OMI - NYSE

Good day, and thank you for standing by. Welcome to the Owens & Minor Fourth Quarter and Full Year 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jackie Marcus, Investor Relations. Please go ahead.

Thank you, operator. Hello, everyone. Welcome to the Owens & Minor fourth quarter and full year 2024 earnings call. Our comments on the call will be focused on the financial results for the fourth quarter and full year 2024, as well as our outlook for 2025, all of which are included in today's press release. The press release, along with the supplemental slides, is posted on the Investor Relations section of our website. Please note that during this call, we will make forward-looking statements that reflect our 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 that. 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 with quarterly reports on Form 10-Q. Any forward-looking statements that we make on this call and 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 Edward Pesicka, Owens & Minor's President and Chief Executive Officer, and Jonathan Leon, the company's Chief Financial Officer. I will now turn the call over to Edward.

Thank you, Jackie. Good morning, everyone, and thank you for joining us on the call today. 2024 was an important year for Owens & Minor, and I am pleased with the progress that we have made against the strategy we outlined at our Investor Day in December of 2023. As a reminder, we committed to optimizing our product and health care services segment, leveraging our leading patient direct platform, and building balance sheet flexibility through deleveraging. Within P&HS, we continue to see momentum in the broadening of our product portfolio, developing a streamlined and efficient manufacturing footprint, and enhancing our distribution capabilities. Within Patient Direct, we continue to leverage our footprint and broad product offering to support home-based care for millions of patients with chronic conditions. Those capabilities, combined with the positive demographic trends and expanding home treatment options, leave us very bullish on the future of this business. Finally, we repaid $647 million of debt over the last two years, which helps provide the financial flexibility to pursue the acquisition of Rotech, which we believe will drive long-term shareholder value. As we mentioned in our press release published this morning, we have been actively engaged in robust discussions regarding the potential sale of our product and health care services segment and are already well along in the process. Over the past few years, we have focused our capital reinvestment on the higher growth, higher margin Patient Direct segment. Accordingly, over the past eighteen months, we have considered many strategic options while continuing to work to enhance the product and health care services segment.

The actions we have taken on realigning P&HS

has made it a stronger entity and well-positioned for future growth. We are excited and encouraged by the strong interest in P&HS business and ongoing conversations we are having in the process. In addition, the press release published this morning also mentioned that our Board of Directors has authorized the share repurchase program of up to $100 million. Jonathan will provide more detail later during his prepared comments. Regarding our planned acquisition of Rotech, we are awaiting a final decision from the regulators, and we remain diligent in our planning process as we expect to close in the first half of 2025. We remain incredibly excited by the prospect of a united future together. It is our plan to leverage the existing Apria platform we acquired nearly three years ago to improve service while delivering synergies through the optimization of our operations and interface with our customers. To the extent possible, we have been using the past few months to further understand the synergy opportunities and create the ability to expedite synergies post-close. Based on what we already know and the work we have done to date, we now believe that our previously discussed cost synergy projections are conservative in both terms of value and time. Before I discuss our performance in 2024 and our goals for 2025, I want to take a moment to commend our teammates at Owens & Minor. We saw many difficult and heartbreaking situations in 2024 and earlier this year, including the record-setting hurricanes and historic flooding in the southeast, the significant winter storms across the Midwest and northeast, and the devastating fires in Los Angeles. Facing these extraordinary circumstances, our teammates ensured that our customers and patients received the critical and vital medical supplies they needed. I am incredibly proud of the team that we have assembled at Owens & Minor and that our teammates embody our core belief that life takes care. Now moving on to 2024. While we focused on our long-term strategy, we also delivered mid-single-digit top-line growth and 13% growth in adjusted EPS while continuing to reinvest in the business to drive greater operational efficiencies, improve customer experience, expand our technology offering, and set ourselves up for long-term sustainable growth. Starting with Patient Direct, our Patient Direct business outpaced market growth with mid-single-digit growth for the quarter and for the year. In addition, it delivered over $13 million of incremental operating income year over year while making significant progress with revenue cycle management and our sleep journey program, which helped deliver strong sleep supply growth for the year and the fourth quarter. The addition of sales teammates also helped us deliver double-digit growth in many of our smaller categories. Finally, our investments in technology continued as we launched Byram Connect, a digital health coach to help manage diabetes. Overall, significant progress was made in 2024, but we still have ample opportunity for advancement as well as improvement across all of our therapy categories, and we remain excited about the future of Patient Direct. So now moving on to our P&HS segment. Our products and health care services segment for the full year and quarter continued to show solid same-store sales growth in our medical distribution division, partially offset by lower glove pricing. Next, I want to recognize that the P&HS team continues to make significant progress in capturing savings and subsequently reinvesting those dollars into driving even more efficiencies and improving our operations. During 2024, we have advanced our proprietary product portfolio, made progress with DC automation, continued with the construction of new distribution centers, and began the consolidation of our titting footprint. Overall, we made great progress related to our long-term strategy to optimize our P&HS segment. As I look ahead into 2025, the team and I are keenly focused on these areas. One, we will focus on expanding our free cash flow to strengthen our balance sheet, invest in our business, and support our stock as needed should it continue to be undervalued. Two, we will continue to be disciplined while driving profitable growth. Three, we will continue to take all steps to gain clearance from regulators, and upon approval, we will quickly begin the integration of Rotech into the Patient Direct segment. And finally, we will work through the process related to our products and health care services segment. As I look forward, I am excited to build upon the progress we made in 2024 to advance our long-term strategy that we outlined at Investor Day in December of 2023. With that, I will turn it over to Jonathan to discuss our financial performance in 2024 and financial guidance for 2025 in more detail.

Thanks, Ed, and good morning, everyone. I will start with a review of our fourth quarter financial results and cover some of the key drivers and trends from last year, and then dive into our outlook for 2025 in greater detail. Please note that during my remarks on today's call, I will discuss only non-GAAP financial measures. All GAAP to non-GAAP financial reconciliation can be found with the press release filed earlier this morning. With that, let's turn to fourth quarter results. Our revenue for the quarter was $2.7 billion, up 1.5% compared to the prior year. The products and health care services segment grew 0.5% overall compared to the fourth quarter of 2023. There was one more selling day this year compared to last year's fourth quarter, which accounted for the segment's growth. While same-store sales in the medical distribution division were offset by global oil prices and the knock-on effects of the IV fluid shortages during the quarter. The IV fluid shortage impacted procedure volume and subsequently our sales volume to some of our distribution customers. Patient Direct revenue grew by 5% compared to the fourth quarter of 2023. Sleep supplies and diabetes once again demonstrated strong growth. As discussed in previous quarters, home respiratory therapies such as NIV and oxygen declined on a year-over-year basis. We expect these third-party categories to return to growth during 2025, and we saw encouraging signs toward this turnaround late in the fourth quarter. Gross profit in the fourth quarter was $580 million or 21.5% of net revenue. Margin was essentially flat with last year's fourth quarter and expanded by 93 basis points compared to the third quarter of 2024 and benefited from a $10 million LIFO credit as inventory levels were meaningfully lower at December 31st compared to September 30th. Our distribution, selling, and administrative expenses for the quarter were 18.3% of revenue at $493 million, up from $457 million in last year's fourth quarter when DSNA was 17.2% of revenue. The increase in DSNA was primarily due to increases in teammate benefit expenses and higher workers' compensation costs. Adjusted operating income was $95 million in the fourth quarter, an $11 million increase compared to the third quarter and $15 million less than the fourth quarter of 2023. The year-over-year change in adjusted operating income can be attributed to modest revenue growth, which was offset by higher DSNA expense. Interest expense for the fourth quarter was just under $36 million, down about $1.2 million compared to the prior year's fourth quarter. This change was driven by our continuing debt reduction and was partially offset by less interest income earned versus the prior fourth quarter. Our adjusted effective tax rate was 26.5%, largely unchanged from the 26.8% in the fourth quarter of 2023. Adjusted net income for the quarter was $43 million or $0.55 per share, compared to $54 million or $0.69 per share last year. Adjusted EBITDA was $138 million versus the $170 million reported during the fourth quarter of 2023. As previously disclosed earlier this month, we recorded a $305 million net of tax goodwill impairment charge in the fourth quarter. This non-cash charge was primarily related to adverse financial market changes during the quarter and, to a far lesser extent, anticipated future changes in a capitation contract at the Apria division. We do not expect the assumed contract pricing change, including the financial projections that were used in the impairment analysis, to have a significant impact on 2025 results. And more importantly, nothing about our positive outlook for Apria's prospects has changed because of this. We generated $71 million of operating cash flow in the fourth quarter, primarily driven by changes in working capital. As often happens, our working capital management yielded better cash flow throughout the quarter than was represented on the last day of the quarter, which allowed us to reduce debt by $31 million. For the full year, debt was reduced by $244 million, and we have paid down $647 million in debt over the last two years, demonstrating the cash flow capabilities of the business and our commitment to reducing leverage. Now with the wrapping up of 2024 and the start of the new year, we will provide guidance for the full year 2025. As a reminder, our guidance does not include any impact of the Rotech acquisition, which we still expect to close in the first half of 2025. Also, our guidance shared here today does not include any potential sale of our products and health care services segment and does not include any potential impact from future share repurchase activity. So with that, for the full year 2025, we expect revenue to be in a range of $10.85 billion to $11.15 billion, yielding a midpoint of an even $11.0 billion. Most of the growth will come from mid-single-digit percentage growth in our Patient Direct segment. Adjusted EBITDA is expected to be in the range of $560 million to $590 million, with a $575 million midpoint, representing approximately 10% growth over 2024. Adjusted EPS has a guidance range of $1.60 to $1.85 per share, with a midpoint of $1.73, representing approximately 13% growth. As we think about cash flow in 2025, we expect to see marked improvement from last year. We expect to have at least $200 million available for further debt reduction in 2025. We believe this is a reasonable expectation as it would be the result of the $575 million midpoint of our adjusted EBITDA guidance minus the midpoint of our gross CapEx guidance of $260 million and interest expense of $140 million, as well as less cash expected to be spent on items included in exit, realignment, and acquisition-related charges. Those items just detailed provide approximately $125 million of cash flow, and we believe another $100 million can be taken out of working capital, a task we have demonstrated in the past that we can achieve. So the year-over-year cash flow improvement is expected to largely come from the adjusted EBITDA growth included in our 2025 guidance, the expected lower cash spend on items included in exit and realignment and acquisition-related charges, and the anticipated improvements in working capital management. We will remain diligent in our efforts to reduce debt levels and intend to use free cash flow to do so. There's no change to our goal of maintaining debt to EBITDA leverage between two and three times, and after the close of the Rotech acquisition, we will work quickly to bring down incremental debt levels. As Ed mentioned, our Board of Directors has authorized a share repurchase program of up to $100 million. We will prudently match between using cash flow for debt reduction, which remains our leading objective, and share repurchase activity. However, with Owens & Minor shares currently so undervalued, especially so in the last few weeks, we believe share repurchase is a very sound use of cash flow. When thinking about how our full-year guidance will trend over the course of the year, and as is increasingly typical given the nature of our business, we expect at least 70% of the earnings and cash flow to occur in the last two quarters of the year, with the fourth quarter being the strongest. We also expect the usual pattern of our first quarter being the lowest earning quarter, and as we often see, we expect to be a net borrower during the first quarter. As a reminder, our guidance information and other key modeling assumptions were filed this morning under Form 8-K and reside on the investor relations section of our website. I will now turn the call back to the operator for questions. Operator?

Thank you. If you would like to ask a question, please press Thank you.

Your first question comes from Kevin Caliendo with UBS. Your line is open.

Good morning, guys. Thanks for taking my question, and thanks for all the details. I guess, why don't we start first with Rotech? Because I think, you know, when the deck came out, the 8-K came out, I think people were a little bit alarmed to see some of the trends at Rotech. And I just want to ask you, knowing what you know now versus knowing what you knew when the deal was announced, is there anything surprising in the Rotech results over the last year or so? I appreciate, Ed, you making the comment that there's cost synergies that could be greater than the $50 million and could come sooner. When I just look at the margins of that business and the growth of that business, is there anything there that's surprising or different at all?

Hey. Good morning, Kevin. It's John. The answer to the question is no. There's no surprises in what we've seen. But I think people, a lot of people forget that for all of us, 2024 versus 2023 saw a significant impact of the 75/25 legislation leaving. That had an impact on all of us. I think it's been stated that Rotech has a little bit more exposure than we do to government reimbursement, so maybe a greater impact there. But I would say overall, and now that we've got a little more clarity, we have a really active, healthy dialogue with the Rotech team. We know how their year's ending up, and no surprises whatsoever. It's very consistent with our deal model.

Okay. That's helpful. If I can ask a follow-up on the free cash flow. I appreciate that the $200 million expected that you can redeploy back for debt repayment. You also have a $100 million share repurchase. Should we be thinking about those in conjunction, like, how should we think about that $100 million of buyback? Is that the priority first, or is it something over the course of time? And should we just assume the $175 to $200 million of free cash flow goes to pay down debt and the buyback is more opportunistic? Just help me understand how you're thinking about deploying that capital this year.

Yeah. So, two. I think the first primary objective of the business is to continue to pay down debt. That's extremely important. But in the same sense, you know, should the stock continue to be meaningfully undervalued, we would be opportunistic on that also throughout the year. I think that's the way to think about it.

Okay. Thanks. I'll go back and keep. Thanks.

The next question comes from Michael Cherny with Leerink Partners. Your line is open.

Good morning. Thank you for taking the question. Maybe if we can just start on Patient Direct and some of the underlying trends, John, you talked about mid-single-digit growth expectations on an organic basis over the course of the year. Can you parse that out a little bit in terms of what you expect to see on roughly speaking, volume versus price versus market share gains? I want to try and get a sense of where you see this business evolving and continuing to position itself given your commentary about outgrowing the market in 4Q and the rest of 2024.

Yeah. Maybe I'll start and then John can add some commentary to it. Look, I thought the Patient Direct business had a really strong year. I mean, if I think about it, we had double-digit, I'm sorry, mid-single-digit growth in the business for the entire year as well as the fourth quarter. You know? And not only that, we actually increased full year over $13 million of op income. If I think about some of the areas where we've had some pretty good success, you know, we've had really nice success continuing with growth in diabetes as well as in sleep supplies. You know, the other area I touched on a little bit in my comment was we did add some resources, and in some of the smaller categories, we saw, you know, close to double-digit growth in those smaller categories where we've added resources. You know, the one area of, you know, we're still, I would say, underperforming, and to be, you know, completely direct on this, it's really in the home respiratory and, you know, NIV and oxygen space. It's an area where we're gonna continue to focus on it in 2025 and, you know, look to make that actually a growth category for us, which then can help lift the entire business as a whole from an organic standpoint. But again, I think, you know, you look at our mid-single-digit growth for the year as well as the quarter, relatively strong, we believe, compared to the market. And some strong pockets of where we're seeing where some of the investments we've made are starting to pay off, like the sleep journey and some of the additional people we've added. John, I don't know if you want to add any more.

Yeah. The only thing I would add, Mike, to your comment, you know, broad, you know, broad strokes with the big picture of the industry, the demographic tailwinds we've made very strong for us in the entire space. I think as you heard and seen from us and others, regardless of the therapies that keep coming out, we still see really good demand for our supplies and services. So broad-based, and I think there's plenty of share yet to be gained across all of these for years to come, and then getting greater tailwinds again from the demographics are just overwhelmingly positive for us.

Appreciate that. And maybe a follow-up to Kevin's question regarding capital deployment and the buyback. Very much appreciate the dynamic of instituting a new buyback given the recent performance of the stock. That being said, you obviously talked about the beginning of the year being a use of cash component, assuming, as you've said, that the Rotech deal closes, you'll be taking on a meaningful amount of debt near term as you work to pay that down. How should we think about the cadence potential, knowing it's not in guidance, of the buyback against your cash flow needs, and why is $100 million the right number given where you see the dislocation of the stock currently?

Yeah. From a cadence perspective, Mike, I think we think about it once. As Ed said, we all believe the stock is way, way under the hide right now. And so we didn't know if there's a better ROI out there than buying back our own shares. So, you know, Q1, as I mentioned, we tend to be a net debtor. Being a little more of a net debtor during Q1 doesn't bother us that much. Confident cash flow as we get throughout the move throughout the year. So that wouldn't be necessarily a problem for us. And we'll just see how the stock performs. Keep in mind, the rules around buyback and given our average daily trading volume, we couldn't get through it all that quickly anyway. But we want to, you know, be aggressive if the stock remains so oversold. And then as we think about, you know, overall cadence and why $100 million, as again, just given market cap of where we are today, unfortunately, and given what we see as the cash flow, as Ed said, debt repayment remains a priority. The market cap of $100 million outright. We believe the stock will rise, but obviously, if we get to $100 million and the stock isn't where we think it should be, the board is still going to revisit a future consideration of greater value.

It's helpful, John. Thank you.

The next question comes from John Stansell with JPMorgan. Your line is open.

Great. Thanks for taking my question. Just want to quickly touch. I don't know if you framed it completely, but on tariffs, appreciate the commentary changes by the day. But is there anything you can just help size, you know, impact essentially from Mexico-based tariffs? Thank you.

Yes. Yeah. So, you know, again, I'll start and then John can add, you know, additional comment at the end. So if you think about tariffs, so tariffs for us, you know, aren't as significant as they may be for other players in the industry. You know, however, I think first of all, we gotta be clear. That as tariffs come in and increase our product costs, we're gonna have to pass those on to the customers. Because in our P&HS segment business with margin profile as tight as it is, those are costs that we will have to pass on. If we think about impact overall on the business, you know, the vast majority of our products, you know, are not made in China. So let's first take that off the table because that had the highest tariff increase last year with close to 100% on gloves coming through over this year combined with next year, as well as significant on facial protection. So that's not an impact to us. You know, when we do make our products, we do make some products in Southeast Asia, as well as in the US and Mexico and Honduras. You know, I think that's a pretty fluid situation. But if we think about it, you know, our Mexican footprint is really in low single digits of what we make in our products that we sell, you know, through our P&HS segment.

John, I don't know if there's any.

Yeah. No. That's right. You put a little bit of color on that. So you think about our Mexican facilities and what comes back into the US is about 1.5% of the total revenue of the P&HS segment. So that's a really small exposure. In looking at rates to both Mexico and China.

Great. And if I can just slide one more in. It looks like SG&A is roughly flat as a percent of sales for 2025 based on the guidance you with gross margins and just EBITDA kind of stepping up relatively proportionally. Is there anything you should call out about how you're thinking about investment and kind of our SG&A spend for next year?

Yeah. I think from an SG&A standpoint, it's, you know, we're gonna continue to look at ways to optimize it, continue to look at ways to take costs out, but obviously, we can't impact our service to our customer base. So that's how we've thought about it as we go into 2025.

The next question comes from Daniel Grosslight with Citigroup. Your line is open. Daniel, perhaps your line is on mute.

Hi. Sorry about that. Thanks for taking the question, guys. Just a high-level one on the P&HS self-process. Completely get that you're redeploying capital to higher margin, higher growth. Patient Direct. But I'm curious why now is the right time to do this? And then as we think about a few years down the line, are you going to be 100% dedicated to Patient Direct, or are there other areas you may look to deploy capital into?

So I guess on the question why now, I mean, why now really comes back to we had received inbound interest, multiple inbound interest on the asset of our P&HS segment. You know, in addition to that, then we worked with advisers as well as our board, and the decision was made to say, okay, we've got this much inbound interest. Let's look at a broader process, which we've done, which is what we've undertaken. And we thought it was important now to make sure that we disclosed that this is in process as we move forward. You know, because of what we, you know, where we are in that stage of it. And the fact that, one, again, significant inbound interest, broaden the process. It actually expanded the interest, you know, and we're moving through this now. So that way, we could have open dialogue about it, you know, frank conversations with our customers, with our supplier communities, within our own internal teammates, and be able to move this forward and reach a decision, you know, quickly versus trying to continue to slow walk this.

And then as you think about kind of where do you deploy capital next? More so in the medium term. Will you be dedicated 100% to Patient Direct, or are you thinking about other areas of potentially getting into?

Well, I think in the near term, you know, should the transaction happen with our P&HS segment, you know, we will continue to focus on paying down debt, you know, should the regulators we get through that with Rotech, it'll be focused on our Patient Direct segment, paying that debt down, you know, optimizing that business as we move forward. You know, I think we think about our longer strategy as we disclosed in 2023 in December, was we expect that that PD business, you know, by 2028 to be a $5 billion revenue business through both organic growth and through acquisition. You know, whether we expand out into other areas, that's yet to be determined.

Got it. Okay. And then on your commentary around the $50 million of cost synergy from the Rotech deal being conservative in year three. I'm curious if there's gonna be any pull forward of that to years one and two, and if there's any change in how you're thinking about accretion from the deal in year one and year two. I think previously, you said it was neutral in year one and $0.15 accretive in year two. Any change in how you're thinking about that?

Yeah. I think the way here's the way here's what we've done. I think this is it's important to really step back from this. So, obviously, you know, the process has been delayed months now. So during that period of time, we really use these last few months to understand how the two businesses can work together. Within the guidelines of available information of what we can what we can see and how we can have those conversations. You know, based on that, you know, we actually believe that there are additional synergies and that the speed to getting them should be faster. You know, some of the work that would have been done had we closed back in October, November of last year, we were able to do some of that during this next period of time. Which is why we think from a time frame, by the end of year three, we originally talked about $50 million. We think that that's actually light, and we can bring it up forward. You know, in year one, I think there's still some impact of, you know, as we look through things, there's still gonna be some, you know, some decisions that have to be made in year one that may not expedite it in the first three to six months. But in that back half of that first full year is when we should start to be able to see that, you know? And I think, you know, once we get the regulatory approval on this, we'll come back with adjustments on timing and as well as dollars on synergies. And the impact it has on the overall financials.

Got it. Thank you.

Once again, ladies and gentlemen, this Your next question comes from Eric Coldwell with Baird. Your line is open.

Thanks very much. First one on the Apria capitated contract. John, I heard you say that you don't expect it to have an overly material impact on 2025. So my question is, is that because the pricing change happens later in the year, so it's more of a 2026 impact? Or just that the pricing change anticipated or maybe it's already in effect is just not that material in aggregate? I'm just hoping to get more details on that as well as any discussion you can provide on the size of that contract or how much capitated revenue you with Patient Direct today overall, what the mix is?

Yeah. Maybe I can start and John can talk a little bit about it in detail. So I think, Eric, appreciate the question. You know, let's step back from this. So, you know, first of all, you know, big picture wise in our Patient Direct business. Outside of this contract, we have very few capitated contracts. And overall in the industry today, you know, capitation is really a smaller portion of the industry. I think that that's gotta be we accept that as a backdrop. I'm not saying that this is a small capitated contract. This is a large capitated contract. You know, and I want to talk a little bit about our approach to this, and it'll tie into John's comments about the impact on 2025. You know, so we've modeled in, you know, assuming, you know, either direction whether we retain it or not retain it. You know, relatively speaking. And when we go through a capitated contract or any contract for that matter in our business, we take an extremely disciplined approach to the contract negotiations. And we look at all factors. We look at, you know, what's the service level that's gonna be required to serve the customer? Where is our deleveraging point, and where can we go to till we get to the point where it starts to deleverage the business? You know, with this contract, we had the luxury of having current volume, and we know the trending of the volume, you know, know that, and we see that it's increasing. It gives us the ability to make sure we put a capitated contract out there that's fair and reasonable, you know, versus others that may not. And then let me talk a little bit about where this has had historic capitated contracts. So there was another group that came out with a capitated contract, and we did not win that contract. Others did win the contract. However, within a year or two, the service wasn't where it needed to be, you know, and they came back and reopened it specific and we retained business and regained business a fee for service type model. So, you know, I think, you know, when we go through this process, I try and paint that picture because of the discipline we take in putting together, you know, our bid and our offering. I think the other thing that benefits us overall, you know, on this is that rigor and discipline that we have within the business. So with that, you know, John, maybe you can talk a little bit about how, you know, we look at 2025 and say, okay. The impact 2025, it's already baked into the numbers that we have. And it's not gonna have a meaningful impact.

No. That's right. So, obviously, we're, you know, we're two months into the year already under the current contract with the current the older pricing, if you will, Eric. These it's, like I said, the large contract. The time to switch the switching cost of these things are very, very high. It takes a lot of time. So the time to actually switch out under a new contract. Should we lose it, it'd be it'd take a long time to switch it out. And quite frankly, capitation contracts of this size have a lot of dedicated resources to them. So our ability to flex that and to bolster the customer effectively is pretty well known. So we feel pretty good about the time included to if there is a change in pricing, where if we're to lose the contract, we can pretty much that fairly effectively. At the end of the day, we feel pretty good about what we've modeled in for this 2025. And are going to manage it, whether it's just lower pricing and or should we happen to lose it, our ability to take the cost out.

Fair enough. And then on the two segments for 2025, continuing ops guidance here. Can you give us any framework on what you're thinking for top line and EBITDA performance across the two segments? Any loose ballpark on, you know, growth margin profile?

Yeah. As I mentioned, I mean, if you're using the midpoint of revenue guidance, I think actually the fall from that growth is gonna come from Patient Direct. We, you know, patient direct top line. We expect to be better growth-wise than it was in 2024. You may recall back in our investor day, Eric, we didn't expect much in the way of sales and medical distribution going forward. We got a nice pleasant surprise on that in 2024. Not sure that will continue into 2025, so the bulk of the lift overall, a consolidated basis will come out of Patient Direct. You know, from an EBITDA perspective, I think you'll see margins improve a little bit as both segments, but not significant margin improvement for us either. Maybe a little margin lift just given it there's more room to grow in P&HS as a Patient Direct. There'll be a little bit of margin lift at the EBITDA line from both segments.

And I know, the way you treat LIFO, charges and credits, has an impact on your reported EBITDA. I think, what was it, a $10 million credit this quarter if I'm remembering?

Sorry. I'm talking about dollar credit for the quarter. It was basically flat to a million dollars up to a million dollar charge for the year. And we are expecting a relatively small charge in 2025.

Okay. Can I keep going?

Sure. You got the mic.

Alright. Sorry. Apologies to the others. Would you be willing to share last twelve month adjusted EBITDA on the P&HS segment? I mean, we've tried to ballpark an estimate, but there are, you know, clearly some uncertainties between what's reported in your filings versus what you've given your press releases and, you know, allocations of certain expenses, etcetera. So I'm just curious if you could give us your framework of what LTM EBITDA was in P&HS.

I was framing that P&HS is between 20-25% of EBITDA.

Okay. And, yeah, it's about in line. And then, last one for me for now is, you're willing to talk about how your debt financing roadshow went, what you're anticipating for debt cost on Rotech. Has that changed from the expectations that were set in, what was it, July of last year?

Yeah. So one of the benefits of a release that was talked about news this morning is that we get all this information out into the markets. I think that'll help us have more fulsome efficient conversations with the debt market. But right now, we're gonna remain very flexible in the weeks ahead at that premarketing went very well. I think we got very good receptivity. As we get into the weeks ahead and actually begin to market, we'll remain open to different structures. And expect basically a cost of debt that's still in line with the overall Uber your model.

Okay. Thanks very much, guys.

The next question comes from Allen Lutz with Bank of America. Your line is open.

Good morning, and thanks for taking the questions. John, you mentioned some encouraging signs in the fourth quarter around NIV and oxygen. Can you unpack that a little bit? What are you seeing or what did you see in 4Q early in 2025? And what needs to happen to get those categories back to growth?

Yeah. Yeah. Yeah. Allen, you know, we did. We saw the starts in both for non-invasive vents and oxygen begin to pick up late. You know, I think I've talked pretty publicly before. We got a little flat-footed at the start of the year, obviously, the requirements around reimbursement for those categories changed dramatically post-pandemic. But the rest were a little caught flat-footed at really getting ourselves up and geared up from that and others in the space have as well. So it took us a while to really adjust to that. I think we're in a good spot now to begin to capture that growth. And that's important growth. You know, as you talked about margin across that business, those categories are very high gross margin products. We like them a lot. We're good at it. And we want to associate that growth. So I will tell you we didn't build, you know, I would we built some of that improvement into our 2025 expectations. But the more we can accelerate that growth of those two categories, it'll be just this upside to us.

Thanks for that. And then last question from me. Lower glove pricing, you know, has obviously been a focal point over the past few years. I guess, where are we in that cycle today, and what's embedded in the guide for glove pricing in 2025? Thanks.

Sorry, Adam. At a macro level, yeah, we have seen glove prices come down and, you know, a significant portion of what we did with our operating model realignment to reduce our cost structure and then helping offset a portion of that it still did hit the top line and did have some pull-through effect. You know, I think with some of the what we're seeing in the market right now is we're starting to see prices go the other direction, you know, a good portion of that is related to tariffs that are driving that. So I would say we've somewhat leveled out on those low pricing, you know, and there may be an opportunity as things proceed forward to actually look at price depending on input costs, you know, to adjust that based on those factors.

Thanks, Ed. Appreciate it.

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

Yes. First of all, I want to thank everyone for joining on the call today. I also want to thank our teammates for an incredible 2024. Some great accomplishments I'm excited as we look forward into 2025. 2025 is going to be an exciting year for our organization. And I look forward to sharing our progress with everyone on this call and the rest of the rest of the organizations. Later in the spring. So thank you, everyone.