Executive Summary / Key Takeaways

• Strategic Transformation: Owens & Minor is undergoing a significant strategic pivot, divesting its Products & Healthcare Services (PHS) segment to concentrate solely on its higher-margin, higher-growth Patient Direct business, which is centered on home-based care.
• Patient Direct Momentum: The Patient Direct segment demonstrates robust organic growth, fueled by targeted investments in initiatives like the "Sleep Journey" program and expanded commercial resources, leading to strong performance in key therapy categories and improved collection rates.
• Financial Discipline & Outlook: The company is prioritizing debt reduction with anticipated proceeds from the PHS sale and projects improved, more consistent cash flow. For 2025, continuing operations (Patient Direct) are guided to achieve revenue between $2.76 billion and $2.82 billion and adjusted EBITDA between $376 million and $382 million.
• Technological Edge: Strategic investments in technology, including the Byram Connect digital health coach and automation, are designed to enhance patient experience, enable scalable operations, and reduce costs, thereby strengthening its competitive position in the evolving home-based care market.
• Challenges and Mitigation: While facing the termination of a significant commercial payor contract in 2026 and new tariff impacts, management asserts that the lost contract was not a strong contributor to cash flow and that tariff costs, primarily affecting the divested PHS segment, will be passed on to customers.

The Evolution to Home-Based Care Leadership

Owens & Minor, Inc., founded in 1882 as a pharmacy, has a long history of strategic evolution, transitioning through pharmaceutical distribution, medical-surgical distribution, and manufacturing before developing its Patient Direct segment. A pivotal moment in this journey was the 2017 acquisition of Byram, which firmly established the company as a leader in the burgeoning home-based care space. This acquisition was instrumental in expanding payer relationships, broadening product offerings, and building a comprehensive network to support patients managing chronic conditions such as diabetes and sleep apnea.

The healthcare landscape is undergoing profound shifts, with demographic trends and macroeconomic forces driving increased demand for home-based care. According to the National Institutes of Health, over 37 million people in the United States are diagnosed with diabetes, and an estimated 96 million adults live with prediabetes. Similarly, approximately 85 million adults in the U.S. have some degree of obstructive sleep apnea (OSA), with about 70 million of those undiagnosed. The Centers for Disease Control and Prevention (CDC) highlights that roughly 40% of American adults live with at least one chronic condition, and 5 of the top 10 leading causes of death are linked to preventable or treatable chronic diseases. These statistics underscore the critical need for effective home-based solutions, positioning the home as an essential care setting for supporting healthier lives and unlocking greater efficiency in healthcare delivery.

Owens & Minor's overarching strategy is to capitalize on these trends by focusing on its Patient Direct segment, which offers higher margins and greater growth potential. This strategy emphasizes disciplined growth through both organic initiatives and selective acquisitions, alongside a commitment to expanding EBITDA, mitigating stranded costs, and reducing debt. The company operates in a mid-tier position within the broader healthcare distribution market, specializing in medical and surgical products. It faces competition from larger, more diversified players like McKesson Corporation , Cardinal Health, Inc. , Henry Schein, Inc. , and Cencora . Owens & Minor's foundational strengths lie in its established distribution network, proprietary product offerings, and tailored services, which provide a competitive edge in niche markets.

Technological Differentiators: Fueling Patient Direct's Edge

A cornerstone of Owens & Minor's strategy in home-based care is its commitment to technological differentiation and innovation. The company has made significant investments to enhance patient experience, streamline operations, and reduce costs.

One key technological initiative is Byram Connect, a digital health coach designed to assist in diabetes management. This platform aims to improve patient adherence and engagement, thereby contributing to better health outcomes. While specific quantitative metrics on its direct impact are not publicly detailed, the strategic intent is clear: to leverage digital tools for improved patient support, which in turn can enhance customer retention and drive demand for related supplies.

Another successful program is the Sleep Journey Initiative, which focuses on streamlining the process for new sleep therapy patients and improving adherence for resupply orders. This initiative has yielded tangible benefits, including a meaningful increase in sleep starts and high single-digit revenue growth in sleep supplies during the first quarter of 2025. These operational improvements directly translate into stronger revenue performance and reinforce the company's leadership in the sleep therapy market.

Furthermore, Owens & Minor is actively advancing its IT infrastructure and automation across the Patient Direct segment. These efforts are critical for lowering the cost to serve and improving the overall customer experience. The company's focus on technology and automation is designed to achieve several strategic objectives: improving the patient's experience, enabling rapid business scaling, increasing market awareness, and further reducing operational costs. These technological advancements are integral to strengthening Owens & Minor's competitive moat, contributing to improved financial performance through enhanced efficiency and better margins, and solidifying its market positioning as a leader in home-based care solutions.

Strategic Pivot: Unifying for Growth and Efficiency

Owens & Minor's strategic transformation gained significant momentum with the decision to divest its Products & Healthcare Services (PHS) segment. This move, driven by multiple inbound interests and a comprehensive review process, aims to allow the company to concentrate exclusively on its higher-margin, higher-growth Patient Direct business. Management believes the PHS segment will be better positioned to compete under Platinum Equity's private ownership model, while the remaining public entity will undergo rebranding to better reflect its future trajectory.

On October 7, 2025, Owens & Minor entered into a definitive agreement to sell the PHS segment to Platinum Equity for $375 million in cash, with the company retaining a 5% equity interest. This divestiture, expected to close in the first quarter of 2026, will unify Owens & Minor's capital allocation, strategic priorities, and execution around advancing home-based care through Patient Direct. The company anticipates that retaining its higher-margin Patient Direct business will generate improved and more consistent cash flow, which will be prioritized for debt repayment to enhance financial flexibility.

This strategic pivot follows the termination of the planned acquisition of Rotech on June 3, 2025. The mutual agreement to terminate the merger, due to unviable regulatory clearance, resulted in a cash payment of $80 million to Rotech and an additional $18 million in related transaction financing fees. Despite the termination, Rotech's performance in 2024 was consistent with Owens & Minor's original deal model, indicating that the strategic rationale for expanding in home-based care remains robust. The company will continue to evaluate selective acquisition opportunities that are additive to Patient Direct's capabilities and align with its strategic vision.

Patient Direct: A Deep Dive into Performance and Drivers

The Patient Direct segment, now the sole focus of Owens & Minor's continuing operations, has demonstrated strong performance and significant growth. For the three months ended September 30, 2025, net revenue for continuing operations was $697.26 million, a 1.5% increase compared to $686.85 million in the prior-year period. This growth was achieved despite a one-time $6 million revenue benefit in Q3 2024 that impacted the reported growth rate by 80 basis points. The segment experienced decent year-over-year growth in key categories such as sleep therapy, ostomy, and urology. Diabetes revenue, while nearly flat compared to Q3 2024, showed improved performance over the second quarter. Adjusted EBITDA for the third quarter of 2025 was $92 million, compared to $108 million in Q3 2024. This figure was impacted by product cost increases and higher health benefit costs, partially offset by lower general costs. Management noted this as a "return to a higher earnings quality," indicating a cleaner financial profile post-divestiture.

For the nine months ended September 30, 2025, net revenue for continuing operations reached $2.05 billion, representing a 3.4% increase from $1.99 billion in the same period of 2024. This year-to-date growth was primarily driven by strong performance in sleep therapy, ostomy, and urology, as well as "phenomenal growth" in smaller categories like chest wall oscillation. Adjusted EBITDA for the nine-month period was $285 million, a 6.3% increase compared to $268 million in 2024.

Earlier in 2025, the Patient Direct segment continued its robust trajectory. In the second quarter of 2025, revenue was $682 million, an increase of 3.3% year-over-year. Absent a headwind related to modified customer ordering quantities for diabetes supplies during supplier disruptions, the growth rate would have been approximately 4%. The sleep category, particularly sleep supplies, led overall growth, with urology and ostomy also showing very strong expansion. Adjusted EBITDA for Q2 2025 was $96.6 million, or a 14.2% margin rate, up from $91.1 million (13.8% margin) in Q2 2024. This improvement was attributed to volume growth, an improved collection rate, a favorable product mix, productivity gains, and lower benefit costs.

The first quarter of 2025 saw Patient Direct's top line grow in the mid-single digits, with operating income increasing by 31%, or $14 million, leading to a 173 basis point margin expansion. The "Sleep Journey" program resulted in a meaningful increase in sleep starts and high single-digit revenue growth in sleep supplies. Additionally, investments in commercial resources led to double-digit growth in wound supplies, ostomy, and urology. Efforts to enhance revenue cycle management, initially focused on the Byram division, achieved a "record collection rate in Q1." The company also observed continued improvement in oxygen therapy growth, having "seen the bottom for that category and expect growth throughout 2025." Since its acquisition in 2017, the Patient Direct business has grown from approximately $450 million in annual revenue and $38 million in EBITDA to a projected revenue between $2.76 billion and $2.82 billion and an adjusted EBITDA range of $376 million to $382 million in 2025.

Financial Health and Capital Allocation

Owens & Minor's financial health and capital allocation strategy are undergoing a significant recalibration, with a primary focus on strengthening its balance sheet and optimizing liquidity. The company's primary sources of liquidity include cash and cash equivalents, the Receivables Sale Program, and its Revolving Credit Agreement. As of September 30, 2025, net debt stood at $2.1 billion. The increase in debt since year-end 2024 is largely attributable to the $100 million cash payment for the terminated Rotech acquisition and costs associated with a challenging start-up of a new kitting facility within the PHS segment, which led to a temporary inventory imbalance.

Despite these challenges, the company's continuing operations have demonstrated positive cash generation. More than 100% of the cash used from operating activity in the three and nine months ended September 30, 2025, was attributed to discontinued operations, while continuing operations, inclusive of stranded costs, generated cash. Levered free cash flow, calculated as adjusted EBITDA from continuing operations less CapEx from continuing operations and all interest costs, was $28 million in Q3 2025 and $78 million for the first nine months of the year. The company expects marked improvement in cash flow for the remainder of 2025, with at least $200 million projected to be available for further debt reduction. This improvement is anticipated from seasonal profit growth, enhanced Patient Direct collection rates, and a reduction in cash outlays for strategic initiatives.

A key aspect of the deleveraging strategy is the application of 100% of the net proceeds from the PHS segment sale to debt reduction. Current maturities of debt at September 30, 2025, include $280 million anticipated to be repaid within the next twelve months from these expected proceeds. The company's target leverage range of 2x to 3x EBITDA remains unchanged, and it has successfully reduced debt by $647 million over the last two years (2023-2024). Debt covenants were in compliance as of September 30, 2025.

In addition to debt reduction, Owens & Minor's Board of Directors authorized a $100 million share repurchase program in February 2025. The company repurchased 826 thousand shares for $6.6 million at an average price of $8.04 during the nine months ended September 30, 2025. Management views share repurchases as an opportunistic use of cash flow, particularly given the perceived undervaluation of the company's stock, while maintaining debt reduction as its leading objective.

Competitive Landscape and Strategic Positioning

Owens & Minor occupies a mid-tier position in the healthcare distribution market, with a strategic focus on specialized medical and surgical products and, increasingly, home-based care. The company's competitive standing is shaped by its established distribution network, proprietary product offerings, and specialized services.

Compared to larger, more diversified competitors like McKesson Corporation (MCK), Cardinal Health, Inc. (CAH), Henry Schein, Inc. (HSIC), and Cencora (COR), Owens & Minor differentiates itself through its agility in niche services and its integrated approach to home-based care. While MCK and CAH benefit from immense scale, broader portfolios, and extensive networks, Owens & Minor's focus on proprietary products, such as surgical drapes and infection-prevention kits, allows for greater control over quality and supply, potentially leading to stronger product differentiation and customer loyalty. Its specialized clinical supply management and custom procedure kits offer tailored solutions that can be more responsive to specific provider needs than the more generalized approaches of some larger rivals.

However, Owens & Minor faces vulnerabilities, including supply chain dependencies that could impact costs and market share during disruptions. Its customer concentration also poses a risk to revenue stability if major client preferences shift. The company's strategic response involves leveraging its strong distribution network to enhance customer loyalty and drive recurring revenue, thereby mitigating the impact of broader market shifts.

In the context of competitive bidding programs, Owens & Minor believes its scale, expertise, and the quality of its products position it as a "standout partner." Management notes that less than 13% of its combined Byram and Apria business is potentially impacted by such programs, and any significant pricing changes are not expected until 2028-2029. The company's approach to tariffs also reflects its competitive strategy; it intends to pass on direct tariff costs rather than blending them across all products. This aligns with the intent of tariffs to encourage purchasing from U.S. or tariff-friendly countries and avoids selling products at a loss, a practice that management states is not sustainable given the tight margins in the PHS segment. Patient Direct, the company's future core, has "very little exposure" to these tariffs.

Outlook and Risks: Charting the Path Ahead

Owens & Minor's outlook is firmly anchored in its transformation into a pure-play Patient Direct company, with management expressing strong confidence in the home-based care market. For 2025, the company has affirmed its guidance for continuing operations (Patient Direct), projecting revenue between $2.76 billion and $2.82 billion, adjusted net income per share between $1.02 and $1.07, and adjusted EBITDA between $376 million and $382 million. Revenue in the fourth quarter of 2025 is expected to show a similar year-over-year growth rate but be seasonally improved in absolute dollar terms, with full-year revenue likely to be towards the bottom of the guidance range.

The second half of 2025 is expected to generate a significant portion of the year's earnings and cash flow. However, the profit path for this period may not reflect typical seasonality due to an anticipated increase in "stranded costs" as the PHS divestiture approaches its close. These annualized stranded costs are estimated at approximately $40 million, with management expecting their trajectory to decline in the second half of 2026. Looking further ahead, 2026 is anticipated to be "fairly strong" for the Patient Direct business, even with the impact of a large customer contract loss. Management views this lost contract as not being "a very positive cash flow generating business," implying that its departure will require "very, very little additional revenue to pick up and cover that... EBITDA and the cash flow," ultimately improving the company's overall profitability and cash flow profile.

Several risks and challenges could impact this outlook. A significant concern is the notice of contract termination from a large commercial payor, which represented 12% ($242 million) of net revenue for the nine months ended September 30, 2025, including nearly all of the company's capitation revenue. While transitions are expected to occur from late Q4 2025 through the first half of 2026, the company's ability to win new business, execute cost reduction actions, or maintain supplier discounts will be critical. Additionally, a recent determination by the Centers for Medicare and Medicaid Services (CMS) regarding non-invasive ventilation (NIPPV) products may make qualification more difficult for new COPD patients, potentially impacting this therapy category.

The divestiture of the PHS segment, while strategic, carries inherent risks. Owens & Minor will become a smaller, less diversified company, potentially more vulnerable to changing market conditions and increased volatility in revenue, costs, and cash flows. The sale process itself involves significant separation costs, with the company obligated to reimburse the purchaser for the first $65 million of such expenses. There are also risks associated with transitional service agreements, contract transfers, and retained liabilities from the divested business. However, the "One Big Beautiful Bill" legislation is expected to decrease future U.S. cash taxes, providing a positive offset to some financial pressures.

Conclusion

Owens & Minor is at a transformative juncture, strategically pivoting to become a pure-play leader in the rapidly expanding home-based care market through its Patient Direct segment. This decisive shift, marked by the divestiture of its PHS business, is designed to unlock higher margins, generate more consistent cash flow, and unify capital allocation around a focused growth strategy. The company's historical evolution, coupled with its ongoing investments in technological differentiators like Byram Connect and the Sleep Journey Initiative, positions it to capitalize on significant demographic tailwinds and the increasing demand for chronic care at home.

Despite facing challenges such as a major contract termination and the need to pass on tariff costs, management's proactive measures and the inherent profitability profile of the Patient Direct business suggest a resilient path forward. The commitment to debt reduction, opportunistic share repurchases, and a clear technological roadmap underscore a disciplined approach to capital allocation. As Owens & Minor rebrands and streamlines its operations, its ability to leverage its specialized offerings, robust distribution network, and patient-centric innovations will be crucial in solidifying its competitive standing and delivering long-term value to investors in the dynamic healthcare landscape.