Earnings call transcript Q1 2023

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Operator

Good morning and welcome to the Avanos Q1 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 Scott Galovan. Please go ahead.

Scott Galovan

thanks us. and everyone morning for joining Good It's first quarter to welcome Avanos XXXX you to earnings my pleasure conference call. Presenting and Woody, Vice today CEO; and Michael Joe will Greiner, President, Chief CFO, Officer. Transformation be Senior

our review provide XXXX Michael planning quarter as will on as update additional details will expectations regarding for first Joe an environment. business and XXXX current assumptions. the discuss well and Then first quarter our

Q&A. We the will with call finish

avanos.com. presentation today's website, section is of on available Investors for the A call our

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

could statements. Actual materially in those differ the forward-looking results from

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

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

Joe. Now I'll turn the to call over

Joe Woody

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

were in Our results generally quarter line expectations. with first our

given we our timing our our noted call, uneven earnings quarterly uncertainties for eliminate SKUs which portfolio, As product savings. XXXX the be likely associated cost year-end results with pace including transformation would rationalized plan our at in the we accelerate or

the $X backlog during and levels. our chain sticky have disruptions limited to million our we have supply coming remain although our The ability demand our down strong demand has products for improved with continue that backlog fulfill a quarter, to

still product got the headwinds be the many the chain present XXXX that that back half that's and as Coming case. these to headwinds we we would to into anticipated but year, and of ease believe of pockets challenges, to we supply availability would year, of continue the

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

negative achieved X.X% or we of compared to $XXX sales year. a million last the For quarter,

the announced both criteria, negative was for exchange the impact X.X% meeting revenue and our million organic foreign to previously the away decision not of from $X to returns unfavorable was Excluding walk our growth impact related quarter. that

quarter, Separately, of and adjusted $XX million share EBITDA. than greater earnings generated adjusted diluted per for of the $X.XX we

While was and percentage of June at XX.X%. our SG&A on and our we as out the XXth. our at adjusted expand results will gross in which the transformation Conference margin XX.X% Day support JPMorgan a laid revenue, These we priorities January Investor upon

category currency as America. North minutes business, I'll the next over the basis, with product On ENFit for strong a results advantage by versus we the portfolio over quarter to in our continue prior the grew year Now, spend our constant strong posted few another take adjusted demand at level. conversions growth bolstered which of health NeoMed discussing XX% our XX%,

legacy feeding expansion product of line Our CORTRAK its continued enteral mid-single-digit US global offering. maintained our the growth behind standard-of-care

respiratory year half suction of the by Our business the health Respiratory in due normal early the the business anticipate We Omicron little seasonal closed facing declined XXXX, XXXX. solutions spike during comps grow X% tough returning with for and our catheters oral both with ordering to the that will X% patterns second over full year. care a

than total, X% first our Care grew business Chronic greater In in quarter. the

longer low-margin selling. care impact product Excluding exchange categories, are low of the we growth, negative and foreign no

down XX% at the the down with Surgical quarter least the our results to which HA year. were each product Pain across and Game Ready portfolio. XX% Sales versus categories, of for soft Turning prior were Pain, five-shot

Interventional Products Our by categories X%. Pain grew

our we surgical As pain noted experience on supply the within year-end earnings to continue category. call, headwinds

of factor a first the remain XXXX. throughout part to headwinds these expect We

and past two overall challenges the reduction of products take staff shortages use impacting as our procedures diligently of working and during factors like is landscape. to this surgical Alleviating pain improved electric critical advantage we the of dynamic have the subsided, supply hospital chain are macro years

portfolio quarter. first experienced Separately, our a HA weaker-than-expected

However, pricing prevalent this remains performing the our concentrated or competitive softness primarily are line strategy was specific and orthopedic and in market in TriVisc, as within our not that three-shot challenges market. Five-shot our anticipated. three-shot [indiscernible] long-term GenVisc five-shot product. offering as with is has

will the strong experience to from to a last ASP be QX Volatility the face reporting swings from and year we environment continue related entering continue factor as throughout the in comparables year XXXX.

to support, targeting right including long-term both the for expanding have reliability market, on through the we orthopedic believe customers, and for our stability best-in-class our present our service porting and we to market, characteristics in access particular. volatility, direct-to-patient place and pharmacy specialty market the and opportunities the capitalize strategies pricing the HA Despite in continuing in and provide business,

Now, our moving XXXX priorities transformation to and an efforts. on update

have that meaningfully opportunities our and key optimize for We priorities four next enhance three profile. the years go-to-market our will financial

on categories the path allocation where and additional profiles These to optimizing enhance win, attractive portfolio have ROIC. efficient our meaningfully profitability, priorities and our transforming include measures right continuing capital strategically we focus and our commercially of taking cost to management margin our to organization, to operating improve

executed first Kerr these organization, priorities as we the marketing and well Holbrook other initiatives. among new sales strategic against In announced quarter, his

portfolio year year in remained prior at least We current savings. Our expense and quarter. track operating was first executed deliver strategy on our margin optimization profile enhanced to million $XX versus against

XXX additional our the York repurchases. capital continue this City. transformation the share location we and look Day New three-year allocation our related targets Park presenting financial to review program We priorities, to Investor to Avenue including held XXth strategic M&A, detail opportunistic on regarding June at in at forward Additionally, Convene and be

expanded financial continue the further to Now, will will as Chief Officer lead Transformation quarter over and these his to role Michael, our call who efforts discuss first turn and I'll results.

Michael Greiner

Thanks Joe.

to efforts, the of ago, these improving million greater quarter versus was results. into million, our deeper last $XXX.X provide EBITDA color last with than a to basis reported year. first $XX EBITDA to year for Adjusted margin points first X.X% compared diving Before XXX year. the for was a $XX quarter Total additional transformation sales I'll quarter decrease compared million

$XX $XX to for ratio income hand a net $XX quarter $X.XX quarter a and year the ago, with on X.X. $X.XX versus leverage million Adjusted per million year to ended earnings of the totaled cash translating of diluted compared We of share a ago. adjusted million almost

Joe As on already gross percentage margin and noted, we delivered revenue a both as SG&A targets. our of

of the quarter. prior the We efficiency primarily versus Our quarter margin for gross anticipate manufacturing positive year, programs. versus slightly margin second our improvement to quarter XX.X%, basis first by point XX was a driven impact improved the gross the be

the savings efforts, to revenue XXX to the related cost prior external a as SG&A by organization, improved profile. our primarily percentage Separately, of year, reduce streamline our points and basis versus spend

quarter SG&A the begin gross material first accelerate. in with anticipate As with we transformation the second cost to of half our quarter management the improvement second margin, our will efforts similar during expected largely the as be versus year levels

shared, this first previously categories our of and lower be quarter year, XXXX either example were with unevenness revenue we was portfolio or in product an As will measures than given rationalization initiatives. And of product exceeded while our line our anticipated transition some expectations. a profitability slightly the cost management across

restructuring confident with in In guidance of and between year and one-time least execution of first of while expected cash adjusted approximately total our $X.XX earning free summary, diluted are with the the to quarter for associated earnings announced flow, pleased remain $XX previously meet $XX excluding at costs our the efforts million per our $X.XX cash we delivering ability share, million. to total in

anticipates the impact including company product million $XX year organic revenue single-digits. impact low be annualized of the portfolio of Finally, current rationalization, the growth to approximately

as shift product portfolio, orthopedic are and Now, turning to recovery-focused well portfolio cornerstone leveraging their in higher our health to pain products. into digested priorities, transformation a product as time over designed which families our our growth

three priorities ROIC our profitability cost transformation this years, annual flow to our enhance over these cash generate right-size the addition, significantly In while will improving meaningfully horizon. and free structure over us greater allowing operating next

shared, we by of in while gross be to savings to already approximately of $XX XXXX. million of which $XX anticipating in cost most As achieved realize XXXX, million savings XXXX, $XX million expect will

at end shared my end I what earnings prepared of will remarks the call. the for reiterating with year-end I

are with of as on financial will quarter, experienced We the to for in first in the on we embark our improve what confident pacing similar XXXX. progresses start of the acceleration metrics transformation year, back half excited slow journey by are and a we followed XXXX our each to

the open line for please questions. Operator,

Operator

We'll now Securities. question JMP begin The first Instructions] go Please question-and-answer session. the Turkaly David [Operator comes from ahead. from

Unidentified Analyst

Yes, actually Dave. Danny great. for This is on

increase the So, ahead, supply improvement It in of a during that the on gross seen? lines was benefited some we how portfolio but versus you nice quarter, to full question and benefits around about improvement rationalization year? really from specifically, manufacturing is and from More how of of quick our other the I chain the margin guess more lower-margin efficiencies supply we that noted for just chain, a looking think should improvement much one Thanks. continued expect gross product in the and efforts you've exiting should margin.

Michael Greiner

on pieces, Yes. the still previously, our the anticipate, year. of margin will sure percentage gross said from that margin spend. as we we full have come question. Thanks if total we the point weren't revenue, operating basis from given of going Danny, the uncertainties a our for OpEx as SG&A We our And XXX moving improvement for was to we've or

which that we for we year, started we very were pleased out as overall higher think that with do quarter, the year. with the in execution I But full you the first and should move pointed the the XX.X% through

Unidentified Analyst

And follow-up. Thanks. Great. one then just

as for outflow XXXX. and million Just an cash out on flow. quarter, it free this focus of $XX a -- you called had about

on would the Thank going just should what any forward there be So, questions. year other we cadence for and you the great. throughout -- expect how considerations

Michael Greiner

Yes.

definitely free much going the be going with the we flow be for quarter how plan. up upon savings be transformation what lowest. cash and first dependent was quarter we the on to ended was It going is cost to for the had So, execution to

cash one-time anticipated. for revenue as activities we spent first course, in in So, the little cost about we We softer spent than see non-GAAP $X.X and million quarter in the bit a a of you'll those was in reconciliation.

for So, had we some That a flow those two tax lower first flow payments aside quarter. the putting will that quarter little than our cash bit in year, the free have. anticipated the combination free may lowest we cash be of

the of an rest through year. we free flow improvement should see the So, cash in

Unidentified Analyst

you Great. much. Thank very

Operator

The from comes from Rick Wise Stifel. Please ahead. go next question

Rick Wise

Good morning Joe.

off. Just this to start

companies, cetera. earnings just in we've so headwind, environment supply lot from about stabilized, So, cetera, far less et a of this but talking et macro challenging, -- the a much heard season, larger stabilizing general, obviously, chain

this does really How what -- your How did are how wrap year? that quarter? of happening in second would the hear to all far of really be world Thanks. seeing the they you interesting the And perspective in sort quarter? that in how is It for your into Avanos? outlook on trend so

Joe Woody

Yes, have made mean, the were couple that they broader Rick, lot did I earnings of of and it point. and larger calls inside say issues. still comments there they your I those a the other portfolio that companies But to of as things, well clear some inside a that the noted

catheter definitely line, again, our going do to be on million somewhat more ambIT through that much, generally. So specifically, could $X going the given better, ON-Q second half us, is us though, million all the of for the disappear likely in improve, move backlog. a if although really going with across are it were Health, our through clear our the had still us, but quarter. board, some But these product to availability way that line, agree It's We that much us we there we Digestive is product even we probably pushed in into had us. have we hurting $X to that to did things lot and be COOLIEF for we

Michael Greiner

confidence previously I too, we the clearing. our Rick add guidance because high announced storm our to that the is think is are clouds thing do to think other reiterating in

clear think achieve full and missed input we And things still to we some our the to us visibility those our our think year but costs, we of guidance giving materials, we able to those us quarter were being to confidence this have -- that raw outcomes. things very specific

Joe Woody

large portfolio been you even And slow sort if about a fourth quarter as quarter. and that then think have the has Michael if very quite we you outlined, of for weakest. we following QX each do starts, -- being unfortunately went and some with us last think as time, you've And year, progressed and a do third

Rick Wise

Yes. to you. maybe sense. both. Michael, And No, Thanks question that is this makes for a

It be, quarter. It math may On base like down please, looks management sequentially don't not correct call if of versus the the ex-OrthogenRx XX% I'm the was I hesitate Interventional to the business. Pain fourth pain doing me. back the would what side, envelope correctly, I

whatever, something that on? a language, down good here? seasonal figure, the Pain color to maybe less XX%, affected Is sequential great. is know would backlog? else of missed there component? your I going more just recovery? uniquely X% I Is seeing extra Or Any is be that that you're And

Michael Greiner

Yes. No, helpful. that's

which first So, one and couple It's quarter. some quarter it's in on, just Ready but is hit is material and to a component of access less a will things. issues strong you a very had than optimal fourth there particular, Game there,

So, that Game Ready math you're attributed. part the a of is big doing

large the push product. down. more XQ attributable In addition, a was availability was also standard to RF XQ. That by was to of and COOLIEF

to pain in pun XQ XQ points, primarily our for So, weak RF our transition the Ready are Pain. the no Interventional intended and Game

Rick Wise

for just front that Joe, before at just Investor or bring asking up-to-date. announced from question. color But Any I so And June me. transaction least M&A away what hate a May being X help additional can have to had hoped and it. do keep remember Day, -- we're upcoming us I know you. last I words but the Got to your month one, correctly, us the I you if

Joe Woody

the we more Yes, that the bolt-on Orthopedic additional surgical would possible like say the that to area. about be for going able significant that explicitly strategic It's an able to we're something center things some also be change talk portfolio feel business, for would Pain be in us. to a us we'll help ambulatory about do

about pretty So, that. we good feel

make you a Day. these Investor that I it's predict happen it, and hit know that of very the think but we're And lot for to because be we will very times hard to things, hard working key

Rick Wise

Thanks again.

Joe Woody

Yes.

Operator

Instructions] [Operator

Michael Greiner

up, there's I don't anybody think operator. else queued

Operator

no are more. There sure. Yes,

Michael Greiner

Sorry hold on, just in. got Matt

ask his question. let Let's Matt

Matthew Mishan

getting the at issue I queue an Sorry, think I into had first.

on ask to about cadence the wanted Just thinking guidance sequentially.

of of hinted a relative organic a that to I bit little have think single-digit the quarter you first low kind guys guide. softer

see plays out Just of you and what stronger the it out? of base second I the the versus rest but maybe also wanted Care year? expect think to just Pain about how case Chronic would year, a Management likely rest know that the be the for half you'd to as said breaking

Michael Greiner

Yes.

great So, question.

be said, pushes gross QX, to take, takes So, to QX margin there, QX. we've that is going be largely I got give similar, that There'll the think to improved margin strong And be some programs half but picking the both look or largely of up gross momentum. are back some similar and will given OpEx the as we the very and side. year on will

June half back about we'll on inclusive XXth. Day we of June talk specific days the with a talk about the year it We'll finish detail, we'll given think more out What line XX of QX we'll transactions, little these more be then Investor pre and layout. be do an will give is kind XX, of that the to of over get able to in some lay

Matthew Mishan

just change? And there the change prepared if was expectations a sure of in flat year the contemplate any guidance type has Great. still versus the for been any remarks, much. quick follow-up. year? of I'm there Does then if right. Thanks year? you rest not relatively very the around All full said Or sales last Orthogen

Joe Woody

the a really sector combination, to if well We five-shot of some Ready Orthogen the about being supply there's primarily XX% Game as pain ON-Q talked chain. the there. as No, area even acute HA, been tied the and will, decline in change in in you

is guidance. our kind up year full our, that lining we're that's potential into pulled but there to So, of still

in going for environment or go by that of they and and we're quarter-to-quarter a one we've really about customers They're ebbs all chasing year. lot And the that best kind bit. but come there's itself back, out flows away in a this talked is the HA even of thing the to reimbursement it's end

Matthew Mishan

Orthogen year? sales still last you like clarify contemplating to just are quickly, to flat So, relative

Joe Woody

flat. we're No, not contemplating No.

Matthew Mishan

All right.

Michael Greiner

better yet last versus a total, mix confident year, aren't better will year. last flat just year be what last last but down will will have We be we we to will year. or be of meaningfully like, exactly look down sense versus to that -- in TriVisc versus five-shot it

Matthew Mishan

guess single-digit areas any I offset to Okay. lastly low might point a little would and like organic a be you was to seems product me, it potential for like given as guidance lower? unchanged it Orthogen, like bit

Michael Greiner

acute fully in chain strength internationally And there to Digestive get some visibility pain for. Yes. as supply that accounted believe pockets the is been we particular, upside we in we international then as have issues. of not also think well, have we

Matthew Mishan

much it. very Thanks Appreciate questions. taking right. for All the

Michael Greiner

Thank you.

Operator

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

Drew Ranieri

Hi Joe, questions. taking for the Michael. Thanks

but Just a the on the on five-injection, Orthogen Thanks. bit three-injection? another more you on into at I a market, more there? curious the Can mix hear for is just five-injection then a had follow-up. the And and I color decline little you but maybe moment, all give a just three-injection shift of

Joe Woody

Yes, yes.

I customers think which the things. segment reduced really X a lot is the two reimbursement Pain there's of Center segment, some segment. of more -- a that business. It's is in with mean I leaving is are it clearly non-orthopedic

start that is first the other going that's a quarter. code The I that QX of has special believe had competitor reporting in away in too. that as we they a component

So you take have over to number for a bit kind of moved customers advantage. that a of

in but all new our that maintain settles that, the that have bolt-on to products in a in of stabilizing We but and the comments. another we've orthopedic and VP we on and base didn't inclusive focus not the five, ambulatory we're benefited only structure, the new with growing from that three, some then the actually is to surgical of in that QX we earlier intention space, focus but other alluded HA, and center out of the in QX, of obviously, Sales is our to additional in have in [indiscernible] we'll coming

Drew Ranieri

Got could one kind be than more it. follow-up of in this Thank you. there And divestiture like of another mentioned question, M&A. to move. a anything. response to then But of a sounds more Rick's of questions just on portfolio It you

Analyst you kind still that already think something you're as taking in kind table? could what the XXXX? the we for And we for product should of on hearing Day about Thanks that questions. multiple into are the right that's be a of of So, doing that, rationalization

Michael Greiner

were though a of would it multiple be product to divestiture, a do If we the rationalization.

So, assessment. fair that's a

Operator

this Gentlemen, at there more are questions no time.

Joe Woody

Again, I continued want products in feel We the remain fundamentals of to thank interest their for strong. everybody our demand Avanos. and

creating shareholder thoughtful We are obviously value meaningful committed allocation. strategic capital to through

believe the in We have with we transformation attractive priorities the results in deliver built that market-leading markets. the in commitment to we've that portfolio XXXX are foundation the and the detailed program, confident necessary our have combined

for growth, in us This at about do margin Michael expansion look transformation as be of talked to Park and rest Have cash XXth June and the York week. forward your location we've everybody seeing as all a Investor has positions great at held the XXX flow, for We City. outlined Day New to Avenue Bye. in your interest. the Convene process. Thank you

Operator

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

disconnect. You may now

Avanos Medical (AVNS) 3 May 232023 Q1 Earnings call transcript