Good day, and thank you for standing by. Welcome to Owens & Minor's Third Quarter 2025 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Will Parrish, Vice President, Investor Relations.

Thank you, operator. Good evening, everyone, and welcome to Owens & Minor's third quarter earnings call. Our comments on the call will be focused on the financial results for the third quarter of 2025, all of which are included in today's press release. The press release, along with the third quarter 2025 supplemental earnings slides, are posted on the Investor Relations section of our website. Please note that during this call, we will make forward-looking statements that reflect the current views of Owens & Minor about our business, financial performance and future events. The matters addressed in these statements are subject to risks and uncertainties, which could cause actual results to differ materially from those projected or implied here today. Our expectations, beliefs and projections are expressed in good faith, and we believe there is a reasonable basis for them. However, there can be no assurance that our expectations, beliefs and projections will result or be achieved. Please refer to our SEC filings for a full description of these risks and uncertainties, including the Risk Factors section of our annual report on Form 10-K and quarterly reports on Form 10-Q. 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. 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. Information about these measures and reconciliations to the most comparable GAAP financial measures are included in our press release. Today, I am joined by Ed Pesicka, Owens & Minor's President and Chief Executive Officer; Jon Leon, the company's Chief Financial Officer; and Perry Bernocchi, the EVP and CEO of the company's Patient Direct segment. I will now turn the call over to Ed. Ed?

Thank you, Will. Good afternoon, everyone, and thank you for joining us on the call today. Earlier this month, we announced a definitive agreement with Platinum Equity to sell our Products & Healthcare Services segment, which includes both the Medical Distribution and Global Products divisions. Built on a strong foundation, we believe P&HS will be better positioned to compete in today's evolving market under Platinum Equity's private ownership model. We are also excited to be retaining an equity interest in the business due to Platinum's operational expertise and commitment to building on the customer-centric legacy of the business, which will be critical to the future growth of P&HS. The Owens & Minor name has long been associated with our P&HS business and thus will follow that business in the transaction. As we near the close of the transaction, we are excited that we will be rebranding the public entity to better represent our trajectory going forward. So as I think about the future, following the divestiture of Products & Healthcare Services, I am thrilled that we can fully align around a single business. Our capital allocation, strategic priorities and execution are no longer split; they are unified around advancing the future of home-based care through Patient Direct. By retaining our higher-margin Patient Direct business, we will generate improved and more consistent cash flow. Accordingly, we will prioritize debt repayment in the near term to grow our financial flexibility while investing in technology to lower our cost to serve and improve the customer experience. Now I would like to begin by sharing some of the opportunities we're seeing in the market and how these trends we're tracking continue to support our business, a business that we have grown and strengthened over time. Beginning with our acquisition of Byram in 2017, we have spent the past 8 years firmly establishing ourselves as a leader in the home-based care space. During this time, we have expanded and diversified our payer relationships while broadening our product offering and capabilities. This, combined with our coast-to-coast network gives us the reach and infrastructure to provide support for patients across multiple chronic conditions, including diabetes and sleep apnea. These conditions are not only widespread; they're growing, which creates a tremendous opportunity for us to make a meaningful impact. Over 37 million people in the United States have been diagnosed with diabetes and an estimated 96 million adults aged 18 and older are living with prediabetes according to the National Institutes of Health. In order to capture future growth from these tailwinds, we will focus our investments on technology and automation, which will, one, improve the patient's experience; two, allow us to quickly scale our business; three, increase awareness; and four, further reduce our cost to serve. Another core area for us is sleep apnea, where it is estimated that 85 million adults in the United States have some degree of obstructive sleep apnea with approximately 70 million of those presently undiagnosed or undergoing the diagnosis process. While the use of GLP-1s has increased in recent years, recent studies published by the Lancet expect the use of GLP-1s to reduce the prevalence of obstructive sleep apnea by only 4% over the next 25 years. This is a significant opportunity for us to serve these future patients. It also further demonstrates the value of our preferred provider agreements where new patients are encouraged to begin their lifelong treatment journey with us, supporting better health and a better quality of life. Earlier this year, CMS proposed rules regarding competitive bidding around home-based health care and durable medical equipment. Since entering the home-based care space, our top priority has always been and will continue to be ensuring patients receive the products and services they need, reliably and on time. While competitive bidding programs have historically raised questions about patient choice and supplier access, we believe our scale, expertise and the quality of the products we distribute position us as a standout partner in any environment. As we await further guidance from CMS, we are actively collaborating with industry partners and advocacy groups to maintain a strong, transparent dialogue that keeps patient outcomes at the center of the conversation. Before I turn the call over to Jon to discuss our third quarter financial performance and our thoughts on the year-end, I would like to close my thoughts today on where we're going in 2026. With the divestiture of Products & Healthcare Services expected to close in the first quarter of 2026, we are incredibly excited about the future as a Pure-Play business in the home-based care space. As our business grows organically through our preferred provider agreements such as our recently announced agreement with Optum and an aggressive sales strategy, we are diligently focused on controlling our balance sheet through debt paydown, managing operational cost controls and lowering the cost to serve while accelerating our cash flow generation. As we close out 2025 and look forward to 2026, we will begin the next evolution for Owens & Minor, with myself, Jon, and Perry Bernocchi, the Executive Vice President of our Patient Direct business, remaining at the helm of our organization. I would like to thank all our teammates who have done a great job of staying focused on serving our customers. With that, I will now turn the call over to Jon to discuss our financial performance in the third quarter and our outlook for the rest of 2025. Jon?

Thanks, Ed, and good afternoon, everyone. We were very excited to announce the signed agreement for the sale of the Products & Healthcare Services segment a few weeks ago. I've had the pleasure of getting to know and working with the Platinum Equity team and absolutely believe they are the right owners for the P&HS business. Further, we're extremely excited about our future as a Pure-Play Home-Based Care company with all the positive attributes that come with it, as Ed detailed. We look forward to having a simpler business model and a cleaner investment thesis. We also believe our ability to dedicate investments solely into the subtractive space will lead to much greater results for all stakeholders. As you will recall from last quarter, the Products & Healthcare Services segment is being accounted for as an asset held for sale discontinued operations. So, unless stated otherwise, my remarks today will focus solely on the continuing operations, which, as a reminder, is made up of our Patient Direct business and certain functional operations and identified stranded costs from the separation. Also, please note that any discussion about the financial results and outlook for the business will cover only non-GAAP financial measures. You can find GAAP to non-GAAP financial reconciliations in the press release filed a short time ago and residing on our website. Turning now to the third-quarter results. Revenue was $697 million compared to just under $687 million in the third quarter of last year. Last year, in the third quarter, there was a $6 million one-time revenue benefit from a multi-year claims reprocessing matter. This impacted the growth rate by about 80 basis points. In the quarter, there was decent year-over-year growth in the key categories of sleep therapy, ostomy and urology. Diabetes was nearly flat compared to the third quarter of 2024, but showed better year-over-year performance compared to the second quarter. We continue to ramp up efforts to recapture stronger diabetes growth through improved therapy adherence and capturing more customers across our entire ecosystem of both durable medical equipment and our own pharmacy channel. Overall, we would expect revenue in Q4 to show a similar year-over-year growth rate but be seasonally improved from the third quarter in absolute dollar terms. For the 9 months ended September 30, revenue was nearly $2.1 billion, up 3.4%, with last year's Q3 one-time benefit, that I just mentioned, having a 30 basis point impact on growth compared to 2024. Similar to the quarter, growth for the year-to-date period was led by sleep therapy, ostomy and urology as well as smaller categories, including chest wall oscillation, which although is still small, has shown phenomenal growth and demonstrates our ability to successfully expand our therapy portfolio. Adjusted EBITDA for the third quarter was $92 million compared to $108 million in last year's third quarter. Here, that same one-time $6 million benefit from last year falls straight through to adjusted EBITDA and hindered reported EBITDA growth by nearly 500 basis points. Additionally, product cost increases and higher health benefit costs were only partially offset by lower general costs such as delivery, outsourcing and occupancy expenses. It is important to realize that the third quarter adjusted EBITDA from continuing operations, of course, includes the normal adjustments to EBITDA of interest, income taxes, depreciation and amortization and less than $1 million of exit and realignment charges. So, the $92 million earned is an appropriate representation of cash earnings before interest and taxes. This return to a higher earnings quality is quite different from what we've been able to report over the past several quarters. There will certainly be periods of time where there are cash adjustments in the adjusted EBITDA figure, but this is an example of what is meant when we refer to a cleaner and simpler investment story as a result of the divestiture. For the year-to-date period, adjusted EBITDA was $285 million, a reported 6.3% increase compared to $268 million for the 9 months ended in 2024. On the larger year-to-date adjusted EBITDA amount, last year's third quarter one-time $6 million benefit was an approximate 230 basis point drag on the year-to-date growth rate. Third quarter results include $11 million of stranded costs, which is the same as last year's third quarter and the second quarter of 2025. Year-to-date stranded costs were $25 million versus $39 million for the same period in 2024. We continue to believe the annualized stranded costs from the divestiture will be approximately $40 million. Adjusted net income was $0.25 per share, which compares to $0.36 per share in the third quarter of 2024. For the 9 months ended September 30, adjusted net income per share was $0.80 versus $0.64 in the same period last year. We are affirming our guidance for the 2025 full year of revenue between $2.76 billion and $2.82 billion, adjusted net income between $1.02 and $1.07 per share and adjusted EBITDA between $376 million and $382 million. Based on my earlier comments around fourth quarter revenue, we expect full year revenue to come in toward the bottom of the guidance range. On the guidance assumption slide that has been posted to the Investor Relations section of our website, you will notice that the interest expense range has increased as a result of a change in the allocation of these expenses between continuing and discontinued operations. We believe the increase in interest expense will be offset by lower stock compensation expense. And as a result, the EPS guidance range is unchanged. Turning to the balance sheet and cash flow. At September 30, net debt was $2.1 billion. Since year-end 2024, the increase in debt is related to the expenses to exit the previously planned Rotech acquisition, which were paid in June of approximately $100 million and more recently, cost to remedy a challenging start-up of a new kitting facility for the Products & Healthcare Services segment, which has led to a temporary inventory imbalance. Work needed for that P&HS kitting facility is ongoing. And as a result, the net debt level at the end of this year is expected to be only slightly lower than at September 30. While detrimentally impacting third quarter cash flow, as shown in the consolidated cash flow statement, the overbought inventory from the start-up will benefit customer demand across the P&HS business lines in the coming months and reduces the cash needed to be spent over that same time period. It's important to recognize that more than 100% of the cash used from operating activity in the 3 and 9 months ended periods was due to the discontinued operations and that continuing operations, inclusive of stranded costs, generated cash from operating activity. In fact, in measuring levered free cash flow as adjusted EBITDA from continuing operations, less CapEx from continuing operations and less all interest costs across both continuing and discontinued operations, there was $28 million of free cash flow in the third quarter and $78 million through the first 9 months of the year. Before taking questions, I'd like to say we're very bullish on the outlook for the Home-Based Care business and recognize that it's a very exciting time in the history of Owens & Minor. We look forward to getting on the road, sharing our enthusiasm and having the market better appreciate the attractiveness of the home-based care space. With that, I'll now turn the call back to the operator for Q&A.

Your first question comes from Michael Cherny with Leerink Partners.

This is Dan Clark on for Mike. First one from us. I appreciate all the color you gave on kind of results in 3Q and how you're thinking about the rest of the year. At a high level, how should we think about the durability of these trends going into 2026? And then would love to hear as a follow-up, just kind of how you're selling into the Optum channel is going thus far.

This is Ed. I'll start. Selling in the Optum channel, it's new. We've just recently signed the preferred provider agreement. We're tracking where we expect to track on that, but it's going to create more and more opportunities for us as we move forward. Regarding going forward in '26, we haven't published '26 data or information yet. We'll do that when we get closer to when we report the full year results for the business.

Yes. I would just add, Dan, there's really not much secular going on that would change those trends. I'll remind you that we discussed in our 10-Q filed tomorrow morning that there'll be a large customer loss in the continuing operations in 2026 that will impact the full year. But absent that, we expect a fairly strong 2026. As I said, we'll put guidance out with the fourth quarter results.

The next question comes from the line of Kevin Caliendo with UBS.

I guess it's sort of a follow-up to that in terms of trends. Like how should we be thinking about this company's business or outlook for 2026? Is there anything you can kind of lay out in terms of how the trends are migrating, how we should think about modeling it broadly speaking? I know you're not here to provide guidance, but there's obviously so many moving parts and how to think about run rates or anything like that would be super helpful. And the same sort of around free cash flow for 2025 and maybe how to think about free cash flow trends beyond where we are? I appreciate the color on what the sort of normalized cash flow was this quarter?

Yes, Kevin, it's Jon. I'll start with that. If you look at the trends going forward in our continuing operations, you'll notice organic patterns similar to what we usually see. I believe we can expect a decent top line growth rate, excluding the impact of the customer we’ve discussed previously. More details will be available in our 10-Q, which is coming out tomorrow. Without that loss, we should see some margin improvement and better cash flow since the contract we are losing was not particularly beneficial for margins or cash flow. So this will help us. From a free cash flow perspective regarding continuing operations, as I mentioned in my prepared remarks, I expect Q4 to resemble Q3. We anticipate generating good free cash flow. Moving into 2026, the trends should remain consistent. We will eliminate the significant capital expenditure burden of the large contract we are losing, but we'll still face stranded costs that we'll actively address once the divestiture is finalized. Additionally, we will incur some divestiture-related costs, particularly in the latter half of 2026. Thus, I expect it to be fairly similar to 2025, keeping in mind the one-off costs related to the divestiture, which we have estimated and included in the press release about the divestiture itself.

That's helpful. If I can ask a quick follow-up. The balance sheet has many moving pieces, including current debt and timing, making it difficult to get a full picture at this moment. Considering the acquisition or the divestiture, have you spoken with your credit agencies and lenders? Is there any risk to covenants, or will anything need to be adjusted now that you've announced the deal and everything is settled? Is everything fine?

No, we're good. Not at all. We just actually sent our covenant compliance to lenders and agencies in the last 48 hours. Very comfortable in compliance, and we expect to remain comfortably compliant throughout.

The next question comes from Daniel Grosslight of Citi. Is there any risk to covenants or anything that needs to change within those covenants following the announcement of the deal, now that everything is done and you're a month past, or is everything fine? Jonathan Leon, Chief Financial Officer, responded that they are good and there is no risk at all. They've just sent their covenant compliance to lenders and agencies in the last 48 hours and are very comfortable in compliance. They expect to remain comfortably compliant going forward.

I was hoping you could provide a little bit more detail on how these preferred vendor agreements work and as we think about the loss of Kaiser next year, you've mentioned many times that, that's not an attractive piece of business from a margin perspective. But how many of these larger preferred vendor agreements do you think you would need to sign to kind of fill that Kaiser hole on the profitability from a profitability standpoint?

I'll start with that. And then obviously, we'll have Perry add some color on to this too. I mean, I think we did lose the large customer contract. It was a unique contract in that sense. And as Jon talked about it, when we looked at the EBITDA compared to CapEx on it, it was not a very positive cash flow generating business. So that alone will take very, very little additional revenue to pick up and cover that. And again, not to cover the revenue, but to cover the EBITDA and the cash flow. And then in addition to that, Perry, let me let you add additional color on what you're seeing and how you're thinking about those preferred provider agreements and the ramp of them.

Thanks, Ed. And from a standpoint of the Optum agreement, it's in its early stage. As Ed said, we have 450 forward-facing salespeople that are marketing to over 100,000 potential referral sources within Optum. What it does do is give us a preferred position within the Optum closed network as Apria and Byram as the leading home care home-based DME provider. So that is a go-to-market strategy from a push and a pull perspective within Optum. To Ed's further point, it will take less contracts or less revenue growth to cover the loss of the contract that we are losing, given everything that Ed outlined and Jon outlined. It won't take much for us to replace from a margin perspective and an EBITDA perspective.

I wanted to follow up and explore the issue in P&HS that is affecting free cash flow, specifically regarding the kidney client. Could you provide more detail on that? Additionally, it's challenging to analyze your cash flow and balance sheet due to the consolidated cash flows and the distinction between continued and discontinued operations. Could you clarify where the headwind appears in the cash flow statement?

Yes, there are a couple of points to consider. Jon has tried to clarify what the free cash flow looks like from continuing operations based on EBITDA, Capital Expenditures, and consolidated interest in the space. This relates to the opening of a new kitting facility outside of the U.S., which comes with standard start-up costs. The main issue was the over-purchasing of inventory to ensure we could produce the kits and have enough for scale. This situation will resolve itself over the next quarter or so, but it is mainly tied to the launch of the new kitting facility outside of the U.S. to ensure we can provide diversified kitting options both domestically and internationally for our customers. Most of this will be reflected in inventory and the changes in payables we observed this quarter. Jon, would you like to add anything further?

No, that's essentially correct. In my comments, I meant to convey that we are currently ensuring that we effectively meet all customer needs in the kitting business. This approach postpones the requirement for additional capital throughout the business, both in kitting and other areas, for the remainder of the year. It should resolve itself, but we expect it will take a few months to do so.

This concludes the question-and-answer session. I'll turn the call to Ed for closing remarks.

Great. Thank you, operator. It's really an exciting period in the history of Owens & Minor. We're incredibly excited about the future as a pure-play supplier in the home-based care. And I look forward to sharing this progress with everyone early next year. So thank you, everyone.

This concludes today's conference call. Thank you for joining. You may now disconnect.