Owens & Minor Reports Financial Results for 3rd Quarter 2018

Owens
& Minor, Inc. (NYSE: OMI) today reported financial results for
the third quarter ended September 30, 2018, including consolidated
revenues of $2.46 billion, representing an increase of 5.6% when
compared to revenues of $2.33 billion in the third quarter of 2017.
Quarterly revenue growth included contributions from Byram Healthcare of
$61 million and the first full quarter of revenue contribution from
Halyard of $240 million (before intercompany sales eliminations of $52
million).

For the third quarter, consolidated operating income on a GAAP basis was
$21.4 million, compared to $29.7 million in 2017, while adjusted
consolidated operating income (non-GAAP) was $48.8 million compared to
$48.5 million for the same period last year. For the quarter, net income
(loss) on a GAAP basis was ($565 thousand), or ($0.01) per share, versus
$10.9 million, or $0.18 per share, for the same period last year.
Adjusted net income (non-GAAP) was $19.5 million, or $0.32 per share.
This compares to adjusted net income (non-GAAP) for the same period last
year of $24.3 million, or $0.40. A reconciliation of reported results to
adjusted (non-GAAP) measures is included below.

“Our teams are working diligently to integrate the Halyard S&IP business
and to address the continuing challenges we are facing in our domestic
distribution business,” said P. Cody Phipps, Chairman, President & Chief
Executive Officer. “The strategic moves we have made into attractive
alternate sites of care with Byram, and in meaningfully building our own
brand product portfolio with Halyard, have strengthened and diversified
our business. These new businesses are helping to offset the continued
pressures we face in our domestic distribution business.”

For the nine months ended September 30, 2018, consolidated revenues were
$7.30 billion, an increase of 5.3% when compared to revenues of $6.93
billion last year. On a GAAP basis, the year-to-date operating results
were significantly affected by a non-cash asset impairment charge
recorded in the second quarter related to goodwill and intangibles of
$165 million, or $2.73 per share. Consequently, on a GAAP basis,
consolidated operating income (loss) for the nine months of 2018 was
($126) million, compared to $98.0 million for the same period last year.
On a year-to-date basis, adjusted consolidated operating income
(non-GAAP) was $143 million compared to $138 million in 2017.
Year-to-date net income (loss) was ($175) million, or ($2.92) per share,
compared to $0.82 per share for the first three quarters of last year.
Adjusted net income (non-GAAP) was $65.1 million, or $1.06 per share,
compared to $1.26 per share for the first nine months of 2017.

Segment Results

Owens & Minor operates under two Strategic Business Units (SBUs)—Global
Solutions and Global Products—reflecting the company’s focus areas.
Results for these two segments include the following:

The Global Solutions SBU is comprised of the former Domestic and
International segments, which includes our U.S. and European
distribution, logistics and value-added services business, as well as
Byram Healthcare. Revenues for the third quarter of 2018 were $2.24
billion compared to $2.29 billion a year ago. Byram Healthcare, acquired
in August 2017, continued to make positive contributions. Global
Solutions’ operating income was $24.2 million compared to $37.6 million
a year ago. The decline resulted primarily from continued margin
pressure, increased LIFO expense, warehouse inefficiencies in certain
facilities, and increased expenses incurred for the development of new
customer solutions.

The Global Products SBU is comprised of the former Proprietary
Products segment, which includes Global Sourcing, Clinical & Procedural
Solutions (CPS); as well as the recently acquired Halyard business.
Revenues in the third quarter of 2018 were $350 million compared to $125
million for the same period last year. Global Products’ results reflect
the first full quarter of contributions from Halyard revenues, or $240
million, as the acquisition was completed on April 30, 2018. Global
Products’ quarterly operating income was $27.6 million compared to $10.5
million in the prior year quarter, as a result of contributions from the
Halyard business.

Dividend

The company also announced that its board of directors declared a fourth
quarter 2018 dividend of $0.075 per share. The dividend is payable on
January 2, 2019, to shareholders of record on December 17, 2018. The
amount of the dividend represents a reduction of $0.185 per share from
the previous quarter’s dividend.

“The new fourth quarter dividend rate achieves a more balanced capital
allocation strategy,” said Phipps. “By right-sizing the dividend, we can
continue to provide a reasonable return of capital to shareholders as we
transform the business.”

Financial Guidance

Based on expectations for the remainder of the year, as well as
year-to-date financial results, Owens & Minor now expects adjusted net
income per diluted share for 2018 to be in a range of $1.20 to $1.25.

“For 2018, our revised guidance range reflects lower year-to-date
results and reduced expectations for our Global Solutions SBU,” said
Phipps. “In addition, we expect Global Products’ production costs to be
higher in the fourth quarter than in the third quarter. In light of this
revised guidance range for 2018, we are re-evaluating our prior outlook
for 2019 and anticipate issuing guidance for 2019 in the first quarter
of next year. We remain focused on improving our operating performance
and on executing our strategy to strengthen our company for the future.”

Although the company does provide guidance for adjusted earnings per
share (which is a non-GAAP financial measure), it is not able to
forecast the most directly comparable measure calculated and presented
in accordance with GAAP without unreasonable effort. Certain elements of
the composition of the GAAP amounts are not predictable, making it
impracticable for the company to forecast. Such elements include, but
are not limited to restructuring and acquisition charges. As a result,
no GAAP guidance or reconciliation of the company’s adjusted earnings
per share guidance is provided. For the same reasons, the company is
unable to assess the probable significance of the unavailable
information, which could have a potentially significant impact on its
future GAAP financial results. The outlook is based on certain
assumptions that are subject to the risk factors discussed in the
company’s filings with the Securities and Exchange Commission (“SEC”).

Upcoming Investor Events

Owens & Minor plans to participate in the following investor conferences
in the fourth quarter of 2018, and the company will post webcasts of
formal presentations on its corporate website:

Investors Conference Call & Supplemental
Material

Conference Call: Owens & Minor’s management team will conduct a
conference call for investors on Wednesday, October 31, 2018, at 8:30
a.m. EDT. The access code for the conference call, international dial-in
and replay is #7399333. Participants may access the call at 866-393-1604.
The international dial-in number is 224-357-2191. Replay: A replay
of the call will be available for one week by dialing 855-859-2056.
Webcast: A listen-only webcast of the call, along with supplemental
information, will be available on www.owens-minor.com
under the Investor
Relations section.

Safe Harbor Statement

This release is intended to be disclosure through methods reasonably
designed to provide broad, non-exclusionary distribution to the public
in compliance with the SEC’s Fair Disclosure Regulation. This release
contains certain ”forward-looking” statements made pursuant to the
Safe Harbor provisions of the Private Securities Litigation Reform Act
of 1995. These statements include, but are not limited to, the
statements in this release regarding our expectations with respect to
our 2018 and 2019 financial performance, as well as other statements
related to the company’s expectations regarding the performance of its
business, growth, improvement of operational performance, and the
performance of and synergies from the recently acquired Byram Healthcare
and Halyard businesses. Forward-looking statements involve known and
unknown risks and uncertainties that may cause our actual results in
future periods to differ materially from those projected or contemplated
in the forward-looking statements. Investors should refer to Owens &
Minor’s Annual Report on Form 10-K for the year ended December 31, 2017,
filed with the SEC including the sections captioned “Cautionary Note
Regarding Forward-Looking Statements” and “Item 1A. Risk Factors,” and
subsequent quarterly reports on Form 10-Q and current reports on Form
8-K filed with or furnished to the SEC, for a discussion of certain
known risk factors that could cause the company’s actual results to
differ materially from its current estimates. These filings are
available at www.owens-minor.com. Given
these risks and uncertainties, Owens & Minor can give no assurance that
any forward-looking statements will, in fact, transpire and, therefore,
cautions investors not to place undue reliance on them. Owens & Minor
specifically disclaims any obligation to update or revise any
forward-looking statements, whether as a result of new information,
future developments or otherwise.

Owens & Minor uses its web site, www.owens-minor.com,
as a channel of distribution for material company information, including
news releases, investor presentations and financial information. This
information is routinely posted and accessible under the Investor
Relations section.

Included with the press release financial tables are reconciliations of
the differences between the historical non-GAAP financial measures
presented in this news release, which exclude acquisition-related and
exit and realignment charges, and their most directly comparable GAAP
financial measures.

About Owens & Minor

Owens & Minor, Inc. (NYSE: OMI) is a global healthcare solutions company
with integrated technologies, products, and services aligned to deliver
significant and sustained value for healthcare providers and
manufacturers across the continuum of care. With 17,000 dedicated
teammates serving healthcare industry customers in 90 countries, Owens &
Minor helps to reduce total costs across the supply chain by optimizing
episode and point-of-care performance, freeing up capital and clinical
resources, and managing contracts to optimize financial performance. A
FORTUNE 500 company, Owens & Minor has annualized revenues of
approximately $10 billion, including contributions from Halyard Health
S&IP. Founded in 1882, Owens & Minor has operated continuously from its
Richmond, Virginia, headquarters. Today, the company now has
distribution, production, customer service and sales facilities located
across Asia, Europe, Latin America, and the U.S. For more information
about Owens & Minor, visit owens-minor.com,
follow @Owens_Minor
on Twitter, and connect on LinkedIn at www.linkedin.com/company/owens-&-minor.

(dollars in thousands, except per share data)

(dollars in thousands)

(dollars in thousands)

(dollars in thousands)

(dollars in thousands)

(1) Software as a Service (SaaS) implementation costs
associated with significant global IT platforms in connection with
the redesign of our global information system strategy ($0.3
million and $4.4 million for the third quarter of 2018 and 2017
and $3.4 million and $8.7 million for the year-to-date period of
2018 and 2017) and incremental charge to cost of goods sold for
inventory fair value adjustments associated with purchase
accounting ($9.0 million in the third quarter and $27.1 in the
year-to-date period of 2018).

(dollars in thousands, except per share data)

(dollars in thousands, except per share data)

The following items have been excluded in our non-GAAP financial
measures:

(1) Acquisition-related intangible amortization includes
amortization of certain intangible assets established during purchase
accounting for business combinations. These amounts are highly dependent
on the size and frequency of acquisitions and are being excluded to
allow for a more consistent comparison with forecasted, current and
historical results and the results of our peers.

(2) Includes $149 million in goodwill and $16.5 million in
intangible assets impairment charges in our Global Products segment. The
charges resulted from our second quarter goodwill impairment testing
performed as a result of lower than projected financial results of
certain reporting units due to customer losses and operational
inefficiencies, which have caused us to revise our expectations with
regard to future performance and a decline in market capitalization of
the Company.

(3) Acquisition-related charges, pre-tax, were $5.7 million
and $41.0 million for the three and nine months ended September 30,
2018, compared to $4.3 million and $6.3 million for the same periods of
2017. Acquisition related expenses in 2018 consisted primarily of
transition and transaction costs for the Halyard S&IP acquisition.
Expenses in 2017 consisted primarily of transaction costs for Byram.

Exit and realignment charges, pre-tax, were $2.0 million and $6.4
million for the three and nine months ended September 30, 2018. Amounts
in 2018 were associated with establishment of our client engagement
centers. Exit and realignment charges were $5.0 million and $14.8
million for the three and nine months ended September 30, 2017. Charges
in 2017 were associated with the write-down of information system assets
which are no longer used and severance charges from reduction in force
and other employee costs associated with the establishment of our new
client engagement center.

(4) The second and third quarters of 2018 includes an
incremental charge to cost of goods sold from purchase accounting
impacts related to the sale of acquired inventory that was written up to
fair value in connection with the Halyard S&IP acquisition.

(5) Software as a Service (SaaS) implementation costs
associated with significant global IT platforms in connection with the
redesign of our global information system strategy.

(6) These charges have been tax effected in the preceding
table by determining the income tax rate depending on the amount of
charges incurred in different tax jurisdictions and the deductibility of
those charges for income tax purposes.

(7) Includes tax adjustments primarily associated with the
estimated benefits under the Tax Cuts and Jobs Act.

Use of Non-GAAP Measures

This earnings release contains financial measures that are not
calculated in accordance with U.S. generally accepted accounting
principles (“GAAP”). In general, the measures exclude items and charges
that (i) management does not believe reflect Owens & Minor, Inc.’s (the
“Company”) core business and relate more to strategic, multi-year
corporate activities; or (ii) relate to activities or actions that may
have occurred over multiple or in prior periods without predictable
trends. Management uses these non-GAAP financial measures internally to
evaluate the Company’s performance, evaluate the balance sheet, engage
in financial and operational planning and determine incentive
compensation.

Management provides these non-GAAP financial measures to investors as
supplemental metrics to assist readers in assessing the effects of items
and events on its financial and operating results and in comparing the
Company’s performance to that of its competitors. However, the non-GAAP
financial measures used by the Company may be calculated differently
from, and therefore may not be comparable to, similarly titled measures
used by other companies.

The non-GAAP financial measures disclosed by the Company should not be
considered a substitute for, or superior to, financial measures
calculated in accordance with GAAP, and the financial results calculated
in accordance with GAAP and reconciliations to those financial
statements set forth above should be carefully evaluated.

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