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Avanos Medical(AVNS) - 2024 Q4 - Annual Report
AVNSAvanos Medical(AVNS)2025-02-26 21:55
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Acquisitions and Divestitures - Avanos Medical, Inc. reported a purchase price of approximately 53.0millionfortheacquisitionofDirosTechnologyInc.,withanadditionalcontingentcashconsiderationofupto53.0 million for the acquisition of Diros Technology Inc., with an additional contingent cash consideration of up to 7.0 million based on performance objectives[14]. - The company completed the acquisition of OrthogenRx, Inc. for a purchase price of 130.0million,aimedatexpandingitsportfolioinkneepaintreatments[15].−AvanosdivesteditsRespiratoryHealthbusinessfor130.0 million, aimed at expanding its portfolio in knee pain treatments[15]. - Avanos divested its Respiratory Health business for 110.0 million in cash, part of a three-year transformation process initiated in January 2023 to focus on core markets[16][17]. - The company acquired 33.4millionofgoodwillinconjunctionwiththeacquisitionofDirosTechnologyInc.[279].−ThetotalpurchasepricefortheOrthogenRxAcquisitionwas33.4 million of goodwill in conjunction with the acquisition of Diros Technology Inc.[279]. - The total purchase price for the OrthogenRx Acquisition was 130.0 million in cash, with an additional 30.0millioncontingentonnetsalesgrowthduring2022and2023[309].FinancialPerformance−NetsalesfortheyearendedDecember31,2024,were30.0 million contingent on net sales growth during 2022 and 2023[309]. Financial Performance - Net sales for the year ended December 31, 2024, were 687.8 million, a slight increase from 673.3millionin2023[229].−Grossprofitfor2024was673.3 million in 2023[229]. - Gross profit for 2024 was 381.3 million, compared to 379.7millionin2023,indicatingastablegrossmargin[229].−Thecompanyreportedanetlossof379.7 million in 2023, indicating a stable gross margin[229]. - The company reported a net loss of 392.1 million in 2024, significantly higher than the net loss of 61.8millionin2023[231].−Operatinglossfor2024was61.8 million in 2023[231]. - Operating loss for 2024 was 396.2 million, a decline from an operating income of 4.2millionin2023[229].−Thecompany’saccumulateddeficitgrewto4.2 million in 2023[229]. - The company’s accumulated deficit grew to 707.0 million in 2024 from 314.9millionin2023,highlightingongoingfinancialchallenges[234].−Totalstockholders′equitydecreasedto314.9 million in 2023, highlighting ongoing financial challenges[234]. - Total stockholders' equity decreased to 828.5 million in 2024 from 1,236.3millionin2023,reflectingtheimpactofnetlosses[234].−Thecompanyincurredagoodwillandintangiblesimpairmentof1,236.3 million in 2023, reflecting the impact of net losses[234]. - The company incurred a goodwill and intangibles impairment of 436.7 million in 2024, which significantly impacted overall financial performance[229]. - Cash provided by operating activities increased to 100.7millionin2024from100.7 million in 2024 from 32.4 million in 2023[237]. - The total income (loss) before income taxes was (403.3)million,asignificantdeclinefrom(403.3) million, a significant decline from (7.9) million in 2023[327]. - The effective tax rate for 2024 was 4.2%, compared to (25.3)% in 2023, indicating a substantial change in tax liabilities[330]. Research and Development - Research and development costs were 26.2millionin2024,downfrom26.2 million in 2024, down from 27.2 million in 2023 and 29.2millionin2022,indicatingatrendincostmanagement[25].−Thecompanylaunchedtwonewproductsintheglobalmarketin2024,reflectingongoinginnovationefforts[24].−Researchanddevelopmentexpensesdecreasedto29.2 million in 2022, indicating a trend in cost management[25]. - The company launched two new products in the global market in 2024, reflecting ongoing innovation efforts[24]. - Research and development expenses decreased to 26.2 million in 2024 from 27.2millionin2023[229].−Researchanddevelopmentexpensesareexpensedasincurred,primarilyconsistingofsalaries,producttrialcosts,andlaboratoryfees[262].MarketandSalesStrategy−Approximately5027.2 million in 2023[229]. - Research and development expenses are expensed as incurred, primarily consisting of salaries, product trial costs, and laboratory fees[262]. Market and Sales Strategy - Approximately 50% of net sales in North America were made through distributors in 2024, with sales to McKesson Corporation and Medline Industries accounting for 18% and 17% of consolidated net sales, respectively[20]. - In 2024, approximately 28% of global net sales were contracted through Group Purchasing Organizations (GPOs), highlighting the importance of these agreements in sales strategy[22]. - The company faced significant competition in both U.S. and international markets, particularly from major players like Boston Scientific Corporation and Medtronic plc in its key segments[23]. - Digestive Health product sales increased to 396.4 million in 2024 from 371.6millionin2023,whilePainManagementandRecoverysalesdecreasedto371.6 million in 2023, while Pain Management and Recovery sales decreased to 291.4 million from 301.7million[365].−ThecompanyhadnetsalestoexternalcustomersintheUnitedStatesof301.7 million[365]. - The company had net sales to external customers in the United States of 529.1 million in 2024, up from 467.0millionin2023[371].ComplianceandRegulatoryEnvironment−Compliancewithhealthcareregulationssignificantlyincreasesthetime,difficulty,andcostsassociatedwithobtainingandmaintainingproductapprovals,particularlyintheU.S.where510(k)clearanceisrequired[31].−TheEUMedicalDeviceRegulation(EUMDR)adoptedin2021mandatesre−certificationofmanyproductstoenhancedstandards,withatransitionperiodendingDecember31,2027,orDecember31,2028,dependingondeviceclassification[33].−Thecompanyiscommittedtocompliancewithenvironmental,health,andsafetyregulations,althoughfuturechangesinlawsmayincuradditionalcosts[41].EmployeeandDemographics−EmployeedemographicsasofDecember31,2024,showatotalof2,227globalemployees,with55.6467.0 million in 2023[371]. Compliance and Regulatory Environment - Compliance with healthcare regulations significantly increases the time, difficulty, and costs associated with obtaining and maintaining product approvals, particularly in the U.S. where 510(k) clearance is required[31]. - The EU Medical Device Regulation (EU MDR) adopted in 2021 mandates re-certification of many products to enhanced standards, with a transition period ending December 31, 2027, or December 31, 2028, depending on device classification[33]. - The company is committed to compliance with environmental, health, and safety regulations, although future changes in laws may incur additional costs[41]. Employee and Demographics - Employee demographics as of December 31, 2024, show a total of 2,227 global employees, with 55.6% located in Mexico and 35.3% in the United States[43]. - Women represent 49.6% of global salaried employees, while 30.8% of U.S. salaried employees are ethnically diverse[52]. - The company has implemented a multi-tiered employee retention strategy, including enhanced compensation and flexible work arrangements[47]. Financial Risks and Currency Management - A one percentage point increase in SOFR could result in an incremental interest expense of 3.8 million if the senior secured revolving credit facility of 375millionisfullydrawnfortheentireyear[220].−A10375 million is fully drawn for the entire year[220]. - A 10% change in foreign currency exchange rates could impact the consolidated financial position by approximately 0.9 million based on balance sheet transactional exposures as of December 31, 2024[223]. - A 10% change in exchange rates could affect stockholders' equity by approximately 15.3millionduetotranslationadjustmentsofnon−U.S.operations[225].−Thecompanyemploysderivativeinstrumentsforriskmanagementpurposestomitigateforeigncurrencyandcommoditypricerisks[218].−ThecompanybeganenteringintoderivativeinstrumentstohedgeforecastedcashflowsinMexicanpesos,withaderivativeliabilityof15.3 million due to translation adjustments of non-U.S. operations[225]. - The company employs derivative instruments for risk management purposes to mitigate foreign currency and commodity price risks[218]. - The company began entering into derivative instruments to hedge forecasted cash flows in Mexican pesos, with a derivative liability of 0.6 million as of December 31, 2024[358]. - The aggregate notional values of outstanding foreign currency swap contracts designated as cash flow hedges were 3.6millionasofDecember31,2024[359].AssetsandLiabilities−Totalassetsdecreasedto3.6 million as of December 31, 2024[359]. Assets and Liabilities - Total assets decreased to 1,154.2 million in 2024 from 1,692.4millionin2023,reflectingasignificantreductioningoodwillandintangibleassets[233].−Cashandcashequivalentsincreasedto1,692.4 million in 2023, reflecting a significant reduction in goodwill and intangible assets[233]. - Cash and cash equivalents increased to 107.7 million in 2024 from 87.7millionin2023,indicatingimprovedliquidity[233].−Theliabilityforestimateddistributorrebatesroseto87.7 million in 2023, indicating improved liquidity[233]. - The liability for estimated distributor rebates rose to 13.3 million in 2024 from 10.4millionin2023,reflectingapproximately5410.4 million in 2023, reflecting approximately 54% of consolidated net sales[256]. - The liability for estimated incentives increased to 10.9 million in 2024 from 7.3millionin2023,withapproximately287.3 million in 2023, with approximately 28% of consolidated net sales contracted through group purchasing organizations[257]. - Total estimated liabilities for accrued rebates and incentives were 24.3 million, up from 17.8millionin2023[366].ImpairmentsandRestructuring−Inthefourthquarterof2024,thecompanyrecordedanimpairmentlossof17.8 million in 2023[366]. Impairments and Restructuring - In the fourth quarter of 2024, the company recorded an impairment loss of 100.2 million on the HA asset group due to lower net sales and margin expectations[276]. - During the fourth quarter of 2024, the company recorded a goodwill impairment of 336.5million,reflectingadecreaseinmarketcapitalization[277].−ThetotalrestructuringcostsfortheyearendedDecember31,2024,amountedto336.5 million, reflecting a decrease in market capitalization[277]. - The total restructuring costs for the year ended December 31, 2024, amounted to 8.1 million, with 8.9millionincurredforthepost−RHDivestitureRestructuringPlan[281].−Thecompanyexpectstoincurbetween8.9 million incurred for the post-RH Divestiture Restructuring Plan[281]. - The company expects to incur between 10.0 million and 11.0millionincashexpensesrelatedtothepost−RHDivestiturerestructuringplan,expectedtobecompletedbytheendof2025[282].−Therestructuringliabilitybalanceattheendof2024was11.0 million in cash expenses related to the post-RH Divestiture restructuring plan, expected to be completed by the end of 2025[282]. - The restructuring liability balance at the end of 2024 was 3.8 million, compared to $2.3 million at the end of 2023[288].