Owens & Minor (OMI) Q3 2025: Divestiture Sets Up 100% Patient Direct Focus as $2.1B Net Debt Weighs on Transition

October 30, 2025 | By EarningsIQ Research

Owens & Minor moves decisively to exit its legacy distribution business, pivoting to a pure-play home-based care model anchored by Patient Direct. Management signals a structurally higher-margin profile and unified capital allocation post-divestiture, but transition costs and stranded expenses remain in focus. 2026 will test the durability of organic growth and margin improvement as the company navigates a major customer loss and works to ramp new preferred provider agreements.

Summary

• Business Model Transformation: Divestiture of the Products & Healthcare Services segment unlocks a streamlined, pure-play home-based care strategy.
• Margin and Cash Flow Reset: Patient Direct becomes the core, with management emphasizing improved earnings quality and cash generation.
• Transition Risks Loom: 2026 outlook hinges on offsetting a large low-margin contract loss and executing on new payer relationships.

Performance Analysis

Owens & Minor’s Q3 2025 marked a strategic inflection point as the company announced the sale of its Products & Healthcare Services (P&HS) segment, repositioning itself as a focused home-based care provider. With Patient Direct now the sole continuing operation, Q3 revenue reached $697 million, up modestly from the prior year, though growth was muted by a flat diabetes category and the absence of a prior-year one-time benefit. Key growth drivers in the quarter were sleep therapy, ostomy, and urology, while chest wall oscillation, a smaller category, delivered outsized gains, highlighting the company’s ability to expand its therapy portfolio.

Adjusted EBITDA came in at $92 million, reflecting margin pressure from product cost inflation and higher health benefits, only partially offset by lower delivery and occupancy costs. Year-to-date, adjusted EBITDA rose 6.3% to $285 million, though Q3 included $11 million in stranded costs tied to the divestiture. Free cash flow from continuing operations was positive at $28 million for Q3, but overall net debt remains elevated at $2.1 billion, with cash flow weighed down by excess inventory and startup costs in the discontinued P&HS segment’s new kitting facility.

• Segment Realignment: Patient Direct now comprises all continuing operations, with divestiture of P&HS expected to close in Q1 2026.
• Revenue Mix Shift: Sleep therapy, ostomy, and urology led growth, while diabetes was flat but improved sequentially.
• Margin Headwinds: Inflation and health benefit costs pressured EBITDA, but stranded cost reduction is underway.

Management reaffirmed full-year guidance but expects results at the lower end of the range, signaling a conservative near-term outlook as the business transitions.

Executive Commentary

Strategic Positioning

1. Pure-Play Home-Based Care Focus

The exit from P&HS marks a full pivot to home-based care, with Patient Direct as the core business. Management highlighted the shift as enabling unified capital allocation, operational focus, and a structurally higher-margin profile. The Patient Direct unit, built on the 2017 Byram acquisition, now leverages a coast-to-coast network and diversified payer relationships, positioning OMI as a leader in chronic care supply for conditions such as diabetes and sleep apnea.

2. Margin and Cash Flow Reset

Retaining only the higher-margin Patient Direct business, OMI expects improved cash flow consistency and quality of earnings. The loss of a large, low-margin contract in 2026 is framed as a net positive for margins and cash generation, as management claims it was not a cash-flow-generative relationship. Stranded costs are being targeted for reduction post-divestiture, and technology investments are prioritized to lower cost-to-serve and improve the customer experience.

3. Growth Levers: Preferred Provider Agreements and Therapy Expansion

New preferred provider agreements—most notably with Optum— are expected to drive organic growth, providing access to a large referral network. Management pointed to a salesforce of 450 targeting over 100,000 potential referral sources within Optum. Expansion into underdiagnosed conditions like sleep apnea and portfolio additions such as chest wall oscillation therapies are cited as incremental growth drivers.

4. Regulatory and Policy Navigation

CMS competitive bidding remains a headline risk, but OMI believes its scale and expertise position it as a preferred partner regardless of regulatory changes. The company is actively engaging with advocacy groups and industry partners to ensure patient outcomes remain central in policy discussions.

5. Balance Sheet and Capital Allocation Discipline

Near-term capital allocation is focused on debt repayment to restore flexibility, with net debt at $2.1 billion. Management asserts covenant compliance is secure post-divestiture, and expects inventory-related cash flow headwinds to abate as excess stock is worked down.

Key Considerations

OMI’s Q3 marks a structural reset, with a single-segment focus and a cleaner investment thesis, but the transition period brings execution and financial complexity that investors must monitor closely.

Key Considerations:

• Divestiture Execution: Timely close of the P&HS sale is critical for unlocking the pure-play model and stranded cost reductions.
• Margin Uplift vs. Volume Loss: The exit of a large, low-margin contract in 2026 is expected to improve margins but will test top-line resilience and require successful ramp of new payer agreements.
• Free Cash Flow Quality: Positive free cash flow from continuing ops is a bright spot, but overall leverage remains high until divestiture proceeds and working capital normalize.
• Operational Leverage on Technology: Investments in automation and digital tools are intended to reduce cost-to-serve and scale efficiently, but payback timelines are not yet clear.
• Regulatory Overhang: Future CMS competitive bidding outcomes could impact patient choice and supplier economics, requiring ongoing vigilance.

Risks

Execution risk around the P&HS divestiture and stranded cost removal is material, with any delay or cost overrun potentially impacting cash flow and debt reduction plans. The loss of a major customer in 2026, while margin accretive, could expose the business to revenue volatility if new preferred provider agreements do not ramp quickly. Regulatory changes, particularly in CMS competitive bidding, remain a persistent external risk.

Forward Outlook

For Q4 2025, Owens & Minor guided to:

• Similar year-over-year revenue growth rate as Q3, with seasonal improvement in absolute dollars.
• Adjusted EBITDA and net income at the lower end of prior guidance ranges.

For full-year 2025, management reaffirmed guidance:

• Revenue: $2.76–$2.82 billion
• Adjusted EBITDA: $376–$382 million
• Adjusted net income per share: $1.02–$1.07

Management highlighted several factors that will shape the coming quarters:

• Completion of the P&HS divestiture and subsequent rebranding of the public entity
• Ramp of new preferred provider agreements, particularly with Optum
• Stranded cost reduction and technology investment to drive margin expansion

Takeaways

OMI’s business model reset is a high-stakes bet on home-based care, with a simpler story and higher margin profile, but near-term execution and customer churn must be watched.

• Strategic Simplification: The move to a single-segment Patient Direct model should enhance capital efficiency and focus, but only if stranded costs are quickly eliminated.
• Margin Improvement vs. Growth Challenge: The loss of a low-margin contract will boost cash flow, but organic growth must accelerate to offset lost volume and maintain investor confidence.
• 2026 Watchpoints: Investors should scrutinize the pace of new contract wins, stranded cost removal, and the impact of regulatory changes on reimbursement and patient access.

Conclusion

Owens & Minor’s Q3 2025 sets the stage for a new era as a pure-play home-based care provider, but execution on divestiture, cost takeout, and new growth levers will determine whether the company’s margin and cash flow ambitions are realized in 2026 and beyond.

Industry Read-Through

OMI’s exit from distribution and focus on home-based care reflects a broader industry trend toward higher-margin, asset-light models and the growing importance of chronic care management outside the hospital setting. The company’s willingness to shed legacy volume in favor of margin and cash flow signals that scale alone is no longer a winning formula in healthcare distribution. Peers with diversified business models may face similar pressures to streamline and focus, while the Patient Direct growth narrative underscores the value of payer relationships and digital enablement in the evolving home health landscape. Competitive bidding and regulatory flux remain sector-wide risks, requiring nimble execution and advocacy.

OMI Healthcare Home Health Divestiture Patient Direct Chronic Care Margin Expansion Debt