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

Well, good morning, everyone. My name is Jon Leon, I'm the Corporate Treasurer and Head of Investor Relations for Owens & Minor. It's my pleasure to welcome those of you here in the room with us in Boston as well as those of you joining us via webcast to the Owens & Minor 2023 Investor Day. Before we open our presentation, I want to remind everyone of our safe harbor and forward-looking statement language. During the day, we will be making forward-looking statements. Owens & Minor give no assurance that any forward-looking statements will, in fact, transpire, we caution investors not to place undue reliance on them. Please see our SEC filings on Forms 10-Q and 10-K for a description of risks and uncertainties. Also of note, our presentation today does contain financial measures that are not calculated in accordance with U.S. GAAP. You can find reconciliations of our non-GAAP to GAAP figures as well as modeling assumptions in the back list present presentation that's been posted to our IR website and filed with the SEC earlier today. We have a full morning planned during which we'll have members of our leadership team outlined our strategy, our long-term operational objectives and our financial targets. Ed Pesicka, our President and CEO, is going to lead us off. And then you'll hear from Tammy Gomez, our Chief Human Resources Officer; followed by Perry Bernocchi, CEO of the Patient Direct segment. After a short break, we'll start to begin with Andy Long, CEO of our Products & Healthcare Services segment. We'll then turn it over to Alex Bruni, our CFO. After that, we'll bring the whole team together for a Q&A session. Before I turn it over to Ed, I want to begin with a short video to help explain what motivates our more than 20,000 teammates every day. [Presentation]

So good morning, everyone. Thanks for joining us in person. And again, those who are in live stream, thanks for joining us live stream. And I'm really excited to be here. Really, what I want to discuss today is what is our vision for the next 5 years. In addition to that, what is the outlook for the next 5 years. It's going to consist of our strategy and our strategy, we're not waiting to execute. We are already starting to execute upon that strategy. So a quick introduction. I'm Ed Pesicka, I'm the President and CEO. I'm extremely proud of what we've been able to accomplish over the last 5 years, but I'm even more excited about what the future holds for us in the next 5 years and beyond. A little bit about my history, I spent 15 years at Thermo Fisher Scientific, running the Fisher Scientific side of the business, responsible for distribution, had experience in manufacturing, health care and other areas. So let's move on today. And what I want to start with is what are the key takeaways? Why am I excited about the next 5 years of Owens & Minor. And I'll start with the left side of the slide here. First of all, Owens & Minor is a 140-year-old company, but we've evolved and we continue to evolve. We're not the same company today that we were 5 years ago. Our profit mix is drastically different with 80% of our profit now coming from our Patient Direct at home business, more of a recurring revenue-type business. In addition to that, our operating performance has evolved and gotten so much better over the last 5 years in all of our businesses. And really, we've repositioned our company to set the stage for the next 5 years. It's clear that we have a strategy of what we want to execute on over the next 5 years, and you're going to hear about that today. Let me now talk about the next stop on this slide, which is our Patient Direct. And look, our Patient Direct segment is one of the leaders in the fastest-growing area of health care, one of the fastest-growing of health care, that being the home. In that segment, we have a proven model. We have the right footprint, and we have the right product portfolio to continue to drive growth. It's our expectation that, that growth continues at above market levels, and we're going to continue to outpace the market and build on the momentum we have today. You're going to hear about this from Perry later on this morning and give you a little more detail on that. Next, our Products & Healthcare Services segment. We've made incredible progress over the last 5 years with our Products & Healthcare Services. We went from a business in 2016, 2017, 2018, 2019, I was losing between $700 million and $1 billion of business a year. We've drastically improved the service. We've changed the offering to the customer. We provide flexibility and we've made significant improvement. In addition to that, we did that in light of a pandemic, right in the middle of the last 5 years. On the right side of the page, I want to talk a little bit about how we think about the business. The Patient Direct segment that's going to be -- drive margin expansion. That's going to drive growth. And that's going to drive additional mix shift within the total company. Again, this segment has a higher margin and a higher margin profile within the business. Our P&HS segment, we expect to continue to improve the profitability of that business and continue to advance that. Ultimately, we're going to think through and explain how we're going to time out and pace our investments so that we can get the right return as well as success overall. Next, our balance sheet. Our balance sheet right now has been -- is improved drastically from where it was 5 years ago. We were able to deleverage the business. We leverage back up with the acquisition of Apria, and we've done a really good job over the last 9 months of paying down nearly $500 million or $0.5 billion of net debt pay down in the last 9 months. That's because of the continued progress in our Patient Direct business as well as improvement in P&HS and the layering on of our operating model realignment program. Let me move to the last point. That's really around capital deployment. Here's the way we think about capital deployment. We're going to make sure we deploy capital in a very disciplined manner, similar to what we've done over the last 5 years. We're going to continue to invest that to position us to provide the best returns that are possible. So those are the 6 key takeaways you're going to hear today, and we're going to talk through. Let me now move on and start with a macro level, a little bit about our company, who are we? We're a global health care solutions company. We supply health care products to the home. In addition to that, we produce and manufacture a broad portfolio of products. We've got an incredible Medical Distribution business that has the ability to scale and leverage and a strong channel. We're a 140-year-old company that has continued to evolve over time. You don't last 140 years, unless you continue to change and continue to evolve. And we're in that continuing process right now. If you look at our footprint, we have over 400 facilities all in varying sizes through the U.S. and around the world. But in addition to that, we have 20,000-plus teammates that come to work every day that are driving our mission, our vision and our purpose. Next, let's talk about scale in our Patient Direct business. We serve over 3 million patients in the home every year. And in our Medical Distribution business, we have relationships with over 4,000 health care providers. I want to cover one last thing here as I talked about the 3 million patients we addressed within our Patient Direct business every year. With the opportunity, though for us, is 85% of insured Americans, we have access to because of our contractual relationships with payers, whether it's public or private. So that helps set the scale of what Owens & Minor is and where we are today. Let me take a little step in a deeper dive into our 2 segments, and I'll start with our Patient Direct segment, and then I'll go on to our Products & Healthcare Services segment. So our Patient Direct segment, it started with the acquisition of Byram in 2017. And in 2017, that business was roughly $450 million. From 2017 to '21 -- 2021, we grew that business to over $1 billion in revenue. That was all organic. It wasn't acquisitions. We grew the business from $450 million to $1 billion -- north of $1 billion of revenue. In that space, then we layered on an acquisition of Apria, which added additional product portfolio. And what we've been able to do with that acquisition of Apria, combined with our Byram business to create the Patient Direct segment, we now have some of the best positioning in our categories. So what this business focuses on is chronic condition. Providing products for those who are chronic conditions in the home in categories like diabetes, sleep apnea, ostomy, incontinence, wound care, advanced wound care. And in the majority of those categories, we're a leader. We're a leader in this space. And our expectation is we stay a leader. But here's what else gets me excited, not just about the great proven model we have, but the entire demographics of that industry -- of the industry. We've got an aging population. It's a space where patients, payers and providers prefer to be treated in the home than in an acute or nonacute setting. In addition to that, we continue to see that aging population increase demand for the products. You layer that on top of the fact that we've got a proven model that shows we can grow that business, not only grow the business but expand margins while we do it, is really the model for the future for continued growth within this segment. In addition to that, I'll talk a little bit about this before I close out on this slide is, look, in 2021, going into 2022, we doubled down in this space. We made the decision that we wanted to do one of the major acquisitions. We did lever up, but in the same sense, over the last 9 months, we've delevered the business significantly. In addition to that, you can see from the time of the acquisition to now, we've grown from about $2 billion to about $2.5 billion in that segment. And look, the future of this segment continues to have a lot of positivity. We have the ability to leverage our leadership. We have the ability to leverage our proven model, and we have the ability to continue to reimagine how you take care of the patient in the home. And you're going to hear more about this today from Perry within the strategy that he's already beginning to execute and how he's going to continue to provide that over the next 5 years. Let me now move on to our other segments. Our Products & Healthcare Services segment. This segment has some of the leading brands in the industry. It has the HALYARD brand, one of the leading brands in surgical infection prevention products. It has the legacy Owens & Minor Distribution Business that everyone knows about, that provides a great level of service. It's a segment that's about $8 billion with a little over $6 billion being in Medical Distribution and roughly $1.5 billion to $2 billion being in a products part of the business. So here's what gets me excited and why are we winning in the space today. Customers are looking for really 3 things. They're looking for service, they're looking for value and they're looking for flexibility and customization, to some extent, to help them solve their needs. And that's what this business has been able to do. The other thing you'll hear about is from Andy today is really the expansion of our proprietary product portfolio. And I have to be open on this. As a company, we've been talking about expansion of proprietary product portfolio for probably 30 years. We haven't put the investment into it that we need. And what you're going to hear today is the investment we're going to put into proprietary product portfolio expansion that can let that be successful. Investment in the commercial organization has the technical skills to sell the product, investment in category management teams to identify where we need to expand our proprietary brand portfolio. Investment in working capital and inventory so we have the product ready when it's ready to be launched. So we're thinking about it very differently than we have in the past, and we're putting the resources there. The other thing you'll hear from Andy and I really get excited about this, we're thinking different about make-buy analysis. We don't have to make everything. We're thinking about how do we become a lower cost to serve. And really, Andy is going to get into a much deeper detail on this morning. He's actually going to talk about it after the break, and you'll really understand what we're doing in this space. So let me take a walk through history here a little bit, and then we'll get into the future after this. So I joined the company as I said, in really March of 2019. And when I joined the company and had the opportunity to sit back and look and assess the company, there were really 5 key things we needed to do. And I think about strategies in kind of 5-year blocks. We're through the 5 years around the next 5 years. But when I joined, first thing we had to do, we had to fix the Medical Distribution business. Our service was not where it needed to be. We were not focused on the customer. We were losing significant business and I'm extremely pleased to say that our service levels now are some of the leading in the industry. We invested in the right technology. We invested in the right approach. We trained our teammates to actually drastically improve that service. The other thing we had to do is we had to get out and be visible. We, as leaders, had to get out and be visible. And that's another thing that we did. And I'm really proud of what the team has done over the last 5 years to really fix that business. But now it's time to build on that momentum. And we even did that in light of a pandemic that's once in a century or maybe once-in-a-lifetime type issue. Second thing we had to do, we had to delever the business. We were at a 7x multiple at one point in time in 2019. So we had to drastically deleverage the business. We did a really good job of that through 2022 and yes, we levered back up. But again, we're in that next phase of delevering again. So we did a really good job of looking at our assets. We did divest some things. We were working on our working capital management, improving the profitability, and we're able to be successful. The next, we had to expand our proprietary product portfolio, is one of the key points we had to do 5 years ago. And look, I think part of it is being accountable. We didn't achieve that goal. We had pandemic that happened in the middle of it, where we took resources and redeployed them all to sourcing and manufacturing, expanding our manufacturing and we didn't focus on this. I think now it gives us an opportunity to step back and look at it and put the right resources into it. That also ties to some of the things we didn't do in that period of time with the operating model realignment and why we launched it post COVID to continue to take cost out of the business. The fourth thing we had to do from 2019 to now was we had to, I'll call it, insulate and invest in our Byram business. Because of service issue and other things, we wanted to make sure that the Byram division had the opportunity to grow. We put investments into that. We continue to leverage the proven model that it worked. And again, the results are the results from $450 million to over $1 billion from the time we acquired it to 2020 -- end of 2021. And the last thing we had to do during this period of time was change the culture. We had to make sure that we had a focus on, "Hey, we're going to win." We're going to be competitive, and we launched 2 things. We launched our mission, and we launched our values. And there's probably not an event that I go to with internal or people I talk to where I don't discuss our mission and our values. Today, you're going to hear our expansion on that into our vision and purpose from Tammy and how that ties in. So if I think about where we were in 2019, we had a pandemic that really hit us in '20 and '21. We acquired Apria, which pandemic actually helped us deleverage the balance sheet, it helped the strategy of repositioning the company. It helped the strategy of adjusting where the profit profile comes from. And then we have industry normalization, I would say, this year kind of post pandemic. So that was the perfect time for us in 2023 to launch the operating model realignment. So with that path, let's talk a little bit about some of the strengths we have today and how we're going to leverage those going forward as well as some of the channels -- or challenges, excuse me. So starting with strengths and I'm going to start with the first 2 bullet points on the left-hand side of the page. This slide, the first 2 are really focused on Products & Healthcare Services segment. Products & Healthcare Services segment has industry-leading service today as I talked about. We have the scale to leverage, $6.5 billion of revenue in our distribution centers give us the opportunity to continue to grow and continue to leverage in that space. We have the ability to be flexible in our offering because we're not confined or constrained. The other thing that we hear from our customers is really the transparency and being recognized as a strong partner to them. We're going to continue because of that flexibility, because of the service, help them solve problems. But again, there's really 3 things in the acute care space or in the Medical Distribution you're looking for. It's value, it's service and it's some level of flexibility. The last 2 bullet points on the left side of this slide here is some of our strengths is our Patient Direct business. Again, look at the growth. You can see the growth on here from the acquisition to where we are. And you can see the opportunities we've created with the acquisition of Apria and continuing to grow from pro forma pre-acquisition was $2 billion, and now we're going to be at $2.5 billion already approximately 2 years. So again, a lot of strengths we have in the business. Let's talk about the right side of the slide or some of the challenges. And the reality is, if you take a look at our P&HS segment, there's still a lot of work to do. We still have a lot of operational things we can do that can drive profit improvement and a better customer service profile. Those things are going to be focused on being lowering our cost to serve, in addition to that, expanding our proprietary portfolio. And again, you're going to hear a lot about this from Andy. In addition to that, the other thing we have to think about and we're excited about is, again, we're not thinking about our operations the same way we did in the past. We're looking at our manufacturing facilities. And we want to run our manufacturing facilities as close to capacity as possible. If that means consolidating so we can run a capacity, we'll do that. If that means adding technology to move them closer to capacity, we'll do that. And again, we don't have to make every single product that has our brand on it. So we really are thinking about that differently. And then really, the last couple of points here is in the Patient Direct segment. That's a fragmented business -- industry, excuse me. You're going to hear Perry talk about today that roughly, the business at a macro level or the opportunity is close to $70 billion. And yes, that narrows down as you get into our categories. But it's still a very fragmented business throughout the United States. And Perry is going to talk about our national footprint that we have, but with our local presence and an opportunity in our Patient Direct business to continue to grow. And lastly, our teammates. We can't get away from our teammates. We want them. They're great teammates. And we have to make sure we continue to focus on them. So we're winning the war on talent so we can execute upon our strategy. So with that, let me talk about 2028. So there's 3 key pillars that we're going to talk about today. And we have them organized by the industry or by the segment, I should say. The first one is our Patient Direct segment. And our Patient Direct segment is simple. We're going to continue to outpace the market. We expect to outpace the market by at least 200 basis points. In addition to that, we're going to continue to expand profitability by leveraging, but more importantly, we're going to reinvest back in that business, add additional resources so we can continue to grow. And then you'll hear Perry talk about some adjacencies and potentially inorganic growth as we delever the business going forward. In our Products & Healthcare Services, the number two, the middle one here, it's really focused on how do we continue to leverage the scale of our Product & Healthcare Services business? How do we continue to drive rapid growth of our proprietary portfolio? How do we make sure we're putting the right resources in so we can accomplish that? And then lastly, really expand into other areas within the hospital and outside of the hospital. And lastly, Alex is going to talk about our investment. And the way we think about investment is really how do we drive value through the deployment of capital. And we're going to have tremendous opportunity. We're going to make the selections on where we're going to make those capital investments, but we're also going to pace them right because if you try to do too much too fast, it can create issues. So we're going to make sure we're pacing our investment in capital deployment. Our deployment is going to be focused on growth and profitability expansion and really in the other order. Our growth, our deployment should be focused on profitability expansion and growth. And then lastly, continue to focus on how we can work in other adjacencies. So these are the 3 key talking points you're going to hear about today from Perry, from Andy as well as from Alex. And then Tammy will talk about how our people tie in all three of these. So with that, let me cover the OMR, Operating Model Realignment. I think this is important because this is critical for us to be able to execute our strategy and reinvest. And there were 4 areas. I'll cover the left side of the slide first. There were 4 key areas. One was some sourcing and demand management. We didn't have centralized sourcing. We didn't have a process to put RFPs out on all of our products, whether it's commodity items or whether it's actual products we're going to resell. We spent a tremendous amount of time putting the organization together. We now have new leadership in this, and we're seeing significant savings by doing our -- by consolidating and executing on our sourcing strategy. We're through wave 1, obviously, some of the bigger categories, but now we have wave 2, wave 3 and wave 4 ready to go. Design of our organizational structure. So let me talk to this one. This is important. Design of our organizational structure isn't about just reducing and cutting heads. It's about creating the organization and putting the headcount and putting the resources in areas that provide the highest growth. You're going to hear that we did do some design this year, and that's freeing up additional operating dollars. So that way we can spend on Patient Direct by adding additional commercial resources, by spending it on some technology in Patient Direct. Within Products & Healthcare Services segment, being able to invest in that category management portfolio expansion. Those are the ways we think about that. Next one, number three, this is the Network Rationalization and Operational Excellence, So what does that mean? That means we're looking at our distribution centers and looking where can we put technology in that can drive cost out and continue to improve service. In our manufacturing footprints, where can we add technology or consolidate to be the right solution. And here's what I'm proud about the team. We're thinking about this differently. We don't have blinders on. We're opening up and saying, what's the art of the possible within our distribution facilities as well as in our manufacturing footprint. And this is going to take longer. This is through 2024 and into 2025, getting this in place and in process. It's going to -- it's just stuff like this has to be planned out and it takes time. And lastly, commercial excellence and product profitability. You could argue this as two different ones. This is really around focusing on serving the customer, but the product profitability is really around that proprietary product expansion that I talked about. And that proprietary product expansion, making sure we're making the investments for that. On the right side of the slide, these are the results. This is the expectation in the results. $30 million, we're on track to meet or exceed that this year. So in 2023, that has played out as we had expected. It started very slow, and it's ramped sequentially quarter-over-quarter over quarter. And you would think about that. If you do sourcing, you will start to gain the benefit. And then as products work their way through the system, that benefit accelerates. We plan to exit the year at $100 million. So here's what's different also. We're going from -- just take the simple math on this page from $30 million to $100 million. That's $70 million improvement year-over-year. We're not going to do what we've done for years and just take that to the bottom line. We're going to reinvest that for long-term returns. We're going to reinvest that in our Patient Direct business by adding technology, headcount to continue to grow whether it's in geographic regions or at additional facilities. Within our Products & Healthcare Services business, we're going to invest in those category management leadership teams. We're going to invest in some of the operational effectiveness within our facilities. So we're going to take that and reinvest that in our business to provide those long-term returns. In addition to that, we expect in '25 to come out around $200 million. And over time, working capital management between $250 million and $400 million. I will say that through this year, we've already achieved over $250 million in working capital improvement. A lot of it has to do with the operating model realignment. I don't want to get real excited about that and expect well, that should just continue as we go forward. Because if you think about what we're talking about here, we're growing in our Medical Distribution business, a large customer we just won. We're going to have to add significant inventory for that customer when we launch that customer in 2024. In addition to that, as we expand our proprietary product portfolio, we're going to have to spend some working capital dollars and making sure we have the stock in place. But we're extremely confident, obviously, to hit the $250 million to $400 million over the life of the program. We're already there above the minimum range. We know it's going to move up and down, but we'll continue to accelerate as we move out. So I want to leave you with one last thing on this. So why has this been successful? We talk about this as a management team. It's not because we brought an outside help, and we did, but they helped us organize, they helped us with data and analytics. But our leadership team led these programs. All 4 of those key topics have a leader within the business. And we're moving this from the operating model realignment in the Product & Healthcare Services business to just the operating model, that this is stuff we're going to continue to do for the next years to come, but we did make drastic changes in our thinking, and that's helping us think through the future much better. With that, let me talk a little bit more about each of the segments, and you're going to hear a great deal about this from Perry and Andy later about our vision for 2028. How do we optimize, how do we invest? How do we grow? So in our Patient Direct business, the reality is we've got the strong brand. We have the ability to leverage our footprint and leverage our brand. We have the ability for geographic expansion. You're going to see from Perry's slide, there's geographies where our footprint isn't as dense as others. There's an opportunity to leverage the existing footprint we have in areas where we don't believe we have a fair market share within that space. There's the ability to leverage our fixed cost as we continue to grow the business. And there's the opportunity in the space to grow into adjacencies. Next, we've got a proven model. That commercial model is proven. We continue to prove that with the acquisition of Apria and being able to change the growth trajectory of the categories that was historically in Apria. We've got leadership and look, the track record of execution is phenomenal in our Patient Direct segment. And we have strong leadership. So we expect that to continue. Not only that, we're positioned well in the key categories. So you think about home health. It's one of the fastest-growing spaces. Where is our leadership? Our leadership in that is in Diabetes and Sleep. There are 2 areas where we're leaders. And you'll see some new information today of the share of our revenue and how they break out by category. Those 2 subcategories in the home are some of the fastest-growing categories, not only in the home but across everywhere. So our positioning in these categories is really, really strong. And then lastly, investments. We plan on investing for organic growth, and we plan investing for inorganic growth when the opportunity is right. On the right side of the slide, Product & Healthcare Services segment. We're going to continue to invest in high payback opportunities. It's not just the second -- or second and third point, but we're going to invest in areas like OR, commercial and intacting the warehouse to continue to drive and expand. We're going to continue to optimize our cost structure. We're clear that what we have to do. We have to continue to lower our cost to serve in the Medical Distribution. We have to continue to lower our cost to serve and compete in our products business. And then we have to expand our product portfolio, which is the third one. I've talked about that a lot already, but it's important and it's critical. And we're going to put the resources in to make sure that this is successful and then lastly, expand into adjacencies. Whether that's non-acute. ambulatory surgery centers or others. So those are the core areas of how we're going to grow and achieve our vision of 2028. So here's the long term financials. The way we think about this. We believe this is organic on the revenue side. We're going to be greater than north of $12 billion by 2028. We're going to have adjusted annual EBITDA of roughly $750 million. In addition to that, the 20% adjusted EPS CAGR in north of $350 million by 2028. So again, 20% CAGR over this period of time. And lastly, greater than $1.3 billion of free cash flow. Again, enabling us to delever, enabling us to then work on the right investments going forward. So Alex will go through some of the financial targets in a little more detail at the end, but this is where we expect ourselves to be. From that, there's 3 things I want to cover. And really, Patient Direct, Products & Healthcare Services balance sheet. Look, Patient Direct. I love that segment, that part of the industry. I like the fact that we have a model that's been proven whether that's our operational model or our commercial model. I balance that with our track record. It's great to have a model, but if you don't have the right track record to support it, it's not worth it. And we have that track record. I enjoy, and I'm happy that we're in one of the fastest-growing parts of health care, that being the home. If you think about what happened, Byram, which was the division alone within there did an incredible job in 2017 all the way through when we acquired Apria in 2022. With the acquisition of Apria, we integrated it quickly. We achieved our synergies. We expanded our categories as well as our leadership. And frankly, I believe it gives us the right to continue to reinvest and grow organically in that space when the opportunity's right based again on a proven track record. What does the future look like in this first space? We're going to remain leaders. Our expectation is we remain leaders in this space. The second thing is we're going to continue to invest. The third and most important is we're going to grow above market. That's our expectation and then expand profit. As this segment grows, it expands profit for the total company. On our Products & Healthcare services, I think what's interesting and great about this, we're winning business today. It's because our service, our offering, our flexibility and the value we provide. We're fixing the right issues. We fixed a lot of the right issues from 2019 through now. We're continuing to drive that. And one of those issues really is our ability now to think differently, both on a make-buy analysis and assessment as well as think differently in how we manage our distribution centers and how we lower our cost to serve. And then lastly, our balance sheet. I can't say enough about what the team has done over the last 9 months. The expectation is that we continue to strengthen our balance sheet. I think as P&HS continues to improve the profitability, and Andy is going to talk today about what dollar amount he's going to improve the profitability over that period of time, that's going to help strengthen the balance sheet, our management of cash flow and working capital. And then the strong growth and profit improvement of our Patient Direct business will help drive the balance sheet. And lastly, our investments, we're thinking about it 2 ways. Organic, we continue to make sure we have the resources we need. And then lastly, inorganic to make sure that when there's opportunities, we thought through those, and we're consistent with our execution on that. With that, I'm going to walk you through one last slide, and I'll stop talking, I promise, and then I will hand it over to Tammy to walk through our purpose as well as our vision. So I talk about this all the time. We look at the road map we have. When we look at this, we clearly have a mission. When I joined the company in 2019, you'd walk into a distribution center or a call center or any other office, and there's different words on every wall. There was really no clear values, no clear mission. And we had, at the time, probably 15,000 teammates all doing what they thought was best but not all working and rowing in the same direction. So we launched our mission. And our mission is what we do. It's humble. It's we empower our customers to advance health care. They're doing the health care treatment. We just need to empower them and make sure they have what they had, they need. Then we have values and we needed values, and we had to have values that were memorable. And we didn't have to have 1,000 words on the page. So we came up with the ideal values with each letter of our value standing for the word ideal. First is integrity. We got to honor our commitments. We're going to hold ourselves to those commitments. We've got to make sure we're focused on that development. We have to continue to develop ourselves, our solutions and support our customer. You'll see the development that's going to continue to happen today in Perry's business in Patient Direct and in Andy's business in product and health care services. We have to have excellence. Look, excellence, the standards, the standard, right? We expect excellent regardless of the circumstance, when COVID hit and disrupted everything, we didn't whine, we didn't complain. We just said this is the expectation. Let's go out and do it. Now we're post COVID, and now we're continuing we're looking to grow our Patient Direct business continue and continue to strengthen our Products & Healthcare Services. The standard is the standard. Accountability. We have to hold ourselves accountable. I think I was pretty open on the fact that in our portfolio expansion over the last 5 years, we didn't accomplish what we wanted to. I think we stepped back and assessed why. And partially, that was the lack of the resourcing and the lack of the investment in that. I think we recognize the time line that's going to take. It's a little longer time line than when most people than I think we originally would have expected. But that's the accountability that you look at when you assess and you make decisions going forward. Accountability. We knew we needed to reduce our cost of the operating of the P&HS segment. So that's why we launched the operating model realignment, so accountability is really critical. And the last one is listening. I think it's a value that's missed. I know I've been talking for the last 30 minutes here, but there's -- it's really the opportunity to step back and listen. Listen to the customers, listen to your teammates, listen to your supplier partners of what they need and how do you figure out a way to fix that and work that into the strategy. Next is the strategy. You'll hear a clear strategy. It's really links the mission and the vision and how we're going to execute that. And then you're going to hear from Tammy, our vision. And I don't want to spoil it, but our vision is really we want to be bold. We want to win in the marketplace. And our purpose, it's why we exist. It's that north star, and Tammy is going to cover that in a little more detail. So with that, I'm excited to turn it over to Tammy Gomez, our Executive Vice President and Chief Human Resource Officer. So thank you, and you're up, Tammy.

Good morning, everyone. My name is Tammy Gomez, and I am the Chief Human Resources Officer here at Owens & Minor. As Ed mentioned, our vision for the future is really rooted in 3 core areas. It's to grow our Patient Direct business. It's to optimize our Products & Healthcare Services segment and then it's to invest to drive value for growth longer term. I'd like to talk today about how we're investing in our people and our processes to actually drive this growth as we move forward. So first, let me start by talking about just the strength of our teammates who deliver for our patients and our providers every day. As Ed mentioned, we have 22,000 teammates across the globe. 40% of our management roles are led by female leaders, 27% are ethnically diverse and we're keenly focused on ensuring we drive the highest levels of engagement, and our teammates feel that purpose. This will ultimately allow us to retain and motivate our best team as we move forward. 45% of our employees have 5-plus years of service at Owens & Minor. And I think this is a testament about what I just said. And then lastly, the diversity on our Board is also reflective of our commitment. I joined Owens & Minor about 18 months ago, which is hard to believe. And so a tremendous opportunity for us to help the organization reduce its -- or refocus its purpose beyond just the top and bottom line. While there are countless theories on how to get your employees to do the -- to get the best out of your employees, the reality is it's pretty simple. They want to be paid well, they want to be appreciated and they want to be recognized for a job well done. And they also want to work for a company that is contributing to the well-being of others with purpose. There's concrete data that also shows companies benefit from having a shared purpose and values. They tend to have lower turnover and employees are 3x more likely to stay with their employee for over a decade. Companies have better annualized total shareholder return and revenue growth and purposeful organizations willing to transform generally perform better over the long term. As we kicked off the operating model realignment work, we took this opportunity to really focus on what is our purpose. What is our -- what is the broader role that we play within the health care industry? And then how do we make that really clear and rally our teams around it. As you got -- as we got started this morning, Jon started off with a short clip introducing you to Owens & Minor and our purpose, Life Takes Care. I want to share with you another video on how this actually came to life for us and how it was actually reflected in the many conversations that we've had along the way. [Presentation]

At Owens & Minor, Life Takes Care. I'm actually really excited about this work. I think it truly captures the heart of our organization and really captures why we exist and lays a path for us in terms of where we're going. Life captures the size of our impact, how we support our customers to do their best work, helps our patients get back to enjoying their lives and actually, on a larger scale, moving health care and society forward. At its best, Owens & Minor's dedication and empathy has remained valued and vital to our customers. You hear it all the time, the conversational phrase, take care. The word care is actually bold on purpose. It is clear that our teammates go the extra mile to make sure that we are delivering on our commitments to our customers. And Kathy was actually on stage with Ed as we rolled this out to our teammates. And at the end of her presentation she said, "When people ask me what I do for Owens & Minor," she says, "I save people's lives." Think about how impactful that is when you rally 22,000 teammates around it, it's pretty powerful. So that's really the catalyst to the work that we've done over the last several months to get us to this point. Now that we've articulated our purpose, how are we going to bring that into action with our teammates every day and drive value for our organization? We are embedding key behaviors. We want our teammates to act like owners and encourage them to take smart risks. We will speed and eliminate any unnecessary red tape that we have within our processes. We want to reward impact. We want to make sure that we're celebrating our wins for our company, for our customers and obviously, our teams at the end of the day as well. And at the end of the day, we want to play to win. We want to be the unstoppable and dynamic leader that connects patients and providers to trusted health care products and solutions. So Life Takes Care isn't just another phrase. It has to be embedded into the way that we do things moving forward. And under this house structure, we're really focused on our vision, which is to be the unstoppable and dynamic leader. Our mission, like Ed had mentioned, hasn't changed. We're going to empower our customers to advanced health care. Our values are who we are at our best. And our ideal values guide the way in terms of the decision-making and the things that we do as we move forward. And our strategy as we mentioned, is hyper focused on accelerating patient direct growth, optimizing product and heath care services and then driving profitable growth at the end of the day. And at the base of all of this is our commitment to growing the business, making sure that we have the best talent and then obviously, driving excellence in everything we do each and every day. So as Ed mentioned, we were at an inflection point that was really poised for change. We did take a 2-level approach in terms of evaluating our organizational structure and our teammate culture. And we really looked at it in 2 ways. We wanted to raise the bar. We adapted to workforce trends around work from home. We identified gaps in our talent pool. We expanded automation to drive efficiency and we upgraded talent where we needed to. But at the same time, we also wanted to retain and invest in our current teammates. Yes, we had to consolidate some roles, and we had to make some difficult decisions along the way. But we promoted from within, and we implemented training programs that invested in our teammates and built out new skill sets. And at the same time, our segments are very different. So we also took the time to reflect on the different needs that were going to be important for us as we were going to grow as we move forward. So we must continue to raise the bar, without actually sacrificing our culture of Life Takes Care. We know that these core tenants on the left are not only important to our customers, but enrich our business and engaging in diverse hiring practices and getting involved in the community, in our supplier diversity initiatives and obviously, our external partnerships and our networks along the way. And if we're going to attract the best team, we need to continue to raise the bar. And I always say you have to embed and live your purpose in everything that we do. We have to build a strong culture where our team is highly engaged, and our teammates can grow and develop their careers here at Owens & Minor and we win the war on talent. So as you'll hear from my peers today, we're going to drive profitable growth through 2028. Our talent is going to be at the front and center in terms of how we actually get this done. We're going to have bold goals and behaviors that are embedded within our organization. Our teammates are going to have goals that are aligned in terms of how we operate and we're going to drive accountability. We're going to have clear goals and metrics so that we can measure our progress along the way, but we can also course correct as needed. I'm incredibly excited about our future and the potential of our teammates to actually deliver on our bold goals that we have out there. And I think this also lays a great foundation for us as we get into more details around our segments. So with that, I'm going to ask Perry to come on stage.

Good morning. I am Perry Bernocchi, I'm the Chief Executive Officer of the Patient Direct segment, which is Apria and Byram business. As Ed mentioned, and he's very excited about Patient Direct. I'm even more excited about our business. And you hear it through his theme, this is all about growth. And we have a proven track record of a growth engine in Apria and in Byram, and our mission over the next 5 years is to accelerate our growth, optimize the business and then continue to invest in the business. We'll continue to build up a strong foundation of growing above the market in our core therapies, investing in our technology, and then we're going to invest in inter-adjacent markets that are comorbidities related to our core therapies. But before we go into our business, let's talk about the industry a little. Demand for home-based care is growing, and it comes down to 2 key macro drivers. The business that we compete in is a $70 billion business or a market growing at 6% a year. The population is growing and it is aging. We have 65 million Americans on Medicare today, and that's growing at 8%. And the key fact here is 50% of those Medicare eligible patients are choosing Medicare Advantage plans. And so this is an opportunity not just with government programs, but with commercial payers as well, especially for us, and I'll touch on that. So what does it mean for home-based care. Clearly, the demand for home-based care is going up. Payers want more sustainability in their providers, and they want value-based care. And technology is going to play a key role in how home care is -- how home care will be transacted and we are well positioned as Patient Direct in that triangular relationship between the patient, the prescriber and the payer. Let's talk about the benefits of home-based care. For the patient, they prefer receiving their care at home. It's a better environment for them to return to normalcy and improve their health. Patients living with chronic conditions have to adapt to the challenges of performing self-care and achieving this independence is critical to the recovery of the products and services and the technology that we provide to make it happen faster. Tammy spoke about Life Takes Care and life really takes care within Patient Direct. I've been in this business for over 35 years, and I've talked to our patients -- I've talked to customers for 35 years. But in the recency, when I talk to our customers, I ask them, "What can we do for you?" And what the customer says is, you can provide the best care of the chronic condition every day. And that means we provide the best possible service, the right products at the right time and we transact their health care insurance needs. We take the hassle factor out of people living with chronic conditions at home and that provides tremendous stickiness with the patients, and that's really what helps us accelerate our growth. Patient Direct is either #1 or a leader in the majority of the categories that we compete in, including diabetes, ostomy, urology, wound care, sleep and respiratory. We have one of the broadest product portfolios today. And to the right is just a sample of the products that we serve. Many of these products came through our Apria acquisition. Let's talk about that acquisition. What a winning combination. This is awesome. Together or individually, both organizations have 50-year history in the business and have had success and our accomplishments together have already proved this to be true. We've executed on what we said we would do when we set out for this transaction. We broadened our product portfolio. We've leveraged our payer relationships. We've grown in higher-margin product categories. We're growing in a highly fragmented market, and we're taking share and it's been accretive on the financial indicators that we spoke about. The proof of winning combination is really in the chart on the right. If we look back 5 years on a pro forma basis, we're growing our revenue above the market. But more importantly, we're growing our earnings at an accelerated rate, which is exciting. So let's take a few minutes to look at the combined businesses as they are today. Patient Direct is a leader in home-based care with annual revenue of $2.6 billion. As Ed spoke about. When we acquired -- when Byram was acquired, it was about a $450 million company, and it grew to over $1 billion by the time we made the Apria acquisition. We knew at that point in time, we needed to expand our therapy portfolio, and we went out and acquired Apria. And what this did was essentially expanded our portfolio and we doubled down in the industry. You can see from the chart on the right -- or on the left, our revenue distribution. So if you think through it, it's diabetes and in diabetes, primarily our patients are either type 1 or type 2-insulin dependent. So that's topping our portfolio, followed by sleep, respiratory, ostomy, wound care and urology. It's also important to understand that we convert our revenue to cash through our best in revenue cycle process. Together, we service over 3 million patients. You can see again from the chart on the left, that this follows the revenue. So our density of patients are on sleep, respiratory, diabetes, wound, urology, and ostomy. The most important piece about this is a high recurring revenue stream. 80% of our business is a recurring revenue stream from the therapies that we serve. It is possible that 60% of our patients have one chronic condition, and over 40% of the patients in the population have multiple chronic conditions. Some of the patients stay with us for many years and others stay with us for a lifetime to manage their condition. And that is why we have such a strong focus on service, retention, while we simultaneously go out and grow the business above the market through our sales team. One of the ways we access new patients is through our significant commercial payer contract portfolio as well as being a national Medicare provider. Patient Direct can serve 85% of the population today in network. What does this mean? Typically, it means lower out-of-pocket for our patients. Our payer mix is 80% commercial, 20% government plans. This positions us well to serve the Medicare Advantage population. Why? Because Medicare Advantage is contracted, acts light and works as a commercial plan, and we are well represented across the commercial plans and with Medicare Advantage. This also makes us very attractive to our provider customers as well as patients and manufacturer partners. And additionally, the majority of the contracts are ever green contracts on an annual renewal basis. If we look at -- if we talk about retention and look at customer satisfaction, our strong NPS scores are 2 to 3x the industry average for health care. We've also received industry recognition from an organization called Verywell Health. They've voted Byram the best over diabetes supplier 4 years in a row. That's like going to the Super Bowl. How many -- who goes to the Super Bowl 4 years in a row? So we've gone to the Super Bowl of being the best diabetes provider 4 years in a row. I think it's a testament to say that our patients appreciate what we do. We're recognized in the industry and it solidifies our standing in the marketplace. It also means that we're contractually well positioned to access the population, we're attractive to our payers and prescribers and the customers value what we do through our customer service scores. Along with that, the key aspect is who do we do business with from a manufacturer perspective? So we have relationships with 1,200 branded manufacturers across our network and below -- a few of those are illustrated below. And it's very important that we have these relationships because it gives patients and providers the opportunity to choose. How do we service this network? So today, we have 300 sites across the U.S. We have a national footprint with local presence, so we are where the patients need us to be. We are within 2 to 4 hours of the major population. You'll see that you'll see -- you can see that from the map. Health care is delivered locally. And we achieved this local presence through our sales professionals, our customer service teams as well as our skilled clinicians that operate in the local community. We optimize the footprint through our centralized centers of excellence, our Enterprise Services group as well as the 275 branches to respond with speed to our customers. And again, we are within 80% of that population in the markets where they are, so we can respond within that 2- to 4-hour period. Our platform is scalable, and we can expand that footprint, both in density, if you think about how we're going to grow. We're going to continue to grow in the markets where we're in through sales, so we can grow through density and we can add more locations as we need to as we continue to grow. So with that, let's look at the next chapter for Patient Direct. Let's reimagine patient care in the home. So our goal is to be the leading provider of medical equipment and supplies for people living with chronic conditions. If you think about this, we want to focus on the disease states that we can help manage and heal, promote better health and improve the quality of life. And the best way for us to convey this is to hear from patients themselves. [Presentation]

So you just heard from a few of our patients. And really, if you think about what I said before, Life Takes Care, this resonates with our teammates. This is what we do every day. And this is why patients stay with us. And this is why 80% of our business has a reoccurring revenue base because those patients choose us and they stay with us. It's a key part of what makes us successful and a market leader. So let's pivot over to our commercial strategies to drive success. It's in a couple of areas. So one is competitive positioning. We're a leader in top 3 in our key categories through strong brand awareness, recognition, footprint and in-network access. We've got an extensive portfolio of both products as well as strategic partnerships and we have our customer-centric approach, and I think we've just touched on that. Let's talk about our ambition over the next 5 years to be a $5 billion organization and this is exciting. If we start back, it started with the Byram acquisition in 2017, going to in excess of $1 billion, all organic. We knew we needed to expand, had the Apria acquisition, sprinkle on organic growth of the 2 organizations, and we're at $2.6 billion at the end of 2023. What's our plan over the next 5 years? It's a continued organic expansion. So that's invest in our commercial operations, invest in digital marketing. And then on top of that, invest in M&A within our core and outside of our core to look at adjacent markets to achieve our ambition of being a $5 million provider over the next 5 years. Let's talk about the strategies. 3 key areas that we're going to focus on: one, expand our market leadership, and really, that's all about growth; two, leverage our technology, and I'll touch on that, and the three; adjacent markets. Expanding our leadership. Where is this going to come from? And it really is going to come from our today, commercial excellence as well as investing in our sales and marketing resources over the coming 5 years to create a best experience both from a commercial team as well as from a marketing team. Today, our selling efforts are centered around 450 go-to-market forward-facing salespeople, and we'll continue to do that and grow on that. But we're shifting -- we're also shifting our priorities to look at acquiring larger patient bases. And what does that really mean? It really is focusing on payers and contractual relationships that are different. Expanding our alliances through strategic partners, looking at health plan carve-outs, going after home health agencies as well as large hospital system contracts. And finally, we'll continue to improve and use technology to lower the cost-to-serve through improving and increasing our patient portals. Interesting. I've been doing this a long time. And when we first -- we launched our first app, and we launched a reorder portal. And everybody said, the Medicare population will not do it. We launched the portal and we launched the app and we watched the Medicare population come through. It was absolutely amazing. Because if you think about it, the Medicare population today of the baby boomers have all grown up with an Apple phone or an iPad or a computer and it's really revolutionized and supported how we deliver and transition health care. Second area is to look at our technology path. And we want to improve -- we want to do this to improve the patient outcomes and really to build a better opportunity and technology for value-based solutions. I'll talk about the patient management platform in a second. We're also going to build the data warehouse. And primarily, this is going to be used to get a 360 view of the patient. What they do? What their diagnoses are, comorbidities, how they order, what their insurances are? So we can best respond to the patient and continue to provide value in that stickiness. And we'll continue to invest in digital marketing as a patient acquisition. Consumers are moving and choosing themselves beyond what their providers recommend and they're out shopping on the Internet for companies like us. And today, we have a traction of that, and we'll continue to invest to accelerate that and the last piece is that we'll work on our ERP system, improve our back-end capabilities and really leverage our revenue cycle service and fulfillment. I want to spotlight what we talked about in PMP or patient management platform. It's an agnostic tool that has -- that allows date to flow in and out and will help the care provider better manage care. So as you can see from the diagram in the middle, all the stakeholders are in here. It's the patient, the payer, the supplier and the provider. And the technology is really built to advance adherence to treatment, to provide and push education to patient, to develop the information for value-based care, to enhance remote monitoring and ultimately to enhance patient outcomes as well as providing the information from a supply chain perspective for our team to make sure we've got the appropriate products at the right time. And the last part of our journey is entering adjacent markets, and this means expanding beyond what we do from a core perspective and leveraging our operational capabilities to do that. Again, we're going to look and focus on comorbidities when we go through this M&A process. And so we looked at the most attractive areas to do this in that are close to our core, and that's O&P, complex rehab, dialysis, heart disease and wearable cardio vest. So for each of these adjacent markets, you can see where they fall either closer to our core or further from our core. The market sizes are also highly attractive and will continue to assess these as we continue to look through our M&A opportunities. So in the last 2 slides, let's just recap where we've been and where we're going. So Byram and Apria together, $2.6 billion; Patient Direct organization, continue the expansion organically, $3.7 billion; grow through acquisition, get us to $5 billion in our ambition. We have done this: one, by growing Byram; two, by layering on Apria; and creating a great Patient Direct platform. So we've earned the right to do this again. I'm very excited about what we have accomplished and more excited about we're in a space with compounded growth rates, high retention rates of a reoccurring revenue stream. We'll leverage our national footprint as we do this. We'll leverage our best-in-class commercial selling operation. That's how we got through organic growth -- to organic growth. We have a mature and scalable platform. So we'll continue to layer on our opportunities and continue to grow and we'll invest in our talent. So as you heard, I'm excited about where we have been, but more excited about where we're headed. And we are well positioned for the next chapter of growth for Patient Direct to achieve our $5 billion ambition. So thank you. And with that, we're going to take a short break and Andy Long, our Chief Executive Officer of our Products & Healthcare Services division, will be up next on the stage. Thanks.

We'll break. We'll start talking again at 5 of the hour. [Break]

Before Andy takes the stage, we have a brief video on the Products & Healthcare Services segment. [Presentation]

All right. Good morning, everyone, and welcome back from the break. I hope you enjoyed our short video. My name is Andy Long, and I am the leader of the Products & Healthcare Services segment here at Owens & Minor. I've been in the role for just over a year now, and I've been with the company just over 4 years. I started in November of 2019. I served as the company's Chief Financial Officer. And in that role, it gave me a great viewpoint and visibility into the profit levers, the profit drivers, the strengths, the weaknesses and the opportunities and challenges that this business faces. And so I feel like with that grounding, I was able to jump right into this role and hit the ground running from Day 1. And so I'm excited to share with you what my team and I have been doing over the past year as we are charting the path to build the foundation to do -- take the actions that we need to take in order to play to win. And so today, I'm very excited to also share with you our strategy for the Products & Healthcare Services segment and our vision and our road to 2028 and really to share with you kind of our plans going forward. So I thought I'm going to start the presentation with just an overview of the Products & Healthcare Services segment, right? And I'll refer to it as P&HS in our presentation. And I know many of you are familiar with the business, so this will just be a quick refresher. But there's a lot of people I know that are new to the business, and I want to make sure you get a good overview of our business. So the Products & Healthcare Services business goes to market in 3 divisions. So I'll start with Medical Distribution and that products division has our proprietary products, our private label products, and we play primarily in the surgical and infection prevention categories. That's where we mainly play in. And we have the capability to design, to source and to manufacture product as needed. And because we control that overall supply chain, that overall value chain, we believe that we can bring a high level of supply resiliency to our customers. And then our third division is our Services division, where we offer everything from technology services to help our customers with inventory management all the way through outsourced logistics capabilities. I thought I'd also spend a moment just going over our brands. We've got a really strong collection of brands that are known for quality and excellence. As you see on the left-hand side, we've got a set of brands that are associated with products, and I'll start with our HALYARD brand. HALYARD is associated with our clinically differentiated high-quality products. We also have a MediChoice brand that's associated with nonclinical value products. We've also got a collection of brands that we go to market with our kitting and custom procedure trays. Those brands have been acquired over the years as we purchased companies. Moving to the right-hand side is our services business, and I'll start with Distribution, where we go to market under the Owens & Minor brand. Of course, with a 140-year legacy of quality and excellence in serving this market. And then rounding out the brands and services are brands like QSight and PANDAC and SurgiTrack that round out the services that we offer to our customers. So as we look at the strategy for the business, I thought it would be a good starting point just to share with you the journey that we've been on over the past couple of years, starting with the pandemic to where we are today, and I think that will set up our strategy nicely. So as you know, in the time period about mid-2020 to early 2022 in the pandemic period, the pandemic provided a tailwind for this business. And during that time period, our teammates were laser-focused on ramping up production, on ramping up sourcing, in order to supply our customers and help them meet their almost insatiable need for PPE during that time period. But in the aftermath of the pandemic, we faced -- we've navigated a very challenging landscape. And that challenging landscape includes market conditions like oversupply of PPE in the market, tight labor markets, inflationary pressures, right? And those factors have all come together to create profit headwinds not only for our customers but also for us. And so in order to succeed, we're going to have to come up with ways to adapt to these changing market conditions. We're going to have to find solutions for our customers that drive value for our customers, but also drive value for Owens & Minor. And so as we look at what that strategy will be, right, there's 3 elements. It's leveraging the scale of the Products & Healthcare Services business. It's expanding our proprietary product portfolio and it's expanding into new markets beyond the acute care market we play in today. And at the end of that journey, at the end of that road, we believe this strategy will lead us to more than double our profitability over the next couple of years. So let's go into a little bit more detail on the 3 strategies. So this page, I'll touch on and introduce the 3 strategies, and then I'll go a little bit deeper on each of them after this. So starting with leveraging the scale of the Products & Healthcare Services business, what does that mean, right? So it means as we look at the services that we provide to our customers, we've got to look at them on the scale of at one end. There are services that we provide that customers see as just table stakes, right? They don't see differentiation. And in those areas, we have to work extremely hard to drive costs down and become more efficient. But at the other end of the spectrum, there are services that we provide that our customers find high value, and they're willing to pay for that value. And those are the areas that we need to continue to invest deeply in and also in terms of leveraging scale, we need to evaluate our footprint and that's both of our distribution centers as well as our manufacturing footprint, as Ed said, to evaluate to make sure we're best cost and where we're not, we'll be looking at that -- the opportunity to look at the make-buy decisions. Second strategy is to rapidly grow the O&M product portfolio, our branded portfolio. And in Ed's opening remarks, he was very candid, right? This is a strategy that we've had for a number of years and we have failed to meet our expectations in this. So this is an area where we are truly going to put additional effort into it. And we've got a multipronged approach to enacting the strategy, right? So we're expanding our sourcing infrastructure to make sure that we've got the right teams in place to source products because many of the products that you'll hear that we'll be launching won't be manufactured by us. We'll be creating category teams that are responsible for the creation, from the inception, identification and all the way through the market and commercial activation of this product launch, the only entire process. And then finally, we'll be expanding into looking at our branding strategy, right? It's an opportunity for us to look at the brands that we go to market in that I just walked through, and make sure that those brands truly represent the value that we bring. And then the third strategy is to expand into adjacent markets, right? Markets that are growing faster and have a higher rate of return than what we play in today. So let's go a little bit deeper into the first strategy, leveraging P&HS. So what do I mean by this? So this slide is really intended to give you an example of just some of the things that we're doing in this area. So I'll start with the organization. And we've looked at the organization structure. And one example of an opportunity that we identified is in our procurement, our purchasing organization. And we saw that there were multiple procurement organizations and pockets operating independently across the business. And so what we did is we've consolidated those organizations under one leader, under our Chief Procurement Officer, and we've been able to accomplish a number of things with that. Now we are leveraging data so that we can aggregate our spend when we work with suppliers to get best cost and we're also utilizing best practices across the organization to drive common practices and get the best outcome. We're also looking at the way we solve customer problems. So oftentimes, we will create complex and detailed solutions for customers that are very complicated to enact and to solve the problem with. What we're looking at is trying to find a common approaches to solving problems. We realized that we may have a customer problem in one area. And instead of finding a new unique custom solution, we can drop on other areas of the organization where maybe we've already solved that problem. And by standardizing our approach, we can drive value to the customer by being faster to implement. We can drive value to the customer by increasing our ability to be assured that, that solution will be successful because it's a solution that we've tested and tried in the past and found it successful. But there's also benefit to the Owens & Minor because we will no longer have to create a custom solution and maintain a complex solution long term. So it will drive efficiencies internally. Prioritization regardless of value. Really, it's just a reiteration of what I said on the previous page, where our customers find value, we're going to invest and where our customers don't see differentiation where they see the services table stakes, we're going to need to drive costs down. And then finally, the legacy footprint, right? So what do I mean by this? So we've got distribution and we've got manufacturing, and I'll start with distribution as an example of what we're doing in this area. So when we acquired the HALYARD business back in 2018, we acquired a set of distribution centers that manage the HALYARD inventory. We refer to those as upstream distribution. And of course, we've got our downstream distribution that we all know that services our traditional distribution customers. So in 2023, we're starting to run those distribution centers as one cohesive functional group, right? We're not running it as 2 separate operations. And obviously, there's cost to take out, which are savings by eliminating redundancies. But we're also taking that HALYARD product and pushing it out closer to the customer. And by doing that, we're also finding a benefit of improving customer service levels as well. On the manufacturing side. Look, we've got an incredibly strong manufacturing asset -- set of assets. But we have to make sure those assets are producing at the level of quality that the market demands and the level of cost that's competitive with the market as well. And where we're not -- look, we've got incredibly talented teams that are working to find ways to improve that and whether that's through implementing technology, whether that is through the improving utilization, fixed cost utilization or whether that's through our class of continuous improvement, lean activities. But whatever it takes, we're trying to bring those costs down. But as Ed said earlier, if we can't become competitive in those areas, we will absolutely revisit our make-versus-buy strategy. All right. So what I want to communicate here is that this strategy isn't just something that we're thinking about implementing at some point in time, maybe in the future, right? This is something we're implementing now. We've put points on the board in 2023, and we're starting to see real results as we speak. So on the previous slide, I talked to you about what we did with the purchasing organization. By putting that organization together, we have driven millions of dollars of bottom line results. So when Ed and Alex talked to you about the $30 million of operating model realignment savings, a big piece of those savings are coming from this activity. And it's nice because we've got that run rate and that gets annualized into 2024, and that's part of that $30 million going to $100 million. So a nice win here. Another thing that it's really we found as a benefit by consolidating our sourcing, is that now we've got a streamlined way of launching new products. We won't -- when we launch our portfolio expansion. We won't go with 10 different ways of launching a product. We'll have one common way of doing that. And we've also launched new technology, this new organization that introduced software technology that will help us manage our spend from the time we get quotes from suppliers all the way through execution and management of that spend. So it will be a nice opportunity for us to control costs. Delivering value through lean. The first 2 bullets in this section, I think, are very straightforward. You can read those. But I want to focus on the third one, right, where we've instituted integrated business planning. And this is an opportunity for us to take input from customers, demand forecast, input from our commercial team and link that through to our sourcing and manufacturing groups so that we can be assured that we have the right product in inventory at the right time in order to maximize our service levels. So a really nice opportunity for us here that we've been implementing. In terms of technology. Technology will play an incredibly important role in our strategy and that technology can range across the spectrum from purely internal inward facing, where we're automating some routine activities in our back office. And as you move closer to the customer, right, we're implementing technology to perform automation in our distribution centers. Again, watching -- we try and balance that technology versus flexibility in order to be responsive to our customers. Even closer to the customers where we've implemented artificial intelligence software to help us with our demand planning and forecasting again to improve service levels. And then finally, on the spectrum. Purely customer-facing is where we continue to invest in our QSight software, right? So that is a software platform that helps our customers manage their inventory from their supplier all the way through to making sure it gets billed correctly to the patient. And then finally, establishing an end-to-end value chain in our supply -- in our operations. So you look at the functions of planning, sourcing, manufacturing and delivering. Historically, those were silo-ed organizations, right? They were run by 4 different leaders within our organization. Today, we've put those and rolled those up under one leader. And if you step back and think about a couple of things I've just said on this page, right? We've changed the organization. We've changed our ways of working by implementing integrated business planning and then we've introduced technology to help us forecast a demand plan better. That combination of activities has allowed us to drive hundreds of millions of dollars of improvement in working capital to translate the cash that we've been able to then deploy to reduce debt or to reinvest in the business. So it's a nice success story of what we've been able to achieve in this calendar year. So switching to our second strategy, which is expanding our product portfolio of proprietary products. I like this page because it's a nice visual of what we're trying to accomplish. On the left-hand side, you see the categories of products that we currently play in with our HALYARD and MediChoice brands. That's where we are today. This is where when we talk about portfolio expansion historically, these are the categories that we have been investing in to expand the portfolio. But if you look to the right-hand side, these are -- it's an example of some of the categories that we will be looking to expand into going forward, right? So we're looking outside our existing categories and moving into new categories. So I think that's really exciting. So what does that mean? 90% of the SKUs that we will launch in 2024 will come from categories that were on the right-hand side of that previous page. 4 to 5x. We will be launching 4 to 5x more SKUs in 2024 than we have launched in any previous year historically. How are we doing that? We are moving from a very passive supplier-centric method of kind of managing our products to a customer-centric, actively managed category view of our portfolio, right? So if you think back to that previous page, we will be hiring, as I talked about, as we expand category leadership, we'll be hiring leaders for each of those categories and their purpose in life will be to identify SKUs to expand. They'll be chartered with launching the products, getting it to market and activating our sales force. So really a start to finish holistic view of how we're expanding our product portfolio. And that engine that we're creating with that team should enable us to do what we're doing in 2024, that should be repeatable year after year after year. And keep in mind that the products that we're launching can have up to 5x the profitability of the products that they'll be replacing when we launch them. So a really, really nice opportunity to expand margins. And then turning to our third strategy, right? This is where we're looking to enter adjacent markets outside of the acute care space. And on the left-hand side, just a couple of examples of areas or markets of interest to us. So I'll start with ambulatory surgical centers, right? It's a very attractive market to us. It has higher growth rates. The portfolio of products needed to serve this market are aligned completely with the portfolio that we have today. And what I like about this, too, is that many of our current IDN customers have captive IDNs. So it makes it a logical extension for us to go into the leadership at that IDN and say, "Look, we service your acute care today. We'd like to work with you to kind of the one-stop shop and to also support you on the ASC side of the business". Clean rooms. So when I say clean rooms, think semiconductor manufacturing, right? We like this space because it, too, has a high growth rate. The customer base is very centralized, so it gives us an easier opportunity commercially to get in and talk to these customers. The portfolio of products that are required in this space overlap very nicely with our own PPE product line. And in fact, entering the clean room market is a great example of where we've been able to leverage all 3 of our strategies together, right? We've taken our internal design manufacturing capabilities and designed new products internally, gloves in particular. We've then taken that design and we've been able to leverage the scale of Products & Healthcare Services by producing those new gloves in our own manufacturing facilities. And then we've been able to use both of those steps then to enter a new market. So it's a nice example of where all 3 strategies kind of combine. Consumer is a newer business for us. It's a small business, but it's growing fast. Again, it has a nice overlap with our portfolio of PPE products. And as we expand into new categories, we'll certainly take this category into consideration. We've made nice input, nice progress in retail and on Amazon in 2023. And then finally, the lab space. Again, nice overlap with our product portfolio in some areas. And again, labs are captive to existing IDNs that we serve. So it's again, a logical extension for us to serve this market. On the right-hand side is not necessarily entering a new market, but it's actually going a little bit deeper into an area of the hospitals that we serve today, and that's expanding our presence in the operating room. And we think we can make -- have a bigger presence in that space by expanding our product portfolio. We've got a very strong kitting franchise. And we've also got the services like SurgiTrack, PANDAC and QSight that are all really focused on this perioperative space. So we think we can play to win here. And this market -- this area of the hospital is really attractive for us because if we can win in this area creates stickiness and it also provides a base from which we can grow to expand into other -- our products into other areas of the hospital. And to win in this area, we've done some really big organizational changes as well to align our organization to support the strategy. Historically, we had 3 commercial teams calling on the operating room. Products team, a services team and a kitting team, right? We've collapsed that into one team this year. Now we have one person that can represent everything we sell into the OR and it simplifies it. It makes us easier to do business with because the customer is only dealing with one person. Operationally, you saw in the previous slide when I talked about our kitting brands. You saw all those kitting brands. right? So we have multiple kitting operations that were run by multiple people. So we've taken all the kitting and we've put that under one person. So we now have one operational leader. And then category-wise, right? So I've talked about the category expansion, now we have category leaders. We have one category leader that's focused on all of the products and services that are needed to win and succeed in the operating room. So we now have complete organizational alignments to win in the operating room. So those are our 3 strategies. But as you've heard me talk about organizational structure alignment is really critical to making sure we're successful in executing the strategy. And a lot on this slide ties back nicely to some of the things Tammy introduced earlier in her presentation. So this is kind of like the real-life example of what Tammy talked about earlier. And it's really the 3-step process of making sure that we've got the right organizational structure and it's designed to support the strategy. We staff that organization with the right people. And then once that's established, let's determine the best ways of working in order to meet the strategy. So you've heard a couple of examples of that, right? So the purchasing organization. Create the organization, staff it, implement software, drive millions of dollars of savings. Operations, align the source -- I'm sorry, the planning sourcing making and delivery under one person, get the organization established, new ways of working, integrated business planning, introduce software, and we've driven hundreds of millions to the bottom line. So there's a couple of examples, categories and other that we're following this model in order to execute the strategy. And so in closing. There's 2 things I want to take -- I want you to take away from this. One is that we have a clear strategy and a clear path to execute on that strategy. And again, the strategy itself is to leverage the scale of our P&HS business, investing where customers find differentiation and taking costs out where they don't and looking at our footprint to make sure our distribution and manufacturing costs are optimized. Expand our product portfolio into new products that have higher margins, expand into new markets into areas that are growing faster than where we play today that have higher margins. And then finally, to expand our presence in the operating room where we can create stickiness and where we can determine or build the base from which to grow from in the rest of the hospital. And to do that, investing in talent to make that happen. The second thing I want you to leave or walk away with is that, that strategy will enable us to double our profitability over the next several years. And I think it's kind of a proof point in that and the progress that we've made. If you look at our Q3 results for our segment, you'll see that sequentially from Q2 to Q3, significant improvement in profitability in third quarter. When we talk about our $30 million of operating model realignment savings, you've heard Ed and Alex say that we are on track to meet or exceed those. So I think those are 2 examples of where you can see that we are demonstrating real concrete progress in achieving the strategy in 2023. So with that, I will wrap up. I'm very excited to see with the future of Product & Healthcare Services, I think we're off to a good start. And I want to thank you for your time. And at this point, we'll turn it over to Alex Bruni, our Chief Financial Officer.

Thank you, Andy. Good morning, everyone. It's great to be with you here today. I hope by now, you've got a really good sense of our strategy, our growth potential, our culture and the important role that both Patient Direct and Products & Healthcare Services play in impacting the lives and well-being millions of people every day. As we look ahead to 2028, my presentation today is going to focus on an overview of our financial strategy and expectations. You've seen this slide across my colleague's presentations but what I want to emphasize here is the final step in our process, which is investing to drive value, driving value in the short term and in the long term. We have a disciplined approach to capital deployment. And we're going to make smart investments in the business to drive value across the organization. We're putting our dollars into supporting expansion into adjacencies across both segments. We're strengthening our balance sheet and using our cash to support growth. And ultimately, these combined efforts will position us to drive long-term shareholder value. Before we look ahead, I do want to take a moment to talk about where we were 5 years ago and where we are today. 5 years ago, we had significant service issues. And those service issues were causing customer losses and driving significant revenue and adjusted EBITDA declines in our legacy business. We had challenges with cash flow and our cash balance. We had unsustainable debt levels and have been downgraded to as low as a CCC+ credit rating and our net leverage was as high as 7x. Today, you can see on the right that we're in a much better spot. We're delivering on our 2023 commitments as we outlined at the beginning of the year in our guidance, including those for the operating model realignment. We're retaining and winning new business across both segments. We've returned to our normal business trajectory post-COVID. We're improving our adjusted EBITDA in our Patient Direct segment. Our high-margin business is now making up about 80% of adjusted EBITDA. We've delivered about $600 million of operating cash flow year-to-date. And through the end of Q3, we've reduced net debt by about $0.5 billion. And our net leverage ratio at the end of the quarter was just below 4x. So we're pleased with the improvement here, but we've still got more work to do. And as part of that, we're going to continue to focus on the operating model realignment. Ed has talked about this, so I'm just going to provide a refresher. In summary, the operating model realignment is delivering as expected. It's driving improved profitability, it's positioning us for growth and is generating cash to invest. We're on track to meet our goals. We're going to hit the $30 million in savings for this year. We'll exit the year with $100 million run rate, as Ed talked about. We're generating cash to invest in the future, and we're on a run rate to hit the $200 million by the end of 2025. We're also on track to achieve the $250 million to $400 million of working capital benefit over the life of the program. As we go forward, we will continue the work streams officially, but as we've talked about, these are becoming more and more just the way that we operate our business from a day-to-day standpoint. So to recap, we're delivering on our goals. We've got a clear line of sight to savings. And with those savings, we're going to reinvest to drive organic growth. As you've heard throughout today's presentation from all the speakers, for my teammates, our future growth will be driven by investments across all areas of the business, starting with Patient Direct but also including Products & Healthcare Services. And we're keenly focused on the following 4 drivers. So one, we're going to sustain good revenue growth with investments in commercial teams in both segments, and we're going to expand our product offerings. We're going to continue to focus on attracting and retaining the best talent as Tammy talked about. We're going to expand into adjacencies and comorbidities in Patient Direct, as Perry mentioned. And we're going to invest in technology that's going to improve the experience for patients, providers and payers. This will go all the way from back office automation to our patient management platform. So with these 4 key drivers, we're confident that we will sustain our top line growth. So if we look back to 2019, the majority of our revenue growth has been driven by Patient Direct. And now with the powerful combination of Apria and Byram, which we created in 2022. And as we look ahead to investing even more in this business in Patient Direct, we're very confident in sustaining our top line momentum, and we expect organic revenue to reach $12 billion by 2028. Note that this does not include any potential M&A that Perry talked about as part of this $5 billion ambition. And so while we expect Patient Direct to be at the heart of our top line growth, we do expect Products & Healthcare Services to continue to post modest upticks in revenue, and that has been a historically lower revenue growth business. As part of that revenue growth, it's important to note that there will be mix changes, as Andy has talked about with our new products. Now turning to the bottom line. We believe that 2023 is the post-pandemic earnings inflection point for us, coming out of a tough Q1 this year, which we expected, we've delivered significant sequential improvements in adjusted EPS over the past couple of quarters. The execution of our strategy is resulting in higher quality, higher margin forward, we should expect operating income margin expansion in both segments. It will be driven by top line growth and operating leverage. It will also be aided by additional efficiencies and savings from the operating model realignment program as well as reduced interest expense from delevering. Long term, our investment in new proprietary products in PHS should also drive incremental margin improvement. So organically, we expect an adjusted EPS CAGR of over 20% through 2028 so calculated off of '23 for the next 5 years, a 20% CAGR on adjusted EPS, and we expect to reach $3.50 by 2028 as shown by the diamond here on the upper right-hand side. We also expect to generate strong free cash flow, driven by operating profit growth as well as our disciplined approach to working capital and capital expenditures. As we've talked about today, our cash generation will support reinvestment in the business organically as well as other potential strategic initiatives in the future. We expect to generate over $1.3 billion of free cash flow between '24 and '28, and we're excited about the opportunities to invest with the cash that we're going to generate. So as we go forward and as we've consistently mentioned, we will use a portion of that cash flow to continue to pay down debt. We're committed to delivering our target of 2 to 3x net leverage. And as we delever, we gain optionality with regards to capital deployment. So if we look at our balance sheet, what we've done over the last 5 years, and in particular, what we've done over the last 3 quarters, where we've paid down over $0.5 billion of debt year-to-date, it gives us great confidence that we're going to continue to enhance the financial strength of the company as we move forward. By increasing the cash flow generating components of the business as a whole, we'll both strengthen the balance sheet and be able to reinvest in our business. From the right-hand side of this slide, you can see that we do expect to drop below our target leverage ratio range. And strategically, we would not expect to spend much time there, which brings us to capital allocation. To put it simply, we've got 3 priority areas for capital allocation. The first is organic reinvestment. You heard from both Perry and Andy today that we've got attractive opportunities to build our presence in both segments. We'll also continue to explore additional M&A and we'll maintain a disciplined approach to expand and scale our business. And third, we would evaluate opportunistic share buybacks under the right circumstances. So before I recap our financial targets through 2028, I'm just going to touch on M&A. We believe we've established a strong track record of identifying targets, bringing them into the Owens & Minor family and growing the combined businesses. As you heard from Perry today, the combination of Apria and Byram has been a winning combination for us. And while our current focus remains on ensuring a strong balance sheet, we're not going to let the right deals pass us by, and we have the financial flexibility to do them. In terms of our criteria, Patient Direct is where we see the greatest opportunity to acquire. It's a target-rich market with high-quality names that would fit nicely into our platform. We'll continue to evaluate deals holistically, looking at the optimal profit growth as well as integration fit profile and we're going to continue to maintain discipline and rigor around target identification as well as due diligence. We're very comfortable passing on opportunities that don't check the right boxes. And finally, and this is critical for every deal size but especially for one as transformational as Apria, we have to consider every factor, including what's best for our business and our shareholders long term. So with that, let's recap our financial targets. Our first objective through 2028 is to deliver more than $12 billion in annual revenue. We believe we can do this with a combination of reinvestment to drive organic growth and with even more upside possible through M&A. Second, we aim to deliver over $750 million of adjusted EBITDA. We're going to do this through driving margin expansion as a result of greater operating efficiencies as well as a keen focus on providing services and products that drive the highest value. Third, we expect to deliver over 20% adjusted compound annual growth in adjusted EPS and to get to north of $3.50 by 2028. This will be driven by operating income margin expansion in both segments. And finally, we expect to deliver over $1.3 billion in cumulative free cash flow. We have a healthy business. We have a thoughtful approach to managing costs, and we believe that this cash flow is absolutely achievable, and we plan to use it to generate and unlock shareholder value for years to come. So with that, I'd first like to say you've heard from me and my teammates today about the path forward. I'm incredibly excited to be part of it. And before we turn the floor over to questions, I want to ask Ed to come back up and add a few remarks.

Thanks, Alex. Just do a relatively quick recap. So I do this and I'll bring the rest of the team up, but Patient Direct. Here's the other way I think about Patient Direct. The demographics are in our favor in that space with an aging population. The fact that patients, providers, payers prefer treatment in the home, that's in our advantage. The fact that we have a proven model that we've been able to take a business since Owens & Minor, owned it at $450 million to grow it over $1 billion, layer on a large acquisition on top of that and then continue to grow and take that business from $2 billion to $2.5 billion in about 2 years, and less than 2 short years. We have the track record in that space. We have the proven model. We have the right footprint, and we have the right product portfolio and continue to be successful. In addition to that, they've earned the rights, the segments to continue to do acquisitions as appropriate. What they've done with the acquisition of Apria, the integration, hitting the synergies and then continuing to drive more growth has been impressive. If we think about our Products & Healthcare Services business, and this is the business that can provide tremendous amount of scale and leverage. It's a business that we're growing. We're winning in the market because we have a way to provide value, service as well as flexibilities for our customers. In addition to that, there's clear strategies in both of the segments. In the Products & Healthcare Services segment, there's the opportunity to expand our proprietary product portfolio, and we're making the investments necessary to do that. It has the ability to continue to drive and be lower the cost to serve, and that's critical. And lastly on our balance sheet. We continue to strengthen our balance sheet. We did a really good job over the last 3 quarters by paying down nearly $500 million or $0.5 billion of net debt. The expectation is we'll continue to deploy capital to pay down debt to get into the range we want to be in, and continue to provide tremendous flexibility to the business. We talk a lot about the balance sheet and capital deployment. But I think the other thing to talk about on here is the fact that with our operating model realignment, as we're driving savings and operating cost out, taking and redeploying that operations cost back into the business. Whether it's in additional commercial people in the Patient Direct business, whether it's in technology in the Patient Direct business, or whether it's in the category leadership, commercial support as well as technology to take cost out of our P&HS business. So with that, I'll pause. I'll ask the leadership team to come up and then we'll take some time to go through Q&A. I'm going to let Jon make a couple of comments before we get started on Q&A. Jon?

So as the team assembles, we also have half hour or so in Q&A. [Operator Instructions] For the benefit of the webcast, when called upon, please wait for the microphone, and we've asked that you also provide your name and your firm name. And we're ready to take questions. Daniel?

Daniel Grosslight with Citi. Thanks for all the great details here, and I appreciate all the color around market targets. So I want to focus a little bit on Patient Direct and really the expectations for '24. Understanding that you're not going to be guiding specifically for '24 and then the cadence on how to get you to that longer term guidance. And specifically, you guys mentioned this kind of on the 3Q call, there are a couple of big headwinds coming up in '24. One, you've got the expiration of the adjustment to the Medicare fee-for-service fee schedule and some estimate to that seem expect 30-ish percent cut in reimbursement in that area to certain products. So that's going to be a significant headwind for the non-CBA, nonrural areas. So curious how you're factoring that into your overall growth rate. And then, I guess, more broadly speaking. As you think about the diabetes space and the shift from the Medical segment to the Pharmacy segment, I'm curious how you're integrating that into your longer-term guidance as well.

So thanks, Dan. There's a lot of questions within that one long question. So maybe I'll start and I'll let both Perry and Alex talk a little bit about the business as well as the modeling. So we'll provide '24 guidance when we announced our fourth quarter earnings in late February, early March. But the way we're thinking about it is, again, it's to continue to leverage Patient Direct the strength they have. a really strong commercial model. We know there's some geographic footprint where there's opportunity for us to invest in. We know that as we add commercial resources in, they don't pay back immediately. They have usually a 12-month or so until they start to pay back returns on. So as we think forward, we're going to continue to pace those expansion in for the organic growth and continue to do that. So I think that's part of the way you should think about it in the near term, and then that continues to accelerate in the longer term. That, let me turn it over to either Alex or Perry. Alex, either you want to talk about some of the financials modeling or Perry, if you want to talk about some of the thoughts on the business.

Why don't I take the financials and then you can layer on the business. So Daniel, I guess the way I would think about the revenue over the next 5 years is that we've talked about Patient Direct being the primary driver to get to the $12 billion. I mentioned we expect to see modest upticks in Products & Healthcare Services along the way. So roughly 1% annual growth. I think you find that in the assumptions page in the back. So you can sort of back into what we expect from Patient Direct in terms of getting there. We don't expect any sort of hockey stick or sort of abnormal growth. So I would say, kind of looking at how you get ratably to the $12 billion would make sense. And in terms of how we think about headwinds and tailwinds as we move forward, we talked on the last call about the 75/25 reimbursement from PHE. We've factored that into our projections. We factored in the other things. But Perry, I don't know if you want to talk about how you think about it.

I'll just -- I'll talk about the business when you look think about PBM to your question about pharmacy. First, there's probably 1 million to 1.5 million newly diagnosed diabetic patients a year. So there's a tailwind of patients coming into the funnel every year through the top. Those patients are on -- it's a non incurable disease, you're on for a lifetime. Secondly, pharmacy benefit is not a new thing to the industry. It's been around for the last 5 to 7 years. And primarily, we as employers and our community choose our health plan benefit and we as employers, decide where we want that paid for. Either a DME benefit, a dual benefit or a pharmacy benefit. Probably unbeknownst, we have 3 pharmacies within Patient Direct, we service the, call it, diabetes CGM population today through our pharmacy business as well. So we actually become a highly attractive partner in this because we can serve the patient regardless of what payer channel they choose.

So obviously, we think Alex, Perry, so Perry also shares that there's a lot about the Patient Direct business that creates competitive advantage for us. That's what gives us that encouragement and really the track record of what we've done. Alex, maybe you can a little more color on the 75-25 because I know we've gotten questions on that in the past and how that impacts us and what the magnitude of that is?

Sure. So for those of you who aren't familiar, we had a number of questions a few weeks ago on what's called the 75-25 blended reimbursement rate for Medicare. There's some legislation going through Congress right now to potentially extend some funding that was approved during PHE. It's for a portion of Medicare. So the way to think about this in terms of our business is it really only applies to DME, which is Apria. So call that roughly $1 billion. And of that business, about 20% is Medicare. And within Medicare, there are essentially 3 rings. There's bid. There's rural and there's nonbid, non-rural. And the non-bid non-rural is the portion of the Medicare business to which this rate applies. And so when you sort of chunk it down, we have factored into our projections for next year and going forward, scenarios that impact either having the legislation extended or not, but it's not a material swing factor for us.

It's Kevin Caliendo from UBS. The assumptions to get to $3.50, how much of that is in your control? How much of it is sort of macro dependent on how the markets evolve? You talked about this year, you had certain control over costs. And I guess as part of the assumption, I appreciate the color on it, but one of the quick key questions how our GLP-1s impacting your assumptions on the market opportunity for sleep and for diabetes?

Sure. We'll cover that. So the way we think about it is, one, in the Patient Direct business, our expectation is we grow at least 2% above the market. So that's the minimum expectation. And we've got -- the way we see that market, Perry shared because it's probably around a 6% overall market growth at pace, and we should be at least at that, if not greater. And I think on the GLP-1s, look, we've had a lot of conversation about GLP-1s. And here's, I think, what you got it, we have to really drill into it a little more detail. So take diabetes, for example. The vast, vast, vast majority of our diabetes patients are either type 1 or type 2 insulin-dependents. Even with the GLP-1, it's not going to -- they're not going to -- it's not going to go away. In addition, with GLP-1s, whether it's sleep or whether it's diabetes, it's got to be adherence that the person who starts at generally may be taking that for life and they need to keep -- continue to take that, but they're still going to need the monitoring for continuous glucose or they may haven't seen a slowdown in this. And then the other -- we haven't seen a slowdown in starts in either our diabetes or sleep through this year as that has supposedly gained momentum. And then I think the other aspect, you look at some of the key suppliers out there, whether in diabetes or sleep, I think they have a lot of the same views that we have on this. So Perry, if you want to add any additional color, please feel free to.

I think you've covered it well. I think the other factors are, again, in diabetes in both sleep. There's a large prediabetic, pre diabetic, pre OSA and a population that's undiagnosed. So the demographics in our favor, patients with the chronic condition will continue to go forward. So.

And really what Perry said there was so critical is you cut through all of that, the demographics of the aging population, the demographics of what we're seeing are really on our side and then you layer that in, to prove a model that Perry and the team have displayed. That's what gives us a lot of confidence moving forward.

Different topic, more on the new SKUs that are coming. How do you expect to compete on these products? Is this quality? Is it price? I only ask because pre-COVID, Owens & Minor struggled with manufacturing efficiency, they weren't able to compete necessarily on price with products that were imported. You're launching a bunch of new SKUs. I'm just interested, your -- are these replacing product -- outside products, your margins will be higher. Can you compete price-wise? Just a little more color on that would be really helpful.

Yes. I'll start, and Andy can cover the bulk of it. But I think the first assumption you have to have is we don't necessarily have to make those products as we expand. I mean it's a make-buy analysis, so we're thinking about it very differently in the past. When before our blinders as you saw the list Andy showed, was primarily on S&IP, surgical infection prevention products and primarily made within our own facilities. There's opportunities to make other newer products within our facilities. Like Andy talked about the expansion with gloves, for example, we'll do that. But in the same sense, we are open to both the make and buy analysis. And that I'll turn it over to Andy to add.

Yes. If you think back to the page I presented where the left-hand side was the existing portfolio where we have our proprietary products. That's where our manufacturing aligns today and on the right-hand side, these new categories that we're going into, we really don't have manufacturing capabilities. So this -- so we will primarily be sourcing products on that side. So we'll have the opportunity to go out into the market and truly test a number of suppliers in order to make sure we're getting the best cost in order to be competitive. And as we select SKUs, I think another dimension to our success in being able to launch these is that one of the criteria we're looking at in terms of SKU selection is are these SKUs that have high -- or what's the degree of physician preference, right? So if there's something that's got a high degree of physician preference, that's harder to convert. That's probably a less attractive market for us, right? So we'd be looking for things that we would be able to get more traction earlier on as we launch these products.

And I'll add one last thing is as we launch those products, those aren't necessarily going to drive top line growth. It's an in-channel swap out from one brand A to Brand B to Brand C. So to drive margin expansion, but not necessarily top line growth.

Allen Lutz, BofA. Perry, on the Patient Direct business, you mentioned that 80% of revenue there is recurring and then commercial is 80% of the business, and Medicare, where government is 20%. Is there any way that you could follow a patient from commercial as they graduate into the Medicare Advantage bucket? And then also, can you talk a little bit about how you're growing within Medicare Advantage?

We do follow the patient in their journey. So as they are commercially insured, become Medicare eligible, and we do this because we talk to the patient on a more frequent basis than their care provider. So if you start out as a commercial patient, you reach the age 65, you then move over to Medicare. We gravitate you into Medicare. If you go from Medicare to Medicare Advantage, we do that. I think the key thing about that is we have such a high contract portfolio, and we're contracted with all the major providers that cover Med Advantage. And so we're well positioned regardless of if you start in commercial or you go to traditional Medicare or you go to Med Advantage. We can follow your journey. We go to market with the 450 sales people and we've got a carve out team that just works on managed care contracting and pull through. So again, I think all those indices are what really keeps the 80% of the reoccurring patient base with us. We don't let them slip through the crack.

Eric Coldwell with Baird. A couple of questions on growth and then -- sorry, maybe a couple of follow-ups. I'll avoid the '27 questions. So on Patient Direct, $2.6 billion of revenue roughly this year getting to $5 billion, getting to $3.7 billion organic. So $1.3 billion of M&A, that's hard to model on the sell side, right, projecting timing, size, outflows, margins, et cetera. Hoping we can get some color on your thoughts on timing. How many opportunities are in the pipeline? Are we waking up to a press release in the next few months of a bigger deal? Is this a combination of small, midsized deals or a couple of chunkier deals more and not much out there like Apria, but something chunkier over time? I'm just some color on process there.

Here's the way we think about M&A as well as timing of it. So I think we've been pretty clear. We want to get into that 2% to 3% range. It doesn't mean we wouldn't do something if it was very advantageous for us going forward. But our key goal right now is to continue to pay down debt, continue to delever to have that flexibility. If we think about acquisitions in the Patient Direct space, I think you got to think about it a couple of different factors. We want to grow organically and expand our geographic footprint as well as leverage our existing geographic footprint. If there's the right opportunity to do a bolt-on or tuck-in that helps us expand that geographic footprint quicker, we would consider that in doing that, but those are generally smaller. And then I think as we move forward, we're going to look at varying opportunities. And I'm not going to give you the answer of this is when we expected, Eric, and this is it. But it's got to be the right leverage. We got to get delevered to the right point. It's got to be the right accretive value. And if we would do a larger one that has to be available and we would time that out appropriately. So the reality is on it is first thing is deleveraging, getting us to the area we want, but it doesn't mean we would walk away from the right deal if we had to do a leverage up a little bit earlier. But our preference is to continue to delever in that 2% to 3% range, very similar to what we did as a company in 2020, 2021 before we did the Apria deal to lever back up and now paying the debt down. I think we could think of some smaller tuck-ins that could fit in, if it helps offset organic investments with an inorganic investment that gives us a geographic expansion. And then on those bigger ones, we're not just looking in the categories of the space we're at. We're looking at where we can -- here's the way we think about it. Where we can take our proven model and overlay it if it's a bigger one, either in the same categories or in new areas and adjacencies. So that's how we're thinking about that.

Okay. On P&HS growth, you've implied decent traction in the market, onboarding a new larger customer in 2024. New products, some of which will just cannibalize existing lines, so not necessarily all of those driving growth. You've talked about expansion into adjacencies, et cetera, but yet only 1% CAGR in revenue for 5 years. What are the underlying market assumptions in terms of market growth, patient volumes, pricing, share loss, share gain? I mean, we need more in terms of the buildup to get to just a 1% growth rate over 5 Years.

Andy, do you want to -- maybe you can start with that one?

Yes. No, absolutely, Eric. So as we look at it, I think the one point to make is that the strategy that we put together is definitely bottom line-focused, right? We want to demonstrate that we can get that doubling of profitability, without counting on kind of go get volume type gains, right? So I think a lot of the things that we are doing to strengthen P&HS will actually lead to additional revenue and will make us more attractive to customers. We're just not counting on it in these forecasts, in these projections. But I think if we were to achieve additional wins beyond what we forecasted, that leverage we would get that pull through on that incremental volume as improve the profitability. I think in terms of volume projections, I think in terms of medical distribution, we've talked a fair amount about the wins and that we're winning in the marketplace. But look, over a 5-year period, there's -- we're expecting there's going to be churn, right? And so we are not counting on big share gains, as I said, but I think we're well positioned to take advantage of that should it happen.

I guess I'll add one last thing to that, Eric, is all revenue is not the same. And I think we recognize that. So there may be times when we walk away from some things to focus on other areas. So that's -- the other thing that's been factored in there with some of the churn.

I'll be very transparent. I hear a large win for OMI. I think several hundred million, maybe even up to mid-single digit, hundreds of millions of dollars a year for a very large client. Obviously, that will get you the entirety of the 5-year growth plan next year, if all else, were flat. So there has to be an assumption here that you're letting some business walk away or you've lost some offsetting business because otherwise, we get all of the growth in one year.

And I think that's part of that comment. There's again, all revenue is not the same. There's going to be some ebbing and flowing, we think, in the next several years as we continue to adjust, and we've done that. We've done that in the last couple of years, and that's not going to change.

Usually, when we talk -- it's Kevin Caliendo from UBS. Usually, when we talk -- we always talk about what's going on with PPE and inventory levels and volumes and the like. And we haven't really spoken about the fourth quarter or anything else. Maybe you can just provide a little bit what's going on? What are you seeing in terms of inventory levels with PPE demand after -- I think after you spoke, HCA talked about wanting to take down their inventory levels across their channel by like 25%, which made people nervous, broadly speaking, can you just talk to sort of the environment right now?

Yes. And I'll use an anecdote of a customer I was at last week meeting with him, too, is so here's what we're seeing within the customers that are our customers, where we -- they use our HALYARD brand, S&IP product or specifically PPE and they're our distribution channel. We've seen that level off, and we've seen the demand be back to slightly above where it was in 2019. I think if I look at a specific example of a customer where we took over their distribution centers for them, and they had a lot of product bought. There are some categories where they're already back to -- they've utilized their entire safety stock. And this is at the customer level. I'll come back to the distributor level. They've used their entire safety stock in facial protection. They use their entire safety stock in gowns. They're completely up. But yet gloves, they still have several months' worth of gloves out there. But they're conflicted a little bit because of the fact that there is just a basic glove versus their preferences are gloves, which are chemo-rated. So that way, they don't have to worry about where they are utilized in the hospital. So we see some of that. So you look at the categories, and that's just one example. And other customers are completely -- they have their own distribution, they're out of them. What's still difficult for us to put a pin in, as I've said in the past, is the fact that other distributors, whether that's within health care or within non-health care space, have bought so much product during that period of time. And when we go to them and try to understand how much they have left, they're not going to share that with us. But we can continue to see from the customer. So if I think about the trend, we were at a set point in 2019. It's skyrocketed, probably hit its peak in the first 2 quarters of 2022. Those were our large because people were still trying to build safety stock as well as they were still trying to prepare for the triple demic. Then all of a sudden, as we talked last year, we kind of saw that thing start to cliff and then really hit as the last 12 months have progressed. So if you think about that as a slope, it's come down drastically, but that slope is leveled. It's not continuing. So it feels like we're kind of at that point where it's going to ebb and flow a little bit more, but it's not going to be that continued decline it was. And again, on utilization because of protocols, what we're seeing from our customers, where we have complete visibility as we're continuing to see utilization levels above where they were in 2019, not drastically, but that kind is a good proxy for us. So hopefully, that helps.

No, that's helpful. I want to go to Patient Direct and a follow-up on Eric's question. The -- you talked about expanding your geographic footprint. Is that organic? Or is that via acquisition first?

Our intent is to do organic as we've done in the past. That's our intent. But again, we got to be smart when we do our analysis. There's a specific geographic region, and we look at the cost to put in our own facility and expand it there versus buying a small facility with people already there. We're going to make that trade-off and we're going to look at that at the same time. But primarily, we think there's tremendous opportunity to expand within the geographic footprint we're already in, continuing to grow that space, like we've done in the past. But then look at the map and find out -- we looked at the map and identify certain geographic areas where we're underrepresented and either add our facilities there or else, look at another option. But our intent is to do -- what Perry has done is pretty impressive. I mean, again, to take a business from $450 million back when we acquired it in late '17, mid-'17, to grow it before we did the Apria acquisition to north of $1 billion. That's just a model that works.

To that end, now that you have Apria and you talked about over $1 billion of M&A-acquired revenues. Is there a third leg besides diabetes and sleep? Like is there something that that's meaningful that you add on or are we talking about smaller bolt-ons, products that we probably would never know or you never specifically called out as a category?

I mean, maybe I can start, Perry, and then you can add a lot more color on it. But I think the bolt-ons are more in the current space we're in today. That's the way we think about it as bolt-on and move it. And if there's something in other areas and Perry alluded to a couple of adjacencies. Those would be some of the things we could both look at it growing organically or both inorganically. I don't know, Perry, if you want to add.

I think Ed is absolutely correct. 45 days ago, I was in front of one of the largest payers in the country. And we were talking about Patient Direct, the services that we provide and the payer looked at me across the table and said, "Are you looking to expand into areas like complex rehab or O&P?" And I just smiled because at that point, our strategy was in the development, we couldn't talk about it. But as I said before, our payers are looking for providers who are sustainable and those that can serve larger populations because it's in their favor to contract with companies like entities like us that almost can do a one-stop shop for their constituency base. And so to Ted's point, we'll continue organically, as we have grown the business. We'll continue to do that in our footprint and we'll look outside of that to enter adjacencies.

You have [ Tashi Philips ] from Jefferies here representing Brian today. So back to Patient Direct. This is a follow-up to Allen's question. Can you maybe comment on the current appetite you're seeing in the market for value-based arrangements with the large payers? And how do you think about that opportunity within the context of your organic growth target in Patient Direct?

So why don't you take that?

Sure. So we can go back to my last comment. What is the payer looking for? Looking for sustainability and providers who can provide a large broad portfolio of coverage of therapies and we clearly fit that bill. If you look at our space, what does value-based care mean to them? Again, it means sustainability. We've got the ability to transact across the U.S. if you're a national or a large regional and you've got the services to do that. And what it really means is cost predictability and outcomes. And so think about that through capitated-type contractual relationships. And Patient Direct has the ability and the know-how to view capitated arrangements. And collectively, Patient Direct owns the largest capitated arrangement with a payer, one of the top 5 payers in the country. We've had it for many years and it has been renewed multiple times. So we've got the capability to do it, we execute on it and we'll continue to look for those opportunities with payers. Actually, one of the beauties of bringing Byram and Apria together is we've broadened the portfolio and it has made it far more attractive to the payers to do that with us.

Daniel Grosslight with Citi again. I want to stick with or go back to the question around PPE, everyone's favorite topic. I guess for '24 and beyond, in that 1% growth rate assumption, I know there's a lot of moving parts to it. I was wondering if you could just spike out what you're assuming for PPE stabilization, particularly in the third-party distributor channel in '24 and beyond?

We have not talked about that publicly yet. Maybe, Andy, we can give some general color on it. I think that may help.

Yes. I think it would be safe to say that as we exited Q3, we're starting to see, as Ed said, with consumption and purchasing patterns starting to get more linked together, there's not that big disconnect. So I think that's probably -- that stabilization, I think, is probably a good jumping off point for the outer years.

And the way to think about it is, we saw -- if you think about dollars, we saw that drastic decline over the last 4 quarters. Now we've seen somewhat leveling out. So we still got some comps back to -- if you just look at the trends, some comps last year, while it was declining drastically from '22 to '23, it declined during the year as the year progressed. So we still got a little bit of that on the comps that are left.

Got it. Okay. And then on the doubling of profit in P&HS over the next several years, is that 2028 that you expect it to double? And maybe if you can help us think through the cadence of that improvement.

Sure. Yes. So I don't think -- I wouldn't expect, in terms of the cadence, addressing that first, I wouldn't expect a linear cadence, but I think what we're building today will certainly continue to see nice increases. I think the achievements that we've had in the current year, you'll see some nice annualization next year. Things like the category build-out, for example, that takes time, right? And so while we're launching 4 to 5 more SKUs than we have historically, it's going to take time for that to get out into the market, to get these SKUs on GPO contracts. And then there's a conversion time within the hospital, right? And then as we continue to build out that team, that acceleration of SKUs should continue into the out year. So that might take a little bit more traction. On the shorter duration ones, it's -- think of the sourcing savings, right? Minimal investment required. It's things that we can act on quickly and get a benefit. Really the longest lead time is just the bidding process and then getting that product to work its way through inventory. And then once it's through inventory, you start to see the P&L benefit immediately. That one, on the other hand, is that over time those savings will start to decrease, right? As you pick off the low-hanging fruit initially, your opportunities shrink over time, which is the opposite of portfolio expansion, right? It starts slow, but it should accelerate over time. So we should be exiting that 2028 time horizon, accelerating out of that for portfolio expansion.

Let me add just a little more color on it, too, from Andy's comments. So if you think about the talking points we've covered today is operating model realignment, network rationalization, network optimization. And I think it's pretty clear that '24 is the time to rationalize warehousing, rationalize manufacturing, optimize those with technology. That's not something that happens overnight. And then there's the payback on those. I think very consistent with that is what Andy talked about in portfolio expansion. You had the commercial people, you had the inventory, you had the category management. You start to gain that traction. Then once you have those products placed, they keep reselling every year after that, and then you can continue to grow and you get the leverage on that. And I think Andy is right, upfront, though, you do have some benefit next year really in one area in sourcing. So I think hopefully that helps think about the investments that are made and then the paybacks that come from those.

It's Eric Coldwell with Baird again. So the operating model realignment program, run rate $100 million exiting this year, you'll capture $30 million plus this year. So if you did nothing else, you'd have $70 million next year. You've talked out about reinvesting. Are you reinvesting $70 million, $50 million, $150 million, but picking up savings elsewhere? I'm just...

I would say, Eric, we're investing the vast majority of that.

Vast majority?

Yes.

And then in terms of CapEx versus OpEx, on investments?

Primarily, it will be OpEx.

Primarily, OpEx.

You can really think about the expansion we're doing and footprint to grow the Patient Direct business, some of the technology we want to put in there, the category leadership within Andy's, within the P&HS segment business, the commercial leaders out there on those. And then some of the costs that continue to drive some of those longer-term benefits going forward.

Okay. And then just last one for me. When you started this year, you changed some of your reporting methodology, what went into adjustments, EBITDA versus EPS. And if I understand correctly, still trying to get my head around all of this, there was originally expected to be a $30 million optical benefit to 2023 adjusted EBITDA due to these changes. And based on what's happened year-to-date, we believe that the implication is the fourth quarter has roughly $17.5 million of LIFO charges that will be added back in stock comp, a combination of the 2. Is that still on pace? Is that still the expectation that original guidance for $30 million of optical benefit? And then as we go into '24, can you help us at all understand what your thought process is for LIFO charges, which I believe the implication is there are LIFO charges next year, because your high-level outlook for '24 EBITDA and earnings growth, EBITDA was in line with the Street, looked fine; earnings was below Street. So I'm assuming there are charges being added back to EBITDA next year that would have to -- and/or stock comp that would have to be fairly substantial to allow the EBITDA to be in line, but the earnings are lower because you're not doing the add-backs there. I'm sorry, that's a really complicated question, 2 parts, but just help us with the modeling thoughts.

Yes. So I'll try to kind of repeat some of the things we talked about on some of the calls following the Q3 earnings and then to clarify. So in Q1 of this year, we changed our adjusted EBITDA definition to add add-backs for stock comp and LIFO. And at that time, we said we thought that those add-backs together would be roughly $30 million in 2023. And in 2022, they would have been about $25 million. So that was what was factored into our original adjusted EBITDA guidance for the year coming out of that definitional change. At the end of Q3, we see some more uncertainty there because of the radical reduction in working capital benefit -- the working capital benefit we got from the operating model realignment, the reduction in inventory. And so with that, we would expect less of a LIFO add-back in 2023. And as we normalize next year, we would expect more of a LIFO add-back in 2024.

Time for another question or any other questions? Kevin, we'll go one last question unless somebody has a burning one they want to get out after.

I appreciate that. Market share gains and losses in the products business. It's always been a debate. Are you guys taking share or losing share? Are there contracts that you've walked away from that weren't as profitable in the past. When we think about net business wins from a gross perspective and maybe from a margin perspective, any color you can provide for '24 at least and beyond how that shapes up?

I can start and Alex -- I mean, go ahead, why don't you start?

Yes. I would say, not speaking to 2024 in particular, but over the 5-year period, I think you can tell by our assumption of 1% kind of compound growth rate that you're going to see some lift from some of the activities that we're doing outside of medical products, the division. But I think, again, we have taken and we'll continue to take a very disciplined approach to how we go after new business. And again, being in a very competitive segment, I think the assumption is that we will roughly stay whole on share. But the important thing is that the doubling of the profitability can be achieved without significant gains and the investments we're making to improve the business should make us more attractive to win new business.

And maybe I can explain kind of how the process we go through internally to assess this. So we've created a business development team that's done a great job going out, attracting new business, attracting business that fits what we can provide and provide value to them, value to us, high level of service. But we have a detailed review internally of existing customers and renewals and where the optionality within those for us as a business, as well as the same with pursuits that we're going after. So we do have a robust pipeline to try to match up where we can provide value to them, the right level of service and flexibility in the same sense that the fair returns back for us. That's how we think about it and manage it at least internally.

Super helpful.

Well, with that, let me just make a couple of closing comments. One, I appreciate everybody spending the time here today. We'll close on this slide with Life Takes Care, because we've really launched our purpose and where we're going as a company, but we continue to accelerate that. We had our mission. We had our values. Now we got a vision and a purpose in Life Takes Care. I'll also make one other comment, and I'll close on summaries and takeaways. And the reality is you heard today from Perry's business. You can tell from my excitement, how much I love that business, where we've invested in the business, we've made the right bets. The fact that we have a proven model that works, the fact that we have the right portfolio, the fact that we have the right footprint and the fact that we've been able to deliver on strong execution and grow that business at incredible rates over the last 5 to 6 years. Post acquisition of Apria, we were able to then take that model and overlay it. So you can clearly see Perry's strategy is to continue to execute on that, add the incremental resources for that organic growth, continue to look at adjacencies, invest in some technology, and then when appropriate, look at the other aspect, which is inorganic. Take a look at Andy's business, P&HS segment. It's drastically different today than it was in 2019. Service levels are some of the industry-leading service levels, drastically have improved that business. And we really get excited about this space as we're thinking about the business different. We understand what the customer wants. The customers want quality, they want service, they want value, and they want some level of flexibility. But we're thinking about it differently is that with our product portfolio, we're going to expand all that product portfolio, but we're going to put the resources in it that we haven't put in it for the last 30 years, to make sure we do that, knowing it's going to have a longer-term payback, but ultimately will provide tremendous value for us. In addition to that, we're going to continue to focus on how to lower our cost to serve. If we're going to provide value to our customers, we got to continue to drive cost out of the business and lower the cost to serve. And how do you do that? You do that by thinking differently. And we're thinking differently in that business and the fact that everything doesn't have to be made in our facilities. So how do we take a look at can we run our facilities at capacity? Can we consolidate them down, so we can be extremely efficient. And where is the right point to make versus buy. And that goes too in the portfolio expansion. Our portfolio, as we expand it, doesn't have to be in our factories. It can be partnered with others or it can be in our factory. We're going to make those decisions. And then lastly, the balance sheet. We've done a really good job. From where we were in 2019, taking the balance sheet down, we leveraged up with the acquisition of Apria, and we're starting to delever now. And that balance sheet gives us flexibility. I'm going to talk about capital deployment. I also like to talk about operating expense deployment or operating investments. As we take our operating model realignment, we take costs out, we're going to redeploy those dollars back into the business to provide growth. And just because the dollars may have come out of product and healthcare services segment doesn't mean that's where they go back in. We're going to take and deploy those dollars where they provide the most benefit. So with that, I appreciate the time today. I'm sure we'll talk to a lot of you after we do our fourth quarter earnings release, which will be in late February, early March. And again, I appreciate the time, I appreciate the questions, and look forward to talking to everybody again soon. So thank you.