Ladies and gentlemen, thank you for standing by. And welcome to the Owens & Minor Fourth Quarter and Full Year 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to Chandrika Nigam, Director, Investor Relations. Ms. Nigam, you may begin.

Thank you, Operator. Hello, everyone. And welcome to Owens & Minor’s fourth quarter and full year 2020 earnings call. Our comments on the call today will be focused on financial results for the fourth quarter and full year of 2020, our ongoing efforts related to the COVID-19 pandemic and our outlook for 2021, all of which are included in today’s press release. I’d also like to call your attention to supplemental slides related to our 2021 outlook posted on our website in the Investor Relations section. Please note that certain statements made on this call are forward-looking statements, which are subject to risks and uncertainties. These forward-looking statements are intended to qualify for the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements made on this call today, other than statements of historical facts, are forward-looking statements and include statements regarding our anticipated financial and operational performance. Forward-looking statements made on this call represent management’s current expectations and are based on information available at the time such statements are made. Forward-looking statements involve numerous known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from any results predicted, assumed or implied by the forward-looking statements. The company has explained some of these risks and uncertainties in its SEC filings, including in the Risk Factors section of its annual report on Form 10-K and quarterly report on Form 10-Q. Except as required by law or listing rules of the New York Stock Exchange, the company expressly disclaims any intent or obligation to update any forward-looking statements. Additionally, 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 and our annual report on Form 10-K. Today I am joined by Ed Pesicka, our President and Chief Executive Officer; and Andy Long, our Executive Vice President and Chief Financial Officer. I would now like to turn the call over to Ed, who will start things off. Ed?

Thank you, Chandrika. Good morning, everyone, and thank you for joining us on the call today. I’d like to start by thanking all the clinicians and frontline workers that continue to care for those in need in the face of this unrelenting pandemic. I would also like to thank the Owens & Minor teammates, as I am extremely proud of their monumental effort during 2020 and their relentless focus on serving our customers. This effort and focus has reinforced our position in the healthcare industry as a trusted partner by delivering on our mission of empowering our customers to advance healthcare. In addition, I am extremely pleased to be here today and report another strong quarter and close out of a record year. The strong performance in the quarter, as well as the full year, was a result of the successful execution and implementation of the key initiatives discussed during the previous quarterly earnings calls, which included two major items: one, infrastructure investments, with a focus on current and long-term profitable growth; and two, operational improvements, with a focus on enhancing the customer experience and increasing operating efficiencies. Starting with our Global Product segment, let me remind you of the infrastructure investments and operational improvements we shared previously during the past year. At a high level, we expanded our manufacturing output to align with demand commitments of our customers. Here are just a few examples of those investments and operational improvements. One, the installation of new N95 production lines in our U.S.-based manufacturing facilities; two, we added nonwoven fabric manufacturing in our Lexington, North Carolina facility; three, we continue to expand our isolation and surgical gown production capacity; and four, we optimized the operational process to maximize output of the production lines. These investments and operational improvements enabled us to strengthen our position as one of the world’s largest vertically-integrated manufacturers of healthcare PPE. We manufacture a full range of healthcare PPE categories and subcategories, primarily manufactured in the Americas. These products are manufactured in our factories, with our teammates, with our technology, with our fabric, with our patterns, with our processes, and with quality and regulatory oversight. And then they are delivered through our network of distribution centers, with our teammates in our technologies. Along those lines, let me remind you of the infrastructure investments and operational improvements we shared previously during the past year related to our Global Solutions segment. One, we expanded our low unit-of-measure warehouse infrastructure system. Two, we improved our inventory planning processes and algorithms. Three, we enhanced our data management service offering through QSight and the launching of myOM. We improved our B2B and B2C offerings in our home healthcare business. And lastly, we optimized the operational process to continue to improve our controllable service metrics. The combination of these investments and operational improvements in our Global Products and our Global Solutions segments continue to strengthen our position in supporting our customers across the entire value chain, with our products and our distribution network delivering what is needed to both the hospital, as well as the home, while utilizing our services and data management to increase customer efficiency. The compelling results in Q4 and the full year of 2020 were driven by these investments and operational improvements, along with the dedication of our teammates and our overall commitment to enhancing the customer experience. Let me now share a few items from Q4 that validate our solid results. One, we achieved an increase of nearly 400% in adjusted net income per share, compared to the fourth quarter in 2019. Two, we realized an increase of more than 200% in adjusted operating income versus the fourth quarter of the prior year. Three, we expanded our Q4 adjusted operating margins by 340 basis points versus the prior year. Four, we launched and successfully executed an upsized follow-on equity offering of nearly $200 million. Five, we reduced the debt by over $300 million in the fourth quarter. Six, and specifically related to the Global Solutions segment, we grew revenue by 5% sequentially from Q3 to Q4, while maintaining industry-leading service levels. Seven, specifically related to the Global Products segment, we grew revenue by 21% sequentially from Q3 to Q4, and since the beginning of the year we manufactured record levels of PPE with approximately 5 billion units produced with materials manufactured in our American factories or Owens & Minor owned facilities. Eight, we generated operating cash flow of $71 million as a result of the increased earnings and working capital improvements. And lastly, we continue to make investments in infrastructure, service and technology. As you can tell, the fourth quarter was a remarkable close to 2020. It is in fact an extension of our track record of strong performance during the entire year. Here are some of the highlights from the full year of 2020. One, for the full year, adjusted EPS increased 265% from $0.62 to $2.26. Two, we continued the trend of recording year-over-year gross margin expansion with gross margin expanding by 285 basis points. Three, we more than doubled our operating cash flow to $339 million as a result of increased earnings and working capital improvements. Four, we paid down debt by $534 million during the year, and it should be noted that we have reduced debt by more than $700 million over the past seven quarters. Five, we achieved year-over-year gross margin expansion in every quarter of 2020, making it seven consecutive quarters of year-over-year gross margin expansion. Six, we generated positive operating cash flow in every quarter of 2020, also making it seven consecutive quarters of positive operating cash flow. Next, we delivered year-over-year adjusted EPS growth on a constant currency basis in every quarter of 2020, making it five consecutive quarters of year-over-year adjusted EPS growth on a constant currency basis. And finally, we reached a milestone in the COVID-19 fight, with nearly 12 billion units of PPE delivered during the year. I’m extremely pleased with our incredible results in 2020, which signify our stellar operating performance across the board. It is our Americas owned and operated facilities, along with the strong distribution network that provides Owens & Minor with the unique ability to support the entire value chain. This differentiates us and puts us in a strong position for long-term profitable growth. Let me now shift to 2021 and focus on the areas that will shape the year and the future of Owens & Minor. These areas of focus will be investments, operational improvements and financial strength. Let me begin with financial strength. During 2020, we significantly deleveraged our balance sheet, implemented sustainable operational improvements and made investments for growth. We expect 2021 to be an extension of these actions, enabling continued deleveraging of the balance sheet and profit improvement. As a result of the deleveraging achieved in 2020, we now have greater latitude to make investments in our business for future growth. So moving on to investments. We will focus on investments on both organic and inorganic growth. Our investment strategy will remain disciplined and we will continue to focus on infrastructure, technology and operational improvements. Our organic growth investments will consist of: one, product portfolio expansion within our PPE surgical infection and prevention categories and subcategories; two, product portfolio expansion outside of our PPE surgical infection and prevention categories and subcategories; three, expansion into new verticals that utilize our product portfolio and expanded product portfolio; four, enhanced technology, utilizing the data and services we provide to our customers; five, harnessing our enterprise-wide offerings to further enhance our customer experience; and six, complete the build out of our continuous improvement team. Related to inorganic growth investments, our focus will be primarily on portfolio and end market expansions. Let me now discuss operational improvements. We have begun the implementation of the Owens & Minor business system that is an enterprise-wide business discipline consisting of the following. One, continuous improvement, which is focused on delivering an enhanced customer experience, while providing efficiency, improved output and financial achievements; two, standard management systems, which is based on definable metrics that will be measured and evaluated; and finally, program management, which will be utilized for alignment and execution of our strategic priorities and key initiatives. The Owens & Minor business system is the next step in the formalization of the actions utilized over the past two years to significantly improve our medical distribution service levels, to increase our manufacturing output to record levels, to develop and implement new technology and to deliver our strong performance. Let me now close with our 2021 outlook. First, we expect the strong momentum from Q4 to carry into 2021 related to the demand for our manufactured PPE. Secondly, we expect elective procedures to continue to improve throughout the year. And finally, we expect a continued increase in demand for our home healthcare business, which is positioned well in one of the fastest growing healthcare market segments. As I have discussed earlier, we had a strong fourth quarter and successful 2020, and I’m immensely proud of our accomplishments and the dedication of the Owens & Minor teammates and we expect this momentum to continue into 2021. It is clear that our robust operational execution combined with strategic investments have fueled increased output and improved efficiency across the entire business, thus enabling us to better serve our customers. Continuing with this approach as a foundation of our strategy, we are well-positioned to address the needs of healthcare for years to come, based on our strong value proposition. Accordingly, I am pleased to state that we expect 2021 adjusted earnings per share to be in the range of $3 to $3.50. Thank you. And I’ll now turn the call over to Andy for discussion of our financial results. Andy?

Thank you, Ed, and good morning, everyone. I’m pleased to be here this morning to discuss the financial highlights of what has been an extraordinary year for Owens & Minor. Today I will review our fourth quarter and full year financial results, as well as the key drivers for a better-than-expected quarterly and annual performance. Later in my remarks, I’ll share details regarding our expectations for 2021. Clearly, we finished 2020 in a very strong fashion, with good revenue growth in the fourth quarter and exceptional increases in operating income and earnings per share. I will elaborate on each of these next. For the quarter, revenue was $2.4 billion, compared to $2.2 billion for the prior year. This represents 8% growth and was driven by greater sales of PPE across both segments, as well as growth in sales in our home healthcare business line and stabilization of the medical distribution business. Elective procedures were better than expected but overall continue to trail pre-pandemic levels. Gross margin in the fourth quarter was 16.9%, an improvement of 390 basis points over prior year as a result of higher-margin sales from our Global Product segment driven by continuing PPE demand, as well as improved operating efficiency. For the full year, gross margin was up 285 basis points to 15.1%. Distribution, selling and administrative expenses of $283 million in the current quarter was $29 million higher than in the fourth quarter of 2019 as a result of topline growth and ongoing investments across all business lines net of productivity gains. Interest expense of $17 million in the fourth quarter was down 23% or $5 million versus the same period in the prior year. For the full year, interest expense was lower by 15% or $15 million. These improvements are the result of continued reduction in debt, along with lower base rates and utilization of our accounts receivable securitization program. Our strong execution in serving our customers, along with very high demand for PPE, growth in home healthcare and productivity gains across the company led to very strong bottom-line results. On a GAAP basis, income from continuing operations for the quarter was $51 million or $0.72 a share and $88 million or $1.39 per share for the full year. Adjusted net income in the fourth quarter was $80 million and adjusted EPS was $1.14, about a five-fold increase compared to the prior year. For the full year, adjusted income from continuing operations was $144 million, which equates to an adjusted EPS of $2.26, a significant increase from the $0.62 in 2019. Foreign currency impact on EPS for the fourth quarter was $0.06 favorable and for full year 2020, it was $0.08 favorable. Next, I’ll discuss our fourth quarter highlights by segment. Global Solutions revenue was $1.95 billion, compared to $1.94 billion in the fourth quarter of last year. The slight increase in revenue was due to growth in our home healthcare business, coupled with higher levels of PPE sold through medical distribution, partially offset by the negative impact of COVID-19 on elective procedures versus the prior year. The typical seasonal growth in this segment was muted by the pandemic. Operating income for the segment was $22 million, compared to $19 million last year. Despite the negative impact of COVID-19, growth in home healthcare, and our productivity and efficiency gains helped drive nice growth in bottom-line operating results, particularly in the back half of the year. In our Global Products segment, net revenue in the fourth quarter was $575 million, compared to $363 million last year, an increase of 58%, which was driven by growth in volume of PPE sales, slightly offset by the impact of lower elective procedures. Global Products operating income for the quarter was $100 million, more than a four-fold increase versus the $22 million in the prior year’s fourth quarter. Higher revenue through capacity expansions for PPE products, productivity initiatives, favorable product mix and improved fixed cost leverage as we ramped up production throughout the year all contributed to the very strong improvement in performance. Foreign currency impact was favorable on a year-over-year basis by $5.4 million. Moving now to cash flow, the balance sheet and capital structure. In the quarter, we generated $71 million of operating cash flow and for the full year we generated $339 million of operating cash flow, which was more than two times the prior year. Increased profitability and disciplined working capital management were the primary drivers of the progress in this area. The strong cash flow was achieved despite our investment in a seasonal inventory build to ensure continuity of supply for our customers. We expect cash flow to continue to be strong in 2021. During the course of 2020, we accomplished several milestones in our financial strategy. We strategically divested Movianto for $133 million to remain focused on our core assets and used the proceeds from the sale to pay down debt. We entered into an accounts receivable securitization program to provide additional lower-cost financing that enhances our financial flexibility. We issued new equity in an upsized offering netting $190 million to strengthen our balance sheet. And finally, we fully retired our 2021 notes with cash, further reducing our debt. As a result, total debt was $1.03 billion at December 31st, reflecting a significant reduction of 34% or $534 million during the year. As we exit 2020, our balance sheet is in very good shape and our leverage is down to around three times EBITDA. Going forward, we intend to further deleverage the balance sheet, while we continue to reinvest in our businesses for future growth. In fact, in early January, we paid off the remainder of our Term A loans. The work we did during the course of 2020, by deploying cash generated by the business to pay down debt while maintaining ample liquidity has helped to create a strong foundation to execute our growth strategy. Our success was recently rewarded with another credit upgrade by Moody’s. We plan to further strengthen that foundation in 2021. Turning to guidance for the year, earlier this morning, we announced our adjusted EPS guidance for 2021 in the range of $3 per share to $3.50 per share. Given the complexity and uncertainty of the markets we serve, I’d like to provide you with as much color as possible as I walk you through the assumptions that went into developing our guidance range. Starting with the topline, we expect revenue to be in the range of $9.2 billion to $9.7 billion, which is expected to be driven by several factors. The throughput from PPE-related capacity expansions will continue to benefit 2021. To date, demand for PPE remains very high and we believe a great deal of runway remains due to post-COVID changes in practices and protocols in the healthcare industry. Also, throughout 2021, we will remain focused on driving productivity and increasing operating efficiency through existing and incremental capacity. New patient capture and growth from existing customers in our home healthcare business will drive growth as investments towards improving B2B and B2C offerings pay off. Also, revenue will benefit from elective procedures returning to pre-pandemic levels in the second half of the year. We assume there will not be a repeat of shutdowns in elective procedures as we saw in Q2 of 2020. It’s critically important to understand the final component of our revenue growth projection. During 2020 and continuing into 2021, significant cost increases from glove producers are translating to higher end-user prices in the market. This is particularly true for the portion of gloves we don’t produce in our own facilities. To date, we have successfully passed through these cost increases which are reflected on the revenue line and should be noted for their extraordinary impact. Our revenue forecast for 2021 includes a glove cost pass-through in the range of $300 million to $500 million. However, there will be minimal bottom-line impact resulting from this revenue lift. Gross margin rate is expected to be in the range of 14.9% to 15.4% in 2021, as we continue to expand our breadth and scale. The gross margin rate will be negatively impacted by the pass-through of glove cost increases, as I just described. Distribution, selling and administrative expense is expected to trend higher than last year. Our ongoing investments in infrastructure, technology and services to enhance the customer experience, along with volume growth, is fueling this increase and should be partially self-funded with ongoing productivity efforts. With substantially lower debt, our interest expense will follow suit. We will continue our drive to reduce leverage and plan to be in the range of two times to three times. As a result, interest expense is expected to be between $60 million and $65 million for the year. Our guidance is based on a full year average diluted share count of 70.8 million, which includes the impact of issuing an incremental 9.7 million shares based on our equity offering from October. Let me talk about the market dynamics to frame our projection for 2021. Based on our current line of sight, the 2020 trend of demand-supply imbalances in the PPE market are expected to continue in 2021. Looking ahead, we expect to benefit from PPE supply contracts that are multiyear in duration. We’re increasingly confident that the post-pandemic demand for PPE will land above historic usage, but clearly below peak pandemic levels. It’s also very important to understand the expected calendarization of earnings in 2021. The dynamics that helped drive our strong fourth quarter results remain in place heading into 2021. Given this momentum, carrying into Q1, we do not expect to see the typical pattern of earnings throughout the year. Specifically, we expect Q1 earnings to be more in line with the back half of 2020. Please note that these key modeling assumptions for full year 2021 have been summarized on supplemental slides filed with the SEC on Form 8-K earlier today and posted to the Investor Relations section of our website. When I look back at our performance in 2020 as one where we showcased our ability to adapt to changing customer needs and deliver really strong results, I also see a track record of consistently improving financial results that have positioned us well for the future. I’d like to close by thanking our global teammates for their resilience, dedication and performance during a year of unprecedented challenges. Thank you. And with that, I’ll turn the call back over to the operator to begin the Q&A session. Operator?

Thank you, sir. I show our first question comes from the line of Michael Cherny from Bank of America. Please go ahead.

Good morning. Thanks for all the color and congratulations on a tremendous quarter and year across the board. I want to dive in a little bit to some of these views in particular on PPE and how you think about that. I think you mentioned the new levels above traditional? And I want to parse through a few comments made on across the call. But you mentioned expansion of your portfolio on both PPE and non-PPE products, as well as new verticals. Is there any sense you can give us in terms of how to think through the magnitude of what that new level of demand could be or if not that maybe how to think through when we can start to see some of the visibility on some of those expansions that you have both on the product and market side and how that should factor in particular to your 2021 guidance?

Sure. Yeah. This is Ed, Mike. Thanks for the question. Let me start and really frame out how we’re thinking about it. First and foremost, we see the momentum that we saw in Q4 continuing right now into Q1 related to PPE and we have a really good line of sight into Q2 also. Then as you think about the back half of the year related to PPE, it’s going to be somewhat fluid. But we don’t expect the demand to roll back to pre-pandemic levels for quite some time. And here are some of the reasons why on that. First and foremost, it’s the healthcare protocols that have been adopted and if you think about that, they’ve been adopted now for nearly a year. It’s just in the way business is being done in the hospitals. There’s a tremendous focus on infection prevention. So the utilization of that PPE is going to continue beyond the pandemic. Next, the opportunity we see in the back half and continuing even beyond that is really around stockpiling. There are a lot of states, whether it’s the federal government, states, locals or even hospitals themselves setting criteria of what they want from a stockpile or safety stock. We believe that’s going to continue on for an extended period of time. As I’m talking about stockpiling, Mike, I also think about what’s already in there, and I think about our customers: during the height of the pandemic, there were products that were approved under emergency use authorization; there were products that may not have been traditionally medical grade or medical brands that were purchased. There’s the opportunity as that stuff in that stockpile to start to convert that over to established brands like our Halyard brand of American-made products to put into those stockpiles and replace it. Longer term on stockpiling, there’s an expiration of those products. So it’s an opportunity on that standpoint. The other way we think about it, too, is we have worked with our customers; supply chain resiliency and continuity with suppliers became critical for our partners and our customers. So we’ve worked with them for longer-term contracts, and as we’ve added lines, making sure there’s dedicated production for them. That’s the other thing that continues to extend the runway. It’s probably unique to Owens & Minor, because of our manufacturing footprint. Then on the new product portfolio and new verticals, I think the way we think about that, Mike, is really you look at all of the PPE today that we have. Right now we’ve focused on U.S. to me. So there’s the international markets opportunities for us to expand, taking that existing portfolio and growing it outside of the U.S. There’s industrial markets that use PPE that we can continue to provide for. So thinking about that modeling, that’s really late ’21 and really starting to get out the opportunity into ’22, as we’re thinking about those additional verticals. And then very similar, you take the fabric we use to make our masks; that fabric is used in many other healthcare products. So that vertical integration can continue to expand. Again, thinking about that into the late part of ’21 and really into ’22 on those types of expansions. So that’s how we’re thinking about that through the year, as well as all the different factors. I’ll add one last one, Mike: when you think about N95, there was an authorization to reuse disposable N95s. That may have made great sense when N95s were selling at prices significantly above historical prices. But those masks really were made for single use. As hospitals take a look at that, there may be an opportunity when they stop reusing and re-sanitizing to start increasing the amount of usage of N95s, because they stop the process of reusing them when it becomes cost prohibitive to reuse versus buying a new one. And then the last thing I’ll focus on is, when you think about PPE demand, here’s the other thing that we really noted: post-pandemic, I can see consumer use of PPE going down. That’s not what we sell into today. We’re selling primarily into healthcare and then, obviously, as we expand beyond healthcare, again into business-to-business or potentially industrial markets. So hopefully that helps frame out how we’re thinking about this.

That was a lot of great detail on my overly rambling question. I’ll try to be more concise with my second one. You mentioned the kickoff of some of the business process improvements. Can you just give us a sense on how your customers are starting to feel that already and what type of feedback you get from them as you pursue some of these cost improvements and also maximize the customer service opportunity?

Yeah. So this is really the formalization of what we’ve been doing the last two years and making it more of a repeatable process, because the operational improvements we made we believe are sustainable and will add value continuing not just in the fourth quarter of 2020 and Q3 of 2020, but all the way through ’21 and beyond. Some great examples around two areas: shipping accuracy — this may sound simple, but making sure the right products and the right box go to the right customer — that’s now above 99.9% because of the focus we’ve had on this and continuous improvement. Another great example is on-time delivery, making sure we’re optimizing our routes, as well as the picking time. We’re now at 99% plus on-time delivery. You look at another example that has been tremendous during the pandemic: it’s focused on operational efficiency within our own manufacturing facilities. How do we get more output? While we don’t share specific proprietary numbers, we’ve seen theoretical output double based on our ability to drive operating efficiencies through our production lines. It’s an effort across the entire organization, working with the manufacturing teams and teammates on the shop floor, who understand the equipment best and can help drive that operating efficiency and drive output. All of that improves the customer experience because we had the ability to produce more products during the pandemic and continue to give them to our customers, improve on-time delivery, improve the accuracy and all of those things also helped drive operating margin improvement within our own business. So those are a couple of examples of what we’ve done and those types of efforts will continue going forward.

Great. Thanks so much.

Thank you. I show our next question comes from the line of Kevin Caliendo from UBS. Please go ahead.

Thanks and thanks for taking my question. As we think about these growth drivers into the second half of ’21 and into ’22, the question many of us have is: was 2021 sort of the peak for Owens & Minor? Your press release talks about long-term growth prospects. Is it possible that you can grow earnings, operating earnings in ’22, ’23, ’24 off this base? Is that sort of the target and goal the company has at this point? We know there’s a little bit of a bolus here; we’re trying to understand how much and what the run rate could be exiting the first half of this year.

Yeah. Absolutely. First of all, Kevin, absolutely the intention is year-over-year profitable growth and that’s the expectation. That’s why I thought it was important to share with you beyond PPE why we think PPE is going to continue for an extended period of time through this year and really into the next — that’s around protocols and the opportunities we have. In addition to that, one of our strengths is manufacturing. What makes us different is we actually manufacture a good portion of our products. We don’t just have them sourced with our label on them. A good portion of that PPE is manufactured in our facilities. Expanding that manufacturing footprint into other products and other categories that healthcare needs is defined and in process today. That is a process that does take time, which is why I talked about it late into 2021 and into ’22. And then verticals: Owens & Minor historically has been focused primarily on healthcare with our products. We’re not going to lose that focus or commitment. But with great brands like Halyard, there’s opportunities to serve other markets, whether that’s retail, other industrial markets, and growing internationally. That’s how we’re thinking about driving long-term sustainable growth with investments and focus into ’21, ’22, ’23 and ’24 and continuing. That’s the expectation and the basis of our long-term strategic plan. You’ll see more at our Investor Day in May when we start to talk about some of the innovation in products and packaging, and how the various markets can demand us.

That’s great. I don’t want this to get lost in what was obviously fantastic results, but the Solutions margins were meaningfully above us and the Street in 4Q and I’m wondering if there was anything specific to that, if that’s the new run rate for Solutions going forward. How much is your PPE expertise helping on the Solution side in terms of customer wins or sell-through on margin?

So here’s what’s really driving that. I’m extremely pleased and excited about what the teammates did in our Global Solutions business. There are several factors. First, from a growth standpoint, elective procedures sequentially continued to improve. PPE throughput through our own channel continued to improve. We had net new wins in 2020. The amount of new wins we implemented was a positive net new wins — I don’t know how long it’s been since we’ve been able to say that. You take that and combine it with the operational improvements, the Owens & Minor business system that we’re formalizing, that drove operational improvements in 2019 and 2020. Those operational improvements are expected to be sustainable. In addition, the business is relatively simple: it’s a fixed-cost leverage distribution business. The more volume we can put through, the more products we can put on our trucks, the more fixed-cost leverage we get in addition to the operational improvements. Also, the segment includes our Byram home healthcare patient direct business, and that business is executing extremely well. It’s in one of the fastest growing segments and we’re effective at driving operational improvements and growth there. That business also has strong collection capabilities. Those are the reasons why we saw in our Global Solutions a 5% sequential increase in revenue from Q3 to Q4, doubled operating income sequentially and 16% year-over-year growth in operating income in the fourth quarter. It’s topline growth combined with operational improvements and fixed-cost leverage, and we see that continuing into the future.

Great, Ed. Thanks so much.

Thank you. I show our next question comes from the line of Jailendra Singh from Credit Suisse. Please go ahead.

Yeah. Thank you. Thanks for taking questions. Just wondering about your 4Q results: does your 2021 guidance include any benefit from participating in the vaccination rollout or ancillary PPE supplies as the vaccination campaign ramps up? Should we think of this as a potential opportunity for you guys in ’21 or is it already captured in your outlook?

There’s not a lot in there for traditional vaccines. The bulk of the vaccination kits are coming with syringes and vials. The incremental products used during vaccination are traditional PPE that people are already using. So we have some limited exposure and some of that is baked into our outlook, but it’s not a significant or material amount for the full year.

Okay. And then, looking at your EPS guidance range, when we think about your low end and high end, maybe talk a little bit more about what the underlying assumptions are at the low end and high end? Is it driven by variations around commodity prices? Are there other variations we should be aware of? Just curious about the underlying assumptions on the two ends of the ranges here.

So let me start and address the revenue range because I think that’s important. We have seen cost increases in gloves. There’s a significant supply-demand imbalance on gloves and we have seen cost increases on gloves. We have worked with our customers and have been completely transparent that we are going to pass on only our costs. We have the ability to pass on much lower costs for a portion of those gloves because a good portion is made in our own factories. So there will be an impact on revenue from glove price increases, but there is virtually no impact on earnings per share, because we’re mostly passing those costs through. We’re not making a profit off of this increase. It’s purely that as prices go up, our cost goes up, and we’re going to pass that through. That can have an impact on revenue and margin rates, and that’s not going to necessarily have a major impact on EPS. I’ll let Andy talk about the major assumptions behind the low and high end and overall how we’re thinking about EPS.

Hi, Jailendra. Other factors that helped shape the earnings-per-share guidance range include our expected PPE output and our ability to ramp up PPE quickly, bring on that capacity and generate the efficiencies we expect to see going forward. Just as we’ve seen throughout 2020, the rate of continuation of that output and the rate of improvement in efficiencies are major drivers. To a smaller extent, we’ve given guidance on elective procedures and our thoughts on how that shapes the guidance. As we talked about, in the first half of the year we still expect to trail pre-pandemic levels and as we move into the second half of the year those elective procedures could return toward historic levels. There’s also an element in elective procedures of pent-up demand from procedures that were forgone in 2020 and the potential to make those up in the second half of the year. That pent-up demand is not included in our guidance, but could certainly push us to the higher end of that range if it were to occur.

Okay. Thanks a lot.

Thank you. I show our next question comes from the line of Steve Valiquette from Barclays. Please go ahead.

Hi. It’s Jonathan Yong on for Steve. Congrats on the results for the year and the quarter. Just on the commentary in relation to the product expansion, what products are you looking to expand and is it more where your customer is looking to? I understand the vertical side, but where are your customers needing new products from you to manufacture, etc.?

Without going into specifics on categories and subcategories, it’s going to be products that are core to us as a company where our strengths and capabilities are. We’ll continue to look at those areas and expand where it makes strategic sense. We haven’t announced specific product names; think of it as category expansion where we have manufacturing and supply strengths.

Okay. Fair enough. And then on the increased PPE capacity, given that over the next couple of quarters could be peak for PPE within healthcare, do you need to push capacity and production on PPE even further or is it more shifting to produce other product lines within those facilities? I assume the healthcare PPE demand is larger, but just wondering about that?

The way to think about this is PPE is a broad category and you have to think about various subcategories. We’ve added capacity over the last year in most fabric-related categories. The one shortfall we have is in gloves. We are adding capacity in gloves in our own facilities. A portion of gloves are made in our own factories and a portion are sourced through contract manufacturers. We believe glove demand will be a long-term issue and we’re aggressively expanding capacity for gloves. We’re one of the few American-owned companies capable of making gloves at scale for the industry. That’s an area where we see continued demand and where we’re investing, working with customers on commitments. In addition, controlling more of the manufacturing process across categories — masks, gowns, respirators, drapes — positions us well as supply-demand balance normalizes. We also compete at pre-pandemic pricing, and operational improvements make us more competitive going forward. We believe there will continue to be demand for American-made product that is manufactured or finished in the Americas, since that offers supply chain resilience and reliability. That’s core to our mission of serving customers and empowering them to advance healthcare.

Great. Thanks so much.

Thank you. I show our next question comes from the line of Robert Jones from Goldman Sachs. Please go ahead.

Hey. This is Kevin on for Rob this morning. Thanks for taking the question. I know previously you talked about your contract with the federal government to increase the national stockpile. I believe that wraps up in 3Q. Any sense you can give us on the contribution you’re expecting from that in 2021? And how should we be thinking about the potential opportunity to work more with the government in the future on these types of contracts?

We’re in constant contact with the administration and trying to help provide insight into what we’re seeing. We manufacture the broad categories and subcategories of PPE and are working with customers to ensure product is getting to end users. Some N95s used to fill the stockpile will continue to be filled through the end of Q3. That’s our expectation. When that slows down, there is still demand outside for our N95s and other products. We’ll continue to work with the U.S. government on stockpiling and other solutions to increase domestic PPE independence.

Got it. That’s helpful. And one follow-up: you mentioned guidance being a little more first-half weighted this year so there could be some sequential slowdown toward the back half. Yet you’re talking about growing net income off of ’21 levels into ’22. Can you help square those — some sequential slowdown but still expecting growth next year? Any detail on the moving pieces would be helpful.

We see momentum from Q4 carrying into Q1 and we have a good line of sight into Q2. Elective procedures are expected to be below pre-pandemic levels in the first half of the year and improve in the second half. Elective procedures use a lot of PPE, so their return will have a material impact. Net new wins we achieved in 2020 will have a positive effect in 2021 and beyond. The deleveraging of our balance sheet has created opportunities to reinvest in the business, and lower interest expense will support EPS improvement. Those factors combined are why we expect continued growth into 2022 and beyond despite some calendarization effects in 2021.

Got it. Super helpful. Thanks, guys.

Thank you. I show our next question comes from the line of Daniel Grosslight from Citi. Please go ahead.

Thanks and congrats on the quarter. I want to focus a little bit on the supply side of the PPE demand-supply imbalance. There’s a bunch of legislation throwing money at bringing PPE supply back to the U.S. A big hospital system announced a JV to expand access to U.S. PPE. Have you seen the competitive dynamic changing as more companies build U.S. manufacturing capabilities?

We’re in constant contact with hospitals, GPOs and the U.S. government. The approach we’ve taken is to work with customers to lock up supply coming off our production lines, either semi-dedicated or dedicated production lines to specific customers, rather than them having to create new joint ventures. We manufacture a broad portfolio and can mitigate risk from raw material to final manufacturing. We’ve been cautious to make sure investments are sustainable, looking at future demand and pricing rather than current spot pricing. We want to ensure decisions support long-term employment and production. That’s how we’re approaching capacity and competition.

Got it. That’s helpful. On the net new wins you announced, are those health systems like the ones you traditionally sell into on the acute side? Any differences versus previous customers?

No. Those are primarily our traditional customer types.

Do you see any changes as things open up this year in the sales cycle — more RFPs or things going out to bid — and how does that play into the 2022 dynamics?

We did see some RFPs delayed last year because of the pandemic, so we expect more activity in 2021 as organizations resume their procurement cycles. Some customers delayed changes during the pandemic and are now looking for new solutions or resilience in supply, so we expect some uptick in RFPs and normal contract cycles to return.

Got it. Thanks, guys.

Thank you. I show our last question comes from the line of Michael Minchak from J.P. Morgan. Please go ahead.

Thanks for taking the question and congratulations on the strong results. On gross margins, if we take out the glove cost increase pass-through, it looks like the gross margin projection would be in the upper 15% range at the midpoint of the guidance. That’s an increase over 2020, but below the 16.9% you delivered in the fiscal fourth quarter. Can you talk about the dynamics driving that forecast, how that’s expected to trend over the course of the year, and how to think about driving margin expansion over the longer term?

Sure, Mike. There are three key drivers impacting our gross margin rate next year. First, as you noted, the glove pricing impact is largely a pass-through once you normalize for glove pricing. Second, as we continue to ramp up PPE, we expect good fixed-cost leverage and manufacturing efficiencies that will drive upward pressure on margins. Third, dampening margins is the expected growth in our Global Solutions segment, which has lower gross margins. While still accretive, that segment’s growth will moderate the rate of improvement in the consolidated gross margin percentage. Mid- to long-term, our continuous improvement efforts and manufacturing efficiencies are the primary drivers for margin expansion.

Got it. That’s helpful. Quick housekeeping: I think you talked about a $0.08 favorable impact from FX in the fourth quarter. What’s built into guidance for 2021?

Our 2021 forecast is based on the December 31, 2020 FX rates that were in place at that time. In terms of EPS impact, I would estimate an approximate $0.11 headwind driven by the currency activity with the weakening of the U.S. dollar that we saw in the fourth quarter.

Got it. Appreciate you taking the questions.

Thank you. That concludes our Q&A session. At this time, I’d like to turn the call back over to Mr. Ed Pesicka, President and CEO, for closing remarks.

So thank you, Operator. Let me start by thanking everyone for joining the call this morning. As I reflect back, it’ll be two years on March 7th since I joined Owens & Minor and I will share that I’m extremely pleased and delighted with the progress that we’ve made and that really goes to all our teammates across the world who have worked relentlessly to support our mission. The mission is extremely important to me: we’re here to empower our customers so they can advance healthcare and making sure we’re doing everything we can to support them. If I think about 2020 in that light, 2020 was a record year and I’m proud of the accomplishments that we’ve made in 2020, as well as over the previous eight quarters. But I think we all recognize we’re not done yet and there’s still a tremendous amount for us to do to continue to live our mission and provide value. I’m really excited about 2021 and into the future. Last, before I close, I want to welcome two new Board members: Aster Angagaw, who’s joining us, as well as Steve Klemash, who will be joining us as members of our Board of Directors. They both bring strong backgrounds in transformational growth as well as finance, and we believe they will be great contributors to the Owens & Minor Board of Directors. I really look forward to working with both of them. With that, we will leave for the day. I look forward to talking to everybody on the next quarter. As a reminder, during our Investor Day in May 2021 we will provide more insight about where we’re going as a company. Thanks again and have a great day.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now all disconnect. Good day.