Accendra Health, Inc. (ACH) Q4 2021 Earnings Report, Transcript and Summary

Good day and thank you for standing by. Welcome to the Owens & Minor Fourth Quarter and Full Year 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your first speaker today, to Mr. Alex Jost of Investor Relations. You may begin.

Thank you, Operator. Hello, everyone and welcome to Owens & Minor fourth quarter and full year 2021 earnings call. Our comments on the call will be focused on the financial results for the fourth quarter of 2021 and the full year 2021, as well as our outlook for 2022, all 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 during this call we will make forward-looking statements. The matters addressed in the statements are subject to the risks and uncertainties that could cause actual results to differ materially from those projected or implied. 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. 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 on our annual report on Form 10-K. Today, I’m joined by Ed Pesicka, our President and Chief Executive Officer and Andy Long, our Executive Vice President and Chief Financial Officer. It’s my pleasure to now turn the call over to Ed. Ed?

Thank you, Alex. Good morning, everyone. And thank you for joining us on the call today. I’d like to start with a high level recap of Owens & Minor’s exceptional performance in 2021. 2021 was a record setting year for our company. And it all starts with our teammates. Our teammates have continued to leverage our Owens & Minor business blueprint, a blueprint which starts with our culture that is based on our humble mission to empower our customers to advance healthcare, along with the guiding principles of our ideal values. This is then combined with our Owens & Minor business system of continuous improvement and our investment strategy that is disciplined and focused on making the right investments to provide long-term profitable growth. The execution of the Owens & Minor business blueprint has resulted in another successful quarter, the close out to a record year, and furthering positioning our company for long-term profitable growth. So to our teammates, congratulations and thank you for a job well done. If you recall at our Investor Day in May, we presented our long-term strategy to drive sustainable and profitable growth. We presented the strength of Owens & Minor as an integrated healthcare solutions company with a scalable value chain that starts with our Americas based manufacturing from raw materials all the way to finished goods. It then moves to our distribution channel that provides flexibility based on the right balance between technology and touch, and finishes with our broad-based patient direct business to serve the patient in the home. Overall, this provides Owens & Minor with the ability to serve our customers through the hospital and into the home. Based on this, we believe that our scalable value chain strategically positions us to drive robust, long-term profitable growth. 2021 is a great example of our ability to leverage the Owens & Minor business system along with the strength of our unique value chain. So let’s start with the full year 2021. I’m proud to announce that in 2021, we, one, delivered on our 2021 guidance and achieved record EPS and EBITDA. Two, showed strong revenue growth, and three, continue to pay down debt while reinvesting in our business. However, what I don’t want you to miss is the fact that we had a record year even in a market filled with global supply chain challenges, inflationary pressure, pricing anomalies and other headwinds. While these items impacted our industry, it is our unique business model combined with our execution that enabled us to manage through these headwinds. We continue to pull the appropriate levers to maximize service, deliver strong financial results while strengthening our platform for a long-term profitable growth. Again, it all starts with our vertically integrated business model that provides us with the distinct competitive advantage. And that continue to be apparent in the fourth quarter. Our Americas owned manufacturing footprint allows to self manufacture the bulk of our proprietary products which provides capacity flexibility resilient against supply chain pressures and significant fixed cost leverage. In short, our 2021 success was driven by our ability to meet the needs of our customers for these products when others couldn’t. During 2021, we did not just focus on our existing proprietary products, but worked to provide better solutions as we expanded our product categories and made important investments in technology to provide more visibility and drive greater efficiencies for our customers. A great example of this was the launch of our smartcard which stands for supplier metrics and accountability reported tracker and provides our customers with updates on several lay areas that include, but is not limited to the current supply chain situation, commodity market information, supplier backlog issues and possible product substitutions. The visibility that our smartcard provides enables our customers to adjust and advance and better serve their constituents. In 2021, we also published our inaugural ESG report which provides visibility into the performance metrics and achievements that our company supports in the ESG focus. In addition, we launched the Owens & Minor Foundation which is dedicated to impacting and empowering communities by providing support to numerous organizations focused on healthcare, the environment in diversity and inclusion. The momentum from 2021 has continued to strengthen our company, and has enabled our ability to recently announce the definitive agreement to acquire Apria for $1.6 billion, which, upon closing will represent the largest acquisition in our company’s 140-year history. Apria is a leading provider of integrated home healthcare equipment and services and operates in the highly fragmented home healthcare market which is valued at over $50 billion and growing at 6% annually. When combined with our Byram healthcare business, these complementary entities will enable us to better serve the entire patient journey through the hospital and into the home. The closing of this transaction is progressing as expected, and our integration plan is well underway. I am looking forward to welcoming the Apria team to Owens & Minor in the first half of 2022. Now, let me share just a few highlights from our fourth quarter. One, all of our major businesses grew led by patient direct global products and medical distribution. Two, our vertically integrated business model allowed us to offset macroeconomic pressures, while continuing to capture both PPE and S&IP sales. In fact, both are up on a year-over-year basis. And three, we continue to capture operating leverage through our investments in expanding manufacturing capacity, utilizing technology, strengthening infrastructure, and of course, continuous improvement. Well, Andy will do a deep dive on our balance sheet in a moment, I want to discuss one area, that is our improved debt position. Let me take you back in time. Less than three years ago, when I joined Owens & Minor, our net leverage ratio was about seven times. Again, it was seven times. Now at the end of 2021, just three short years later, our net leverage ratio is only 1.8 times. It should be noted that we accomplished this reduction, while still making significant investments in our business for infrastructure, capacity expansion, teammates, and technology just to name a few. We were able to accomplish this due to our disciplined approach to capital deployment and the strength of our company’s free cash flow profile. So while we will increase our net leverage to around four times after the pending close of Apria, we will take the same disciplined approach to pay down debt and will continue to make appropriate investments in our business. And we will continue to maximize the strength of our company’s free cash flow. Our overall current balance sheet will be discussed in more detail by Andy in a few moments. Now moving from 2021 to 2022, I believe that we are well on our way to another successful year, regardless of the current macroeconomic conditions. Accordingly, we are reiterating our previously issued guidance for the full year of 2022 in the range of $3 to $3.50 of adjusted EPS, and adjusted EBITDA in the range of $400 million to $450 million, both of which exclude any 2022 contributions from our pending acquisition of Apria. So in closing, I’m extremely proud of our strong finish to a record year and even more excited about our future, we delivered on our commitments to all stakeholders and took major steps to help ensure the future growth of Owens & Minor. I’ll now turn the call over to Andy for a discussion of our financial results and our expectations for 2022. Andy?

Thank you Ed and good morning, everyone. Today I’ll review our financial results and key drivers for our performance in the fourth quarter and for the full year. And then I’ll discuss our expectations and assumptions for 2022. As Ed mentioned, our team works tirelessly to continue executing on our overall business strategy despite the broader macro issues. I am pleased that we were able to deliver on our guidance for the year, both in terms of results and quarterly cadence. As we entered the fourth quarter, we knew we were facing a very tough compass Q4 of 2020 was the strongest quarter of last year. But I’m very happy we were able to deliver a record setting year while generating great momentum as we enter 2022. Let’s start by reviewing our financial performance. Our total fourth quarter revenue was $2.5 billion compared to $2.4 billion or 4.5% growth versus the prior year. This positive trend resulted from our ability to overcome the continued challenges that COVID has placed on our healthcare system and supply chain. It was driven by continuing strength in our patient direct business and the pass-through of elevated glove costs. It’s important to note that Q4 of this year had one fewer selling date of last year, which had an approximately 1.5% negative impact on growth. Sequentially, revenue was down as previously indicated due to two fewer selling days and a reduction in glove costs pass-through for a combined headwind of approximately $100 million versus the third quarter. However, good business performance led to fourth quarter revenue only being down $35 million sequentially. For the full year, total revenue was up 15.4% to $9.8 billion, compared to $8.5 billion in 2020. From a gross margin perspective, the calendarzation played out as we expect it related to the impact of glove cost pass-through, yielding a gross margin in the fourth quarter of 13.8%. This was a sequential improvement of 70 basis points versus the third quarter. However, this was lower than prior year fourth quarter gross margin of 16.9% which did not have the headwinds associated with glove cost pass-through and was favorably impacted by record levels of PPE sales in the midst of the pandemic. Looking ahead, we expect gross margin to continue to improve from 13.8% in the fourth quarter with the full year 2022 gross margin expected to be approximately 15%. Our full year 2021 gross margin was 15.5%, which was approximately 40 basis points higher than 2020. Our fourth quarter distribution, selling and administrative expense was $267.6 million versus $283 million in the prior year. The reduction was due to timing of certain expenses and productivity gains partially offset by ongoing investments in the business. For the full year the S&A expense was $1.1 billion compared to $1 billion in the prior year. Fourth quarter interest expense was $11.3 million, compared to $17.5 million in the prior year. And for the full year interest expense was $48.1 million, a decrease of 42.3%. Both periods reflect lower debt levels as well as lower interest rates resulting from our debt refinancing in March of 2021. Our GAAP income from continuing operations for the quarter was $42 million, or $0.55 a share, and for the full year was $221.6 million or $2.94 per share, up 112% from $1.39 in 2020. Meanwhile, adjusted net income in the fourth quarter was $61.2 million and adjusted EPS was $0.81 compared to the prior year of $1.14. For the full year, adjusted income from continuing operations was $309 million with adjusted EPS of 81% to a record $4.10 compared to $2.26 in 2020. Versus prior year, the foreign currency impact on EPS for the fourth quarter was $0.02 unfavorable, and for the full year 2021 it was $0.05 unfavorable. On a segment basis, our global solutions fourth quarter revenue was $2 billion, up 3% year-over-year. For the full year, revenue was $7.9 billion compared to $7.2 billion in 2020 representing a 9% increase. Global solutions operating income for the quarter was $18.9 million compared to $22.4 million in the prior year’s fourth quarter. The decline versus prior year was largely due to inflation, primarily in the form of higher transportation and delivery costs, which was partially offset by productivity improvements. For the full year, global solutions operating income more than doubled to $66.6 million compared to $30.9 million last year. The increase was a result of leveraging our fixed costs given our strong revenue growth and improving our operating efficiencies, partially offset by inflationary pressures later in the year. Turning to global products. Our net revenue in the fourth quarter was $629.3 million, an increase of 9.5% year-over-year. On a full year basis revenue was $2.7 million, compared to $1.8 billion in 2020 representing growth of 47%. In the quarter, the revenue lift from glove cost pass-through was approximately $130 million and for the full year was approximately $660 million. Adjusting for the full year top line impact of glove cost pass-through, year-over-year growth was 10%. Operating income for the quarter was $61.7 million compared to the tougher comp in last year’s fourth quarter of $99.7 million as we saw lower capacity utilization as compared to last year’s peak pandemic levels. Global products operating income for the full year was up a very strong 43% to $371.9 million compared to $259.9 million last year. This considerable improvement was the result of greater PPE sales, productivity initiatives, favorable product mix and fixed costs leverage. These items were partially offset by higher commodity prices and rising transportation costs. It’s important to recognize that sequentially as we communicated during our last earnings call, margins in a segment increased from 7.6% in Q3 to 9.8% in Q4 as the unfavorable timing impact related to glove cost pass-through, realized in the back half of the year comes to an end. Overall, I expect favorable utilization, profit and margin rate momentum to carry into Q1 of 2022. Finally, the year-over-year foreign currency impact on revenue was unfavorable $4 million in Q4, unfavorable $19.5 million for the year. The CapEx impact on operating income was unfavorable $2.5 million in the quarter and unfavorable $5.5 million for the year. Moving now to cash flow, the balance sheet and capital structure. For the full year, we generated $124.2 million of operating cash flow as a result of strong earnings, along with stabilization and working capital in the second half of the year. Total debt was now $76 million for the year, and our net debt was $893.9 million as of the end of the year, the lowest level in nearly four years. Net leverage finished at 1.8 times which is below our target of two to three times. Our progress in reducing debt over the last three years has been achieved while we have executed our balanced approach to capital deployment, as we continue to invest in organic growth opportunities. As I transition to discuss our guidance for the year, note that all projections for 2022 exclude the impact of the pending acquisition of Apria. We expect revenue for the full year to be in the range of $9.2 billion to $9.6 billion. This projection reflects an estimated $400 million to $450 million drop in revenue driven by lower purchase costs of externally sourced gloves, and lower nitrile commodity prices being passed on to the customer. You can refer to slide number 4 in the slides we posted to our website this morning for an illustration of this dynamic. After normalizing our revenue for the pass-through of glove cost changes, our 2022 revenue guidance is up about 1% year-over-year. This reflects the combination of continued growth and patient direct, the launch of new products expanding our portfolio and further penetration into industrial, retail and international markets. This growth is partially offset by the completion of our N95 federal government stockpile program, which wrapped up on schedule in December, and the expectation that overall PPE volumes will ease throughout the year. We continue to fully expect the new baseline level to be meaningfully above pre-pandemic levels due to new PPE protocols in the healthcare industry, and expansion of our customer base due to new wins over the last two years. We also assume that elected procedures will stay flat year-over-year. Additional assumptions for 2022 include a gross margin rate of approximately 15%, interest expense in the range of $42 million to $46 million which of course excludes the financing related to Apria and effective tax rate of 24% to 26%. Our range of adjusted net income for 2022 of $3 to $3.50 per share assumes FX rate as of December 31, 2021 and is based on a full year average diluted share count of approximately 77 million. This guidance also includes an assumption that we will be able to continue to effectively manage inflationary pressures. It’s worth noting that our solid momentum exiting 2021 sets us up for a strong first half of 2022. Finally, we expect adjusted EBITDA for 2022 to be in a range of $400 million to $450 million. Again, this excludes the benefit of the Apria acquisition. Please be aware that these key modeling assumptions have been summarized on supplemental slides filed with the SEC on Form 8-K earlier today, and are posted to the investor relations section of our website. As a reminder, we’ll begin reporting under two new segments when we report our first quarter results. Those new segments, our products and healthcare services and patient direct. Now a few items regarding the pending Apria acquisition. We continue to expect that the transaction will close in the first half of 2022. Although this is primarily a growth driven acquisition, we continue to identify cost synergy opportunities and will provide updates as this gets finalized. In addition, we continue to expect the acquisition to contribute annualized revenue of at least $1.2 billion and annualized adjusted EBITDA in excess of $230 million. The transaction should be modestly accredited in 2022, subject to final purchase price allocation, financing terms, and a review of potential tax benefits. We intend to provide greater details once the deal closes. As I reflect on 2021, the events of the year played out very differently than what we envisioned when we issued our guidance at the beginning of the year. The pandemic didn’t end, the global supply chain crisis began, and inflation accelerated through the end of the year. I’m proud of our teammates and how they responded to these obstacles and their dedication to providing the highest levels of service to healthcare providers across the industry during another challenging year. I’m also very pleased to be part of an organization that continues to find ways to deliver on its commitments. As we build on the success, and with the investments that we’ve made in our future I’m excited about the year ahead of us as we continue on the path to achieving our long-term vision. I look forward to sharing our progress with you on these important initiatives and I look forward to welcoming our new Apria teams. At this point, I’ll turn the call back over to the operator to begin the Q&A session. Operator?

Thank you, sir. [Operator Instructions] Our first question comes from the line of Michael Cherny from Bank of America. Please go ahead.

Good morning. Congratulations on a strong into the year and obviously the reiterate guidance. I want to dive in a little bit on how to think through not only 2022, but beyond especially given the long-term trajectory that you have. And you mentioned 15% gross margins are baked into this year’s guidance as we think through whatever the future is in a post-COVID world new normal and PPE, is this a gross margin level that’s sustainable?

Good morning, Mike. Yes. This is Andy. So to address that, it’s great to be able to reaffirm 2022 guidance that we established in early 2021. And I think the margin assumptions really reflect two things. One is not just the absolute value of 15%. But we’re moving past the quarterly volatility that we had in 2021. So it’s nice to have that volatility behind us due to glove costs pass-through, I think the 13.8% gets us in the right trajectory from where we were in Q3. So we’re moving forward in Q4, and not just in total company, but specifically with overall products, the increase in margins in that segment. And I think we’ve got really strong momentum as we go into 2022. And I do think that 15%, you’ll see less volatility quarter-by-quarter in 2022 and I think that is a much more reasonable kind of long-term rate going forward.

Got it. And then just it guess diving into that a bit further, and especially given the complexity and moving pieces you had around the glove pass-through this year. Two part question, I guess. One, are you done on the glove pass-through side and two, when should we start to see what your normalized product margins will be like, based on the moving pieces you had in 2021 time that glove pass-through?

Yes, so Mike part one of that question is, I think the very volatile quarterly swings that we saw in 2021 will be behind us. So, I do not expect a very large quarter-to-quarter swing. So I think that’s that is behind us. It’s another way of saying that price movements and cost movements will largely be more closely joined than they were in 2021.

Got it. Thank you.

Thank you. I see our next question comes from the line of Kevin Caliendo from UBS. Please go ahead.

Thank you. Just to expand on that on Michael’s question a little bit. How should we think about the cadence for the year then? Should it look more like a traditional normal cadence first half growing into second half in terms of EBIT and revenues, just an outline of how you think 2022 progresses and is that the sort of new guideline for 2023 and beyond in terms of cadence you’re talking about a more normal quarterly progression.

Good morning, Kevin. It’s Andy again. So I’ll start on this one and just say, I don’t think 2022 is going to have the typical cadence that we experienced pre-pandemic. So historically, first quarter was our weakest quarter and then we ended with the fourth quarter really on a high note, typically based on end of the year flu and as elective procedures peaked in the fourth quarter. So I don’t see that typical seasonality playing out for 2022 and specifically, I see the very strong momentum that we have exiting the fourth quarter carrying into the first quarter. And I do see a strong first half for the year which is very unusual for this business. Again unusual being compared to pre-pandemic cadence. So I do see the first half being strong.

The other thing I’ll add to that on the first half is, we still see a buildup of elective procedures. And we’re starting to see that here in February come through. So our elective procedures in February are starting to ramp up. I know from talking to a lot of the customers, they do have pent up demand. And some of that will flush through earlier in the year versus like Andy said, a traditional year where you have less than the beginning of the year and more in the back half year, that’s going to be another impact in 2022.

Alright, that’s helpful. I guess the question that a lot of investors have is, how much visibility do you have on the product side? We see the macro slowdown in mask usage. We hear some manufacturing peers say that demand is off 50%. I know yours is much more customer specific and contract specific. But how much visibility do you have into demand on the product side going forward? Is it 6 months, 9 months, 12 months, 2 years? Any color on what I think would be helpful?

Yes. We do have long term visibility on and that’s for a lot of reasons. I think first and foremost during the pandemic, and even into this year, we continue to sign long-term contracts, committed contracts with many, many of our customers. In addition to that, I think if you just look at our performance in the fourth quarter relative to potentially others, where we actually saw strong performance in our product sales, and partially it really comes down to what we’ve been able to do during the pandemic, it comes down to the fact that we still see protocols at much higher levels than what they were pre-pandemic. We continue to see customers looking to get rid of products that are in their emergency use authorization, quality products, for medical grade quality products. For all those reasons, we see that continuing out there. The other thing, I want to focus a little bit on some of the expansion we did over the last year by taking those PPE products and putting them into new markets. So a great example of that is our retail pop and go gloves, or taking the same gloves that we’re making on our factories, putting them in different packaging, focusing on the retail market. We think about the long-term growth, we’re seeing the ability for us to start to grow internationally, again, when in the height of the pandemic in 2020 and even into 2021, we were focused on serving the US customers, specifically when we weren’t allowed to export product made in the US. So we’re seeing that as a growth opportunity in our products business. In addition to that, taking products and using it our specialty gloves and specialty products that we’ve expanded into. So we have a lot of different factors impacting why we continue to see strength in our product. It comes down to higher than past protocols. It comes down to the agreements and contracts we have with many of our customers. It comes down to expansion of those products into new categories, into new markets, as well as the continued high demand for it. In addition to that, I think in our products, what we try to model in is the fact that elective procedures, many of those same S&IP products that were used as part of the PPE and pandemic are also used in needed elective procedures. In addition to that the raw material we use, and we make that is used either for wrap, drapes, or traditional PPE, some of that’s going to be redirected into wraps and drapes and other things as elective procedures accelerate. So we have visibility out longer term into that and it’s also those are a lot of reasons why we have such a strong fourth quarter relative to maybe others in the market or market conditions. And why we’re continuing to see the strength going in through 2022.

And Kevin, this is Andy, just to one further point on it was just looking at the global products revenue performance sequentially, Q3 to Q4 again keep in mind. So what we’re reporting is actually a decline in revenue. But again, don’t forget to adjust for two fewer selling days in global products each day is worth about $10 million. And again, the global cost pass-through in Q3 was 170 million. The glove costs pass-through in Q4 was 130 million. So you’ve got those two sequential headwinds to adjust to get to a true underlying rate there and growth and the underlying great rate when you pull this out as around 2% for the fourth quarter.

That’s all really, really helpful info. Thanks guys.

Thank you. I see our next question comes from the line of Jailendra Singh from Credit Suisse. Please go ahead.

Thank you. And good morning, everyone. Actually, I want to get some clarification gloves cost pass-through. You had $660 million impact in revenue in 2021. Want to make sure that was it still net neutral to profitability as you expected for the year? And then for 2022 guidance when you include $235 million revenue impact I know you said that it’s kind of match with cost. So no EBIT impact, but how should we think about the like cadence throughout the year? Should we expect that Q1, Q2, Q3, Q4 very similar impact from revenue point of view?

Sure Jailendra. It’s Andy. So in terms of the glove cost pass-through, you’re absolutely right. Top line impact of $660 million in 2021 year-over-year. I would say the margin impact as we ended the year was probably just slightly favorable. And again, that’s a timing issue between 2021 and 2022. But again, the timing issue is small enough that it’s not going to throw off our guidance for the year. I don’t think it’s going to have a material impact on the quarterly cadence, but just so you’ve got that as a data point. And again in terms of how I see the cadence of the calenderization as we move into 2022, I think the very strong momentum that we have, particularly in global products right from 7.6% margin in Q3 to 9.8% margin improving in Q4. And I see that momentum continuing into Q1 of next year. And that momentum far overshadowing any of the timing effects that I talked about on the glove cost pass-through. So relatively more stable margins quarterly in 2022 than what we saw in 2021.

And then my two part question on your 2022 outlook, which is unchanged on what you shared at your investor day last year. Andy you mentioned this about that some assumptions might have changed underlying maybe flash out a little bit like, what were those expectations, what individual items change in terms of redemptions for 2022? Was the year back? And the second part is that if you can give some color around what is reflected near the lower end of your guidance, rain versus higher end, just trying to understand the swing practice captured in some of the items there.

Yes Jailendra happy to take that. So just maybe a quick refresher on what has gone into our 2022 guidance, and what’s the same and what’s changed. So just real quickly ticking through the revenue drivers. It’s portfolio expansion. And that includes the debt, for example, it’s the glove capacity that comes online at the end of Q1. So that’s continued to be unchanged. It’s our expansion into adjacent markets like industrial and retail with gloves its expansion and continued growth internationally on the top line, filling top line growth, its continued growth in patient direct, immediate strong growth of patient direct. In terms of electives, we’ve assumed electives are flat year-over-year and that’s in line with where we’ve been in the second half of 2021. We continue, our assumption was that N95, the Federal stockpile program would come to an end and it did come to an end in December. We’ve assumed that does not continue and as I said, in my prepared remarks that we’ve assumed in easing of PPE volumes. In terms of swing factors those last three assumptions on revenue, experiences I talked about some pent up demand in elective procedures, if that were to come through that would be upside. If we were to win new government contracts, supply PPE that could be upside. And again, if PPE volumes hold steady, that could also be upside. In terms of margins that’s where we see a little bit of a change from where we were in May because, again, when we announced the 2022 guidance back in our Investor Day that was largely before we had anyone was starting to experience the inflationary pressures. So we have baked in an element of inflation. And the key drivers here are transportation inflation, we assume that’s going to remain high. Labor inflation, we assume that’s not going to worsen. And overall, we’ve put in actions to mitigate these as well in order to hold our guidance. So we’ve got proactive actions like pricing, freight and transportation pass-through, identifying alternate sources for commodity sourcing, and continued strength in our continuous improvements in efficiency efforts to help mitigate those headwinds.

Right. Great. Thanks a lot.

Thank you. [Operator Instructions] I see our next question comes from the line of Eric Coldwell from Baird. Please go ahead.

Thank you. Good morning. I was hoping to get a little bit of color on the legacy core acute distribution business, you seem to have done a better job with customer retention and share capture last year. I know you had a few accounts coming online this year. You gave some numbers around net wins. I was hoping we could get an update on that what you’re seeing in the current environment? And then I have a follow up. Thank you.

Sure, Eric, let me talk first about customer retention. And the reality is we had a really strong year in customer retentions in 2021. We’re pleased with the high rate of customer retention we had. And the reality is, we had no what I would call regrettable churn in 2021. Think about wins. We did have a strong year also in wins. Our pipeline continues to be strong. We continue to focus on high quality customers. We continue to focus on customers that value, what we can provide in our value chain. And I think a great example of that is the most recent announcement we had with West Virginia University, where we did a public announcement. We signed a long-term deal to support University of West Virginia, as well as the rest of the state and others in that vicinity. We’re going to add a new facility or a new center there that can provide a lot of different offerings besides distribution. So that it’s our ability to look at that entire value chain and continue to work closely with customers. I think those are a couple great examples of where we are. But I think in the same sense, Eric, we’re going to be extremely disciplined we’re going to make sure, we have to make sure we get a return on accounts and accounts that are higher cost to serve we’re going to continue to look of how we can drive efficiencies to serve those customers and be responsible as we do that. But overall, I would say the full year 2021 was successful related to that. And WD was just the most recent example of a new win and expansion.

Ed any updated color comments on the RFP environment, the pipeline?

Yes. The pipeline, is still strong, Eric. The RFP environment is different. You have obviously, in our industry, in any industry, you have different types of customers looking for different things. I think our team has done much better at honing in on those customers that value what we provide. And that’s become critical. I think it’s been important that we’ve also seen in the RFP process, continuity of supply and supply chain resiliency is becoming more and more and more important. And our ability to provide that in those products that we manufacture we don’t source has been strong and has gotten great receptivity. I think our transparency has been has been helpful. I talked a little bit about the smartcard, which is a value add that we give just to our customers that is open and transparent about market dynamics, our customers can make decisions quicker to better serve their constituents. Those are what we’re seeing in the marketplace today.

Last one, for me. The new glove manufacturing capacity, any additional updates on the facility, I know, you said late Q1 timing. I’m curious if your production will be at full scale coming out of the gates, or will it ramp through the year and any thoughts on impact in 2Q in particular, if how that might impact the model if it could at all in the second quarter?

Eric, what we have planned just like any new facility expansion, and that new facility, and each facility expansion, we have it ramped through -- starting production at the end of the first quarter ramping through the second and end of the third quarter. And it’s like anything. It’s no different than when we added the new additional lines to make N95. You put the lines in, you get them producing, and then you have to fine tune them over time to continue to get to the optimal output on those. So we’ll get product off the line and the end of Q1 that will ramp during Q2 and into Q3.

Thanks guys. Good job. Congrats on the outlook.

Thank you.

Thank you. I’m showing no further questions in the queue. At this time, I’d like to turn the call back over to Mr. Ed Pesicka, President and CEO for closing remarks.

So first of all, thanks everyone for joining on the call today. I’m extremely pleased with the progress that we made in 2021. But while I’m pleased with that progress that we made in 2021, I’m even more excited about the healthy momentum that we’re bringing into 2022. The team has done an exceptional job and we continue to strengthen our value chain along with our future, what we’re going to continue to do once we close on the pending acquisition of Apria, continued growth in that home healthcare or as we like to look at it really the patient direct space. We’re making the right financial decisions as a company to drive long-term profitable growth. And again, I can’t thank the great teammates we have at Owens & Minor for all their effort in 2021, as well as the great work they’ve already accomplished as we’re nearly two months into 2022. I’d also like to thank our customers for all the support that they provided us over the last several years and our commitment to them to continue to support them as we go forward into the future. Everyone on this call I look forward to updating on the progress later in the spring and thank you everyone.

This concludes today’s conference call. Thank you for participating. You may now disconnect.