Avanos Medical, Inc. Q2 FY2025 earnings call

• Leadership Changes: Scott Galovan appointed CFO, Jason Pickett as interim CFO, Dave Pacitti appointed to Board.
• Second Quarter Results: Net sales $175M, organic sales up 2%, adjusted diluted EPS $0.17, adjusted EBITDA $17M, gross margin 55.7%, SG&A 45.2%. Goodwill impairment of $77M recorded in Pain Management and Recovery reporting unit.
• Divestiture: Closed sale of hyaluronic acid product line of business on July 31, a meaningful step in advancing transformation strategy and focusing on Specialty Nutrition Systems and Pain Management and Recovery segments.

Specialty Nutrition Systems

• Organic growth: 5% compared to prior year, reaffirming #1 position in long-term, short-term, and neonatal enteral feeding. Operating profit for the second quarter was nearly 18%, driven by core commercial execution, new product innovations, and global market expansion opportunities. Expected to deliver mid-single-digit organic revenue growth in 2025.

Pain Management and Recovery

• Normalized organic sales: Up 3.4% this quarter, excluding foreign exchange and strategic divestiture of low-growth, low-margin products. RFA business: Near 14% growth, driven by RFA generator capital sales and renewed ASC strategy. Surgical Pain: Down compared to prior year but in line with expectations, with NOPAIN Act implementation delays. Game Ready: Slightly lower revenues than a year ago, with efforts to enhance go-to-market model. Operating profit, excluding noncash goodwill impairment charge, grew nearly $2M from the prior year.

• Reaffirmed full-year revenue estimate: $665 million to $685 million, inclusive of hyaluronic acid divestiture.
• Adjusted earnings per share estimate range: $0.75 to $0.95, inclusive of hyaluronic asset divestiture.
• Tariffs: Estimated $15 million in incremental tariff-related manufacturing costs for the year; second quarter tariffs expensed; targeting complete exit from China-sourced NeoMed products by the second half of 2026.

• Tariffs: Uncertainty on full impact of tariffs on profitability and free cash flow, with ongoing efforts for tariff mitigation.
• Surgical Pain Reimbursement: Implementation of NOPAIN Act taking longer than anticipated, with efforts to address coverage denials.

Q: Congrats on the great quarter. Just on the 2025 guidance, reaffirmed full year on sales line inclusive of HA divestiture, and what that implies for S&S and Pain Management as we model out the back half of the year?

A: Pleased to affirm the year inclusive of HA. Not disclosing exact impact of foregone HA revenue, but comfortable reaffirming top line and bottom line guidance. Currency headwinds not as material as anticipated, supporting growth in strategic segments.

Q: More specific on RF ablation business, strong quarter. What's driving growth and sustainability in second half of '25 and into '26?

A: Dedicated focus on RF ablation as an RF solution company, 3-tiered offering complementary to physicians' needs. Strong execution in the field, with RFA generator sales driving pull-through of higher-margin probes. Feel good about momentum continuing into next year due to dedicated focus and 3-tier solution.

Q: On HA divestiture, how should we think about impact on income statement longer term, specifically gross and operating margin lines?

A: HA business had margin pressure due to price, but divestiture not material to bottom line. Strong strategic performance in segments like Specialty Nutrition Systems and Pain Management and Recovery can make up for any lost revenue from HA, with HA not a material number impacting the bottom line ultimately.