AVNS - Earnings call transcript Q3 2019

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Operator

Good morning. And welcome to the Avanos' Third Quarter Earnings Conference Call. All participants will be in listen only mode [Operator Instructions]. Please note this event is being recorded.

I would now like to turn the conference over to Mr. of President Vice Crawford, Investor Relations. Dave ahead. go Please

Dave Crawford

Joe us. Good outlook our to pleasure financial earnings brief results, call. XXXX. XXXX. earnings morning review priorities will unit joining available with is details I business will section avanos.com. Avanos give morning, and the thanks site, conference an is and finish this me and everyone, of It's With CEO. for welcome with a quarter for our Investors' of business Then A Joe and for begin my performance on call third for our Woody, QX our review performance you offer on then presentation the Web our the and call We'll to on Q&A. update today's

our results differ comments our conditions economic contain as to financial today expected statement. related the can given forwarding those and our company, to be could a future As materially Actual reminder, from the in performance, forward-looking industry. assurance No statements results.

forward-looking information in see please that factors influence could and more the the risk statements results, For press with SEC. filings risk factors future release our the described today's and about

adjusted information to reconciliations referring outlook. be release and has we'll Additionally, comparable GAAP press on The and adjustments measures. these results to financial

the turn to I'll call Now Joe. over

Joe Woody

digit in continue for to results quarter, Good the COOLIEF everyone. expectations, in third execute challenges resulted relative that CMS pressure in continued knee we our quarter. That specific And faced including could which in related growth procedures. the morning, results fourth from to Dave. said, reimbursement In we and under-delivering to to double Thanks, our thank interest you your and Avanos. for against positive priorities,

underperformance, the our accelerate we growth shareholder deliver While third confident address plan right and we were that we value. gaps, in place to by remain disappointed the have quarter

primarily were new to was orders Last revenue driven system $X.XX. for the and the earnings associated The we domestic $XXX was disruption Overall, the that adjusted regions quarter flagged our shortfall system. million IT and of this back implementation X net across quarter, million our of implementing challenges international business. diluted of could majority sales create and quarter by with the for approximately per share fully

new term Introducing of creation. the IT was the crucial for the system and benefit value long company

We in temporary resulting have workarounds implementation have in manual experienced supply decreased efficiency. customer and issues the required that

levels. XXXX. are team possible challenges we internal continue are issues on is fully Our we remediating some orders normal most into working That on the Though, said, is resolving the focused of quarter returning first sales way and may these back it to possible. the efficient in

the I addition to supply and impacted care mentioned, by volumes from we lower chain distributors customer in challenges chronic U.S. the In were order

positive distributors produce or transitions. we at As variability past, they results levels their our inventory in our can quarterly the negative and as customer manage in independently discussed inventory

Importantly, any changes chronic to care market seeing we're underlying not the dynamics.

impact growth But catalyst also the in sales quarter. international expect third EMEA plan missed also a our America for We business is that and quarter shortfalls the now I'm expectations. for International confident growth. Latin will fourth

sales continued for are the in near term. back As orders year which the X%, lowering we a expectations to builds to result, X% X% to potential full in XX%, from

remain to net and $X.XX. sales guidance share lower prudently Given earnings and manage address $X.XX We of revising ability adjusted costs from our We're our our and year confident per between to strategically the business, long to these to our outlook, strategy accelerate growth. diluted $X in also gaps. our capital deploy in invest term $X.XX, full we're XXXX to committed growth quickly

final CMS drivers released In XX% growth. to the strong coverage with quarter critical Pain, rule highlight had going of XXXX Interventional to With a a on I'm regards future growth. Now, for was Friday. over COOLIEF COOLIEF, few

felt knee the hospital that within the to Medicare outpatient proposed we I'm the share value setting, initial with the This knee reimbursement viable While therapy. happy the in within from procedure. makes the suffering osteoarthritis same undervalued the to non-opioid of enabling new for procedures rules from hospital RF patients SIJ knee again, to knee for setting the benefit is the leading update COOLIEF continue our

business We there's other COOLIEF. investing We're for in. there's that in growth of excited about also growth to effectiveness. in and COOLIEF's cost were an and developing compelling potential, clinical its believe also especially actively evidence of U.S., international for the generate to we runway us avenues We procedures spine component more the as continue we're

to drug performed discussed our is it Pain but market. returning expected time headwind, market for performance shortage the to to not take with drug be in will supply plans return a a Acute to and line last The steady XXXX is supply state. quarter,

growth this are improving to business We on highly focused and returning overall profitability.

Our business chronic flow. a growth pool care cash remains and stable of

by caused this impacted primarily these we overall, in IT market a which our franchises, leading While to business, to expect continue mid-single remains the quarter digits. implementation issues grow back the

due shipping product a In high variability and rebranding and challenging we complicated chain emerging in further challenges, business, our international to order, back was supply market. by quarter had which

continue Going forward, to we regions all accelerate in growth expect which operate. across to we

key which our to a strengthening turn and to to like growth. and business I'd M&A, lever continues accelerating Now, be

leading existing catheter tooth respiratory we infrastructure. clinical leverage Endoclear, our enhanced sales a acquired marketing Endoclear our our us to to bolstering health allowing addition customers, and our clearing portfolio brings closed portfolio. quarter market and This to strategic suction

continue Products acquisition are Summit the Pain the our our by we Summit will performance Following that business. and of into were sales complement encouraged Acute Medical to portfolio, confident initial

non-narcotic has relief acquisition ON-Q, pain with customers our engagement around improved facilitated therapy. this addition, In

expectations. pleased had line which sales we Lastly, NeoMed's performance, in are our with with recent

of and with moving forward plan with are We along acquisitions are the initial stages on team ready. integrating these

continue will value ahead, opportunities the synergies growth to strategic for assess Looking to that business. bring the landscape additional and we

strategy of Before accelerating organic our I to to that Dave, turning taking the and call M&A committed to we growth, reiterate over pursuing out costs. want are

the necessary independent transform became fundamentally and taken business to steps company the the since have at of XXXX. end We significant

result, a with we're to growth simplify of drivers. the handful As now able business a

term our include, in to returning address while ability the confident and to fully growth, on am savings QX and operational priorities: deploy growth, continuing Acute focusing stabilization, completing integrating to acquired savings Corpak process these for synergies, catalysts targets Pain near and I investing IT as these assets system XXXX strategically in COOLIEF on additional delivering capital, cost our executing and and developing opportunities. and issues,

to over I to turn financials. call the walk now will the through you Dave

Dave Crawford

good Thanks, everyone. Joe, and morning

new more Introducing system the we're of actions remediate transformation the overall, major and with review I milestone and new in status detail, Before in I IT results we system implementation a processes. to with IT it. our and taking discuss to the the our first pleased want our are

been surprising have take cash our effectively to products, Since sales able challenges the this to from orders, magnitude and report encounter our is August of collect project we manufacture a not earnings. launch, workarounds, and number manual processes. seeing in of decreased temporary behind are we new require issues change the is that resulting ones efficiency in peak of us from develop. term short not the Overall, the With

three we we and receipts improvement move process under efficiency; and As two, we address and we're order-to-shipment Already, three, are forward, new main top a one, Rest disbursements technology change cash issues; team. confident for process; our assured process the on over inventory business to priority. remain offline continue efficiency. without system months, and the are management see making by efficiency. we need the our reconciliation working beginning and a of the global system of improve performance We course data benefits viewing and a next basis that will stabilization several single to to

of deliver cost and equates the our savings, priority to Transforming $XX our structures back to combined million in a SG&A, expect savings are is confident next cost we we continue manufacturing cost years. and This, is areas over to in which next the IT generate infrastructure million we other in top to savings year. part the and with office will $XX two

than our price and volume a from Summit offset Now, and third increase contributed quarter results. our and growth diluted X% Sales $X.XX. prior per million in from earnings adjusted which declined year, review let’s Overall, product to to unfavorable delivered $XXX a mix and acquisitions. of X% Organic X% net we fell X%, NeoMed to growth. the shift sales, share compared of our less Medical

its and this to COOLIEF our quarterly highest patient again double growth direct advertising. year, grew bolstered by had digits

continued seen several demand have While as for we're sales multi-probe customers therapy, mix. with the the pleased growth our standard move we expectations strong kit, from kits, an was below unfavorable slightly drove which

in September, the We continue pain clinical providing studies treating COOLIEF reinforces Journal effectiveness to enhance long published retrospective payer study relief. Pains build evidence companion In that to coverage. and Physician knee chronic term a and clinical private large the in a invest of additional

to compared large earlier to multi-centered of we're trial this COOLIEF hyaluronic effectiveness year, As a evaluate prospective acid conducting highlighted the clinical injection. also

OA term rheumatologists, for our outcomes conferences. of orthopedic confirms take to key month. which the been conferences. pain To knee Four place of broader leading data will presentations accepted industry a have is surgeons this pain symposium which COOLIEF for and audience, Clinical physicians, this data, effectiveness at team of disseminate long at help holding the several including treatment

encouraged and the were digits expectation. in ON-Q double again sequentially. increased line mid-single our acute down In pain, sales with Infusion that we quarter, by sales for ON-Q and are digits IV lighters through results delivered

Turning into Chronic Care.

As product primarily chain back performance the discussed, was and supply by orders affected Joe issues.

Chronic at certain in decline a as we distributors. saw mid-single Care growth of we to purchases unexpected Overall, business. drawdown an continue addition, view In to inventory digit due

tracing supports underlying don't changes retained Our consistent key of data in accounts our and see market we dynamics. have any growth all the and

international was and Sales uptake the be businesses. have our partly in by by did management our to fall challenges in our results. Mitigating region market Avanos' forecasts, won in converted some Latin EMEA tenders our to in complicated chain and to Sales America yet largely to pain expectations, order our of due by delayed back team short impacted orders. Results trailed issues. also development countries. that due growth to Moving these were supply rebranding

remains In year, in since through the a Despite saw double for a our Asia-Pacific double and this last Business we just International overall the these work digits had setbacks. region, key will and temporary growth we quarter's below growth, confident year. we digit where performance, catalyst in are for the our team place quarter we

a other regions. encouraged and results in there's our opportunity believe are We similar these by

for IT anticipated adjusted normal the margin restarting and quarter, than of gross down XX% our unfavorable We the taking quarter For implementing to manufacturing compared facilities. gross system as margin the lower last required year. a was

an pressure alleviating to costs related customer increase Additional backorders. distribution stem from in

margin. year to million million totaled compared ago. as compared EBITDA million Adjusted to operating $XX to compared gross was quarter million $XX for ago, year Adjusted impacted in by a million $XX for Adjusted totaled$XX year ago. $XX a million income profit were the decline the $XX quarter net the results a

$XXX with to of position our Shifting hands. new due of in working sheet. was million the quarter an balance in financial to an to items, ended and the $XX flow IT onetime related on system. capital outflow cash cash We million on solid increase Free spending

data electronic process some course, which invoicing to the and receivables. temporary customers billing During of the collection our manual required delayed intervention,

now revised which now also expect Due the will and impact these this As fourth outlook, full Joe currency constant some X%. that in includes XXXX mentioned, sales to X% Summit expectation our growth we part, Medical results, we year quarter's Endoclear. factors, of to quarter,

$X.XX. the expectations, we adjusted $X per revising to Given in our share our sales adjustment diluted are to earnings

take In create are XXXX to steps while operator, that, our questions. priority. to With focusing the value, necessary on are and fourth we we quarter we're ready summary, taking confident shareholder

Operator

you. Thank

[Operator session We question-and-answer will now begin the Instructions].

first comes Please question Stephens. Chris Our with from ahead. go Cooley

Chris Cooley

Good taking the and appreciate morning questions. you

more the of me, us I’ll help appreciate roughly mix $X post maybe last But and the queue. from that point on parse if to out gross impact about Maybe from issues Dave, a the volumes? hop just you bit IT you would the the business guys that and you the that would the saw hit a quarter. in for the schedules system margin, divestiture relative only IT integration on imply provided. I in there two million little just Just on

I prior year I make sure So it to And throw then kind back have growth. kind on period? to a of can follow up want I of just

Joe Woody

year, Woody. you're is a like experienced up last IT equally, had quickly this Hey, productivity. to high with tee sales But Joe I'll there we've lower margin. quarter a air margin with Dave, that did an some and And a Dave margin in is, quarter we gross Chris, impact feel weigh have few want a that we see. system, our standard get gross things, see have high bit XX% came pain things what gross and a we this down a with But piece, little bit to for and There's And seeing little it XX% we then the in of high distribution like say NeoMed plants And can we got as the there's mix gross this little we bit so. had acute saw as in. costs the freight. backlog, down where that full well But, margin, of a gross margin. up as to plan about we add our you to or year of you the still that? for you in

Dave Crawford

Joe those think drivers I of it. as main indicated the what were moved

efficiency Obviously, day-one, impact then our plants been the those the taking get at time the have would don't in down up facilities. in plants biggest with were start margin that the week, teams obviously you and having normal back operating new think a systems especially our those those to normal up. I to roughly

driver, And down as together was quarter. some the increased necessary the to do we having this being put But orders. back so probably Chris, that plan. Obviously, the not margin we of encounter distribution overall, those we relative were as our expect biggest costs

little color that to more Chronic on average margin. favorable And bit category, which the had our Care, Digestive orders, Health some in in back more relative or specifically some of margin normal our so was

driver So well. a as was that

Chris Cooley

more and may your And COOLIEF, you bit also aggressive outside to in investments, States but and see Very deserved Could back going me, reimbursement a then well OA there. in that think of of be bit little talk pleased it's United you indication, about maybe the talk both get expansion. indications you here lastly distribution technology, forward? I’ll I just a other about for the for As little enhanced for the international queue.

contribute Just investment. kind start perspective? we assume initiatives what line top Thank terms from And of when to a of should those incremental you. should in

Joe Woody

we again again say it is, in let for momentum the things. Woody, and I just good way the question. we've mean thanks Chris, that get lifted and to but about. worked were Joe that me we hard very business, think I raised. got growth couple got, result team One is have happy could thing the our think XX% about to been decision that reimbursement it a negative. consultants that very very But and Obviously, the here final

reimbursement as now have we have we same today. So the

the have in was that reimbursement I had in been and understanding So wanted that you place organic code.

that There's is on an just now thing CMS. dialog not in we us to other with which for orthopedic bring believe with overtime, have the then a And the interventional and opportunity work we would open surgeons pain them Ambulatory Surgical Center specialists.

I sort studies to going the in cool. payers probably is complete have because is to one standard of have moderate clinical this to react Commercial the can comparing see specifically happen. that some want going XXXX what's initially, think in us of you negatively that and and generally we'll we'll that we are and place, investment HA,

field of We we like sales in us then this went might in interest got half, DTP. this and second possibility expanding but extremely reps, it did with But DTP you COOLIEF, on some I that in raise added not because that the where see from do force, the the a not have necessarily in investment the the to already think saw we we more them business, or a we reimbursement does in place, XXXX. extent we'll we feel the investment heavy And physicians. generate, that's year in little place, out now that bit

Dave Crawford

commentary. Joe's to add I'd Chris, And

that of the in investment couple regions needed related the Obviously, If right to COOLIEF behind spending we've we're of going that our XXXX. not at. since give to increased announcement be international to you think divestiture, level to it to for last substantially following years S&IP get us the now the guidance

can the tweaks two same in don't again, levels. years. that in level think But we step year. done be. investment kind different it would that got to I But spend make we last see expect where shouldn't it We of money We've over the we've step big some up see to how up needs the of on next to

things therapy We've in we've Some are spending of place, the started international also get DTP, mentioned, behind with additional some money whether be, Joe that. this there. resources done it'd as to in

it last leave years. we're level couple with and think of I any up a just significant that And done of -- spending I'll we as good margin do So we the we've kind at the spending. not the increases that of on ramp

Joe Woody

I place. set. we way has the mean, it. in got stage studies really can either clinical We think the Yes, been about

XXXX end the decision, last in right will sales of was in did to and we anything Now, last COOLIEF real year. middle our expanded an We they're now year. XXXX. and a moderate And come going force standard in sort investment have reimbursement and like can the push we DTP. of to the the HA RF We big be it

Operator

Our next KeyBanc. Matthew question with Please from go ahead. comes Mishan

Matthew Mishan

First Dave, headwinds into of or transitory are it lose of moving of versus push to it is XQ that you Do have pushed are into about or and may any understand off, you trying XXXX? delay just the lost? think I'm XQ. some sales, when impacting just Joe, we some what's just something necessarily out those

Joe Woody

chain Avanos of a off. the supply product that limited, the QX. We in. branding, that, inventory are Dave also development fully do some will was and that Europe, specific the that we and I'm that visibility inside Yes, experienced. and way weigh rebranding part sterilize doubled the in it from where higher We and things. limited example, we into feasibility backlog give registered have our really a plant. the to And And think that and inventory all of going times issues believe going you I'll where Inside say continue. can sure that cycle issues there's I'll to are we the with couple carry had from of

thinking So we're think customers QX. could lose some that can we That backlog we're making said, being, that that into scenario. progress in continue I that think this accurately it day we had. against in do We cautious every

customer lose them invoicing the permanently, like no. and of are we think issues the credit there I implementation other IT and system, some holds But with associated service.

we So on it. where are that's

Dave Crawford

not be look it through thing from experience be only and this I of why as the lost that's it aspect. guidance. would it needed add, was whether it, order available, Matt, it a that distributor, The some will getting was was we we because think business that And a I'd product at direct that we're reflecting or and changing sale

we really As through won't the hopefully, working of work next the one today. orders through is order the and be situation with this Though, back improving, an we're issue back that thing still is beginning year.

Matthew Mishan

then has COOLIEF. changed to up like first guess reimbursement And from I follow a the before what just level versus proposal. on

a a from that -- the negative reimbursement first you And or in get think of think were I you enhanced you then you changed offices then do you hospital versus you didn't ASCs? the why physician get to back did expecting What's was rule what level up. proposal initially? get had and

Joe Woody

spine really all to was for really, So hospital up on really $X,XXX, positive. is department outpatient easiest see was that's to we in way -- akin the up $XXX proposed area, to and code the facility, the what that about the we the so the what from way which back ended think is

we in think us the think procedures. side, same don't true knee. that payment don't categories in what proposed we what physician for the inhibit down, went would was to that in But in the actually was was the spine really the On and that true but the from stay all -- physician

CMS an -- ambulatory that decisions surgical reason move happen. just a been there's decision is where is category, CMS most part of we or center happen opportunity this by to of into an the make office they're think uncertain, procedures invoices that there's these the because The these in

that work procedures are feeling with are quickly ability these facilities. have we so consultants, we all show of brand And in can group really an that much to pretty the like

ambulatory today center. can to to physician XXX. for sort so that would for move in doing surgical that the center, and time a XXX And there's range facility possibility surgeon over And the fee in be we moving with, payment, surgical of associated we're example, there orthopedic

probably looked to long So every is a this a on more of comment to chance term going and it's opportunity at. quarter mid-term for We're have us.

is they're I of And they're say catchment term, would And think about could payments used to patients, knee don't because what and the be to the if trying those comment? that get in wants interested the total so get doing what they that, longer ultimately I surgical a inventory I that these Dave in to repair. make this, bundled center

Dave Crawford

study COOLIEF. one And COOLIEF, steroid study. be as complete, have up that's starting of showing we've to this earlier, and the part reimbursement on But I'd respect little I we'll of add studies, private of that's hyaluronic with full acid to standard we to in as journey. from think first a continue thing to progress a are the -- RF. mean, only next clinical here the is you And too, we we have and our the also a focused that which comparing also our the couple make relative bit clinical with Matt, longer for year weeks data payers, standpoint, trials talked the is me, already excuse Joe

And is more getting well, reimbursed. fully part an which so that also journey payers continues with important of as the COOLIEF private

Joe Woody

think, really what said. Dave I it's important

has everyone line think I other the with this seen on technologies.

all your clinical and complete. doing be You you 'XX. really not to get sort one business. or out payers to. mean for then which to going the around code uptake and of have that is us with of of real AJ then pushes end that your is grow standard, going to are are of the we're for XXXX the And But CMS really people looking our further really big the going to we're looking It's have to July what not don't studies business to that be with

Operator

ahead. David from go Please Our with Morgan Stanley. next comes question Lewis

Marissa Bych

and quick David is questions. Dave. This Lewis. have Joe I for two on Bych morning, Marissa Good

expansion. into what's one would at this best think To your margin about be, as point. leverage to X consensus year? what XXXX we just think way by these third I quarter right think, has bleed points first next do XXXX the extent issues about The estimates? about of And

in times XXXX or or more the can little expansion the So below would we're have a XXXX, bit see that be be it that X to issues going here? you given

Dave Crawford

I'll address Marissa. first, that try So to question

As we still think XXXX, obviously, together about we're respect plans to our putting that. with

there's You that to or can get from we margin leverage cost have our think definitely savings initiatives.

One of of to the incentives of guidance some we've carryovers is sales added last to have all in compensation adjustments for and short we get unfortunately kind quarters commissions. year. the the impact we're as here of that reset aspects significant favorable the of made our P&L portion next will have and that that we hoping will as offset our resetting year to we savings And go deliver our into plan. next term been couple back Those

won't investment. uplift going look And be on there's the reflective spending, at of some that we see Obviously, -- the commented we of then several you in to pieces. moving of kind

we margin little top-line business. a of from bit And of so growth hopefully, the the get expansion

Marissa Bych

just then follow supply. ON-Q quick on And up one

next maybe share timing? expectations back that of into this mid-single cadence that quarter, mid-single there If online over to we there, any how I digit, then on to I about you your XXXX? mentioned course growth year. recovery think pain of that'd impacts right great. a way us with October. there's had business acute saw want is anything I digit the have the low-single the last say to you in be Is Hospira come time can digit you think early And think visibility

Joe Woody

Joe this Marissa, Woody. is

the completely market, XX% not the in And So XX% ropivacaine for just back back is it's education, and everyone's looks again market. to into be bupivacaine ropivacaine bupivacaine.

PharMEDium. to for is calls. Avella, moved almost with business back what on to couple the the in as doing And now do to of to what we've But customers were is they've other available available and have the that really starting so on drug entirety. get back is business other resell that means And us a mentioned solutions, we

And over months then growing can to and own doing about discussions moved with not that, their protocols. get unlike and of several not Leiters, processes be very take just processed, get and but continues changing successful It with nicely. them their only contracts folks which their to

So more business what sort of Leiters' it's see we getting of and back. we process type like is in feel a a that flat with the them XXXX a like of low growth a lot timeline. of year. back maybe think, helps do single potentially, so give to half digit that emerging term, in suggested, long move the you can We as we up, that the And

Operator

Ravi question [Operator instructions] is Our next Kristen. Stewart appears will to comes Please have It we Berenberg line Kristen Capital Hello, move Kristen, open. on from your with Barclays. go Misra we with ahead. don't Markets.

Ravi Misra

hoping some gross could, directionally. a was it kind So XX% level, similar gross margin. Last around at and I quarter, just quantify us With of looking maybe my base, Chris' I of just if help to, -- were you'd first you question, wanted to go question sales back the margin.

it last we below after be in third for original call if little fair the that quarter quarter, all been call margin kind say these of Would expectations quarter, I think call? after kind said that your would that. third bit the adjust closer be XQ margin-related to to the a gross outs of level you the would've

Dave Crawford

done think mean, we they're we plant. how have one. expected exactly I predict margin a Ravi given about that going the of decline as up. we've before. standpoint, driver. never how get be a it But to challenge to a ramped they estimate it that's quickly that, modeling and was down given From for the biggest the long to hard I'll It's definitely shutdown effectively in that the to take teams sequential

we was confident and of plants trying the was end distribution on I plant the situation would of the that kind planned what NeoMed, really them the aspect and get quarter, then the for synergies average the to driver, some costs biggest years as that. kind the the We're of that and as And second up of the to distribution was around a business associated sequentially of then at more getting well. of next with But a Joe the was relieve margin can then efficiency normal business. over back of drag two backward downtime get again, emphasize the that. up was that to to the not startup mentioned, piece we the to really the as

Ravi Misra

the appreciate And then XXXX just ON-Q, on flattish growth. around that I for color

sale? of the Just and here in securing process to kind drive your go to through customer control bit to contracts then Or explain them about bit? that why hospitals curious, whether what's of a and there us out you your you those can us ahead looks little little of with rebounding walk what's if it how terms control bills? Just your can sales the be of in securing

Joe Woody

I their the get is these really to likely great as treating or thankfully, many their sole these to moved in still completely patients. you only or that There for own XXXB thing and have Leiters, At different can back, opioids, shops, bit puts solution with ultimately, we them. have a on But uses it that's essentially, a one a drug more of source relationship control the local approach mean, customers customers. solve us. really that for our

get a can we over them majority think time. back of greater I

very that that difference though, us and us, with know And But timing different again, to out. year the several to for an ways months. have and avenues cadaver getting or we we are be with positive Leiters cases, a talking experienced our clinical than one now solution. was some studies was account. be working labs, The now as can for up we surgeons, what In can education is that

that kind I'm the in of positions very us seen getting over you've the to past. So back about time, confident

just the fourth understand just an that sure automatic not we making you're it's in pop. to kind are that see that really of So everyone quarter, going

Dave Crawford

more but it our the customers adopting additive and can as getting I portfolio the into forward think moving that this that, to electronic and and we're improve conversation reps trained only as bring well is helped not portfolio different with And continue retaining clearly we has accounts. with be also with customers solution also the therapy. people an back on the pump some in bringing to as Summit the area a

Joe Woody

mean, that about the good Summit we They I with and place. our positive excited we that show think They're in a BioQ we customers pathway that. from can them a put real of understand Dave the point innovation on experiencing reception relationship on are I makes. that's acquisition.

really frankly, market in we've We've that's pumps, on. back. and solutions best of terms coming being got the And So place. in leader got the work everything going breakthrough best the

about. acting segment to position for I'm time, the of market in good local, so So that's that we're the outside happy be longer of going over that

Ravi Misra

the one you're just last one maybe or FX maybe that -- the lot second, company now on year. getting an of the then impact get one CFO full road question, and two search, guys I update Can one, for that a we don't prepared been easy script. the then on just we've one you expecting regarding provided questions the last questions, is. in think the And And for the

Thanks. there. us give can you info any So

Joe Woody

Dave is me wants standpoint, there attracted talk the guess take very from It look, CFO is complexity. a Look, then story. and compelling still is to about I bit waving hand, Yes, his this I'll a little currency. and

We are transforming our business.

We a have of lot done things.

well. Some gone have

have we things in we're headwinds are of getting that. Some not. our actually then a start I that these a where the And look that interview you see can to year out from mirror. rearview to candidates get And point a think lot now,

meantime, an a We on along great didn't with on had the doing is the -- CFO job with MacHan that who we we we doing taking the In been just Warren team. agreement us home Also, for of those were roles a outstanding and the of close fully get thought Dave is job. some candidate that who to with. division, was

good now with and a have a new and next progressing we're We now the list candidates. in line few

So slate M&A these seeing. something I to And like squeezed I'm with predict then get fall. of never the to end think It new not the the our Dave, target you done the of as year. you mention… can may But sort things if into want completely happy have by

Dave Crawford

been we a going business. pretty all than a less a than this point Currency Yes, to to year slight a question, the of point would year headwind long. be Ravi. your anticipate on currency has much headwind less It's

Operator

Stewart with Please from Barclays. comes question next Our go ahead. Kristen

Kristen Stewart

wanted I just understand reimbursement, to So I it to just COOLIEF kind back of to because go wanted the confusing. is

hospital you -- does the hospital was what's to the don't in understanding get is than is was how now that it's I could and kind have speaking. for if guess, that that like of Because compare new getting? sense average it of net relative generally actually, reinforcement average has X,XXX for hospital outpatient I outpatient, higher. that what's an where of my that But modifiers, the where you kind know kind higher guess, just, reimbursement I rate the generally average So to reimbursement place? some the a book guess, could so was I typical was the

Dave Crawford

lot Yes, that difference facility you for hospital beyond be payment this physician. that one for do nerves and of at sort and was that so the as is procedure. about for going of the $XXX everything multiple through to similar the you we three, the get getting, bundling, that's The as the can't going package on very to know, average we're is $X,XXX the

HOPD. now us hill have the and obviously it I know, We've very way to worked somewhat consultants of they're gone this had bad we're lot And situation, those that help them in think where And this. you're feel had a available to us. space And utilize for think a for directly we to right that are knee comfortable existing I other you the procedure with also but customers. have between been involved the could saw obviously, up and knees out weren't this of a could I a in we now do look going were our it the we lot in and our been similar, where

Kristen Stewart

the So downside think about risk. removes it of kind to that way it is,

at is and out? kind keep And that growing a on you digit can here net-net, so of double positive pace from COOLIEF this

Joe Woody

come commercial along studies to other beyond you has leg towards these to about studies you it into Yes. as thing end get these us obviously, in and does and And managed this. are out if you the XXXX, say, that the for talk it of the when a And payers But year the from all think Medicare. follow powerful. sort for CMS then it of Medicare, look, on. very you're And done, becomes this a them and right code with now, have a year to thinking then I way. through, think I We we go now stand have

Kristen Stewart

a continue? shift that? of you that to kind the probe And to multi that standard kits, and What next. there kits you'd was from mentioned And an expect was is adverse was that exactly something

Dave Crawford

once It's kit you So for upon a the An at price for you kit it you're we at and point back, the probe on multi the probe depending a efficient that single four burns other knee sell three same number that, or the and allows our it alternative time. at do a procedure. the three you place probes one a place to then burns burn higher of is all that and just physician the burns time, physician. process more doing necessary or place a times, use if two are to that or

do do can But that more way. You a premium. charge patients we

where go people saw, saw unlike we expensive standard which more past whether expectations for significant actually will impacted versus to moving continue but COOLIEF. the was we'd say it So kit, we to we It kit, Tough years that or the it forward. probe back less headwind, options in go that wasn't multi our people them. to is one a not for definitely as

Kristen Stewart

is the last I And you've obviously my the the guidance? think question For is, revised range. year, what organic full then growth

it looking organic? was X% X% up I'm to now around to at for down think I around X%. last time If organic X% it is correctly,

Dave Crawford

it right, You Kristen. got

Kristen Stewart

next in year, into likely of of then in issues And like some it year. the early these persist sounds are just terms to

headwinds. So like look it expect we these continuation as sounds we late some to moderation. into should XXXX, And then some

kind an as I of you when of kind just trend, guys think year ultimately XXXX improving guidance? of next So guess,

Dave Crawford

Yes.

Operator

from Kirsch James. Our go Raymond next question with ahead. Please comes Lawrence

John Hsu

from You the just stay couple. just as through changing we the old I I one? the on midpoint. far three destocking, Could the at then about think shortfall, impact? This as pieces by just a Hsu that's you the But maybe through range is those us walk just If backorder a second, had us us for John question Larry. XX I things Can Kristen's you partially X% offset just guidance, believe. on distributor you Endoclear. points, that by down took international sales basis said could for gets to walk new

Dave Crawford

that's bringing there. rolling And we to back through as relative relative about the our that's going on that, then John, this to have clearly, have at of is quarter you that impact the into the which fourth half in you look orders piece down. the potential quarter, continued reflected partly expectations, risk

see of at our down their As pulling Care October, have the to sales be to what we Chronic look would and the we continue of look distributors inventory. sales adjusting on start some and the in

the going But last back guidance off of more a normal quarter. rebuying monthly they're slower to a and communicated, start October more a to level into that to where we bit start well. or normal reflecting of we're So as end get little to to the distributors similar a they've We talk level. those at saw was

And international. other piece then is the

cover both of to had not now a falling business, bit So the EMEA that we pain going lot to of and Chronic And we in Care that's won of were that through. been we had expectations. those was A on with counting had But sales, the of some those some respect And acute the We have opportunity with is pain hoped stronger short year. management to some itself. not to the interventional have pain then orders tenders little we those that come an for of hoped Mexico. in acceleration first seen that change unfortunately. through half the come government the present with but

product didn't guidance, with pieces missed, actually have available What revision part those the we hardest drivers into backorders we our relative the sales the the the of because for bigger are we really So pretty how much to of address earlier questions. part customers. those that predict is to

John Hsu

get to the got savings comments feel But long still the range million you can then $XX in on confidence $XX with the the million of you in to confident focus the that And that just also IT targets. I can the speak you margin XXXX. very

think to move XXXX. range, EBITDA you the but I there mid-XXs to you out expect that thrown exiting

just you So shift that now, we to where expect do are at all?

Joe Woody

I'll the think like say they intact. metrics plan things, a will I because couple make generally and and maybe two, comment Dave the that's of or that

and what seeing about. so clearly this growth. organic has Acute continue started We committed Pain, with obviously, we've accelerate to the to we're definitely that will on dislodgment And the cost We're need I talked we to believe behind can supply further, metrics quarter the The need we're expect which margin main QX. go into I overtime in XXXX, up, coming that more can we that don't now out but reached see but and peak do you being we get from cost see us. there. on driver,

is can the the to things three number we of variable; the beyond And that unique capacity already the a what as M&A still the the change XXX of range. organic three, obviously, that things that then about we that company the costs growth; there's and XXX obviously, and and sort our about; we've a in more number size, accelerate have extent two, talked

way different to a and slightly timeline, as of So it's be bit different well. getting going there a obviously, the

Operator

Wise next Stifel. Rick Please with [Operator ahead. instructions] from question Our comes go

Rick Wise

how the mean, de-risked like just again, And calls, of Did joining issues I'm to immediately? were last issues August But not came color. completely you've come it in how I'm know it jumping feel in sure the I know, that your go the you it? question the before have I the just to understand IT that end so -- didn't was -- have you back What IT And help I incremental not to on confident answered and it peaked? clear Thanks want I'm up between quarter. visibility and so want what happened. you've for whatever clear. I you are the much quite make system on part. us

Joe Woody

no is This Yes, Woody. Joe problem.

we chain. the the were on working, doubled and from up sterilizer, our earlier the things the times was now the talking we inventory what plant, cycle of we And are we had understand we're visibility in essentially that about supply One as causes closing I business, loss we're customer. running, of about that a think problem to the that billing call Rick, customers,

that piece of is Another going we're inside on. branding having that

you're So well, not Care inventory was international the level a of where Chronic how your Avanos factor as in became registered inventory versus so related. and largely

Internally, around getting like now our sort backlog caused really just have now side of analogy conscious particular, being wishbone QX. inventory. characterize the carry We show and we're recently were fact, we we with teams old this, them hands in really system There's X the it of new progress they're the and And that August learning I've run go-live. we're feels ability and the lot about, a new running systems. of but issues. our the these where of we ward we're But right most in In they're basically these since an were seen very a event visiting with terminology, build that, in tremendous the as was of that and And been the football INTERNATIONAL running big we're IT if inventory And process, a on, into you is what we that room. a in want and shoot. it the to see major doing we learning training the change element backlogs. kind to the it. that Board,

be to to we but as we're we So I need QX, obviously thing get think into QX. in cautious out be this of that do going

Dave Crawford

place. to, add, to to itself processes color is The system and the in appropriately thing trusting different obviously, those really would It's getting change I is system other working The and our response Rick, the Joe's system, that's used biggest in is. expectations. a

being have slightly and sure adjust confidence of they those, reports to what are learn are it. having seeing You're and to in people generated is out that that and making new

other of that's and As really forward. the with teams, backed they from it's that benefit information do up getting going see where we're

to entire for That it the was in us If the of cut the took examples, I throw books. of half month of August September. though, just much couple a month close pretty essentially

this, As a we've more gotten with basis. we're from seeing at looking familiar efficiencies on global things

we is So And making are appropriately. improvement in it efficiency. significant working

little probably we've the more unfortunately, some than anticipated of to so we had times. And relative cycle bit a issue

When our we just were September an and It relative the to kick an days. at this trying refresh shipping and replace thing off to on distribution issue became and August few or centers inventory internationally. immediately, within in level equivalent orders we a almost Xst, really

Operator

ahead. from comes Kristen Stewart next Barclays. Please with Our question go

Kristen Stewart

on I'm just I flow for just the just curious like was give just you your guys if cash expectations year. -- seems could update forward wondering and an going IT infrastructure there profile to how then just if anything going changes, flow generation we that? think that is with added or of And should like the any cash company? this expense just just And

Dave Crawford

I'd the say working flow cash in impact biggest in third quarter was the unfortunately capital.

that things working to to receivable, back. get saw changed that we impacted relative we're our and processes increase the definitely an that, of One receivables in

all and we'll we in next whether level, as see we'll it impact through that So fourth cash flow, how to go back normal I quarter, believe a year, that be and the a comes happens. back the more in positive to get

So it. the working team is definitely on

I capital think in you've see a spending. big reduction

cost. from of well. the in more start some costs We beginning higher have to quarter. happened new wind We're integration where down getting to third that the elevated some as legal things acquisition there level So around hopefully level onetime the some We those had we're doing we're get that you standpoint. an normalized did

we're we opposed have as as going build into favorable we definitely plan. coming out cash so to get And to into door our next as looking year, the

Kristen Stewart

back just business. ON-Q saying that Joe, be you had on go was to the even a just heard make then ON-Q think side. more I year, next sure said flattish I you for clearly were And of want I could

a of out maybe like of sounds back exiting reimbursement. digit mid-single is to its more the kind year more now get back digit growth, year in earlier still like bit into makes little then the profile, COOLIEF as more XXXX of Sounded that way low-single kind pressure then intact little channel, drug supply a growth the and with looking and into a maybe

Looking growth mid-single profile? Does sound kind of like maybe that it's in about Care still Chronic flat digit little or confident currently what's right? even you're with place. that better And maybe a probably

Joe Woody

Yes, you got it right.

Operator

next Our Mishan with KeyBanc. go from Matthew ahead. Please question comes

Matthew Mishan

one quick me. a for Just

mentioned guys delays sterilization has been You to sterilization guys with contract you that running and into issues extended. having Are some time cycle there?

Joe Woody

the a companies. some other a good an we is to little see lines, companies QX, work you issue as example, team having the location, device know Not of extent not right a scale because bit be, medical the medical done device has but where cup seeing also got We've magnitude, with of know, you us, that we're for so for trending that and that geographic sterilizer, big most job now. issue multiple less companies in of couple at you as of an one that a product smaller an would of micro

Matthew Mishan

that employees orders the to the back for this. around available I of that place some -- And to get accounted days like asked would Avanos apologize for you guys you have might extra these downtime manufacturing? then be asking Would in some not have But extra holidays. like

Joe Woody

great a it’s -- teams good the doing mean, I The question. are a Look, employees job.

pretty On in there work here going folks a are lot and so on. night late work weekend a the definitely IT There's war weekend, deployment, going that's XX/X have the of been room on. where

Matthew Mishan

you Joe, to update references think football All right, good keep need your too. work. up I the And

Operator

any like turn concludes and back Woody conference This session. to answer question the remarks. for would our Joe I over closing to

Joe Woody

business along Thank about everybody management what Avanos. tremendous you you. I, interest of Thank with for all in passion our we're doing. this their employees, share our and

we what We and Sometimes, easy information magnitude shared the making investors deal it overcome the of great we're hurdles. understand a what of we're we're to because our to that of all today, because isn't doing progress, want doing. sure where make

business. your fully and following growth We're priorities. drivers and Thank for our the focused support. of out M&A our accelerating to a of key and you our achieve QX committed of strategy competent on ability remain our number I in taking to very pursuing team necessary much organic changes costs, and XXXX to and growth,

Operator

now for The conference today's you has attending concluded. presentation. Thank

You may now disconnect.

Avanos Medical (AVNS) 5 Nov 192019 Q3 Earnings call transcript