Owens & Minor Inc (OMI) Q1 2021 Earnings Call Transcript

Owens & Minor Inc (OMI 2.80%)
Q1 2021 Earnings Call
May 6, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to the Owens & Minor First Quarter 2021 Earnings Conference Call. [Operator Instructions]

I would now like to hand the conference over to your first speaker today Chandrika Nigam, Director, Investor Relations. Ms. Nigam, you may begin.

Chandrika Nigam -- Director, Investor Relations

Thank you, operator. Hello, everyone, and welcome to Owens & Minor's first quarter 2021 earnings call. Our comments on the call will be focused on financial results for the first quarter of 2021, our ongoing response to the COVID-19 pandemic, and our outlook for 2021, all of which are included in today's press release. I'd also like to call your attention to supplemental slides related to our 2021 outlook posted on our website in the Investor Relations section.

Please note that certain statements made on this call are forward-looking statements, which are subject to risks and uncertainties. These forward-looking statements are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements made on this call today other than statements of historical facts are forward-looking statements and include statements regarding our anticipated financial and operational performance.

Forward-looking statements made on this call represent management's current expectations and are based on information available at the time such statements are made. Forward-looking statements involve numerous known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from any results predicted, assumed, or implied by the forward-looking statements.

The company has explained some of these risks and uncertainties in its SEC filings, including the Risk Factors section of its Annual Report on Form 10-K and quarterly report on Form 10-Q. Except as guided by law or the listing rules of the New York Stock Exchange, the company expressly disclaims any intent or obligation to update any forward-looking statements. Additionally, in our discussion today we will reference certain non-GAAP financial measures and information about these measures and reconciliations to the most comparable GAAP financial measures are included in our press release and our Annual Report on Form 10-K.

Today, I'm joined by Ed Pesicka, our President and Chief Executive Officer; and Andy Long, our Executive Vice President and Chief Financial Officer.

I would now like to turn the call over to Ed, who will start things off. Ed?

Edward A. Pesicka -- President and Chief Executive Officer

Thank you, Chandrika. Good morning, everyone. I appreciate you taking the time to join us on the call today. As I reflect back on the call from a year ago, we were still unsure of what COVID-19 pandemic had in store for us, but here we are today, continuing to battle the impact of COVID-19. At Owens & Minor, we are incredibly proud of the small role that we have played and that we will continue to play in this battle. It is our hope that it will soon be behind us so that we can serve our customers beyond their pandemic needs. However, in the meantime, I would like to again thank all the Owens & Minor teammates along with all the frontline workers for their dedication, sacrifice and commitment to winning this battle.

From a business perspective, the Owens & Minor team certainly stepped up in 2020. I am also very pleased with our continuation of the momentum and the utilization of our solid foundation built in 2020, which has enabled us to deliver a strong start for 2021. This strong start includes our record first quarter along with our raised guidance for the full year. And while it may be some time until we return to a more normal earnings pattern, it should be clear that we deliver on what we say we are going to do. In fact, delivering on our commitments is ingrained in our values, and core to everything we do, whether working with customers, suppliers, teammates, or shareholders.

And we have the Owens & Minor business blueprint as the foundation to continue to perform at the highest level and sustained success. The blueprint consists of our culture, our business discipline and our investments, all of which are designed to provide long-term profitable growth. The investments in the business, our constant drive for operational excellence and our customer-centric culture continues to pay off. And as I've said in the past, we will focus on the long-term, you should expect a regular cadence of the following. Infrastructure investments across all business lines to stay ahead of the customer requirements and the non-stop pursuit of operational excellence, with the expectations that we get better every day.

Although it's still early in the year, we are well under way with reinvesting in the business. Here are just a few examples: One, we are developing a broader product portfolio and leveraging our manufacturing strength and brand equity. Two, we are expanding into new verticals to sell more products into different end markets. Three, we are selling across our businesses as one Owens & Minor. Four, we have begun to expand our own manufacturing capability for nitrile gloves in our existing factory, allowing us to have greater control and improved cost structure. And as a result, relying less on external manufacturing partners. Yes, we continue to invest in technology like Qsight and myOM to ensure our offerings are among the best. Our technologies provide our customers with important data that is usable, timely and reliable, while assisting our customers in managing their supply chain.

And finally, we are also investing to provide customers with the best blend of both technology and touch across our distribution network. We do this so that we are able to meet our customers' particular needs with the ability to be flexible, while scaling quickly rather than force them into a cookie-cutter, an unscalable solution. We will be sharing more examples throughout the year, but again, we are committed to reinvesting in the business for long-term profitable growth.

Now, let me dive a bit into the first quarter. During the fourth quarter earnings call, we told you that the momentum of 2020 would carry into 2021, and the year would begin much like 2020 ended. And that is certainly playing out. It is great to see the strong start with the first quarter better than the prior-year fourth quarter, which is, rare. However, the strong first quarter as a result of all of our businesses continuing to operate at a very high level of efficiency. Starting with Global Products segment. We continue to optimize our production to meet the ongoing elevated demand for PPE. This performance translated into very strong operating income and our Global Products business continues to hit on all cylinders.

And within our Global Solutions segment, the medical distribution again shows operational excellence as we continue to provide best-in-class service and demonstrated the resilience that had been missing in recent years. With the outlook for elective procedures improving and our stable customer base, this business is expected to continue to improve. And once again, our Byram, Patient Direct business continued to grow nicely as a result of strong operational execution, combined with growth investments into e-commerce and portfolio expansion. We continue to be excited due to this business being very well positioned and an extremely attractive part of healthcare.

In addition to the operations, it's important to note that we ended the quarter with a balance sheet that we are proud of and one that provides us flexibility to invest and grow. In the first quarter, we paid off another $44 million in debt, reducing our debt to below $1 billion, the lowest level since 2018. Our leverage is comfortably below 3 times and our credit profile has significantly improved, which led to the recapitalization during the first quarter that gives us a financial platform for growth.

Now turning to the rest of the year, focusing on several key factors including elective procedures, PPE demand, opportunity pipeline and expectations of our Byram Patient Direct business. Related to elective procedures, we have good line of sight a few months out and continue to believe elective procedures will gain traction towards pre-pandemic levels. This expectation is consistent with our customer's outlook, but the timing and the extent of the return to normalcy remains less clear. However, as a data point, elective procedure activity continue to increase throughout the first quarter with an acceleration in March and we see this momentum continuing into Q2.

Next, we continue to believe PPE demand will work its way back towards a new normal and pricing will moderate as the year goes on. Although today, demand remained strong. We still believe ultimately the long-term demand for PPE products will be below the peak levels but well above the pre-pandemic levels. Also, we remain very engaged with government and industry to address the future of PPE manufacturing and supply. Our largely North American owned and operated manufacturing resources and capability will continue to be a distinct advantage for us.

As we think about our medical distribution business, we like how we are positioned. Our pipeline of opportunity has never been larger, and I regularly witnessed how well our value and breadth of offering resonates with current and prospective customers. And finally, I couldn't be happier with the recent performance and outlook for our Patient Direct business. Within this faster-growing part of healthcare, our outlook for new patient capture, recurring revenue and stellar management of the reimbursement cycle will lead to another good year.

The strong start to the year as a result of our strategy and operational execution resulted in our record first quarter. The continuation of our strategy and execution has allowed us to provide new guidance range for adjusted earnings per share of $3.75 to $4.25 and an annual adjusted EBITDA range of $450 million to a $0.5 billion. As I've talked about before, everything we do is based on the Owens & Minor business blueprint focused on our culture, operational excellence, based on the Owens & Minor business system and strategic investment. This enables us to best serve and provide value for many years to come to all of our stakeholders, including customers, teammates, suppliers and shareholders. We will be shedding more light on all of this at our Investor Day later this month, and I believe you will see why we are so excited about our future.

Thank you, and now I'll turn the call over to Andy, for discussion of our financial results. Andy?

Andy Long -- Executive Vice President and Chief Financial Officer

Thank you, Ed, and good morning, everyone. Today, I'll review our first quarter financial results and the key drivers for our quarterly performance, and then I'll discuss our expectations and assumptions for the rest of 2021. We're pleased to report a strong first quarter with good growth in revenue and earnings per share. Earlier today, we announced our revised full-year adjusted net income guidance, which has been increased to $3.75 to $4.25 per share, and our full-year adjusted EBITDA projection of $450 million to $500 million based on our current outlook for the remainder of the year. I will elaborate on all of these in my remarks today.

Beginning with the top line, revenue for the first quarter was $2.3 billion, compared to $2.1 billion for the prior year. This represents 10% growth that primarily occurred in our Global Products segment as the momentum that we achieved as we exited Q4 carried into Q1. As we guided last quarter, we've experienced, and we'll continue to see higher nitrile glove acquisition cost relative to last year. And as previously discussed, higher glove costs are being largely pass through resulting in higher revenue. In Q1, there was a revenue lift of approximately $160 million due to this dynamic.

Also, I want to remind you that the bottom line impact is expected to be minimal over time, but in any particular quarter, this could have a positive or negative impact on earnings due to the timing of when price and cost changes hit the P&L. We have raised the expected revenue impact of the pass-through of these cost increases to $700 million to $800 million for the year.

Turning to gross margin. The first quarter was 19%, an improvement of 638 basis points over the prior year due to strong revenue growth with favorable mix comprised of higher margin sales from the Global Products segment, favorable timing of the pass-through of glove costs, as well as improved operating efficiency. Distribution, selling and administrative expense of $293 million in the current quarter was $39 million higher compared to the first quarter of 2020 to support top line growth and to fund ongoing investments across all business lines, net of productivity gains.

Interest expense of $14 million in the first quarter was down over 41% or $10 million lower than the same period in the prior year. This improvement was due to continued debt reduction as a result of our disciplined approach to capital deployment, coupled with lower effective interest rates resulting from the improvements in our capital structure. I will elaborate on this later in my remarks.

The combination of our strong execution across the business and strength in Global Products coupled with productivity gains resulted in adjusted operating income for the quarter of $163 million, a fivefold improvement of $135 million compared to prior year. Adjusted EBITDA for the first quarter was $176 million, which was up $135 million or more than three times higher year-over-year. On a GAAP basis, income from continuing operations for the quarter was $70 million or $0.98 a share.

Adjusted net income in the first quarter was $111 million, which yielded in adjusted EPS for the quarter of $1.57 and represents an almost fortyfold increase compared to Q1 of last year. The year-over-year foreign currency impact in the quarter was favorable by $0.06. Additionally, it's important to remember that there were 10.4 million more shares in the first quarter 2021 EPS calculation than in the prior year as a result of the equity offering from the fourth quarter.

Now I’ll review results by segment for the first quarter. Global Solutions revenue was essentially flat year-over-year at $1.85 billion. The segment saw continued top-line growth in our Patient Direct business, along with higher sales of PPE through medical distribution. Revenue was negatively impacted year-over-year as a result of having one fewer selling day in the quarter. Additionally, volume associated with elective procedures began to improve as we exited the quarter. However, it was still slightly behind where we were in Q1 of last year. Global Solutions operating income was $8.9 million, an increase of 15.6% compared to $7.7 million in the first quarter of last year as a result of productivity and efficiency gains on the back of our largely stable cost base in our medical distribution business.

Turning to our Global Products segment. Net revenue in the first quarter was $659 million, compared to $391 million last year, an increase of 68.4%, which was driven by significant growth in PPE, including the previously discussed impact of higher glove prices, slightly offset by the impact of lower elective procedures. Operating income for the Global Products segment was $164 million, nearly an eightfold increase versus $19 million in the prior year's first quarter. The increase is attributable to higher revenue resulting from PPE capacity expansion, favorable timing of cost pass-through in gloves, productivity initiatives, favorable product mix, improved fixed cost leverage and operating expense discipline. Foreign currency impact was favorable on a year-over-year basis by $5 million.

Now let's turn our focus to cash flow, the balance sheet and capital structure. In the quarter, we generated $25 million of operating cash flow, which was $68 million lower than the same period last year, primarily due to higher levels of working capital to support growth in the business. During the quarter, we achieved another milestone in our financial strategy by successfully issuing $500 million of senior unsecured notes due in 2029 while entering into a new five-year $300 million revolving credit facility and amending our three-year $450 million accounts receivable securitization facility. These actions provide additional liquidity and lower-cost financing that enhances our operational and strategic flexibility as well as extending our debt maturity profile with no maturities until 2024.

Our continued focus on enhancing our capital structure has resulted in significantly improved credit ratings. We were upgraded by all three credit agencies during the first quarter and expect further upgrades during the year. Accordingly, total debt at the end of the first quarter was $982 million, a reduction of $44 million versus year-end. I'd like to note that despite the working capital requirements associated with top-line growth, we were able to lower the debt load and maintain our leverage profile well below three times EBITDA. We are very well positioned financially to execute our growth strategy by continuing to invest across our businesses.

Turning to guidance for the year. Earlier this morning, we revised our guidance for 2021 upwards as our visibility into the third quarter improved. Our revised adjusted EPS guidance is now in the range of $3.75 to $4.25 per share and adjusted EBITDA guidance is in the range of $450 million to $500 million. Let me walk you through the assumptions that went into developing our guidance. We now expect revenue to be in the range of $9.6 billion to $10 billion, which will be driven by several factors.

We now have improved visibility of the PPE market into the third quarter. While the timing is uncertain, we continue to expect post-pandemic PPE volume to normalize at levels lower than what we experienced during the peak, yet higher than pre-pandemic levels due to post-COVID changes in regulations, practices, and protocols in the healthcare industry. Our recently installed PPE capacity is expected to achieve full utilization during the first half of the year. And our recently announced glove manufacturing capacity expansion should begin contributing to our financial results in early Q1 of next year.

Continued strength in Byram, our Patient Direct business as a result of strong growth and the benefits of our investments to improve our B2B and B2C offerings. We continue to expect elective procedures to return to pre-pandemic levels during the second half of the year and should pent-up demand for electives exceed pre-pandemic levels, there could be upside to our forecast. We expect further cost increases on the portion of our gloves that we source externally and have increased our expected pass-through of these costs in the range of $700 million to $800 million for the full year.

Gross margin rate is now expected to be in the range of 15.4% to 15.7% in 2021. Fluidity and the timing of glove cost pass-through is expected to be a headwind on EPS in the second half. Sudden unexpected declines in the market price of gloves could result in downside to our adjusted EPS projection. Interest expense is expected to be between $45 million to $50 million for the year, reflecting lower debt levels and the benefit from our recent debt refinancing. EPS guidance is based on 71 million shares outstanding.

Starting this quarter, we will be providing guidance on adjusted EBITDA and for the year, we expect it to be in the range of $450 million $500 million. Finally, I'd like to remind you about the calendarization of earnings in 2021. As previously guided, we don't expect to see the typical seasonal pattern of earnings. Specifically, we expect adjusted EPS to be weighted toward the first half of the year. Please note that these key modeling assumptions for full-year 2021 have been summarized on supplemental slides filed with SEC on Form 8-K earlier today that's been posted to the Investor Relations section of our website.

Over the last several quarters, we have demonstrated our ability to consistently deliver improved financial results and enhancing our financial profile despite the challenging business environment. We continue to make progress on our strategic goals and we are well positioned for growth in the future.

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

Michael Cherny -- Bank of America Merrill Lynch -- Analyst

Good morning, and congratulations on another very solid quarter.

Edward A. Pesicka -- President and Chief Executive Officer

Thanks, Mike.

Michael Cherny -- Bank of America Merrill Lynch -- Analyst

So, I want to just dive in on this commentary you have on PPE and as you think about the future. So many of the questions I think that you and so many others are trying to answer is what does Owens & Minor looks like in a post COVID world, whatever that means. And so, as you think about the conversations you're having with your both customers and prospects, now, what are they telling you in terms of how they foresee PPE being used and whether it's gloves, masks gowns, whatever it might be, but all of the products that you sell in this future state that gets you comfortable with that well above pre-COVID level?

Edward A. Pesicka -- President and Chief Executive Officer

Hey Mike, this is Ed. So thanks for the question, and thanks for joining us today. So, I think we do spend a significant amount of time listening to our customers, and a couple of things we're hearing is what they've proven during this pandemic is that the high utilization of PPE has drastically reduced infection spread, which is critical, no matter what you're doing in the hospital. And the other thing they're telling us is that they believe that the healthcare protocol they put in place to solve that problem have been in place now for a year, and they expect those protocols and just the daily usage of PPE again, it remains significantly above where it was pre-pandemic. The amount of changes of PPE is -- continues to be at the high level.

In addition to that, we've had some customers say that while the shortage lasted they were using certain -- excuse me, reusing certain aspects of PPE that now they're getting away from reusing it to now going back to more disposable because they have the ability to get more of that. So that's why we believe it's going to be drastically higher than where it was pre-pandemic. It will be slightly lower than it was at the peak. And that's, we believe that because we think stockpilings can -- stockpile is part of the reason why we think it would be slightly below that peak. But we still see customers continuing to build stockpiles or we're building stockpile for them, or we're creating idle capacity in our production lines. So that way, should there be another pandemic, we have the ability to provide the product for them.

The other aspect of this, if you think -- start to think about it is beyond the healthcare field. Currently, we're not selling to non-healthcare industries whether that's retail, international and consumers. There is opportunities for us once we get our customers completely satisfied with their PPE over the long term. They continue to move into more or new adjacents or verticals with that product too. So I think, Michael, it's really the combination of the two things. It's back to you, hey, healthcare protocols have changed. It changed drastically, it's validated the fact that if you constantly use PPE and use it appropriately for the clinicians as well as anybody entering the hospitals, you can drastically reduce the spread of infection. Those protocols are in place. We expect those to continue. And that's why we expect to be much higher than it used to be.

I think we continue to have the need for medical-grade PPE. You have stuff that was being reused, no longer being reused. We have stuff that's part of the emergency use authorization, that that’s being removed that now they want more medical-grade and opportunities beyond healthcare for us to expand in other markets. That's what we're seeing, and that's why we expect this to continue that demand to be well above pre-pandemic levels into the future.

Michael Cherny -- Bank of America Merrill Lynch -- Analyst

And just along those lines, as you think about your Global Products business in particular, especially given the strong financial position, the company is in at this point in time, how do you think about building out that portfolio? And essentially, given the window you’ve had into your client's infrastructure, especially during COVID, how do you think about where the portfolio sits right now versus other opportunities that you could have to drive incremental value over time?

Edward A. Pesicka -- President and Chief Executive Officer

Michael, that's exactly -- you bet. That's exactly right. And we're going to talk a lot about that on May 26 at our Virtual Investor Day. Really, that's one of the key drivers for us to ignite growth going forward. That's focused on that portfolio expansion. We've got multiple great brands in the market. We got Halyard, we got MediChoice, we've got other brands. And it's going to be the ability to broaden that product portfolio with our brands that's going to drive and Ignite significant growth moving forward. But just to leave the teaser out there, please plan on joining us May 26 at our Virtual Investor Day, where Chris Lowry who runs that business is going to go into this in much greater detail.

Michael Cherny -- Bank of America Merrill Lynch -- Analyst

Yeah, I will certainly be there. Thanks for the questions.

Operator

Thank you. I show our next question comes from the line of Daniel Grosslight from Citi. Please go ahead.

Daniel Grosslight -- Citi Research -- Analyst

Hi, guys, thanks for taking the question, and congrats on the continued momentum here. Product margins continue to come in much better than we industry are anticipating. It's up around 750 basis points sequentially. You mentioned some of the drivers of that outperformance this quarter but was curious if you could put a finer point on the particulars there. How much of that margin outperformance was due to this glove price cost mismatch this quarter? And as we think about the rest of the year, should we think about run rate closer to where you ended last year in products margin?

Edward A. Pesicka -- President and Chief Executive Officer

Sure. I let Andy start, and then I'll add some color on the -- at the end.

Andy Long -- Executive Vice President and Chief Financial Officer

Yes, good morning, Daniel. So, yeah, so in terms of a very strong quarter, in terms of gross margin and overall bottom line performance, sequentially, gross margins up over 200 basis points from where we were in Q4. And I think a lot of that is, as we talked about the continuation of the momentum that we saw coming out of Q4 going into Q1 of this year as we approach more of the full utilization of the prior investments that we have put into place with our PPE capacity expansions. We're continuing to get the benefits of the volume and the fixed cost leverage and the efficiencies that have come through in the quarter and in the products business.

And another dynamic in the quarter, as you pointed out is this is really the first quarter where we've started to see the impact of the change in glove costs that are being passed through to us from the manufacturers where we actually do purchase gloves from the piece that we don't manufacture internally. And so the dynamic there is that the price changes in the market can be -- the market price changes can take effect much quicker than the cost changes. Remember the cost changes take time because of delivery times overseas and then they have to work their way through inventory. So there is a delayed effect. So those are really the two key contributing factors to the sequential gross margin improvement.

And then, looking long term, first of all, I would point you to our full-year guidance on gross margin for the year, in that mid-15% range. And that really reflects the fact that the timing benefits of the glove cost pass-through will even out in the second half of the year. So I think that would be kind of more of that long-term view looking toward the guidance that we provided.

Edward A. Pesicka -- President and Chief Executive Officer

I think Daniel, first, thanks for joining us on the call today. Also and -- I'll add -- those two comments are spot on. It's either -- you have timing on the gloves as well and that will balance out as the year progresses. And obviously, we have our margin projections for the full year that we disclosed. But the other side really is continuing to get fixed cost leverage and drive operating efficiencies. I talked about it, and make it as simple as this is we have to find ways to get better every single day. Whether that we really leverage our Owens & Minor business system and that continuous improvement. Frankly, when you think about the amount of additional product we have coming off our lines, the amount of volume we push through our factories, we are continuing to learn how to be more productive and more efficient in the manufacturing of that PPE. And I think that also shines through in the first quarter as we're at continuing to produce as much product as we possibly can.

Daniel Grosslight -- Citi Research -- Analyst

Got it, OK. And then on your capital deployment priorities, you mentioned that you're investing in the business in working capital and inventory. Curious on your philosophy of continued debt pay down versus share repurchase versus a dividend increase for this year and next. How are you thinking about those capital deployment priorities outside of the investment in the business?

Edward A. Pesicka -- President and Chief Executive Officer

Yeah, I want to at least cover the investment in the business, and then we'll talk a little bit about the capital deployment outside investment. I think, Dan, what’s important to understand is what we are not going to do is get caught flat-footed as the market continues to adjust. So we were clear, we invested in operational investments as well as inventory because we anticipated elective procedures to start to ramp back up. And that's exactly what they did at the end in March. They really accelerated in March and we made sure that we have the right inventory and right operational expertise there to be able to deliver on that. So we put that as a key priority because that continues to build customer trust and continues to provide long-term partnership, long-term profitable growth for the business.

On the capital deployment side of it, I think the way we'll think about it is – obviously, Andy has talked about this a lot. We are going to have a disciplined capital investment approach. We are going to focus on opportunities to invest for long-term profitable growth within the business. And I think related to dividend, the way we think about it right now, there are tremendous amount of opportunities we have to invest that we believe can provide that long-term profitable growth at high levels, and that's going to be our primary focus.

With that let me turn it over to Andy to add maybe a couple of more comments on how we progress, you know, see our debt and debt leverage going forward.

Andy Long -- Executive Vice President and Chief Financial Officer

Absolutely. Thank you, Ed,. So, in terms of -- as that said, our capital deployment strategy and process being very disciplined and I agree with Ed. I think the priorities in the business are reinvesting in the business and that manifests itself in both in operating. If you'll see that hitting the P&L through operating expense investments as well as you'll notice in the quarter, we did increase our guidance on capital expenditures for the year. So we do plan to expand our investments on both fronts. And looking long term, I think the cash flow that's being generated with the business will be -- will have ample funds to fund those investments in the business and still have cash flow left over to continue to make the improvements that we've seen in our balance sheet. And we're still targeting to be in that two to three times leverage range and quite frankly being at the lower end of that range is very realistic in the short and long-term.

Daniel Grosslight -- Citi Research -- Analyst

Got it. Thanks, guys.

Operator

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

Jailendra Singh -- Credit Suisse -- Analyst

Thank you, and good morning. Congrats on a good quarter. I actually want to better understand the Global Solutions revenue trends in the quarter coming in at flat year-over-year, but down 5% sequentially. Can you provide some of the factors that drove sequential decline in revenues in that business? And excluding the impact of glove cost pass-through, do you expect that business to sequentially grow for rest of 2021?

Edward A. Pesicka -- President and Chief Executive Officer

Yeah. So, Jailendra, this is Ed. Thanks for joining us on the call. Yes, so I think first and foremost, so that business is really made up of two items, it's our medical distribution and our Patient Direct business, our Byram business. In both of those business, we're negatively affected by one less billing day in Q1 this year versus Q1 last year. So that was one of the impact on it. You think about it, it's a consumer-based business, if we have less days in the quarter -- less billing days, we have less revenue. I think there is a clear expectation and we're seeing that already for that business to continue -- that business should be able to continue to grow.

We look at that business in a lot of ways, the business, when I say that business, the medical distribution, we're sitting there with net new wins. So PPE aside, we've got net new wins that we're beginning to implement. We started to implement many of those at the end of Q1. In addition to that, we've seen elective procedures starting to ramp in March, and we expect that to continue through the year. And like I just spoke earlier, we are well positioned on that to make sure we have the ability to capitalize on that as the elective procedures start to ramp, where there are ready to serve.

I haven't talked about this, but our pipeline of opportunity in our medical distribution is greater than it's been in my two years that I've been here. There are more opportunities for us to continue to capture and then capture new wins. The reality is though any of those you do it takes probably six to nine months until you start to implement those. So those would be late in the year as possible.

In addition to that in Global Solutions, we continue to work with our customers to renew contracts in advance of the expiration. So that way, you don't have that risk when it's out there. If you look at our Patient Direct business, that's part of it, we continue to grow our existing relationships with our customers and broaden what we do for them. We're entering into new relationships to expand our market opportunities in various existing chronic conditions that we currently support.

In addition to that, we've invested in our Patient Direct business in pursuit of organic growth in under-penetrated areas. So those are all the reasons why we expect this segment to continue to be strong and strengthen as the year progresses. And I think the first quarter is really a result of you look at it year-over-year, again, one less billing day year-over-year that had a slight impact on it.

Jailendra Singh -- Credit Suisse -- Analyst

Yeah. Actually, can I have a follow-up on your comment around Byram Patient Direct business? Can you be more specific, like what are the key drivers, kind of driving the outperformance there? And how much of that is sustainable? And maybe talk about some initiatives you're focused to further drive growth in that business.

Edward A. Pesicka -- President and Chief Executive Officer

So I'll just cover a couple, which I just briefly touched on before. So we did -- we looked at our commercial organization and did an analysis across the U.S. and we recognize there are some pockets where we were, we call it out, we were under-penetrated. And we actually invested in new commercial resources in those areas to capture share in different parts of the U.S. where we already have relationships with the payers. So that's one example of a simple investment. Another is with we brought on a new line in an existing chronic category that we were in, it was just a -- it was an expansion of additional products within that line, where we're seeing significant growth.

And then lastly, our presence in diabetes. We have a strong presence in diabetes. And that is one of the fastest growing areas of healthcare, that's also driving the ability to grow. And then you look at it more from a macro level, Jailendra, you think about home health. But one thing the pandemic has proven is home health is here to stay. And it is going to -- we believe it's going to be able to continue to grow at a very fast pace. And we believe that because we can impact 85% of insured Americans with our contracts and relationships as that grows, we have the ability to grow.

Jailendra Singh -- Credit Suisse -- Analyst

Okay. And one last one quick here. With the sequential decline in EPS from first half to second half this year, which you are indicating and the guidance seems to imply. Are you still comfortable with the double-digit EPS growth in 2022? Because a double-digit growth next year would imply a much higher growth compared to second-half run rate. Maybe just provide quick color there.

Edward A. Pesicka -- President and Chief Executive Officer

Yeah, we haven't disclosed 2022 guidance yet, and that will happen later in the year.

Jailendra Singh -- Credit Suisse -- Analyst

Okay, thank you.

Operator

Thank you. I show our next question comes from the line of Robert Jones from Goldman Sachs. Please go ahead.

Robert Jones -- Goldman Sachs -- Analyst

Hi, good morning. Thanks for taking the question. And I guess just to go back to some of the rationale behind the guidance raise, it sounded like improved line of sight was a part of that. Obviously, seeing ahead in this pandemic window around PPE is obviously challenging but interested in those comments. Could you maybe share a little bit more detail regarding how you're expecting things to trend relative to the results you posted this quarter? And I couldn't help but notice you mentioned a few times that PPE volumes obviously normalizing at some point beyond peak levels. Are we at peak levels today as you think about the line of sight over the balance of 2021?

Edward A. Pesicka -- President and Chief Executive Officer

Yeah. I would say, right now, if I think about where we are as a company, we are probably at that peak level. Our machines are running -- outside of gloves, let me separate gloves from this conversation, so all the investment we made, we're still running at capacity, we still have strong demand. And I think this is what's -- the other aspect of why we think it continues with us, it is -- we're one of the few companies that actually manufacture our own product. We're one of the few companies that manufacture on scale. We're one of the few companies that manufacture the entire suite a broad-based portfolio line of PPE.

So all of those become important because you can come to one location and get fit tested for N95, so we can provide all the product that's needed versus having to work with 30 or 40 different smaller manufacturers. I think that's something why we see ourselves at peak and that extending for an extended period of time, plus some of the longer-term relationships. We work with all the support -- we work with our customers because of all the support we provided them during the pandemic. So that's critical.

The one area I would say no on is our glove manufacturing. So we talked last quarter that we are doing a significant investment in our factory in Thailand to expand our gloves. In addition, a part of that investment, we are doing is we're continuing to enhance our employee workspace too. So we're really setting that up for growth of our own manufacturing of gloves. That's the one area where there still is constraints, and it gives us the ability to help fill some of those demands. I would say that gloves is still not at its peak. And that's how we see that PPE space going forward.

Robert Jones -- Goldman Sachs -- Analyst

No, that's helpful. And I guess maybe just one big picture question, and I have a feeling we'll probably wait for the Analyst Day for more on this. But clearly improving the balance sheet has been a big focus as you and Andy discussed in the prepared remarks. As you think about that normalized PPE level below peak but above historical trend and then thinking about where you are on the distribution side and obviously that will recover, you would imagine as the industry and utilization recovers. Did you think about adding, like a third leg to the stool or when you think about capital deployment and investment, is it really more within the two businesses that you currently obviously operate today?

Edward A. Pesicka -- President and Chief Executive Officer

Yeah, we are going to cover that in little more detail up on May 26 of where we are going to be investing. But I think, let's hold it until then if we can because – I can start to get into it here, but it will take a long period of time, but I would prefer holding it to May 26 when we talk about capital deployment, our M&A strategy as well as our investments into what businesses we're going to invest in.

Robert Jones -- Goldman Sachs -- Analyst

That's fair. Looking forward to it. Thanks, Ed.

Edward A. Pesicka -- President and Chief Executive Officer

Yeah.

Operator

Thank you. I show our next question comes from the line of Eric Coldwell from Baird. Please go ahead.

Eric Coldwell -- Baird -- Analyst

Thanks. Good morning. I was hoping you could just hit quickly on cash flow, the influences in the quarter, and then how you see cash flow phasing through the year. And I have a couple of follow-ups. Thanks.

Edward A. Pesicka -- President and Chief Executive Officer

I'll let Andy take that one.

Andy Long -- Executive Vice President and Chief Financial Officer

Yeah, good morning, Eric. So, as we look at cash flow, cash flow in the quarter generated about $25 million and that was lower than where we were last year at this time. And there's really a number of factors driving that lower cash flow figure. And I think probably, first and foremost is working capital investment. So, with growth in the business, we're continuing to invest in working capital. I think the good news is that accounts receivables performing as we expected. Days are in line with where we wanted to be. Our aging profile is good. Inventory is up, that's consuming cash, but again, that's a very proactive, meaningful investment in inventories that is talked about, right. We want to maintain service levels. We want to put inventory in advance of new customer wins. We want to make sure inventory is available, should elective procedures tick up. And when they did tick up, we were ready for it. So that's all very purposeful and intended investment.

I'd say we're -- probably, the drain on working capital is historically when inventory is up, you get a nice offset in your accounts payable, and that's not happening for us. And a key driver of that is really it comes back to gloves. You've seen the impact of the glove manufacturers, third-party manufacturers in Asia, the influence that they’ve had on pricing. We've talked about that a lot. Well, they also have influence on payment terms. So what we're seeing is that we're accelerating payments in some cases to glove manufacturers. The cycle time then to get the product into that -- into the United States has been delayed as the backups in the West Coast with the ports getting product in, so that's caused the delay. And the combination of the two, Eric, has really led to the fact that we're seeing longer cash collection cycle times. And that's caused a little bit of a drain on working capital.

Now, again, over time we expect that to work out and even out and improve as we move through the year, but it certainly played a big factor in the first quarter. Just another comment on cash flow that's unrelated to gloves. Just to note that while we did increase our guidance on capital investment, capital expenditures, that also will be very tail-end-loaded. So, our guidance is in the $80 million to $90 million for the year. I think we spent less than $6 million or $7 million in the first quarter. So expect that to have a drain in the second half of the year.

Eric Coldwell -- Baird -- Analyst

That's a great answer. Thanks for that. The other one I had remaining was just maybe putting a little more pressure on to see if you would actually quantify the impact of the time -- the profit timing on the nitrile gloves. In the quarter, we all realized that that is expected to be net neutral to profit over time. But it would be helpful to understand the actual influence in Q1. I don't know if you want to do dollar terms or percent of the operating margin increase in Global Products or however, but a little finer point on the actual influence of that would be I think very helpful to everyone.

Andy Long -- Executive Vice President and Chief Financial Officer

Sure, Eric. So I guess the two data points that I would point you to in the quarter would be the top-line impact of the $160 million and again, the guidance that we've tried to provide on the full year of the $700 million to $800 million impact. So that's one data point. And in terms of margins, while we haven't really disclosed any of the many drivers of our gross margin improvement, the one point that I would probably turn to is just looking at the sequential profit to change in the Global Products segment from Q4 to Q1, the 75% pull-through that we saw sequentially. So that might be another data point to help quantify the impact. But you're absolutely correct that we expect that tailwind to become a headwind in the second half of the year as cost catches up with the price increases. And over the long period, long term, we expect as those prices and cost normalize, that impact in total over that period will be very minimal.

Edward A. Pesicka -- President and Chief Executive Officer

Even with that, that balancing and through the year, front half versus back half of the year, we're still extremely comfortable and confident in our new range that we put out there.

Eric Coldwell -- Baird -- Analyst

Yeah. No, that's great. So, not unreasonable to assume Global Products margin would have been somewhat similar to second half '20 absent this impact?

Andy Long -- Executive Vice President and Chief Financial Officer

I think for modeling purposes, I think that's reasonable.

Eric Coldwell -- Baird -- Analyst

Yeah. Thanks very much, guys. I appreciate it.

Operator

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

Kevin Caliendo -- UBS -- Analyst

Thanks. Thanks for taking my question. I wanted to talk a little bit about the Solutions margin. Yeah, I know there's some seasonality to it and you talk about some of the improvements. Was there anything one-time in nature that affected margin this year other than sort of the volumes? And how should we think about the progression? I know it increased year-over-year. Is there, should we expect sort of a year-over-year improvement similar to what we saw in terms of absolute basis points on a quarter-by-quarter basis? You said it would improve over the course of the year. I'm just trying to understand how to think about modeling the operating margin for that business going forward.

Andy Long -- Executive Vice President and Chief Financial Officer

Yes, good morning, Kevin, it's Andy. And again, thank you for joining us today. So looking at Global Solutions margins in the first quarter, and specifically, looking at it sequentially from Q4. So we did see the volume drop off sequentially Q4 to Q1 on the top line. Again, key drivers is historical seasonality and also just a slight easing of the pandemic volumes. And then you see the corresponding margin change as a result of volumes. That's one of the key drivers. Also, there is an element of seasonality in the Global Solutions business. And in particular, it's driven by the -- our Patient Direct Byram business. And the reason for that is, as you get into the first quarter of the year, you see a change in your payer mix, right. So you see it more weighted toward the individual or the consumer as opposed to the payer. And that's because the individual has not yet met their deductibles.

And with that mix shift, more toward the payer, we appropriately reserved for that payment or collection risk that's associated with that. And again, that eases as you move through the year as the payer mix normalizes and shifts back toward the payer. And then we continue to invest in the business and drive productivity. So I think those are really the four dynamics that look at -- that drive that business sequentially. And in longer term, as we look at that business, again, the Patient Direct business continues to perform very strong and that continues to drive solid margins and in the Medical Distribution business, as we've said, it's really a fixed cost leverage gain, right. So it's the additional volumes that we can put through that business should generate additional fixed cost leverage in that business.

Edward A. Pesicka -- President and Chief Executive Officer

And I'll add just a little bit, just to comment on some of those investments. I talked about it earlier, not only we invest in inventory and working capital, we also invested in some operating expense for one, elective procedures ramp up, and two, for new wins. So we wanted to make sure, when we get -- we do have a new win. We will actually put the expense in advance of the implementation. So that way, the implementations are flawless. And we've had several of those that happened in the first quarter where we did put the expense in advance to make sure we were prepped, and the execution of those implementations went flawless. And I had three customers reach back out to us complimenting us how -- the only thing they saw was the next day an Owens & Minor truck showed up with [Indecipherable] somebody else's, but they got all the product they needed, stuff showed up on time, it was accurately picked and it was everything they needed. So, we'll make those investments in advance and we did some of that in Q1.

Kevin Caliendo -- UBS -- Analyst

That's great. And just a quick follow-up. You talked about the impact of the gloves and the pull-through this quarter, and how that's going to normalize over the course of the year. But if we think about the net-net-net, the impact that we saw in 1Q versus a normalization expected over the rest of the year. So we think about that sort of normalizing going forward for your gloves business. Is the margin similar to the rest of PP&E? Is it higher? Is it lower? How should we think about that longer term?

Andy Long -- Executive Vice President and Chief Financial Officer

Yeah. We really have not talked about within PPE or within Global Products even specifically any commentary on margin profiles of specific categories or product lines within Global Products.

Kevin Caliendo -- UBS -- Analyst

Well, OK. If I'm to say the pull-through is 75% this quarter, the rest of the year, is it breakeven? Is it still positive to your expectation? Like any sort of help to try to think about that part of the business, so we can kind of back into it. But I think we've all kind of done the PP&E pull-through on margin in the past and try to figure out sort of what it’s been. I'm just wondering if gloves -- if you think that gloves would be typical for the rest of PP&E without giving us numbers, but is it -- would it be higher margin do you think or lower margin than what you're seeing with the rest of your PP&E business?

Edward A. Pesicka -- President and Chief Executive Officer

Yeah, I would say really -- the only thing I could point to, to help you out here would be that the pull-through, sequentially Q4 to Q1 in Global Products was higher than normal. And I'd say that's largely attributable to the dynamic we just described. And then I would look to the full-year gross margin guidance, knowing that probably the big fluctuation is going to happen in our Global Products segment as opposed to the Global Solutions side.

Edward A. Pesicka -- President and Chief Executive Officer

And I think over time, it's been all balanced out too.

Andy Long -- Executive Vice President and Chief Financial Officer

Over long periods of time, that dynamic should even out.

Edward A. Pesicka -- President and Chief Executive Officer

And even in light of that, that's -- we're still extremely comfortable and confident in our new range that we put out there. Even in light of that balancing of it out in the back half.

Kevin Caliendo -- UBS -- Analyst

No, that's helpful. Appreciate it. Thanks so much, guys.

Operator

Thank you. And I show our last question comes from the line of Michael Minchak from J.P. Morgan. Please go ahead.

Michael Minchak -- J.P. Morgan -- Analyst

Yeah. Good morning, and thanks for taking the questions. So just putting aside the unique dynamics with respect to the exam gloves, can you talk about what you're seeing with respect to current pricing trends in the spot markets for other PPE categories? Do you still see prices elevated relative to historical levels? And I guess, once supply demand does begin to normalize, what are your assumptions around where we could ultimately see spot pricing go relative to pre-pandemic levels? Just trying to better understand the dynamics at play there.

Edward A. Pesicka -- President and Chief Executive Officer

Yeah. So we see spot rate -- pricing continuing to be fluid and we talked about this in the fourth quarter -- about in the fourth quarter. We do see spot pricing coming down from the peak of pandemic. But we still are -- our pricing -- because we have contractual relationships with our customers are below spot pricing -- spot by pricing, which is what we've tried to live through the processes. Whatever contract pricing we have, we're going to honor that versus going out and adjusting based on spot price.

So we are seeing them come down. We did see gloves go up drastically. We're starting to see that balance out. And again, new gloves is probably the exception right now, the outlier on that. But we would anticipate to continue to adjust as we go forward. But again, I think what's critical is, we think the usage and demand for PPE will remain much higher than it was before. This business was profitable at pre-pandemic pricing and it will continue to be profitable post-pandemic pricing, which we expect obviously, demand to be much higher than it was before, which enables us to get significant throughput and leverage in our manufacturing facilities.

Michael Minchak -- J.P. Morgan -- Analyst

Got it. That's helpful. And then maybe just a quick question around GPO contract renewals. Can you talk about how you see those, sort of, playing out and how that impacts your results, I guess, maybe relative to what you've seen in the past around those renewals?

Edward A. Pesicka -- President and Chief Executive Officer

Yes. We recently renewed Vizient, that's a two-year. We're continuing to work with our two other GPOs, HealthTrust and Premier. And look, we've got great relationships with them. And I think during the pandemic, we've really strengthened that relationship, we did everything we could to help all of their members. We expect to continue to work with them and move forward.

Michael Minchak -- J.P. Morgan -- Analyst

Got it. Thanks for the comments.

Operator

Thank you. That concludes our Q&A session. At this time, I'd like to turn the call back over to Mr. Edward Pesicka, President and CEO for closing remarks.

Edward A. Pesicka -- President and Chief Executive Officer

Well, let me first start by thanking everyone for joining us on the call today. Let me also add a comment that I would like to thank all the Owens & Minor teammates, who really had the privilege to work with side-by-side and help over the last two years and the amount of effort and work that our teammates have done to go out and support the cause to fight this COVID 19 side-by-side. And I would be remiss not to thank the frontline workers who have basically done everything they possibly could over the last 14 months to 15 months in this battle.

I'll close by adding this is, pleased with what -- the way Q1 started. And the year -- and like Q1 was, and the year started. But we still have a lot of year left in front of us and a lot of hard work ahead of us, which we expect to continue to be successful as we move forward. And then lastly close with, you hopefully -- we'll hope to see everyone May 26, virtually see everyone May 26. We need to more going to do a deeper dive into Owens & Minor and how do we ignite growth into the future. So thank you.

Operator

[Operator Closing Remarks]

Duration: 57 minutes

Call participants:

Chandrika Nigam -- Director, Investor Relations

Edward A. Pesicka -- President and Chief Executive Officer

Andy Long -- Executive Vice President and Chief Financial Officer

Michael Cherny -- Bank of America Merrill Lynch -- Analyst

Daniel Grosslight -- Citi Research -- Analyst

Jailendra Singh -- Credit Suisse -- Analyst

Robert Jones -- Goldman Sachs -- Analyst

Eric Coldwell -- Baird -- Analyst

Kevin Caliendo -- UBS -- Analyst

Michael Minchak -- J.P. Morgan -- Analyst

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