Earning Date, Transcript Summary & Report

Sales Performance Highlights: 1. Strong Sales Performance: Avanos generated approximately $170 million in sales from continuing operations in Q3 2024, reflecting a solid operational performance despite some challenges.

Positive Cash Flow Generation: 2. Positive Free Cash Flow: The company reported a positive free cash flow of $20 million in Q3 2024, with expectations to generate approximately $30 million in Q4 2024, indicating strong cash management.

Adjusted EBITDA Margin Improvement: 3. Improved Adjusted EBITDA Margin: Avanos achieved an adjusted EBITDA of approximately $31 million, resulting in an adjusted EBITDA margin of almost 18%, showcasing effective cost management and operational efficiency.

Digestive Health Portfolio Growth: 4. Growth in Digestive Health Portfolio: The Digestive Health portfolio grew almost 3% organically compared to the prior year, reaffirming Avanos' leading position in enteral feeding solutions.

Cash Reserves and Flexibility: 5. Strong Cash Position: As of September 30, 2024, Avanos had $89 million in cash on hand and a projected net debt of approximately $20 million, providing strategic flexibility for future investments.

Organic Growth Shortfall: 1. Underperformance in Organic Growth: Avanos Medical reported a shortfall in its objective of mid-single-digit organic growth, achieving only 1.1% growth compared to the previous year, primarily driven by weaknesses in the surgical pain portfolio.

Surgical Pain Revenue Decline: 2. Decline in Surgical Pain Portfolio: The surgical pain portfolio, particularly the ON-Q product line, faced challenges due to supply issues and customer turnover, leading to a significant impact on revenue, with a noted softness of approximately $3 million in the quarter.

HA Portfolio Revenue Stability: 3. Flat Revenue in HA Portfolio: The HA portfolio revenue remained flat year-over-year, consistent with prior quarters, and the company anticipates a 20% decrease in HA revenue for the full year, indicating ongoing pricing pressures.

Customer Turnover Challenges: 4. Increased Customer Turnover: Avanos experienced higher-than-expected turnover of customers in its ON-Q product line, which has negatively impacted sales and necessitated efforts to reengage these customers.

Adjusted Growth Outlook: 5. Lowered Growth Expectations: The company indicated that while it had good performance in most product areas, the overall growth profile for 2025 may be adjusted to a low to mid-single-digit range due to the challenges faced in Q4 2024.