Avanos Medical (NYSE:AVNS) Q4 2025 Earnings call February 24, 2026 09:00 AM ET Company ParticipantsDave Pacitti - CEOJason Pickett - VP of Corporate Finance, Tax, and TreasurerScott Galovan - SVP and CFOConference Call ParticipantsDanny Stauder - Director and Equity Research AnalystOperatorNote that this call is being recorded on February 24th, 2026. I would now like to turn the conference over to Jason Pickett, Vice President, Corporate Finance and Treasurer. Please go ahead.Jason PickettGood morning, ever ...

Financial Data and Key Metrics Changes - For the full year 2025, the company reported net sales of $701 million, exceeding the revised guidance range, and generated adjusted diluted earnings per share of $0.94 [4][11] - The adjusted EBITDA for the year was $87 million, with an adjusted gross margin of 54.6% and adjusted SG&A as a percentage of revenue of 42% [12][19] - For Q4 2025, net sales were approximately $181 million, with adjusted diluted earnings per share of $0.29 and adjusted EBITDA of $28 million [11][19] Business Line Data and Key Metrics Changes - The Specialty Nutrition Systems portfolio grew over 8% organically compared to the prior year, driven by strong demand in long-term and short-term enteral feeding products [6][15] - The Pain Management & Recovery portfolio saw normalized organic sales increase by 2.3%, with the radiofrequency ablation business posting double-digit organic growth [7][18] - The Game Ready portfolio experienced a slight decline year-over-year but maintained similar revenue levels throughout 2025 [9][18] Market Data and Key Metrics Changes - The Specialty Nutrition Systems segment's operating profit was 19%, down 100 basis points from the previous year due to unfavorable tariff impacts [17] - The Pain Management & Recovery segment's operating profit improved by 270 basis points to 4%, reflecting effective cost management despite tariff costs [18] - The hyaluronic acid injections and IV therapy product lines reported a decline of over 35% compared to the prior year due to the divestiture of the HA business [19] Company Strategy and Development Direction - The company is focused on five strategic imperatives: accelerating organic growth, managing tariff impacts, realizing operating efficiencies, improving or divesting underperforming assets, and acquiring synergistic businesses [10][23] - The company is executing a China exit strategy, aiming to have all syringe manufacturing operations out of China by June 2026 [12][21] - The integration of Nexus Medical into the neonatal portfolio is progressing well, with expectations for double-digit growth in 2026 [13][44] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's position for continued growth in 2026, despite anticipated tariff impacts [20][23] - The company expects net sales in the range of $700 million to $720 million for 2026, with mid to high single-digit growth in the Specialty Nutrition Systems segment [21] - Management highlighted the importance of ongoing tariff mitigation strategies and the expected improvement in gross margins in the second half of 2026 [20][34] Other Important Information - The company generated $43 million of free cash flow for the full year, higher than anticipated due to timing of one-time cash charges [19][20] - Capital expenditures for 2026 are expected to be around $25 million, slightly lower than 2025, to support the accelerated China exit plan [22] Q&A Session Summary Question: Insights on tariffs and 2026 outlook - Management estimated a $30 million impact from tariffs in 2026, with a significant portion related to China [27][29] - The company is confident in exiting China by June and delivering products from Mexico and Cambodia [28][30] Question: Revenue guidance and organic growth rates - The consolidated organic growth rate is expected to be around 5%, with mid to high single digits for Specialty Nutrition Systems and low to mid single digits for Pain Management & Recovery [36][37] Question: Operating leverage and cost-saving initiatives - Management expressed high confidence in continuing to drive efficiency in 2026, with a focus on both R&D and SG&A [38][39] - Cost containment measures are expected to offset additional tariff expenses and support earnings expansion [41] Question: Specialty Nutrition performance and Nexus acquisition - Demand for the Specialty Nutrition Systems portfolio remains high, with Nexus performing better than expected and contributing to growth [42][44]

Core Insights - Avanos Medical, Inc. reported a third-quarter 2025 adjusted EPS of 22 cents, a decline of 38.9% year over year, but exceeded the Zacks Consensus Estimate of 16 cents by 37.5% [1] - Revenues for the quarter reached $177.8 million, reflecting a year-over-year increase of 4.3% and surpassing the Zacks Consensus Estimate by 6.9% [2] - The company raised its 2025 sales guidance to a range of $690-$700 million, up from a previous estimate of $665-$685 million, and increased the lower end of its EPS forecast to between 85 and 95 cents [14] Revenue Breakdown - The Specialty Nutrition Systems (SNS) segment generated revenues of $114 million, up 16.1% year over year, driven by strong demand in enteral feeding and neonatal solutions [8] - The Pain Management and Recovery (PM&R) segment reported revenues of $59 million, a 2.1% increase year over year, with net sales of Radio Frequency Ablation (RFA) products growing 10.5% to $34.6 million [4][5] - The Corporate and Other segment's revenues fell to $4.8 million, down 66.7% year over year, following the divestiture of the Hyaluronic Acid product line [9][10] Margin and Expense Analysis - Adjusted gross profit decreased by 4.7% year over year to $97.4 million, with the adjusted gross margin contracting by 390 basis points to 55.7% [11] - Selling and general expenses rose by 3.2% to $83.5 million, while research and development expenses decreased by 7.9% to $5.8 million [11] - Adjusted operating profit fell 44% to $12.2 million, with the adjusted operating margin contracting by 580 basis points to 6.9% [12] Financial Position - At the end of the third quarter, the company had cash and cash equivalents of $70.5 million, down from $90.3 million at the end of the second quarter, while total debt decreased to $102.8 million [13] - Cumulative net cash provided by operating activities increased to $46.5 million compared to $42.8 million in the prior-year period [13] Strategic Initiatives - The company is focusing on strategic portfolio actions, including divesting non-core assets and acquiring Nexus Medical to enhance its neonatal and pediatric offerings [18] - Cost-transformation initiatives are underway, aimed at achieving significant savings and improving operational efficiency through 2026 [18] - Despite challenges such as tariffs impacting margins, the company is implementing mitigation strategies, including supply-chain relocation and internal cost controls [19]

Core Insights - Avanos Medical, Inc. (AVNS) is positioned for growth due to its strong product line and solid fiscal second-quarter 2025 performance, despite facing tariff risks and foreign exchange volatility [1][5][12] Financial Performance - Year-to-date, AVNS stock has declined by 22.4%, compared to an 8.2% decline in the industry, while the S&P 500 Composite increased by 11% [2] - The company has a market capitalization of $576.8 million and an earnings yield of 7.4%, which is favorable compared to the industry's negative yield [2] Growth Factors - The Specialty Nutrition Systems (SNS) segment achieved 5% organic growth, driven by strong demand in enteral feeding and the launch of new products, with neonatal solutions growing over 12% [5][10] - The Pain Management and Recovery segment saw nearly 14% growth in radiofrequency ablation, supported by strong generator sales and international momentum for the COOLIEF platform [6][10] Strategic Initiatives - Avanos initiated a three-year Transformation Process in January 2023 to enhance operations and profitability, including divestitures and acquisitions [7][8] - The acquisition of Diros Technology in 2023 expanded the radiofrequency ablation portfolio, reinforcing Avanos's position in non-opioid pain solutions [9] Challenges - The company incurred $8 million in tariff-related costs in Q2 2025, with expectations of up to $15 million in additional costs for the year due to U.S.-China trade tensions [12] - Foreign exchange volatility from a stronger U.S. dollar is projected to reduce reported revenues by about 100 basis points in 2025 [13] Estimate Trends - The Zacks Consensus Estimate for earnings remains stable at 92 cents per share for 2025, with third-quarter 2025 revenue estimates at $166.4 million, indicating a 2.4% decline year-over-year [14]