Avanos Medical, Inc. (NYSE:AVNS) Q1 2024 Earnings Name Transcript

Avanos Medical, Inc. (NYSE:AVNS) Q1 2024 Earnings Name Transcript Could 5, 2024

Avanos Medical, Inc. is not one of many 30 hottest shares amongst hedge funds on the finish of the third quarter (see the details here).

Operator: Good morning women and gents and welcome to the Avanos First Quarter 2024 Earnings Convention. Presently, all traces are in a listen-only mode. Following the presentation, we are going to conduct a question-and-answer session. [Operator Instructions] This name is being recorded on Thursday, Could 2, 2024. I’d now like to show the convention over to Scott Galovan. Please go forward.

Scott Galovan: Good morning, everybody and thanks for becoming a member of us. It is my pleasure to welcome you to Avanos 2024 first quarter earnings convention name. Presenting at present shall be Joe Woody, CEO; and Michael Greiner, Senior Vice President, CFO and Chief Transformation Officer. Joe will evaluation our first quarter outcomes, the present enterprise setting, in addition to present an replace on our transformation efforts. Michael will share further element relating to these subjects and affirm our 2024 planning assumptions. We’ll end the decision with Q&A. A presentation for at present’s name is offered on the Traders part of our web site, avanos.com. As a reminder, our feedback at present comprise forward-looking statements associated to the corporate, our anticipated efficiency, present financial circumstances and our trade.

No assurance could be given as to future monetary outcomes. Precise outcomes might differ materially from these within the forward-looking statements. For extra details about forward-looking statements and the chance components that might affect future outcomes, please see at present’s press launch and threat components described in our filings with the SEC. Moreover, we shall be referring to adjusted outcomes and outlook. The press launch has info on these changes and reconciliations to comparable GAAP monetary measures. Now, I will flip the decision over to Joe.

Joe Woody: Thanks, Scott. Good morning, everybody and thanks for becoming a member of us to evaluation our operational and monetary outcomes for the primary quarter 2024. First quarter outcomes had been consistent with our expectations as Digestive Well being continued its constant efficiency and we skilled further optimistic shifts in our Ache Administration and our Restoration enterprise. As we famous in our 2023 year-end earnings name, our quarterly efficiency for 2024 will enhance because the 12 months progresses, following the same cadence to previous years. The demand for our merchandise stay robust and our provide chain group is executing successfully to assist our industrial technique with our backlog at about $1 million at quarter finish. This can be a important enchancment over final 12 months’s first quarter back-order ranges of over $8 million.

We’re persevering with to make regular progress towards every of our transformation priorities which each Michael and I’ll discuss additional about. And as at all times, our major focus is on getting sufferers again to the issues that matter as we meet the wants of our prospects. For the quarter, our gross sales from persevering with operations had been roughly $166 million, adjusted for the consequences of overseas change and the impression of our strategic choice to discontinue income streams that didn’t meet return standards specified by our portfolio transformation precedence. Natural gross sales had been up 4.7% in comparison with a 12 months in the past. We generated $0.22 of adjusted diluted earnings per share and above $21 million of adjusted EBITDA for persevering with operations. Our 3-year transformation priorities proceed to drive our execution and our first quarter outcomes present confidence in our means to be inside the ranges of the 2025 monetary targets we established final 12 months throughout our Investor Day.

Now, I will spend the following couple of minutes discussing our outcomes on the product class stage. Our Digestive Well being portfolio continues to ship wonderful outcomes with over 9% natural progress versus prior 12 months. This efficiency was bolstered by our NeoMed product line which posted one other terrific quarter, rising double digits versus the prior 12 months, as we proceed to make the most of the robust demand for ENFit conversions in North America. Whereas we’re at present experiencing strong double-digit progress, we anticipate slower progress over the following few quarters as we enter the late levels of the ENFit adoption. Our legacy ENFit feeding enterprise additionally posted a robust quarter, rising mid-single digits in comparison with the earlier 12 months. As famous throughout our final name, we anticipate mid to excessive single-digit progress organically for our Digestive Well being portfolio this 12 months and our means to ship above-market progress shall be supported by improvements we plan to launch through the again half of the 12 months, growth into further international markets with engaging progress prospects, low-growth product rationalization and actionable M&A alternatives.

Now, turning to our Ache Administration and Restoration portfolio, gross sales for this quarter had been down roughly 1%, excluding the good thing about DRS-related [ph] gross sales, the impression of overseas change and our beforehand introduced strategic choice to discontinue sure low-growth, low-margin merchandise. Whereas our total surgical patent portfolio was down year-over-year, our mixed ON-Q/ambIT portfolio was flat for a similar interval, consistent with our expectations. The previous quarter performances are indicators that our new go-to-market technique and construction for this a part of our portfolio assist our low single-digit progress expectations for 2024. The slight year-over-year decline in our IVP enterprise, excluding the optimistic impression of Diros income, was primarily as a consequence of strategic rationalization inside a low-growth, low-margin product class.

The efficiency of our mixed radiofrequency ablation portfolio grew by mid-single digits. We’re inspired by the continued momentum seen in our IDP generator gross sales, pushed by our renewed ASC technique and the growing productiveness of our absolutely deployed new gross sales construction. Additional supporting our ASC technique, our new Trident product line, acquired within the Diros transaction, continues to exceed our expectations. We had been in a position to seize upside alternatives within the first quarter and proceed to scale-up manufacturing capability in our Toronto facility to assist our progress goals, together with capitalizing on our promising U.S. market launch. Our Recreation Prepared portfolio put collectively one other strong quarter coming off our fourth quarter outcomes with double-digit progress this quarter in comparison with prior 12 months.

Lastly, our HA portfolio was flat year-over-year and per our fourth quarter outcomes. This leveling off of income in our HA portfolio was anticipated and aligns with our forecast of a 20% lower in HA income for the total 12 months. We stay assured in our methods and skill to keep up this stage of efficiency whereas leveraging long-term alternatives. Whereas our first quarter efficiency in our Ache Administration and Restoration portfolio isn’t but the place we wish it to be, we’re inspired by the progress we’re seeing throughout every of the ache companies and I consider these are strong indicators of our means to ship mid-single-digit progress for 2024, excluding the 20% decline in HA income I simply famous. Now, shifting to our 2023 to 2025 transformation priorities and efforts, as a reminder, we’ve 4 key priorities for the following 2 years that can enhance our go-to-market alternatives and meaningfully improve our monetary profile.

These priorities are strategically and commercially optimizing our group, reworking our portfolio to deal with classes the place we’ve engaging margin profiles and the fitting to win, taking further value administration measures to reinforce working profitability and persevering with our path of environment friendly capital allocation to meaningfully enhance our ROIC. We have made substantial progress towards our transformation priorities with accelerating momentum towards these priorities. A few of our first quarter highlights embrace significant stability and progress throughout our ache portfolio, robust early execution with our new Trident product line, continued separation efforts related to the divestiture of our Respiratory Well being enterprise, finalizing our industrial gross sales and advertising organizations to assist our second half progress expectations exceeding 5%, adjusted gross margin supply approaching 60% and finishing our newest share repurchase program.

Whereas we’re happy with our first quarter outcomes and the continued progress towards every of our transformation priorities, we’re centered on delivering constant outcomes over the approaching quarters so as to meet our 2025 monetary targets. Now I will flip the decision over to Michael, who will present additional perception on our monetary outcomes and transformation platform.

Michael Greiner: Thanks, Joe. As you shared, we’re happy with our first quarter outcomes, outcomes that present continued progress towards our transformation and assist our full 12 months targets. Since 2021, we’ve been delivering mid- to excessive single-digit progress in our Digestive Well being portfolio and once more delivered that stage of efficiency within the first quarter. Our Recreation Prepared portfolio grew double digits this quarter in comparison with prior 12 months. And our newly acquired Trident product line has produced outcomes above our expectations, capitalizing on our U.S. market launch which kicked off in November of final 12 months and continued momentum in worldwide markets. As anticipated, we proceed to see worth volatility in our HA enterprise. Nevertheless, we consider we’ve set the fitting methods in place to largely mitigate unfavorable worth impacts.

This quarter, our HA gross sales are consistent with our fourth quarter and prior 12 months by means of increased gross sales volumes. From a unbroken operations standpoint, web gross sales had been $166.1 million. We generated $21.6 million of adjusted EBITDA and $0.22 of adjusted diluted earnings per share through the quarter. Adjusted for the consequences of overseas change and the impression of our strategic choice to discontinue income streams that didn’t meet return standards specified by our portfolio transformation efforts, natural gross sales had been up 4.7% in comparison with a 12 months in the past. Our adjusted EBITDA grew by 34% in comparison with a 12 months in the past with adjusted EBITDA margin growth of 290 foundation factors. Our adjusted diluted earnings per share grew by 69% in comparison with a 12 months in the past. This margin growth was positively impacted by high line progress, manufacturing and operations execution and continued SG&A optimization efforts.

For the quarter, our adjusted gross margin was 59.8% which is sequentially favorable to our fourth quarter 2023 outcomes and versus the primary quarter of final 12 months. We had been in a position to offset inflation and HA worth volatility by means of our transformation initiatives on the plant and operations stage. We count on adjusted gross margin to be roughly 60% subsequent quarter as properly. SG&A as a share of income stood at 45.8%, reflecting an enchancment of 220 foundation factors in comparison with the primary quarter of final 12 months, primarily associated to our value financial savings efforts to streamline the group and scale back our exterior spend profile. As you recognize, that is a part of our ongoing journey to additional improve our monetary profile with continued enhancements all through 2024, finally resulting in our 2025 aim of between 38% to 39%.

Our efficiency within the first quarter is monitoring with our expectations for the 12 months, reflecting the success of our transformation technique which stays our group’s major focus. As such, we’re reaffirming our 2024 full 12 months steering with income within the vary of $685 million to $705 million, representing mid-single-digit natural progress, adjusted gross margin to vary between 59.5% and 60.5% and SG&A as a share of income to be between 41% and 42%. These monetary metrics assist an adjusted diluted earnings per share between $1.30 and $1.45 for the 12 months in addition to adjusted EBITDA margin enchancment of at the least 200 foundation factors. Now, turning to our monetary place and liquidity, our stability sheet stays robust and continues to offer us with strategic flexibility with $76 million of money available and $177 million of debt excellent as of March 31.

We now have maintained financial institution debt leverage ranges meaningfully under 1 flip over the previous 9 quarters and can proceed to be good stewards of our stability sheet. Whereas we intend to keep up conservative leverage ranges, we are going to actively pursue strategic M&A alternatives that align with our returns standards in addition to opportunistic share repurchases. Lastly, free money circulation was damaging $12 million within the first quarter, roughly as anticipated, pushed by year-end variable compensation payouts and onetime money prices related to accelerating sure transformation efforts. We anticipate marked enchancment in our free money circulation profile within the second quarter and stay assured in our means to generate roughly $75 million of free money circulation for 2024.

Now, turning to some further highlights particular to our transformation journey that started in 2023, along with product portfolio rationalization, the divestiture of our Respiratory Well being enterprise, the acquisition of Diros, share repurchases, organizational adjustments and significant value administration initiatives, we stay centered on our Digestive Well being and Ache Administration and Restoration enterprise methods, implementing additional enterprise course of effectivity and price administration initiatives and actively searching for capital allocation alternatives that optimize our return on invested capital. The second 12 months of this transformation journey is essential for reaching the 2025 monetary goals we outlined on Investor Day which embrace constant mid-single-digit progress that may drive our natural income to roughly $730 million in 2025, gross margins surpassing 60%, SG&A as a share of income being between 38% to 39% and free money circulation era of roughly $100 million in 2025, supported by these operational monetary metrics, in addition to constant CapEx spend and significant enchancment in working capital.

Operator, please open the road for questions.

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