Good morning, ladies and gentlemen, and welcome to Owens & Minor’s Q3 2014 Financial Results Conference Call. My name is Destiny and I will be your operator for today. (Operator instructions.) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today’s call, Mr. James Bierman, President and Chief Executive Officer of Owens & Minor. Please proceed, sir.

Good morning, everyone. Welcome to the Owens & Minor Q3 2014 Conference Call. With me this morning are Randy Meier, our Chief Financial Officer; and Grace den Hartog, our General Counsel. This morning Randy will review our financial results and I will then provide some observations on the market and our strategies. But before we begin Trudi Allcott will read a Safe Harbor statement. Trudi?

Thank you, Jim. Our comments today will be focused on financial results for Q3 2014 which are included in our press release. In our discussion today we will reference certain non-GAAP financial measures. Information about these measures and reconciliations to GAAP financial measures are included in our press release and in the Q3 supplemental slide presentation, both of which are posted on our website. Also our call today will be archived on our website. In the course of our discussion today we may make forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Please see our press release and our SEC filings for a full discussion of these risk factors. Finally, we will be participating in the following investor events in Q4: the 2014 Credit Suisse Healthcare Conference on November 12th, and we will host our annual Investor Day on Friday, December 5th in New York starting at 8:00 in the morning. We look forward to seeing you at these events. Thank you. Jim?

Thanks, Trudi. I’d like to call now on Randy Meier for his presentation of the financial results. Randy?

Thank you, Jim, and good morning everyone. I will begin with a review of the Q3 financial results and then provide an update on the international segment. First let’s look at revenues. For Q3 consolidated revenues improved 5% to $2.39 billion when compared to the same period last year. Consolidated revenues benefited from improvement in both segments including 4% growth in our domestic segment, due primarily to our large provider customers as well as the 31% growth in the international segment. Generally speaking about two-thirds of the international segment’s revenues are derived from fee-for-service businesses. In looking at consolidated gross margin we reported $292.5 million for Q3 or 12.26% of net revenues. This quarter-over-quarter improvement was driven by a $14.5 million increase in the international segment gross margins derived from higher fee-for-service business. Gross margins in the domestic segment benefited from manufacturer product price changes and increased sales volume. As for operating expenses, consolidated quarterly SG&A expenses were $231 million or 9.7% of revenues. This $20 million increase over the prior year was driven by expenses associated with serving greater fee-for-service activity in the international segment. In the domestic segment expenses were higher due to the increased sales volume and legal fees. Adjusted quarterly operating earnings were $49.3 million or 2.07% of revenue. This excludes pretax acquisition-related charges of $4.6 million and exit and realignment costs of $9.3 million resulting from the actions taken to support our strategic initiatives in the US and Europe. On a segment basis, quarterly domestic operating earnings were virtually unchanged when compared to the same period last year. As for the international segment, we reported a quarterly operating loss of $1.5 million due to the factors we’ve discussed. On a sequential basis we are seeing improvement as we effectively cut operating losses by 50% in…

Thank you, Randy. Before we turn to the question-and-answer portion of this call I’d like to share some thoughts on the healthcare market trends and the evolution of our strategies. We continue to see the large provider customers dominate the market and we believe we will continue to see them grow, in part through affiliation and consolidation. We believe that our strategic focus on these large provider customers is being validated as that is where we see our strongest growth. Likewise, in the healthcare manufacturing sector, we are also seeing what appears to be an uptick in the pace and size of consolidations, as the larger, more dominant companies are growing through acquisition. The BD/CareFusion transaction announced this quarter is an example of this trend, as is the Medtronic/Covidien deal announced earlier this year. Some of the same forces driving provider consolidation are also driving manufacturer consolidation. We believe many of the benefits we have seen on the provider side will also be realized by these consolidating manufacturers. These consolidations will drive efficiencies in the market and will give us the opportunity to expand our service offerings to these customers. Our strategy of partnering with the leading providers is also true of our manufacturer customers, as we play a critical role in their supply chain. Just as we have worked with providers to develop efficiencies and bring innovation to healthcare logistics, we will do the same for our manufacturing customers with whom we’ve had strong relationships for many years. After all, we are unique among logistics providers in that we are focused solely on healthcare. Now turning to our strategic developments, we are very pleased with the strong top line growth. We have not seen these growth rates at this level in several years as healthcare utilization has been slow…

(Operator instructions.) Your first question comes from Robert Jones of Goldman Sachs. Your line is now open. Stephan Stewart – Goldman Sachs: Good morning, guys, it’s actually Stephan Stewart in for Bob. I just wanted to touch on the 2014 guidance. It sounds like you’re not at the position to give an update today just given the two acquisitions. I guess what about the acquisitions makes it so hard to predict what the quarter will turn out to be just given two months left in the quarter?

Hi Stephan, this is Randy. I think we’ve got a very good handle on what we’re doing in terms of the execution of the integration and the prospective timing of the close. However some of the specifics and the timing of when we take those costs and charges are still a little bit up in the air relative to just the 30 days that we’ve got under our belt. So we felt that putting off the specific guidance and the clarity around year-end results and into next year, we’d give you a little bit better color in about another six weeks or so. So that’s why we thought it would be prudent for us to just give you this guidance. Stephan Stewart – Goldman Sachs: Great. And just on utilization, we’ve seen providers report a pick-up in volumes, and you guys have been pretty clear that the ACA had not factored into this year’s outlook. Can you give some update on what you’re seeing there and how long you think it usually takes before you start seeing any benefit?

Well, I think as we referred to we were pleased to see another quarter of continued growth domestically. The components of that growth though I think are a little more complex than just pointing to the Affordable Care Act. I think there is an impact, and I think as time evolves there’ll be studies to validate that increased access to the market, healthcare services, is a component of the growth. But I think there’s also a component due to an improving economy; I think there’s a component that’s due to the fact that healthcare demand was pent up for a period of time and that you can defer elective procedures for a period of time but eventually you tend to move towards having those procedures done. So I think there’s a combination of things that are driving the improvement that we’ve seen. I think the more challenging issue is the sustainability of that and we look forward to having some discourse with all of you and sharing our views at Investor Day as to how we factor what we’ve seen this year into our outlook for 2015. Stephan Stewart – Goldman Sachs: Great, thanks for the questions.

Thank you. Your next question comes from Robert Willoughby of Bank of America. Your line is open. Robert Willoughby – Bank of America : Hay Jim, you mentioned that the manufacturer consolidation may present some incremental opportunities for you. Can you educate me on that? I’m not sure I necessarily follow the logic to why the opportunities are better than where they’ve been before.

Absolutely, Robert. So what we’ve seen over a period of time, and we’ve chatted about this with you and your colleagues in the past, is an increase in the interest in large manufacturers in looking at new ways of approaching their supply chain. And the motivation obviously is that they are getting compressed in margin; some domestically are seeing flat top line growth and so they’re looking now more aggressively at a cost structure and different ways to address that. Although we’ve seen a pickup in the interest and discussions and the acknowledgement that we have capabilities that can help, we’ve stopped short at actually seeing a catalyst for change. And I think as we reflect on what’s going on, and particularly as we compare it to what we saw on the provider side, that this consolidation play could really create a situation where there’s now a catalyst for change. I think intellectually we’ve answered the question and demonstrated the benefit. Now we’re at a tipping point where there needs to be a motivation to make that move, and I’m thinking in some instances the consolidation or the prospects of consolidation will cause some of the manufacturers maybe to move a little quicker. Robert Willoughby – Bank of America : And you know, I guess I wouldn’t argue with that. Have you had dialogs with any of the major players that are in process to that you can point to? And if so how quickly can something flow through the model? I would assume this takes a great deal of time.

Without going farther than maybe my colleagues would be comfortable I would say yes, we have had conversations with a broad array of major manufacturers in the marketplace. I think the interest in our offering is significant. Again, when you compare us to the domestic competitors who are basically manufacturers who distribute as a way to expand their channel, we offer a non-threatening alternative to the manufacturer community and we think and have heard that that has significant appeal. In terms of how quickly amounts when a transaction is reached can actually flow through our results, that’s pretty hypothetical because we’d need to know exactly what the service and the opportunity is, size and scale to estimate that. But as more and more of these particularly position-preference type manufacturers look seriously at their supply chain there’s going to be more pressure to make changes and improvements quicker; and we feel very comfortable with the infrastructure that we’ve built to help accomplish that. Robert Willoughby – Bank of America : That’s helpful. And maybe lastly how are you positioned with the Kimberly Clark spin? I assume you are a distribution partner for them. Do you anticipate that relationship changing in any way, shape or form?

Kimberly Clark has been a long-time customer of Owens & Minor and we are excited about continuing our relationship with the old Kimberly Clark and expanding our relationship with Halyard. I think again we provide a great opportunity for Kimberly Clark to efficiently get their product into the marketplace. The transaction with Medical Action is an example of expanding our capabilities to service customers exactly like Kimberly Clark to get their product in a unitized fashion packaged and delivered within the four walls of a hospital. Robert Willoughby – Bank of America : That’s great, thank you.

Thank you. Our next question comes from Lisa Gills, JPMorgan. Your line is open. Lisa Gill – JPMorgan : Hi, thanks very much. First is a question for you, Randy: if I look at the tax rate for the year, I think you’re guiding to 44%. Thus far it’s been about 40% as we exit Q3. What is going to be the big driver in Q4 of the tax rate?

Yeah, hi Lisa, how are you and a great question. You know, if you look at the accumulated exit and realignment costs particularly with some of the actions we took in Europe, that’s really what’s driving the increase in tax rate. Once we get these costs behind us we should continue to see a drop down to what our sort of historical tax rates have been. But the increase from the first half of the year to the second half of the year is being primarily driven by the significant exit and realignment costs from Europe. Lisa Gill – JPMorgan : Great. And then Jim, you talked about domestic revenue up 4%, it’s the best you’ve seen in a long time and primarily growth from large healthcare providers. Can you help us dissect the growth between the large healthcare providers in your book of business versus the small guys? Is it that they’re growing twice as fast; is it only marginally faster would be my first question. And then secondly your margins were flat year-over-year. Can you maybe talk about the margin differential between the two and what you’re seeing as far as what they’re buying and the opportunity for once you get the kitting business some of those opportunities in some of these larger customers?

Yeah, Lisa, you’ve got a lot going on in that question. Let me try taking parts of it. In terms of the percentage growth, I’m struggling a little bit with the math side of this. I think we are seeing, and we’ve seen this and we’ve talked about this, but we are seeing a continual shift decrease in business with small hospital systems. And some of that is because those systems are being acquired by larger systems. So the impact within our results I would say is significant. I don’t have the math as to whether or not it’s a 10%, 5%, 4% shift in the smaller customers but it is a significant trend. It leads to the essence though of the second part of your question, which is what is the impact on margin. So if you look just at the gross margin the impact of a trend shift is negative, and I think we’ve acknowledged that before and that is intuitive on at least the surface level. What we’ve also talked about, and I think it harkens back to our conversation at Investor Day a year ago, is the fact that the breadth of the services we can offer, incremental services, really are focused at the larger systems. And so even though the baseline offering may be at lesser margin when you look at the totality of the service offering we should be able to close that gap. Now that being said, we’ve seen certain instances and trends in strata of our customers where that thesis is absolutely playing out. That mix shift though has been a challenge quite candidly in 2014 and I think as we sit here now at the end of nine months, and this is a qualitative observation, we expected a more robust gross margin situation for 2014 domestically than we have been seeing. Now we’ll talk further about this at Investor Day in December when we talk about 2015. The last point I would make on this, and again I think you know this well but for others on the call, is the thesis has always been that it is a more efficient delivery system and warehousing system for the larger customers than there is for the smaller customers – not the least of which is that there is a greater tendency for standardization of the products that are available to a large hospital system. So we believe at the operating margin line we should continue to see improvement with this migration. But we’ll have to work through it and there are some trends and some anomalies that we’ve seen that we should chat about in a broader context when we get together at Investor Day. Lisa Gill – JPMorgan : And I appreciate that and I’ll have questions at the Investor Day as we think about how to think about the margins going into ’15, but I appreciate the commentary.

Okay, very good.

Thank you. Your next question comes from Sean Dodge of Jefferies. Your line is open. Sean Dodge – Jefferies: Yeah, good morning, thanks for taking the questions. With the international revenue being up almost $6 million sequentially can you give us a sense of how much that was a result of your stabilization efforts and how much came from the ramping of the three new clients? And then are those three new clients fully ramped now or should we expect some incremental contribution from them in Q4?

Hi Sean, this is Randy. I think you’ve got a couple of questions there, but these are customers that we have been in the process of preparing to onboard for some time so we were fairly aware of them beforehand. Each of the three started being onboarded at various times throughout Q3 so we’ll still probably see some incremental run in Q4. But all three of the customers are onboarded and doing nicely. These three customers are over in what we characterize more specifically as continental Europe, so again contributing to the already-profitable segment of our business over there. And again, we would expect to see some continued growth. We don’t have as much onboarding in Q4 so I wouldn’t expect to see as significant an uptick as we did in Q3, but again, I think as we get into Investor Day we’ll give a little bit more clarity around where we’re positioning Europe for the remainder of this year and into next. Sean Dodge – Jefferies: Great, thanks. And then my last one: with crude oil prices where they’re at now, what kind of baring if any does that have on product price increases over the coming year?

Yeah, that’s a great question, John. Historically we’ve seen in a rising price environment, we’ve seen the manufacturer market react pretty quickly. We haven’t really seen an environment where there have been decreases in pricing in the commodity costs and therefore a corresponding quick decrease in pricing. I think to a large degree the manufacturers have held back in the last several years on increasing pricing and therefore the margins have been squeezed, and one might speculate that the decreases may be relatively sticky as they come. But we’ll wait and see that play out. Great question, though. Sean Dodge – Jefferies: Very good. Thanks again.

Thank you. Your next question comes from David Larsen of Leerink. Your line is open. David Larsen – Leerink Swann : Hi, can you talk about what were the costs were to bring on those large clients in the quarter? And I’m assuming those costs landed in SG&A, is that correct?

Sure. I think when we’ve typically seen onboarding of customers usually we take on some incremental costs in our distribution centers ahead of that to prepare for those customers; and then we also take on some incremental inventory as well ahead of that. And then that begins to work itself through. So we’ll continue to see some costs as we continue to onboard some of these customers through the end of the year. Over in Europe with the onboarding of customers we have the same phenomena where there’s costs incurred ahead of the onboarding just to prepare facilities and do some things. We don’t incur inventory costs over there because predominantly that’s a 3PL situation where we’re not having exposure to inventory costs. Most of that related to the three customers we’ve onboarded is behind us but again, as we take on new customers we would expect to see some of that. David Larsen – Leerink Swann : So those costs should alleviate somewhat going forward, those costs tied to those three customers, which should help the international margin. Is that correct?

That would be correct. David Larsen – Leerink Swann : Okay, great.

David, domestically I think the essence of your question is absolutely correct, and we’ve said during the course of the year we’ve carried excess capacity if you think of it that way with anticipation of onboarding this very significant for-profit customer in the United States. And so as we move forward I think we’ll see a more efficient optimal kind of a structure, but there won’t be dramatic costs that are eliminated from the system. I think the better way to think about it is we’ve been carrying somewhat of a suboptimal cost structure during the course of the year in anticipation of the transaction that occurred in Q3. David Larsen – Leerink Swann : So I think you closed the Stuttgart office and there’s been some staff realignment in the international division, so margin then I’m assuming will improve consistent with your comments you just made, right James?

We’ve done a variety of things in Europe which included the shutting of the Stuttgart office, a number of facility closes, some headcount rationalization and a dramatic change in senior management. And we should begin to see the full impact of that as you go into the latter half of Q4 which again is part of the reason that we, in looking out at guidance we are going to give you some updates at Investor Day related to the full year. David Larsen – Leerink Swann : Okay. And then just quickly on the tax rate, in order to get to a 44% adjusted rate I’m looking at a like a 54% tax rate in Q4. Is that consistent with your internal plan?

That’s what we I think captured in our comments, our prepared comments – the quarter at 53.8%. So you’re right on the money at 54%. David Larsen – Leerink Swann : Okay, and then just my last question: can you maybe talk a little bit about the ArcRoyal acquisition and what sort of top line impact there’ll be toward your business? And then also Medical Action, will that be a positive earnings contributor in Q4 or will that ramp in the first half of ’15? Thanks, and then I’ll stop there.

I think we’re not sharing the ArcRoyal amounts at this time. It’s a private company and we think that it needs to be better understood within the context of how we and everyone else thinks about next year. The Medical Action business as we said in our prepared remarks, both ArcRoyal and Medical Action combined because of the timing and getting things ramped up, we wouldn’t expect it to have a material contribution to Q4.

I just wanted to add one thing – the 53.8% was a Q3 number. We are expecting the full-year number to be 44.0%, just to create some clarity there. I didn’t want to confuse people with that. David Larsen – Leerink Swann : Okay. The 53.8% was not an adjusted tax amount, is that correct?

That’s correct. David Larsen – Leerink Swann : Okay. So the 44% is not an adjusted tax amount, that’s more of a GAAP – is that correct?

That is a GAAP number. David Larsen – Leerink Swann : Okay great, thank you.

Thank you. (Operator instructions.) Your next question comes from Stephen Ballentine of UBS. Your line is open. Steve Ballentine – UBS : Thanks, good morning. I apologize if I missed this but of the roughly $75 million sequential uptick in the domestic revenues in Q3, is there any color on how much of that came from the one big, new publicly-traded customer in this segment whose name we’re not supposed to mention contributed to that increase? [laughter] I’m guessing most of the sequential increase, is that a safe assumption to make without having to quantify it?

No, I don’t think that’s true. I think it was a nice component but I would not say it was most, and to be honest I don’t think we’re comfortable going any further in parsing that. I think the opening comments talked about good, solid growth in the core aspect of our customer base and that was really the driver for what we saw in the market. Steve Ballentine – UBS : Okay, that’s fair. And just for the 3PL business, I think I asked this question a couple of quarters ago but I’m just wondering, maybe just remind us again what the long-term expectations are for EBIT margins in the 3PL business? And let me just say that obviously you seem to be winning a lot of new contracts and I’m kind of taking a step back and wondering is there any chance you’re maybe being perhaps a touch aggressive on price to win some new revenues and customers; and as you’re getting further into the weeds in this segment maybe it’s just not as profitable as you’d hoped for. I’m just trying to triangulate a lot of contract wins and a lot of top line growth but still red ink on the bottom line. Thanks.

Yeah, Steve, it’s a great question and I think we’re still very comfortable long-term with the broader franchise and what we’re doing in Europe. We continue to see strength in continental Europe as we win new business and as we’ve indicated, that broader part of the business continues to be profitable. We are really working through the specifics with a single customer right now, and that single customer, we’re in the process of renegotiating our agreement with them. And it’s going to be fairly binary – we’re either going to end up with a profitable, sustainable situation with them or we’re going to figure out a way to exit the transaction in a reasonable fashion. Outside of that we continue to see pretty good interest out there, a fair amount of activity. I think Jim’s comments related to what’s going on in the manufacturing side with consolidation, the manufacturing side struggling with new product introductions as well as pricing and their own cost structure, all is providing tremendous opportunity for our manufacturing-facing activities – and that includes the opportunity in Europe as well. So we continue to be positive about our ability to win contracts that will be profitable going forward. We’ve never given any operating margin guidance and certainly as we move in towards Investor Day that’s a topic we’ll begin to look at in terms of what the outlook is for next year. So I guess the answer to that would be stay tuned for Investor Day. Steve Ballentine – UBS : Okay, got it. Alright, thanks.

And there are no further questions at this time. I’ll now turn the call back over to Mr. Bierman for his closing remarks.