Avanos Medical, Inc. · NYSE:AVNS
Avanos Medical — Q4 2022 Earnings Presentation
27 slides from Avanos Medical's earnings presentation, Feb 21, 2023
Slide 1: Fourth Quarter 2022 Earnings Call
FOURTH QUARTER 2022 EARNINGS CALL FEBRUARY 21st, 2023 1
Slide 2: Agenda and Speakers
AGENDA AND SPEAKERS Joe Woody Michael Greiner Chief Executive Officer Senior Vice President, CFO and Chief Transformation Officer Q&A Update on Full Year Review Fourth Quarter Results Progress Against 2022 Priorities Discuss 2023 Planning Assumptions 2
Slide 3: Forward-Looking Information; Non-GAAP Financial Measures
FORWARD-LOOKING INFORMATION Certain matters in this presentation, including expectations and planning assumptions, any comments about our expected performance, and any estimates, projections, or statements relating to our business plans, objectives, acquisitions and transformation initiatives, const
Slide 4: Reflection on Performance
REFLECTION ON PERFORMANCE • Operational and commercial execution against a range of challenging macro-economic dynamics • Continue to experience consistent demand throughout our product portfolio • Strong margin and free cash flow execution • Remain focused on getting patients back to the things tha
Slide 5: Fourth Quarter & Full Year Performance
FOURTH QUARTER & FULL YEAR PERFORMANCE • During the fourth quarter - Increased net sales by 14% to $217 million (including OrthogenRx) - Earned $0.60 of adjusted diluted EPS - Generated $29 million of free cash flow • On a full year basis - Increased net sales by 12% to $820 million (including Ortho
Slide 6: Chronic Care Growth Driven by Digestive Health
CHRONIC CARE GROWTH DRIVEN BY DIGESTIVE HEALTH • Chronic Care grew just under 6% in Q4 and 2.6% for the full year - Digestive Health grew more than 10% - Respiratory Health declined by 4% • Maintained positive trend in Digestive Health; alleviated supply constraints • Continued execution for NeoMed
Slide 7: Demand for Our Pain Products
DEMAND FOR OUR PAIN PRODUCTS • Pain Management grew 2.6% in Q4 and 2% for the full year - Double-digit growth for Game Ready and COOLIEF - Partially offset by continued headwinds in On-Q • Low single-digit growth in Acute Pain; mid single-digit growth Interventional Pain • Supply challenges persist
Slide 8: Expanding Margin
EXPANDING MARGIN • Top end of our gross margin guidance - Achieved 55.6% of adjusted gross margin for Q4 and 56.8% for the year - Adjusted gross margin improved 180 basis points compared to fourth quarter 2021 - Favorable product mix, cost savings and lower freight expenses • Exceeded our commitment
Slide 9: Free Cash Flow and M&A
FREE CASH FLOW AND M&A • 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 $29 million in the fourth quarter 2022 • Most attractive
Slide 10: Avanos: Finishing Strong into 2023
∆V∆NOS: FINISHING STRONG INTO 2023 • Performed well against our 2022 priorities − Delivered consistent growth despite product supply challenges − Executed on our OrthogenRx strategy − Improved gross margin profile − Generated free cash flow • Well-positioned to begin our longer-term transformation e
Slide 11: Transformation Priorities
TRANSFORMATION PRIORITIES • Strategically and commercially optimizing our organization • Transforming our portfolio to better focus on categories where we have a better margin profile and the right to win • Taking additional cost management initiatives to enhance operating profitability • Continuing
Slide 12: Fourth Quarter 2022 Results
Fourth Quarter 2022 Results Michael Greiner Senior Vice President and Chief Financial Officer 12
Slide 13: 2022 Performance
2022 PERFORMANCE Sales Adjusted Gross Profit Adjusted Diluted EPS Millions Millions $217 $121 $193 $104 $0.60 $0.50 Q4 4.5% 12.4% 53.8% 55.6% Q4 2021 Q4 2022 Q4 2021 Q4 2022 Q4 2021 Q4 2022 $745 $820 $466 $1.65 $389 FY 4.2% 10.1% 52.3% 56.8% $1.17 FY 2021 FY 2022 FY 2021 FY 2022 FY 2021 FY 2022 13
Slide 14: Chronic Care Fourth Quarter Sales
CHRONIC CARE FOURTH QUARTER SALES Consolidated net sales totaled $217 million Chronic Care Sales * • Chronic Care sales, excluding Maxter and the Millions negative impact of currency, grew almost 6% compared to prior year $129 $125 • High single-digit growth in Digestive Health • Respiratory Health
Slide 15: Pain Management Fourth Quarter Sales
PAIN MANAGEMENT FOURTH QUARTER SALES Consolidated net sales totaled $217 million Pain Management Sales * • Pain Management sales, excluding OrthogenRx Millions and the negative impact of currency, grew 2.6% compared to prior year $69 • Mid single-digit growth in Interventional Pain, $68 flat in Acut
Slide 16: Fourth Quarter Performance
FOURTH QUARTER PERFORMANCE Earned $0.60 of Adjusted Diluted EPS Adjusted EBITDA Adjusted Net Income Millions $45 Millions $28 $24 $33 17% 21% Q4 2021 Q4 2022 Q4 2021 Q4 2022 16
Slide 17: Full Year 2022 Performance
FULL YEAR 2022 PERFORMANCE • Delivered on our external commitment while strengthening our balance sheet • 450 bps gross margin expansion • EBITDA margin in excess of 20% in the fourth quarter • Achieved adjusted diluted EPS of $1.65 • Allocated over $170 million towards M&A and share repurchases 17
Slide 18: A 3-Year Transformation Journey
A 3-YEAR TRANSFORMATION JOURNEY • Higher growth portfolio around Digestive Health and Orthopedic pain & recovery • Cost structure and organization optimization • Resulting in enhanced operating profitability • Solid progress already - Completed leadership changes - Announced we would cease selling c
Slide 19: 2023 Planning Assumptions
2023 PLANNING ASSUMPTIONS • 2023, an uneven transition year • Full year assumptions - Operating and EBITDA margin improvement by at least 100 bps - Expect to earn between $1.60 and $1.80 of adjusted diluted EPS - Deliver $60 million of free cash flow excluding the one-time cash costs associated with
Slide 20: Avanos: The Right Time to Start This Transformation
∆V∆NOS: THE RIGHT TIME TO START THIS TRANSFORMATION • Consistent execution throughout 2022 • Current global macro and industry specific environment remains uneven • Strategic and commercial optimization of our portfolio and cost structure 20
Slide 21: The best at getting patients back to the things that matter
The best at getting patients back to the things that matter 21
Slide 22: Appendices
APPENDICES Non-GAAP Reconciliations 22
Slide 23: Non-GAAP Reconciliations
NON-GAAP RECONCILIATIONS In millions Gross Profit Three Months Ended December 31, Year Ended December 31, 2022 2021 2022 2021 As reported $ 116.9 $ 98.9 $ 450.0 $ 365.8 2020 Restructuring charges — 0.1 — 4.2 Post-Divestiture restructuring and transition charges — 3.1 — 12.4 Acquisition and integrati
Slide 24: Non-GAAP Reconciliations
NON-GAAP RECONCILIATIONS In millions Income Before Taxes Three Months Ended December 31, Year Ended December 31, 2022 2021 2022 2021 As reported $ 23.9 $ 26.3 $ 65.2 $ 7.3 COVID-19 related expenses — 0.1 — 0.3 2020 Restructuring charges — 2.0 — 12.4 Post-Divestiture restructuring and transition char
Slide 25: Non-GAAP Reconciliations
NON-GAAP RECONCILIATIONS In millions, except per share amounts Net Income Three Months Ended December 31, Year Ended December 31, 2022 2021 2022 2021 As reported $ 16.9 $ 11.5 $ 50.5 $ 6.3 COVID-19 related expenses — 0.1 — 0.3 2020 Restructuring charges — 2.0 — 12.4 Post-Divestiture restructuring an
Slide 26: Non-GAAP Reconciliations
NON-GAAP RECONCILIATIONS In millions, except per share amounts EBITDA Three Months Ended December 31, Year Ended December 31, 2022 2021 2022 2021 EBITDA, as reported $ 39.6 $ 36.5 $ 121.7 $ 48.7 COVID-19 related expenses — 0.1 — 0.3 2020 Restructuring charges — 2.0 — 12.4 Post-Divestiture restructur
Slide 27: Non-GAAP Reconciliations: 2023 Outlook
NON-GAAP RECONCILIATIONS In millions, except per share amounts 2023 Outlook Estimated Range Diluted earnings per share (GAAP) $ 0.96 to $ 1.32 Intangibles amortization 0.20 to 0.20 Restructuring 0.41 to 0.25 EU Medical Device Regulation 0.03 to 0.03 Adjusted diluted earnings per share (non-GAAP) $ 1