Avanos Medical, Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Delivered strong Q4 anchored by enteral feeding franchise; completed sale of respiratory health business on Oct 1, 2024; exited DOJ deferred prosecution agreement in Jan 2025; served over 2 million patients in 2024.
• Financial highlights: Q4 sales from continuing ops ~$180M; organic sales up 5% y-o-y; adjusted diluted EPS $0.43; adjusted EBITDA ~$29M. Full year sales from continuing ops ~$688M; organic sales up 3.3% y-o-y; adjusted diluted EPS $1.35; adjusted EBITDA ~$108M.
• Transformation progress: Completed respiratory health divestiture; exited DOJ agreement; cost transformation initiatives driving SG&A improvement; new operating segments to be reported starting Q1 2025.
• Segment updates: Specialty Nutrition Systems rebranding to capture expansion to specialty nutrition ecosystem; Pain Management and Recovery segment consolidation; Corporate and Other de-emphasis of hyaluronic acid and intravenous products.

Segment Performance

• Specialty Nutrition Systems (formerly enteral feeding portfolio): Fourth quarter sales from continuing operations were ~$180 million. Organic sales up 5% y-o-y. Full year sales from continuing operations were ~$688 million. Organic sales increased 3.3% y-o-y. Adjusted diluted earnings per share for Q4 was $0.43, and for full year was $1.35. Adjusted EBITDA for Q4 was nearly $29 million, and for full year was approximately $108 million. Adjusted gross margins were just shy of 59% in Q4 and 59% for full year. This segment grew organically, with NeoMed benefiting from ENFit conversions and legacy enteral feeding remaining healthy.
• Pain Management and Recovery segment: Normalized organic sales down ~3% in Q4 (excluding FX and discontinued low-growth streams). Ambit and IVP showed growth, but pricing pressure in three-shot offerings was a challenge. Game Ready revenue in Q4 was in line with prior quarters. Expected organic gains in IVP and Game Ready in 2025, but surgical pain products facing pricing pressure.
• Corporate and Other segment: Hyaluronic acid injections and intravenous product lines anticipated to decline over 20% in 2025.

Guidance

• 2025 net sales expected in range of $665M-$685M. Specialty Nutrition Systems to grow mid-single digits organically; Pain Management and Recovery flat to low single-digit organic growth; Corporate and Other to decline over 20%.
• Adjusted diluted earnings per share expected between $1.05-$1.25. 2025 margin improvement paused due to macroeconomic uncertainties, but expected margin expansion in 2026.
• Guidance reflects currency headwinds (100 basis points impact from USD strength), tariff monitoring, and pricing pressure in certain segments.

Risks

• Macroeconomic uncertainties impacting margin expectations.
• Pricing pressure in three-shot pain management offerings.
• Currency headwinds affecting reported revenue.
• Tariff impacts on manufacturing and sourcing, particularly with NeoMed production moving to avoid 2026 tariffs.

Question and Answer

Q: Could you add more color on the 2025 margin improvement pause?

A: Margin pause due to macroeconomic uncertainties; cost takeout on gross level impacted margin math, but expected margin expansion in 2026 once uncertainties subside.

Q: Progress on business evaluation, does impairment charge add urgency?

A: Portfolio review ongoing; de-emphasis of hyaluronic acid and intravenous products in Corporate and Other segment for cash optimization over 12-18 months.

Q: Could you give more color on guidance range, upside/downside?

A: Upside from tariffs clarity, FX favorable movement, competitor back order, IVP growth, product innovations; downside from worsening macroeconomic factors hard to model.

Q: Cash flow and M&A focus?

A: M&A focus on Specialty Nutrition Systems; free cash flow similar to 2024 minus tax receivable; CapEx headwind for NeoMed production to avoid 2026 tariffs.

Q: Product innovations in 2025?

A: Near-term (12 months) product innovations in Specialty Nutrition Systems, 1-3 expected by end of 2025, securing leadership in short/long-term feeding portfolio.