Avanos Medical, Inc.

Good day, and welcome to the Avanos Medical First Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Dave Crawford, Vice President of Investor Relations. Please go ahead.

Good morning, everyone, and thanks for joining us. It's my pleasure to welcome you to the Abenos 2021 First Quarter Earnings Conference Call. With me this morning are Joe Woody, CEO, and Michael Greiner, Senior Vice President and CFO. Joe will begin with an update on our business and then review the progress we are making against our 2021 priorities. Then Michael will review our 2021 first quarter and provide an update on our current planning environment. We will finish the call with Q&A. A presentation for today's call is available on the investor section of our website, Avanos.com. As a reminder, our comments today contain forward-looking statements related to the company, our expected performance, economic conditions, and our industry. No assurance can be given as to future financial results. Actual results could differ materially from those in forward-looking statements. For more information about forward-looking statements and the risk factors that could influence future results, please see today's press release and the risk factors described in our filings with the SEC. Additionally, we will be referring to adjusted results and outlook. The press release has information on these adjustments and reconciliations to comparable GAAP financial measures. Now I'll turn the call over to Joan.

Thanks, Dave. Good morning, everyone. Thank you for your interest in Avanos. I'm encouraged by our team's continued strong execution and resiliency as they respond to the challenging dynamics to our business brought on by the pandemic. Our employees remain focused in the dedication to getting patients back to the things that matter as we meet the needs of our customers. As mentioned on our last earnings call, we began the quarter with some headwinds and uncertainty resulting from rising hospitalizations and the corresponding negative impact to elective procedures. However, as we exited the quarter, we saw increasing top line momentum across our pay management franchise as the return of electric procedures began to re-accelerate. Looking ahead, while we're encouraged to see the electric procedure volume increasing and expected to accelerate, we continue to believe volume likely will remain below its full potential until the end of the year. As we examine the business environment, we are gaining confidence in the direction of our business and have better line of sight to the gradual ablation of challenges presented by the pandemic. As a result, we feel well positioned to provide financial guidance for 2021. Based on current projections, we expect net sales on a constant currency basis to increase 2% to 4% compared to the prior year. Also, we expect to earn between $1.10 and $1.25 of adjusted diluted earnings per share. Michael will share additional information on our financial guidance in his remarks. During the quarter, we established our first Diversity, Equity, and Inclusion Council consisting of 15 global employees across all departments. The DE&I Council will build upon our We Stand Together initiative to better understand our employees' perspectives regarding the issues of racial and gender inequality. Our DE&I initiative remains a critical effort for us to shape the organization and culture where all our employees want to work. Lastly, we are discussing with the DOJ a potential resolution of their investigation into microcool and other surgical gowns that were a part of the S&IP business when we divested in 2018. We anticipate finalizing an agreement with the DOJ in Q2 or Q3. With that as background, let me now review our first quarter results and provide you with an update on our drivers of value creation. Sales totaled $181 million, unchanged compared to the prior year, while we earned 23 cents of adjusted dividend earnings per share. Earnings were positively impacted by our disciplined cost control measures, but were partially offset by increased transportation costs. Results in our chronic care business were mixed. In the gist of health, we continued to deliver mid-single-digit growth for the franchise overall. In respiratory health, sales related to the direct treatment of patients impacted by the pandemic were similar to last year. However, overall growth was down slightly as the precautionary measures taken for the pandemic impacted the normal cold and flu season uplift. and therefore significantly reduced the seasonal sales related to a cold and flu season. In pain management, as I stated earlier, elective procedures remain suppressed at the start of the quarter as COVID-related hospitalizations spiked in some regions. The biggest head one was to our on-queue therapy, where a significant percentage of surgeries where on-queue is used require a hospital stay. Separately, Cool Leaf was less impacted as it performed as an outpatient therapy. Overall, sales grew sequentially throughout the quarter as procedural volume returned. Despite the early quarter headwinds caused by the new wave of the pandemic, we continue to build on our solid foundation to accelerate growth across pain management. Finally, let me provide you with an update on our progress this quarter regarding our four areas of value creation. As a reminder, the four areas are strengthening our growth profile, expanding our gross and operating margins, driving consistent free cash flow generation, and deploying capital towards M&A. First, as we look to strengthen our growth profile, we maintained our momentum in driving market adoption and gaining share by growing both our CorePak and Neomed portfolios. We are executing our strategy to establish CoreTrack as the standard of care for nasogastric feeding, along with increasing the adoption of Neomed to further address neonatal enteral feeding needs. We delivered record sales for CoreTrack hardware units in the first quarter and are on target to reach our goal for Neomed account conversions. On previous calls, we have discussed the progress we're making to expand the clinical evidence for Cooleaf to demonstrate its differentiation as a radiofrequency ablation therapy. Also important to this effort are independent physician-led studies being conducted. During the quarter, two independent physician-led publications on Cooleaf were published. The first concluded that the use of cooled radiofrequency was predictive of a better outcome for patients suffering from knee osteoarthritis. Additionally, another large retrospective knee series concluded that Cooley was clinically effective for both managing pain and reducing disability. Finally, we continue to execute on our international expansion initiatives. We achieved high single-digit organic growth across each of our regions during the quarter. The first time we have seen this level of growth across all of our regions in the same quarter. Also internationally, we achieved growth in both our chronic care and pain management franchises. Our second area focuses on gross and operating margin expansion. I'm encouraged by the continued cost discipline and emphasis on driving inefficiencies in our spending. However, we incurred additional transportation costs related to facilitate NeoMed growth from account conversions. We anticipate these increased distribution costs to continue into the second quarter, albeit at a slower rate. As we advance our business, we're looking at all processes throughout the lens of value creation with the goal of enhancing efficiencies by embedding this approach into our culture while more effectively meeting customers' needs. Our third pathway is to generate consistent, repeatable cash flow. Cash flow met our internal expectation for the quarter as we anticipated certain outflows relating to compensation. Taking into consideration our preliminary agreement with the DOJ, we now anticipate delivering approximately $80 million of free cash flow Cash flow will be driven by approved earnings and the discipline cost savings that I previously mentioned, as well as receiving an expected $60 million in U.S. tax refunds, primarily derived from the provisions available through the CARES Act. Finally, we continue to examine capital deployment for M&A. Our M&A pipeline remains robust, and we maintain active dialogue with a number of potential tuck-in targets, which would leverage our existing footprint, generate synergies, and enhance our top-line growth profiles. While I am optimistic about the prospect of bolstering our robust portfolio in 2021, we will remain disciplined in our assessment of targets, ensuring we generate a strong return on capital. Overall, we remain well-positioned to advance our strategies across each of these four areas of value creation as our focus on execution remains strong. This, along with our market-leading portfolio, gives me confidence we can deliver growth and margin expansion in 2021 and beyond. Now, I'll turn the call over to Michael.