Earnings call transcript Q2 2023

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Operator

Good morning, everyone, and welcome to the Avanos Second Quarter 2023 Earnings Conference Call. All participants are in a listen-only mode. [Operator Instructions] After today’s prepared remarks there will be opportunity to ask questions. [Operator Instruction] Please Note, today's call is being recorded.

At this time, I'd like to hand the floor over to Avanos CEO, Joe Woody.

Joe Woody

everyone. morning, Good Woody. Joe This is We've asked to inaccurately and agreed more. Stock by New our trading York possibly halt and were news Exchange, as one they outlet the our reported results

of total delivered to going correct news we EPS. to respiratory Our with of inclusive health $XXX.X various revenue $X.XX today, million day the outlets the the were Throughout work information. and in we're and results agencies

Thank begin you. turn to call to our the prepared to remarks. Now I'm going Scott over Galovan

Scott Galovan

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

an health section remainder the as insights these for provide is in and detail website, will A update provide presentation further we as on assumptions today's XXXX strategy June. of additional XXXX operations. planning our second avanos.com. review Mike call our for Joe Q&A. our Investor the Investors the around well discontinued regarding out quarter topics finish laid available at and provide business Day our with our respiratory will of call the expectations of given We'll

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

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

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

over to turn the I'll Now Joe. call

Joe Woody

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

included XXXX in reiterated in would at prior our quarterly We earnings our our for pleased we our quarter. with results June, Day. transactions the announced uncertainties our of given Investor noted are timing We Day plan, the Investor with just associated year-end some which be our second uneven call and to transformation

our our million, and availability believe product remain of disruptions challenges, continue headwinds effects at We back of headwinds the over chain supply of our the inflation we many challenges into present ongoing supply but that beginning levels that year. of year-end be to anticipated to around chain. throughout to The strong, chain we $X and products pockets the year. the with supply experience have be year, order ease will these Coming XXXX of demand for this as still although anticipated reached product $XX the would back and continue to case the million we lessened, the from half down supply

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

we approximately quarter, sales the or from to $XXX of million operations achieved year. X% For compared last continuing down

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

of We adjusted million diluted continuing the quarter. during from also per share $X.XX adjusted of generated and EBITDA almost $XX operations earnings

XX%, a was revenue supporting adjusted quarter. inclusive of percentage almost $XXX quarter, adjusted respiratory gross the Also SG&A revenue Actual the While was excluding of our XX% items margin adjusted was referenced. I as just business a growth. and XX% percentage X.X% margin million our for an EBITDA XX.X%. for or was as almost revenue of sales our the SG&A of health

prior posted Digestive currency med another by category we level. advantage XX% line, the results portfolio product America. our continue in bolstered for year demand conversions On a next our Now North basis, NFI our the I'll versus almost at of to spend as few Health which product constant discussing grew strong minutes the take quarter the

digits by line expansion driven intra-feeding Our product double CORTRAK legacy the of standard globally, grew U.S. primarily offering. continued care our of

Day, Investor and markets are and in digestive potential in that next attractive M&A leadership deliver above-market continue and into markets sustain adjacencies. through noted Expansion core we to large, our we launch to As growth poised momentum months. this during XX over global plan the actual health innovations targets to high

quarter, for our to selling with pain in versus recovery interventional down year. X% game flat X-shot reported least excluding product sales low HA across close our are XX% and for this surgical portfolio. growth, our and the Actual were pain low-margin the pain, of ready soft which each foreign we longer management Turning was and down pump quarter, to were results categories of category. exchange business at the no Separately, prior products impact the negative

Alleviating to the these continue I in earlier, expect As of year. supply of we shared although businesses, recovery sales we half experience these portfolio challenges critical headwinds chain half pain supporting management supply lift to to second and year. ease is this during within the second headwinds the our these

weaker-than-expected our half. experienced a HA first Finally, portfolio

or However, has within pricing market X-shot as was competitive specific products. concentrated this market. primarily and softness dynamics the that not prevalent in GenVisc our X-shot are X-shot

our our with X-shot meeting continues our is performance TriVisc, orthopedic offering and internal to call overarching largely strategy expectations. align point

HA reporting and as will be XXXX. quarters the volatility several ASP environment of both a QX experience strong from the entering face to in swings continue related these we for the next XXXX to continue in markets We factor expect comparables

have volatility, this in HA right our to believe Despite we the capitalize on strategies we place opportunities.

last expectations have results and Our not pain our management the recovery met year. over business

However, Day. gross mid-single-digit brands and and outlined stage the the patient pain our sets This during across strategy growth for we life our in Investor enter we XX%. sustainable connects cycle margins XXXX new exceeding strategy as are confident with

very the consistent and we in to organic the management on over Our focus business recovery as be pain short results. midterm investments will selective securing financial

efforts, I which some includes the and an initiatives that priorities transformation moving described. to update XXXX Now on of our just

organization, highlighted opportunities and of further meaningfully Investor we include and beginning will during the X to financial management have commercially and Day, outlined go-to-market our next to As win, allocation capital that transforming in priorities meaningfully our margin year and years optimizing priorities cost continuing attractive right the enhance have key improve our strategically our X optimize profile. where taking profiles additional in These for of portfolio June categories we operating to originally the profitability we efficient focus enhance the measures path our on our and to ROIC.

improvement to by and optimization expense on execute recovery decisions portfolio and recent program continue as for our delivery priorities transformation well activity, new strategy additional our margin and go-to-market management acquisition these our We savings. our divestiture implementation pain of against evidenced business,

to our In our we million provides recently our versus tuck-in rather program. This shares meaningfully flexibility strategy, but are share our allocate will acquisition approved has addition, that believe Board undervalued impact intrinsic to to capital repurchasing a value. continue not internally ability us $XX towards calculated execute repurchase

June Finally, received the many I'd feedback thank everyone from of like we Day who you. to XX participated and Investor our subsequent on in

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

Michael Greiner

Joe. Thanks,

and Respiratory our operations reporting second sale results. consolidated Health Before detail color quarter discontinued related provide around our providing additional on business, of our the I'll first color to

to impact margin impact $XXX.X reported Adjusted an ceased million, low second of $XX the selling. low adjusted continuing of totaled From excluding were million. basis for adjusted and on quarter net growth negative net $X.XX standpoint, were the for exchange, increase the sales translating Total the have of we foreign of products XX.X% sales million, a quarter actual was operations $XXX.X earnings and gross and share. diluted per margins X.X%, income an

EBITDA cash the on ratio with quarter prior year. of hand with million than of was Adjusted line for in and $XX a the we $XX less X. Separately, ended quarter million, leverage

XXX quarter HA mix at total points. and unfavorable basis gross product Looking Mexican unfavorable primarily basis well margin impact, to peso XX.X%, of the year, our the for gross XX prior mostly improved respiratory points by related driven softness Sequentially, including margin than as by health, our in was the as portfolio. impact lower or results,

revenue efforts adjusted percentage spend streamline organization versus share per were prior related earnings and totaled XX a Adjusted primarily profile. external as XX.X%. basis $XX.X million our reduce by SG&A and EBITDA year improved points to and $X.XX Separately, sequentially, diluted to the of savings cost XXX basis the points our or

between Adjusted was year points versus for quarter XX% in a leading Now improvement year We XX% from margin XX%. reflects continuing the points. the standpoint portfolio of results. operations with our to anticipate improvement improvement percentage gross XX% XXX a and substantial percentage decisions. XX.X% and of of operation which focusing continuing of to XXX sequential the SG&A as prior optimization ultimately SG&A goal on basis full XX.X%, for an approximately the our was XXXX benefits basis our XXXX be of a to a as to revenue revenue

$X.XX share $X.XX versus a per adjusted ago XX.X% diluted Adjusted earnings year compared margin XX.X% XXXX. EBITDA of in to were with

and functions, impact which first cost year and the stranded be full of synergies stranded fixed among operations, loss impact anticipate $XX These XXXX, freight costs to reduction. of million impact in include X directionally annual of from For is operations totaled shared of allocations We other scale the the international discontinued the representative the our also costs. months of shipping service for RH EBITDA approximately $XX million divestiture.

our transition stranded services a offset will we agreements costs with XXXX, Through these Life. portion Air via of

to expanding and reduction our absorption. by enable of of program remain the incremental dissynergies. the million costs, reduction of Future XXXX. to cost accelerating existing majority $XX We M&A, million of expecting we cost of Additionally, stranded remaining end $XX approximately are go-forward course, mitigate stranded additional would estimated cost million $XX the

anticipate between in be discussed. $X.XX Health Including anticipates approximately current that a gross adjusted of and Respiratory million organic revenue to the divestiture, the year, we margins and the rationalization product for early impact of EBITDA As digits $XX annualized approximately the impact we with XX%. diluted year. previously the margins of will year low Company adjusted close around comparable single growth fourth expect XX% EPS quarter, of we for which portfolio $X.XX result the

of between program total will and the communicated, cost previously million million of gross aspects savings As $XX management by $XX transformation XXXX. our

be We approximately savings addressed in which I not of remainder contemplate savings will elimination be the XXXX, that XXXX. stranded executed These separately. $XX the do described, in majority just million those the anticipate to now with of cost the of

result anticipate $XXX and story growth of our our cost million These will takeout and between ability Our sales portfolio to Separately, XXXX will expect to percentage anticipates XX% preliminary of our reduce we approximately of that with deliver revenue a impacted growth a of be our management positively SG&A margins generating cost negatively mid-single-digit EBITDA $XXX XX% pain adjusted ranges adjusted by or as view million. gross to for efforts we XX%. accelerate our across and as to efforts.

With cash onetime management free portfolio. regards annual interest This of as a payments $XX also estimate recovery weaker-than-anticipated excludes and approximately cash and now restructuring anticipate of flow, flow our million tax to result for performance we year. cost this higher free pain and in

deliver million in cash $XX We XXXX to remain million our million $XX tax confident expenditures in interest payments, approximately of in and capital payments. flow and for ability assumes in million free this $XXX $XX

In on continue million focus shared. laser our digestive on transformation margins to portfolio of and pain and these $XXX margins growth, a and priorities will closing, each revenue gross execute free EBITDA of that priorities strategies, we mid-single-digit support transformation cash strategies. combined execution and other XX% of just We with adjusted health organic that both delivering recovery will believe flow than XX% business approximately generation the management greater and I exceeding our have

Finally, and repurchases. share accretive our acquisitions of remain balance tuck-in margin pursuing stewards we prudent opportunistic will sheet,

line the for open questions. please Operator,

Operator

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

Rick Wise

achieving me in look us paying I'm the -- said detail the your critical at want to us first and pillars. but acceleration thank off all lot it just absorb gave start a the lot are good words, XXXX, cost a you growth and growth. to wrong, that to data. very giving for if Thanks clearly you and If correct two or of clarity a reduction, you, understood reacceleration I that Michael, I

your us take and challenged. where is being talk detail Slide achieve at so guess your actions in more can control reduction goals -- portfolio that. Maybe just going of cost pain X, looking us even why can -- the through And confident about the -- just just we understand some I'm you you're give that I'm more to your you specific about maybe

and believe you'd plan that's that's second first more and piece kind, confident and if credibly your help wouldn't take I'm help so us in pain growth it, and understand going And of that to reaccelerate If question. going a believe have plan 'XX. didn't us I to us action understand be through sort my can you didn't -- that's say each you it

Michael Greiner

The next And tie about Joe we just to to strategic on talk -- pain the well period our of on over and/or agree execute XXX of efforts, that that year. the current to end maybe transition occurred bit in What we're as on convey control, the it didn't through that the I'll that the the the distracted cost digit mid-single are pain early year. short of why early to pain for we had is confident back in XXXX. the what lower cost and a little a Investor of the our would as mean view slower. I'll I our some ability growth trying we to Day half in a range time XXX to agreements EBITDA which was turn were second shared there growth, Maybe and wanted management we execute approach and things and are to I preliminary

get half XXXX. of so those we cost had at And of management the some and efforts back to

targets, we digits XXXX just will entirely at whether Joe management we pain ability feel good these XXXX upon the right. minute at like programs get will them you described, just be we It's about or in dependent do quickness in or have place about XXX to cost programs But and because XXX the we done in mid-single a we which at and it about. So March in in the grow we're feel can range, done which happen, Those one, July. we get our good really category, talk will programs. get really these

Joe Woody

think is this I on company IVP about remove for percent with we've kind Rick, you to quarter, the unfortunately growth supply either pain this, about chain when X.X-ish pretty significant we're growth continued noise, mean and the Joe if pain what and organic this of And Woody, XXXX. of just way, sort pick the in you is said all we've up issues. acute

This about new is we initiatives. talk before the

the type So continued of we're almost Avanos the kind without a those or go X in new growth an overall operations. at of as of sort Avanos X-ish forward

at way. If you look it, that

which give The also we take going ability, good in on give bringing in us standard say other going center. we're in for opportunity in, us share got is to play is then the very going thing market, an ambulatory to I would the us. in be Diros confident that's surgical It's and to the the think, going RF we've to And business. some things to

we've got positive internationally, reimbursement Japan. a in So

distributors. in lot from the of us our are and coming We've a in an ability lot the we expand people and perspective, with talking U.K. about approach different of completely orthopedic primarily with strategic giving out changing center really a got reimbursement for to the NICE being out ambulatory and point, a the surgical call Europe. And COOLIEF,

frankly, didn't we're the have we but dog-gone have I not whole if been supply story, easy we've have pretty we'd issues, So chain didn't if the going of -- pretty some there pretty we it's comparables. think And close. much frankly, the to be

So we beyond to mid-single-digit what is get we're feel that that -- can sustainable even the that, in pointing but now we to we places participating a win. really growth we're because can

So.

Rick Wise

half. then. potential or a ask I it. the I'll And Got Diros of contribution? lied, And Yes. the likely

Joe Woody

Yes.

year, $X it's revenue. this of, call So sort going it, in million be to

Rick Wise

million? you about XX’? are XX’, And And to $XX thinking how

Michael Greiner

but lower will about. be It will base. obviously an double-digit growth, a be on It uplift, no doubt

de for impact be the So mid-single digit on will minimis. pain somewhat the

Operator

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

Matthew Mishan

the for to $XXX EPS completely with $XXX divestiture. XXXX. off P&L. costs kind $XXX in exclusive of be of to the million to out There's Those of the the and coming revenue million new excluding The baseline of and just EBITDA. are million would million numbers, I the $XXX necessarily are start wanted stuck Those clean that divestiture. no

Michael Greiner

XX are be the costs of there million over remain is Well, that months. trapped -- getting will XX they that there still in to -- are at next $XX that we there

that but that, clean, include there to are fixed that. words that and doesn't post want they're trapped stranded, use, you guys whatever So costs are

XX So sense, however, that out, our if include those those makes XX and when ability you costs get to to numbers, the get Matt.

Matthew Mishan

then at sense makes it year-over-year. no, you of to at And think progression the how $XX complete about No, with you're if million it. of midpoint the improvement about looking on the it's about XXXX, EBITDA

getting pretty and just Just us reductions how that going to It can to a walk you're have seems you a have opportunity help on. like of cost good be us lot kind that an from you of there. handle is

Michael Greiner

it's think is margin year combined it's portion be good I profile Yes, then reductions. our two year gross going next So And Absolutely, against the up a cost a gross higher right? things. margin so this -- will growth. profile, mid-single-digit versus meaningfully.

of Our percentage XX% to little ultimately, be this of be -- versus up will our year, down a we'll to bit a end our slowly XXXX. revenue year coming actually SG&A as but in be next XX% targets

is it full mid-single-digit you the to efforts cost divestiture, lean takeout of plus mentioned better on portfolio product transformation to RH, and the growth good cost post bottom dropping divestiture just additional also the working the a of in So starting of on that our mix mix right? line,

The what Air condense take with do We're we going on out part us, two over, manufacturing as Day. that Investor get for will we plants they do the of for which is manufacturing to them. closing and shared year the our footprint, life we be entangled they some better some post for of

So combination both. of a it's

is control on of agree which there, all the have think making we totally over. I point you're Matt, you that,

quarter right? that's to year, And very over numbers. XXXX why these exact whether third or are I we this it's tough quarter Now do tell, next is the second control have preliminary mean,

get be is track we early of the beyond to of part back the close on that. get hope to the year, the date, this we we for As half we're as going which quarter, fourth

majority We can next of your and in we in ranges get at next we a assuming 'XX runway there will have execute defined to pain the each in yes, very much is feel these of a control, the our earnings, quarter much looks -- these will But costs we about have for we year point, good strategy. better for how like. year quick what of because fourth on what's and

Matthew Mishan

then market. on And last just the Excellent. question, HA right. All

about between think coming some completely? Kind you in closer parity? closer expect As of ASPs of do the the getting you competition. and to And that when parity, orthogen that where converge of to is to kind

Joe Woody

Joe this Matt, is Woody.

I exactly, I maybe think but quarters. the about remember but several it's we quarters, think said I in several can't have even remarks, prepared I

You growth settle out we're can to base. And very forward. different on into we're single-digit confident out a that we 'XX, move a get going of low go a business that then

Operator

Stewart from question CL The Please next comes Kristen King. ahead. with go

Kristen Stewart

a on the if business. go wondering totality. good in just was Health Digestive through quarter you numbers Congratulations you I look the when at could

we a should strong think there. franchise? about quarter You really just had of How the sustainability that

Joe Woody

Yes.

So comments for Kristen, your the quarter. thanks on

XX some core growth NEOMED got we M&A comparators we're we'll strong board. We high be that the experiencing that too. great global then, been business. a next year. legacy very course, in a with we've solid there, double-digit we still rock said Investor anyway, And the at grower tough I double-digit of Nonetheless, mid-single-digit good opportunity it very really have But of bolt-ons months. NEOMED in as legacy Day, the good think said, had in track, our going see think type obviously, the side across as the least And additive that fairly next to at of we we've has our at performance business.

Kristen Stewart

And just on that there us terms of is proceeding? environment, with share anything M&A the you anything in can

Joe Woody

No.

in execution do start to release, that the As integration. that we'll on there. aperture but down again we the we as you can 'XX, And think on open you move into imagine, our heads things right saw our now all

Michael Greiner

we just on a what Yes. to what Kristen, absorb on it Investor really that, would out have The execute XX to we XX, lot today and only to laid want right we to we shared thing obviously, now I ties Day. over and add, back just

things, focused third done primarily very forward of the going we there. pain to be not are in We focused adding We've in go believe, We've leg. We'll execute We're the very space. a a space. DH got though. organically couple nice

from So should anything next over would do space. we XX you most months, likely the actionable come the DH that see

Operator

from ahead. Stauder next The Instructions] [Operator question Daniel Securities. with go Please JMP comes

Daniel Stauder

really So But you XX% and you're play and gross during how ramp. just today new it into add first about new talked I just both even talked wanted ask gross to you year. talked power long I for months, about there and had of there. being would think these margin. wanted on you to but to I just add next your with But will launch mean, of almost full looking products of that I in be how one more right full some about margins them some the the Analyst accretive take now that? do about some margin upon to earnings, post products ask, Day out, these to just XX really

Michael Greiner

Yes.

to described, have DH, margins, XX% technology. Day, may our the some Diros over XXX have They in referring on we time, were inflationary to to couple which additive previously basis we that obviously, provide that Investor that launches it to XX% those points over have inflationary which we we So conservative we Daniel. will of They adding headwinds but some think also be of plus, argue a headwinds. I upside could you're be, disclosed, shared gross will was

XX%, XX% make the roll to is for comfortable perhaps ensuring up But see months conservative. what XX but the what we you still the occur XX and to comfortable that zero successfully XX XX assessments at, out already other inflationary with believe you we that and environment too that range to in XX that we we're XX So at can looking now will it next numbers as very and is feel strongly how these plays right be to over see us. the until launches Mexico we're

Daniel Stauder

for And me pain one then more on just management.

You How the the about was does trend supply just issues. throughout year? But due to that to underlying that demand really procedure ask mentioned wanted chain softness some I here. the

challenges, main as It was the seems issue headwinds broad the supply the as there? interesting far us And what to based. so that then were

any can So be thing you helpful. specific would

Joe Woody

think can is with our Underlying up, your to of where in supplier allocate why part actual feeling areas really top And out go and issue the and some bit we're have as so positive we to situation mid catheter dealing trending we close components we're a are the going the little really a in quarter, particular. we're the take is fourth those, in more of backorder move accounts, or the as and quarter fourth the that. more of into The having XXX we're to the a into we to procedures. to point, which of sort we then of around can't that advantage We upswing procedure. take RF chips advantage that's on towards are supplies in the XXXX, our and that of affect a of we COOLIEF around with some CRGs part growth ON-Q

of of year, of and is the we'll worked stated We advantage to think that's it. we through when our and in the us holding back. some end take by We this way natural said, again, it really it. have jump We're it's there. we'll by procedural which growth, through start So be

Operator

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

Joe Woody

Thank you.

we and this feeling delivering on get and I at focused we're think Day. can Investor everybody that that the all things execution plan the outlined

year, repurchase we and in So product additional of executed business, we've valuable delivering and on Diros an already, financial on acquired we're what most program, objectives. divested RH approved our our is share this a exits, think technology

market-leading expansion cash and is our meaningful commitments. us feeling course, results transformation and established that our the us growth attractive necessary a markets and we're generation. financial the Our confident We're talking position for flow priorities midterm portfolio free of to foundation in for about, margin these have sales that deliver

forward. So I of for know going interest attending your and continued we'll be Avanos. you a Thanks number the talking in call to

Operator

your has concluded. Thank for The conference participation. now you

You may now disconnect.

Avanos Medical (AVNS) 9 Aug 232023 Q2 Earnings call transcript