Good day, and thank you for standing by. Welcome to Owens & Minor's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Will Parrish, Vice President, Investor Relations.

Thank you, operator. Good evening, everyone, and welcome to Owens & Minor's third quarter earnings call. Our comments on the call will be focused on the financial results for the third quarter of 2025, all of which are included in today's press release. The press release, along with the third quarter 2025 supplemental earnings slides are posted on the Investor Relations section of our website. Please note that during this call, we will make forward-looking statements that reflect the current views of Owens & Minor about our business, financial performance and future events. The matters addressed in these statements are subject to risks and uncertainties, which could cause actual results to differ materially from those projected or implied here today. Our expectations, beliefs and projections are expressed in good faith, and we believe there is a reasonable basis for them. However, there can be no assurance that our expectations, beliefs and projections will result or be achieved. 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. Any forward-looking statements that we make on this call or in our earnings press release are as of today, and we undertake no obligation to update these statements as a result of new information or future events, except to the extent required by applicable law. In our discussion today, we will refer to non-GAAP financial measures and believe they might help investors to better understand our performance or business trends. Information about these measures and reconciliations to the most comparable GAAP financial measures are included in our press release. Today, I am joined by Ed Pesicka, Owens & Minor's President and Chief Executive Officer; Jon Leon, the company's Chief Financial Officer; and Perry Bernocchi, the EVP and CEO of the company's Patient Direct segment. I will now turn the call over to Ed. Ed?

Thank you, Will. Good afternoon, everyone, and thank you for joining us on the call today. Earlier this month, we announced a definitive agreement with Platinum Equity to sell our Products & Healthcare Services segment, which includes both the Medical Distribution and Global Products divisions. Built on a strong foundation, we believe P&HS will be better positioned to compete in today's evolving market under Platinum Equity's private ownership model. We are also excited to be retaining an equity interest in the business due to Platinum's operational expertise and commitment to building on the customer-centric legacy of the business, which will be critical to the future growth of P&HS. The Owens & Minor name has long been associated with our P&HS business and thus will follow that business in the transaction. As we near the close of the transaction, we are excited that we will be rebranding the public entity to better represent our trajectory going forward. So as I think about the future, following the divestiture of a Product & Healthcare Services, I am thrilled that we can fully align around a single business. Our capital allocation, strategic priorities and execution are no longer split. They are unified around advancing the future of home-based care through Patient Direct. And by retaining our higher-margin Patient Direct business, we will generate improved and more consistent cash flow. Accordingly, we will prioritize debt repayment in the near term to grow our financial flexibility while investing in technology to lower our cost to serve and improve the customer experience. Now I would like to begin by sharing some of the opportunities we're seeing in the market and how these trends we're tracking continue to support our business, a business that we have grown and strengthened over time. Beginning with our acquisition of Byram in…

Thanks, Ed, and good afternoon, everyone. We were very excited to announce the signed agreement for the sale of the Products & Healthcare Services segment a few weeks ago. I've had the pleasure of getting to know and working with the Platinum Equity team and absolutely believe they are the right owners for the P&HS business. Further, we're extremely excited about our future as a Pure-Play Home-Based Care company with all the positive attributes that come with it, as Ed detailed. We look forward to having a simpler business model and a cleaner investment thesis. We also believe our ability to dedicate investments solely into the subtractive space will lead to much greater results for all stakeholders. As you will recall from last quarter, the Products & Healthcare Services segment is being accounted for as an asset held for sale discontinued operations. So unless stated otherwise, my remarks today will focus solely on the continuing operations, which, as a reminder, is made up of our Patient Direct business and certain functional operations and identified stranded costs from the separation. Also, please note that any discussion about the financial results and outlook for the business will cover only non-GAAP financial measures. You can find GAAP to non-GAAP financial reconciliations in the press release filed a short time ago and residing on our website. Turning now to the third quarter results. Revenue was $697 million compared to just under $687 million in the third quarter of last year. Last year, in the third quarter, there was a $6 million onetime revenue benefit from a multiyear claims reprocessing matter. This impacted the growth rate by about 80 basis points. In the quarter, there was decent year-over-year growth in the key categories of sleep therapy, ostomy and urology. Diabetes was nearly flat compared to…

[Operator Instructions] Your first question comes from the line of Michael Cherny with Leerink Partners.

This is Dan Clark on for Mike. First one from us. I appreciate all the color you gave on kind of results in 3Q and how you're thinking about the rest of the year. At a high level, how should we think about the durability of these trends going into 2026? And then would love to hear as a follow-up, just kind of how you're selling into the Optum channel is going thus far.

This is Ed. I'll start. Selling in the Optum channel, it's new. We're -- we just recently signed the preferred provider agreement. We're tracking where we expect to track on that, but it's going to create more and more opportunities for us as we move forward. Regarding going forward in '26, we haven't published '26 data or information yet. We'll do that when we get closer to -- when we get -- when we report the full year results for the business.

Yes. I would just add, Dan, there's really not much secular going on that would change those trends. I'll remind you that we discussed in our 10-Q filed tomorrow morning that there'll be a large customer loss in the continuing operations in 2026 that will impact the full year. But absent that, we expect a fairly strong 2026. As I said, we'll put guidance out with the fourth quarter results.

The next question comes from the line of Kevin Caliendo with UBS.

I guess it's sort of a follow-up to that in terms of trends. Like how should we be thinking about this company's business or outlook for 2026? Is there anything you can kind of lay out in terms of how the trends are migrating, how we should think about modeling it broadly speaking? I know you're not here to provide guidance, but there's obviously so many moving parts and how to think about run rates or anything like that would be super helpful. And the same sort of around free cash flow for 2025 and maybe how to think about free cash flow trends beyond where we are? I appreciate the color on what the sort of normalized cash flow was this quarter?

Yes, Kevin, it's Jon. I'll take a crack at starting that. So if you think about the trends going forward, the continuing operations, you can see not dissimilar trends on an organic basis as you would normally see. I think we'll have -- absent the exiting one customer, which we have talked about quite a bit. And as I said, there's more detail in our 10-Q, you'll see tomorrow all of that. But absent that, I think we'll have a pretty decent top line growth rate, call it, organically, if you will, absent that loss and some margin improvement and cash flow improvement given the absence of that loss of that contract because that we've talked about before, that is not a margin attractive or necessarily cash flow positive contract that's being lost. So that will certainly improve. From a free cash flow perspective, on a continuing ops basis, as I tried to outline in my prepared remarks, I think you expect Q4 to look a lot like Q3 from a continuing ops basis. I think we will have some nice free cash flow. As we go to '26, again, the trend shouldn't necessarily change. We'll be losing the heavy CapEx burden of that one large contract, but we will have stranded costs that we have to -- we'll begin to actively take out once the divestiture closes. And as well, there's the start of the other divestiture-related costs that we'll be paying really more so in the back half of 2026. So I would expect it to be not terribly dissimilar to '25, recognizing that we'll have a number of those one-off costs around the divestiture, which we have generally sized and are part of the press release we put out around the divestiture itself.

That's helpful. If I can ask a quick follow-up. The balance sheet -- there's so many moving pieces on here and current debt and timing. I know there's a lot going on here. So it's hard to get a full picture just on this one point in time. But relative post the acquisition or post the divestiture, excuse me, and where you sit, you have obviously talked with your credit agencies and everything else, your lenders. Are there -- is there any risk to covenants or anything that needs to change within those covenants coming out of this post sort of now that you've announced the deal and everything else is done and you're a month past -- or is that all fine?

No, we're good. Not at all. We just actually sent our covenant compliance to lenders and agencies in the last 48 hours. Very comfortable in compliance, and we expect to remain comfortably compliant throughout.

[Operator Instructions] The next question comes from Daniel Grosslight of Citi.

I was hoping you could provide a little bit more detail on how these preferred vendor agreements work and as we think about the loss of Kaiser next year, you've mentioned many times that, that's not an attractive piece of business from a margin perspective. But how many of these larger preferred vendor agreements do you think you would need to sign to kind of fill that Kaiser hole on the profitability from a profitability standpoint?

I'll start with that. And then obviously, we'll have Perry add some color onto this too. I mean, I think we did lose the large customer contract. It was a unique contract in that sense. And as Jon talked about it, when we looked at the EBITDA compared to CapEx on it, it was not a very positive cash flow generating business. So that alone will take very, very little additional revenue to pick up and cover that. And again, not to cover the revenue, but to cover the EBITDA and the cash flow. And then in addition to that, Perry, let me let you add additional color on what you're seeing and how you're thinking about those preferred provider agreements and the ramp of them.

Thanks, Ed. And from a standpoint of the Optum agreement, it's in its early stage. As Ed said, we have 450 forward-facing salespeople that are marketing to over 100,000 potential referral sources within Optum. What it does do is give us a preferred position within the Optum closed network as Apria and Byram as the leading home care home-based DME provider. So that is a go-to-market strategy from a push and a pull perspective within Optum. To Ed's further point, it will take less contracts or less revenue growth to cover the loss of the contract that we are losing, given everything that Ed outlined and Jon outlined. It won't take much for us to replace from a margin -- from a gross margin and an EBITDA perspective.

Got it. And just as a follow-up, I wanted to dig a little bit more into that issue in P&HS that is weighing on free cash flow. I think you mentioned with the kidney client. Can you just maybe explain that in a little bit more detail? And it is a little bit tough to look at your cash flow and balance sheet given cash flows on a consolidated basis and balance sheet is continued and discontinued operations. So maybe if you can help just parse out where in that -- in the cash flow statement, that headwind sits?

Yes. So I think there's a couple of things. I know Jon in his script, he tried to basically parse out as much as he possibly could, what the free cash flow looks like from a continuing operations basis based on continuing ops EBITDA, the CapEx as well as consolidated interest in the space. This has to do with -- we are opening up a new kitting facility outside of the U.S. There's normal start-up costs associated with that. And the biggest thing was the over acquiring of inventory to make sure we could make the kits and had it on there for scale. It's something that will work itself out through the next quarter plus, but it really is associated with a brand-new start-up of our kitting facility outside of the U.S. to make sure we have the ability to have diversified kitting both in the U.S. and external U.S. for our customers. And the bulk of that will show up in inventory as well as the change in payables we saw in this quarter. So Jon, I don't know if you want to add additional...

No, it's basically right. In my remarks, I mean, what we're doing now is making sure that, that burns off effectively that we serve all the customers' needs in the kitting business. And that has -- that defers other need for other capital across the business, both kitting and otherwise for the rest of the year. So it should burn itself off, but it will take a few months to do so.

This concludes the question-and-answer session. I'll turn the call to Ed for closing remarks.

Great. Thank you, operator. It's really an exciting period in the history of Owens & Minor. We're incredibly excited about the future as a pure-play supplier in the home-based care. And I look forward to sharing this progress with everyone early next year. So thank you, everyone.

This concludes today's conference call. Thank you for joining. You may now disconnect.