Owens & Minor, Inc. (6OM.MU) Earnings Call Transcript & Summary

Good afternoon, everyone, and thank you for joining us for the Owens & Minor fireside chat here at the Citi Global Healthcare Conference. My name is Daniel Grosslight. I'm the health care technology and distribution analyst here at Citi. Very pleased to welcome Owens' CEO, Ed Pesicka, and Head of IR and other things, Will Parrish, thanks both for being here.

Thanks, Daniel. Excited to be here today.

Thanks, Dan.

Great. Maybe if we can start off on the big transformation that happened this year -- earlier this year. The P&HS sale is now definitive. I know it still has to close, and there's always the FTC that you have to deal with. But it does seem like that is more certain now. So you've become now a pure-play Patient Direct business. Beyond just focusing on the existing strategy, how does this transaction fundamentally change how you guys are operating and allocating capital? And what specific investments in -- is it technology, sales, product categories, which you were previously constrained in doing because you had the P&HS business which was a bit of a drag on your working capital? Now that you're less constrained, what can you do now to accelerate growth?

Yes. I think, one, we're excited to be singular focused on our Patient Direct business. P&HS sale, we publicly talked about it, should happen within the first quarter. And then using the proceeds to pay down debt, but also enable us to, from a management standpoint, again, have that singular focus on our Patient Direct business. As we think about the strategy in the Patient Direct business, the strategy is really going to be focused. Yes, one is we're going to be singularly focused in our Patient Direct business on serving the patients in the home. We've got two really great brands in both Byram and Apria. Apria is more focused around, call it, home respiratory, sleep, oxygen. Byram, diabetes, incontinence, urology, wound care. But on deployment of capital, it will all go into that business. And as I think about '26 and then beyond, there's different areas of capital deployment. '26, we're going to focus on making sure we continue to deleverage the business. I think that's important. As we get into '27, we're going to be able to generate nearly $100 million of free cash flow a year, again, to continue to deleverage the business, but also invest. If I think about the investment strategy in that business, it's going to be primarily around technology. We've already put in a new ERP system in our Byram business, that's up and running. We're putting in -- putting the same ERP system in our Apria business. And then post -- once that's done, it will be looking at adding technology in the order to cash or the rev cycle business, really doing a couple of different things. One is the objective is to lower our cost to serve. I think our patients and our customers constantly want us to lower our cost to serve, but also improve that customer experience with ease. So really, that's going to be the key focus. If I think about from an acquisition standpoint, we'll look at maybe some smaller bolt-ons, not necessarily in early '26, but as we get through that and start into '27. But look, we're really excited that there's not a separation of our capital deployment between the two businesses. And now both from an operational standpoint, management standpoint and cash deployment is all going to be in that Patient Direct business. And I think you have to look at the history of what we've done with that Patient Direct business. We bought Byram in 2017, it was about $400 million in revenue. We grew -- and about $38 million of EBITDA. We grew that business organically to this year, it will be north of $1.2 billion plus in revenue, plus we then added on the Apria acquisition. So all said and done, we've done -- had tremendous growth, EBITDA expansion and nice success over the last 5 years, 6 years with the business. And we believe that with the right focus and investment, we can continue that progress.

Yes, yes. And I think one thing that gets lost a little bit -- and we were talking about this earlier, one thing that gets lost a little bit in your financials is just the free cash flow profile of the business because that P&HS business has been such a drag over the past...

And it started to flow too, yes.

Yes, yes. So can you just talk about the cash generation? You mentioned $100 million. Can you just talk a little bit about that? Talk about the working capital that, that business requires in the patient CapEx?

Yes. I think from that business, the working capital, the net working capital should be somewhat neutral. It's not a working capital-intensive business. It does have patient CapEx. It's more of a patient CapEx intensity and patient CapEx being whether it's a noninvasive event, whether it's an oxygen concentrator, whether it's an oxygen tank or CPAP, that's the patient CapEx. But I view that as great CapEx because when you put that CapEx in, you then get the consumable business going on for years afterwards. So if we think about capital deployments within that business, the vast majority of the CapEx will be around patient CapEx for the next several years. And again, with net working capital, we think it will be net working capital neutral, and it become a business that we believe can generate, as I stated earlier, about $100 million of free cash flow year after year consistently. That's just not assuming any EBITDA increases over time.

Got it. Okay. And it should probably -- I know we'll get to the headwinds and tailwinds for '26 or whatever, but absent any significant moves in the client, that should grow at the rate of EBITDA, your free cash flow?

It should. It should, yes.

Got it. Okay. And let's talk about some of the client wins and losses here. We'll start with, on the win side, you signed a preferred provider agreement with Optum, which was great to see, which gives Optum patients access to Apria and Byram products. Can you just provide a little bit more detail on what that contract entails and what needs to happen from your end to get that fully ramped? And if there's any additional investments you need to make around that?

Sure. Yes. So let's just start as we inked it or finalized it beginning of September. So we're just a couple of months into it. It's Optum's first nationwide preferred provider agreement. You're right, it encompasses our entire Patient Direct business, so both Apria and Byram. So everything from respiratory to diabetes, incontinence, you go through all the categories. So it's the broad base. The preferred provider agreement gives us additional access to over 100,000 providers within the Optum network. I think that's important. It could be -- it's close -- it's well north of 100,000 providers. I think the second thing it does for us is we become the preferred provider, which makes it easier for patients to get the product. It makes it easier for the provider to make sure the patient gets the products. But one of the things we have to do is continue to work on the relationships and manage it at the provider level, and we'll see continued growth. Our expectation is we should hit the full growth of this coming in through 2026, there will be a ramp. We should see a nice ramp in the first, second quarter of the year as patients are coming into the new year and starting to reset some things. We should see growth as new patients come on where automatically, it ends up with -- it doesn't automatically end up, but we have preferential preference on it. I think the benefit also from the patients, they'll get access to the mybyram app for diabetes patients. We'll have the Sleep Journey, which makes sure that they get their resupplies done efficiently and effectively. So look, we're excited about it. It's early phases, early stages. We're working with several other providers for preferred provider agreements. I know it's a lot to say there, but we really expect that to help us show additional growth as we move forward.

Yes, yes. And is there any way to quantify what that could potentially be?

Yes, we haven't, but it's going to help fill the gap of some other changes in the business and losses in the disclosed capitated contract.

Yes, yes. Got it. Okay. And in terms of investments needed around that, nothing significant?

No, it's your traditional investments in patient CapEx. Again, limited working capital investments. We already have the sales force that is calling on -- can call and will call on those providers.

Got you. Okay. And you mentioned that large patient direct capitated contract that rolls off next year. While a pretty significant revenue headwind, you've been pretty clear that it's not attractive from a margin and cash flow perspective. And certainly, if you look at the competitor that went to it, it's hard to square with how they're going to make that contract work economically. Can you just help us quantify a bit that hole that needs to be filled, both on a revenue, EBITDA -- and EBITDA standpoint and also strong cash flow, too?

Yes. So you can kind of do the math. If you look at our public disclosures, it's probably going to be in the $300 million to $350 million of annual revenue. If you just take and annualize the first half of the year in that contract, it could be more in the $325 million to $350 million of revenue impact. I think the way to think about it, though, is a little bit differently. That contract has consumed about 1/3 of our patient CapEx in the entire business. So significant cash flow from a patient CapEx standpoint. We've had a great relationship with that customer. We had over 90% customer satisfaction. We had an over 50 -- 55 rating on NPS. We had 95-plus percent on-time delivery. But that's because the amount of effort and people and resources we had to service that customer was meaningful. And it's the expectation that we have across all of our customers that we're servicing them at the highest level. So the overall pull-through on it wasn't necessarily the best within the business. And I think we just remain disciplined in the process. When we got to a point where it didn't make sense for us and the customers, we ended up -- they went a different direction. I will tell you, we've worked closely with the payer as well as the person of the group that won the business because look, patient care is important, and we want to make sure that in the transition, patients don't suffer. And I think that says a lot about who we are in our Apria and Byram business to make sure that happens. But at a high level, it will take less revenue to fill the gap from an EBITDA standpoint. From a cash flow or patient CapEx standpoint, it's going to help us generate additional cash flow, we believe. And then we have flexibility with the remaining assets of what we do from that standpoint. But we will be appropriately taking out the variable cost that was associated with it to manage the P&L as we move forward into 2026. And this is a process that we know will occur not just on day 1, but it will occur throughout the first quarter and into the -- through the first quarter as they start to transition that business over.

Okay. And you expect by the end of the first quarter, it will largely be...

Significant portion of it have moved on, yes.

Okay, okay. And again, I'll ask this in a bit of a different way, but can you help us think through of how many of these kind of Optum-type contracts you need to win to fill that EBITDA or cash flow hole?

Yes. Look, I mean, it's not just to fill that cash flow hole or that EBITDA hole. Had we retained the business, we would have had to find incremental business to offset kind of the price adjustments, too. So we had to look at it both ways. I think when we get ready to announce -- in February, we announce the next year's guidance, we'll frame this up a little bit better. But it is meaningfully less business from a top line standpoint, we'll have to use to fill it. And it also depends on the product mix, too. I mean you think about an Optum type group deal, it's not just in the home respiratory space. It's really the broad categories. And every category has a different margin mix and profile mix. But that helps us out a lot, filling that gap, not necessarily from the top line, but start to fill in the gap from -- some of the gap from the bottom line, too.

Yes, yes. Makes sense. Okay. And lastly, on this contract, has this changed how you view capitated contracts versus fee-for-service? Or has it changed the structure of these capitated contracts?

I don't think it's changed our perspective or view. Our perspective and view has been the same on these. Not every capitated contract is the same. Not everyone is structured identical. I think they're different in what the needs are. But we're open both for capitated and fee-for-service. I think it just -- it depends on the nature and the structure of the ultimate contracting.

Makes sense. Okay. Let's switch over to the diabetes category, which historically had been a nice grower for you. But this year, it seems to have slowed a little bit. It was effectively flat last quarter year-over-year. You mentioned on your quarterly call that you did see volume rebound a bit. There was a supply chain issue that was resolved with one of your manufacturers. But this was offset by the continued shift from the DME channel to the pharmacy channel, which isn't necessarily a new trend, but I think perhaps because of slowing growth in general, this year, it seems to have impacted you more. When should we see that channel shift start to stabilize for you guys? And what do you think mix looks like in DME and in pharmacy once it stabilizes?

Yes. Maybe I'll step back first and kind of give a more of a broader perspective is, one, in the diabetes category, which is primarily CGM and less on the insulin pumps, we're seeing on CGM nice volume growth, too. But what we also see is payer mix shift. Some of that payer mix shift does have an impact on revenue, but not necessarily on unit volume. I think so we -- from a share standpoint, unit volume, we're seeing nice growth within that. And we have seen the shift more towards the pharmacy. I think the one thing we got to remember is the beauty of what we have, and this is specifically in the Byram side of the business is a significant number of payer contracts we can leverage. That's first and foremost. So from a DME standpoint, look, we're pro-DME, and it's not for one reason or the other. It's because we're seeing adherence after 12 months with CGM at a higher level with DME patients versus pharmacy. And we think that's better ultimately for the patient. But look, we also have our own pharmacy. We own our own pharmacy, and we have the ability to fill orders from a pharmacy standpoint also and we're able to do both of those within our customer base. We have slightly shifted now to saying if somebody wants to move to pharmacy, we will move them to our pharmacy, and we have the ability to do that. So what you would expect is we're starting to see that somewhat equalize a little bit, where it was a heavy increase of pharmacy demand in the shift, that's somewhat balancing out. It appears to have balanced out a little bit. But again, I think the important factor is if you're a patient and we're servicing you, we can service you under the DME model, we can service you under the pharmacy model and have the ability to make sure that the patient gets the products they need.

Yes. And can you quantify the mix now?

We haven't -- just we haven't openly discussed that, but...

I think the important thing is it's stabilized. So this headwind should start to abate.

Yes. That's right, that's right.

Okay. You've seen good momentum in smaller categories, but still very good categories. Wound, ostomy, urology, they've all had kind of high single, even double-digit growth for a couple of them. How sustainable is that growth? Is this kind of just a secular trend that you're capitalizing on? Or are you making specific investments into these categories?

Yes. I mean we've seen nice growth over the last 2 years. We've seen, you're right, high single-digit, low double-digit growth in these categories over the last several years. And we saw that with some of the expansion that we had in our commercial organization, our sales force is focused on it, the leveraging of the broad category contracts that we've had in the same sense, mostly on the private payer side. We would anticipate mid-single-digit growth in those categories as we go forward. It does get difficult when you're at 12% growth, 10% growth year over year over year in categories that aren't growing quite at that pace. But we've been pleased with where we are. And the expectation is that we can continue to grow in that mid-single digits, maybe in the high single digits in those categories.

Got it. Let's discuss the impact of GLP-1s, which it was more of a topic of conversation, I would say, end of '24, beginning of '25. It doesn't seem like that's caused a ton of concern. But we do have, heading into '26, broader coverage for the GLP-1s. We just had Lilly here talking about the inroads they're making in Medicare for next year, Medicaid, more of a '27 impact and on the commercial and DTC side. What impact do you think that is going to have on your diabetes and sleep business? I understand that it hasn't had an impact yet, but I'm curious, looking forward, anything?

Yes. So here's the way we think about it. Obviously, GLP-1s are helping making patients or citizens or Americans healthier, but GLP-1s do not eliminate or cure OSA. So obviously, manufacturers, the key manufacturer or manufacturers out there recognize that, too. And it may lessen the need for the severity of the OSA, but we still haven't seen that it doesn't cure obstructive sleep apnea. I think the second aspect you have to look at is there's still a significant number of people with OSA that haven't been diagnosed with it. What we're seeing also is the GLP-1s have heightened the focus on health and awareness. So it's interesting in both diabetes as well as sleep, people -- it seem -- it appears that when you go on GLP-1, you lose weight, but yet if you're still not sleeping well, you're going to go out and get tested. And we haven't seen any slowdown in sleep -- our resupplies haven't slowed down. If anything, they've grown. Sleep starts are still at the same pace they've been at in the past. And then on the other side of it is those -- we're seeing people that don't have type 1 or type 2 diabetes with such a focus on health, also looking for CGMs to monitor their glucose while they're on or even after they've gone through -- utilized GLP-1s and lost weight. So we monitor it. We monitor it closely with the manufacturers of the CPAP devices, and we also watch it closely with our customers on reorders as well as starts. And then we're seeing on the commercial side, the nonpayer GLP -- I'm sorry, CGM, some -- a slight increase in demand for that. So it's great because it's having -- in the U.S., Americans lose weight, become healthier, and I think focus more on health and awareness of health. It's actually -- I think it actually -- we haven't seen the drop-off that everyone had forecasted and anticipated a year ago or 2 years ago.

Right. Okay. Let's turn to some more recent news. On Friday, I'm sure you just are -- I know you're getting over your Thanksgiving hangover...

That's right.

CMS drops a 700-page rule on you. The competitive bidding was finalized. I'm not going to ask you to go through that in gory detail. But I would like you to help us think through kind of the revenue at risk there. You've previously sized it, I think at less than 20%. Curious if that still holds and help us think through the risk as that gets implemented probably -- I'd love to get your idea, but probably...

'28, yes.

'28 at the latest, maybe a little bit earlier.

Yes. So -- and I'll have Will add some additional color if necessary here. So here's the way we publicly disclose. Our payer mix is -- roughly 18% of our payer mix is Medicare. Medicaid is less than 1%. So just call it, less than 20% is Medicare or CMS-related type of payments. You start to do that math, diabetes alone would be less than roughly 4% of our revenue. So CMS, Medicare revenue in diabetes, which is one of the major categories here, would be roughly 4% of our total revenue would be impacted by competitive bidding. If you layer in the other categories, it moves it to closer to 6%, maybe slightly higher than that of our total revenues now get captured in this release. But after, again, full transparency, I didn't read every word of the hundreds of page documents, went through it, got summaries of it. But there are some positives that we think are in the documents. One is requiring accreditation. We think that's a really good thing to make sure that you're having the right level of accreditation for leveling the playing field to make sure that everyone is operating at the right level of service. I think the other aspect of it is there's going to be a focus on service, too. So you got to make sure that there is the minimum expectation of service to the patient on this. We like the fact that it's going to be to take the 75th percentile on pricing on it. We like the fact that they recognize that diabetes, for example, CGM is about $1.5 billion category where the government assumes it's going to be tens of millions. So $50 million, $60 million of savings, which means there's not a lot of juice in that squeeze on the potential. We like the fact that they're going to take -- use 110% of the current pricing to basically fill as the cap and then also enable year-over-year cost adjustments on that due to inflation. We think the process will remain very, very disciplined and we're going to be very, very disciplined in the process of this. As we think through the different categories, the government is truly focused on fraud, waste and abuse. And if you narrow down the players, you have ability to watch much closely for fraud, waste and abuse. And I think also, then I think about it from our perspective, our small market share, call it, 18%, creates an opportunity for us to actually grow our Medicare business. I think the other thing is some of these preferred provider agreements show that our footprint to be able to serve the nationwide population also is good at the same time. So that's kind of the way the initial proposal based on where it is today. There's still a lot to be deciphered from it, and there's still a lot to come out. But we do anticipate in '28 is when it starts to get implemented, the actual -- through the competitive bidding process. But again, I think we've shown it on the private payer side, we will remain disciplined in this. And we will support it. And we want to make sure that Medicare people have access to the products that they need and make sure that they can -- we continue to serve them. I don't know, Will, if there's anything.

I think that's right. It seems pretty obvious that the government is looking to simplify things and by narrowing it and make it more reliable and make it so that they can cut out fraud, waste and abuse. And I think that we are very well positioned to fill that gap. And I think we have a lot to offer to that extent.

Yes. As I read the rule and full disclosure, I didn't read all 700 pages yet, it did seem to advantage the scaled players, particularly. And I think what we saw in previous rounds, not '21, but previous rounds is a lot of disruption with the smaller players, which led to consolidation. How do you think this will impact the industry at large? Do you think we'll see more bankruptcies of the smaller players, more consolidation? And how does that -- I know you're really focused on debt repayment. You've been clear there. But how does that impact your capital deployment to potentially pick up share of distressed assets?

Yes, it does come into consideration. I think I talked a little bit about the primary investment in our Patient Direct business or the RemainCo will be on IT and technology. We've got our base ERP system up and running right now in the Byram business. And in Q1, we'll be putting it into the Byram and the Apria business. So we'll have a common platform, which makes it easier for us to do bolt-ons if necessary. I think it's got to play out a little bit yet. I think it's somewhat early. Obviously, it was -- it's 4 days old, and it still hasn't gone into -- hasn't gone from the document to in action already. But if it does create that opportunity and it's the right opportunity, we'll look at that to fill in pockets where we may need to fill in some gaps. But again, I think, again, a primary focus going forward is going to be -- continue to be debt reduction. Our goal is to get down below 3x as well as investing in taking those capital dollars, investing in technology to lower our cost to serve, provide a better experience for our customer and have the ability to do some bolt-ons relatively easily.

Yes, yes. And the other thing that, I guess, is very uncertain and I'd love to get your opinion on is just how this impacts pricing in the newly introduced or newly added categories. We already alluded to CGMs and pumps being included. There was a limit price that -- a ceiling price to bids. So you can't go over -- your bid has to be under those ceiling prices, around [ 270 ] or so. How do you think -- and I'm not asking you to show your bidding strategy in a public forum, obviously. But how do you think bids will develop relative to those limit prices?

That's -- it's interesting. So I think each company is going to have to make their own assessment just like we will on that. The limit pricing right now is slightly above what the current price is. I know they've given some cushion above that. I think it will be interesting to see how it all plays out. I mean, again, I prefer not to go into where we're thinking about it. Again, just came out on Friday. But I think you'll see -- I think I really believe there'll be discipline in the pricing. And again, even the government has come out and stated that, again, in diabetes on $1.5 billion category, tens of millions of dollars of savings, which kind of qualified -- quantified as $50 million to $60 million, $70 million of savings on $1.5 billion is not a lot from a percentage standpoint. So again, I think that the pricing today has been aggressive already. So I don't think -- I think at least we're going to maintain the discipline aspect of it.

Yes, yes. I think people are still scarred from previous couple of years ago, saw 40%, 50%, 60% drops in -- maybe higher than that in some prices, but that's not going to happen.

Well, you also got to remember, too, that they tried it and it was done in respiratory several years ago and the prices came -- the bids came in actually above where they -- historically, where they currently were. So there's been both aspects. You're talking about the strips, diabetes strips from years ago where that happened, yes.

Okay. We'll see how that plays out. It will be...

A lot ahead of us, yes.

Over the next 2 years, 3 years, for sure. Let's turn to another area of controversy, cash flow. And as I alluded to, before, I think a lot of the cash flow generation embedded in the Patient Direct business has been masked by some issues with P&HS. So can you just maybe help separate that out for us in a little bit more detail, kind of what happened from a cash flow perspective this year? And as we look forward to next year, including some of the issues that -- on the large PD contract that we already talked about, how should we be thinking about cash flow generation in '26?

Yes. I think just for the ongoing company, the entity in '26 and beyond, we would anticipate that we would end up generating roughly $100 million of free cash flow. I know we talked a little bit about it in the transaction of selling P&HS. There are still -- and even from a tax cash standpoint, we've got some NOL carryforwards that continue to drive additional favorability on cash flow. But think about it as close to $100 million of free cash flow of the business going forward in a steady state, again, without any growth of EBITDA. And you're right. I mean, in 2025, our P&HS business has utilized a significant amount of cash. We did have a start-up of our kitting facility, which is a duplicate facility in Honduras that in the third quarter utilized and consumed a significant amount of cash, some of that being equalized as we're here in the fourth quarter. So we would anticipate, again, the remaining business, that $100 million of free cash flow going forward using once we get in through '26 and '27, continuing to focus on debt paydown and investment in technology to lower our cost to serve as well as improve the customer experience and continue to drive EBITDA expansion.

One clarification I'd add is we say going forward, the $100 million, that is not including anything that may be transitional to do with the P&HS sale.

Got it. Okay. So let's talk about that, the stranded costs associated with P&HS. Is that what you were...

No. No, I'm talking about the transition cost, the stranded cost.

It's $65 million.

I see. So let's start with that then. Can you just explain -- there's been a little bit of confusion around transaction structure and all of that. Can you just explain kind of what you guys are on the hook for in terms of the transition costs and then the credit that you're providing?

Sure. Yes. So the transition costs, and you can go find this in the purchase agreement. I can't tell you today how much it will be. I can only tell you how much that it could be. So it's up to $65 million, but it's spread over time. So there won't be anything before April next year, and then it's capped at, I think, $15 million in April or no sooner than April, and then that steps up to another $55 million cumulative later in the year. And then the full $65 million could be paid in '27. So that is over time, and that's cash flow that will be offset with Patient Direct's positive cash flow. As far as the credit support concept, that is a -- the best way I can describe it is it's nothing more than a guarantee that we will put in place in very specific circumstances, but it won't ever translate into cash unless it's a scenario where P&HS is really handing over the keys.

Low probability of that? Maximum is $115 million?

Yes. And that is inclusive of the -- anything paid under that $65 million would offset that dollar for dollar.

Okay. Good to get that all out there. It is a complicated but an interesting structure. So that makes sense. Let's switch over to the stranded costs, which is a separate issue. Can you maybe just detail kind of the stranded costs that will be with you into 2026? What's kind of the composition there and how your ability to offset some of those costs?

Yes. I mean the stranded costs are primarily what are currently corporate costs. I think what we're going to do when we structure the new business going forward, there's no longer going to be corporate and divisions or segments. It's going to be one company. It's going to be a leaner organization from the top down. And those stranded costs will start to take out here in the fourth quarter. I guess it's December, so here in December, some of those stranded costs will start to come out. And then the remaining stranded costs will be taken out during 2026.

Okay. And then just for the benefit of everybody, so $100 million free cash flow is kind of the cash generation of PD business. You're going to be on the hook for some transition costs. Is that -- are the stranded costs included in the $100 million? Or do you have to -- you subtract out those costs as well?

They're included.

They're included.

Taking them out would be upside to that.

Yes. Okay. And then the Patient Direct contract, is that included -- rolling off? Is that included? Or is that...

Patient -- the capitated contract?

Capitated contract.

Yes, the $100 million is when we think about after you get through '26 and that, call it, that $65 million of P&HS support for the transition part of the TSA as part of all that work, $27 million on steady state, all in, everything included, $100 million of free cash flow going forward. So whether that's the remaining stranded costs, you go through the capitated contract that's lost, all of that stuff is clearly included in there, and there's a true $100 million of free cash flow going forward starting in '27.

Got you.

There's noise in '26 because of other aspects like that, the P&HS transition service and some of those dollars that are going into it.

Yes, yes. Okay. And then cadence is going to be a little variable too next year. Can you help us think through the quarterly cadence of some of these impacts?

Yes. I think in general, I mean, you've got the business this year of disc ops and you've seen it without. I mean it's going to be your normal cadence where it builds through the year, Q1 to Q2, Q2 to Q3, Q3 to Q4 should be relatively consistent, slightly a little bit up, a little bit down between the two of them. You'll see that. I think from a cash flow standpoint, you'll see the normal cash flow generation more back-end loaded because of the nature of these transition support payments, I would say.

Okay, okay. We are nearing the end of time, but I would love to finish off on capital deployment. We've kind of alluded to this throughout our conversation, but it is such an important part of the story for the next year or so. So following the close of the sale, which will happen in the next couple of weeks or maybe early next year, you're going to get $375 million.

Correct.

You've got $160 million of receivable, payable obligations off balance sheet that you will use to -- some of that to repay. As we mentioned, you're also on the hook for some separation costs, but it's tranched. Can you talk about how much -- after all said and done, how much capital do you think you'll have left over to repay debt? And what is your ideal leverage ratio going forward and the time line to get there?

Maybe we'll take this together as well.

Yes. So we won't be able to give you an exact answer until we get to close, Daniel. But on the 9/30 balance sheet, $280 million is very clearly there in the queue as the number of amount of on-balance sheet debt that we expect we could have retired after dealing with the $160 million and every other thing that's in a normal M&A document, cash-free, debt-free working capital adjustments. So $280 million is what we would have repaid at that time had we had closed at that point.

Okay. And in terms of upcoming maturities, I believe the next -- your closest one isn't until '26...

'27.

How are you still thinking through how to prioritize the debt paydown?

We are working through that right now.

Okay. And the ideal target leverage ratio?

Within the next several years, 3.

3x, maybe below 3x within, call it, by 2028.

Yes, that's right.

Okay. And once you get there, how do you shift your capital deployment priorities? Are you going to step on the gas pedal in terms of M&A or share repurchase potentially? How are you thinking through capital deployment post debt?

If our share price stays where it is, it would be share repurchase. But other than that, it will be on looking at small bolt-ons. I think continuing to invest in the right level of technology to create differentiation. And part of it may be in other aspects of the business that may not necessarily -- I know we're talking cash flow -- free cash flow here, not necessarily CapEx, but it could be in some operations, investments for growth, too, whether that's additional commercial people or other things like that.

Makes sense. Okay. I think we're just about out of time now. Ed, Will, thank you so much for joining us this afternoon. Thanks, everyone. Thanks.

Thanks, Daniel.