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Date

  • Tuesday, Aug. 5, 2025, at 1 p.m. ET

Call participants

  • Chief Executive Officer — Dave Pacitti
  • Chief Financial Officer — Scott Galovan
  • Interim Chief Financial Officer; Head of Tax, Treasury, and Accounting — Jason Pickett

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Risks

  • The company assessed goodwill for impairment and recorded a $77 million noncash impairment charge in the pain management and recovery reporting unit in the fiscal second quarter ended June 30, 2025, driven by downward pressure on market capitalization.
  • Free cash flow for the fiscal second quarter ended June 30, 2025 was approximately negative $4 million, primarily reflecting the timing of tax payments and higher capital expenditures.
  • Jason Pickett said, "We still face uncertainty on the full impact of tariffs on our profitability and free cash flow."
  • The hyaluronic acid injections and intravenous infusion product saw a revenue decline of over 20% in the fiscal second quarter ended June 30, 2025, attributed to continued pricing pressure on the three- and five-shot HEA categories.

Takeaways

  • Net sales-- $175 million for the fiscal second quarter ended June 30, 2025, adjusted for foreign exchange and portfolio transformation withdrawals.
  • Organic sales growth-- Organic sales were up 2% year-over-year.
  • Adjusted EPS-- $0.17 of adjusted diluted earnings per share.
  • Adjusted EBITDA-- $17 million of adjusted EBITDA.
  • Adjusted gross margin-- Adjusted gross margin was 55.7%.
  • SG&A as % of revenue-- 45.2% SG&A as a percentage of revenue.
  • Specialty Nutrition Systems growth-- 5% organic growth year-over-year in the Specialty Nutrition Systems segment, with reaffirmed leadership in long-term, short-term, and neonatal internal feeding.
  • Neonatal solutions-- Growth greater than 12% year-over-year, supported by the NeoMed line during late-stage adoption in North America.
  • Short-term internal feeding portfolio-- Achieved double-digit global growth, driven by the U.S. CoreGrip tube retention system launch.
  • Specialty Nutrition operating profit-- Nearly 18% operating profit margin for the Specialty Nutrition Systems segment, reflecting tariff and cost absorption impacts.
  • Pain Management & Recovery organic sales-- Normalized organic sales up 3.4% excluding foreign exchange and portfolio exits.
  • Radiofrequency ablation (RFA) growth-- Near 14% year-over-year increase in the Radiofrequency Ablation (RFA) business, attributed to generator capital sales and higher procedure volumes in RecenTech and Trident.
  • Pain Management operating profit-- Grew nearly $2 million year-over-year, excluding the noncash goodwill impairment charge.
  • Hyaluronic acid & infusion portfolio-- Reported revenue decline of over 20% due to continued pricing pressure; business divested July 31, 2025.
  • Cash and debt position-- $90 million cash on hand and $105 million debt outstanding as of June 30, 2025, with leverage maintained meaningfully below one turn.
  • Annual free cash flow outlook-- Anticipating approximately $40 million of free cash flow for fiscal 2025, including tariffs.
  • 2025 revenue guidance-- Reaffirmed at $665 million to $685 million full-year revenue estimate for fiscal 2025, including the hyaluronic acid divestiture.
  • 2025 adjusted EPS guidance-- Maintained at $0.75 to $0.95 adjusted earnings per share for fiscal 2025, including the divestiture impact.
  • Incremental tariff costs-- Estimated at $15 million for fiscal 2025, mainly from Mexico and China imports.
  • Tariffs incurred-- Over $8 million in the fiscal second quarter ended June 30, 2025, with some China-origin goods initially subject to a 145% tariff rate before reduction to 30%.
  • Supply chain strategy-- Accelerated investments targeting complete exit from China-sourced NeoMed products by 2026.
  • Leadership changes-- Scott Galovan appointed as CFO and Dave Pacitti named to the board of directors, with Jason Pickett continuing to lead tax, treasury, and accounting functions.
  • Portfolio transformation-- Completed divestiture of the hyaluronic acid business to focus growth in Specialty Nutrition Systems and Pain Management and Recovery segments.
  • Capital allocation-- Closed two transactions supporting Specialty Nutrition Systems strategy, and remain active on acquisitions aligned with returns criteria.

Summary

The company closed the sale of its hyaluronic acid product line at the end of July 2025, marking a clear step to concentrate resources on its core Specialty Nutrition Systems and Pain Management and Recovery segments. Management maintained guidance for both revenue and adjusted EPS for fiscal 2025, including the impact of the business divestiture, and reiterated confidence in execution across strategic initiatives. The impact of tariffs remains a central factor, with $15 million in incremental costs anticipated for fiscal 2025 and ongoing mitigation efforts focused on supply chain relocation and advocacy.

  • The core pain management and recovery segment demonstrated 13.8% organic growth in radiofrequency ablation, driven by increased generator sales and enhanced sales team execution.
  • Specialty Nutrition Systems saw strong double-digit growth in its short-term internal feeding portfolio, and over 12% growth in neonatal products, supporting mid-single-digit segment growth targets for fiscal 2025.
  • Leadership changes were confirmed, with Scott Galovan named CFO and Dave Pacitti appointed to the board, while Jason Pickett will retain oversight of tax, treasury, and accounting.
  • Pickett stated, "We still face uncertainty on the full impact of tariffs on our profitability and free cash flow," signaling continued monitoring of this external risk throughout fiscal 2025.

Industry glossary

  • NeoMed: A product line specializing in neonatal and pediatric enteral feeding devices.
  • Radiofrequency ablation (RFA): A minimally invasive procedure using high-frequency electrical currents to ablate nerve tissues for pain management.
  • RecenTech/Trident: Specific branded platforms within the company's pain management offerings, focusing on generator-based radiofrequency ablation systems for procedure volume growth.
  • Game Ready: A portfolio of cold and compression therapy systems used for post-surgical recovery and rehabilitation.
  • COOLIEF: A branded cooled radiofrequency pain-relief therapy system targeting chronic pain conditions.
  • ON-Q/AMBIT: Product lines offering non-opioid, infusion-based post-surgical pain management solutions.
  • No Pain Act: U.S. legislation promoting improved access to non-opioid pain management alternatives for post-surgical patients, influencing reimbursement decisions.
  • Go Direct transition: A strategic change in distribution mode in the United Kingdom, resulting in timing shifts for distributor orders.
  • HEA: Hyaluronic acid product categories, used for joint injection therapies.

Full Conference Call Transcript

Scott Galovan: Good morning, everyone, and thanks for joining us. It's my pleasure to welcome you to Avanos Medical, Inc. 2025 Second Quarter Earnings Conference Call. Presenting today will be Dave Pacitti, CEO, who will kick off the call by sharing a few leadership updates. Dave will then provide a high-level overview of our second quarter results before turning it over to Jason Pickett, who has been serving as our interim CFO. Jason will share additional details on these topics, provide an overview of our financial results, and affirm our 2025 planning assumptions inclusive of the impact of tariffs. We will finish the call with Q&A. A presentation for today's call is available on the Investors section of our website avanos.com.

As a reminder, our comments today contain forward-looking statements related to the company, our expected performance, and current economic conditions, including risks related to ongoing tariff negotiations and our industry. No assurance can be given as to future financial results. Actual results could differ materially from those in the forward-looking statements. For more information about forward-looking statements and the risk factors that could influence future results, please see today's press release and risk factors described in our filings with the SEC. Additionally, we will be referring to adjusted results and outlook. The press release has information on these adjustments and reconciliations to comparable GAAP financial measures. Now, I will turn the call over to Dave.

Dave Pacitti: Thanks, Scott, and good morning, everyone. I'd like to begin today by addressing the changes that we announced earlier this morning. First, it's my great pleasure to announce that Scott Galovan, previously our SVP of strategy and corporate development, has been appointed Avanos Medical, Inc.'s new Chief Financial Officer. In his twelve-plus years with the company, Scott has been instrumental in executing our strategy, identifying and pursuing strategic acquisitions and divestitures to strengthen our portfolio, and keeping Avanos Medical, Inc. focused on the future. His extensive experience navigating complex transactions will be absolutely critical as we build on our transformation efforts. We're excited to welcome him to this role and look forward to his dynamic leadership and valuable contributions.

I'd also like to take this opportunity to thank Jason Pickett for serving as our interim CFO while we conducted our search to fill this role. We greatly appreciate his leadership and his commitment to keeping us on the right path during this transitional period. Jason will continue to lead our tax, treasury, and accounting functions. Finally, I'm honored to announce that I've been appointed to Avanos Medical, Inc.'s board of directors. Working alongside our board members to guide Avanos Medical, Inc.'s strategic direction and focus on delivering long-term shareholder value will truly be my privilege. Now, we will shift our comments to our quarterly results outlook.

Building off our first quarter results, we delivered a strong second quarter anchored by continued healthy performance of our life-sustaining specialty nutrition system segment along with continued progress in our opioid-sparing pain management and recovery segment. The demand for our products remains robust, and I'm pleased with the foundation laid out for our three-year transformation efforts. During my first one hundred days, I've reviewed the initiatives that were identified and implemented within the transformation journey. I'm encouraged by the progress of these initiatives and believe that these are additional to advance our optimization efforts. While still early in my tenure, I'm confident we can improve our commercial effectiveness through organizational enhancements, innovative and capital-efficient go-to-market approaches, and strategic partnerships.

In addition, I believe there are further operating model improvements and cost reduction opportunities through the organization that we will be addressing in the coming quarters. Next, I'm pleased to share that on July 31, we closed the sale of our hyaluronic acid product line of business. While we are not disclosing the financial terms, we were very pleased with this divestiture, which represents a meaningful step in advancing our transformation strategy and reinforcing our commitment to focus growth in our two strategic segments: Specialty Nutrition Systems and Pain Management and Recovery. Now, turning to our second quarter results.

For the quarter, we achieved net sales of $175 million, adjusted for the effects of foreign exchange and the impact of our strategic decision to withdraw from revenue streams that did not meet the return criteria specified by our portfolio transformation priority. Organic sales were up 2% compared to a year ago. Additionally, we generated $0.17 of adjusted diluted earnings per share and $17 million of adjusted EBITDA, with adjusted gross margins of 55.7% and SG&A as a percentage of revenue of 45.2%. Finally, due to downward pressure on our market capitalization, we assessed goodwill for impairment during the second quarter and recorded a noncash impairment charge of $77 million in the pain management and recovery reporting unit.

Our overall execution this quarter was solid, and the steady progress we made against each of our transformation priorities provides confidence in our ability to achieve the ranges of our 2025 financial guidance. With that, let me turn the call over to Jason, who will further discuss our second quarter financial results as well as our 2025 outlook.

Jason Pickett: Thanks, Dave. I'll spend the next few minutes discussing our second quarter results at the segment level. Our Specialty Nutrition Systems portfolio continues to deliver above-market results, growing 5% organically versus the prior year, reaffirming our number one position in long-term, short-term, and neonatal internal feeding. Demand for our long-term internal feeding products remains strong, and our underlying growth continues to beat market levels. However, as anticipated and shared during our first quarter earnings call, our second quarter performance was tempered by the timing of distributor orders captured in our first quarter results resulting from our Go Direct transition in The United Kingdom. Our short-term internal feeding portfolio posted another quarter of double-digit growth globally during the second quarter.

These results were fueled by the continued expansion of our U.S. Core track standard of care offering inclusive of our newly launched CoreGrip tube retention system designed to reduce the risk of tube migration and dislodgement. Finally, our neonatal solutions business delivered another excellent quarter, growing greater than 12% compared to the prior year. As we had previously signaled, we anticipate lower but still above-market growth for our NeoMed product line over the next few quarters as we enter the late stages of the infant adoption cycle in North America. From a profitability standpoint, operating profit for our Specialty Nutrition Systems segment for the second quarter was nearly 18%, reflecting the impact of tariffs and transient unfavorable cost absorption.

We believe the dynamics we have just discussed provide a foundation for us to deliver mid-single-digit organic revenue growth for our Specialty Nutrition Systems portfolio in 2025, driven by core commercial execution, new product innovations, and further global market expansion opportunities. Now, turning to our pain management and recovery portfolio. Normalized organic sales for this quarter were up 3.4%, excluding the impact of foreign exchange and our previously announced strategic decision to withdraw from certain low-growth, low-margin products. Our Radiofrequency Ablation or RFA business continues to deliver excellent results, posting near 14% growth this quarter compared to the previous year.

We are experiencing sustained growth in our RFA generator capital sales, which enables us to capture higher procedure volumes, especially within our RecenTech and Trident product lines. We credit our renewed ASC strategy and the increasing productivity of our fully deployed new sales structure in supporting these outcomes. Additionally, we are encouraged by the progress of our COOLIEF offering internationally, leveraging reimbursement tailwinds in several geographies, including The United Kingdom and Japan. Our surgical pain business was down compared to the prior year, but generally in line with our expectations. While the implementation of the reimbursement decision afforded by the No Pain Act is taking longer than anticipated, we are devoting more effort to understanding and addressing coverage denials.

The No Pain Act provides hospitals and caregivers with improved options to administer non-opioid post-surgical pain relief. We're excited to support better patient care through our ON-Q and AMBIT product line offerings. Finally, our Game Ready portfolio posted slightly lower revenues than a year ago. We are working to enhance our go-to-market model, primarily in North America, to improve performance and expand profitability within our portfolio. Operating profit for our pain management and recovery segment, excluding the noncash goodwill impairment charge previously mentioned, grew nearly $2 million from a year ago during the second quarter, demonstrating our recent top-line and cost management execution.

Although we had some mixed results across our pain management and recovery segment during the second quarter, we are encouraged by the continued progress we saw, particularly within our RFA product line, which continues to make solid organic gains. Finally, our hyaluronic acid injections and intravenous infusion product reported in corporate and other declined over 20% during the second quarter, primarily due to continued pricing pressure on our three and five-shot HEA categories. As Dave mentioned a few minutes ago, we divested the business at the end of July. Moving to our financial position and liquidity.

Our balance sheet remains strong and continues to provide us with strategic flexibility, with $90 million of cash on hand and $105 million of debt outstanding as of June 30. We have maintained leverage levels meaningfully below one turn for several quarters and will continue to be good stewards of our balance sheet. Free cash flow for the quarter was negative approximately $4 million, driven by the timing of tax payments as well as higher capital expenditures supporting our supply chain initiatives. We anticipate generating approximately $40 million of free cash flow for the year, including the impact of tariffs, which I'll address in a few minutes.

From a capital allocation standpoint, and as we have previously shared, we have closed on two smaller transactions that support our Specialty Nutrition System strategy, and we are actively pursuing acquisitions that align with our returns criteria. Now, turning to our 2025 outlook. Given our robust first and second quarter sales performance, along with favorable currency positions, we are reaffirming our full-year revenue estimate of $665 million to $685 million, inclusive of the impact of our hyaluronic acid divestiture. We remain confident in our Specialty Nutrition Systems segment strength for the duration of the year and continued market share gains in our RFA segment.

Now, regarding tariffs, while the environment remains volatile and fluid, we still estimate $15 million in incremental tariff-related manufacturing costs for the year, primarily related to products with country of origin from Mexico and China, consistent with our initial estimate. As a reminder, in the first quarter, we incurred $1.5 million of tariffs, which were capitalized into inventory and amortized in the second quarter through cost of goods sold. For the second quarter, we incurred over $8 million in tariffs, which we will be expensing in the third quarter. The second quarter tariffs were negatively impacted by increased China-origin goods shipments, with some incurring the 145% tariff rate prior to the US administration reducing the China-origin tariffs to 30%.

Our team continues to implement a range of strategies focused on tariff mitigation, including internal cost containment, pricing actions where appropriate, leveraging previously issued temporary tariff exemptions for portions of our portfolio, and lobbying efforts with Advamed and other third parties that have interactions with the administration. Lastly, we have accelerated supply chain investments and are targeting a complete exit from China-sourced NeoMed products by 2026. As we noted in our first quarter earnings call, we entered 2025 with challenging market conditions for some of our product categories, currency headwinds, and other global macroeconomic factors like tariffs. Despite these challenges, currency conditions have improved, our strategic segment growth is healthy, and our cost management discipline remains strong.

We still face uncertainty on the full impact of tariffs on our profitability and free cash flow, but we are pleased with our commercial progress thus far this year. As a result, the company is maintaining its 2025 adjusted earnings per share estimate range of $0.75 to $0.95, inclusive of the impact of our hyaluronic acid divestiture. Operator, please open the line for questions.

Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star and one on your telephone keypad. We now have our question. This comes from Daniel Stauder from Citizens JMP. Line is now open. Please go ahead and ask your question.

Daniel Stauder: Yeah. Great. Thank you for the questions. Congrats on the great quarter, and Scott, congratulations on the new role. First one, on the 2025 guidance. You reaffirmed full year on the sales line, and that's inclusive of the divestiture. So that's impressive and great to see. But I was hoping you could just give us some more high-level color on what you had previously assumed for in '25 and what that implies for SNS and pain management as we model out the back half of the year. Thanks.

Scott Galovan: Sure. Thanks, Daniel. So yes, we're pleased to be able to affirm the year inclusive of the impact of the divestiture. Obviously, there's five months of revenue that we're not going to be able to recognize in that due to the sale. So pleased with the performance of our futures of SNS and PM&R. Those businesses have continued to perform well. We're not disclosing exactly what the impact would be of the foregone revenue, but we are comfortable reaffirming guidance for the top line and bottom line.

Jason Pickett: Yeah. And Daniel, I'll also add, currency headwinds are not as material as we'd anticipated. So that's been a great answer. That allows us to follow up with that growth in the strategic segments that we have.

Daniel Stauder: Okay. Great. Appreciate that. And then, I guess, a little bit more specific on the RF ablation business. Really strong quarter. I know you touched on some of the dynamics there. But would still love some more color on what's driving growth there and how sustainable do you feel this is in the second half of '25 and into '26? Just anything you're seeing. Any more color would be great.

Dave Pacitti: Yes. Hi, Daniel. This is Dave. A couple of things. One, I had a chance to be out there with the team and also attend a couple of pain conferences. So I've got a really good understanding of the market. As I spent time with physicians and our customers as well as our team in the field, I think more and more customers see us as an RF solution company, very dedicated in that area. There are companies with a broader different offering in pain. We're very focused on RF ablation. We have a three-tiered offering, which I think also is very complementary to what physicians are trying to do.

When you look at our total portfolio, given the fact that we're dedicated to the space, we've been in the space a long time, we now have a three-tiered offering. There's a lot of momentum there on the RF ablation side, and we see that momentum continuing. We're very pleased with the execution of the team in the field and in the portfolio and the progress they're making. So yes, I would say, feel very good about it and feel good about heading into next year as well. I do think because we are dedicated to the space. As you know, there are other companies that are doing have a broader offering, as I mentioned.

But given the fact that we're so focused on it, people see us as the RF company, at least that's the takeaway I have from being in the field. And the offerings are really quite good in terms of having a three-tier solution.

Jason Pickett: Yeah. And I think from a numbers perspective, you can see 13.8% growth quarter over quarter for the RFA. And what we're seeing is with our increase in our generator sales, which is a great answer, we're also seeing material pull-through. So when we sell the generator, we're actually selling the higher price and margin probes that we have. And we're seeing that not just with if you sell our generators, but we have people that keep those generators, and they're continuing to buy from us. So, again, that comes back to the sales team that's going out there servicing the customers and just being able to differentiate our products from what's out there.

Daniel Stauder: Great. Thanks. Then just one last one for me. Again, on the divestiture. I guess just, you know, how should we think about how this impacts the income statement longer term specifically on the gross and operating margin lines? You know, we appreciate that you reiterated the bottom line guide here and understand that there are some other moving parts for the rest of 2025. But as we look out further, what do you feel is more steady state without as far as, you know, the margin level looks like? Or is it pretty neutral given some of your initiatives that you have in place? Thanks.

Jason Pickett: Yeah. What I would say, Daniel, is when we looked at what was coming in the back of the year, we'd mentioned to you that we were running the business more from a cash perspective. So we were trying to maintain the revenue. We were potentially lowering our sales prices to make the business work. So ultimately, we look at financials for the rest of the year, not a material impact on the bottom line when it comes to the divestiture. We're able to make up anything that we are losing there or on the revenue side with our strong strategic performance in those segments.

So not a material number that we're seeing all the way down to the bottom line.

Scott Galovan: The challenge in that business was not volumes. It was more price. And so, obviously, from a profitability perspective, as we continue to see pressure on margins, the impact there going forward from a just, you know, EPS and EBITDA perspective is limited.

Daniel Stauder: Great. Thank you very much.

Operator: Thank you. No further questions have come through at this time. I'll now turn the call back over to Dave Pacitti for closing remarks. Please go ahead, sir.

Dave Pacitti: Yes. Thanks, everyone. Thanks for the questions today. In closing, I'm really proud of the progress Avanos Medical, Inc. has made in transforming our business, as demonstrated by our hyaluronic acid divestiture. And we're generally pleased with our bright future driven by the dedication of our teams and the vital role our products really play with our customers, which is great to see and really getting back to patients and back to things that matter. So we appreciate your continued interest in Avanos Medical, Inc., and thanks again for the questions.

Operator: Thank you. This concludes our conference call for today. Thank you all for participating. You may now disconnect.