AVNS - Earnings call transcript Q3 2021

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good morning, and welcome to the Avanos' Third Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. Corporate Business President Vice Galvin, Strategy Development. and Scott go ahead. Please,

Scott Galvin

earnings results, and Good the us. quarter Greiner, today, Senior thanks and It's and Woody, everyone, be Avanos call. environment Joe will XXXX an will my third Vice to our against XXXX assumptions. then, Michael, CFO. with our joining and progress Michael you for update Joe will morning, our CEO; Presenting then and quarter, our and third quarter review welcome on planning pleasure begin XXXX President discuss update conference to our business priorities,

We will Investors today's section with A the call website our presentation avanos.com. finish for the call of on is available Q&A.

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

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

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

the Now, to I'll call Joe. turn over

Joe Woody

everyone, morning, Thanks, Scott. in your for interest thank Good and you Avanos.

results continue per enterprise, the responded to pandemic. patients customers. current review we I'll for earnings the the pleased meet before see we with as have brief our needs million earned our brought pandemic, of for achieved and XXX begin elective our While share. against how our and of environment progress XXXX and to teams the $X.XX a with the our priorities. quarter sales the matter, our we chain, quarter dynamics on relates to to of diluted very discussing of we're adjusted remain that things the We and the on the getting surgeries, it Across shortages, as of impacts back supply hospital staff challenging operational focused by commercial

slowdown we during were the Our with year. in results categories as sales other sales delivered On-Q, the in planning results our the electives our quarter line pushing of during and of third we each through the the summer, with the sales experienced solid out result than in nine primarily product Delta variant months Other first assumption. a of

XX in versus As last margin quarter, profile improvement margins we third Gross the anticipated the better were for gross or the with meaningful throughout quarter. September third our points noted a second August both for we basis quarter, margins and quarter. XX%, XX% exceeding gross

improve Our will quarter gross to margins continue and stabilize throughout XXXX. the fourth into

other to and determine we inflationary in transportation further the improvement short and will unable pressures therefore, However, are we remain, see much how chain term. supply

primarily margin transitory, As operating pandemic We last our these being of and quarter, across permanent we remain mentioned not gross that do headwinds, in are industries, impacting to indicate structure. our assessment. confident a driven, seen most change

throughout efficiencies continuing improve, to our revenue market on can additional being meaningfully Although, percentage the environment as SG&A, on an a commitment have a that business ways a provide basis. on as on this and deliver continue internal expenses. that progress and gross our projections will are our a XXXX to reduce we cost our to exit background, improved Teams current we lower priorities. year, to and With operating profit, have the therefore to discussion as behind update structure on find increase ensuring are than gross of margins of go-forward less we productivity and our move against XX% let's identified

of product solid portfolio. delivered we outcomes As most revenue our mentioned across earlier,

globally up was North in America. X% NeoMed by versus led business prior and health digestive over Our X% year,

the the suction our last ventilation were third to Our for the procedures Sequentially, patients to of million mechanical with prior before received in year, standard sales. year, flat contributed the which moving the needing catheter pandemic push non-invasive we versus quarter systems care business hospitalization was related of primarily down of primarily we the ventilation. respiratory X related quarter, second coronavirus as has to versus shifted closed due additional to

interventional On management the and due pain X% little growth from side, On-Q impacting saw almost then the we franchise. related Pain our a over procedures portfolio, X% pause, surgical was while acute elective our to pain down Delta

and procedural on said, conversations for the also full have levels its for volume are we recovery for administrators, quarter our past similar being As to second as believe in we franchise the of surgeons revenue. to inpatient On-Q will hospital anticipate well as with remain sequential stated foreseeable based peers disclosing, quarters That quarter, do our what the future. potential we below our growth and fourth continue

into we continue improve care year, to use product offerings and As the of move enhance the our of quarter for our the last we to ease partners. efficacy

strengthened the increased in experience physician, and business, patient vehicle of a physicians ambIT collection and differentiated direct Pain to questions between premium also and a those patients and new an generator, radio position. launched have. the kits now to associated full education providing last COOLIEF's us active levels the outcomes COOLIEF RF launch procedures, new our patients' by with but of app giving recently understand the feel. new satisfaction pump real the physician feedback On-Q also completed might easier from improve give helps improvement and Block data look engage we abstracts They've manufacturing more track Pro, successfully about The perform monitor cooled patient our to time. probe on patient probes, place through recovery to to high maintaining the next-generation QX. for cooled pain of launch our leadership margins. already and - gross For launch Within improve margin feedback our avenue a probe and limited gross while make in it efficiencies frequency their get Combined for QX, for year, the our in COOLIEF, There which probes kits we is supports with new our

partners agreements, we - leverage from where orthopedic We surgeons. see access channel orthopedic continue our also sales to to to momentum gain partnership for building

electronic we're positive setting, capture across into our across positioning is franchise, accelerating our hardware CorTrak our the to to the continues. ambIT Shifting care which record while of Finally, of Chronic is levels. ambulatory for Care, double-digit procedure to digestive strategy sales health additional us our growth delivering our pump trend maintained surgical Corpak volumes. We franchise NeoMed standard

our I the given health down tailwind. prior pandemic sales stated As earlier, were respiratory year

higher currently flu catheter and our year season of We this have we experienced that activity with suction for levels buying nominal any consistent for products. modeling, closed modeled have a not

margin gross Our since throughout We improving fourth and in focused our the pandemic and operating these pleased quarter. some of the further very our the area progress margins. start quarter, XXXX focus second initiatives. were of with remain as recapturing meaningful in on exit relates we gross We margin on made the to QX gains improvements, loss, gross anticipating

we the XXs. are gross work remains also these transitory, confident to noted margin and margin our back XXs but are headwinds to up low recognize profile gross high As earlier, get a significant

support We and of repeatable fourth third of $XX flow flow. the Our quarter, will refunds free free during working to cash which our remaining Act quarter current $XX $XX consistent the generated and litigation. related $XX cash the operating this partially some of million consistent offset CARES repeatable is generating that tax DOJ cash received with second million anticipate again free sell was flow. upside to capital The for we generating cash the improved quarter. in and generating quarter, coupled the million the by free to paid we outstanding million priority flow results, priority in begin positive We

year the capital for priority on last Our deployment. focuses

are remains and of targets, potential generate our line leverage with healthy, we and meaningfully, improve enhance tuck-in our margin in existing engaged active dialog our a top pipeline growth, synergies, M&A which footprint, would profile. Our number

disciplined identifying remain well that return capital. targets generate meet a in both initiatives, as will strong financial ensuring on as our our strategic we hurdles exceed We

a as XXXX. each strategies we to XXXX meet We well material cash begin as value last this while to shares, of will flow Kimberly-Clark, up perspective. legal product outcome frees to a IP from to the a DOJ dispute with for resolved have regards expenses reduce positive each areas of across of only range quarters, M&A, and has internal investigation, with to four complete cases. This with to indemnification us, also with as infringement our significantly to funding look it well be over uncertainty our litigation, smaller other including and remain positions Lastly, more aggressive these capital we Not positioned the our the Medtronic but reduced we all advance continue repurchase liability creation, us of case toward four ensuring outstanding needs. our our

turn Now, the over Michael. call I'll to

Michael Greiner

Joe. Thanks,

progress are a meaningful initiatives noted, line our made setting you As that growth mid-single-digit combine solid XXXX against top will value we execution. creation with us M&A for have well and

will we show as as generation. operating cash free consistent gross margins, improved Additionally, well and flow

to sales currency Now, let's Total even X%. Volume million begin flat results. was of was our of down third year. XXX being review quarter around last essentially with with a compared and price

XXXX, respiratory sales the Chronic up the health for million to the with across for quarter quarter. would of declined the tailwind, been improvements respiratory third XXX the million related have in pandemic health in Care the for XXXX sales Given tailwind portfolio. Adjusting X X% quarter

summer and meaningful once first-line-of-care ventilators. Although, as increased carried Delta see spread not their in out the placing the again, hospitals hospitalizations closed growth quickly during did our patients suction on catheters, variant we before

X%. respiratory does and Digestive which additional X% expected providing any again growth offset continuation technology. our to are Health, of stated, planning include decline health XXXX global we last half we our As not a the a the to markets, the and of in double-digits noted season, currently total our start conversions by cold flu in experiencing. once growth just benefit second assumption Shifting we of saw ENFit NeoMed international North also over from we from quarter, for to in third negligible grew we America, quarter pandemic,

for first to quarter X.X which sits back work Our NeoMed of impact to at currently plan million, order year. down next we the

ambIT Pain million year, the XX our by to Ready driven we ON-Q. across and of delivered Moving X% products, higher by offset strong RF-ablation prior to sales, Management, Game compared performance

procedures. QX noted, a on in from slowdown impacts the in to by Joe elective growth variant hampered Delta and As return brought was

disproportionately the an rolling the had these was offset setting. effect into the Pro, the summer. ASC regions in Partner growth experiencing inpatient expansion pain introduction and the US ON-Q We shutdowns Block impacts across portfolio, across various as losses these with Pain impacted, While therapy of partially Channel during

slowly are We improvement move elective as to QX, procedures initiatives returning. with in forward well sequential these positioned drive

orders back to have still grow ability these Additionally, exceeding Ready demand constraints end will within back the million. into to but impacted year. supply the continue order meet and of the material Game our We $X raw shortages business, anticipate

these to will and over down constraints find of of chain to the couple the working we team XXXX demand. half in While market persist work supply our meet expect first backlog supply, is next actively this to our quarters,

year. gross last down Moving income compared XX% the to XX% adjusted margin statement, to decreased

with through by earlier, to As further Ocean increased last the mix. meaningful and global into Compared quarter. we quarter and cost due freight gross was impacted indicated costs on to fourth constraints. year, anticipate has capacity are the pleased higher margins transportation the unfavorable progress improvement margin gross

ON-Q Those been by this sales suction and our lower offset have Additionally, product products mix. write-offs closed partially impacted year. unfavorably inventory catheters lower have headwinds of

of a continue operations. we range implementing XXXX, to result to towards improve, as gross of we throughout a Looking margins steadily programs expect are

environment and in impacts transportation material costs, However, unable we raw remains to and certain we of are predict cognizant as components. of chain global that remain well currently offsetting higher supply the the also availability inflation as disrupted,

- were Now, million sales to metrics. XX gross operating to line lower and turning unfavorable in a year. diluted XX million are bottom compared compared prior of we and EBITDA partially and earlier. a year research $X.XX the Adjusted million by year, to we some development XX across compared and XX Adjusted earnings to million slightly increase versus adjusted SG&A, per net spend totaled XX% million expenses, as share, margins profit totaled on ago, XX last offset XX noted diluting totaled prior Adjusted income financial million lower year.

credit cash the we flexibility, with facility, flow cash have sheet hand and on Turning debt. strength million a the revolving as of from and of us us sheet balance XXX down outstanding of and on CARES continues provide debt use balance remains for our currently refunds we XXX Act strategic to proceeds to the statement, pay million to as our some

priorities. allocation our XXX over to of have capacity We capital million utilize available towards

net our basis increasing we sales Finally, coronavirus a to to of the while year. still currency on prior unpredictability constant remains, the foresee X% X% compared

offset cost regards both a we have $X.XX. cost We year, factors. which our remain to our and regards Additionally, these throughout are R&D availability impact, throughout chain partially perspective to given environment us of with we of remarks, to prepared supply reiterating to structure to has and $X.XX guidance with and range in uncertain our our managed products. that guidance as also noted we from To maintain have SG&A remain the allowed these range committed

operating recognizing excited While take XXXX and we the remain fall the the margin as the of questions. We've much to up successful we Operator, us. that for and now our for end our in steps is behind are also that has ability look deliver made beyond, line ourselves result, and strategy drive now out set consistent please low towards open XXXX likelihood cash uncertainty more guidance We improvement a we to of of and great increased. that execute confident to gross our necessary and in flow XXXX. our progress

Operator

The from go Instructions] KeyBanc. question Please the line Mishan Matthew is ahead. [Operator of first from

Matthew Mishan

of in in you What or at of XQ your this the would versus to sort point Guys, it like at because has first seasonality? X% seems it and and just want with year throughout seem given Respiratory plus revenue guidance. you to for at been take Care, COVID-XX last Health start coming growth typical resilient sales guys that fairly be Chronic year, XQ midpoint not come growth this I with to the above

Michael Greiner

all we the then Yes. are The this and chain thing well some with seen so an really to sure, pretty in first about, other down staffing supply we're as Delta, this - come of the eye extent essentially and all, the question, faster And as that a start have that to how come we'll with I'm Joe. companies just, Pain comes where there is Matt, on fast We've to get procedures about that keeping items good South, it's and improvement business. October talked to hospital come procedures And better was of how talked in particular, than for the I back. us. back they in the think the primarily then back. the fast, that's a lot issues, do the while even

Joe Woody

a that now, November then and QX, yes, we should I look at would saw we actuals what say in targets of remain - but meaningful the of sudden now, part hit us cautiously the October Delta the ON-Q. some variant month, through on XX and happened exactly too, those the when all Matt, we have want in for days working to right in December we where saw the to and last we the trends good States summer, the impact Southern of quarter, pretty United Right spiked optimistic. we also

Matthew Mishan

still has I'm XXX of but increased, thinking - you behind make the And you range thought likely your to XXX, understand likelihood when just could the -- you that still what's about the below you maintained fall guidance. a process of - say there how you that. that trying What are kind how hit to - - is you but

Michael Greiner

Yes. no. No, question. a no, It's great

a created I and the just pretty things of with was there make said of fair we any do we downside range those clumsing move like the do XX we internally where feeling to out just upside amount we we around And guidance good - the debate felt larger. October because of are. do about days as altogether, left us the So coming guidance on do we're

range $X.XX do to either. then And doesn't moved $X.XX, feel If say, we range $X.XX clumsy. increase we that so by we $X.XX, well that or appropriate let's exactly feels the and to guidance $X.XX the

comfortably we felt is in range. more different that if coming And in distribution, in those so the was just out then, is, we're next if that should maintained, we I where appropriate a we and which below of maintained, range. this we slightly XXX any October we with could the wording, XXX seeing think other fall XX way for turn like unusual over to which out of things hiccups if supply all see be people don't If the are, days, trends

Matthew Mishan

that get the imply then, increase gross confidence give margin the meaningful you're that of How that, sense sort there, in going low it fourth you that pretty what's into of to is range, And just on trajectory the the of look guidance, end just at midpoint quarter. people to a upon a the that, revenue when where you really based the would on?

Joe Woody

did to them to I you margin a and improve think in just go and the by are say, I Michael hit reiterate, know, XX% And But take But want September these us. what it. lot take we of Michael, ahead, through. and things to to for is going gross August would I way, starting

Michael Greiner

would going No, overall right margins and trends operating that just, the point, I going improvement. QX. improve are saw by to in majority be between August is that QX now Yes. significant QX, XXX into of basis Joe's anticipate to I margin gross points of we we continue the to north and - will that September And our

your spot with So you're on Matt math.

that. in down. about by points, We QX XX high freight back we freight have would the now the been thought water much that's third shipping quarter confidence improved by fivefold, basis throughout levels. except that, But have We should cost was then even better although more increased over than improve coming

that have - tailwinds about shipping, the We're into as versus the QX. we we headwind no previously, will QX going overnight had help. doing other talked So longer and

little to got lower our margin anticipated oral thing, particularly mix, gross was mix QX, how XXX a whereas ON-Q like on million margins saw a a QX slower having in products anticipated. than little was strong different some bit we a care we than was we different so Another with little

that expect reverse - to to that We QX. trend in

Hopefully, our QX, the XXXX a favorable well. - is more we point to we're we call was particular into here margins. going margins and to confident have being bigger embedded, going in on a case, where about it in of it to and about that tailwinds of our want we and August make gross gross September not with be biggest into operations. ultimately what gross So on lot QX being continue there change margins then, we The demonstrated was take and margins, as the concern QX gross on into permanent on results,

Operator

question next Berenberg. Ravi line from is of The ahead. go the from Misra Please

Ravi Misra

ask So of just to picture I kind want a big question.

we 'XX, into of you've here long company. small resolution been kind with of with quarter lifting resolved the As kind story it there is It and settlement of like legal heavy get a is one kind done lifting of and to this the be about lot sounds there. them this of

of Joe, in we us are resources you you how restructuring think here. going between, Avanos? always help As organic And XXXX? can thinking about spending into M&A, kind prioritize with what me your growth to be those, the how XXXX, go of of about help they and about the as key you're think trifecta kind investors should drivers it's kind where and think kind Maybe then, just here prioritize maybe of about Board been you

Joe Woody

SG&A. in about than challenges with pandemic. less the as really business I that margin for early we pandemic These feel cost we talking we've have of to example, business mean, have kind this the said, of we're taken we an and because were look, a positioned that. tied like gross I And are comfortable really the transitory, year out lot of XX% a Yes. in XXXX where we

other more another took of it you I kind like medical think was out can and progress. that it to in industries, quarter think devices the in see I for prove

if just points think be basis about that the something that on So of quarter just that, mix went we there. ON-Q, being that through down, you XXX like is won't

don't business a very we, these kind mid-single organic solid So pandemic digit when have you see growing impacts. again, of

But to acquisitions a The near other of we've be talking added lot business. we'll the get the equation, margin, these will you talk we've term as pick into think of these that of acquisitions two an our be get able least we growth EBITDA, right and bolt-ons, spent obviously channel. can and targets, will, synergies, say where about is shortly, time part the a about our where up some our if M&A gross things to thing, I example. at that That's some that would been we some are improve been always with

good feel about 'XX. So we really into actually going

down they that But with to and again, want really fast, moving know I they're it to well think positioned you XXXX I we're for how and issues electives back sure. all to fast I the come just their hospitals affected. the believe very staffing how because obviously into being comes

Ravi Misra

add next I kind us look deals And question margin or at touched here. kind term you M&A. of line integration to to willing of or you kind guess mean around dilutive detail Can just very just think near Thanks. what to bottom things in you you you're just you dilutive that give my Can help kind that are of of the I going are just gross some about that? on on quickly. stomach be would EBITDA after going might the

Joe Woody

looked we've they're but pick have Again, we're some do house that that done we've EBITDA. I I some Chronic going but of perspective, Care, gross accretive I that immediately, strategic. from deals, some want do think deals deals accretive And to very say Pain. that revenue, at up done side we a at also the accretive we've and moment. the mean we in margin some the things didn't be in generally, on to initially are then, weren't And got

going they're additive 'XX. be of have of But to house sort definitely covered. think sides we So to both the I

Operator

is Rick ahead. of go Stifel. line next Wise the The Please from from question

Rick Wise

us little and could want color. you a more I just maybe to start give off,

you, Is seems side, the I mean October roll transport understood But one gross it lower to more is is as be fewer Michael positive the costs on quarter how margin sales the out understood the October, month side. very how COOLIEF there. gen about went. I gross and happening, the things about manufacturing of I drivers the to just on it efficiencies clear obviously type. on little of make saying margin carefully side, - You're I if wasn't what's I sure, next began, mix, want just

there? Just pieces help us understand the moving

Michael Greiner

Yes.

the were October are other, strong expected full overall, on board When Chronic each side Pain our we versus across what results in the executing and mix Care the step our improves. results revenue So side. with

it's like we that So that, we quarter with did influence have the oral positive obviously to third when have - entire have outsized second outsized is profile. towards going that and care ON-Q forward portfolio But is being impact. improvements third an mix just to quarter a on down the - tend end net-net when a our growing and of that that, our throughout moving

Rick Wise

ahead. Yes. you. And, go Thank

Michael Greiner

I you asked I well, so about margin thought thought gross as --

Rick Wise

Again, just mean, I on -- would - expand go gross and I obviously margin. I'll the and ahead

Michael Greiner

Yes.

Rick Wise

to getting is M&A? to and that's significant a today's mean sort in margin much already, But be today's high very that when more hopefully driven XXs, much COVID normal fades. hopefully XXs, returning as back going talk such how If about mix that's by of And October encouraging. seeing the M&A you're portfolio, you how times to accretive I of improvement and low

Michael Greiner

Yes.

low it. XXs, XXs None things. of high that any M&A in So has two

things the of planning, environmental current work So doing things, get XX, on manufacturing is inefficiencies, those our we around - we all how different really our all freight, margin and the conversation those and improvements. by we're gross XX about with the said, think up our this That focusing excuse organic that range on product margin are just focusing me, being controllable. can to

be into the up we and and normalized the have consistently in that mix the and the more end a have to our gross range high will significant. environment However, product in XXs the price XXs, portfolio beyond is portfolio of get back lumpiness that we and with our need low we across margin because

positive on to that impact. need across portfolio any what's that don't you lot with given movement depending quarter negative and a what's So of have

care have versus environment down, So again, is quarter us. for positive we if it like that portfolio. ON-Q given margin is with a product oral everything have firing, we significant net something when But a to in our headwinds have going that's gross up

slightly be So consistently feel absolutely XXs, from we're progress XXs, more normalized offering what be to in the have high control, have sense. here. we a we made to product going total meaningful But from timing environment can to low to

Joe Woody

just the in earlier again, call, We're -- cautious to again, in bit But given And is to were Rick changes not But results we will, to business this - XXX-ish intent has being a we've here. access so week you our a of strong a you like gauge. how sales, fast alarmist impact. we also it lockdown, an October. or come million, if is be clear, and we Japan that back But be week. And on things access European do their are Australia and had is saying pandemic, and

Rick Wise

mean, last could you international on said, that And color question. No, business. little I was obviously Joe, like us you you a as more Yes. mentioned the my international I not because hoping alone. you're was give

pockets think couple are much. you fourth Thank of Australia, you're next a thinking about of happening and out broadly so more there. underway quarter what's head how called about start about what into how - initiatives you year? thinking we are mentioning You international, weakness, should And as we

Joe Woody

of couple A things. Yes.

a there. in has pandemic, customers, being We've impacted XXX that non-invasive been managed First a been there approaches lockdown has and closed generally, happy then, This to are we've we just Asia patients and the and we've then really with in have the bit grower conversion for days. strong, for the of down obviously access in access couple with we of happy business. eventually talked mechanical. about over suction Japan, beginnings really LatAm now, And with differently of been of the year the done pandemic double-digit. Australia past headwind really a we've been years good from course, us all, with is EMEA, issue international has work been the in little of performance Pac and somewhat and of the the from about

But improve do some do of solid and growth. a trying still CorTrak And it's to into well. with as more So we're feel, on the organic come that we've pandemic forward. grower NeoMed the we what get that into US, affecting it's the international. will then, going and obviously, And digit 'XX is we the so, if in mid-single success should you that met think, same I rolled as

Operator

Drew ahead. of The next the is question go Ranieri Morgan line from from Stanley. Please

Drew Ranieri

thanks question. Michael, the Hi, Joe taking for and

for Michael, first. Just maybe

generation better conference touched company's kind free and through You but kind our of understanding get on I'm call, the at to of just hoping cash a of capabilities. this flow

I our that cash on flow? cash third your a that. - for flow, free Thank maybe I expecting But you. a you mean, on you are think anything conference update forward broader go mentioned just at be still could quarter working free proxy capital,

Michael Greiner

Yes.

So due do million in rearview forward A) implementation, done cash receivable, have accounts now year as will working going quarter flow in internally, those on we of had anticipate, on free XX another nice we legal, what is still remarks are positive flow see on the one-time is a improved sure, this out, a quarter other the we're majority we But million. capital lot SAP conversion and free cash to to prepared on We've costs the There to upside one-time very we mirror. clear on that mentioned on that had operations, primarily generating going Drew. these work - for and forward, Joe some of XX inventory. fourth items on cash some anticipate you're in items rate going the

flow set cleaner we'll the working much throughout operating opportunity then, from XXXX. have just be But bigger it consistent part cash some it's operations, capital improved generation a of our set and on going So execution of to results. on is,

Drew Ranieri

are color spending. And on then of and SG&A, growth of before just being sales mean, I XXXX sacrificing about future But any beyond. I back going Thank opportunity where would talked sub pulling And bit in it you forward. there? a like are little mean, kind more But you on XX% you. you've

Joe Woody

and the to. to jump we learned count we some short structural And back some if like that need qualitative still that initiatives be also that incentive, marketing and helpful come do you some our of have channels ever and if term But then things we there'll some give Let we some then, But the you need have me can obviously did. to did will, end head we of that inside have generally, smaller, be things want business. there. can

committed you may add we're XX%. Michael, to below -- the So want to

Michael Greiner

of future to up ended XXXX, doesn't. headwinds, is their was And so for cutting 'XX. that discipline last with - 'XX, some to and here, ourselves came we margin - we look SG&A and was healthy got Yes. - around would to sense, definitely in in The we we which was that And board. and But increase investments. SG&A so makes we then, We point at to everybody Drew these short somewhat COVID also manage short I versus so had only think expected what wanted across that. R&D thing, that, what as with say to kind and which weren't dollars was I the add we gross year in your overall

we around started into And disciplines how think we about so just in 'XX 'XX. that continued SG&A those

heads could to about the very bit, will we cut, project differently some where a have or so and Joe's think we replace which And talent of to little we are reduce initiatives. thoughtful could can marketing around internally, about roles we backfill a delay we we what which ultimately from point have for standpoint

have profile. So here an profile forward. we're delayed based by gets Perhaps on a R&D would we go that with thing pulled the it there, significant there doesn't programs feel back of our or nothing that some and is here XXXX our or ultimate quarter on But during anything where headed impact done our revenue that that, to we meaningfully XXXX. margin

Drew Ranieri

And on XXXX margins. then gross just

a be hear XXX you the basis there should a So thinking clear about I the we we on that should points. quarter for loud XXXX, basis? rate full above be - fourth and of improvement fourth year quarter step-up Should about

Michael Greiner

that sure know don't Drew. Yes. meaningful the where in north for But quarter I full be, fourth how it are the of year. Yes. be will we should for

Operator

from next from line the The go Chris Stephens. Cooley of Instructions] question [Operator ahead. is Please

Chris Cooley

Good questions. morning, and for taking the thanks

-- me just help could If you

Michael Greiner

Hi, Chris. Yes.

Chris Cooley

to morning. countervailing I'm as some line, these pertains top us the Good and just little hoping, walk I the a help of forces. commentary, Yes. I of - it confused through you'd was on kind

of to reiteration into we've until of areas here obviously and the the 'XX. we expected seen accelerating line top calendar accelerate half different So of early guide that is not back the and for the two year corporate in calendar the worked through be commented to and you backlog continue get to

understand trying the an messaging that really to the just I seeing that I I'm there growing. should guess, you to the you're your could first you're a of So sure offset or us what's to is, that adjunct you that's that to about resolved the say the to prior business getting that ex And make sure, make saying I those next product messaging to here of limiting maybe of acceleration see as two help type half what right. get backlog - lines I year? really that, primary base better want fully first I'm quarter understand ability

Joe Woody

a our perspective are we of first a all the you through Japan and like give talking the it resolved setting the electives is from EMEA thinking not fast an back or quarter in were of again, that are in things But the hospital year. portion different you But We thinking - can better from see off is a of again, out that can here. you've in us just potentially about with right got you're we But the pandemic started could aligning backlog the strong our happen. backlog. October. the with what bit as uncertainty. improve little of way, is than lot easily the or good how are position we Michael like we do Chris, And ON-Q get right, next my improving, or we'll his, and we're can we or predictable focus things Australia gives about that a Yes. it come

going But want you're a confusing don't pandemic. I bit while I So Michael, alarmists. little or be in to worth we're said, calling too too to add. it's out, And the early as

Michael Greiner

is Chris, confident that reason literally many, many the signaling demand think product environment we're that what supply for components. chain back many, is there goes these instance, have point a in of remains an the because one we And backlog quarter, into the feel fourth natural with the on there indication many, and the entire a disrupted. you also I Yes. we still but - is solid that And even made there Game component the of whether Ready, orders,

Joe's - get world scouting to these just of as same point, we a else's have those to get - concerns strong, what connection raw of we sometimes so find hey, every is and we're input, sometimes, material make get demand have availability the chain those that's that's And level if are the the and lucky trying further fixed is than can good the and upside. later remain. sooner rather try supply were just We to and And we the we - some to those don't signal we week success.

Chris Cooley

in just Understood. similar if nature. the one Appreciate there. color other quick I follow-on two here maybe - could And

more go down from these you when COVID these direct related get through more majority headwinds you're related up The your I'm have a are what strong implicitly been to the operating fourth as you obviously these talk costs, higher and structural now quarter mind, curious about think are your and in actually becoming we that gross that lower locus leverage, inflationary just we so from about in stating vast first see control, these we abate, margin. market similarly, go that material quarter, channel. better getting back inflation seen freight much in raw the we pressures not a can and of of still freight costs in on spot in the environment Thanks. at inputs, in very and declines in step-up sequential labor? see step really contract transitions on normalized rates where You you and but we can the

Michael Greiner

Yes.

being upward ties take trends and we The reason is other would the why think that I we're around calling in a margins think on identifying. the meaningful to cautious it exit - of XXXX factors in where question we any you're little our I XXXX. gross these QX back into rate the for can say, sort

products. those will we pressures limited. remain, visibility freight inflationary virtue that, environment we of On also normalized these our will by with with our more stated on pressures earlier, be So margins lifting, And remain. if improvements some margins, see larger top of of positive revenue better until cost gross we get of some as that help mix the gross selling component back just our to a

are quite yet. those visibility don't just So to we two factors have that

So the that's conversation, in far XX%, why XX.X% not margin those as lift in XX%, player, factors for we're to embedded hey gross to XXXX XX% have also But because right. not saying, will we as we're be know the reality. that order that a

then, as to We're of QX to ex-M&A. year. these that into high next of and we're And normalized part the right more early where up that's get XXs fighting state other that, so getting back again, lift, kind the in now. we'll And factors

Operator

line Mishan KeyBanc. the ahead. of Please from Matthew question from follow-up We've go

Matthew Mishan

following on quick one, up flow. free a cash Just

we million free would think you like you like in previously I cash cash for - far DOJ and most flow Should seems seem into refunds the It about seven of year. you. tax into had the XQ year, already indicated related the do step-up have to free as think into pieces, as of moving to kind of and through that come that flow? - the $XX

Michael Greiner

Yes. Great.

but cash should for well. we're coming free as out look to of somewhere feel good around what slightly we give earlier free a an So point, cash good is tying assuming operations, feel in back also - working XXst as XX we give with execute some a should the million generate QX, normalized to feeling like. October Matt, management QX due flow capital okay, flow should of that And to here, question, primarily in better

we can have is should I'm saying the do. that not a So decent QX. that, best

is think there for conversion. that to our feel you cash give decent should I upside that. flow potential a But free

Operator

Woody you, Joe over like closing our sir. to gentlemen, you, this turn remarks. over Thank session. would the to and I back to for and you. conference Ladies question-and-answer concludes Thank

Joe Woody

to execute environment. I want for feel, thank uncertain Avanos. interest well to We in in everybody a their very continuing we're

Thanks, market in into to with expansion, we've for we that committed Conference, have priorities Stifel 'XX. a 'XX I'm and look growth we'll creating the forward That combined margin presenting go and upcoming, leading and confident will everybody attending value. to and shareholder and markets free Conference are talking portfolio us be more attractive to cash the and there. at Berenberg We our as in, position exit well be flow, Michael day. the the both said, we're will positive great And detailed that

Operator

attending much. and the now very for presentation. today's you gentlemen, Thank has concluded. Thank you conference Ladies

You disconnect. may now

Avanos Medical (AVNS) 2 Nov 212021 Q3 Earnings call transcript