Owens & Minor, Inc.
Q4 2020 Earnings Call Transcript

Published: 24 Feb 2021

[Operator:]

Ladies and gentlemen, thank you for standing by. And welcome to the Owens & Minor Fourth Quarter and Full Year 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. Please be advise that today’s conference is being recorded. I would now like to hand the conference over to Chandrika Nigam, Director, Investor Relations. Ms. Nigam, you may begin.

[Chandrika Nigam:]

Thank you, Operator. Hello, everyone. And welcome to Owens & Minor’s fourth quarter and full year 2020 earnings call. Our comments on the call today will be focused on financial results for the fourth quarter and full year of 2020, our ongoing efforts to the COVID-19 pandemic and our outlook for 2021, all of which are included in today’s press release. I’d also like to call your attention to supplemental slides related to our 2021 outlook posted on our website in the Investor Relations section.

[Ed Pesicka:]

Thank you, Chandrika. Good morning, everyone, and thank you for joining us on the call today. I’d like to start by thanking all the clinicians and frontline workers that continue to care for those in need in the face of this unrelenting pandemic. I would also like to thank the Owens & Minor teammates, as I am extremely proud of their monumental effort during 2020 and their relentless focus on serving our customers. This effort and focus has reinforced our position in the healthcare industry as a trusted partner by delivering on our mission of empowering our customers to advance healthcare. In addition, I am extremely pleased to be here today and report another strong quarter and close out of a record year. The strong performance in the quarter, as well as the full year was a result of the successful execution and implementation of the key initiatives discussed during the previous quarterly earnings calls, which included two major items; one, infrastructure investments, with a focus on current and long-term profitable growth; and two, operational improvements, with a focus on enhancing the customer experience and increasing operating efficiencies.

[Andy Long:]

Thank you, Ed, and good morning, everyone. I’m pleased to be here this morning to discuss the financial highlights of what has been an extraordinary year for Owens & Minor. Today I will review our fourth quarter and full year financial results, as well as the key drivers for a better than expected quarterly and annual performance. Later in my remarks, I’ll share details regarding our expectations for 2021. Clearly, we finish 2020 in a very strong fashion, with good revenue growth in the fourth quarter and exceptional increases in operating income and earnings per share. I will elaborate on each of these next. For the quarter, revenue was $2.4 billion, compared to $2.2 billion for the prior year. This represents 8% growth and was driven by greater sales of PPE across both segments, as well as growth in sales and our home healthcare business line and stabilization of the medical distribution business. Elective procedures were better than expected but overall continue to trail pre-pandemic levels.

[Operator:]

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

[Michael Cherny:]

Good morning. Thanks for all the color and congratulations on a tremendous quarter and year across the Board. I want to dive in a little bit to some of these views in particular on PPE and how you think about that. I think you mentioned the new levels above traditional? And I want to parse through a few comments made on across the call. But you mentioned dynamic of expanding your portfolio on both PPE and non-PPE for products, as well as new verticals. Is there any sense you can give us in terms of how to think through that magnitude of what that new level of demand could be or if not that maybe how to think through when we can start to see some of the visibility on some of those expansions that you have both on the product and market side and how that should factor in particular to your 2021 guidance?

[Ed Pesicka:]

Sure. Yeah. This is Ed, Mike. Thanks. Thanks for the comment. Thanks for the question. Let me start and really frame out how we’re thinking about it. First and foremost, we see the momentum that we saw in Q4, that strong momentum continuing right now into Q1 with related to PPE and we have a really good line of sight into Q2 also. Then as you think about the back half of the year related to PPE, it’s going to be somewhat fluid. But we don’t expect the demand to roll back the pre-pandemic levels for quite some time. And here’s some of the reasons why on that. First and foremost, it’s the healthcare protocols that have been adopted and if you think about that, they’ve been adopted now for nearly a year. And it’s just in the way business is being done in the hospitals. It’s a tremendous focus on infection prevention. So the utilization of that PPE is going to continue beyond the pandemic is how we feel about that. Next, the opportunity we see in the back half and continuing even beyond that is really around stockpiling. There are a lot of states, whether it’s the federal government states, locals or even hospitals themselves setting criteria of what they want from a stockpiling or safety stock. We believe that’s going to continue on for an extended period of time. As we -- as I’m talking about stockpiling, Mike, I also think about what’s already in there, and I think, about our customers, there was a -- during the height of the pandemic, there were products that were approved for emergency use authorization. There were products that may not have been traditionally medical grade or medical brands that they were purchased. There’s the opportunity as that stuff in that stockpile to start to convert that over to great brands like our Halyard brand of American made products to put into those stockpile and replace it. Longer term of stockpiling, there’s an expiration of those products. So it’s an opportunity on that standpoint. The other way we think about it, too, is, we have worked with our customers, supply chain resiliency and continuity with suppliers become critical for our partners and our customers. So we’ve worked with them for longer term contracts, have we -- as we’ve added lines, making sure there’s dedicated production for them. That’s the other thing that continues to extend the runway. It’s probably unique to Owens & Minor, because of our manufacturing footprint. And then on to the new product portfolio, new verticals, I think, the way we think about that, Mike, is really, you look at all of the PPE today that we have today. Right now we’ve focused on U.S. to me. So there’s the international markets opportunities for us to expand, taking that existing portfolio and growing it outside of the U.S. There’s industrial markets that use PPE that we can continue to provide for. So thinking about that modeling, that’s really late ‘21 and really starting to get out the opportunity into ‘22, as we’re thinking about those additional verticals. And then the very similar thing, you take the fabric we use to make our mass, that fabric is used in many other healthcare products. So that vertical integration continue -- can continue to expand. And again, thinking about that into the late part of ‘21 and really into ‘22 on those types of expansions. So that’s how we’re thinking about that through the year, as well as all the different factors. I’ll add one last one, Mike, when you think about N95, there was an authorization to reuse disposable N95. That may have made great sense when N95 were selling at prices significantly above historical prices. But those masks really were made for single use. And as hospitals, take a look at that there may be an opportunity when they stop reusing and re-sanitizing to start increasing the amount of usage of N95, because they stopped it the process of reusing them, because it becomes cost prohibitive to reuse versus buying a new one. And then the last thing I’ll focus on is, when you think about PPE demand. Here’s the other thing that we really not in. So post-pandemic, I can see consumer use of PPE going down. That’s not what we sell into today. We’re selling primarily into healthcare and then, obviously, as we expanded beyond healthcare, again, into the business-to-business or potentially industrial markets. So hopefully that helps frame out how we’re thinking about this.

[Michael Cherny:]

Yeah. No. That was a lot of great details on my overly rambling question. I’ll try to be more concise with my second one. You mentioned the kickoff of some of the business process improvements, can you just give us a sense on how that -- how your customers are starting to feel that already and what type of feedback that you get from them as you pursue some of these cost improvements and also the maximize the customer service opportunity?

[Ed Pesicka:]

Yeah. So this is really the formalization, Mike, of what we’ve been doing the last two years and making it more of a repeatable process. Because the operational improvements we made, we believe are sustainable and we believe will add value continuing not just in fourth quarter of 2020 and Q3 of 2020, but all the way through ‘21 and beyond. So some great examples of that around two areas, so we look at our shipping accuracy, this sounds -- may sound simple, but making sure the right products and the right box going to the right customer, that’s now at above 99.9%, because of the focus we’ve had on this and the continuous improvement. Another great example of that is on time delivery, making sure we’re optimizing our routes, as well as the picking time. So now we’re at 99% plus on time delivery. You look at another example that has been tremendous during the pandemic. It’s focused on operational efficiency within our own facilities of manufacturing. How do we get more output and I’ll share with you, while we don’t share the numbers specifically, we’ve seen theoretical output double based on our ability to drive operating efficiencies through our production lines. And it’s an effort across the entire organization, working with the manufacturer and teammates on the shop floor, who understand the equipment the best, who can help drive that operating efficiency and driving output. All of that is experience -- improve the customer experience because we had the ability to produce more products during the pandemic and continuing to give to our customers, improve on time delivery, improve the accuracy and all of those things also helped drive profit improvement or operating efficiencies within our own business. So those are a couple three examples of what we’ve done with it and those types of events will continue going forward.

[Michael Cherny:]

Great. Thanks so much.

[Operator:]

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

[Kevin Caliendo:]

Thanks and thanks for taking my question. As we think about these growth drivers sort of at this in the second half of ‘21 and into ‘22, I think the one question a lot of us or a lot of investors have is, was -- is 2021 sort of the peak for Owens & Minor, your press release talks about a long-term growth prospects? Is it possible that you can grow earnings, operating earnings in ‘22, ‘23, ‘24 off this base? I mean, is that sort of the target and goal that the company has at this point? I mean, we know there’s a little bit of a bolus here, we’re just trying to understand how much and sort of what the run rate could be sort of exiting the first half of this year?

[Ed Pesicka:]

Yeah. I think, absolutely, first of all, Kevin, absolutely the intention is year-over-year profitable growth and that’s the expectation. And that’s why I thought it was important to share with you beyond PPE. Why we think PPE is going to continue for extended period of time through this year and really in the next, and that’s really around the protocols and the opportunities we have. I think in addition to that also explained to you, one of our strengths is manufacturing and focused on the ability of what makes us different is, we actually manufacture a good portion of our products. We don’t just have them source with our label on them. So a good portion of that PPE is manufactured again in our facility and it’s expanding that manufacturing footprint into other products and other categories that healthcare needs and we clearly have that defined that in process today. And -- but that is a process that does take time, which is why I talked about it late into 2021 and into ‘22 on that. And then verticals, frankly, Owens & Minor historically has been somewhat, probably the word would be his myopic focus primarily on healthcare with our products. We’re not going to lose that focus and we’re not going to lose that commitment. But having great brands like our Halyard brands, there’s opportunities for that to serve in other markets, whether that’s retail, whether that’s other industrial markets, and frankly, growing internationally, too. So that’s how we’re thinking about to drive long-term sustainable growth with investments and focus around that into ‘21, 22, ‘23 and ‘24 and continuing. That’s the expectation and that’s really the basis of our long-term strategic plan. And I’ll share with you, you’ll see a lot more is that our Investor Day in May, when we start to talk about some of the innovation in products and packaging, and how the various markets can demand us.

[Kevin Caliendo:]

That’s great. I don’t want this to get lost in what was obviously fantastic results, but the Solutions margins were meaningfully above us and the street in 4Q and I’m wondering if there was anything specific to that, if that’s sort of the new run rate for Solutions going forward. How much leverage your PP&E expertise is helping on the Solution side in terms of either customer wins or sell-through on margin?

[Ed Pesicka:]

Yeah. So, here’s what’s really driving that. And I would say, I’m extremely pleased and excited what the teammates did in our Global Solutions business. So there’s a couple different factors. First, if you think about it, from a growth standpoint, there are several things that drove the growth. Obviously, elective procedure sequentially continued to improve. PPE throughput through our own channel continued to improve. We had -- and we had net new wins in 2020. The amount of new wins we implemented was a positive net new wins. And I don’t know how long it’s been since we’ve been able to say that. You take that and you talk -- I talked about our operational improvements, the Owens & Minor business system that’s that we were using and now we’re formalizing. That drove operational improvements in 2019 and through 2020. We expect those operational improvements to be sustainable. In addition to that, the business is relatively simple. It’s a fixed cost leverage distribution business. The more volume we can put through, the more products we can put on our trucks. We able -- we’re able to get that fixed cost leverage in addition to the operational improvements. So, those are a lot of the factors that drove that and why we expect that that to continue. In addition to that, the segment also has our Byram home healthcare patient direct business. And that’s a business that is executing extremely well and has for the last several years. It’s a -- in different industry segments, it’s in that home healthcare segment, one of the fastest growing segments and same thing with that. We’re very effective, driving operational improvements in that business. We’re driving nice growth in that business. Again, in one of the fastest growing market segments and the thing that that business does well is its ability to collect. It has the ability to impact 85% of insured Americans and also collect our -- collect from them also. So those are the reasons why we saw in our Global Solutions 5% increase in revenue sequentially from Q3 to Q4. We doubled our -- sequentially we doubled our operating margin -- operating income margin and really a 16% year-over-year growth in operating income in the fourth quarter. So it’s that topline growth driven combined with our ability to drive operational improvements and get fixed costs leverage, as well as the ability to -- we see that continuing into the future.

[Kevin Caliendo:]

Great, Ed. Thanks so much.

[Operator:]

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

[Jailendra Singh:]

Yeah. Thank you. Thanks for taking questions up. Just wondering about your 4Q results or does your 2021 guidance include any benefit from participating in the vaccination rollout or ancillary or PPE supplies as the vaccination campaign ramps up? Should we think of this as a potential opportunity for you guys in ‘21 or is it already captured in your outlook?

[Ed Pesicka:]

Yeah. There’s not a lot in there for traditional vaccines -- the vaccine rollout, the bulk of the products -- so most of the kits are coming with syringes and in the vials themselves. But it’s the traditional PPE that’s being used as people are vaccinated. So there’s not -- we have some of that baked in, but it’s not a significant or material amount for the full year.

[Jailendra Singh:]

Okay. And then, looking at your EPS guidance range, when we think about your low end and high end, maybe kind of talk a little bit more about what are the underlying assumptions there in the low end and high end? Is it driven by variations around the commodity prices? Are there some other variations we should be aware of, just curious about your underlying assumptions on the two end of the ranges here?

[Ed Pesicka:]

So let me start and let me first address not answer the EPS range, but the revenue range, because I think that’s important. We have seen cost increases in gloves. There’s a significant supply demand imbalance on gloves and we have seen cost increases on gloves. We have worked with our customers. We have been completely transparent that we are going to pass on only our costs and we have the ability to pass on much lower costs, because a good portion of those gloves are made in our own factories and in some of them we have manufacturer for. So there will -- there could be an impact and there is an impact on this of glove price increases that has virtually no impact on earnings per share, because we’re just passing that through. And it’s really around trying to respect everything we can with our customers and give them the best possible price and not make a profit off of this increase. It’s purely as prices go up, our cost goes up. We’re going to pass those through. So that can have an impact on revenue and margin rates or margin percentage and that’s not going to necessarily have a major impact on EPS. I’ll let Andy talk about kind of the major assumptions in the buckets on the low and high end, and overall, how we’re thinking about EPS?

[Andy Long:]

Hi, Jailendra. So other factors kind of helping us shape that range of the earnings per share guidance would be in terms of PPE outputs, our ability to ramp up PPE quickly, our ability to bring on that capacity and generate the efficiencies that we expect to see going forward. Just as we’ve seen throughout 2020 and it’s the rate of continuation of that is the rate of output of production and it’s those efficiencies as well. So I think that’s probably the other big driver. To a smaller extent, it’s like we’ve given some guidance on elective procedures and our thoughts on how that shaped the guidance. As we talked about in the first half of the year, we still expect to trail pre-pandemic levels and as we move into the second half of the year, those elective procedures coming back to potentially historic levels. There’s also an element in the elective procedures of pent-up demand from procedures that were for gone in 2020 and the potential to make those up in the second half of the year that’s not included in our guidance, but could certainly push us to the higher end of that range, if that were to occur.

[Jailendra Singh:]

Okay. Thanks a lot.

[Operator:]

Thank you. I show our next question comes from the line of Steve Valiquette from Barclays. Please go ahead.

[Jonathan Yong:]

Hi. It’s Jonathan Yong on for Steve. Congrats on the results for the year and the quarter. Just on the comment…

[Ed Pesicka:]

Thanks, Jonathan.

[Jonathan Yong:]

Just on the commentary in relation to the product expansion, what products are you looking to expansion and is it more kind of where your customer is looking to. I understand the vertical side, but where your customers needing new products from you to manufacturer, et cetera?

[Ed Pesicka:]

Yeah. Without going into specifics on the categories and subcategories, it’s really going to be products that are core to us, as a company and continue to make sure that we can add value within our manufacturing capabilities of those. We’ll do that. We’ll continue to look at that in various ways. But we haven’t come out and said, it’s going to be product X, Y or Z, it’s really -- the way to think about it is categories that are core to us as a company and where our strengths and capabilities are.

[Jonathan Yong:]

Okay. Fair enough. And then just on the increased PPE capacity, kind of given that we’re like over the next call it two quarters will kind of be the peak for PPE within healthcare. I understand your expansion in other verticals. But do you really need to push the capacity and production on PPE even further or is it more shifting to produce those other product lines within those facilities? Because I assume that the healthcare side is significantly bigger on the PPE side, but just wondering about that? Thanks.

[Ed Pesicka:]

Yeah. So, I guess, the way to think about this and only think about it, Jonathan is, the PPE, I think, PPE generally has been used as a broad statement and you really have to think about the various categories. And we’ve added capacity over the last year in most of the fabric related categories, the easiest way to think about it. The one shortfall we have is in gloves. And we are adding capacity in our own facilities that we own of gloves and we -- like I stated earlier, gloves -- portion of the gloves we make ourselves in our own factories with our people and technology and patterns, portion of those we have outsourced or we have contract manufacturers for it. So what we’ve determined is, the demand for gloves is going to be a long -- it’s going to be a long-term issue. In addition to that, there’s always the opportunity to bring more in source. So that’s one category where we are expanding, we are aggressively expanding that and we believe we can do it quickly, because we’re one of the few companies and it’s specifically American owned companies that are -- that have them make gloves on that scale and magnitude for the industry. So that’s an area where we see that continuing, that demand continuing into the future and we’re going to aggressively expand their based on what we see and working with customers on commitments. In addition to that, having the ability to control more of the manufacturing process, if necessary, with more products being manufactured in our factories versus some of those which are currently contract manufacturing. So, that’s how we think about it. It’s varying by categories. The other thing to think about too is, Owens & Minor, we’re really the one of the few or only that make the broad manufacturer, the broad based all the categories. Some companies make N95, some make masks, some make gowns. We make all of those. We make gloves. We make the rest. We make the raw material. So, we’re positioned very well even as supply demand imbalance comes back down, because we’re not selling anywhere near current spot by pricing. We’re continuing to sell substantially below spot buyer market pricing, as that demand supply balance gets close to equilibrium, those that are at those spot buy high prices will be the ones that most likely get impacted first. And then from our standpoint, the other thing you got to think about is, we were extremely effective at pre-pandemic pricing with this business. Now, we’ve added operational improvements and operational efficiencies on that, which means we can be even more competitive going forward. So that’s why we think capacity is going to -- we’re going to continue to need to produce a lot of it because there is still going to be a high demand for American made product that comes with fabric made in the U.S. and finished either in the U.S. or across the Americas and supply chain resiliency and continuity with supply is crucial. And the difference between us with the fabric made PPE, masks, gowns, gloves, drapes, respirators. We can put them on a truck and get them to anywhere in the U.S. They don’t have to get on a boat and come across the Pacific Ocean. So that’s why we believe there’s going to be continued demand for that, because of tightening the supply we can provide and the supply chain resiliency we can help provide, which is really again back to our mission of serving our customers to empower them so they can advance healthcare.

[Jonathan Yong:]

Great. Thanks so much.

[Operator:]

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

[Unidentified Analyst:]

Hey. This is Kevin on for Rob this morning. Thanks for taking the question. So I know previously you guys have talked about your contract with the federal government to increase the national stockpile. I believe that wraps up in 3Q. Just any sense you guys could give us on the contribution you’re expecting from us in 21? And then how should we be thinking about the potential opportunity to work more with the government in the future on these types of contracts?

[Ed Pesicka:]

Yeah. So I think, obviously, we’re in constant contact with the administration. Really trying to help provide insight of what we’re seeing. And again, what makes us different is we’re -- the large scale, broad PPE manufacturer of the entire categories and subcategories in PPE. So we are constantly working with them. And each category is unique and each category is different. We are actually working with them and continue to work with them that there’s been times where there -- we think we’ve been -- we -- they have asked, can we make sure that PPE is getting out to the end users and some of those N95 that are going to use to fill the stockpile will continue to fill them and that will continue to happen through the end of Q3. So, that’s our expectation on that. Again, I think, you have to realize is, when that slows down, there still is demand outside for our N95 and other of our products. So, we’re going to continue to work with the U.S. Government on this. We’re really pleased with what the administration is doing. And we’re going to continue to work to partner with them to help with stockpiling and/or other solutions for PPE independence for our country.

[Unidentified Analyst:]

Got it. That’s helpful. And then, yeah, just one follow up to some of the comments earlier. So I know guidance is a little bit more first half weighted this year. So could be some potential like sequential slowdown towards the back half. And then I know in response to Kevin question earlier, you’re still talking about growing net income off of ‘21 levels and ‘22. And so, I’m just curious if you could square those two, obviously, some sequential slowdown in the back half, but still expecting growth for next year. Just any detail you can give on the moving pieces there would be helpful? Thanks.

[Ed Pesicka:]

Yeah. Again, as we stated earlier, we see the line of sight, clearly the momentum from Q4 is carrying into Q1. We really see that and then we really had a good line of sight into the second quarter. And like I said, the back half of the year, there’s opportunities for elective procedures. Right now, we’re planning on you take elective procedures. We plan on those continuing to be below pandemic levels in the first half of this year. We’re seeing that. We’re seeing certain areas where there was hot spots where elective procedures slowdown even more. So that’s why we don’t think Q1 on your classic elective procedures. And again, as reminder, elective procedures use a heck of a lot of PPE also. It’s not just because of COVID. Those procedures use a heck of a lot of that PPE also. So that’s why we think next year has the opportunity to come across some better comparables also in the first half of the year. And then we continue to see, I made the comment on net new wins. Last year was the first time we had net new wins above -- we were hit a positive net new wins. Those are going to also have positive impact this year. And the expectation is that continues through 2021 and that also provides growth opportunities in ‘22. And then the expansions I’ve talked about. So there’s a lot of things out there that, while this year we see strong -- we see a strong year, our expectation right now is that we expect ‘22 and beyond to continue to be strong. And the other thing I don’t want to make sure it’s not missed about our ability to grow. And we -- both Andy and I touched on it in our prepared remarks was the deleveraging of our balance sheet. We think about the deleveraging of our balance sheet, it’s created opportunities for us to reinvest in the business where we haven’t had that before. It’s created opportunities because interest expense is going to be down that can help drive -- continue to help drive EPS improvement. So those are other factors as we think about the long-term strategy that have drastically changed with Owens & Minor from where we were a year ago or two years ago when I joined. That deleveraging has created a tremendous opportunity for us to fill out some of the demand we see for overall current and future services, opportunities and products.

[Unidentified Analyst:]

Got it. Super helpful. Thanks, guys.

[Operator:]

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

[Daniel Grosslight:]

Thanks and congrats on the quarter guys.

[Ed Pesicka:]

Hi.

[Daniel Grosslight:]

I want to focus a little bit on the supply side of the PPE demand supply imbalance. And there’s a bunch of legislation out there now at -- throwing money at bringing PPE supply -- the PPE supply chain back to the states. It had one big hospital system announced that they’re instituting a JV to expand access to PPE within the states. Have you seen the competitive dynamic changing on that and as more companies build out their own U.S. manufacturing capabilities?

[Ed Pesicka:]

Yeah. I think it’s simple for that case. I mean, obviously, we’re in contact constantly, whether it’s with hospitals, GPOs, the U.S. Government. And the approach we’ve taken is we -- again, we manufacture the broad categories of PPE. We’re working with customers to lock up our ability to provide them product coming off of our production lines, whether it’s semi-dedicated or dedicated production lines to specific customers. So instead of having to go out and create joint ventures, we can do product commitments to make sure that they have a long-term supply of product. And again, the beauty of it is, we’ve been doing it for years, we have the broad category portfolios and think about N95, you think about mask, you think about isolation or surgical gowns. You go through most of that product. Fabric we’re manufacturing too. So we have a broader consistency or ability to mitigate risk from raw material to the final manufacturing. So that’s how we’re thinking about it and that’s how we’re working with our customers. The other thing we’ve been very cautious on is making sure that, as we do make investments, they’re sustainable. We have to look at. The way we think about it is, we don’t look at what’s the current pricing and/or demand and/or supply. We try to make sure make those decisions on what is going to be the future demand pricing. And we -- again, we don’t think demand is going to fall below pre-pandemic levels for years to come, because of all the protocols. But we want to make sure that as we add teammates and we add capacity, we have long-term -- ability for long-term employment and long-term production. So we’ve been creative. We look at different ways and we have conversations with whether it’s GPOs, whether it’s hospitals, whether it’s the government and what makes sense. Because, again, we manufacture, we understand what it takes to make these products here in the U.S.

[Daniel Grosslight:]

Yeah. Got it. That’s very helpful. And then just on the net new wins that you announced. That’s very encouraging. Can you talk about -- are those health systems like you traditionally sell into the acute side? Any differences and those net new wins versus…

[Ed Pesicka:]

No.

[Daniel Grosslight:]

… previous customers?

[Ed Pesicka:]

No. It’s primarily…

[Daniel Grosslight:]

And then…

[Ed Pesicka:]

I’m sorry. I will answer…

[Daniel Grosslight:]

Yeah. Go ahead.

[Ed Pesicka:]

It’s primarily customer -- our traditional customer type? That’s primarily what those are.

[Daniel Grosslight:]

Got you. Okay. And do you see any changes as things open up this year in the sales cycle and more RFPs or more things going out to bid? And how does that play into that 2022 dynamics?

[Ed Pesicka:]

On more RFPs and more going out, we did see some that were delayed last year because of the pandemic. So we know that some of those are going to are out or will be out and then I think you’ll have the normal cycle. You think about a contract is three-year to five-year terms, give or take, they’re going to have that normal cycle. So I think you’ll see a few more. You’ll see a little more of that in 2021. So I think that’s really because some of the pent-up demand of when people held off on doing it. I think also we have the opportunity because customers now want to think differently and rightfully, so that there may be an opportunity for more RFPs because of how customers were impacted during the pandemic. So short answer to the question is, yes, we expect there would be more RFPs in 2021 and 2022. I’m sorry, in 2020 and that’s really because of people delaying them in 2020, because they didn’t want to make a change during the pandemic and I also think because of some of our customers were impacted by the pandemic, they may be looking for unique or new solutions to.

[Daniel Grosslight:]

Yeah. Got it. All right. Thanks, guys.

[Operator:]

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

[Michael Minchak:]

Thanks for taking the question and congratulations on the strong results. So I guess, just first on gross margins, if we take out the glove cost increase pass-through, it looks like the gross margin projection would be in the upper 15% range at the midpoint of the guidance ranges. It’s an increase over 2020, but below what you -- the 16.9% you delivered in the fiscal fourth quarter. I am just wondering if you can talk about some of the dynamics that are driving that that forecast and sort of how that’s expected to trend over the course of the year and how we should be thinking about the ability to drive margin expansion over the longer term?

[Andy Long:]

Sure, Mike, this is Andy. Happy to take that question. So, as we look at gross margins, I think you’ve picked up on an important point. And there’s really three key drivers that I see that are really impacting our gross margin rate next year. You’ve picked up on the first one, right? So you did the exact right thing. You’ve taken the glove pricing impact out to normalized for glove price -- glove pricing. So the other the other factors that I would consider is, as we continue to ramp up PPE, we continue to expect good fixed costs leverage and efficiencies and manufacturing will continue to drive upward pressure on margins. And then kind of dampening the margins is the third factor in that, with the growth that we’re expecting in our Global Solution segment. That segment has lower gross margins. So while it’s still accretive, it will dampen that rate of improvement in line with historical sales performance. So those are the three key drivers. And I think, as you look, mid- to long-term, it’s our continuous improvement efforts. I think we also will factor into that as well.

[Michael Minchak:]

Got it. That’s helpful. And then just a quick housekeeping question. I think you talked about an $0.08 favorable impact from FX in the fourth quarter, just wondering what’s built into the guidance for 2021?

[Andy Long:]

Sure. For 2021 -- so our 2021 forecast is based on the December 31, 2020, FX rates that were in place at that time. And in terms of EPS impact, I would estimate that as an approximate $0.11 headwind, basically being driven by what we’ve seen in the fourth quarter currency activity with the weakening of the U.S. dollar.

[Michael Minchak:]

Got it. Appreciate you taking the questions.

[Operator:]

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

[Ed Pesicka:]

So, thank you, Operator. Let me start by thanking everyone for joining on the call this morning. As I reflect back, it’ll be two years on March 7th, since I joined Owens & Minor and I will share that I’m extremely pleased and delighted with the progress that we’ve made and that really goes to all our teammates across the world that have worked relentlessly to support our mission and the mission is extremely important to me. That being we’re here to empower our customers so they can advance healthcare and making sure we’re doing everything we can to support them. So if I think about 2020 in that lights is, 2020 was a record year and I’m proud of the accomplishments that we’ve made in 2020, as well as over the previous eight quarters. But I think we all recognize we’re not done yet and there’s still a tremendous amount for us to do to continue to live our mission and continue to provide value. So for that I’m really excited about 2021 and really into the future. And then last before I close, I really want to welcome two new Board members, Aster Angagaw, who’s joining us, as well as Steve Klemash will be joining us as members of our Board of Directors. They both bring strong backgrounds and transformational growth, as well as finance. And we believe they’re going to be great, great contributors to the Owens & Minor Board of Directors and I really look forward to working with both of them. So with that, we will leave for the day. I look forward to talking to everybody at least on the next quarter. And again, as a reminder, during our Investor Day in May of 2021 then we will provides a little more insight about where we’re going as a company. So thanks again and have a great day.

[Operator:]

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now all disconnect. Good day.