change: We'll be opportunistic on that also throughout the year I think thats the way to think about it.
Speaker Change: Okay. Thanks, I'll go back in queue. Thanks.
Speaker Change: Thanks.
Speaker Change: The next question comes from Michael Cherny with Leerink Partners. Your line is open.
Speaker Change: Good morning, Thank you for taking the question.
Speaker Change: Maybe if we can just start.
Speaker Change: On patient direct and some of the underlying trends Doug you talked about mid single digit growth expectations on an organic basis over the course of the year can you parse that out a little bit in terms of what you expect to see on raw.
Speaker Change: Roughly speaking volume versus price versus market gains of market share gains and wanted to try and get a sense on where you see this business evolving and continuing.
Speaker Change: To position itself given your commentary about outgrowing the market.
Speaker Change: <unk> and the rest of 'twenty four.
Speaker Change: Yes, maybe I'll start and then John can add some commentary to it.
Speaker Change: Look I thought the patient direct business had a really strong year I mean, if I think about it again, we had double digit growth Im sorry, mid single digit growth in the business for the entire year as well as the fourth quarter.
Speaker Change: And not only that we actually increased full year over $32 million of op income if I think about some of the areas, where we've had some pretty good success. We've had really nice success, continuing with growth in diabetes as well as in sleep supplies.
Speaker Change: The other area I touched on a little bit on my comment was we did add some resources and in some of the smaller categories. We saw.
Speaker Change: Close to double digit growth in those smaller categories, where we've added resources. The one area of more still I would say underperforming and to be completely direct down. This it's really in the home respiratory in niv and oxygen space.
Speaker Change: An area, where we're going to continue to focus on it in 2025 and look to make that actually a growth category for us, which then could help lift the entire business as a whole from a from an organic standpoint, but again I think you look at our mid single digit growth for the year as well as the quarter relatively strong we believe compared to the.
Speaker Change: Market and some strong pockets of where we're seeing where some of the investments. We've made are starting to pay off like the sleep journey and some of the additional people. We've added John I know if you want to add anymore. Yes. The only other thing I would add Mike to your comment your broad broad stroke look at the big picture of the industry. The demographic tailwind remains very strong for us in the entire space and I think as.
Speaker Change: <unk> heard and seen from us and others.
Speaker Change: Regardless of the therapies that keep coming out we still see really good demand for our suppliers and services. So broad based and I think there is plenty of share yet to be gained across all of this for years to come and the debit.
Speaker Change: Once again from the demographics, which are overwhelmingly positive for us.
Speaker Change: I appreciate that and maybe a follow up to Kevin's question regarding capital deployment and the buyback very much appreciate the dynamic of instituting a new buyback given.
Speaker Change: The recent performance of the stock.
Speaker Change: That being said you obviously.
Talked about the end of the year being a use of cash component.
Speaker Change: Assuming as you have said that the <unk> deal closes you'll be taking on.
Speaker Change: Meaningful that near term as you work to pay that down.
Speaker Change: Should we be thinking about the cadence potential thought in <unk>.
Speaker Change: Guidance of the buyback against your cash flow needs and why is the 100 million the right number given.
Speaker Change: Where you see the dislocation in the stock currently.
Speaker Change: Yeah from a cadence perspective, Mike I think we think about it one as Ed said.
Speaker Change: We all believe the stock is way way undervalued right now and so we don't know if theres, a better ROI out there than buying back our own shares so.
Speaker Change: Q1, as I mentioned, we tend to be a net debtor being a little more of a net debtor. During the Q1 doesn't bother us that much confidence in cash flow as we get throughout the group move throughout the year.
Speaker Change: So that would be a problem for us.
Speaker Change: We'll see how the stock performs keeping in mind the rules around buyback.
Speaker Change: And given our average daily trading volume, we couldnt get through it all that quickly anyway.
Speaker Change: We wanted to be aggressive in stock remains so oversold.
Speaker Change: And then as we think about overall cadence and $100 million.
Speaker Change: I was again, just given the market cap of where we are tell you. Unfortunately.
Speaker Change: And given what we see is the cash flow as Ed said debt repayment remains a priority given the market cap of $100 million felt right.
Speaker Change: We believe the stock arrived, but obviously, if we get to a $100 million in the stock isn't where we think it should be the board consider to revisit.
Speaker Change: Future considerations.
Speaker Change: Fair value.
Speaker Change: That's helpful. John Thank you.
Speaker Change: The next question comes from John Stanfill with J P. Morgan Your line is open.
Speaker Change: Great. Thanks for taking my question.
Speaker Change: Just wanted to quickly touch on I don't know if you framed it completely but on tariffs.
Speaker Change: I appreciate the commentary changes by the day, but is there anything you can just help size impact potentially from Mexico based tariffs. Thank you, yes, yes.
Speaker Change: Again, I'll start and John can add an additional comment at the end. So if you think about tariffs or tariffs for us.
Speaker Change: Our arent as significant as it may be for other players in the industry.
Speaker Change: However, I think first of all we got to be clear that is tariffs come in and increase our product costs, we're going to have to pass those on to the customers.
Speaker Change: In our <unk> segment business with margin profile as tight as it is those are costs that we will have to pass on if we think about impact overall on the business.
Speaker Change: The vast majority of our products.
Speaker Change: <unk> are not made in China, so well lets first take that off the table because that had the highest tariff increases last year with close to a 100% on gloves coming through over this year combined with next year as well as significant on facial protection. So that's not an impact to us.
Speaker Change: We do make our products that do make some of our products in southeast Asia as well as in the U S and Mexico, and Honduras, I think thats, a pretty fluid situation, but if we think about it in our Mexican footprint is really in low single digits of what we make in our products that we sell through our <unk> segment.
Speaker Change: John I know if there is no that's right.
Speaker Change: Color on that so you think about our Mexico Mexican facilities and what comes back into the U S.
Speaker Change: About one 5% of the total revenue of <unk> in Hs segment, So thats, a really small exposure.
Speaker Change: Breakthrough, both Mexico and China.
Great and if I can just cyber Moran.
Speaker Change: <unk>.
Speaker Change: It looks like SG&A is roughly flat as a percent of sales.
Speaker Change: <unk> 25 based on the guidance with gross margins and adjusted EBITDA kind of stepping up relatively proportionately is there anything as you call out about how youre thinking about investment.
And kind of SG&A spend for next year.
Speaker Change: Yes, I think from an SG&A standpoint, that's how we're going to continue to look at ways to optimize that continue to look ways to take costs out, but obviously, we can't impact our service to our customer base. So that's how we've thought about it as we get it go into 2025.
Speaker Change: Yes.
Speaker Change: The next question comes from Daniel <unk> with Citigroup. Your line is open.
Speaker Change: Daniel perhaps your line is on mute.
Speaker Change: Hi, sorry about that thanks for taking my question guys.
Speaker Change: At a high level one on.
Speaker Change: The Phoenix sale process completely get that Youre redeploying capital to.
Speaker Change: Margin higher gross patient direct but I'm curious why now is the right time to do this.
Speaker Change: Then as we think about.
Speaker Change: Years down the line are you going to be.
Speaker Change: 100% dedicated to patient direct or are there. Other areas you may look to deploy capital into thank you.
Speaker Change: Yes, I guess on the question why now I mean, why now really comes back to we had received inbound interest most of multiple inbound interest on an on the assets of our <unk> segment.
Speaker Change: In addition to that then we worked with advisers as well as our board and the decision was made to say okay. We've got this much inbound interest, let's look at a broader process, which we've done which would that is what we have undertaken and we thought it was important now to make sure. We that we disclosed that this is in process as we move forward.
Speaker Change: Because of what we where we are in that stage of it and the fact that one again significant inbound interest brought in the process. It actually expanded the interest in <unk>.
Speaker Change: We're moving through this now so that way we could have open dialogue about it Frank dot conversations with our customers with our supplier communities within our own internal teammates and be able to move this forward and reach decision.
Speaker Change: Quickly versus trying to continue to slow walk this.
Speaker Change: And then as you think about kind of where do you deploy capital next.
Speaker Change: More so in the medium term will you be dedicated 100% just patient direct or are you thinking about other areas of potentially getting into.
Speaker Change: I think in the near term should the transaction happened with our <unk> segment, we will continue to focus on paying down debt.
Speaker Change: Should the regulators, we get through that with ROE Tech it'll.
Speaker Change: It will be focused on patient direct segment paying that debt down optimizing that business as we move forward and I think we think about our longer strategy as we disclosed in 2023 in December.
Speaker Change: Was we expect that that PD business by 2028 to be a $5 billion revenue business.
Speaker Change: Through both organic growth and through acquisition, whether we expand out into other areas, that's yet to be determined.
Speaker Change: Got it Okay, and then on your commentary around the $50 million of cost synergies from the <unk> deal.
Speaker Change: Conservative and in year three.
Speaker Change: Im curious if theres going to be any pull forward of that went into it if theres any change in.
Speaker Change: And how youre thinking about accretion from the deal and your Y and Youre too I think previously you said it was neutral in year, one and 15 cents accretive in year two any change in how youre thinking about that yeah, I think the here's the way here's what we've done I think it's important to really step back from this.
Speaker Change: So obviously the process has been delayed months now so during that period of time, we've really use. These last few months to understand how the two businesses can work together within the guidelines of available information of what we can what we can see and how we can have those conversations based.
Speaker Change: Based on that we actually believe that there are additional synergies in that the speed to getting them should be faster.
Speaker Change: Some of the work that would have been done had we closed back in October November of last year, we were able to do some of that during this next period of time, which is why we think from a time timeframe by the end of year. Three we originally talked about $50 million, we think that thats actually lights, and we can bring it up forward.
Speaker Change: In year, one I think theres still some impact of.
Speaker Change: As we look through thing is they're still going to be some some.
Speaker Change: Some decisions that have to be made in year, one that may not expedited in the first three to six months, but in that back half of that first full year as when we should start to be able to see that.
Speaker Change: And I think once we get the regulatory approval on this will come back with adjustments on timing and as well as dollars on synergies and the impact it has on the overall financials.
Speaker Change: Got it thank you.
Speaker Change: Once again, ladies and gentlemen at this time.
Speaker Change: One on your telephone keypad to ask a question.
Eric Coldwell: Your next question comes from Eric Coldwell with Baird. Your line is open.
Eric Coldwell: Thanks very much.
Eric Coldwell: First one on the <unk> capitation contract John I heard you say that you don't expect it to have a overly material impact on 2025.
Eric Coldwell: So my question is is that because the pricing change happens later in the year. So it's more of a 'twenty six impact.
Eric Coldwell: Just that the pricing change anticipated or maybe it's already in effect.
Eric Coldwell: Is just not that material in aggregate I'm, just hoping to get more details on that as well as any discussion you can provide on.
Eric Coldwell: The size of that contract or how much capital revenue U S patient direct today overall, what the mixes.
Speaker Change: Yes, maybe I can start and John can talk a little bit on the details. So I think Eric I. Appreciate the question, let's step back from this so first of all Big picture wise in our patient direct business outside of this contract we have very few capitation contracts and overall in the industry today.
Speaker Change: Capitation is really a smaller portion of the industry. So I think that that's got to be we accept that as a backdrop im not saying that this is a small catheter contract. This is a large capitation contract.
Speaker Change: And I want to talk a little bit about our approach to this and it will tie into Johns comments about the impact on 2025.
Speaker Change: So we've modeled in assuming either direction, whether we retain it or not retain it.
Speaker Change: Relatively speaking and when we go through our capitation contracts or any contract for that matter in our business. We take an extremely disciplined approach to the contract negotiations and we look at all factors. We look at whats the service level, that's going to be required to serve the customer, whereas our deleveraging point and where can we go.
Speaker Change: Two until we get to the point, where it starts to deleverage the business.
Speaker Change: When this contract we had the luxury of of <unk>.
Speaker Change: Having current volume and we know the trending of the volume we know what that is we see that as increasing it gives us the ability to make sure we put our capitation contract out there thats fair and reasonable versus others that may not and then let me talk a little bit about where this has had historically we've had other capitate contracts. So there was another.
Speaker Change: Another group that came out of the <unk> contract and we did not win that contract others did win the contract however, within a year or two the service wasn't where it needed to be.
They came back and reopened it specifically in the state of California, They reopened depth and we retain business and regain business on a fee for service type model.
Speaker Change: <unk>.
Speaker Change: When we go through this process.
Speaker Change: Paint that picture because of the discipline, we take in putting together our bid and our offering I think the other thing that benefits us overall.
Speaker Change: Is that rigor and discipline that we have within the business. So with that John maybe you can talk a little bit about how we look at 25 and say okay. The impact 25% is already baked into the numbers that we have and it's not going to have a meaningful impact for us. Obviously, we're two months into the year already under the current contract with the currently older.
Speaker Change: Pricing of fuel Eric.
Speaker Change: These.
Speaker Change: It's a large contract.
Speaker Change: Time to switch the switching costs and these things are very very high and take a lot of time, so the time to actually switch out.
Speaker Change: Under new contract until we lose it took a long time to switch about and quite frankly capitation contract of this size has a lot of dedicated resources to them.
Speaker Change: Our ability to flex that and still serve the customer effectively is pretty well known so we feel pretty good about the time included two if there is a change in pricing.
Speaker Change: Lose the contract we can pre match fairly effectively at the end of the day.
Speaker Change: We feel pretty good about what we've modeled in for this in 2025 and our ability to manage it whether it's just lower pricing <unk> surely happy to lose our ability to take the cost out.
Speaker Change: Fair enough and then on.
Speaker Change: The two segments for 2025, continuing ops guidance here can you give us any framework on what youre thinking for topline and EBITDA performance across the two segments any any loose ballpark on.
Speaker Change: Gross margin profile.
Speaker Change: As I mentioned, Jimmy if you're using the midpoint of revenue guidance I think I said the bulk of that growth is going to come from patient direct.
Speaker Change: Patient direct top line, we expect to be better growth wise and it was in 2024.
Kevin Caliendo: You may recall back in our Investor day, Eric we didn't expect much in the aisle.
Kevin Caliendo: Same store sales in medical distribution going forward, we got a nice.
Kevin Caliendo: Pleasant surprise on that in 2024, not sure that will continue into 2025 through a bulk of the lift overall and consolidate basis will come out of patient direct.
Kevin Caliendo: From an EBITDA perspective, I think you will see margins improve a little bit at both segments.
Kevin Caliendo: But not significant margin improvement either maybe a little margin lift just given there's more room to grow in <unk> and patient direct will be a little bit of margin lift at the EBITDA line for both segments.
Kevin Caliendo: And I know the way you treat LIFO charges and credit has an impact on your reported EBITDA.
Kevin Caliendo: I think what was it a $2 million credit this quarter, if I'm remembering sorry, $10 million credit for the quarter. It was basically flat to a $1 million.
Kevin Caliendo: Just over $1 million charge for the year.
Kevin Caliendo: We are expecting a relatively small charge in 2025.
Kevin Caliendo: Okay.
Kevin Caliendo: Can I keep going.
Kevin Caliendo: Sure you got the mic.
Kevin Caliendo: Alright.
Sorry apologies to the others.
Kevin Caliendo: Would you be willing to share.
Speaker Change: Last 12 month adjusted EBITDA in the Phs segment.
Speaker Change: Tried to ballpark an estimate but there are.
Speaker Change: Clearly some uncertainties between what's reported in your filings versus what you've given your your your press releases.
Speaker Change: Allocations of certain expenses et cetera. So I'm just curious if you could give us your framework of what LTM EBITDA wasn't phs.
Wood frame and that <unk> is between 2025% of the consolidated EBITDA.
Speaker Change: Okay.
Speaker Change: Yes, it's about <unk> and then <unk>.
Speaker Change: And then last one for me for now is.
Speaker Change: You're willing to talk about how your debt financing Roadshow went what you're anticipating for that cost on road Tech has that changed from the.
Speaker Change: The expectations that were set and what was it July of last year.
Speaker Change: So one of the benefits of a relief that was chock full of news. This morning is that we get all this information out into the markets.
Speaker Change: I think that'll help us have more fulsome efficient conversations with the debt market.
Speaker Change: But right now we're going to remain very flexible in the weeks ahead that pre marketing effort with very well.
Speaker Change: Hey, good receptivity, but as we get into the weeks ahead and actually begin to market will remain open to different structures and expect basically our cost of debt Thats still in line with the overall will take the old model.
Speaker Change: Okay. Thanks, very much guys.
Allen Lutz: The next question comes from Allen Lutz with Bank of America. Your line is open.
Allen Lutz: Good morning, and thanks for taking the questions. Jon you mentioned, some encouraging signs in the fourth quarter around Niv and oxygen can you unpack that a little bit what are you seeing or what did you see in <unk> early in 2025, and what needs to happen to get those categories back to growth.
Allen Lutz: Yes.
We did we sold the starts in both for noninvasive events in Australia begin to pick up.
Speaker Change: I think I think ive talked pretty publicly before we got a little flat footed.
Speaker Change: At the start of the year, obviously the requirements around reimbursement for those categories changed dramatically post pandemic.
Speaker Change: We were a little caught flat footed really getting ourselves up and geared up for that and we know others in the space have as well.
Speaker Change: So it took us a while to really readjust to that I think we're in a good spot now to begin to capture that growth and thats important growth.
Speaker Change: You've talked about margin across that business those categories are very high gross margin products.
Speaker Change: Well, what we're good at it and we won't see that growth. So I will tell you we didn't build.
Speaker Change: We built some of that improvement into our 2025 expectations.
Speaker Change: But the more we can accelerate that growth of those two categories it'll be just this upside to us.
Speaker Change: Thanks for that and then last question from me lower glove pricing has obviously been.
Speaker Change: Our focal point over the past few years, I guess, where are we in that cycle today and what's embedded in the guide for glass pricing in 2025.
Speaker Change: Hey, Adam at a macro level, yes, we have singular prices come down and.
Speaker Change: A significant portion of what we did with our operating model realignment to reduce our cost structure and I am helping offset a portion of that but it still did hit the top line and did have some pull through effect.
Speaker Change: I think with some of the what we're seeing in the market right. Now is we're starting to see prices go the other direction and a good portion of that is related to tariffs that are driving that.
Speaker Change: So I would say, we've somewhat leveled out on those log pricing.
Speaker Change: There may be an opportunity as things proceed forward to actually look at look at price depending on input costs to adjust that based on those factors.
Speaker Change: Thanks, Ed I appreciate it.
Ed: This concludes the question and answer session I'll turn the call over to Ed.
Speaker Change: <unk> for closing remarks.
Ed: First of all I want to thank everyone for joining on the call today I also want to thank our teammates for an incredible 2020 for some some great accomplishments as we move through the year.
Ed: Excited as we look forward into 2025 2025 is going to be an exciting year for our organization and I look forward to sharing our progress with everyone on this call and the rest of the rest of the organizations later in the spring. So thank you everyone.
Ed: This concludes today's conference call. Thank you for joining you may now disconnect.
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