Good morning, ladies and gentlemen, and welcome to the Owens & Minor's First Quarter 2019 Financial Results Conference Call. My name is Amanda, and I'll be your operator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference call. [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. Chuck Graves. Please proceed, Mr. Graves.

Thank you, operator. Good morning, everyone, and welcome to the Owens & Minor first quarter 2019 earnings call. I'm Chuck Graves, and on behalf of the team, I'd like to read a Safe Harbor statement before we begin. Our comments today will be focused on financial results for the first quarter of 2019, which are included in our press release. In our discussion, 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. In the course of our discussion, we may make forward-looking statements. These statements are subject to risk and uncertainty 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. Participating on our call this morning are; Ed Pesicka, our President and CEO, who will provide an overview of the business and an update on the progress we're making; and Robert Snead, EVP and Chief Financial Officer, who will provide details on the first quarter results and more insight into our business performance. Now, I would like to turn the call over to Ed, who will start things off this morning. Ed?

Thank you, Chuck, and good morning, everyone. I'd like to thank everyone for joining us on the call today. Robert will give an in-depth analysis of our quarterly results. But I am pleased that our earnings were in line with our internal operating plan for the first quarter of 2019. Today, I want to spend most of the time talking to you about my observations from my first 60 days. Since I joined Owens & Minor in March, this is the first opportunity I've had to talk to you about the company. And I'd like to give you a sense of where we stand today based on what I've seen firsthand, as well as where we are going in the future. I will discuss our customers, our value proposition and changes we are focused on within our company. From day one, I felt the most important thing I could do was to meet face-to-face with our customers, as well as our teammates, and that's exactly what I've done. These interactions have allowed me to have open and honest dialogue on a firsthand basis. In addition, the meetings and conversations have helped me to validate some of our strategies, as well as my initial perspectives. Specifically, the meetings helped me to shape the initial adjustments and actions that needed to be made to the business. We have already made some changes and others will come as I continue to gain more information and insight around the needs of our customers, as well as how we can best service these customers and meet their needs. The main takeaway from these interactions is that we have a great foundation that's based on our broad offering of products, our solutions and our services and I'm increasingly confident in our ability to drive profitable growth…

Thank you, Ed. Good morning everyone. Today, I will provide an update on our first quarter results, including a discussion of segment results and our outlook for the year. For the first quarter, consolidated revenues were $2.5 billion, an increase of 3.7%, compared to prior year. Quarterly revenue growth includes Halyard contributions of $189 million, net of intercompany sales and strong growth from Byram. Revenue growth was partially offset by declining revenue from lost distribution business. The gap net loss for the first quarter was $14.1 million or $0.23 per share and adjusted net income for the quarter was $1 million or $0.02 per share. You may recall that in February, we spoke of very minimal earnings for the first quarter and our results were in line with our expectations. Now let's turn to our segment performance for the quarter. The Global Solutions segment revenues were $2.2 billion, representing a 4.6% decrease compared to the prior year. Results were positively affected by Byram revenue growth and growth in manufacturer solutions offset by decreases in our distribution business. Operating income was $21 million compared to $37 million last year. The decline resulted from lower revenue, ongoing distribution margin pressure, increased warehouse and delivery expenses, and increased expenses to develop new customer solutions. These were partially offset by contributions from Byram. As Ed discussed, we are seeing positive trends in our customer service metrics, which are now at or above targeted levels. While still a headwind year-over-year, we also saw sequential improvement in our distribution operations productivity and we expect that to continue through the year. Turning to the Global Product segment. For the quarter, revenues were $347 million compared to $121 million last year. Revenues for the quarter included Halyard contributions of $240 million. Operating income for the quarter was $7.7…

Thank you. [Operator Instructions] Your first question comes from the line of Steven Valiquette of Barclays. Your line is open.

Great. Thanks. Good morning, guys and thanks for taking the question. So, I guess for us, maybe the results are pretty much in line as you guys described. So I'm just curious for an update on where you stand right now on the approximate percent of SKUs that you're distributing that are self manufactured. And also do you think that will continue to ramp up either throughout this year or over the next couple of years, as well just an update around that whole part of the strategy? Thanks.

Sure. Yeah, when you think about this year, we look at it two ways. We look at it both SKUs, as well as revenue as a percentage of our total revenue and let's talk specifically in the distribution business. There is a plan actively in place to continue to increase the SKUs and increase the portfolio both of our own self manufactured product that being the Halyard brand and the MediChoice brand, and are probably in the mid-teens right now with the expectation to be able to grow that revenue steadily over the next 18 months.

Okay. Great. That's helpful. Thanks.

Thank you. Our next question comes from the line of Robert Jones of Goldman Sachs. Your line is open.

This is Kevin on Bob today. Thank you for taking the questions. Just quickly I am – I know you guys had mentioned number of different factors that are contributing towards the ramp that's impart guidance like deductibles, seasonality et cetera. Which of these items would you say, you have significant line of sight into and which would you say could be more meaningful swing factors moving you between the $0.60 and $0.75 that you guys have outlined for guidance? Thanks.

Yeah. I'll let Robert start and then I'll add the color onto it.

Yeah. So as I mentioned in the prepared remarks healthcare plan deductibles is a big factor. Byram is a big contributor of that that was impacted by that. Their fourth quarter tends to be significantly higher than the first quarter, so that's a one and we have reasonable insight in that based on how revenues are developing through the first quarter. The other one is the seasonality that exists in the business that's a pattern that we can look at historical data to see how that manifests itself. That is driven partly by the flu season, also its impacts our global business not just in the U.S. and Europe as well. The pace of customer on-boarding that I mentioned is another one that we have some visibility into as we've signed some contracts with both our provider solutions business, as well as our manufacturers business. And so as we're on-boarding those, we're expecting that business to be phased and how it's coming on later in the year. And then the next one is our Fusion5 business that we've talked about, that's more in an investment phase and it's more of a fourth quarter event in terms of where that ends up. Little less clarity and where that ultimately shapes up to be, because it's a newer business and we're still, you know, working our way through that, but it's one that's more fourth quarter oriented. And then the last thing, I didn't really talk about in the prepared remarks that is a factor is the commodity price headwinds that we had talked about last year, we saw that impact our results in the fourth quarter, we saw that in the first quarter of this year. There has been some abatement in that in terms of where recent -- more recent…

Great. That's really helpful. And then, just a quick one on free cash flow. I know you guys had mentioned a couple of the working capital items, which should hopefully benefit next quarter. Just at a high level, are you guys expecting to see growth in free cash flow this year? Or any sense of just trends would be helpful there? Thanks. A – Robert Snead: Yes. We are. We focused on working capital management as we've talked about in past calls. This has been something last year that was probably domestic business that we've had. We've expanded our efforts for that globally. So part of the headwind we've had is just getting off the TSAs with the Halyard business. And so that's kind of a temporary issue, an issue that is really getting at driving some of that opportunity as we've gone through some of those transitions here in the first quarter that's given us more access and control over the business. And so we expect to drive working capital through the balance of the year and have that be a positive contributor to operating cash flow for the year.

Thank you. [Operator Instructions] Our next question is from the line of Kevin Caliendo of UBS. Your line is open. And your phone might be on mute. Q – Kevin Caliendo: Sorry I apologize about that I was on mute. Thanks for taking my call. Can you talk a little bit about if you've contemplated doing any kind of asset securitization to help near-term on the balance sheet. Is that something that's necessary or something that is -- could be opportunistic for you? A – Ed Pesicka : Yes. I'll start, and then Robert talk on the specifics. So from that, I think we've constantly, our goal begun to continue to look at different ways to deleverage the balance sheet. I mean additionally different ways to continue to provide more cash and let Robert talk specifically about this. A – Robert Snead: Sure. We have within our credit agreement and ability to do a asset securitization, and we are -- we are certainly looking at that. I think from a -- the main focus of that would be geared towards driving interest savings those types of financings tend to generate lower interest expenses that would result in cash savings for us and then help improve deleveraging. So that's certainly top of mind and something that we're focused on.

And second question this was a little bit more broadly just about sort of the industry dynamics. And some of the checks we've done talking to some hospitals. We've heard that some hospitals are contemplating combining their wholesalers, meaning using their acute care providers to also or to RFP out both the acute care side and also their physician or alternate sites on-campus. Can we talk a little bit about if that's really a trend, and if you guys are positioned to be able to participate in that kind of RFP? I know in scripts you had the entire campus, I was just wondering sort of is that a dynamic that's happening and how you guys are positioned to take advantage of it?

Okay. So absolutely it is happening from spending time with customers. They are looking at their acute care, as well as their ambulatory service centers and the external part of their businesses. And scripts is a great example of how we with our ability to be flexible and provide unique solutions can -- I believe better serving those customers and others out there in that space. It's a different -- it's a similar call point, but it's a different service delivery model. If you just think about it in a basic sense, some of those remote locations don't have loading docks, where the hospital does have a loading dock. And with our ability to deliver and customize a solution, and it enables us to, where I believe is better serve them as that continues to change within the healthcare field. So we are seeing it. It's IDN by IDN specific based on the way they're structured, but we are positioned, I believe very well to be able to serve that as a -- as the industry continues to migrate in that direction.

What percentage of hospital systems do you think are actually moving in that direction?

It's still early on. So right now it's been low, but we're seeing the trend increase.

Great. Guys, thank you so much.

Thank you. [Operator Instructions] And there are no further questions at this time. I would like to turn the call back over to Mr. Pesicka for his closing remarks.

So I want to thank everyone for joining us on the call today. As I mentioned earlier, I'm extremely excited to lead Owens & Minor, as we continue to build upon our company's strong legacy in the healthcare field. Look forward to updating you on the progress in the future. So thank you everyone.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.