AVANOS MEDICAL, INC. Q1 FY2024 earnings call

• First quarter results in line with expectations with Digestive Health consistent, Pain Management and Recovery showing positive shifts.
• Demand for products strong, supply chain executing effectively with backlog at ~$1M vs over $8M last year's first quarter.
• Continuing progress on transformation priorities, including portfolio rationalization, divestiture of Respiratory Health business, acquisition of Diros, and share repurchases.
• Adjusted diluted earnings per share $0.22, adjusted EBITDA over $21M for continuing operations, with first quarter results providing confidence in 2025 financial targets.

Digestive Health portfolio delivered over 9% organic growth versus prior year, with NeoMed product line growing double digits and legacy ENFit feeding business posting mid-single digits growth. Pain Management and Recovery portfolio sales down ~1% excluding certain factors; Game Ready had double-digit growth, RF portfolio mid-single-digit growth, HA portfolio flat. Digestive Health's organic growth was bolstered by NeoMed and ENFit, while Pain Management and Recovery's performance is expected to show mid-single-digit growth excluding HA decline.

• Reaffirmed 2024 full year guidance: revenue in range of $685 million to $705 million (mid-single-digit organic growth).
• Adjusted gross margin to range between 59.5% and 60.5%.
• SG&A as a percentage of revenue to be between 41% and 42%.
• Adjusted diluted earnings per share between $1.30 and $1.45 for the year.
• Adjusted EBITDA margin improvement of at least 200 basis points.

• Price volatility in HA business, though strategies in place to mitigate impacts.
• Potential impact of M&A multiples and growth perspectives of target businesses being considered.

Q: Could you further expand upon your commentary around the Pain Management business and what kind of gives you the confidence that you're going to see improved results for the balance of the year?

A: Game Ready at double-digit growth, RF portfolio mid-single-digit growth, good adoption of Triton technology from Diros, international business showing potential, and low single-digit growth expected for surgical pain this year outside of HA decline.

Q: Just on gross margin. It's nice to see the improvement. And then you also gave some 2Q commentary that points to another good quarter. But how should we think about gross margin for the rest of the year? You noted that you have been able to offset some of the impacts from HA. But what is baked in or what is assumed as far as HA stabilization in the back half of the year? And what gets you to the higher end of your guidance range?

A: Gross margin for the year will be fairly stable, with back half of the year anticipated to be above 60% due to favorable mix, continuation of cost savings, and HA expected to be stable at $9M-$12M per quarter aligning with 20% decline indicated.