Good morning ladies and gentlemen and welcome to Owens & Minor's Third Quarter 2019 Financial Results Conference Call. My name is Gigi 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. Chuck Graves. Please proceed, Mr. Graves.

Thank you, operator. Good morning, everyone, and welcome to the Owens & Minor Third 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 on the call today will be focused on financial results for the third quarter of 2019, which are included in our press release we issued earlier this morning. We will also be discussing certain organizational changes which were included in a separate press release. Please note that certain statements made on this call are forward looking statements which are subject to risk and uncertainty. These forward looking statements are intended to qualify for the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements made on this call today other than statements of historical facts are forward looking statements and include statements regarding our anticipated, financial and operational performance. Forward looking statements made on this call represents management's current expectation and are based on information available at the time such statements are made. Forward looking statements involve numerous known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from any results predicated, assumed or implied by the forward looking statements. The company has explained some of these risks and uncertainties in its SEC filing, including in the risk factor section of its annual report on Form 10-K and quarterly report on Form 10-Q. Except as required by law or the listing rules of the New York Stock Exchange, the company expressly disclaims any intend or obligation to update any forward looking statements. Additionally, in our discussion today, we will reference certain non-GAAP financial measures and information about these measures and reconciliations to the most comparable GAAP financial measures are included in our press release and our quarterly report on Form 10-Q. I am joined this morning by; Ed Pesicka, our President and CEO, who will provide commentary on the third quarter results and outlook for the business as well as recent organizational changes. And Mike Lowry; SVP, Chief Accounting Officer and Interim Chief Financial Officer, who will discuss our third quarter results and Jon Leon, SVP and Treasurer. Now, I would like to turn the call over to Ed, who will start things off this morning. Ed?

Thank you, Chuck. Good morning everyone and thank you for joining us on the call today. After spending significant time with our customers, supplier, partners and teammates since joining Owens & Minor earlier this year, it became clear we need to make changes to strengthen the alignment of our organization with the needs and demands of our customers and the marketplace. This morning I announced few changes including; Mark Zacur, as Chief Commercial Officer and Jeff Jochims as the Chief Operating Officer. Our new structure will speed decision-making, enable us to more quickly and efficiently provide the best solutions in the industry and more closely integrate the needs of our customers. Mark and Jeff and our entire team remain keenly focused on serving our customers, and on our ongoing productivity and efficiency initiatives to drive operating improvement for the benefit of all of our stakeholders. In addition, I am pleased to welcome Andy Long to our team as Chief Financial Officer. I have known Andy for many years, including working closely together at Thermo Fisher Scientific. He is a dynamic leader with deep financial acumen and skilled in a wide range of business models, including distribution, manufacturing and services with experience in health care, life science, biopharma and industrial sectors. I also want to thank Robert Snead. We appreciate Robert's long and unwavering commitment to Owens & Minor and his willingness to assist in this important transition. So let me move on to the results and performance of the third quarter. I will provide my perspective on the third quarter performance and Mike Lowry will discuss the third quarter financial results in detail in a few minutes. We had another successful quarter. I'm excited to announce that we had back-to-back quarters with significant sequential improvement. Here are just a few…

Thanks, Ed, and good morning, everyone. Today I'll start with a review of our third quarter financial results and then comment on our outlook for the year. For the third quarter, revenue was $2.4 billion, a decrease of 2.7% compared to prior year. Year-to-date revenue was $7.34 billion, a 0.7% increase compared to last year. Foreign currency had a negative impact on revenue growth of 30 basis points for both the quarter and year-to-date. The decline in the third quarter was from lower Global Solutions revenue partially offset by growth in the Global Products segment. As a reminder, we acquired Halyard on April 30, 2018. Halyard sales from January through April 2019 were $255 million, net of $71 million of intercompany sales. I'll provide further comments regarding revenue a bit later when discussing segment results. Net income for the quarter was $1.2 million or $0.02 per share and adjusted net income for the quarter was $12.2 million or $0.20 per share. Year-to-date adjusted net income was $19.3 million or $0.32 per share. On a constant currency basis, adjusted net income per share was $0.22 for the third quarter and $0.34 year-to-date. Now, let's look at our segment results for the third quarter. Global Solutions third quarter revenue was $2.15 billion compared to $2.24 billion in the prior year. This decline was primarily in our distribution business, partially offset by strong revenue growth in Byram and solid growth in our manufacturing solutions business in Europe. The distribution revenue decline was primarily from customer non-renewals, including the initial impact of the large customer transition that was mentioned earlier this year. We expect this transition will be completed during the fourth quarter, which will be a headwind for the balance of the year and through 2020. Segment operating income for the quarter was…

[Operator Instructions] Your first question comes from Erin Wright from Credit Suisse. Your line is now open.

Great. Thanks. How should we think about the impact from the large customer loss that you previously announced? I guess how much of it was in the quarter? And then how should we think about the quarterly progression of that impact? And when will we fully lap that impact I guess in next year? Thanks.

Yes. Thank you, Erin. So the way we should think about it is, in the third quarter we began -- that biggest business began moving away. That will completely finish out in the fourth quarter and then it will continue to last in through next year. So that's really the way to think about it. What we've done is, we've continued to look at ways not necessarily in the short term to offset the top line, but continuing to drive different productivity initiatives to mitigate the impact on the bottom line of that.

Okay. All right. And then on Fusion5 can you break down what the revenue impact is? And how we should be -- I'm just trying to figure out how we should best model that over the next few quarters here? And how much of it is a timing issue versus not and how we should think about that into 2020 as well?

Yes. So Fusion5 really has a very -- has a minimal impact on revenue. And the way to really think about it is on modeling it is the fact that, we're actually waiting for the government CMS to provide us the data and the information and the reconciliations really for the first group of data that being the episodes of care that we handled between October of last year and March of this year. That should be coming sometime in December potentially. And I think from a transparency we wanted to openly disclose the fact that we -- the timing of that may be delayed. It's already been delayed several times. So that's really what's related to that $0.06 per share. It's really the timing and our ability to do the reconciliation. But going back to the initial part of the question from the top line, it has very -- it has minimal impact from a revenue standpoint on the top line.

Okay. All right. That’s helpful. Thank you.

Our next question is from Lisa Gill from JPMorgan.

It's Anne Samuel on for Lisa. As we look to 2020, I guess, could you just give us a little bit of color on how to think about headwinds versus tailwinds as we build out our models between lapping the Fusion5 and currency? Anything else to think about? Thanks.

Yeah. So I think as you start to think about 2020 on this, and I've already talked about the non-renewal of a large customer that will have an impact for really the first three quarters plus into 2020. But -- and I think when you think about 2020, it's going to be the continuation of looking at driving mix -- from a bottom line standpoint driving mix shift continuing to drive productivity in the business and starting to win business, and recognizing the fact that when we win business, it does take several quarters of time. There is a delay in the lag until that business starts to translate into revenue for us because of the transition time periods. So I think the way to think about that is that larger customer non-renewal continues on through the first three quarters of next year.

Great. Thanks. And then just on the currency. Looking at the full year guide the $0.60 to $0.65, how much currency is being excluded for the full year?

Good. I'll let Mike take that.

So for the third quarter, we had a $0.02 impact with -- from currency. And actually year-to-date, it was that same adjustment. There was nominal foreign currency impact for the first half of the year. And our projections indicate that currency will be about $0.02 or $0.03 a share in the fourth quarter as well and that would be a headwind. But again it is difficult to predict. But that's our expectations at this point.

Okay. Great. Thank you.

Thank you. [Operator Instructions] Our next question is from Robert Jones from Goldman Sachs. Your line is now open.

Hi. This is Jack on for Bob. Thanks, guys. Just looking out to 2020 another one on that, how are you guys thinking about the Byram business, and if you could provide just any detail or numbers around the opportunity there? Can you guys flag that as a good guy this quarter?

Yes. So Byram continues to perform. We expect the business to continue to perform into next year. The benefit of that business has been -- continued to provide top line growth, but also the profile of that that impacts us, because it has -- the mix shift of that business actually helps us overall from a profitability in the company. And then we don't -- historically haven't disclosed individual business units and/or segments of our business individually.

And just a more tactical thing, anything worth flagging just on like commodity, input costs and flu as we approach the end of the fiscal year?

Yeah. So we're anticipating flu to be your traditional flu season here in the fourth quarter. And then the commodity impact that we saw in the third quarter we expect it to be relatively consistent into the fourth quarter. So we don't expect any major significant differences in that between Q3 and Q4.

Awesome. Thank you.

Thank you [Operator Instructions] And our next question is from Kevin Caliendo from UBS. Your line is now open.

Hey, guys. This is Brett Gasaway on for Kevin Caliendo. Thanks for taking my question. Could you comment a little bit on the acute care volume trends during the quarter? A competitor in the market said that, there's some strong utilization coming in 3Q. I just want to get your take on what you've been seeing in the marketplace.

Yeah. From that standpoint, well, first of all thanks Brett for the question. From that standpoint, we traditionally in our business if you look at it you do see a ramp-up in the third and fourth quarter as people get closer to their full deductibles. So we anticipate that and we see that in our base business that – in our acute care business that lift as people get to their full deductibles. So we saw some of that in the third quarter and we expect consistency with that going into the fourth quarter.

Great. Thanks.

Thank you. There are no further questions at this time. I will now turn the call back over to Mr. Ed Pesicka for his closing remarks.

So I want to thank everyone for the time this morning. As I close out very, very pleased with this quarter and the fact that we were able to significantly improve our earnings per share by increasing it by more than 100%. And I don't want it to be overlooked the amount of work that's been done on both the balance sheet and operating income enabling us to drive significant paydown of debt reminding everyone that we paid down $130 million of debt in the last two quarters and generated nearly $200 million of operating cash flow both from working capital management as well as operating profit improvement into the second and third quarters combined, which enabled us to pay down that debt as well as invest in operating initiatives that we have in place. I look forward to talking to everybody after the fourth quarter and thanks for the time today.

Thank you for your participation in today's conference. This concludes the call. You may now disconnect.