Avanos Medical, Inc. · NYSE:AVNS
Avanos Medical — Q4 2023 Earnings Presentation
33 slides from Avanos Medical's earnings presentation, Feb 20, 2024
Slide 1: Q4 2023 Earnings Presentation
Q4 2023 Earnings Presentation February 20th, 2024 Getting patients back to the things that matter.
Slide 2: Presenters and agenda
Joe Woody Michael Greiner Chief Executive Officer Senior Vice President, CFO & Chief Transformation Officer Business Progress Q4 Results & 2024 Against 2023 Priorities Planning Assumptions 2
Slide 3: Disclaimer Regarding Forward-Looking Statements; Non-GAAP Financial Measures
DISCLAIMER REGARDING FORWARD-LOOKING STATEMENTS 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 transformatio
Slide 4: Reflections on Performance
Reflections on Performance • Topline shortfall mitigated by our transformation initiatives • Continue to experience strong demand in our Digestive Health product portfolio • Achieved backlog reduction plan • Remain focused on getting patients back to the things that matter as we meet customer needs
Slide 5: Fourth Quarter & Full Year Performance
Continuing Operations Fourth Quarter & Full Year Performance • During the fourth quarter • Achieved net sales of $173 million. Excluding currency and the impact of products no longer sold, organic sales down 4% vs. prior year • Generated $0.36 of adjusted diluted EPS and $32 million of adjusted EBIT
Slide 6: Solid year for Digestive Health
Continuing Operations Solid year for Digestive Health Digestive Health Sales Millions $95 $92 • Digestive Health revenue grew almost 3% for the quarter and 10% for the year (constant currency / normalized sales) • Above market growth from CORTRAK guided Q4 2022 Q4 2023 tube placement $372 • Sequenti
Slide 7: Pain Portfolio Showing Signs of Turnaround
Continuing Operations Pain Portfolio Showing Signs of Turnaround Pain Management & Recovery Sales * • Pain Management down 12% for the quarter Millions and close to 11% for the year $84 (constant currency / normalized sales) $79 • Trident sales off to a solid start • Sequential improvement in Interv
Slide 8: Priorities for Reimagining our Business
Priorities for Reimagining our Business Cost Capital 1 Optimization 2 Portfolio 3 4 Management Allocation Strategic & Transform the Additional Cost Continued Efficient Commercial Product Portfolio Management Capital Allocation Optimization Initiatives to Strategies to Enhance Operating Expand Return
Slide 9: Transformation Year 1 – Accomplishments
Transformation Year 1 – Accomplishments Strategic & • Digestive Health execution (MIC-KEY*, CORTRAK* and NEOMED*) 1 Commercial • Pain Management & Recovery turnaround (GAME READY*, COOLIEF*, AMBIT*, ORTHOGENRX* and Diros) Optimization Transform • Exited low-margin and low-growth product categories (
Slide 10: Pain Management & Recovery: Key to Avanos Organic Growth
Pain Management & Recovery: Key to Avanos Organic Growth COMMERCIAL RESET | REFINED BRAND STRATEGIES | INVESTMENT Delayed Turnaround Reasons to Believe • Supply chain shortages • Sustainable supply improvements: backorders reduced from $13M to $1.5M • Longer customer reacquisition cycle • Surgical P
Slide 11: Q4 & FY 2023 Results
Q4 & FY 2023 Results Michael Greiner Senior Vice President, CFO & Chief Transformation Officer
Slide 12: Fourth Quarter and Full Year Performance
Continuing Operations Fourth Quarter and Full Year Performance Sales Adj. EBITDA Adj. EPS Millions Millions $0.45 $182 $34 $0.36 $173 $32 Q4 6.8% -4.5% 18.8% 18.5% Q4 2022 Q4 2023 Q4 2022 Q4 2023 Q4 2022 Q4 2023 $684 $99 $1.03 14.6% $91 16.2% $1.00 $673 FY 5.9% -0.3% 13.3% 14.7% FY 2022 FY 2023 FY 2
Slide 13: FY EBITDA Margin favorable to 2022
Continuing Operations FY EBITDA Margin favorable to 2022 Adjusted Gross Profit Adjusted gross margin 80 bps lower compared to Millions $410 2022 $398 • Unfavorable impact of currency, raw material inflation GM and HA price volatility; partially offset by Frontier savings 59.9% 59.1% margin margin •
Slide 14: Capital Allocation and Net Debt
Continuing Operations Capital Allocation and Net Debt Target margin $ in millions 12/31/22 12/31/23 accretive deals ~3.5% annually Returns above Cash $128 $88 cost of capital Term Debt (122) (118) M&A R&D SHARE- HOLDER Revolver (110) (50) VALUE CREATION SHARE CAPEX Net (Debt) ($104) ($80) REPURCHASE
Slide 15: 2024 Planning Assumptions & Guidance
Continuing Operations 2024 Planning Assumptions & Guidance $685M to $705M Sales 3% to 6% Organic growth Adjusted Gross Margin 59.5% to 60.5% Adjusted SG&A as a % of Revenue 41.0% to 42.0% Margins EBITDA margin improvement by at least 200 bps Adjusted $1.30 - $1.45 Diluted EPS 15
Slide 16: Transformation Year 2 – What to Expect
Transformation Year 2 – What to Expect Strategic & • Continue to invest behind and grow Digestive Health above market globally 1 Commercial Optimization • Realize MSD growth and profitability in Pain Management & Recovery Transform • Additional strategic and adjacent M&A targets 2 the Product Portfo
Slide 17: Building Value Creation into 2025 and Beyond
Building Value Creation into 2025 and Beyond Increased FCF ROIC generation From 5.8% Margin to >8% ROIC >$100M FCF expansion ~60% FCF conversion +400-500 bps MSD EBITDA margin organic growth 17
Slide 18: Thank You
Thank You
Slide 19: Appendices: Non-GAAP Reconciliations
APPENDICES Non-GAAP Reconciliations
Slide 20: Non-GAAP Reconciliations: Gross Profit (Q4)
NON-GAAP RECONCILIATIONS In millions Gross Profit Three Months Ended December 31, 2023 Three Months Ended December 31, 2022 Continuing Discontinued Continuing Discontinued Operations Operations Total Operations Operations Total As reported $ 95.0 $ (4.0) $ 91.0 $ 102.9 $ 14.0 $ 116.9 Acquisition and
Slide 21: Non-GAAP Reconciliations: Gross Profit (Year)
NON-GAAP RECONCILIATIONS In millions Gross Profit Year Ended December 31, 2023 Year Ended December 31, 2022 Continuing Discontinued Continuing Discontinued Operations Operations Total Operations Operations Total As reported $ 379.7 $ 32.1 $ 411.8 $ 394.2 $ 55.8 $ 450.0 Acquisition and integration-re
Slide 22: Non-GAAP Reconciliations: Operating Profit (Q4)
NON-GAAP RECONCILIATIONS In millions Operating Profit (Loss) Three Months Ended December 31, 2023 Three Months Ended December 31, 2022 Continuing Discontinued Continuing Discontinued Operations Operations Total Operations Operations Total As reported $ 11.2 $ (1.8) $ 9.4 $ 16.6 $ 9.6 $ 26.2 Acquisit
Slide 23: Non-GAAP Reconciliations: Operating Profit (Year)
NON-GAAP RECONCILIATIONS In millions Operating Profit (Loss) Year Ended December 31, 2023 Year Ended December 31, 2022 Continuing Discontinued Continuing Discontinued Operations Operations Total Operations Operations Total As reported $ 4.2 $ (51.0) $ (46.8) $ 35.5 $ 38.5 $ 74.0 Acquisition and inte
Slide 24: Non-GAAP Reconciliations: Income Before Taxes (Q4)
NON-GAAP RECONCILIATIONS In millions Income (Loss) Before Taxes Three Months Ended December 31, 2023 Three Months Ended December 31, 2022 Continuing Discontinued Continuing Discontinued Operations Operations Total Operations Operations Total As reported $ 8.9 $ (1.8) $ 7.1 $ 14.3 $ 9.6 $ 23.9 Acquis
Slide 25: Non-GAAP Reconciliations: Income Before Taxes (Year)
NON-GAAP RECONCILIATIONS In millions Income (Loss) Before Taxes Year Ended December 31, 2023 Year Ended December 31, 2022 Continuing Discontinued Continuing Discontinued Operations Operations Total Operations Operations Total As reported $ (7.9) $ (51.0) $ (58.9) $ 26.7 $ 38.5 $ 65.2 Acquisition and
Slide 26: Non-GAAP Reconciliations: Tax Provision
NON-GAAP RECONCILIATIONS In millions Tax Provision Three Months Ended December 31, 2023 Three Months Ended December 31, 2022 Continuing Discontinued Continuing Discontinued Operations Operations Total Operations Operations Total As reported $ 2.1 $ 1.3 $ 3.4 $ (4.6) $ (2.4) $ (7.0) Tax effects of ad
Slide 27: Non-GAAP Reconciliations: Income and EPS (Q4)
NON-GAAP RECONCILIATIONS In millions Income (Loss) Before Taxes Three Months Ended December 31, 2023 Three Months Ended December 31, 2022 Continuing Discontinued Continuing Discontinued Operations Operations Total Operations Operations Total As reported $ 11.0 $ (0.5) $ 10.5 $ 9.7 $ 7.2 $ 16.9 Acqui
Slide 28: Non-GAAP Reconciliations: Income and EPS (Year)
NON-GAAP RECONCILIATIONS In millions Income (Loss) Before Taxes Year Ended December 31, 2023 Year Ended December 31, 2022 Continuing Discontinued Continuing Discontinued Operations Operations Total Operations Operations Total As reported $ (9.9) $ (51.9) $ (61.8) $ 21.5 $ 29.0 $ 50.5 Acquisition and
Slide 29: Non-GAAP Reconciliations: SG&A (Q4)
NON-GAAP RECONCILIATIONS In millions Selling, General and Administrative Expenses Three Months Ended December 31, 2023 Three Months Ended December 31, 2022 Continuing Discontinued Continuing Discontinued Operations Operations Total Operations Operations Total As reported $ 74.5 $ (0.7) $ 73.8 $ 78.7
Slide 30: Non-GAAP Reconciliations: SG&A (Year)
NON-GAAP RECONCILIATIONS In millions Selling, General and Administrative Expenses Year Ended December 31, 2023 Year Ended December 31, 2022 Continuing Discontinued Continuing Discontinued Operations Operations Total Operations Operations Total As reported $ 335.0 $ 11.2 $ 346.2 $ 326.5 $ 15.4 $ 341.
Slide 31: Non-GAAP Reconciliations: EBITDA (Q4)
NON-GAAP RECONCILIATIONS In millions EBITDA Three Months Ended December 31, 2023 Three Months Ended December 31, 2022 Continuing Discontinued Continuing Discontinued Operations Operations Total Operations Operations Total Net income (loss) $ 11.0 $ (0.5) $ 10.5 $ 9.7 $ 7.2 $ 16.9 Interest expense, n
Slide 32: Non-GAAP Reconciliations: EBITDA (Year)
NON-GAAP RECONCILIATIONS In millions EBITDA Year Ended December 31, 2023 Year Ended December 31, 2022 Continuing Discontinued Continuing Discontinued Operations Operations Total Operations Operations Total Net income (loss) $ (9.9) $ (51.9) $ (61.8) $ 21.5 $ 29.0 $ 50.5 Interest expense, net 12.1 —
Slide 33: Non-GAAP Reconciliations: Free Cash Flow and 2024 EPS
NON-GAAP RECONCILIATIONS In millions Free Cash Flow Three Months Ended December 31, Year Ended December 31, 2023 2022 2023 2022 Cash provided by (used in) operating activities $ 2.5 $ 33.7 $ 32.4 $ 90.9 Capital expenditures (5.9) (4.9) (17.8) (19.3) Free Cash Flow $ (3.4) $ 28.8 $ 14.6 $ 71.6 2024 E