Accendra Health, Inc. (ACH) Earnings Call Transcript & Summary

Good morning, and thank you all for joining us today. My name is Michael Minchak, and I'm a member of the health care services equity research team here at JPMorgan. It's my great pleasure to introduce our next presenting company, which is Owens & Minor. The company is one of the leading distributors of medical-surgical products to the acute care market and a leading manufacturer of PPE. Presenting for the company today will be CEO, Ed Pesicka; and CFO, Andy Long, will be joining us for the Q&A. At this point, I'm going to hand it over to Ed to walk through the presentation. And after that, I'll come back to lead the Q&A.

Thanks, Michael. It's great to be here today, obviously, in a virtual setting than live. Let me just first start with the presentation. If I just go to Slide 2, our safe harbor rule -- or our safe harbor disclosure, just give you an opportunity to read through that, either -- if you haven't in advance, take a look at it going forward. So let me just start with Slide 3. And I think the important thing about Slide 3 is we like to talk about how does Owens & Minor go to market. A lot of different parts of the business. We try to make this a little simpler. So frankly, we have 2 public segments. We have our Global Solutions segment, and we have our Global Product segments. Our Global Solutions segment is made up of our traditional acute care distribution business, in addition to that, our home health care distribution business that goes to market as Byram. Internally, we just refer to it as home health care. And then internally, we refer to our acute care as just our Medical Distribution businesses. Those are the big portions of the revenue as well as the profit in that segment. In addition to that is our services. And the services in that segment include QSight, Surgitrack, PANDAC and myOM, which I'll talk about later, which are unique services that provide an opportunity to further embed ourselves with our customers and ingrain ourselves into the customers as well as provide tremendous value for them. The other segment is our Global Products segment, and that's our manufacturing business. Again, our products, our brands, whether it's Halyard, whether it's our MediChoice and the rest of the brands we have out there. So at a high level, one company, Owens & Minor, 2 segments, Global Solutions and then Global Products. Let me start with the products. If I go -- if I just give a quick overview, I'm sorry, if I go to the next slide, to give an overview. I think the thing that's important on this slide isn't not necessarily the things across the top. Yes, we have a tremendous amount of teammates that are working every day to serve our customer base. Yes, we can provide support to thousands and thousands of U.S.-based health care networks. It's really when you think about those businesses I talked about, that distribution business, that Medical Distribution business, the home health care business, the services that tie those together in our products. It's the fact that in our distribution business, we are within several hours of over 80% of the U.S., so ability to get product to the customer when they need it. In our home health care business, the other part of that Global Solutions business, what's unique about that is we have the ability to serve 85% of insured Americans, so a broad-based ability. And then lastly, our PPE manufacturing business and our broad manufacturing business, that being our Global Products business, it really has a strong America-based manufacturing footprint. So let me take a look at -- talk about that manufacturing footprint in a little more detail on Slide 5. So in -- a picture says a thousand words. You can see by this slide where we manufacture. So majority of it is raw material for all of our gowns, N95 respirators, masks, all the products used to make these mask or the material used to make these types of masks as well as isolation gowns, surgical gowns primarily comes out of our Lexington, North Carolina facility. Then we had significant expansion this year, where we brought on significant number of teammates, added new lines, had capital deployments. We expanded and brought on our Del Rio, Texas facility, that's making millions and millions of N95s per month. In addition to that, the rest of our Americas-based footprint, whether it's in Honduras or Mexico. So that's the one thing in that Global Products segment is that Americas-based manufacturing footprint. And here's what else is different is we actually manufacture. In these products, we don't hire third parties to make the product, make it in China, make it in some other country and put our label on it. We manufacture it in our factories with our people, with our process, with our technology, with our raw material. And then we're very close to our customers to be able to get that product to them very, very quickly. If I move on to Slide 6, let me now go and talk about some of our Global Solutions. And let's start with our Medical Distribution business, that traditional acute care distribution business. And there's a lot of information on this slide, where I focus you on is 2 areas. In the middle row on the left, our product choice. The other thing that makes this different is while we are a strong manufacturing business, we have great partnerships with other manufacturers to be able to provide our customers the choice. Making sure our customers have the ability to pick the right product for the clinician and ultimately the right product for the patient. Don't get me wrong, we believe we have some of the best products out there, and we're going to put the thumb on the scale and make sure our customers know about our products, but we're always going to make sure that the customer has the ability to get the best product for the clinician and the customer. And then the other thing I'd point out is this emergency preparedness in the lower left-hand corner of this slide. And why is this important is we've trained and practiced for emergency preparedness, whether it's a hurricane, whether it's other natural disasters. That program that we had in place, we took that off the shelf and implemented it during the pandemic. And that was our ability to flex very quickly and be able to adjust to the market dynamics to best serve our customers. So there are just 2 things within our Medical Distribution, that traditional Owens & Minor acute care distribution business that really create levels of differentiation and showed our ability to service our customers during the pandemic. If I move on to Slide 7. Slide 7 is that services. So you think about the services, I've only highlighted 2 on this slide. One is QSight and the one -- the other one is a new one called myOM. So QSight is simple, it's inventory management within the 4 walls of the hospital. That system has been able to do a couple of different things. It can eliminate waste, which drives tremendous financial value to the customer. It can mitigate risk because now you have true tracking systems of the product. And it ultimately makes the clinicians' experience better. So we've seen a nice uptick in this. While it is the smallest part of our portfolio, it continues to help us embed ourselves with the customer within the 4 walls of their hospital and help them drive operating efficiencies. The next is an investment we made starting in 2019, and we continued through 2020. So when I joined, one of the things I constantly heard from our customers was -- sitting and listening to them was data. We need information, we need data. And I don't need a bunch of information, a bunch of data, I need real-time actionable data. So what did we do? We took that guidance and we created myOM, where now you have real-time information of -- from a customer's perspective of their orders. What's on back order? What's available? When is it going to arrive? What are alternatives? And the ability to get it, whether it's on a device or whether it's on your computer when you walk in the morning. Think about it in a simple format. You walk in, there's 10 key factors you're looking at. In the morning, they're all green. Everything is go, let's continue to operate. Or there's an issue, how do you fix it? Where is the information? And it's real time. It's not lagged and it's not delayed. And where this came in significant, and we continue to hear this during the pandemic, is around 2 areas. And I have a customer that they've continued to talk about this. Continuity of supply, how do I make sure our continuity of supply and supply chain resiliency. And to do that, data is important. And this was our ability to continue to leverage the mass amounts of data we have to give real-time actionable within your touch information to our customer base. Let me move on to Slide 8, and that's around our home health care. So our home health care, one of the fastest-growing market segments, whether it's telemedicine, whether it's home health care. And we operate in several categories like ostomy, wound care, diabetes, urology and other categories. And this is probably the first time I've shown a map of the footprint of our home health care business. So as you can see, we have centers of excellence where we have those categories, where we have expertise, so we can work with our customers. We have an extremely large front-end sales force that's calling on clinicians to make sure the patient can get, again, what's best for them and have it delivered when they need it to their home. So this footprint is impressive. In addition to that, the fact that 85% of insured Americans, we have relationships with payers to make sure we can provide what's right for those customers. If I take and put this all together on Slide 9, so Slide 9 and 10 is really around this. So it's great, you have all this manufacturing business. Okay, you have a distribution business. Okay, you have services within the hospital and home health care. Here's what puts a -- makes a difference. When you think about that entire value chain, we have the ability to service that entire value chain, and it all starts with manufacturing. It all starts with the fact that we can manufacture with our patents, with our technology, with our people, with our process. Frankly, on a lot of our products, the raw materials used to make the product, we actually manufacture ourselves. So we have a significant level of influence over that. Then we manufacture, and we manufacture very well. We have seen huge increases in output in our manufacturing over the last year, both because of operational effectiveness, in addition to that, focused on investment and then actually just pure ramping up of our -- with teammates. So you have that strong ability to influence the manufacturing. Then you have this great distribution network that has the ability to be within several hours of a majority of patients in the U.S. or population in the U.S. In addition to that distribution, I talked earlier, you have a significant influx of other manufacturers' products that can help provide the right product for the customer. Then the ability to deliver it into the hospital, and then use our services like QSight and myOM and SurgiTrack to optimize within the hospital. So the ability to do that through the value chain, again, starting with us as a manufacturer, again -- or frankly, in those products that I talked about, we're not going on and finding somebody in a foreign country to make the product relying on them. We're doing it in our factories, our people, with our quality control and our regulatory affair. If you move to the next slide and take it from the hospital to home health care in Slide 10, that's really the next phase of that. Person goes home, whether it's incontinence, they have surgery, they wound care issues, they have diabetes issues, they have ostomy issues, we have the ability to get to the product to those patients when they move from the acute care facility into the home. So that's really what makes, I believe, Owens & Minor different, is the ability to impact that entire value chain, starting with controlling the manufacturing, because we do it ourselves, to the footprint and distribution, to the expertise of the services within the 4 walls of the hospital. And then as the patient goes home, making sure we continue to care for them. So if I move to Slide 11, here's why I believe this is continuing to be repeatable because this is the blueprint we put in place last year, and we're going to use continuing to go forward. And it starts with these 4 key factors. One is how we operate. And this blueprint can be successful continuing on just like it was at the -- towards 2019 and well into 2020. Our mission and values, that's how we operate. We've got over 15,000 teammates around the world. We use our mission and our values to make sure all 15,000-plus employees and teammates know how we expect them to operate because you can't manage everybody every single day across the organization. Next, our Owens & Minor business discipline. I'm going to talk about this. This is new. This is something that was in place, but now we've taken and we're engraining it into the fabric of the company. Next, expansion. You're going to continue to see us making operating investments and capital investments in our core businesses, distribution, manufacturing and home health care and our services. And we're going to continue to make those investments as we broaden the portfolio of what we manufacture, both in PPE as well as outside of that. So that portfolio, manufacture and nonmanufacture, will be broadened going into the future. Continue to focus on our customer in the traditional acute medical distribution business. And then after that, continue to focus on them in the home health care. And lastly, if we -- doing those 3 things gives you a strong blueprint for strong financial growth into the future. So let me move on to the next slide, Slide 12, and I'll be brief. This is our mission and our values. It's clear. We're here to serve the customers. We're here to do that every single day. We do it with our values. I won't go through them. It's our ideal values, but that's how we expect the entire organization to operate every day. Let me go to Slide 13, which is our Owens & Minor business discipline. So this is our process. First of all, it starts on the right-hand side with continuous improvements. That's the first aspect of this. We have to constantly look to drive continuous improvement. What does that mean? Every day, we're trying to find how to get more output out of our manufacturing facilities with the same infrastructure we have today. Within our distribution centers, how do we get fixed cost leverage, again, more product through more efficient, and that's through investing in technology as well as operational investments. Next is on the top of this, which is the standard management system. We need to have S&IP, different types of systems throughout our organization. Again, so the repeatable process. So everyone understands how we manage our business. If I go to the far left on this, and its program management, whether it's acquisitions, whether it's portfolio expansion, whether it's our continuous process improvement. There are systemic program management to be able to identify opportunities, test them, implement them successfully. And lastly, the underpinning of this is our people, our teammates, making sure we have the strong teammates. So this business discipline is -- you have -- you start with how we operate with our values, then you take this business discipline to continue to drive improvement of the business and leverage everything we're doing. If I move on to Slide 14, let me just talk about investments. I talked about the third part of our blueprint is investing. Look, we're going to invest in our core businesses. In 2020, we did sell our Movianto business right after the end of the third quarter in early October. We continue to do different aspects of other things, but it's really around investing in our core businesses. Again, in the Global Solutions, it's the classic distribution, our Medical Distribution, as we call it internally, our home health care business, that being the external brand, Byram, those services, and lastly, our products. So here's a great example on this slide here of what we did, on Slide 14, in 2020. And so increasing PPE production. We did that in a lot of different ways. First and foremost, we added head count to run our machine 24/7. Then what we did is we optimized. We used the process of continuous improvement to identify ways to get additional output out of those machines. And then also, we've invested through new equipment, new product, whether it's in Del Rio, whether it's in Lexington, North Carolina or whether it's in our other facilities throughout the Americas. Not just in our product or manufacturing business, we did the same thing in our distribution in our home health care business. Home health care business will make significant investments in our B2B and B2C ability. What's unique about that business, besides being able to impact and affect 85% of insured Americans, we have the ability to take order in any way. And you think about the population, we can take order by telephone, we can take orders still by traditional mail, we can take it by fax, we can take it by an e-mail, we can take it by a web order, and now we can take it online in a direct B2B or B2C. That business also has to have the business-to-business connectivity to make sure we have the ability to collect on our payments. And that's something we do extremely well, but yet we have to have the look and feel of what a customer wants on a B2C basis. So we're investing in those 3 businesses, in our manufacturing businesses and expansion, in our distribution businesses in both expansion and optimization of those and then lastly, in our home health care in the same sense. So that's an example on that third aspect of it of what we're doing to invest in. So -- and then last, if we do those things, Slide 15, we'll talk about the financials. So tremendous year financially. Obviously, we haven't announced fourth quarter results. But if you think about Q3 results, we had a 250% increase in EPS from 2019 to 2020. We continue to expand sequentially our margin. That's, again, driving that continuous process improvement as part of our business systems and continuing to eliminate waste, get more throughput out. So that helps us drive margins. Significant amount of cash flow we've generated. And we didn't just do it in the third quarter. If you look at the right side of this slide, we also did it sequentially now for 4, 5 and 6 quarters where we've shown operating improvement, shown operating cash flow improvement, we've shown EPS improvement. And then we've shown significant paydown in debt. I think this slide, just reading this, tells it all that when you have values that -- in how everybody operates, and you leverage those. When you turn around and you have a business system that can drive efficiency, have project management to be able to continue to focus on what you -- what is core to the business, you make the right investments, you have great financial results. And I'll close out on the financial results on Slide 16, and that's really around the balance sheet. Look, a year -- a little over 1.5 years ago -- or about 2 years ago now, we had over -- almost $1.8 billion in debt, and you can see on this slide what we've paid down through the third quarter. In addition to that, we've talked about other things like our debt offering, where we raised another $190 million of cash to help continue to push that down. The sale of our Movianto business to help reduce debt during the year. In addition to that, the operating cash flow that we just continue to generate throughout the year to pay down debt. So we continue to expect significant paydowns in debt through the end of last year as well as then the right level of debt paydown, met balance with investments going into 2021 and beyond. So I close on this last slide, and then I'll take some questions, and Andy Long, our CFO, my finance partner, will join in on that is, so why Owens & Minor. And I talked a lot about this today already is, first, our PPE. Our PPE and our manufacturing is different, and it starts with, again, our patents, our technology. Look, we have our own quality control and regulatory affair in our factories throughout the Americas as well as in our glove factory in Thailand. So it's our people, our process, our technology. We manufacture it. We don't just put our name on, we manufacture it. And that's what's been significantly different for us because we've had a different level of control over that than just a pure sourcing model. Next, our home health care. Look, we serve multiple chronic conditions. We have the ability to get to 85% of the U.S. insured population. We have a leading sales force out there that's working on that every day. And it's actually one of the -- and it's not actually, it is in one of the fastest-growing health care segments, that being home health care. Next, our Medical Distribution acute care space. That Medical Distribution business is the backbone. That channel business has the ability for us to get the right product to the customer at the right time. And that's because of our footprint as well as our supplier partnerships, and again, our own manufacturing capabilities. Then I talk about the manufacturing capabilities. We have a broad portfolio of self-manufactured products that have a different margin profile, frankly, because it has manufacturing margin in addition to the distribution process in there. And then we're going to continue to expand that, both within PPE as well as outside of PPE into the future. If I think about the balance sheet, too, is the amount of free cash flow we've generated over the last 6 quarters and the way we're running the business by focusing on working capital, by doing those basic things properly from an operational standpoint to drive additional cash flow, purely because of operating profit. We've had the ability to significantly deleverage our balance sheet, and we expect we'll continue to focus on our balance sheet, but also look closely into where we should be making investments based on the path in our -- in those core segments of our business. And lastly, where those investments are, as I talk about them, it's going to be in manufacturing, we'll call it, it's going to be an infrastructure, it's going to be in technology, and it'll be in services. That's where we're going to continue to invest. So with that 20 minutes, let's -- I'll pause there and open it up for Michael for questions, and I'm going to have Andy Long join in also.

Yes. Thank you for walking us through the presentation, Ed. It was very informative. So I'll just start the Q&A portion. So first question, your Americas-based PPE manufacturing footprint has really been a key advantage during the pandemic. I was just wondering if you can sort of walk through what you've been able to do to increase production, where you stand in terms of your ability to drive additional productivity improvements? Do you have opportunities to continue to optimize those existing production lines? And how much more gains are there? And then just as a follow-up to that, do you plan on adding additional lines? And how much of an investment does that require? And how -- sort of how quickly can those get up and running?

So Michael, I'll try not to talk 30 minutes on this topic because I can, and I kind of drive our team nuts because -- first and foremost, let me touch one part of it. There's always room for improvement. So is there room to continue to optimize? Always. And then that's one of the things you get with me as I constantly want to see them improvement, which is why when we talked about that Owens & Minor business process, we have that now as part of our blueprint. But let me just take it back in time here. 2019, we started to see -- first, we started to see the demand for PPE go up as soon as COVID started to hit. We actually saw it on the global front first. In addition to that, there were some other recalls that we were trying to help support our customer with. We had -- I know that one of our suppliers had a recall issue. So we started to see that. And then when we started look into the future, we said, "Hey, this is going to get tough." So the first thing we did is we went to 24/7 production. So we had to onboard a significant number of teammates in our facilities. We actually went to a 4-shift-type model because what we didn't want to do was burn our teammates out trying to go 7 days a week. So we would run the normal week shifts and then, call it, the weekend shift afterwards. And that was able to increase substantial amount of output just purely running the machines faster. Then we started to look and think about, okay, now what we thought was the theoretical capacity, we were challenging ourselves, is that truly the theoretical capacity that can come out of those machines. And I shared the story in the past is, I firmly believe you talk to the people who are actually making the product. They're the ones that know how do you optimize the machines. And we had different factors that caused it. And believe it or not, sometimes the solution was only a couple of hundred dollars that could increase 30%, 40%, 50% capacity out of a line. And other times, it was a more broader overhaul of the process and the equipment. So we basically went in. We had our own team. We brought in some help to identify the bottlenecks of all of our production facilities, and then eliminate those, which obviously speak pretty decent quality value. You identify the next bottleneck, the next, the next, the next. Next thing you know, you're getting significant amount of production out. So that's what we did with our existing machinery. Then we had significant investments, both our own investment as well as investment we got from the U.S. government and the TIA to add capacity, in which we added in Del Rio, Texas. So we took our facility in Del Rio, Texas and which should have -- what we thought should have taken about 6 months to get it up and running, we were able to do it in less than 4 months. And that's get the equipment in there and then to fine-tune the machines to get it to that theoretical capacity, it took us about another month or so, which we thought it was going to take longer. But it was really around in Del Rio, Texas, turning around and flipping that facility very quickly. In Lexington, North Carolina, we took older equipment that we had mothballed, brought it back into production. We also had space there, we added additional equipment. And I will share this with you is one of the limiting factors, as I have my mask, is the material to make this. And to some extent, we doubled down in early 2019, and we put a nonwoven fabric capacity into our Lexington, North Carolina. And I would think that at the time, when I talked about it, people probably thought, "Why is Owens & Minor adding capacity in the U.S. for PPE?" And I believed from listening to our customer base that continuity of supply and supply chain resiliency, ability to get them product throughout crisis was critical. And having that -- making that decision in early '19 and having it up and running in early '20 really also changed the dynamic for us. So if I think about what we did to get expansion was we onboarded people, which -- it's easy to say, just go and hire 1,000 people, but to onboard them, to train them to get them ready quickly, our team did an incredible job. Next, to bring on new capacity. We did that in basically all of our manufacturing facilities in the Americas, added additional capacity throughout those. And to do that, since we already manufacture, we know what's needed and how to do it. And we already have relationships with the equipment manufacturers to be able to get that in quicker than we had expected. And then optimizing, that's just discipline. Sometimes that's brute force and discipline. And I got to tip my hat to our teammates, whether it's in Lexington, whether it's in Del Rio, whether it's across the border in Acuña, Mexico, coming through and finding unique ways of, hey, there's a problem, let's figure out a solution to that. So that's everything we've done. Is that going to slow down? No, we're going to continue to optimize both our distribution centers and our manufacturing. I focused a lot on the manufacturing to get more output, but what we've done in our distribution centers to get more output is also impressive. When you think about the first phase of the pandemic, there were pockets of the U.S. with huge influx of patients in need. We were able to increase the output in our facilities in the Northeast to make sure we could service some of those hotspot markets. Because we don't have a fully automated system, we could transplant teammates from one facility to another to get more product out the door. Our inventory planning and management team did a great job of being able to redeploy product to where it was needed. But I'll be honest, even with all that production outputs that we've added, even with the improvements of productivity in our distribution centers, we still couldn't fill the demand. The demand was so high. So -- and we've seen that continue through the end of last year, and we're seeing it again right now with the increase in pandemic. Hospitals are -- they're better prepared. They're burning through a lot of stuff because they have to, because of the amount of patients, and we're seeing that demand start to increase again. So that's the thing that's tough is you can't fill that need. But -- so what we're going to do is we're going to continue to invest in our facilities under our process of where we're going to drive continuous improvement, operational effectiveness, more output, more efficiency, ultimately improving the customer experience. We're continuing to invest in additional production facilities because of our long-term commitments and contracts we're getting with our customers that are multi-year to make sure we can meet that. So that's what we've done. And that's what we're going to continue to do within that PPE area, just if I nearly define it to the PPE space.

Great. I appreciate all the detail there. Maybe just a question in terms of the supply/demand imbalance for PPE. I mean, how long do you think this is going to last? We've seen a range of estimates around there when supply ultimately catches up with this heightened level of demand, but just sort of wanted to get your thoughts on that.

Yes. So if you would have asked me a month ago, I may have had a little bit different answer than what we're seeing today because we're seeing an increased demand again because of the amount of patients that are in the hospitals. And we are -- we have a couple of long-term contracts. We have a long-term contract with the U.S. government, 200 million unit contract that goes into Q3, where we're actively working with the federal government now to say: "Hey, instead of filling the stockpile, can we fill that going into the following year because we need -- there's people on the front line that may need the products? Can we get it to them first?" In addition to that, we're working on our customers not to just have deals for now or agreements for now, but 2, 3, 4 longer-term deals and contracts, where that equipment is -- I don't want to say dedicated, but that new equipment and expansion is earmarked for the product coming out for them. So frankly, I see this continuing long into 2021. And then afterwards, you still have a lot of stockpiling that needs to be done to prepare for the next pandemic. And not that I want another pandemic, trust me. I think we all thought 2020 would end, 2021 is here, hallelujah, but it's a lot of the same. So that's why I think you've got a runway beyond the end of this year on that supply/demand imbalance. There's a couple of categories that are tough. Right now, gloves, exam gloves are a category that's really constricted. We have that imbalance. Like I said, in our factories, we're running 24/7 in our own factories in Southeast Asia to produce the product. We're looking for ways to expand. We have ideas from being just a general expansion as well as more productivity. But we see this continuing probably well into 2021 and carrying over and after that.

Got it. Can you talk about pricing trends in the spot market for PPE? Are they still significantly elevated? And sort of once that supply/demand situation does rebalance, whether it's a year or 2 out, what's your assumption around where those spot prices go relative to sort of the historical pre-pandemic levels? And if they do sort of settle at sort of rates above that, given that you've sort of maintained pricing to customers over the course of the pandemic, does that give you some room to maybe even increase your prices? Just sort of trying to understand the dynamics at play there.

Yes. Here's what I've said many times is our manufacturing at Owens & Minor, we are built for pre-pandemic pricing PPE. That's what makes us different. We're built for a mask or an N95 that's less than $0.50. That's what we're built for and -- while others may have entered the space, assuming it's a $5 mask. So we're built for pre-pandemic pricing. I don't know whether it will go back to pre-pandemic pricing, whether it stays slightly higher. And there's other examples you can look at where there's been categories where there's been huge outages and have that -- some of them have gone back to pre-outage prices, some stayed elevated. But what we're going to do is we're going to be completely transparent with our customers. We're going to share with them the input costs that are driving it. Again, gloves is a great example. Nitrile, the raw material used for gloves, has gone up substantially. That's driven exam glove prices up. We've been open and transparent with our customers. We're still significantly below spot buy price because we're -- again, the open transparency on that. I think there are some areas where spot -- we're seeing spot buys still extremely high across the various categories, and I think that's going to continue for a while. But I do think, eventually, we will migrate back towards the pre-pandemic pricing on PPE.

Got it. And then maybe shifting gears to just sort of the core acute care distribution business. I guess, what is the sort of typical contract duration there? I assume that since you've been able to fill orders at pre-pandemic levels and maintain that pricing, I guess, as we think about the selling season, I'm assuming that's driven some goodwill from your customers and maybe interest from your customers. So just kind of trying to understand what the new business pipeline looks like. Has the pandemic sort of delayed the RFP process given the near-term focus there?

Yes. So you're right. We did -- I do believe, from our perspective, we did gain some goodwill. So again, the way I think about it is we were not able to fill every single order. And that's the tough part on this is -- and it's not because of lack of effort in our manufacturing facilities or trying to source products. It was just that pure supply/demand imbalance. But we try to act -- leading with our #1 value, that being integrity, try to be open and transparent and honor our commitments everywhere we could. What -- so if I go back to the initial part of your question, the normal duration of a contract is generally 3 to 5 years. Sometimes they extend longer than that, but if you think about it on average, that's probably the average. We have a lot of long-term relationships. We've done a very good job renewing our existing relationships over the last 12 months. We put a new commercial team out there that's focused on the whole enterprise, so that way makes it easier for a customer to do business with all the different parts of Owens & Minor. We've done a very good job renewing agreements. And we've done that, frankly, again, with having listening to our customers and having those understanding of what their needs are in the changing market. I do think there is going to be opportunities going forward. I look at it in a lot of different ways. There's opportunities going forward because if I would have talked 1.5 years ago about the difference in our manufacturing footprint and being Americas-based, it would have been a little bit of, "Oh, that's just sales speak." But now I think people understand the differentiation it's created. And ultimately, it's really around our mission to serve our customers. It helps us better serve our customers. So I think there's opportunities to grow our portfolio of products. There's an opportunity to have more of our Americas-based manufactured products our customers are using, and that can also translate into a broader distribution relationship, too. And I think it's transparent. We've lost other business in the past. Those contracts over the next 2, 3, 4 years may come back up on the market. We've got opportunity to come back and compete for those. But ultimately, the way we think about it is our existing customers, first and foremost, we have to take care of, and that was our thought process during the pandemic. Those customers that have partnered with us on both products and distribution, those are the customers we got to take care of first. And those customers that are partnered with us either on products or distribution, those are the customers we have to take care of, too. Where we can help others, we will. But that was our strategy, that was our approach and that was our philosophy during the pandemic. And we did the best we could. There's always room for improvement on that, but that's been our thought process. And as opportunities come up, we will talk about what makes us different than others. And some customers, that's going to be a great fit. Other, there may not necessarily be a fit, and we will continue to work and understand that. And again, talk about the merits of what we've done and what we expect to continue to do and why there's a lot of benefit associated with that.

Got it. Can you talk a little bit about the opportunity around Byram? It's been sort of consistently delivering very strong results. Is there a significant private label opportunity within that business? Do you see opportunities to add additional product lines? And I guess, just maybe one question about Medicare and Medicaid, how do we think about the potential for reimbursement risk there?

Yes. Just at a high level on Byram, you're right. It's -- one, it's an extremely well-run business. It's a business of -- in that space that has scale. And it's in the categories that they're in, those major categories, again, like incontinence and wound care and diabetes, breast pump, those categories, they're very, very strong. And there is an opportunity, I don't want to call it, private label, but there is an opportunity to have some of those products be our brands. Whether it's manufacture or it is the classic private label, there is that opportunity. But we are -- what we're not going to do is we are not going to provide an inferior product to our customer. We're going to make sure that whatever that product mix they have, they have the right level of choice. It's our product, it's got to be a high-quality product. And then that's what we'll continue to use. And you look at Medicare, Medicaid on that, there is opportunity with that. Again, one of the things that this business does, it's kind of the uniqueness of it, is the ability to collect receivables. Andy is shaking his head there because it absolutely is. And here's what this business does, and that's what makes it unique. When a person calls for the first time to order products, we confirm that we have the ability to cover that under their insurance, whatever that may be. Then we call the -- because we do that by -- through understanding their policy or if we have to, calling the payer. Then we call the provider to make sure the notes will support the order. And there's been times, frankly, where potential customers called and wanted product, and we realized we didn't have the coverage for them under their payer. And we were open and transparent. We didn't take the order and send them a big bill. We actually redirected them to somebody who could serve them. And I'd tell you the number of e-mails and letters I get about how great that service, not just for that example, just overall, how great the service is there is incredible because the bulk of these are chronic conditions. And you get a patient, you have that patient for an extended period of time. So it's a great business. It's a growing business. It's a well-run business. We're continuing to invest as a company in that business, too.

Got it. And then I guess as we're sort of approaching the bottom of the hour, maybe just a question for Andy. So you previously discussed double-digit EPS growth in 2021. Obviously, it's impressive given the tough comp you're coming up against if you're a very strong 2020. Can you talk about the key drivers and also about sort of the cadence of the earnings growth over the course of the year? I know there's typically some seasonality. Do you expect to exit the year at a double-digit growth rate?

Yes. No. So good question. So yes, as I talked about, I think we've got great momentum as we've gone through the year with the top line growth, with the investments that we've made, with the efficiency gains that we've been able to achieve as an organization. You'll learn more about our fourth quarter coming up in a couple of weeks. And happy to share that with you at that time. But the second part of your question is, absolutely, there is seasonality in this business and the cadence of earnings. Historically, fourth quarter is one of our strongest quarters. We end the year very strong in the industry. That's typically followed by a softer first quarter and then the year kind of continually ramps up from there, and we expect that those same underlying drivers will continue going forward.

I think the one thing I'll add is one of the aspects is really comes back to elective procedures. I kind of alluded to it a little bit upfront was the fact that we're seeing COVID starts to increase. And if that starts to impact elective procedures, that could have an impact depending on when that occurs.

Got it. So it looks like we're at the end of our time. I do want to thank Ed and Andy for the great insights they provided today. And also, just to wish everyone good luck with the rest of their conference this week, and have a good day.

Thanks, everyone. Thank you.

Thank you.