ALPHARETTA, Ga., May 7, 2021 /PRNewswire/ -- Avanos Medical,
Inc. (NYSE: AVNS) today reported first quarter 2021 financial
results.
"We executed well in the first quarter highlighted by building
momentum across our franchises and controlling costs, while
remaining focused on the health and safety of our employees and
meeting the needs of patients impacted by the virus," stated
Joe Woody, Avanos' chief executive
officer. "Although at the start of the quarter we experienced a
slowdown in our Pain Management franchise due to pandemic-related
hospitalizations, as those began to decline, we saw an acceleration
across our therapies."
Woody continued, "The financial guidance we are committing to
illustrates the confidence in our ability to deliver top-line
growth, margin improvement and generate free cash flow in 2021 and
beyond."
First Quarter 2021 Financial Highlights
- Net sales totaled $181 million,
even compared to the prior year.
- Net loss for the quarter was $8
million, compared to net income of $4
million a year ago.
- Adjusted net income totaled $11
million, compared to $8
million a year ago.
- Diluted loss per share was $0.16,
compared to earnings of $0.08 a year
ago.
- Adjusted diluted earnings per share were $0.23, compared to $0.16 in the prior year.
Operational and Business Highlights
- The Company established its first Diversity, Equity and
Inclusion Council consisting of 15 employees to further build upon
its We Stand Together initiative to better understand its
employees' perspective regarding the systemic issues of racial and
gender inequality.
- The medical journal, British Journal of Nursing published a
recent article, "Nutritional Care in Relation to COVID-19," which
highlights the clinical advantages of CORTRAK which enables
patients to receive nutrition earlier upon admittance to the ICU
for COVID-19.
- Two independent, physician-led COOLIEF* publications appeared
in the literature in the first quarter reinforcing the clinical
outcomes of previous Avanos-sponsored clinical trials. One of these
publications, led by
Dr. Steve Cohen at Johns Hopkins, concluded that the use of cooled
radiofrequency was predictive of a better outcome for patients
suffering from knee osteoarthritis. Another large retrospective
knee series from the Ochsner system in New Orleans concluded that COOLIEF* was
clinically effective for both managing pain and reducing
disability.
First Quarter 2021 Operating Results
Net sales totaled $181 million,
even compared to the prior year. Volume increased 1 percent, driven
by strong demand for Digestive Health partially offset by softer
demand for Respiratory Health due to a light cold and flu season
and continued pandemic-fueled pressure in the Pain Management
franchise. Growth was offset by unfavorable price and mix of 2
percent, while foreign currency exchange rates provided a 1 percent
benefit.
Gross margin was 51 percent, compared to 57 percent a year ago.
Adjusted gross margin was down to 52 percent, due primarily to
higher than expected freight costs and unfavorable discounts and
allowances, compared to 59 percent last year.
Operating loss was $12 million
compared to profit of $1 million a
year ago due to increased legal expense in connection with the
potential resolution of the Department of Justice investigation
into MicroCool and other surgical gowns. On an adjusted basis,
operating profit totaled $16 million,
compared to $14 million a year ago.
Cost savings achieved through reduced spending during the pandemic
and through our recent restructuring activities were partially
offset by lower gross margin.
Adjusted EBITDA for the quarter was $22
million, compared to $20
million in the prior year.
Cash Flow and Balance Sheet
Cash from operations less capital expenditures, or free cash
flow, for the quarter was an outflow of $9
million, compared to an outflow of $11 million a year ago. The Company's cash
balance was $100 million at the end
of the quarter, compared to $112
million at year-end 2020.
Total debt at the end of the first quarter was $175 million, down $5
million compared to year-end 2020.
Full Year 2021 Outlook
The Company expects 2021 net sales to increase 2 to 4 percent,
on a constant currency basis, compared to 2020 and earn between
$1.10 and $1.25 of adjusted diluted earnings per share.
This outlook reflects certain key assumptions, which are listed
below:
- The Company expects the foreign currency translation impact to
be even to 1 percent favorable compared to the prior year.
- The adjusted effective tax rate is anticipated to be between 25
and 27 percent.
Non-GAAP Financial Measures
This press release and the accompanying tables include the
following financial measures that have not been calculated in
accordance with accounting principles generally accepted in the
U.S., or GAAP, and are therefore referred to as non-GAAP financial
measures:
- Adjusted gross profit and margin
- Adjusted operating profit
- Adjusted income before tax
- Adjusted tax provision and effective tax rate
- Adjusted net income
- Adjusted diluted earnings per share
- Adjusted EBITDA
- Free cash flow
These non-GAAP financial measures exclude the following items,
as applicable, for the relevant time periods as indicated in the
accompanying non-GAAP reconciliations to the comparable GAAP
financial measures:
- Incremental expenses associated with altering operations in
response to the COVID-19 pandemic.
- Expenses associated with restructuring activities, including
IT-related charges.
- Expenses associated with post divestiture transition
activities.
- Certain acquisition and integration charges related to
acquisitions.
- Expenses associated with European Union Medical Device
Regulation ("EU MDR") compliance.
- Expenses associated with certain litigation matters.
- The amortization of intangible assets associated with prior
business acquisitions.
- The tax effects of the adjusting items.
- Benefit associated with tax effects of the CARES Act.
- The positive or negative effect of changes in currency exchange
rates during the year.
The Company provides these non-GAAP financial measures as
supplemental information to our GAAP financial measures. Management
and the Company's Board of Directors use net sales on a constant
currency basis, adjusted net income, adjusted diluted earnings per
share, adjusted operating profit, adjusted EBITDA, and free cash
flow to (a) evaluate the Company's historical and prospective
financial performance and its performance relative to its
competitors, (b) allocate resources and (c) measure the operational
performance of the Company's business units and their managers.
Management also believes that the use of an adjusted effective tax
rate provides improved insight into the tax effects of our ongoing
business operations.
Additionally, the Compensation Committee of the Company's Board
of Directors will use certain of the non-GAAP financial measures
when setting and assessing achievement of incentive compensation
goals. These goals are based, in part, on the Company's net sales
on a constant currency basis and adjusted EBITDA, which will be
determined by excluding certain items that are used in calculating
these non-GAAP financial measures.
Reconciliations of these non-GAAP financial measures to the most
directly comparable GAAP financial measures are included in the
attached financial tables.
Conference Call Webcast
Avanos Medical, Inc. will host a conference call today at
9 a.m. ET. The conference call can be
accessed live over the Internet at
https://avanos.investorroom.com or via telephone by dialing
877-240-5772 in the United States.
A replay of the call will be available at noon ET today by calling 877-344-7529 in
the United States and entering
passcode 10156077. A webcast of the call will also be archived
in the Investors section on the Avanos website.
About Avanos Medical, Inc.
Avanos Medical (NYSE: AVNS) is a medical device company focused
on delivering clinically superior breakthrough solutions that will
help patients get back to the things that matter. Headquartered in
Alpharetta, Georgia, Avanos is
committed to creating the next generation of innovative healthcare
solutions which will address our most important healthcare needs,
such as reducing the use of opioids while helping patients move
from surgery to recovery. Avanos develops, manufactures and markets
its recognized brands in more than 90 countries. 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 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. 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," "estimate,"
"anticipate," "plan" or "continue" and similar expressions, among
others. Such factors include, but are not limited to: 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; risks related to the ongoing COVID-19
pandemic; shortage in drugs used in our Acute Pain products or
other disruptions in our supply chain; 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.
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-K and Quarterly Reports on Form 10-Q.
AVANOS MEDICAL,
INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
(unaudited)
(in millions, except per share amounts)
|
|
|
Three Months Ended
March 31,
|
|
2021
|
|
2020
|
Net
Sales
|
$
|
180.7
|
|
|
$
|
180.4
|
|
Cost of products
sold
|
89.4
|
|
|
78.3
|
|
Gross
Profit
|
91.3
|
|
|
102.1
|
|
Research and
development expenses
|
8.3
|
|
|
9.4
|
|
Selling and general
expenses
|
73.4
|
|
|
91.1
|
|
Other expense,
net
|
22.0
|
|
|
1.0
|
|
Operating (Loss)
Profit
|
(12.4)
|
|
|
0.6
|
|
Interest
income
|
—
|
|
|
0.7
|
|
Interest
expense
|
(0.8)
|
|
|
(4.3)
|
|
Loss Before Income
Taxes
|
(13.2)
|
|
|
(3.0)
|
|
Income tax
benefit
|
5.6
|
|
|
6.7
|
|
Net (Loss)
Income
|
$
|
(7.6)
|
|
|
$
|
3.7
|
|
|
|
|
|
Interest expense,
net
|
$
|
0.8
|
|
|
$
|
3.6
|
|
Income tax
benefit
|
(5.6)
|
|
|
(6.7)
|
|
Depreciation and
amortization
|
9.7
|
|
|
10.6
|
|
EBITDA
|
$
|
(2.7)
|
|
|
$
|
11.2
|
|
|
|
|
|
(Loss) Earnings
Per Share
|
|
|
|
Basic
|
$
|
(0.16)
|
|
|
$
|
0.08
|
|
Diluted
|
(0.16)
|
|
|
0.08
|
|
|
|
|
|
Common Shares
Outstanding
|
|
|
|
Basic
|
48.0
|
|
|
47.8
|
|
Diluted
|
48.0
|
|
|
48.0
|
|
AVANOS MEDICAL,
INC.
NON-GAAP
RECONCILIATIONS
(unaudited)
(in
millions)
|
|
|
Gross
Profit
|
|
Three Months Ended
March 31,
|
|
2021
|
|
2020
|
As
reported
|
$
|
91.3
|
|
|
$
|
102.1
|
|
COVID-19 related
expenses
|
—
|
|
|
0.4
|
|
2020 Restructuring
charges
|
0.2
|
|
|
—
|
|
Post divestiture
restructuring charges
|
0.9
|
|
|
0.5
|
|
Post divestiture
transition charges
|
0.1
|
|
|
0.8
|
|
Acquisition and
integration-related charges
|
—
|
|
|
0.1
|
|
Intangibles
amortization
|
1.6
|
|
|
1.7
|
|
As adjusted
non-GAAP
|
$
|
94.1
|
|
|
$
|
105.6
|
|
Gross profit margin,
as reported
|
50.5
|
%
|
|
56.6
|
%
|
Gross profit margin,
as adjusted
|
52.1
|
%
|
|
58.5
|
%
|
|
|
|
Operating (Loss)
Profit
|
|
Three Months Ended
March 31,
|
|
2021
|
|
2020
|
As
reported
|
$
|
(12.4)
|
|
|
$
|
0.6
|
|
COVID-19 related
expenses
|
—
|
|
|
0.5
|
|
2020 Restructuring
charges
|
0.2
|
|
|
—
|
|
Post divestiture restructuring
charges(a)
|
0.9
|
|
|
0.5
|
|
Post divestiture transition
charges(b)
|
—
|
|
|
4.0
|
|
Acquisition and integration-related
charges(c)
|
0.4
|
|
|
1.8
|
|
EU
MDR Compliance(d)
|
0.2
|
|
|
—
|
|
Litigation and legal(e)
|
22.5
|
|
|
2.2
|
|
Intangibles
amortization
|
4.2
|
|
|
4.8
|
|
As adjusted
non-GAAP
|
$
|
16.0
|
|
|
$
|
14.4
|
|
|
|
|
|
|
|
(a)
|
Except for amounts
impacting gross profit (see "Gross Profit" table), restructuring
and IT charges are included in "Cost of products sold."
|
(b)
|
In the three months
ended March 31, 2021, post divestiture transition charges
include $0.1 million in "Cost of products sold" (see "Gross Profit"
table) offset by a benefit of $0.1 million in "Selling and general
expenses."
|
(c)
|
In the three months
ended March 31, 2021, acquisition related charges are included
in "Selling and general expenses".
|
(d)
|
European Union
Medical Device Regulation ("EU MDR") compliance related charges are
included in "Selling and general expenses".
|
(e)
|
Litigation and legal
expenses are included in "Other expense, net."
|
AVANOS MEDICAL,
INC.
NON-GAAP
RECONCILIATIONS
(unaudited)
(in
millions)
|
|
|
(Loss) Income
Before Taxes
|
|
Three Months Ended
March 31,
|
|
2021
|
|
2020
|
As
reported
|
$
|
(13.2)
|
|
|
$
|
(3.0)
|
|
COVID-19 related
expenses
|
—
|
|
|
0.5
|
|
2020 Restructuring
charges
|
0.2
|
|
|
—
|
|
Post divestiture
restructuring charges
|
0.9
|
|
|
0.5
|
|
Post divestiture
transition charges
|
—
|
|
|
4.0
|
|
Acquisition and
integration-related charges
|
0.4
|
|
|
1.8
|
|
EU MDR
Compliance
|
0.2
|
|
|
—
|
|
Litigation and
legal
|
22.5
|
|
|
2.2
|
|
Intangibles
amortization
|
4.2
|
|
|
4.8
|
|
As adjusted
non-GAAP
|
$
|
15.2
|
|
|
$
|
10.8
|
|
|
|
|
Tax Benefit
(Provision)
|
|
Three Months Ended
March 31,
|
|
2021
|
|
2020
|
As
reported
|
$
|
5.6
|
|
|
$
|
6.7
|
|
Tax effects of
adjusting items
|
(9.9)
|
|
|
(3.6)
|
|
Effects of the CARES
Act and other(a)
|
0.2
|
|
|
(6.0)
|
|
As adjusted
non-GAAP
|
$
|
(4.1)
|
|
|
$
|
(2.9)
|
|
Effective tax rate,
as reported
|
42.4
|
%
|
|
223.3
|
%
|
Effective tax rate,
as adjusted
|
27.0
|
%
|
|
26.9
|
%
|
|
|
|
|
|
|
(a)
|
In the prior year,
the CARES Act, which allows for the carryback of U.S. net operating
losses to prior years, provided an income tax benefit of $7.4
million.
|
AVANOS MEDICAL,
INC.
NON-GAAP
RECONCILIATIONS
(unaudited)
(in millions,
except per share amounts)
|
|
|
Net (Loss)
Income
|
|
Three Months Ended
March 31,
|
|
2021
|
|
2020
|
As
reported
|
$
|
(7.6)
|
|
|
$
|
3.7
|
|
COVID-19 related
expenses
|
—
|
|
|
0.5
|
|
2020 Restructuring
charges
|
0.2
|
|
|
—
|
|
Post divestiture
restructuring charges
|
0.9
|
|
|
0.5
|
|
Post divestiture
transition charges
|
—
|
|
|
4.0
|
|
Acquisition and
integration-related charges
|
0.4
|
|
|
1.8
|
|
EU MDR
Compliance
|
0.2
|
|
|
—
|
|
Litigation and
legal
|
22.5
|
|
|
2.2
|
|
Intangibles
amortization
|
4.2
|
|
|
4.8
|
|
Tax effects of
adjusting items
|
(9.9)
|
|
|
(3.6)
|
|
Tax effects of the
CARES Act and other
|
0.2
|
|
|
(6.0)
|
|
As adjusted
non-GAAP
|
$
|
11.1
|
|
|
$
|
7.9
|
|
Diluted EPS, as
reported
|
$
|
(0.16)
|
|
|
$
|
0.08
|
|
Diluted EPS, as
adjusted
|
$
|
0.23
|
|
|
$
|
0.16
|
|
|
|
|
EBITDA
|
|
Three Months Ended
March 31,
|
|
2021
|
|
2020
|
EBITDA, as
reported
|
$
|
(2.7)
|
|
|
$
|
11.2
|
|
COVID-19 related
expenses
|
—
|
|
|
0.5
|
|
2020 Restructuring
charges
|
0.2
|
|
|
—
|
|
Post divestiture
restructuring charges
|
0.9
|
|
|
0.5
|
|
Post divestiture
transition charges
|
—
|
|
|
4.0
|
|
Acquisition and
integration-related charges
|
0.4
|
|
|
1.8
|
|
EU MDR
Compliance
|
0.2
|
|
|
—
|
|
Litigation and
legal
|
22.5
|
|
|
2.2
|
|
Adjusted
EBITDA
|
$
|
21.5
|
|
|
$
|
20.2
|
|
AVANOS MEDICAL,
INC.
NON-GAAP
RECONCILIATIONS
(unaudited)
(in
millions)
|
|
|
Free Cash
Flow
|
|
Three Months Ended
March 31,
|
|
2021
|
|
2020
|
Cash used in
operating activities
|
$
|
(3.3)
|
|
|
$
|
(5.8)
|
|
Capital
expenditures
|
(5.7)
|
|
|
(5.2)
|
|
Free Cash
Flow
|
$
|
(9.0)
|
|
|
$
|
(11.0)
|
|
|
|
2021
OUTLOOK
|
|
|
Estimated
Range
|
Diluted earnings per
share (GAAP)
|
$
|
0.02
|
|
to
|
$
|
0.31
|
|
Intangibles
amortization
|
0.26
|
|
to
|
0.26
|
|
Restructuring
initiatives
|
0.20
|
|
to
|
0.16
|
|
Litigation and
legal
|
0.52
|
|
to
|
0.46
|
|
Other
|
0.10
|
|
to
|
0.06
|
|
Adjusted diluted
earnings per share (non-GAAP)
|
$
|
1.10
|
|
to
|
$
|
1.25
|
|
AVANOS MEDICAL,
INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in
millions)
|
|
|
March 31,
2021
|
|
December 31,
2020
|
ASSETS
|
|
|
|
Current
Assets
|
|
|
|
Cash and cash
equivalents
|
$
|
100.1
|
|
|
$
|
111.5
|
|
Accounts receivable,
net of allowances
|
164.3
|
|
|
167.9
|
|
Inventories
|
165.2
|
|
|
168.9
|
|
Prepaid expenses and
other current assets
|
18.3
|
|
|
18.9
|
|
Total Current
Assets
|
447.9
|
|
|
467.2
|
|
Property, Plant
and Equipment, net
|
173.4
|
|
|
175.3
|
|
Operating Lease
Right-of-Use Assets
|
45.1
|
|
|
48.3
|
|
Goodwill
|
802.1
|
|
|
802.5
|
|
Other Intangible
Assets, net
|
153.6
|
|
|
157.7
|
|
Deferred Tax
Assets
|
15.4
|
|
|
10.0
|
|
Other
Assets
|
11.3
|
|
|
11.8
|
|
TOTAL
ASSETS
|
$
|
1,648.8
|
|
|
$
|
1,672.8
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
Current
Liabilities
|
|
|
|
Current portion of
operating lease obligations
|
$
|
15.1
|
|
|
$
|
15.5
|
|
Trade accounts
payable
|
59.2
|
|
|
67.6
|
|
Accrued
expenses
|
80.3
|
|
|
83.2
|
|
Total Current
Liabilities
|
154.6
|
|
|
166.3
|
|
Long-Term
Debt
|
175.0
|
|
|
180.0
|
|
Operating Lease
Liabilities
|
50.1
|
|
|
53.3
|
|
Deferred Tax
Liabilities
|
5.6
|
|
|
5.7
|
|
Other Long-Term
Liabilities
|
10.9
|
|
|
11.0
|
|
TOTAL
LIABILITIES
|
396.2
|
|
|
416.3
|
|
Stockholders'
Equity
|
1,252.6
|
|
|
1,256.5
|
|
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY
|
$
|
1,648.8
|
|
|
$
|
1,672.8
|
|
AVANOS MEDICAL,
INC.
CONDENSED
CONSOLIDATED CASH FLOW STATEMENTS
(unaudited)
(in
millions)
|
|
|
Three Months Ended
March 31,
|
|
2021
|
|
2020
|
Operating
Activities
|
|
|
|
Net (loss)
income
|
$
|
(7.6)
|
|
|
$
|
3.7
|
|
Depreciation and
amortization
|
9.7
|
|
|
10.6
|
|
Net loss on asset
dispositions
|
0.1
|
|
|
—
|
|
Changes in operating
assets and liabilities
|
(2.7)
|
|
|
(16.2)
|
|
Deferred income taxes
and other
|
(2.8)
|
|
|
(3.9)
|
|
Cash Used in
Operating Activities
|
(3.3)
|
|
|
(5.8)
|
|
Investing
Activities
|
|
|
|
Capital
expenditures
|
(5.7)
|
|
|
(5.2)
|
|
Cash Used in
Investing Activities
|
(5.7)
|
|
|
(5.2)
|
|
Financing
Activities
|
|
|
|
Revolving credit
facility repayments
|
(5.0)
|
|
|
—
|
|
Proceeds from the
exercise of stock options
|
4.8
|
|
|
—
|
|
Cash Used in
Financing Activities
|
(0.2)
|
|
|
—
|
|
Effect of Exchange
Rate Changes on Cash and Cash Equivalents
|
(2.2)
|
|
|
(6.6)
|
|
Decrease in Cash
and Cash Equivalents
|
(11.4)
|
|
|
(17.6)
|
|
Cash and Cash
Equivalents - Beginning of Period
|
111.5
|
|
|
205.3
|
|
Cash and Cash
Equivalents - End of Period
|
$
|
100.1
|
|
|
$
|
187.7
|
|
AVANOS MEDICAL,
INC.
SELECTED BUSINESS
AND PRODUCTS DATA
(unaudited)
(in
millions)
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
Chronic
care
|
|
|
|
|
$
|
121.1
|
|
|
$
|
115.7
|
|
|
4.7
|
%
|
Pain
management
|
|
|
|
|
59.6
|
|
|
64.7
|
|
|
(7.9)
|
|
Total Net
sales
|
|
|
|
|
$
|
180.7
|
|
|
$
|
180.4
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Volume
|
|
Pricing/Mix
|
|
Currency
|
|
Other
|
Net Sales -
percentage change
|
—
|
%
|
|
1
|
%
|
|
(2)
|
%
|
|
1
|
%
|
|
—
|
%
|
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SOURCE Avanos Medical