Earnings call transcript Q3 2022

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Operator

Good morning, and welcome to the Avanos Third Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Scott Galovan. Please go ahead.

Scott Galovan

Good morning, everyone, and thanks for joining us. welcome call. the to quarter XXXX pleasure conference earnings my you Avanos to third It's will Joe today President Presenting be and Senior Michael CFO. Vice Greiner, Woody, CEO; and well and Joe our XXXX. our current as for provide business key will objectives an quarter environment review on update as our will Michael review detail assumptions. third quarter regarding Then planning our additional and discuss XXXX

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

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

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

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

turn to I'll call over Joe. the Now

Joseph Woody

Thanks, operational and and Scott. our of for third the to results XXXX. thank joining quarter us Good you financial review for morning, everyone,

Our which operational our us continue and year in execute full ranges. supports guidance maintaining uneven and commercial this dynamic well teams environment, to

free we for operating and persistent the EBITDA margin continue The strong, flow able four over quarters. along to strong that's deliver cash these consistent the still generation $XX to challenges. million manage remain our challenges, disruptions demand Despite impact supply chain products backorder now to our and trailing mitigate of we almost with were results,

as we our needs patients the focus getting that back customers. matter, our of primary always, As the to is on meet things

per growth, organic We both at negative X.X%, of free excluding of earnings of XX% share For exchange. the $XXX representing growth and $XX million, of over quarter, cash $X.XX diluted million foreign with flow. impact adjusted the total generated sales achieved we

by Digestive XX%, Health to the later nearly of by our channel Respiratory basis, currency XX%, inventory slowdowns during declined that than had and sold greater portfolio distributor business while NeoMed accumulated industry-wide being growing post-COVID our On slightly a grew XX% pandemic. constant our through with phases due

improved season, in closed suction closely flu we for Through catheter specifically are October, the monitoring patterns systems viral are trends beginning the cases of like seeing we're seeing and pediatric RSV. our ordering

due impact X% the generics and pain continues acute of portfolio growing patient X% flat interventional to by our shortages franchise preferences. year, ortho the versus procedural was with Pain Excluding year. prior pain exchange, staffing foreign last franchise lower volumes little experience to product pain over our a and portfolio versus our sluggish

posted another Our regimen. hyaluronic X offerings acid HA our of adoption through continued OrthogenRx strong with injection quarter, TriVisc,

Our is favorable demands. account and account acquisitions, transitions meeting position driving model while service patient new and pricing

last an to noted customers enter as purchase and experience, the our portal quarter, help customer will via direct streamline we online in we our XXXX. patient service As Harmony, retain program differentiators us enhance these new

currently anticipate Separately, could third and our we impact in across end the QX. backorders revenue to year and have negative in million, visibility range believe had delivered our million. currently our We the $X on a were back $XX unchanged of the the order quarter we which portfolio below are with have throughout

our forth continuing mix we with gross manufacturing at OrthogenRx margin of in over we driven set results end adjusted margin, favorable incrementally by quarter, the to delivered deliver plants our of gross last and strategy year. XX% On positive efficiency of product inclusive the on

margin full XX% and manufacturing QX, elevated, while anticipate experience continue guidance availability, that firm. headwinds we Although similar and to fourth across inflation of we remain in results remains shipping costs material gross year distribution as quarter gross inputs we raw to our to related margin XX% all experienced

SG&A. to Turning

XX.X% delivering XX% than our to We of progress quarter. for the full as third year target less make of a toward revenue, continue percentage

quarter. third a provide make progress and we the of Our improved will XXX additional fourth points, sequentially revenue insight profile. SG&A of basis during continue to SG&A will quarter the execution Michael positive our as percentage by on

as our American bolstered With versus product detail enjoying the some trends growing across franchise over Health record NeoMed our us let's our Digestive Positive conversions. maximize allowed to on by background, supply as a quarter, portfolio. read continued, year, prior portfolio XX% that North improvements ENFit

maintained XXXX, growth. feeding impeding growth We legacy despite products Our mid-single-digit constraints of further further for chain product the category. disruptions supply anticipate with assuming growth, enteral sustained supply no its this remainder

revenue our health and seeing growth enter our business anticipate and third we're suction in flu development historical experience demand respiratory the pediatric Separately, patients. products to to quarter, continues in to adult return its catheter we season levels for are Despite closed throughout higher the on We softness interruptions. monitoring post-COVID XXXX. industry-wide as

noted throughout our persisted to low pain acute digits, growing with earlier. our single-digit challenges chain portfolio, year, were Within surgical impacted RF we low pain in single QX by QX. as categories the flat in pain decline within compared have interventional Supply with prior a and year, pain offset disproportionately

the year, are motivated continue to working a the solutions and through needs to We and single-digit solutions remains pain meet we're to for growth The low our to anticipate a customers. these demand to challenges result, the at these through our end confident finish full the of for ensure continue and strong, of products expecting as available our and issues year. are

products point, Game had the patients pumps, to benefited patients products pain HA things we well Ready have In highlight impact our offerings over XXX,XXX in from prescriptions. QX, as our back including Avanos of To the that our to getting RF want and as matter. portfolio that products, that

cash demonstrate generate ability Our flow. priority our to to consistent, is XXXX repeatable for next free

second free in cash fourth supply anticipate quarter. improvement the and flow we flow, for $XX of headwinds. cash quarter, million continued inventory free sequential generated near-term despite As We chain the

priority ability into growth a critical remain XXXX support to and cash is capital other will beyond. deliver consistently free and initiatives and to Our therefore our allocation flow strategic

focused M&A. Our deployment final XXXX is for priority on via capital

and are growth. healthy. a remains with top we generate commercial enhance our And which stated, engaged Our would previously existing dialogue active our of in line M&A synergies leverage number tuck-in targets, potential infrastructure, as pipeline

are We another next do our fit, until announce been and not strategic and as since diligence. announcements disciplined transaction have approach anticipate disappointed around currently due we OrthogenRx to valuation unable year, any remain to M&A we

we're Finally, expansion very product OrthogenRx, offerings through pleased with the date its of to expectations. of acquisition exceeded the performance our our and has

robust improvement. overall In with active continuing and well generation, inflation, macroeconomic M&A and the with summary, chain, an momentum and cash currency are including various a even positioned flow quarter to delivered we pipeline year exit supply free third around margin to demonstrate headwinds,

over the turn call to I'll Michael. Now

Michael Greiner

Joe. Thanks,

even the uncertainty we and third economy industry-wide in the persists noted, most objectives. with met the exceeded that you our quarter As or of global pressures, macro

$XXX growth the X.X% sales of from maximum with as compared for were sales X.X%. results third prior $X.XX. Total $XXX,XXX contribution as constant currency revenue a was the up to year, OrthogenRx in reported adjusted year's exclude quarter. third generated growth last On Organic basis, well of million, quarter EPS the approximately organic removing

of our spend this commitment, on delivered We significantly percentage gross SG&A quarter. margin revenue and as again reduced sequentially a

successfully strategy, flow, as $XX our to cash of execute noted OrthogenRx generated continue Joe earlier. and free we We on million

the excluding by down in of from $X actual sales coming year impact million prior Care Maxter the at were million our sales last quarter, Chronic facility. $XXX year versus exited

growth. of in impeding third quarter further Digestive XX%, despite with growth Health strong see to our constraints supply even continue growth We business,

from to grew headwinds Within by continued ENFit globally, Health facing this of technology. experienced contraction fueled distributors quarter, portfolio, through inventory NeoMed combined we conversions Separately, customer lower the third Respiratory over pandemic post-COVID a industry-wide to supply their with execution XX% as census disruptions. the XX% strong added our some our business ICU in selling

Moving to pain management.

Excluding OrthogenRx, quarter, driven the reported related lower by $X business X% to supply the acute chain we The material the pain $XX sales by delivered year versus side or primarily contribution prior growth in the over pain saw of as raw declined of whereas shortages. X%. million of interventional actual million difficulties

the continuing this are capitalized of with into OrthogenRx of the of positive from X-shot and see be HA present through TriVisc, adoption that our remainder We as to opportunity regimen, high year a upside we will on contributions XXXX. level

XX.X% down the margin Adjusted income points than improved statement. last XXX to versus basis Moving gross more year.

with progress better sequential related OrthogenRx, decrease and quarter mix, margins an was cost in pleased product excluding LIFO The costs. the the the margin in raw gross primarily earlier, shipping to combination and As performance lower gross restatement of with we of indicated are plant second materials. improved on our a from increase

margin with year-to-date Our is regards as results to anticipated. gross

of pressures elevated work are environment the availability a the raw presents existing supply and as we global continuing disruptive, material challenge backorder. through components certain However, our remains inflationary chain

offset totaled gross and $XX objective margins our to As Joe ability margins to XX%. by of achieve sales adjusted operating compared $XX the and Separately, prior across noted, profit in full XX% confident the margins are our quarter. improved partially of operating in higher XX% spends Higher absolute between year resulting SG&A, gross we million for million year. in previously stated adjusted were already

had With first that each regards quarter months in revenue, improvement spending a four have front-loaded SG&A to sequential to of year. would year as of we we in percentage this indicated due the the

SG&A spend be anticipate approximately executed have against to XX%. trend fourth We this and quarter

$XX to $XX diluted totaled income per totaled million share. and $X.XX compared a translating $XX adjusted to last million year of Adjusted to million net ago, adjusted $XX EBITDA compared million earnings year,

financial our to turning Now position liquidity. and

currently continues and to have with post OrthogenRx strategic $XXX provide closing our million on remains with the of of as sheet and Our the hand, over of repurchase completion balance of $XXX share flexibility we programs. a cash us debt outstanding million strength acquisition

flexibility maintained consistently leverage We allocation against options. have of capital approximately us times one our providing levels

Our near-term which current million, priorities. available ample capital for exceeds liquidity $XXX our provides

value to quarters. capitalization, cash prior own disconnect there have strategy higher shares Additionally, between over ROIC at million a market we repurchasing is our as and the and and therefore X and to our allocated we our $XX ability look intrinsic flows our drive believe

gross To in flow. organic our OrthogenRx ability reiterate, free improvements strategy, margin growth, cash deliver around our on primary meaningful making our consistent and delivering to material XXXX our in demonstrating center profile objectives

spend XX% of It and percentage remain unevenness revenue. million, full the accessing net of in XX% is unfavorable elective are raw impacts of XX% as challenges currency and the As guidance year to Joe between range noted, materials, gross with total note ensuring a of margins reaffirming sales million to full and below with $XXX remains we important return procedures. our year $XXX annual in that

noted persisted, our end on And upper. net call, versus if the to earnings range we the our sales as closer challenges would these be low of last

earn earnings $X.XX continue to we XXXX. for of expect adjusted diluted Finally, to to $X.XX share per

maintain difficult, the and free operating a and solid gross remain margin the global in we our Although ability environment necessary of significant to are industry-specific and and drive strategy position. and improvement execute confident both flow, current against financial taking we priorities, remains to macro our ensuring steps cash that delivery

please Operator, open line the questions. for

Operator

Instructions] first comes Wise Today's Stifel. Rick question go Please with from [Operator ahead.

Rick Wise

you to the morning your see fully And couple to maybe Good here. if for to starting with exact just the positive you questions would quarter. sure wanted about potential understanding Joe, make both. the down directional order by It’s I off, the working to get challenges. back you from the the progress just drivers. optimism good me, I'm of A time

more would And maybe Michael, already that part, that the maybe math it is the or just the assume year for million your million backlog no last X over whatever above? part is, or does guidance X and that -- little of be breakdown for

Joseph Woody

it's Rick, of couple a things. say Joe I'll Morning Woody.

is to the want Digestive Avanos much is to which as primarily problem. will of backlog it is Michael backlog to to companies look tied comments. in get think the can. involved working as way Tyvek, a that all at XX% Med product involved, is our industry-wide an Health, I few But is are possibly mean, which about make I of

there. The of the and one acute is impacts pain and XX% the one other opportunity being catheter around various components, used area that major sort revenue

these and geographic on that And And it XX% ink, manage get is materials, right? folks the because come a But a assumed the environment, of we'll to to it, we have X%. commitment a that changing down It of have call for or could you things international it, silicone, been it get most saying, today it what day-to-day, of the spot could very business. could difficult through. be and buys calls to be say, would other that don't they we of be I affect particular think in that sort

general the that's level. so And high

know, And you anything it. want add to if I Mike, don't to

Michael Greiner

Yes.

into put get Rick, were So if you’re that guidance, below the is X% we X%, -- would our above be and current to beyond.

Joseph Woody

Yes.

Rick Wise

engaged that you -- still active in interesting Joe, And and you. talked Got dialogue, -- etcetera. M&A about the to it's you're engaged hear

bit facing little these? hurdles these some Why the been prices you've -- of ahead Is a or you're I'd the curious, moving that too it said hoping are You've high you're that disappointed. deals some aren't where word be of are still is with it happening competition? in for?

Joseph Woody

it's Less that for diligence. just about time actionability, the

private We lot a dealing circumstances, also are in companies. in private

they -- they can take work sometimes, Sometimes, quickly. very

And Digestive building time, Sometimes, they looking and a Health, the we're pain in things to offering sort general, Health. we of when Ambulatory spend around more bit Digestive Surgical but in of obviously, happy, time intend little to excited Health. a in in active about Digestive take working we're at very more we're very performance expand in of Center, the and our towards couple

to with the we've we're very so we the we'll past. achieve, similar done happy what in that And also valuation think

of not next us, couple as million said. dollar betting we larger but year year as deal. some might larger, It's the You farm, the through always see we've slightly a that for do hundred it's we not move

we so pretty feel And good. actually

there. something have we've shown see mid-ish or love a think I X sort in decent fourth of but here QX next We'd you X the year. quarter, competency deals to done could

Rick Wise

very Got I always you maybe you're with question. to just the kind next in detail. XXXX. last improvement digits always calls to -- ask -- incredibly on the upper third are would welcome. margin you -- to? consensus ex gross business year? just quarter maybe growth? or about are But ex obviously Can see margin fall we question my mid to know you FX? the FX Any direction solid comfortable comment first you feel you. gross And I continue to current anxious aspiring Do color to could it What of be like seems single

Joseph Woody

Yes.

of Michael will and measures. very add couple the But financial a happy things, I'm Just he whatever with then wants. look,

cash the actually really we've flow If EBITDA, when lot the so stage work and leverage, top basically, set a turns execution. of good gross line margin, you and been look at for to get generation, that's really

to There's we the with challenges. just more that thing, the to of some think which chain we're dealing so still XXXX, now these I at to is It's the line. mean, through echoed least some I we're other real can do believe of be of top that's judge going And and we do in middle been supply one do. more that right is calls. working It independent. difficult

of in range more And quarter, had actually, business view the have achieve. the And that $X a M&A have ability actually us, great said million our we've we with the that. essentially we opportunity could had the changed sheet do not been underlying not enhance that million and produced dealing we have can revenue and through $X We've business, any is obviously, what then the or with Michael? these in to to headwinds. we we given this to year, balance

Michael Greiner

generation, very right we're would cash just profile, miss to flow line now. a Joe, balance little a continuing solid comfortable margin attractively, is, free with expand demonstrate add Top to of is bit continuing I Yes, the sheet.

to statement, good into But about rest nothing really income 'XX. going really the on there. feel the So of comment

Rick Wise

very you much. Thank

Operator

ahead. The Please with next question comes Mishan KeyBanc. from Matt go

Brett Fishbin

Hey guys.

Joseph Woody

Matt. Hey

Brett Fishbin

Hey this is Brett for on actually Matt. today

on drove lot some So thing around the contribution what margins. the that continued the was out of provide as OrthogenRx. and taking more gross thanks was touch guys a improvement you One for specifically hoping positive stability much driven maybe stood could just of around color that was then And questions. I the by year-over-year how

Michael Greiner

Yes.

would from doing the we other year-over-year, and contribution, as going margin that indicated XX% just come the in manufacturing and improved what have XX% plan. year, is come earlier second we the improvements of efficiencies the from about programs and within whatever OrthogenRx to we're quarter, in So Brett, gross

we remains that will and -- will the the up the be where So think that fourth as communicated And same fourth line we through third fall quarter quarter. out, quarter thing.

year XX% exited or will range. said we XX% about of remember, within the range, end at low We the started said definitely of year OrthogenRx, that at We from XX% at wherever the come XX%. we last that So to are XX%.

the is, approach going we're gross the again, manufacturing continued our we XXXX, into good to start will end and come higher the a work improvement we about margin very why plant feel bit little As efficiencies that from of which range, more in profile. doing,

Brett Fishbin

to And up Excellent. wanted right. then on just follow All that.

maybe get Just several to think you remaining at given a if been And thinking strength get that company, are XX% you that gross guys right were ago? margin had just longer the do XXXX And not, an what's opportunity such targeting? that to there? levers term, level about of quarters level to you do maybe how the beyond, see you and back the

Michael Greiner

Yes.

So companies XX%, have acquired we last since time other there have companies acquired the some below post-site has definitely some that we been are would that XX%. -- printed We OrthogenRx. the

is, we that new So call our baseline as company XX% get a to can it, naturally to. XX%

XXXX, XXXX, comfortable XX% into very about. to XX%, was talk for us place a So

up We've have will naturally profile. get some additional may have and happen. just could that we tailwinds XX%, gross plant. to the some to back companies, in things acquire provide two obviously, and help need savings margin opportunities footprint or That will To other a

we what sense. having a to without confident pathway But get makes we again? we there. we if do, will? a XX% other in, feel think can natural mix be pulled there's can in And XX%, with sense We and we do to is things about our So do XX% current that

Brett Fishbin

that And for then definitely me. does. question No, last

a around growth you're in XH. last but little on a understanding that communicated about potential improvement pain just just what in hone it's management, bit the environment, given expectations thinking in double-digit more challenging very you Just quarter to wanted a seeing to

to gets what constraints, better touch you what might on, beyond delta have into and if could the maybe that XQ. then contributed supply wondering Just

Joseph Woody

little there's our and is in include we're business everybody portion other pain staffing active of mean, that, are think hospital. to quite supply And Ambulatory think outlined. chain But knows really, for than Center, a XX%, the business, of although think Surgical I the nicely pain, the part we some where I that and there. And But biggest and the towards today, a Yes. ultimately, of backlog the focus been growing people issue but has have the -- ambIT, still things to about XX%, XX%. acute if I bit in nicely, to some there, pump, have in you you of getting it, components that business. catheter it's way. of smaller also our XX% issues, when of positioned cases, less nonetheless, we're things we're are That's, headed that moves it electronic all think and moving focused

I and quarter any of hard that's the with the sell to in that IDP, digit double the capital runway. digit see expand generate to have consoles, Center. have in you a backlogs to our COOLIEF Surgical and And single a as strengthening you Ambulatory good really then move -- really and RF, high our been QX. place more QX, is given of It's In hit CRG to and we and by products the then some more will, IBP strength the we'll in plans external in business. internal It see into so if COOLIEF,

opportunity happy. been We OrthogenRx short we've And got the then and Game Ready in grower. to with we've mid-single-digit steady said term some

trying So enhance same M&A. with to -- time, we're the it at

on tired opportunity. chain still there of And really true hearing be business. the calls, seems way demand and the work these we our everybody, to sure supply see got to through you're like I'm to underlying for probably So

Brett Fishbin

All the again right taking guys. questions for thanks

Joseph Woody

Brett. Thanks you. Thank

Operator

go question Stanley. of from Please next Morgan comes Drew The Ranieri ahead.

Unidentified Analyst

is taking questions on this for two ask Thanks upfront. I'll [ph] Drew. the Michael, questions. and Joe Jacob for my

of next as and First If one, extent looking gross questions is, margin next at the year? XXXX stays still environment the margins macro previous we for some year. to improvement what could see up following on

the your the of then at And terms of last Any on reimbursement XXXX? the how tailwind my thinking How tailwinds? into changes quarter Thank all, second if thinking expected of duration question you're has you. OrthogenRx. size there? And since in or shifted,

Joseph Woody

to Michael say we gross then bit price two say that just also But margin, and think things few little few he's but will mix led have more comments and things. a and a I quick maybe maybe with So out that opportunities, there. respect a some

be that playing think said In end off going of you tailing a last terms start if going sort level see will by will. a to short-term we of I quarter, OrthogenRx, Everybody be we're impact a of it because the bit to on was the first to field. very

XXXXs, to the a this our the adding very we direct from also are we beginning, want initial we've flattishness But we areas. from of and representatives both highlighted other probably into Yes, into get take see to business would for some that as sales acquisition that would and reimbursement. think little in some wane bit. QX. we'll come back add? year and year we the will a But anything Michael, And in transitioned can one But next I benefit you that start

Michael Greiner

point Yes. going don't for was I earlier us are on think next the That question matter, gross margins for the that is but much us done a put is QX, my that that lot macro and Rick margins have come operating the or too work which of little to QX. for line, the those statement, benefits followed aside top that us, XX seeing of closely, year. through of in environment we're a we've bit the last months, our income for those core still fuzzy, you impact

It's them irrespective see situations the should now macro environment. on backorder both those and much or that quarters. six at in has a impact been the dealing in the stabilize top attractive meaningful line the We'll very really of QX, either macro we've continue the improve to for that with XXXX, had more trends last, FX environment levels

Operator

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

Joseph Woody

with Avanos. the in. want for in thank everybody I overall the We're just Look, environment given execution to interest we're the pleased

on XXXX committed to that value, believe our results commitment. are shareholder We and creating are deliver foundation getting to that to

I flow with eventually our margin to free the attractive see and confident and very consistent we're markets, we sales I'm combined cash And and think priorities continue market generation. positions expansion, the growth going detailed. in

Just and next I be Conference And will in York. Credit week, both be New after, will Michael week Michael Stifel the Suisse. the at at

So interest, everybody's have appreciate you. Thank your a remainder week. great of and

Operator

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

disconnect. now may You

Avanos Medical (AVNS) 2 Nov 222022 Q3 Earnings call transcript