Owens & Minor, Inc. (NYSE:OMI) Q1 2023 Earnings Call Transcript

Owens & Minor, Inc. (NYSE:OMI) Q1 2023 Earnings Call Transcript May 5, 2023

Operator: Welcome to the Owens & Minor first quarter 2023 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. If you would like to ask any questions during this time, simply press star, one on your telephone keypad. If you would like to withdraw your question, again press star, one. I will now turn the conference over to Jackie Marcus of Investor Relations. Please go ahead.

Jackie Marcus: Thank you Operator. Hello everyone and welcome to the Owens & Minor first quarter 2023 earnings call. All comments on the call will be focused on the financial results for the first quarter of 2023, as well as our updated outlook for 2023, both of which are included in today’s press release. The press release along with the supplemental slides are posted on the Investor Relations section of our website. Please note that during this call, we will make forward-looking statements. The matters addressed in these statements are subject to risks and uncertainties and could cause actual results to differ materially from those projected or implied here today. Please refer to our SEC filings for a full description of these risks and uncertainties, including the Risk Factors section of our annual report, Form 10-K, and quarterly reports on Form 10-Q.

In our discussion today, we will reference certain non-GAAP financial measures. Information about these measures and reconciliations to the most comparable GAAP financial measures are included in our press release. Today I’m joined by Ed Pesicka, President and Chief Executive Officer, and Alex Bruni, Executive Vice President and Chief Financial Officer. I will now turn the call over to Ed. Ed?

Edward Pesicka: Thank you Jackie. Good morning everyone and thank you for joining us on the call today. To start, I am pleased with the performance of the business and the team’s execution through the first quarter of the year as we took the necessary steps to initiate the realignment of our business, improve our overall cost structure, and leverage our strengths, and here are just a few examples. One, in the first quarter we generated $158 million of cash from operations. This is a testament to the execution of our strategy and delivering on our commitment to further strengthen our financial profile. Having the ability to produce cash flow at these levels will allow us to allocate capital towards debt reduction and pursue initiatives that promote growth, innovation and commercial excellence.

Next, our operating model realignment program is on track to meet our target of $30 million of adjusted operating income in 2023, and we are confident that we will achieve significant long term profit improvement and cost savings from these efforts. I’ll outline these efforts in a little more detail further in my prepared remarks. Next, our patient direct segment continues to outpace the market and deliver significant margin expansion as the strength of the Byram and Apria brands continue to accelerate; and finally, we have already paid down $117 million of debt in the first quarter, which aligns with our focus on debt reduction and further improving our balance sheet, and we expect continued strong debt reduction throughout the year. Now I will provide a closer look at our segment performance, and I’ll start with our patient direct segment.

The patient direct segment had another strong quarter as it continued to outpace the market as revenues grew by 10.4% year-over-year on a pro forma basis. In addition, it should be noted that we again achieved double digit growth in nearly all of our major product categories. The continued strong revenue growth was driven by: one, the proven commercial model with a comprehensive focus on the patient, provider and payor; two, an expanding use of technology to improve overall service and satisfaction, and three, the powerful combination of the Apria and Byram brands. As expected, when we completed the Apria acquisition just over a year ago, the additional of Apria has significantly improved our already strong patient direct offering by broadening our product categories, expanding our services, increasing our footprint, and deepening our payor and provider relationships.

We expect our patient direct segment to continue to deliver growth for the total company as serving the patient in the home continues to grow at a rapid pace. This rapid pace growth is due to demographics such as an aging population and the rise in the number of patients with chronic conditions, an increase in available home treatments, and the growing acceptance of patient care in the home. It is these industry dynamics combined with our patient direct strength and fierce execution that leaves us thrilled about the future prospects for patient direct and the expectation of continued positive momentum. Now moving onto our product and healthcare services segment, our product and healthcare services segment declined year over year primarily due to extremely difficult comps coming off the tailwinds of COVID-related sales in the prior year and continued headwinds related to destocking of PPE in the current year.

This significantly impacted both revenue and margin in our global products division; however, excluding the year-over-year impact of distributed PPE products, our medical distribution division delivered mid-single digit growth for the quarter. This growth was the result of strong same store sales along with the implementation of new wins offset by previous losses. We are pleased with the continued progress being made by our medical distribution division. Finally related to product and healthcare services segment, you may be aware of recent communications from the FDA regarding certain of our facial protection products. We are actively working with the FDA to address this issue, and during this process we remain focused on customer safety and transparency.

Moving onto our operating model realignment program, I am thrilled with the progress that has been made since the launch of this initiative about eight weeks ago. It is progressing well, and I’d like to take a moment to provide a brief update on the four key components of the program. First, sourcing and demand management, which includes direct materials, indirect materials, and purchased finished goods, the goal of this work stream is to aggressively reduce acquisition costs and minimize waste. I am pleased with the progress made to identify the opportunities, but more importantly I am pleased with the strategies already being implemented to deliver savings in 2023 and beyond. The implemented strategies and tools will be iterative, not just for 2023 but for years to come.

Second, we are making progress on organizational structure redesign and to improve the efficiency throughout the business. We are assessing structure, stands, layers and activities. We have already taken actions to de-layer parts of the organization. As this work stream continues, we will further evaluate the structure, stands, layers and activities to reduce costs and deploy resources where needed for growth and to fill gaps. Third, network rationalization and operational excellence, which includes the optimization of our manufacturing footprint and supply chain. This is a focus for the management team as we move further into 2023. Improving our manufacturing efforts to more efficiently operate will greatly benefit us as we work to right-size the business and ensure the return on capital invested is being maximized.

Due to the complexity of this work stream, we are carefully assessing the options and phasing; however, we have already made adjustments in parts of our business to improve service, output, quality, and in-year cost reductions. Lastly, our commercial excellence and product profitability enhancement portion of the program is in its early stages. The primary objective for this component is twofold: one, to ensure that the price we charge for our products and services reflect the value provided; and two, expanding our product portfolio to broaden our offering. We have already begun to adjust our pricing to reflect the value of our services and offering. Overall, the operating model realignment program is on pace to achieve $30 million of benefit in 2023 and exit the year with approximately $100 million run rate of profit improvement.

We are where we expected to be at this stage and encouraged by the path forward already identified in the quarters ahead. With our performance in Q1 and the advancement of our operating model realignment program, we are refining our guidance for 2023. Alex will talk more about the drivers contributing to these revisions in our guidance, but I’d like to briefly talk about the outlook for the remainder of the year at a high level. The upward revisions to our guidance are supported by our confidence in our performance thus far in 2023. To reiterate, our patient direct segment has continued to outpace the market growth and expand margins. Our medical distribution division continues to strengthen. Our operating model realignment program is on track.

We will continue to work through de-stocking of PPE and our exceptional cash flow generation allows us to be nimble in today’s macroeconomic environment. I’m excited about what the future holds for Owens & Minor and we look forward to updating you on the progress through the remainder of the year. With that, I’d like to turn the call over to Alex to discuss our financial results in greater detail. Alex?

Alexander Bruni: Thank you Ed. Good morning everyone. I’ll begin by providing an overview of our financial results and the primary factors that drove our performance in the first quarter of 2023. Following that, I’ll delve into our revised expectations and assumptions for the full year outlook. Finally, I’ll discuss our key guidance assumptions and cadence for the remainder of the year. Starting with our first quarter results, our revenue for the quarter was $2.5 billion, which was higher than anticipated due to stronger sales in medical distribution and outperformance in the patient direct business, driven by solid results from both Apria and Byram brands. On a pro forma basis, our top line declined by 6% versus prior year, but this was largely due to the notable tailwind in the first quarter of 2022 from COVID-related sales in our product and healthcare services segment.

Additionally, we continued to experience some pressure on sales during the quarter related to customer inventory levels. Consolidated top line results were relatively in line with the fourth quarter of 2022. First quarter gross margin was $497 million or 19.7% of revenue compared to $373 million or 15.5% of revenue in the first quarter of 2022. The gross margin expansion was driven by continued patient direct sales growth and the power of combining Apria and Byram, as well as margin expansion in our medical distribution division partially offset by the impact of lower PPE sales from our global products division. Our distribution selling and administrative expense for the quarter was $449 million, making up 17.8% of revenue. This expense increased by $179 million in the quarter primarily due to the costs associated with servicing patient direct sales growth, including the Apria acquisition.

GAAP operating income for the quarter was $9.8 million and adjusted operating income was $47.7 million, ahead of expectations for Q1. Adjusted EBITDA was also ahead of expectations for the quarter at $109 million, with a margin of 4.3%. As I just discussed, the revenue and margin performance were key drivers in achieving these results. In addition, as Ed mentioned, we’re also on pace to achieve the $30 million adjusted operating income contribution for 2023 from our operating model realignment efforts; accordingly, we’ve raised our guidance for adjusted EBITDA, which we’ll discuss later in the call. Interest expense for the quarter was $42 million and the GAAP effective tax rate was 27.7%, both in line with expectations. Our GAAP net loss for the quarter was $24 million, or a loss of $0.32 per common share.

Adjusted net income for the quarter amounted to $3.6 billion or $0.05 per share. On a segment, products and healthcare services first quarter revenue was $1.9 billion, which represents a 10.2% decline versus the prior year due to tailwinds in the first quarter of 2022 driven by higher sales from COVID-related products. Looking at the patient direct segment, we had another quarter of strong results. Once again, we saw growth across nearly all key product categories. Patient direct accounted for $607 million in revenue during the quarter, representing growth of 10.4% versus the first quarter of 2022 on a pro forma basis. Shifting gears, let’s look at cash flow, the balance sheet, and our capital structure. In the first quarter, we generated $158 million of cash from operations.

Our business is capable of producing strong cash flow results, which is evidenced by the past few quarters. As patient direct becomes a larger part of the overall business and as we continue to optimize working capital, we expect to produce significant operating cash flow that will be used for debt reduction and reinvestment in the business. To that end, we paid down $117 million of debt during the first quarter, bringing total debt reduction to over a quarter of a billion dollars since the finalization of the Apria acquisition. At the end of Q1, our total debt was $2.4 billion. We remain focused on de-levering and strengthening the balance sheet as we progress toward our long term leverage target of two to three times. I’d now like to discuss our improved guidance for 2023.

We are raising our revenue guidance to $10.2 billion to $10.6 billion, representing an increase of $100 million at the midpoint versus previous guidance. This reflects the encouraging trends we are currently seeing within our patient direct segment and medical distribution divisions. We’re also increasing our adjusted EBITDA range to $540 million to $590 million, reflecting an increase of $45 million at the midpoint versus prior guidance, which reflects stable margins on the improved expectations for the top line an inclusive of the modifications to our adjusted EBITDA definition, as detailed in our April 17 8-K. Finally, we’re increasing the bottom end of our adjusted EPS range from $1.15 to $1.30 to reflect Q1 performance. The new range for adjusted EPS is $1.30 to $1.65.

We remain enthusiastic about the outlook for the patient direct segment as well as the opportunities in the products and healthcare services segment, and the overall operating model realignment while remain cautious around the outlook for PPE for the remainder of the year. As we think about cadence for the year and as previously discussed, our earnings will be heavily weighted to the back half of the year, and it’s reasonable to expect about 85% of earnings in the back half due to traditional seasonality, acceleration of the operating model realignment benefits, and anticipated easing of de-stocking later in the year. Overall, we’re pleased with the results from the first quarter of the year and are excited about where the company is heading.

Before turning the call over to the Operator for Q&A, I’d like to thank all of our dedicated teammates for their efforts in enabling Owens & Minor to provide the highest quality of service to our customers. With that, I’ll now turn the call over to the Operator for questions. Operator?

Edward Pesicka: Actually Operator, before we start – this is Ed Pesicka. I would like to personally on behalf of all of our teammates extend our thoughts and prayers out to the family of Gil Minor. Gil passed away earlier this week. Gil was our Chairman Emeritus and long time CEO of Owens & Minor, and his family is a namesake of Owens & Minor. Over Gil’s life, he made a positive impact on so many people, and it’s great to know that his impact will continue into the future. With that, I’ll turn it back over to the Operator so we can begin Q&A.

Q&A Session

Operator: Thank you Mr. Pesicka. We will begin the question and answer session. Your first question comes from the line of Kevin Caliendo of UBS. Please go ahead.

Kevin Caliendo: Hi, thanks for taking my question. I wanted to talk a little bit about the products and healthcare services business. It’s nice to see the progression there and the progress. You talked about the visibility you had last quarter in terms of PPE inventory, ordering and the like, and this week we’ve had sort of mixed messaging from some of the public companies who compete or work in this sector. Can you talk a little bit about what you’re seeing in terms of utilization and demand – is it changing by geography or customer, and where we sit in terms of your line of sight on PPE inventory levels and reordering?

Edward Pesicka: Sure, so there’s really a couple parts to that question. One is on utilization within the hospitals. We are not seeing the utilization slow down as we do our checks with hospitals, and I personally go out to visit those hospitals. Probably one of the products across the portfolio where utilization is slower–or I’m sorry, slowed down slightly, is N-95s, but if you look at it across the board, utilization we believe is now consistent with where it was pre-pandemic level, if not slightly elevated from that because of the protocols that are in place, so that’s what we’re seeing through conversations with our customers as well as personally visiting them. On the de-stocking side, we’ve done a couple things.

One is obviously we’ve done some checks with the market as well as had some outside help getting some checks on this, and I think it’s still consistent with what we said last quarter, is the fact that we still believe de-stocking is going to continue to occur through the first half of this year, and it will start to come out in the back half of the year. That’s where we’re seeing it. Again, back to the regionality or regional of this, we’re not really seeing that. Again to recap is we’re seeing PPE usage in hospitals above 2019 levels, and that’s actually the usage in the hospital. We see the de-stocking continuing through the front half of the year and then easing in the back half of the year, and that’s really what we’re seeing in the market today.

Kevin Caliendo: Okay, that’s helpful. If I can ask a quick follow-up, can you just frame for us the risk of the FDA action, like what’s a worst case, what’s a best case, and what have you assumed in your guidance around this, and any potential impact from it?

Edward Pesicka: Yes, I think–obviously we’ve got our disclosure that we have in the 10-K that we filed this morning, and really what we’re doing right now is we’re just going to continue–we’re continuing to work with the FDA on this. We’re going to work with them aggressively, and the fact that we want to work with them to address the issue during the process–again, we are–our primary focus here is around customer safety and transparency, so it’s a fluid process and that’s where we are on it right now.

Operator: Thank you. Your next question comes from the line of Michael Cherny of BoA. Please go ahead.

Michael Cherny: Good morning, thanks for taking the call, and congratulations on a nice quarter. Maybe if I could unpack the guidance changes a bit as you think through, maybe in particular on EBITDA – I think the EPS contributions are similar. Relative to the $30 million of operating expense savings or improvement savings, how does that factor in, in terms of realignment costs that get baked in, and where will you be exiting the year on some of those realignment costs and that $30 million as you essentially run rate into ’24 and beyond?

Edward Pesicka: I think the question at a high level is–so the expectation we have is to get a minimum $30 million in 2023, actual savings to our adjusted operating income. We expect to exit the year at least at $100 million run rate going into 2023–I’m sorry, 2024. Costs associated with realignment would be in exit and restructuring costs in the P&L, but that’s where we expect it to be from a dollar standpoint this year and there’s nothing coming off of that, and then going into 2024 on a run rate. I don’t know if that answers the question exactly.

Michael Cherny: No, it does. It’s helpful in unpacking the pieces on the guide change. If I could just throw in a second one here, maybe building on Kevin’s first question a bit, what do you see right now in the competitive side of your market, both I would say on core hospital distribution as well as on the patient direct side, and where do you see OMI’s strength shining through versus other opportunities you have to pick up over time?

Edward Pesicka: Sure, so I’ll take the two different segments. In the product and healthcare services segment, we see it continue to be very competitive. We recognize that customers, and that being the IDNs and the hospitals, are struggling from a financial standpoint and they’re looking for ways to help them with reducing labor costs, reducing overall costs and putting additional technology in place that can help them do that. We’re also seeing them looking to have potential more choice on what product and offering that is out there for them so they have more flexibility, so that’s what we’re seeing in that sense. I think a lot of the things we do within our medical distribution business fit into those categories.

I’ll move onto the patient direct business. In our patient direct business, look – we continue to see the fact that what our customers are looking for, in that business it’s really three different customers, it’s really the aspect of the customer being the patient, the provider, as well as the payor. When we think about the patient, the provider, one of the things that they’re looking for is to continue to provide value to them, and one of the ways we do that, and I think the numbers really just prove that out, they’re looking for a commercial model that is comprehensive, focused around those three things – the patient, the provider, and the payor. They’re looking for technology to make their life easier, and we’re doing that through technology that helps the patient, whether it’s reorder, check their account, do that much easier.

Then really, I think the last thing is they’re looking for ways to, again, tie all that together, and I think that’s what our patient direct business. When we added on Apria on top of our Byram business and you put those together, it really strengthened those key things about, one, our proven commercial model, which now we have across the entire business that is comprehensively focused on the patient, provider and the payor; and then really, the technology that continues to advance and makes it easier for them. But ultimately, we see the patient direct marketplace growing at a rapid pace really because of demographics, the increase in home treatments, and really the acceptance of patient care.

Operator: Thank you. Your next question comes from the line of Daniel Grosslight of Citi. Please go ahead.

Daniel Grosslight: Hi guys, thanks for taking the question. The products and services business had a pretty significant beat relative to the street’s expectations, and some of the directional commentary you gave on the prior earnings call, it seems like PPE de-stocking is kind of going as you had expected, so I’m curious if you could just spike out some of the sources of strength, other than PPE de-stocking going as you expected, that led to the significant beat this quarter.

Edward Pesicka: Sure. I think one of the things we talked a little bit about, and I did in my prepared remarks about the org redesign and how we’ve already taken some costs out and de-layered the organization. That came out early in the first quarter and that was primarily part of product and healthcare services segment. That’s one aspect of it. Two is–again, I’ll go through the operating model redesign, some of the stuff we’ve done with the network rationalization and operational excellence again was focused primarily in product and healthcare services, which enabled us to actually take some cost out of the operation while at the same time revenue was actually better than we had anticipated. I tried to signal that in the fact that when you look at our product and healthcare service and you look at the medical distribution division, when you pull out the PPE distributed products year-over-year, we grew that business in the same store sales in the mid single digits.

That’s another reason why. Those are the couple reasons primarily in the product and healthcare services associated with the better than–you know, the better than expected performance.

Daniel Grosslight: Got it.

Edward Pesicka: And really, that comes down to strong execution by Andy, who leads that team along with his entire team.

Daniel Grosslight: Yes, makes sense. If you look at the beat relative to the street, it was about $0.14, $0.15 this quarter, and then you’re raising the bottom end of your guidance by around the same amount, $0.15. Can you explain why you’re not raising EPS more given the strength that you’ve seen? Was there any non-recurring items, or perhaps some pull-through from 2Q that may have caused some of the strength this quarter?

Edward Pesicka: I just think from our standpoint, it’s only one quarter in, it’s early in the year. We felt very comfortable raising the bottom based on what we did relative to our internal plan in Q1, so that’s why we took the bottom up. It’s based on some of the things I just talked about, some of the faster growth we’re seeing in our medical distribution business, the costs that we’re taking out in our operating model realignment. Look – I don’t want to overlook the performance of our patient direct business in the first quarter, just a phenomenal quarter in the fact that pro forma grew at over 10%, so again another quarter of double digit year-over-year growth on a pro forma basis. Frankly, virtually every category is growing in double digits outside of really the home respiratory side, which is coming off of some strong tailwinds with COVID last year.

It’s those things, and then the other thing we didn’t really talk a lot about so far is our operating cash flow and the debt pay down, which is going to have an implication and benefit longer term on interest expense reduction.

Operator: Thank you. Again if you would like to ask a question, press star, one on your telephone keypad. Your next question comes from the line of Eric Coldwell of Baird. Please go ahead.

Eric Coldwell: Thank you. I actually have a few and plan to be a bit greedy this morning, if you’ll allow me. First Ed, on the last comment there on patient direct, with every category growing double digits but for home respiratory, I struggle with that math a bit because you’re up–I mean, 10% is great, don’t get me wrong, but if every category is double digits and yet the segment is at 10, home respiratory had to be pretty low. Could you possibly remind us what the size of that is and what the direction was?

Edward Pesicka: Yes, so I think the way to think about it, Eric, if all the other categories are in, we say double digits, anywhere from 10 to the mid to high teens, and you have one category that is down, that’s going to bring the overall down to just north of 10%.

Eric Coldwell: Right, and I’m just trying to get a sense of how much home respiratory is as a percent of your mix last year on a pro forma basis, just to have a sense–

Edward Pesicka: Yes, and that’s something we haven’t gone out and disclosed, is what each category makes up out of the total patient direct revenue.

Eric Coldwell: Okay. Then on the FDA portfolio, heard your comments on the call, went and looked at the 10-Q. I didn’t see any numbers in there, and it looks like there’s a comment that you are unable to reasonably estimate the amount of any possible loss or range of possible losses. I think the question maybe again is twofold, if you could: one, could you possibly size these categories that are affected by not a recall, but the FDA communications; and then two, with your guidance, I’m curious how you treated guidance for potential losses. You say you can’t quantify them in the 10-Q, but I’m curious what you’ve embedded in the outlook, if anything.

Edward Pesicka: Yes, so let me just talk a little bit about it, and obviously we are continuing to work with the FDA to address the issue. This has been a process that’s going to continue, and we’re going to continue to focus on safety and transparency. I will say from a current status–I mean, the reality is from a historical revenue status and even currently, as I stated earlier, the N-95s, which was one of the areas that we talked about, those prospective revenues are probably back to 2019 levels, which are very, very low. That’s the way we think about that. Again, it’s us continuing to work with them on testing, and the reason there’s not a range is it could be zero or it could be something else. We’re continuing to work with them, and it just depends on kind of where we end up with this.

Regarding our guidance, we continue–our guidance continues to assume that our products are–we stand behind our products, they’re great products, and we’re going to continue to move forward with them. But again, we’re working closely with the FDA to make sure that we get through all of this over the next–I don’t know, we can’t even put a timeline on it yet.

Operator: Thank you. Your next question comes from the line of Lisa Gill from JP Morgan. Please go ahead.

John Stansel: Hi, good morning. This is John Stansel on for Lisa. Just a quick, maybe a bit more granular question. I know you’ve changed your methodology around how you’re calculating EBITDA going forward. I think looking at the first quarter, there’s about $11 million of incremental adjustments for stock comp and LIFO. Can you just size how much of the increased guidance is around changes in methodology, and then kind of following that through to the raised guidance elsewhere, how your expectations for margins have changed a little bit, or not at all? Thank you.

Alexander Bruni: Thank you. Good morning, this is Alex Bruni. Yes, so in our guidance, we’ve assumed about $30 million of benefit from the definition change, and–I’m sorry, I kind of missed the second part of your question there. Can you repeat that?

John Stansel: Yes, sure, just how that flows through to the margin assumptions, given the other guidance increases. It seems like you’re probably maintaining them relatively stable, or anything else notable?

Alexander Bruni: Yes, I mean, the guidance change just really–for adjusted EBITDA reflects that definition change as well as the pull-through of the Q1 beat.

John Stansel: Okay, great. Thank you very much.

Operator: Thank you. Your next question comes from the line of Eric Coldwell from Baird. Please go ahead.

Eric Coldwell: I can’t let you off the hook that easy.

Edward Pesicka: Sorry about that, Eric. Go ahead.

Eric Coldwell: Thank you. The last two parter here that I wanted to hit on was the distribution net wins communications and how that was part of the ex-PPE growth in core medical product distribution. I’m curious what portion of your recent wins have fully on-boarded at this point, where are you in ramping some of those wins you were alluding to last year, have there been new wins of size recently, and–I’m just curious if you can give us a better sense of what your ex-PPE growth might have been if your net wins and losses position was neutral, i.e. just natural market growth ex-share capture would be great.

Edward Pesicka: Eric, the mid single digit is same store sales, it’s not any channel slot. That’s just–

Eric Coldwell: Oh, okay.

Edward Pesicka: It’s accounts we had last year versus accounts we had this year.

Eric Coldwell: Okay, I misunderstood. That’s great.

Edward Pesicka: That’s okay. I apologize – it’s a good clarification from my standpoint here. Then the other side of it is of our wins, they are starting to ramp. Our largest win last year just started to generate revenue in December of last year, and in March–I don’t have the final April numbers yet, but on March, it was probably about 80% to what the run rate should be. That was our largest one last year, then the other ones from last year are also ramping, which is also why as we look to the back half of the year in our calendarization, it addresses a portion of that. New wins that are potentially in the pipeline, the reality is our pipeline is as large as it has ever been. We have a dedicated business development team that does an incredible job going out and talking about the value that the Owens & Minor medical division brings in, and that is starting to resonate and has resonated with customers.

We did have another recent one in the fourth quarter which was not necessarily a new win, but it was a customer where we had half of their business and they did self-distribution on the other half of their business – it was one of our very large customers. They liked what they saw from us and our ability, and they’ve now moved away from self distribution and we’ve taken that on, and that’s one that will transition a little quicker. That has started already – I was actually at the facility on the first day when we kicked off the transition about a month ago, so those are a couple examples for it. But look – I mean, the market is competitive and we have to continue to make sure we’re doing everything we can to protect our base business and then continue to grow our share of wallet at those customers and then drive business development, and I would tell you under Andy’s leadership, there is a tremendous focus around that, that continues forward.

Eric Coldwell: Then last one from me, it sounds like there aren’t many in queue here, free cash flow – I don’t believe you guide to cash flow. If I missed it looking at the slides quickly, I apologize; but what is your outlook for free cash flow this year, with and without the patient capex impact, if you don’t mind?

Edward Pesicka: Alex?

Alexander Bruni: Yes, thanks Ed. Good morning Eric. Yes, so while we haven’t guided on cash flow, just a few comments on that. We are pleased with our ability to pay down $117 million here in Q1. We do expect to continue pay down significant debt throughout the year. We did talk about on the last call that we expect operating cash flow to be in line at least with 2022, and the operating model realignment is part of that. We continue to focus in addition the work streams on working capital benefits there, that we think will aid in our efforts here from a cash flow perspective and paying down debt.

Operator: Thank you. There are no further questions at this time. I return the call over to John for closing remarks.

Edward Pesicka: Actually, this is Ed Pesicka, I will close it out. First of all, I want to thank everyone for joining on the call today. Your participation is greatly appreciated and we value your interest in the company. But as I think and look forward, there are a lot of things that we are excited about in the company going forward in the year and as the year continues on, and even beyond that. It starts with our patient direct segment, that it’s continued to outpace market growth. We talk about market growth, but it also has driven significant margin expansions within that segment. In addition to that, our operating–I’m sorry, our medical distribution division, it continues to strengthen, as we talked about today in the prepared remarks and in the Q&A.

Our operating model realignment, I’m extremely excited about that. It’s on track, it’s already taking hold, we know it’s going to ramp in the back half of the year as we gain traction on the initiatives. We’re going to continue to aggressively work through the de-stocking PPE, and what you saw in this quarter was exceptional cash flow, and we expect that exceptional cash flow to continue through the remainder of the year, which enables us to be nimble and deploy capital to both pay down debt as well as invest in opportunities for strong growth. With that, I thank everyone for the time on the call today, and we look forward to talking to you at the end of the next quarter. Thank you.

Operator: This concludes today’s conference call. You may now disconnect.