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Owens & Minor Inc  (NYSE:OMI)
Q4 2018 Earnings Conference Call
Feb. 20, 2019, 8:30 a.m. ET

Contents:

Prepared Remarks:

Operator

Good morning, ladies and gentlemen and welcome to the Owens & Minor's Fourth Quarter and Full Year 2018 Financial Results Conference Call. My name is Amanda and I will be your operator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session toward the end of the conference call. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Ms. Trudi Allcott. Please proceed, Ms. Allcott.

Truitt Allcott -- Director, Investor and Media Relations

Thank you, operator. Good morning, everyone and welcome to the Owens & Minor's fourth quarter and full year 2018 earnings call. I'm Trudi Allcott, and on behalf of the team, I'd like to read a Safe Harbor statement before we begin.

Our comments today will be focused on financial results for the fourth quarter and full year of 2018, which are included in our press release. In our discussion today, we will reference certain non-GAAP financial measures. Information about these measures and reconciliations to the most comparable GAAP financial measures are included in our press release and in the supplemental information posted on our website.

In the course of our discussion, we may make forward-looking statements. These statements are subject to risk and uncertainty that could cause actual results to differ materially from those projected. Please see our press release and our SEC filings for a full discussion of these risk factors.

Participating on our call this morning are Bob Sledd, our Chairman and Interim President and CEO, who will provide an overview of the business and an update on the progress we're making on our strategic plan; and Robert Snead, EVP and Chief Financial Officer, who will provide details on the fourth quarter and full year results and more insight into our business performance.

Now, I'd like to turn the call over to Bob Sledd, who will start things off this morning. Bob?

Robert C. Sledd -- Chairman and Interim President & Chief Executive Officer

Thanks, Trudi and good morning. Thanks for joining our call today. As we look forward, I'm very optimistic about Owens & Minor's future. Yes, we have challenges in our distribution business, which we will discuss, but outside of distribution, our Company is growing and experiencing positive trends and we have many exciting opportunities as we move forward.

There's a lot to discuss this morning. We'll cover the 2018 results. But I want to clearly address the challenges and the opportunities that we see ahead for Owens & Minor, then Robert Snead, who I'm pleased, has been named our CFO will discuss our financial results. First, as I'm sure you saw in our press release, we're excited that we have announced the appointment of a new CEO for Owens & Minor. I'm pleased to report that Ed Pesicka, who's a long-tenured Executive at Thermo Fisher Scientific, will join us on March 4th, as our new President and CEO.

He will also join the Board of Directors. Ed is a seasoned Senior Executive with 25 years of experience. He has a deep understanding of distribution, manufacturing and service within healthcare and related industries. Ed has a great reputation for being a team leader and for providing exceptional customer service. He also has an outstanding track record of driving positive operational and financial results. With a solid reputation and excellent skill set, we think he is a great fit for Owens & Minor and we look forward to him leading our team. Looking in the rearview mirror, 2018 was a year of change and challenge for Owens & Minor, but I feel good about the path for once.

In fact, excluding the exit costs for our former CEO, we achieve our expectations for the fourth quarter. We did experience perfect storm last year with service issues in our core distribution network, some challenges were self-inflicted but others were beyond our control. These challenges included supply disruptions caused by mergers and acquisitions of manufacturers and a spate of natural disasters. We are still overcoming customer service challenges resulting from the rapid consolidation of our customer service functions in a Client Engagement Center.

Finally, we have been facing a tight labor market and high turnover in some facilities. We are addressing these challenges with a great sense of urgency as we work back toward providing the outstanding distribution service that Owens & Minor always been known for.

Our service challenges have cost us some customers, however, we are working hard to continue winning new customers and retaining existing ones. Our goal is to have our service issues behind us by mid-year. At the same time, we are focusing on selling more proprietary and preferred vendor products to our extensive customer base. We believe this is a significant opportunity.

With the addition of Halyard products, we have an exceptional portfolio of products to offer our customers. In addition to our MediChoice and Medical Action products. I'm confident that we have the right tools, the right team and the right strategy to realize a bright future. But what we can do is compromise our future with short-term thinking. As a result, we are investing in our business in 2018 to ensure a strong 2020 and beyond. These investments are aimed at supporting our people and technology for distribution and our provider solutions business, which includes our Fusion 5 venture. Robert will provide additional details on Fusion 5 in his remarks. Our 2019 goals include stabilizing our distribution operations, paying down debt and making investments for our future. We've provided you with guidance for 2019 and we have clear priorities that will provide a path for strong future. We'll continue to focus on providing outstanding customer service, which will enable us to retain existing customers while winning new customers. We are not a products Company that offers distribution. Our goal in distribution is to provide the service and support, our provider customers need to succeed and do it better than anyone else. We'll work to offset the margin pressure, just selling more of our own brand products and our preferred vendor brands. It will implement more of our unique provider solutions.

We are extremely pleased with Halyard. It has an excellent well established product portfolio with an outstanding highly motivated team. I'm pleased that the Halyard team has been so well integrated into our organization. We'll complete the integration of Halyard, exit the TSAs and realize the planned strategies. Our Byram Healthcare team is performing well. Last year, Byram has produced positive organic revenue growth and gained a significant new IDN customer.

This customer represents a great opportunity for growth and we see many more opportunities with our large IDN customer base. And we will grow our solutions business, including Byram, manufactured solutions and our solutions such as Fusion 5 and QSight. We believe all of this is achievable. We have a leadership team that is fully aligned on strategic, operational and financial priorities with a heightened sense of urgency. We have a good mix of new and seasoned leaders and with the addition of our new CEO, who has a proven track record of success, I believe, we have a great team in place ready to meet the challenges ahead.

We are aggressively moving forward, correcting what needs to be fixed and putting the business in the best position for long-term profitable growth. Now, I'll call on Robert for a discussion of our results.

Robert K. Snead -- Chief Financial Officer

Thank you, Bob and good morning, everyone. Today, I will provide an update on our fourth quarter and full year results, discuss recent changes to our capital allocation strategy, provide color on the amendment to our credit agreement and then discuss our outlook for 2019. But before I begin, I'd also like to take the opportunity to welcome Ed Pesicka to Owens & Minor. I look forward to partnering with Ed and I'm excited about the focus and experience he brings to the organization, as we move forward with the execution of our strategy, and Bob on behalf of the management team, I'd like to thank you for your enthusiastic support of our Company as Interim CEO. You made quite a positive impact in the short period and this experience will serve you well as you continue forward as our Chairman.

Now for the results, for the fourth quarter, consolidated revenues were $2.5 billion an increase of 6.4% compared to prior year. Consistent with the last quarter, revenue growth was driven primarily by Halyard contributions of $196 million.

For the full year, consolidated revenues were $9.8 billion, an increase of 5.6% compared to prior year. For the fourth quarter, we recorded a non-cash goodwill impairment charge of $274 million or $4.08 per share. For the full year, we reincurred non-cash impairment charges of goodwill and other intangibles of $440 million or $6.81 per share. The GAAP net loss for the fourth quarter was $262 million or $4.37 per share for the full year was $437 million or $7.28 per share.

Both the quarterly and the annual results include the impairment charges mentioned previously. Adjusted net income for the fourth quarter was $5.3 million or $0.09 per share and for the full year, adjusted net income was $70.4 million or $1.15 per share. It is worth noting that our annual results included severance-related expenses of $7.3 million or $0.12 per share. The fourth quarter included $4.8 million or $0.08 per share of this amount, which was not anticipated in the guidance we provided during the third quarter earnings call.

Excluding just the fourth quarter severance, our full year adjusted net income per share was $1.23 within the range we provided. Now let's turn to our segment performance for 2018. The Global Solutions segment revenues were $9.2 billion for the year, essentially unchanged compared to the prior year. Results were positively affected by Byram revenue growth of $340 million, growth in manufactured solutions and favorable FX. These were offset by revenue decreases in our distribution business.

Operating income was $104 million compared to $141 million last year. As we have pointed to previously, the decline resulted from a number of factors including increased warehouse and delivery expenses, continued margin pressure, lower revenues, increased expenses to develop new customer solutions and the previously mentioned severance- related costs. Increases in operational expenses were a significant driver of our decline in performance and also had a negative impact on customer retention and revenues.

The positive here is that these issues are being addressed and can be fixed. And as Bob mentioned, we are hyper-focused on this. While we still have more work to do in 2019 and it will take some time for this to show in our financials, we are making progress, and we feel encouraged about where we stand and where we are headed.

Turning to the Global Products segment, for the year, revenues were $1.1 billion compared to $504 million in the prior year. Revenues included Halyard contributions of $664 million, operating income for the year was $75.7 million, an increase of $37.2 million, primarily from Halyard. Turning to the balance sheet , cash flow and capital deployment, consolidated long-term debt was $1.65 billion at December 31st and operating cash flow was $116 million for the full year. Deleveraging is our top priority for capital deployment.

In line with that, the Board has reduced our first quarter dividend to a quarter of a cent per share. Since the closing of the Halyard S&IP acquisition, we have repaid approximately $50 million in debt. We recently amended our credit agreement to provide us with greater flexibility over the next few years. The amended agreement revises the financial covenants over the life of the agreement and among other things, changes our interest rate spread and amortization of term loans to be more reflective of our credit profile, since the Halyard acquisition.

Finally, let me spend some time discussing our outlook for 2019. Please note that a summary of our 2019 guidance is posted on our website in the Investor Relations section. These materials include important modeling and other assumptions supporting our outlook for 2019. And I encourage you to review these materials in conjunction with my remarks. For 2019, we anticipate adjusted net income per share in a range of $0.60 to $0.75. Now, let me add some additional color to provide better insight into our expectations for 2019. First, included in our interest expense outlook for the year is the step-up in interest rates, I mentioned associated with our recent credit agreement amendment. This represents about $0.12 per share of headwind compared to 2018.

From a consolidated topline perspective, we expect 2019 revenues to be relatively flat compared to 2018. This implies that overall growth in our business is being offset by declines in our distribution revenues. And our distribution operational issues in 2018 cost us some business, which will have more of an impact in 2019, giving the timing of customer exits. However, we expect to see partially offsetting benefits from operational improvements and we expect our revenue pipeline to improve for the year, which we believe will serve us well in 2020 and beyond.

This, combined with our improved value proposition, which includes our proprietary products and our new and renewed solutions will be key drivers of our distribution revenue success going forward. Our 2019 guidance includes the anticipated impact of our investment in new solutions that we noted back in the second quarter of 2018. There is one investment in particular, that I'd like to highlight. A new business called Fusion 5. I realize that many of you may be unfamiliar with Fusion 5.

So let me touch on that for a moment, and we will devote more time to this in the future. This is a new majority owned venture, which we began in earnest in 2018 and is off to encouraging start. Fusion 5 was created to help healthcare providers succeed in the shift from fee-for-service to value-based care. This is the C-suite priority for many of our customers. The management team running Fusion 5 has extensive experience in this area with the history of success at prior companies.

During 2018, Fusion 5 was actively engaged in gaining customers to help these providers succeed under BPCI Advanced. This program is the Bundled Payments for Care Improvement Advanced initiative, which is run by the Centers for Medicare & Medicaid Services. At the start of the program, Fusion 5 had signed a large portfolio of customers including physician groups, IDNs and individual practitioners and is quickly becoming a market leader in this space. Fusion 5 also has a number of tie-in points with our broader Company, which we will discuss in due course, as the business develops. As it relates to 2019, we expect to see positive contributions from Fusion 5 in the fourth quarter and we will continue to incur start-up costs until then. Before I close my remarks, I'd like to spend a few minutes discussing the anticipated cadence of our 2019 quarterly earnings. As many of you know, we don't provide quarterly guidance. However, for 2019 due to the newness of our acquisitions and several other compounding factors, we foresee a quarterly pattern that's worth calling out. First, we are negatively impacted early in the year from the annual renewal of healthcare plan deductibles, particularly in the first quarter.

Second, we are positively impacted late in the year with the onset of the flu season. Third, Fusion 5 is an exciting opportunity for us. But as I mentioned, we expect continued investment through the year, moving toward having a positive impact in the fourth quarter. Finally, we are onboarding customers and our manufacturer and provider solutions businesses and the contribution is expected to accelerate in the second half of the year.

As a result, we believe that our adjusted earnings per share for the first quarter of 2019 will be very minimal. But we expect improvement over the course of the year with the bulk of the earnings occurring in the second half. In closing, I'm encouraged, when I look across our portfolio. We achieved positive topline momentum in 2018 for most business lines including manufactured solutions both in the US and Europe and have an attractive pipeline of opportunities for our provider solutions business.

This is all in addition to the overall good performance to date of both Byram and Halyard and the new potential of Fusion 5. Finally, I would like to reiterate that we are excited to have Ed join the team, and we look forward to his leadership, as we move forward with our strategy. Thanks, and with that, I'll turn the call back over to the operator to begin the Q&A session. Operator?

Questions and Answers:

Operator

Thank you, ladies and gentlemen. (Operator Instructions). Your first question comes from the line of Kevin Kalend of UBS, your line is open.

Brett Gus -- UBS -- Analyst

Hey guys, this is Brett Gus (ph) moving on for Kevin Kalend. Appreciate all the color you provided. Could you just go through some of your thinking around, if you're doing any asset sales or potential securitizations going forward that's similar in size, the $150 million allocation in your credit agreement? Thanks, guys.

Robert K. Snead -- Chief Financial Officer

Sure. So I'll start with the second part, first. As you -- as you obviously noted, we do have the ability, under our amended credit agreement to do up to $150 million of an asset securitization that's something that by design, we wanted to keep available to us. As we move forward, so that's something that we are -- have available, but remains to be seen when and whether or not we do that.

I would say that that the impact of that is not included in our guidance, but it's something that we're evaluating. On the second part -- or the first part of your question related to asset sales. We look at our portfolio regularly in terms of the value of it. How does it fit in with our broader strategy and how the business is performing. And what we think we can do with it and so we take a very disciplined approach to that and if at some point something made sense, I'm sure, we would take action.

Robert C. Sledd -- Chairman and Interim President & Chief Executive Officer

But Brett, this is Bob Sledd. Thanks for your question. Right now, I mean, our goal is to make all of these successful and I think, we're making progress in all those with all of our different pieces of our business. So we don't see any imminent sale of any piece of our business.

Operator

Thank you. Our next question is from the line of Robert Jones of Goldman Sachs. Your line is open.

Jack Rogoff -- Goldman Sachs & Co -- Analyst

Great, thanks for taking my question. This is Jack Rogoff on for Bob. So it looks like gross margin guidance for 2019 comes in around 100 basis points higher than the 4Q results. Can you walk through some of the moving pieces that drive to that expansion?

Robert C. Sledd -- Chairman and Interim President & Chief Executive Officer

Sure. There's a couple of components in there. When you think about our business, pretty much every business line outside of our distribution business is accretive to gross margin. So when you think about the full-year result and the shift in our business mix over time. The full year benefit of the Halyard as well as growth in our solutions business, which is very accretive to our gross margin. That's all been contemplated in the outlook that we have for the year.

Jack Rogoff -- Goldman Sachs & Co -- Analyst

Got it, thanks.

Robert C. Sledd -- Chairman and Interim President & Chief Executive Officer

Thanks, Jack.

Operator

Thank you. Our next question is from the line of Aaron Ray of Credit Suisse. Your line is open.

Aaron Ray -- Credit Suisse -- Analyst

Great, thanks . Can you speak to some of the recent performance at the Halyard business. And can you give us an update on commodity pricing pressure and what sort of visibility you have on that? Thanks.

Robert K. Snead -- Chief Financial Officer

Sure. This is Robert. We've been very pleased with how the Halyard business has performed both as we mentioned in the third quarter call. And that trend continued in the fourth quarter performance as well. If we think about it, relative to our original expectations, both top line and bottom line of the business has come in if not exceeded our expectations, controlling for the commodity headwind that we were talking about last year. So we're quite pleased with that business and we're looking as Bob mentioned, to grow it, and to do more with it as we move forward. As it relate specifically to the commodity situation, as we have included in our outlook for 2019, if you think about sort of average rates for 2019 versus average commodity rates for 2018. There is not a lot of year-over-year difference between the average, between the two, there's certainly differences between some of the components polypropylene for instance versus nitrile.

But if you take it all in some total, it's not a big difference. There is definitely some timing differences and when you think about it on a quarter-over-quarter basis, we're going to see some differences. But when you look at it in total, that's what sort of baked into the outlook that we have -- that we've shared with you.

Aaron Ray -- Credit Suisse -- Analyst

Okay, got it. And then how should we be thinking about the quarterly progression of some of the incremental investments in IT systems, customer solutions, Fusion 5. If we think about this from a modeling perspective, I guess, could you give us a little bit of help on sort of the quarterly progression? Thanks.

Robert C. Sledd -- Chairman and Interim President & Chief Executive Officer

Before Robert gets into that, Aaron, let me take a second and talk a little bit more about Halyard as a follow-up to your original question, is that. So look first, we're a distributor who is selling more products, more of our proprietary brands and -- and more of our preferred vendor brands. At this point in time, when you do your modeling, one of the things that I think you need to understand is that we have had the issues with our service. We're really focused on that. We're making great progress, but we still have ways to go.

But that being said, we are starting just now to get to implement our product strategy and work with our customers to get our products into our distributors. Historically, we really haven't had a vehicle to do that, Halyard provides us with that vehicle. They really now just starting to get with our sales folks into some of the recent couple of months and start developing with our customers -- in coordination with our customers a strategy to get more products. And so, as it relates to Halyard, we are really just going to be implementing that strategy over the course of 2019. We think it'll be building momentum.

We are confident that it will -- again, we've never had a sales force. We've never been on the GPO contracts. We've never really had the ability to expand our proprietary brand, so now with Halyard, we have that. And we do think that that's going to be a gradual build, but we think it will gain momentum over the course of 2019 more into the second half of the year as we implement that strategy. So with that, I'll turn it over to Robert to talk about the rest of your question.

Robert K. Snead -- Chief Financial Officer

Well, I think, Bob. That's a good add to what I shared in my prepared remarks and is yet another factor impacting the quarterly sequence. When we put the guidance out and looked at our forecast and saw the profile for the year. We needed to help guide you guys to manage expectations of how our results will pan out throughout the year and I cited four reasons in my prepared remarks and Bob just gave you a fifth. But we have more seasonality than we've ever had in the business before. Our legacy business has always had seasonality in it with the first quarter being the weakest and the fourth quarter being the strongest, but when we layer on Byram for instance, most healthcare plans reset on a calendar year basis. And so the fourth quarter of Byram is definitely their weakest quarter in the fourth quarter, for the same reasons as folks in the year and have reached their deductibles are looking -- are looking to make purchases and so forth and so you see a strong fourth quarter and that's a phenomenon just really throughout healthcare, but particularly with that business.

The other piece is the flu season, that impacts our business in Europe where we're -- we're heavy pharma focused and we were involved with flu vaccines and other products of that nature, it affects the Halyard business from infection prevention perspective related to the flu face mask, gloves, et cetera. So that's a new factor that's creating more seasonality than we've had in the past.

And then the last piece you touch on was the investments, Fusion 5 is going to drag on our results in the first part of the year. But as we mentioned, we expect it to be contributing toward the fourth quarter of the year. And then just the general profile of winning business and the revenue synergies that Bob just mentioned for Halyard also have a -- kind of a ramping profile for the year.

So for all those factors, we thought it was important to share the information we did regarding the quarterly progression.

Aaron Ray -- Credit Suisse -- Analyst

That's very helpful. Thank you.

Robert K. Snead -- Chief Financial Officer

Thank you, Aaron.

Operator

Thank you. Our next question is from the line of David Larsen of SVP Leerink . Your line is open.

Jonathan Bentley -- Leerink Partners LLC -- Analyst

Hi, this is Jonathan on for Dave, I'm hoping you can provide some more specifics on what exactly you're trying to do to address the employee turnover and tight labor markets you're facing.

Robert K. Snead -- Chief Financial Officer

Sure, I'll start with that. And Bob can add in. We've done a number of things, and one of the things that Bob talked about before is we did make some cuts in our business in the field that probably worked against us quite frankly, as it related to managing that turnover. We've made investments back in the business in 2018, which is already having a positive benefit. Some of that comes from HR and how we're doing our recruiting process and filling positions more quickly and it has to do with better training that we're putting in place to reduce our reliance on temporary help and overtime and it's investing in our people to keep them in the buildings and we've even addressed incentives and wages and various areas.

I would say that this is not an issue that is in every location, every area. It is really in certain pockets and parts of the country. And so we've deployed SWAT team type approach to go and get after those situations and bring them under control and as we progress through the fourth quarter, we've seen improvements in a lot of the metrics that we monitor on that front and are focused on moving the ball even further in 2019.

Robert C. Sledd -- Chairman and Interim President & Chief Executive Officer

Yes. And we've done analysis of our competitiveness in the marketplace to make sure that we are offering competitive wages. And another thing is, look, as we talk to other distributors, turnover is just. It just happens and it's understandable. But it has gotten better. Number one, we were filling the physicians more quickly. And as there is turnover. We are doing a much better job of training now, getting people up to speed and we have the tools that we hadn't had before such as voice-pick, so that they can be trained and effective very quickly. So with voice-pick, it tells them where to go to pick a product in different languages and it really -- it gives us the -- slight the amount, and so, I think we're doing a much better job there. Our productivity has improved.

It's not where it has been historically. So we have opportunities there and we think actually that we can improve it quite a bit over the course of 2019. But that's a good question, because it is critically important to us having effective operations.

Jonathan Bentley -- Leerink Partners LLC -- Analyst

Okay, great. Thank you.

Robert C. Sledd -- Chairman and Interim President & Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes the line of Evan Stover of Robert W Baird. Your line is open.

Evan Stover -- Robert W. Baird & Co. -- Analyst

Hi, Thank you for taking my question. Bob, back in January and then today talked about some of the challenging service levels and the Client Engagement Center integration that didn't go quite as well driving some customer losses in the second half of 2018. My question is, in your guidance for 2019, are we -- are you assuming that the net losses essentially end and we just have to annualize that out of the model in 1Q '19. Are we taking a little bit more of a conservative approach and assuming some continued net customer losses as we move throughout the year?

So anything you can do to flesh out why the net customer losses have been bad and then maybe why -- what gives you confidence that that trend is going to change, that would be helpful. Thank you.

Robert K. Snead -- Chief Financial Officer

Sure. Evan, it's Robert. I'll start and then Bob can -- can add in on the -- our Customer Engagement Center part. We do have built into the outlook that you have both customer losses that will -- that have occurred in '18 that would have an impact on '19. And we also have as we typically in any year, we have a provision for customer losses that we don't know about that may occur and so that's just part of how you forecast the business.

We also have customer wins that are known that are coming in and we have some unknown wins that we put in. So we have a typical approach to how the business is forecast. One thing I'd point out on that is. In 2018, we had a good number of wins, quite a -- quite frankly a higher number of wins than we've had in recent history. And so that's an encouraging sign about our value prop and where the Company is going and an encouraging sign as we move into -- to 2019.

So we factored in the headwinds that occurred from '18 into '19 and the path forward on that as we look throughout '19 and into 2020 is the stabilization of the operations, getting as Bob said, back to the Owens & Minor standard on all fronts is going to, we think make a huge difference in that equation going forward. So that's why we're -- that is a top priority for us and why we're focused on it, and we see that as being something that we take off the table as we move more into 2020 and beyond.

So maybe Bob can comment on the CEC side of it.

Robert C. Sledd -- Chairman and Interim President & Chief Executive Officer

Yeah. We -- so we are making really good progress , but we still have ways to go. I mean, we are investing in some software, which we think will give the customer much better experience. That's going to be rolled out over the course of the first half of the year. We think we completed by the middle of the year. We're -- we still -- we've made too deeper cuts. I think, I told you, we kind of stepped in it. But we made too deeper cuts in the operations, we made too deeper cuts with certain people that had relationships with our customers.

And so we are still getting it back together, we're still, I think we've made a lot of progress, we've got -- getting a lot better feedback from customers than we were just even couple of months ago. But I wouldn't say our -- all of our customers are 100% happy with us. I would say a majority of them are. But some of them still think we've got a ways to go to -- to get to where we need to be and get our reputation back. So it's still a work in progress. For that reason. I think we took a fairly conservative approach for 2019 and projected more losses than gains. So as we work up numbers, we think that's -- that was just the right thing to do. Until we get our service back and we get our reputation, all the way back with our customers.

So that's where we are, we're optimistic we'll get there, but we have taken a somewhat conservative approach to our 2019 expectations.

Evan Stover -- Robert W. Baird & Co. -- Analyst

Thank you for those responses.

Robert C. Sledd -- Chairman and Interim President & Chief Executive Officer

You bet.

Operator

Thank you. (Operator Instructions) Our next question is from the line of Anne Samuel of JPMorgan. Your line is open.

Anne Samuel -- JPMorgan -- Analyst

Hi, could you speak to the Scripts (ph) partnership that you announced in January. What's the overall opportunity? And then what are you expecting for contribution in 2019? Thanks.

Robert C. Sledd -- Chairman and Interim President & Chief Executive Officer

So we don't call out specific contribution on individual customers. This was an interesting win for us and one that I think both us and the customer thought it made sense to make public. And so it is a -- a good strong win for us. It's a customer that values our Company for what we're known for and what we do best as a distributor, and you have a good opportunity with them to not just do the base distribution part of the business, but to deploy a number of our programs and services. And so we're excited about the opportunity.

Anne Samuel -- JPMorgan -- Analyst

That's all, thanks.

Robert C. Sledd -- Chairman and Interim President & Chief Executive Officer

And obviously it was a competitive win.

Anne Samuel -- JPMorgan -- Analyst

Right, OK. And then I guess just as we think about going back to the proprietary products is the growth and margin driver. How should we think about what you're targeting, as mix as a percentage of revenue and how quickly you can ramp to that target?

Robert K. Snead -- Chief Financial Officer

So we haven't put a specific number out there. What I'd say is, we size that opportunity. Back when we were looking at the deal that the -- the Halyard acquisition and what we thought we could do. And we had a sort of a thesis on what that look like. And during the fourth fourth quarter, we were able to pull together a lot more granular data on really sizing up what that opportunity is, and what I would say is that the -- the opportunity is north of and higher than what we originally thought of at the time of the transaction. So we were quite encouraged by that outcome. And I think, we're excited about the size of the opportunity and the timeframe for which that provides earnings fuel for the Company. And so, we foresee just existing skews within existing accounts as being sizable and that's the thing, we got to go after right away, but we also have an opportunity to take existing products into channels that they aren't currently in today. So that's our MediChoice product, historically was only sold into the acute channel in the US. There is an opportunity to take that into the non-acute channel and then there is an opportunity to take that globally into all the other marketplaces where Halyard has a presence and sells their product. So we're excited about the revenue synergy opportunities that that business presents. And as I said, the near-term focus is just existing products,existing channels and then from there, we'll build -- will build forward.

Robert C. Sledd -- Chairman and Interim President & Chief Executive Officer

Yes. So maybe to add a little bit to that, just to refresh everybody's memory. So what we're -- our competition in our distributor product companies that have got into distribution.We're a distribution Company that has never really got into products, so. So what happens with a number of our customers as they read their contracts, as they, if they want a margin improvement. You know, what our -- the product companies will do, will say, yeah, we'll give you margin improvement, carry our (ph) products and we will make our money on our products rather than substantial money on distribution. So there is -- has been margin compression in the industry. And so, now we've got a tool being our own expensive product and as well as our preferred vendors that we can work with those customers and one -- and provide them our products, which we can make more money on it. At the same time, save them money with our own brands. So it's a win-win for us and the customer and -- and so that will be more of what is involved in the contract rebids with the number of customers, as we move forward. So to say, how quickly that will ramp-up, will kind of depends on what the customer is looking for in the rebids themselves.

Anne Samuel -- JPMorgan -- Analyst

Great, thanks very much.

Robert C. Sledd -- Chairman and Interim President & Chief Executive Officer

Thank you.

Operator

Thank you. And there is no further questions at this time, I'd like to turn the call back over to Mr. Sledd for his closing remarks.

Robert C. Sledd -- Chairman and Interim President & Chief Executive Officer

Okay.Thank you for joining the call today and for your really good questions. I am really pleased about Ed Pesicka joining us. He is actually with us today. And I am -- and I asked him to say a couple of words. But some the things, I'm really excited about with Ed is that he is a really good people person, he is really good with building teams and he actually has faced a situation very similar to what we're going through. Where we had a company almost the size of -- our end (ph) distribution and a healthcare-related with its period of experience that it had declining margins and earnings for a number of years. Ed came in and within a very short period of time, did a great job of getting that company focused, getting great customer service back and improving the earnings in a very dramatic way. So I think, Ed has all the tools to really drive this Company forward, to engage the team and -- to pay attention to the details. This is a penny business by the way and really get us back on track. So I think, we've made progress, but I think Ed is the guy, who can get us back to where we need to be long-term. So I am really exited about Ed being on the team and in fact he has been in the room with us today. And I'd just like to introduce him to you guys and maybe let him say a couple of words. Ed?

Edward A. Pesicka -- President and Chief Executive Officer

Sure. Thanks, Bob. Actually I'm extremely excited to be part of Owens & Minor company with 137 years of rich history. And I believe opportunity for a long bright future. I'm really looking forward to March 4th arriving. So I can officially start, so that way I can spend significant time with our customers, our suppliers. It's really -- know all the teammates here as well as get expanded knowledge and get to know our shareholders and obviously, many of the analysts on the call. So looking forward to March 4th, getting here and looking forward to get going.

Robert C. Sledd -- Chairman and Interim President & Chief Executive Officer

All right. And in the meantime, he is already digging in. So we are happy, he is here. So we hope to see you on the road this year, various investor events. Thanks and have a great day.

Operator

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

Duration: 40 minutes

Call participants:

Truitt Allcott -- Director, Investor and Media Relations

Robert C. Sledd -- Chairman and Interim President & Chief Executive Officer

Robert K. Snead -- Chief Financial Officer

Brett Gus -- UBS -- Analyst

Jack Rogoff -- Goldman Sachs & Co -- Analyst

Aaron Ray -- Credit Suisse -- Analyst

Jonathan Bentley -- Leerink Partners LLC -- Analyst

Evan Stover -- Robert W. Baird & Co. -- Analyst

Anne Samuel -- JPMorgan -- Analyst

Edward A. Pesicka -- President and Chief Executive Officer

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