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]

Summary of Avanos Medical Conference Call Company Overview - **Company**: Avanos Medical - **Industry**: Healthcare, specifically in specialty nutrition systems and pain management and recovery - **Revenue**: Approximately $690 million to $700 million in total sales [4][5] - **Adjusted EPS**: Expected range of $0.85 to $0.95 [5][27] Core Business Segments 1. **Specialty Nutrition Systems (SNS)** - Core growth engine with a focus on enteral feeding solutions [6] - Market leader in guided feeding tube placement (CORTRAK) and low-profile G-tubes (MIC-KEY) [6][9] - Recent growth driven by double-digit increases in short-term feeding products and neonatal solutions [6][10] - Global enteral feeding tube market valued at approximately $1 billion, growing at about 5% [12] 2. **Pain Management and Recovery** - Recently returned to growth, driven by commercial execution and favorable reimbursement dynamics [18] - Leading U.S. provider of radiofrequency ablation (RFA) and non-opioid post-surgery pain pumps [18][20] - Market for surgical pain relief is approximately $320 million, while Game Ready market is around $300 million, growing at 6%-8% [20][21] Strategic Initiatives - **Growth Strategy**: Aiming for a billion-dollar business by 2030 through: - Accelerating growth in strategic segments [24] - Pursuing synergistic M&A opportunities, exemplified by the acquisition of Nexus [24][41] - Improving operational efficiency and divesting underperforming assets [25][31] - **M&A Focus**: Targeting acquisitions that are additive to revenue and have good margins, with a goal of at least one deal per year [41] Financial Performance and Guidance - **Sales Guidance**: Reaffirmed guidance of $690 million to $700 million for the current year, with expectations to finish at the upper end [27][32] - **Cost Mitigation**: Implementing strategies to mitigate tariff impacts, including exiting China and optimizing pricing strategies [29][30] Market Dynamics - **Neonatal Solutions**: Strong growth driven by low birth weights and ENFit adoption [13] - **Aging Population**: Increasing demand for enteral nutrition in ICU settings due to aging populations [14] - **Chronic Diseases**: Growth in long-term feeding driven by pediatric neurological diseases and cancer patients [14] Operational Improvements - **Cost Savings**: Announced $15-$20 million in cost reductions through organizational restructuring and operational efficiencies [31] - **Product Development**: Focus on outsourcing R&D for new product development to enhance efficiency and accountability [34] Future Outlook - **Innovation Focus**: Emphasis on intelligent feeding and new product development to enhance patient safety and workflow optimization [8][15] - **Sales Execution**: Strong sales team with a focus on deeper customer engagement and innovative business models [38] Conclusion - Avanos Medical is positioned for durable growth with a strong balance sheet, market-leading positions, and a clear strategy for future expansion through M&A and operational efficiencies [32]