Avanos Medical, Inc. announces Q4 and full-year 2023 results

Avanos Medical, Inc. reported fourth quarter and full-year 2023 results.

“We were very pleased with the overall execution on our transformation initiative last year, which sets the foundation for more profitable growth in 2024 and for reaching our mid-term financial targets in 2025,” said Joe Woody, Avanos’s chief executive officer. Woody continued, “We believe we are poised to maintain the positive momentum in our Digestive Health portfolio and we are also confident that our strategy for the Pain Management and Recovery business will lead to sustainable growth as we enter 2024.”

During 2023, we completed a number of important steps in furtherance of the three-year transformation initiative that we initiated in January 2023 (the “Transformation Process”). The Transformation Process is focused on four key priorities: optimizing our commercial organization; transforming our product portfolio; implementing cost management initiatives to enhance operating profitability; and continuing to efficiently deploy capital while maintaining a focused and disciplined approach to M&A.

On October 2, 2023, we completed the sale of substantially all of the assets of our respiratory health (RH) business (the “Divestiture”). This transaction was aimed at accelerating our efforts to focus our portfolio in markets where we believe we are well-positioned to succeed. As a result of the Divestiture, the RH business’s operating results are reflected as discontinued operations for all periods presented.

On July 24, 2023, we closed the acquisition of Diros Technology, Inc. (“Diros”). Based in Toronto, Canada, Diros is at the forefront of radiofrequency ablation, or RFA, technology used to treat chronic pain conditions. The addition of Diros’ unique RF TridentTM technology is expected to further enhance Avanos’ Pain Management and Recovery treatment options and complement our premium COOLIEF* Cooled Radiofrequency product offering. We believe the acquisition of Diros represents a significant addition to our product portfolio.

Fourth quarter 2023 operating results from continuing operations
In the fourth quarter of 2023, net sales totaled $173.3 million, a 4.6% decrease compared to the prior year, primarily from lower hyaluronic acid (“HA”) portfolio sales, partially offset by favorable foreign currency translation effects.

Gross margin for the fourth quarter was 54.8% compared to 56.7% a year ago. Adjusted gross margin was 58.6% compared to 58.9% in the prior year. Gross profit margin decreased primarily due to product mix, partially offset by favorable currency exchange rates and manufacturing efficiencies.

Selling and general expenses as a percentage of net sales was 43.0% compared to 43.3% in the prior year period, primarily due to non-recurring expenses associated with our ongoing Transformation Process, the Diros acquisition and the Divestiture, as well as compliance costs associated with the EU Medical Device Regulation (the “EU MDR”).

Operating profit in the quarter was $11.2 million compared to $16.6 million in the fourth quarter of 2022. On an adjusted basis, operating profit was $27.1 million compared to $29.5 million a year ago.

Adjusted EBITDA for the quarter was $32.1 million compared to $33.7 million in the prior year.

Full-year 2023 operating results from continuing operations
Net sales decreased 1.6% to $673.3 million in 2023 primarily due to lower volume in the Pain Management and Recovery portfolio (primarily lower sales of HA pain relief products), partially offset by continued strong demand for Digestive Health products. In addition to volume, 0.3% of favorable pricing was offset by 0.2% of unfavorable foreign currency translation effects.

Gross margin for 2023 was 56.4% compared to 57.6% in 2022. Adjusted gross margin was 59.1%, down from 59.9% last year due primarily to unfavorable product mix, partially offset by improved manufacturing efficiencies.

Selling and general expenses as a percentage of net sales were 49.8% compared to 47.7% in the prior year period, driven by higher selling costs, along with non-recurring expenses associated with our ongoing Transformation Process, the Divestiture and the Diros acquisition, as well as compliance costs associated with the EU MDR.

Operating income in 2023 was $4.2 million compared to $35.5 million in the prior year. On an adjusted basis, operating profit was $79.7 million compared to $73.2 million in 2022.

For the full-year, adjusted EBITDA totaled $98.9 million, compared to $91.2 million in the prior year.

Cash flow and balance sheet
Cash from operations less capital expenditures, or free cash flow, for the fourth quarter of 2023 was an outflow of $3.4 million, compared to an inflow of $28.8 million a year ago. For 2023, free cash flow was $14.6 million, compared to $71.6 million in the prior year.

At year-end 2023, the Company’s cash balance was $87.7 million compared to $127.7 million at year-end 2022. Total debt at the end of the fourth quarter totaled $168.0 million, consisting of borrowings of $118.8 million on the Company’s term loan facility and $49.2 million on the revolving credit facility.

Discontinued operations
Net sales from discontinued operations were $7.0 million in the three months ended December 31, 2023, compared to $35.9 million in the three months ended December 31, 2022. Net sales from discontinued operations were $100.9 million in the year ended December 31, 2023, compared to $135.9 million in the year ended December 31, 2022. We recognized a loss on disposal of the RH business, and accordingly, we recorded impairment of $70.8 million against assets in the disposal group, which is included in “(Loss) income from discontinued operations, net of tax.”

2024 outlook
The Company expects 2024 net sales to be between $685 and $705 million, which assumes organic growth between 3% to 6%, excluding the impact of the product portfolio rationalization under the Transformation Process. Adjusted gross profit margins are expected to be between 59.5% and 60.5%, adjusted SG&A as a percentage of revenue is expected to be between 41% and 42%, and adjusted diluted earnings per share are expected to be between $1.30 to $1.45.
MB Bureau