Avanos Medical, Inc. (NYSE: AVNS) today reported second quarter 2024 financial results.

"We are pleased with our second quarter results and the cumulative progress we have made at the mid-year point," said Joe Woody, Avanos's chief executive officer. Woody continued, "Digestive Health continues to lead in delivering high-single digit growth while Pain Management and Recovery performance is improving with quarter-over-quarter sequential growth, and we are seeing meaningful progress on our other transformation objectives, all of which are expected to support mid-single digit growth for the remainder of the year. We are proud of these accomplishments and pleased that our solutions have been utilized to treat over 900,000 patients so far this year."

Second Quarter 2024 Financial Highlights

• Total net sales from continuing operations were $171.7 million, a 1.4% increase from the comparable prior year period.

• Net income from continuing operations for the quarter was $4.3 million, compared to net loss from continuing operations of $4.3 million a year ago.

• Adjusted net income from continuing operations totaled $15.8 million, compared to $11.2 million a year ago.

• Diluted earnings per share from continuing operations was $0.09, compared to diluted loss per share of $0.09 a year ago.

• Adjusted diluted earnings per share from continuing operations was $0.34, compared to $0.24 a year ago.

• Adjusted EBITDA was $26.8 million, compared to $22.9 million a year ago.

Second Quarter 2024 Operating Results From Continuing Operations

For the three months ended June 30, 2024, net sales totaled $171.7 million, an increase of 1.4% compared to the prior year period, due to continued strong demand and volume in our Digestive Health portfolio, primarily from our NeoMed neonatal and pediatric feeding solutions, as well as continued demand for Game Ready. This was partially offset by reduced demand for our hyaluronic acid ("HA") products. Favorable volume overall was partially offset by pricing and currency translation effects.

Gross margin during the second quarter of 2024 was 55.7%, compared to 57.7% in the prior year period. Adjusted gross margin was 59.6% compared to 59.9% last year. Gross profit margin decreased primarily due to costs related to the priorities of our three-year transformation initiative (the "Transformation Process") and plant separation costs associated with the divestiture of our respiratory health ("RH") business (the "Divestiture"). In addition, lower pricing for our HA products was partially offset by favorable volume and product mix.

Selling and general expenses as a percentage of net sales was 47.1% for the second quarter of 2024, compared to 54.9% for the second quarter of 2023. On an adjusted basis, selling and general expenses as a percentage of net sales was 43.0% for the second quarter of 2024, compared to 45.1% for the second quarter of 2023. Selling and general expenses decreased primarily due to savings realized from the execution on our Transformation Process and disciplined spending.

Operating profit in the second quarter of 2024 was $6.3 million, compared to operating loss of $2.1 million in the prior year period, primarily due to higher sales volume along with lower selling and general expenses related to the execution on Transformation Process and restructuring priorities. On an adjusted basis, operating profit totaled $21.8 million, compared to $18.4 million a year ago.

Adjusted EBITDA from continuing operations was $26.8 million in the three months ended June 30, 2024, compared to $22.9 million in the three months ended June 30, 2023.

First Six Months of 2024 Operating Results

For the six months ended June 30, 2024, net sales were $337.8 million, an increase of 2.8% compared to the prior year period, primarily due to strong demand for our Digestive Health products and Game Ready products. This was partially offset by lower demand and pricing for our HA products.

Gross margin was 56.4%, compared to 57.6% last year. Adjusted gross margin was 59.7% compared to 59.8% last year and was impacted by the same items noted above for the second quarter.

Selling and general expenses as a percentage of net sales were 48.7% for the six months ended June 30, 2024, compared to 55.3% for the prior year period. The decrease was primarily due to disciplined spending, partially offset by non-recurring expenses associated with our ongoing Transformation Process and the Divestiture. On an adjusted basis, selling and general expenses as a percentage of net sales was 44.4% for the first six months of 2024, compared to 46.5% in the prior year period.

Operating profit was $10.3 million, compared to an operating loss of $8.2 million in the prior year period, primarily due to increased demand for our Digestive Health products and lower selling and general costs, partially offset by lower volume and pricing of our HA products. On an adjusted basis, operating profit was $38.1 million compared to $29.6 million a year ago.

Adjusted EBITDA for the six months ended June 30, 2024 was $48.4 million, compared to $39.0 million in the prior year period.

Cash Flow and Balance Sheet

Cash from operations less capital expenditures, or free cash flow, for the second quarter was an inflow of $21.9 million, driven primarily by cash flow provided by operating activities, compared to an outflow of $6.6 million a year ago. The Company's cash balance at June 30, 2024 was $92.2 million, compared to $87.7 million at year-end 2023.

Total debt outstanding, net of unamortized discounts, was $175.1 million at June 30, 2024, compared to $168.0 million at December 31, 2023.

Discontinued Operations

Net sales from discontinued operations were $13.6 million in the three months ended June 30, 2024, compared to $30.4 million in the three months ended June 30, 2023. Net sales from discontinued operations were $30.5 million in the six months ended June 30, 2024, compared to $62.8 million in the six months ended June 30, 2023.

2024 Outlook

For the year, the Company anticipates revenue from continuing operations of between $685 million and $705 million from continuing operations, adjusted gross margins from continuing operations of between 59.5% and 60.5% and adjusted diluted earnings per share from continuing operations of between $1.30 and $1.45.

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 net income;

• Adjusted diluted earnings per share;

• Adjusted gross and operating profit;

• Adjusted effective tax rate;

• Adjusted EBITDA; and

• 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:

• Certain acquisition and integration charges related to acquisitions.

• Expenses associated with restructuring and transformation activities, including the Divestiture in the fourth quarter of 2023.

• Expenses associated with European Union Medical Device Regulation ("EU MDR") compliance.

• The amortization of intangible assets associated with prior business acquisitions.

• The tax effects of certain adjusting items.

• The benefit associated with the 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 its 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 the Company's 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.

Our competitors may define these non-GAAP financial measures differently, and as a result, our measure of these non-GAAP financial measures may not be directly comparable to those of other companies. Items excluded from these non-GAAP financial measures are significant components in understanding and assessing financial performance. These non-GAAP financial measures are supplemental measures of operating performance that do not represent, and should not be considered in isolation or as an alternative to, or substitute for, the financial statement data presented in the Company's consolidated financial statements as indicators of financial performance. These non-GAAP financial measures have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analysis of the Company's results as reported under GAAP. We compensate for these limitations by relying primarily on our GAAP results and using these non-GAAP financial measures as supplemental information.

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 800-836-8184 in the United States. A replay of the call will be available at noon ET today by calling 888-660-6345 in the United States and entering passcode 70891#. A webcast of the call will also be archived in the Investors section on the Avanos website.