Avanos Medical, Inc. Reports Preliminary Fourth Quarter and Full-Year 2023 Financial Results; Revises Preliminary 2024 Revenue Outlook

Rhea-AI Summary

Avanos Medical, Inc. (AVNS) reports unaudited preliminary financial results for Q4 2023, with net sales expected to be in the range of $170-173 million, a decrease of 6.5-4.5% compared to the same period in 2022. The company also revised its preliminary revenue outlook for 2024, expecting net sales in the range of $685-705 million.

Positive

• None.

Negative

• Net sales for Q4 2023 were lower than expected due to underperformance by the Company's hyaluronic acid pain relief injection products, lower sales across North America Digestive Health products, and below-expected North America Pain Management and Recovery sales.
• The lower than expected net sales will negatively impact adjusted gross margin, adjusted EBITDA margin, and adjusted earnings per share for Q4 and the full year.

Insights

Financial Analyst

The preliminary financial results released by Avanos Medical, Inc. indicate a contraction in net sales for both the fourth quarter and the full year of 2023. This contraction, especially in the hyaluronic acid pain relief injection products, reflects a broader trend within the pharmaceutical and medical device industries where Medicare reimbursement changes can significantly influence product performance. The reduced sales in North America Digestive Health products due to a distributor's ordering pattern change is an operational risk that companies in this sector frequently face.

From a financial perspective, the decrease in net sales is expected to adversely affect adjusted gross margin, adjusted EBITDA margin and adjusted earnings per share. These metrics are crucial for assessing the company's profitability and operational efficiency. Investors should monitor these developments closely as they can impact the company's stock valuation and future investment potential. The revised preliminary revenue outlook for 2024 suggests cautious optimism, potentially indicating that the company expects to navigate the current challenges and stabilize its revenue streams.

Market Research Analyst

The market dynamics for Avanos' HA product line are indicative of the competitive pressures within the medical supplies industry. Pricing pressures due to Medicare reimbursement changes are not unique to Avanos but reflect a systemic issue that can affect the entire sector. Companies that are reliant on a few key products or a single market, like North America in Avanos' case, may be vulnerable to such policy-driven market shifts.

Furthermore, the mention of a major distributor's ordering pattern change highlights the importance of supply chain management and the need for diversification in distribution channels. Companies that can adapt to these changes and develop alternative strategies may better withstand such fluctuations. The revised revenue outlook implies that Avanos is expecting to adjust to these market conditions, which could be a sign of strategic planning and adaptability—a positive signal to the market.

Economist

The reported decrease in net sales and the subsequent impact on financial metrics such as EBITDA margin and earnings per share are reflective of economic forces at play in the healthcare sector. Medicare reimbursement changes are a form of regulatory risk that can have a direct and immediate impact on a company's bottom line. Avanos' experience underscores the importance of regulatory compliance and forecasting for companies operating within highly regulated industries like healthcare.

The company's three-year transformation initiative and the maintenance of its 2025 financial objectives, despite current setbacks, suggest a long-term strategic approach to weathering economic and regulatory storms. This kind of forward-looking planning is essential for resilience in the face of economic volatility. Investors should consider the company's ability to execute on its strategic initiatives when evaluating its long-term growth prospects.

ALPHARETTA, Ga., Jan. 4, 2024 /PRNewswire/ -- Avanos Medical, Inc. (NYSE: AVNS) today reported selected, unaudited preliminary financial results for the fourth quarter and full-year ended December 31, 2023 and revised its preliminary revenue outlook for 2024.

Preliminary Unaudited Financial Results

For the fourth quarter ended December 31, 2023, Avanos Medical, Inc. (the "Company") expects net sales in the range of $170 million to $173 million, a decrease of approximately 6.5% to 4.5% compared to the same period in 2022, with net sales for the year ended December 31, 2023 anticipated to be in the range of $670 million to $673 million.

Net sales for the fourth quarter were lower than expected due to:

• Underperformance by the Company's hyaluronic acid ("HA") pain relief injection products, primarily as a result of continued pricing pressure due to the Medicare reimbursement changes. The Company estimates that net sales for the HA product line will be slightly above $10 million for the fourth quarter of 2023, which is approximately $4 million lower than anticipated.
• Lower than anticipated sales across the Company's North America Digestive Health products, primarily due to a major distributor's ordering pattern change.
• North America Pain Management and Recovery sales, while improved, were below internal expectations.

The Company anticipates that the lower than expected net sales will negatively impact adjusted gross margin, adjusted EBITDA margin and adjusted earnings per share for the fourth quarter and the full year. The Company is currently unable to quantify the overall impact on these measures.

"Although we are disappointed with our fourth quarter sales results, we were pleased with the execution of our three- year transformation initiative throughout 2023, which we believe positions us strongly for 2025," stated Joe Woody, Avanos' chief executive officer. "We are maintaining the 2025 financial objectives that we laid out at our Investor Day in June, and I look forward to updating investors on our overall progress next Monday at the JP Morgan Healthcare Conference."

Revised Preliminary 2024 Revenue Outlook

The Company is updating its previous revenue guidance for the year ending December 31, 2024. For 2024, the Company now expects net sales in the range of $685 million to $705 million, reflecting continued HA market dynamics. The Company will provide additional information regarding its outlook for 2024 on the conference call it will host to discuss its financial results for the quarter and year ended December 31, 2023, which is currently scheduled for February 20, 2024.

The Company does not plan to release preliminary financial information on an ongoing basis. The financial information presented above is preliminary, is based on information available to management as of the date of this press release, and is subject to further changes upon completion of the Company's standard quarter and year-end closing procedures. This update does not present all necessary information for an understanding of the Company's financial condition as of the date of this press release or its results of operations for the quarter and year ended December 31, 2023. As the Company completes its quarter-end and year-end financial close processes and finalizes its financial statements for the quarter and year ended December 31, 2023, it will be required to make significant judgments in a number of areas. It is possible that  the Company may identify items that require it to make adjustments to the preliminary financial information set forth above and those changes could be material. The Company does not intend to update such financial information prior to release of its financial statement information for the quarter and year ended December 31, 2023, which is currently scheduled for February 20, 2024.

About Avanos Medical, Inc.

Avanos Medical (NYSE: AVNS) is a medical technology company focused on delivering clinically superior solutions that will help patients get back to the things that matter. Headquartered in Alpharetta, Georgia, Avanos is committed to addressing some of today's most important healthcare needs, including providing a vital lifeline for nutrition to patients from hospital to home, and reducing the use of opioids while helping patients move from surgery to recovery. Avanos develops, manufactures and markets its recognized brands globally and holds leading market positions in multiple categories across its portfolio. For more information, visit www.avanos.com and follow Avanos Medical on Twitter (@AvanosMedical), LinkedIn and Facebook.

Forward-Looking Statements

This press release contains information that includes or is based on "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that do not relate solely to historical or current facts, and can generally be identified by the use of words such as "may," "believe," "will," "expect," "project," "outlook," "estimate," "anticipate," "plan" or "continue" and similar expressions. The forward-looking statements in this release include, without limitation, statements regarding the Company's expectations regarding financial results for the fourth quarter and full-year ended December 31, 2023 and for the year ending December 31, 2024 and the impact of the Company's transformation initiative. Forward-looking statements are based on the current plans and expectations of management and are subject to various risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in such statements as a result of a variety of factors. Such factors include, but are not limited to: completion of quarter and year-end closing procedures, weakening of economic conditions that could adversely affect the level of demand for our products; pricing pressures generally, including cost-containment measures that could adversely affect the price of or demand for our products; shortage in drugs used in our Surgical Pain and Recovery products or other disruptions in our supply chain; the ongoing regional conflicts between Russia and Ukraine and in the Middle East; our ability to successfully execute on or achieve the expected benefits of the Transformation Process or our divestiture, acquisition or merger transactions; inflationary pressures; the effects of the recent financial conditions affecting the banking system and the potential threats to the solvency of commercial banks; changes in foreign exchange markets; legislative and regulatory actions; unanticipated issues arising in connection with clinical studies and otherwise that affect U.S. Food and Drug Administration approval of new products; changes in reimbursement levels from third-party payors; a significant increase in product liability claims; the impact of investigative and legal proceedings and compliance risks; the impact of the federal legislation to reform the United States healthcare system; changes in financial markets; and changes in the competitive environment. The information contained herein speaks only as of the date of this press release and we undertake no obligation to update forward-looking statements, except as may be required by the securities laws.

Additional information concerning these and other factors that may impact future results is contained in our filings with the U.S. Securities and Exchange Commission, including our most recent Form 10-Q.

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SOURCE Avanos Medical

FAQ

What are Avanos Medical, Inc.'s unaudited preliminary financial results for Q4 2023?

Avanos Medical, Inc. expects net sales in the range of $170-173 million for Q4 2023, a decrease of 6.5-4.5% compared to the same period in 2022.

What is Avanos Medical, Inc.'s revised preliminary 2024 revenue outlook?

The company now expects net sales in the range of $685-705 million for 2024.

Why were the net sales for Q4 2023 lower than expected?

The lower than expected net sales were due to underperformance by the Company's hyaluronic acid pain relief injection products, lower sales across North America Digestive Health products, and below-expected North America Pain Management and Recovery sales.

How will the lower than expected net sales impact the company?

The lower than expected net sales will negatively impact adjusted gross margin, adjusted EBITDA margin, and adjusted earnings per share for Q4 and the full year.