Avanos Medical, Inc. · NYSE:AVNS
Avanos Medical — Q3 2022 Earnings Presentation
28 slides from Avanos Medical's earnings presentation, Nov 2, 2022
Slide 1: Third Quarter 2022 Earnings Call
THIRD QUARTER 2022 EARNINGS CALL NOVEMBER 2nd, 2022 1
Slide 2: Agenda and Speakers
∆GEND∆ ∆ND SPE∆KERS Joe Woody Michael Greiner Chief Executive Officer Senior Vice President and Chief Financial Officer Update on Business Q&A Review Third Quarter Results Progress Against 2022 Priorities Discuss 2022 Guidance 2
Slide 3: Forward-Looking Information and Non-GAAP Financial Measures
OVERVIEW FORWARD-LOOKING INFORMATION Certain matters in this presentation and conference call, including expectations and planning assumptions, any comments about our expected 2022 performance, and any estimates, projections or statements relating to our business plans, objectives, acquisitions and
Slide 4: Reflection on Performance
REFLECTION ON PERFORMANCE • Operational and commercial execution against a range of challenging macro-economic dynamics • Maintain our full year guidance ranges • Continue to experience consistent demand throughout our product portfolio • Strong margin and free cash flow execution • Remain focused o
Slide 5: Third Quarter Performance
THIRD QUARTER PERFORMANCE • Net Sales increased 10% to $202 million (including OrthogenRx sales) • Earned $0.38 of adjusted diluted EPS • Generated $23 million of free cash flow • On a constant currency basis, Digestive Health grew more than 14% and Interventional Pain grew mid-single digit while Re
Slide 6: Expanding Gross Margin
EXPANDING GROSS MARGIN • Achieved 56.3% of adjusted gross margin for the quarter • Adjusted gross margin improved 420 basis points compared to third quarter 2021 • Favorable product mix, cost savings and manufacturing efficiencies • Raw material availability, inflation and transportation challenges
Slide 7: Operating Expense Profile
OPERATING EXPENSE PROFILE • As indicated during our last Earnings Call, our increased investment across our SG&A profile in the first half of the year to support a range of growth initiatives is now coming down • Our third quarter SG&A as a percentage of revenue improved 230 basis points versus our
Slide 8: Chronic Care Growth Driven by Digestive Health
CHRONIC CARE GROWTH DRIVEN BY DIGESTIVE HEALTH • Maintained positive trend in Digestive Health; supply constraints limited upside • Record quarter for NeoMed • Respiratory Health continues to experience industry-wide post-Covid slowdowns. Anticipate growth to revert to historical rates during 2023 8
Slide 9: Demand for Our Pain Products
DEMAND FOR OUR PAIN PRODUCTS • Low single-digit Interventional Pain growth offset by decline in Acute Pain • Supply challenges persist and will continue through end of year • Expect low single-digit growth full year • Over 100,000 patients treated across portfolio in Q3 9
Slide 10: Free Cash Flow Generation
FREE CASH FLOW GENERATION • Ability to generate consistent and repeatable cash flow a priority which will continue into 2023 and beyond • Continue to focus on improved operating results and managing working capital • Free cash flow generation of $23 million in the third quarter 2022 10
Slide 11: Deploying Capital Towards M&A
DEPLOYING CAPITAL TOWARDS M&A • M&A pipeline remains healthy • Most attractive opportunities leverage existing footprint, generate synergies, and enhance top-line growth profile • Remain disciplined in identifying targets that meet strategic initiatives • Ensure strong return of capital that exceeds
Slide 12: Avanos: Finishing Strong into 2023
∆V∆NOS: FINISHING STRONG INTO 2023 • Macro environment uncertainties remain • Update on our 2022 priorities: − Delivering consistent growth despite product supply challenges − Executing on our OrthogenRx strategy − Improving gross margin profile − Generating free cash flow • Well-positioned to advan
Slide 13: Third Quarter 2022 Results
Third Quarter 2022 Results Michael Greiner Senior Vice President and Chief Financial Officer 13
Slide 14: Maintaining Focus on Execution
MAINTAINING FOCUS ON EXECUTION • Total sales of $202 million increased 10% versus prior year −12% increase in volume −1% favorable impact from price −3% unfavorable impact from currency • Adjusted diluted EPS of $0.38 • Gross margin expansion, SG&A improvement, OrthogenRx execution and consistent fr
Slide 15: Chronic Care Third Quarter Sales
CHRONIC CARE THIRD QUARTER SALES Consolidated net sales totaled $202 million Chronic Care Sales * • Chronic Care sales, excluding Maxter, Millions unfavorable $1 million to prior year at $116 million $117 $116 • Double-digit growth in Digestive Health −NeoMed grew over 39% bolstered by ENFit convers
Slide 16: Pain Management Third Quarter Sales
PAIN MANAGEMENT THIRD QUARTER SALES Consolidated net sales totaled $202 million Pain Management Sales * • Pain Management sales, excluding OrthogenRx, Millions unfavorable $1 million to prior year at $66 million • Low single-digit growth in Interventional Pain $67 $66 offset by decrease in Acute Pai
Slide 17: Third Quarter Performance: Gross and Operating Margin
THIRD QUARTER PERFORMANCE Gross margin and Operating margin improvement Adjusted Gross Profit and Margin Adjusted Operating Profit and Margin Millions Millions $114 $27 $96 $17 52% 56% 9% 13% Q3 2021 Q3 2022 Q3 2021 Q3 2022 17
Slide 18: Third Quarter Performance: Adjusted EBITDA and Net Income
THIRD QUARTER PERFORMANCE Earned $0.38 of Adjusted Diluted EPS Adjusted EBITDA Adjusted Net Income Millions Millions $33 $18 $22 $12 12% 16% Q3 2021 Q3 2022 Q3 2021 Q3 2022 18
Slide 19: Capital Allocation
CAPITAL ALLOCATION Generated $43 million of Free Cash Flow YTD Strong Balance Sheet Provides Flexibility … … To Fund Our Capital Allocation Priorities • Have maintained ~1x Net Debt / EBITDA Strong Free $76 million Trailing 4 Quarters Cash Flow ~ 10% of Revenue • Fully Funded internal investment − M
Slide 20: 2022 Outlook
2022 OUTLOOK • Re-affirming external guidance −Total sales between $815 million and $835 million −Adjusted gross margin of 55% to 57% −Continued SG&A spend control, below 40% of sales for the year −Expect to earn $1.45 to $1.65 adjusted diluted EPS • Product supply challenges, global environment unc
Slide 21: Avanos: Finishing Strong into 2023
∆V∆NOS: FINISHING STRONG INTO 2023 • Meaningful progress towards value creation goals • Confident in ability to execute strategy • Taking appropriate steps to drive gross and operating margin improvement and deliver significant free cash flow as we look toward 2023 21
Slide 22: The best at getting patients back to the things that matter
The best at getting patients back to the things that matter 22
Slide 23: Appendices
APPENDICES Non-GAAP Reconciliations 23
Slide 24: Non-GAAP Reconciliations
NON-GAAP RECONCILIATIONS In millions Gross Profit Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 As reported $ 110.1 $ 90.2 $ 333.1 $ 266.9 2020 Restructuring charges — 1.1 — 4.1 Post divestiture restructuring charges — 2.9 — 5.5 Post divestiture transition char
Slide 25: Non-GAAP Reconciliations
NON-GAAP RECONCILIATIONS In millions (Loss) Income Before Taxes Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 As reported $ 16.0 $ 2.7 $ 41.3 $ (19.0) COVID-19 related expenses — — — 0.2 2020 Restructuring charges — 1.7 — 10.4 Post divestiture restructuring cha
Slide 26: Non-GAAP Reconciliations
NON-GAAP RECONCILIATIONS In millions, except per share amounts Net (Loss) Income Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 As reported $ 15.7 $ (35.3) $ 33.6 $ (5.2) COVID-19 related expenses — — — 0.2 2020 Restructuring charges — 1.7 — 10.4 Post divestitur
Slide 27: Non-GAAP Reconciliations
NON-GAAP RECONCILIATIONS In millions, except per share amounts EBITDA Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 EBITDA, as reported $ 30.3 $ 13.0 $ 82.1 $ 12.2 COVID-19 related expenses — — — 0.2 2020 Restructuring charges — 1.7 — 10.4 Post divestiture rest
Slide 28: Non-GAAP Reconciliations: 2022 Outlook
NON-GAAP RECONCILIATIONS In millions, except per share amounts 2022 Outlook Estimated Range Diluted earnings per share (GAAP) $ 0.95 to $ 1.25 Intangibles amortization 0.25 to 0.25 Other 0.25 to 0.15 Adjusted diluted earnings per share (non-GAAP) $ 1.45 to $ 1.65 28