AVANOS MEDICAL, INC. Q2 FY2024 earnings call

Management Statement and Operational Highlights

• Transformation Priorities: Four key priorities: optimize organization, transform product portfolio, cost management, efficient capital allocation.
• Second Quarter Highlights: Progress in Pain portfolio, strong execution with Trident product line, finalizing Respiratory Health divestiture, execution of cost management programs, optimizing manufacturing/office footprint, M&A discipline with leverage <1x.
• Financial Results: Sales from continuing operations ~$172M, organic sales up 2.6%, adjusted diluted EPS $0.34, adjusted EBITDA ~$27M.

Segment Performance

• Digestive Health: Organic growth almost 9% vs prior year, reaffirming number one position in long-term, short term, and neonate feeding. NeoMed product line grew double digits, legacy enteral feeding business grew high single-digits. Anticipates continued above-market growth supported by innovations, global market expansion, product rationalization, and M&A.
• Pain Management and Recovery: Normalized organic sales up ~2% excluding HA and Diros. Surgical Pain portfolio down <1% YOY, On-Q/ambIT portfolio grew mid single-digits; IVP portfolio returned to growth with mid single-digit growth; Game Ready portfolio had second consecutive double-digit growth; HA portfolio down >30% YOY but flat sequentially, expected to level off and grow low single-digits long term as price stabilizes.

Guidance

• 2024 Full-Year: Reaffirms revenue in range of $685M-$705M (mid single-digit organic growth), adjusted gross margin 59.5%-60.5%, SG&A as % of revenue 41%-42%, adjusted diluted EPS $1.30-$1.45, adjusted EBITDA margin improvement at least 200bps.
• 2025 Objectives: Organic revenue ~$730M, gross margins >60%, SG&A as % of revenue 38%-39%, free cash flow ~$100M.

Risks

• No specific risks detailed beyond general forward-looking statement disclaimers regarding potential differences between forward-looking statements and actual results.

Question and Answer

Q: Focus on Pain Management, HA progress, longer-term growth A: Joe and Michael discuss HA performance, Q3/Q4 expectations, On-Q reimbursement. HA down 30% in Q2, expected to be down in Q3, flat in Q4, with potential for low single-digit growth long term as price stabilizes. On-Q reimbursement unique code discussed with potential for positive long-term impact.

Q: Digestive Health, NeoMed runway, launches, M&A A: Joe and Michael talk about NeoMed growth, upcoming CORTRAK and CORGRIP launches, M&A discipline with focus on Digestive Health, mention of past share buyback and potential for future opportunistic share repurchases pending Board authorization.

Q: Pain Management, Game Ready growth, COOLIEF updates A: Joe discusses Game Ready growth drivers including international business and selling organization changes, and COOLIEF updates with leveling off from supply chain issues but expected recovery as new selling structure comes up to speed and generators sold record numbers.