• Revenue: Approximately $170 million from continuing operations.
• Adjusted Diluted Earnings Per Share: $0.36.
• Adjusted EBITDA: Approximately $31 million, or almost 18% of adjusted EBITDA margin.
• Organic Sales Growth: Up 1.1% compared to a year ago, adjusted for foreign exchange and discontinued revenue streams.
• Digestive Health Growth: Almost 3% organic growth versus prior year.
• Pain Management and Recovery Sales: Normalized organic sales up over 1%, excluding HA and inorganic sales.
• Adjusted Gross Margin: 58%, comparable to last year.
• Adjusted SG&A as Percentage of Revenue: 39.8%, improved by 180 basis points compared to the third quarter of last year.
• Cash on Hand: $89 million as of September 30.
• Debt Outstanding: $162 million as of September 30.
• Free Cash Flow: Positive $20 million in the third quarter.

• Warning! GuruFocus has detected 6 Warning Sign with AVNS.

Release Date: October 30, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Avanos Medical Inc (NYSE:AVNS) successfully completed the conveyance of two respiratory health plans to AirLife, marking a significant milestone in their transformation efforts.
• The digestive health portfolio continues to deliver consistent results, growing almost 3% organically versus the prior year.
• The company generated approximately $170 million of sales from continuing operations and $31 million of adjusted EBITDA, indicating strong financial performance.
• Avanos Medical Inc (NYSE:AVNS) maintained above-market growth in their enteral feeding business, benefiting from strong ENFit conversion tailwinds in North America.
• The Game Ready portfolio posted its third consecutive quarter of double-digit growth compared to the prior year, showcasing strong product performance.

Negative Points

• Avanos Medical Inc (NYSE:AVNS) fell short of their stated objective of mid-single-digit organic growth in the third quarter, negatively impacting gross margin.
• The surgical pain portfolio, particularly the ON-Q product line, underperformed due to supply issues and higher-than-expected customer turnover.
• The company experienced softness in their North America COOLIEF offering, affecting overall pain portfolio performance.
• Pricing pressure in the HA portfolio is offsetting volume share gains, impacting revenue growth.
• The company anticipates transient challenges providing a slight headwind into the fourth quarter, affecting revenue and growth expectations.

Q & A Highlights

Q: Can you provide an update on the supplier constraints affecting the ON-Q product line and the long-term growth outlook for this segment? A: Michael Greiner, Interim CEO, explained that the primary supply challenges for ON-Q were resolved in the third quarter, but the impact was felt due to missed procedures. The company is working to regain customers and is optimistic about ON-Q's prospects, particularly with the upcoming No Pain Act, which could positively affect reimbursement rates.

Q: How should we think about Avanos' long-term growth goals, especially looking into FY25? A: Michael Greiner stated that while they are not commenting on 2025 specifics yet, they will provide more details at the JPMorgan conference in January. The company is analyzing the impact of recent performance, particularly in ON-Q and COOLIEF, to determine the appropriate growth profile moving forward.

Q: What are the primary tailwinds for sales in 2025, and what major products or launches should we be aware of? A: Michael Greiner highlighted several areas, including the digestive health business with new product launches like the Coregrip SR, continued growth in the NeoMed product line, and the pain management and recovery business, which includes the HA, IVP, and Game Ready portfolios. The company is also focusing on strategic initiatives to support growth.

Q: Can you provide more details on the recent strong performance of the Game Ready portfolio and expectations for next year? A: Michael Greiner noted that while some growth is due to favorable comps, the company is implementing new strategies, such as a direct-to-consumer approach and a more seamless rental model. These initiatives are expected to support continued growth in the Game Ready category.

Q: What are the company's strategic priorities moving forward, and how do they align with the transformation plan? A: Michael Greiner emphasized the focus on executing the strategic transformation plan, which includes product exits, divestitures, acquisitions, and share repurchases. The company aims to improve margins and free cash flow generation, with a comprehensive update expected at the JPMorgan conference in January.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.