Avanos Medical, Inc.

Hello, and welcome to the Albinos Fourth Quarter 2021 Earnings Call. All participants will be in listen-only mode. Should you need assistance, please see the World 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 your touchtone phone. To answer your question, please press star, then two. Please note, today's event is being recorded. And now I'd like to turn the conference over to Scott Gallivan. Mr. Gallivan, please go ahead.

Good morning, everyone. Thanks for joining us. It's my pleasure to welcome you to the Avanos 2021 Fourth Quarter Earnings Conference Call. Presenting today will be Joe Woody, CEO, and Michael Greiner, Senior Vice President and CFO. Joe will begin with an update on our quarter and our current business environment, as well as recap progress made against our 2021 priorities and key objectives for 2022. Then Michael will review our fourth quarter and full year results, and share our 2022 planning assumptions, inclusive of our acquisition of OrthogenRex, which closed on January 20th. We will finish the call with Q&A. A presentation for today's call is available on the Investors 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 the 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 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 Joe.

Thanks, Scott. Good morning, everyone, and thank you for joining us to review our operational and financial results for the fourth quarter and full year 2021. While we continue to see the impacts of the pandemic as it relates to elective surgeries, hospital staff shortages, and supply chain, we are very pleased with how our operational and commercial teams have responded to the challenging dynamics brought on by the pandemic. Across our enterprise, we remain focused on getting patients back to the things that matter as we meet the needs of our customers. I will begin with a brief review of our results for the quarter before discussing the current environment and summarize the outcomes from our 2021 priorities. We achieved sales of over $193 million for the quarter and earned 46 cents of adjusted diluted earnings per share. Our chronic care portfolio delivered strong results, growing over 8%, with our digestive franchise growing double digits in the fourth quarter and our North America respiratory business holding flat versus a tough comparison to last year's fourth quarter. Our pain portfolio overall declined by less than 2%, with our interventional pain franchise growing over 6%, offset by our acute pain product portfolio declining by a little less than 7%. The decline in the acute pain portfolio was primarily driven by the timing of the return of elective procedures. For the full year, our digestive health, acute pain, and interventional pain franchises grew by approximately 10 percent, 3 percent, and almost 19 percent respectively, with respiratory health expectedly declining by just over 11 percent. As we noted last quarter, we anticipated continued improvement in our gross margin profile for the fourth quarter versus the third quarter. Unfortunately, headwinds related to raw material availability, inflation, and shipping costs persisted, and our fourth quarter gross margins only improved 40 basis points versus the third quarter. We remain confident in our assessment that most of these headwinds are ultimately transitory, primarily pandemic-driven, being seen across industries, and do not indicate a permanent change to our operating structure. Michael will share some details on our view of gross margin improvement opportunities throughout 2022 in a few minutes. We anticipate gross margins inclusive of our OrthogenRx acquisition to be between 55% and 57% for the full year 2022. While our gross margin did not progress as much as we had planned in the fourth quarter, the team continued its spending discipline across our controllable expenses as we ended the year with SG&A as a percentage of revenue of 37.9 percent. Although we have a range of expenses that will negatively impact our SG&A margin profile in the first half of 2022, we remain confident and committed to maintaining SG&A as a percentage of revenue to be less than 40 percent for the full year 2022. With that as a background, let's move to a discussion on the current market environment and provide an update on our progress against our 2021 priorities. As mentioned earlier, we delivered solid revenue outcomes across most of our product portfolio. Although most of the volume of elective procedures being performed remains depressed, mostly impacting our on-queue franchise, many product families grew double digits in 2021. As Michael will discuss in more detail in a minute, we anticipate organic growth for 2022 to be between 3% and 6%, with our pain portfolio leading the way from a growth perspective as we start to see market tail ends from elective procedures turn in our favor. We anticipate our digestive and respiratory franchises will return to historical growth rates in 2022. Throughout 2021, we continue to enhance our product offerings to improve the efficacy and ease of use for our care partners. For Coolief, we successfully launched our next generation cooled radio frequency probe kits in Q4. Combined with the launch of our new generator last year, Our new upgraded offerings will strengthen our cool RF leadership position in 2022 and beyond. Within our on-queue and AMBIT business, we have started to see benefits from PainBlock Pro, the user-friendly app and data collection solution that we released earlier this year. This tool will continue to be an important differentiator that will help us drive growth in 2022. We've also seen success with our AMBIT products line utilizing the AMBIT Plus reusable program. in particular as it relates to capturing procedures in the ASC or ambulatory surgical center setting. Shifting to chronic care, the positive trend across our digestive health franchise continues. We maintain double-digit growth across our NeoMed portfolio, which we anticipate continuing into 2022. Separately, our standard of care strategy for CorePak is accelerating sales of our CoreTrack hardware to record levels. As I stated earlier, our respiratory health sales were basically flat given the prior year pandemic tailwind, and we anticipate our respiratory health business reflecting historical growth rates during 2022. Although we did not meet our internal objectives for gross and operating margin improvement in 2021, we were very pleased with our ability to meet our customers' needs for product availability and exceed our revenue targets for the year. Additionally, we contained costs throughout the year with a focus towards spending only on those initiatives with the highest ROI outcomes. We remained focused and confident that we can attain high 50% gross margins coupled with EBITDA margins greater than 17% during back half of 2022. Our third priority for 2021 was to demonstrate our ability to generate consistent, repeatable cash flow. We generated $47 million of free cash flow in the fourth quarter and $66 million for the full year inclusive of a range of one-time tax and legal settlements. Excluding those items, we generated $26 million of normalized free cash flow. Improved operating results will support this priority of generating consistent and repeatable free cash flow in 2022, which should exceed $90 million. Our last priority for 2021 focused on capital deployment. Our M&A pipeline remains healthy, and we are engaged in active dialogue with a number of potential tuck-in targets, which would leverage our existing footprint, generate synergies, enhance our top-line growth, and meaningfully improve our margin profile. In addition, we closed our acquisition of OrthoGenerex on January 20th and anticipate achieving $70 million of revenue for 2022 related to this acquisition. This acquisition enhances our pain portfolio by providing continuum of care treatment options for patients living with knee OA. OrthogenRx is a clear strategic fit for Avanos and one that will further strengthen our relationship with healthcare providers. To summarize, 2021 was a critical year for us as we moved towards our longer-term financial objectives. Our product portfolio showed resilience. We stabilized our supply chain and operations challenges with meaningful improvements planned in 2022. We also demonstrated our ability to begin leveraging our fixed-cost operating expenses. Additionally, we have resolved all remaining material litigation. This includes the DOJ investigation, the identification dispute with Kimberly-Clark, as well as a positive outcome with regards to our IP infringement case with Medtronic. Our primary objectives in 2022 center around solid organic growth, delivering on our orthogeneric strategy, making meaningful improvements in our gross margin profile as the year progresses, and demonstrating our ability to deliver material free cash flow. We have an excess of $350 million of available capacity to execute on further bolt-on acquisitions, as well as consider additional share repurchases should our shares remain meaningfully below our calculated intrinsic value. Although our 2021 performance was uneven given to the macro environment, we advanced many of our key initiatives that will support solid progress in 2022. Now I'll turn the call over to Michael.

Thanks, Joe. As you noted, we have made meaningful progress against our value creation initiatives and are setting up well for a solid 2022 that will combine mid-single digit top line growth with M&A execution. Additionally, we will show improved gross and operating margins as well as consistent free cash flow generation. Now let's begin with a review of our fourth quarter results. Total sales of $193 million was up 4.5% compared to last year. As affirmed throughout the year, we indicated full-year net sales growth would range from 2% to 4% compared to the prior year. We achieved the higher end of the range with net sales increasing 3.9% on a constant currency basis compared to the prior year, excluding discontinued products manufactured in our Maxster facility. Despite the pandemic-related tailwind for respiratory health in the fourth quarter of 2020, chronic care sales increased by a little over 8% to 126 million in the quarter. Adjusting for the 2020 tailwind, respiratory health sales would have been flat for the quarter in line with market growth. We did not notice any additional benefit from the Omicron variant as related hospitalizations did not increase in Q4 until the end of December, nor do we expect any meaningful impact to our closed suction catheters as hospitals continue to carry out their first line of care before placing patients on ventilators. Additionally, we believe we are experiencing a relatively normal cold and flu season. Shifting to digestive health, we continue to see strong growth across both our North America and international markets, resulting in fourth quarter growth of over 17%. Within our digestive health portfolio, Neomed grew almost 47% from the continuation of conversions to our NPIT technology, despite supply constraints impeding additional growth. Moving to pain management, we delivered 68 million of sales, 1 million behind prior year, driven by continued headwinds in OnQ, partially offset by strong performance across our interventional pain portfolio. As Joe noted, growth in Q4 was hampered from impacts brought on by the Omicron variant and a return slowdown in elective procedures coupled with staff shortages. While these impacts had an effect across the pain portfolio, OnQ was disproportionately impacted as primarily in inpatient therapy. We partially offset these losses with Paid Block Pro, channel partner growth, and expansion into the ASC. We are well positioned to drive sequential improvement into the first quarter of 2022 as these initiatives move forward and we benefit from an anticipated tailwind of elective procedure recovery. Additionally, supply constraints and raw material shortages have temporarily impacted our ability to meet demand within the game-ready business, with backorders exceeding $1 million at the end of 2021. Despite these headwinds, we continue to experience strong market growth and demand, and we expect to be able to work down our backlog in the first half of 2022. Moving down the income statement, adjusted gross margin decreased to just under 53%, or minus 80 basis points compared to last year. As indicated earlier, although we did not meet our internal projections for gross margin progression, we are pleased with the progress on gross margins through the year, given the persistent challenges existing in the macro supply chain environment. Compared to last year, gross margin was impacted by higher inflationary pressure, inclusive of both our transportation and raw material costs. We were able to offset some of these inflationary costs through manufacturing savings during the fourth quarter. Looking towards 2022, we continue to expect adjusted gross margin to steadily improve as a range of efforts we are implementing throughout operations begin to take hold. However, we also remain cognizant of a global supply chain environment that remains disruptive, and we are unable to predict the timing of when these higher inflationary factors will begin to soften. Additionally, the availability of certain raw material components remains a challenge as we work through our existing rolling back order. Now, turning to some bottom line financial metrics. Adjusted operating profit totaled $25 million compared to $21 million in the prior year. Higher sales and lower spend across SG&A and R&D were partially offset but unfavorable gross margin, as we noted earlier. Adjusted EBITDA totaled $31 million compared to $27 million last year. Adjusted net income totaled $23 million compared to $13 million a year ago, and we earned 46 cents of adjusted diluted earnings per share, a 65% increase versus the prior year. Our adjusted EPS in the fourth quarter was enhanced with tax planning strategies that contributed approximately 8 cents of benefits. Turning to the balance sheet and cash flow statement. Our balance sheet remains a strength for us and continues to provide us with strategic flexibility as we currently have over $110 million of cash on hand with $255 million of debt outstanding post the closing of the OrthoGenerex acquisition and completion of our share repurchase program. Given our pro forma EBITDA post acquisition, we have over $350 million of maximum capacity to utilize towards our capital allocation priorities. As noted earlier, on a full-year basis, we grew 3.9% with solid delivery across most of our portfolio. Additionally, as we have noted throughout these prepared remarks, we remained in an uncertain environment with regards to our supply chain, both from a cost perspective and availability of products. Adjusted gross margin was just over 52% compared to 55.6% a year ago, primarily due to higher freight costs, inflation on raw materials and labor costs, and inconsistent plant performance. To partially offset that impact, we have managed our cost structure with regard to SG&A and RMD throughout the year. Finally, we were pleased to achieve $1.15 of adjusted EPS for the year with around $0.08 of favorable tax benefit in the fourth quarter, as noted earlier. As Joe indicated, our primary objectives in 2022 center around solid organic growth, delivering on our orthogeneric strategy, making meaningful improvements in our gross margin profile, and demonstrating our ability to deliver material free cash flow. The impact of the coronavirus and its knockout effects, like inflationary headwinds, remain unpredictable. However, our overall execution in 2021 has positioned us well in 2022 to deliver on a meaningful and material step forward toward our desired financial profile. Organic net sales should grow 3% to 6% in constant currency terms, with OrthoGenerex delivering sales of $70 million this year. The low end of this range assumes continued difficulty with accessing raw materials and unevenness with the return of elective procedures. Our gross margin profile will improve sequentially given the positive impact of OrthoGenerex, and we anticipate annual gross margins in the range of 55 to 57%, with the lower end of that range capturing uncertainty around inflation and distribution costs. Operating expenses are expected to increase compared to 2021. We will invest domestically and internationally with a clear expectation of return on investment. However, we will remain below 40% of STNA as a percentage of sales for the full year, with the first half of the year likely being slightly above 40%. Free cash flow should exceed $90 million in 2022 as we drive sales and margin growth while leveraging our operating expense structure. We do not anticipate favorable operating working capital for 2022, as inventory will increase to help support raw material shortages and reduce our existing backorder. We expect to see quarterly sequential earnings growth driven by sales volume and cost savings, with first quarter results being meaningfully softer versus the duration of the year, as has been consistent with past historical performance. As a result, adjusted diluted EPS should range from $1.55 to $1.75. We have made great progress in 2021 to set ourselves up for a successful 2022 and beyond, and we are excited that much of our cash flow uncertainty is now behind us. We remain confident in our ability to execute our strategy and to take the necessary steps to drive gross and operating margin improvement and deliver more consistent results as we look towards 2022. Operator, please open the line for questions.

Yes, thank you. As mentioned, we will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble the roster. And the first question comes from Chris Cooley with Stevens.

Good morning, and I appreciate you taking the questions here today. Michael, maybe if you just start, help us maybe parse out a little bit more of the guide. Specifically here, I guess two parts to the question. With the addition of what the Gener-X and a pretty strong contribution there in revenue, $70 million, one would just think that there may be a little bit more of a natural lift there in the gross margin. We hope that you could maybe help us parse out the headwinds that you talked about from a macro perspective. versus the underlying base business and then orthogenerics, just as we think about the components of gross margin. And then similarly, when we look at the EPS guide, while it's not explicitly called out, I guess we can work through it, but it would be helpful to kind of get a better feel for how much you're anticipating getting from the acquisition, how much from the base business as it stands, and then the incremental contribution from some of these cost savings initiatives. Then I've got a quick follow-up. Thanks.

Great, Chris. Thanks for the question. So I'll try to get each of those in, but if I miss one, just ask again. So I'll start with the gross margin. I think the best way to think about that, because we're not going to give specifics around orthogenetics margin profile for a range of reasons, one of which is we're not sure exactly how quick we can integrate, what we want to do with that, and that may have an impact as the year goes on. But one way to think about it is the 55% gross margin, the low end of our range, a majority of that, right, over 50% of that increase from 52 this year to 55 would be the uplift for more degenerates. As we get more towards 56, 57% in gross margin, a majority of that uplift is because of the good work we're doing in the normal organic efforts from a cost of goods sold standpoint. Plus, hopefully we get some tailwinds with inflationary pressures lessening, and some of the other things we commented on in the repair remarks. So that would be the gross margin piece. When we think about the revenue guide, 3% to 6%, $70 million obviously is an absolute number. That assumes the 11 months plus one week that we would own it, so actual results of $70 million. The 3% to 6% organic guide excludes $4.5 million of Maxster revenue for our Maxster facility. So our organic guide is based off of $740 million of organic revenue from 2021. So hopefully that helps to clarify the organic guide on the revenue piece, $70 million actual OrthoGenerex that we believe we will achieve in 2022 for the period that we own it. And then on gross margin, low end of that gross margin, if we achieve that, that'll be a majority of that will be because of the uplift from the OrthoGenerex acquisition. As we get towards 57%, a majority will be because of the organic work that we intend to implement this year.

And just, I guess, just to clarify again then as well, just from an earnings contribution perspective, when I think about the EPS guidance range?

Yeah, so we're not going to provide the difference.

Okay, fair enough. Understood. And then I guess just for my follow-on, I just want to make sure I understand the your assumptions behind OrthoGenerux. I believe the time of the acquisition at the end or middle of December, $130 million that you paid there at closing, it was around two and a half times 22's estimated revenues. That makes pretty much sense here when we think about the timing. Just curious, though, about what you're thinking from a growth rate perspective for that business going forward. Going forward. Yeah, no, great question.

The growth rate is we expect it to be moderately accretive to our organic top-line growth. Okay.

Thank you very much for clarifying that. Yep. I'll get back in queue.

Thank you. And the next question comes from Matthew Michon with KeyBank.

Great, and thank you for taking the questions. And I just wanted to follow up on Chris's question there. On OrthoGenRx, are there headwinds that need to be accounted for to that growth rate? You know, the move to single shot, I mean, some changes in, I guess, how it's being reimbursed. I mean, is there just some things we need to pay attention to?

Matt, I'll maybe take that. That's Joe Woody. I think the way to think about it is that we feel like we can sort of maintain the trajectory that they're on over time. We think we can add into our direct sales force, but we sort of want that to run standalone for a while. And yes, we're paying attention to the reimbursement changes, which we have fully modeled and are prepared for next year. But that could mean in the second half of this year, there's a little bit of utilization change that goes on. Nonetheless, as Michael said, we're still going to be north of our growth rate, current growth rates, and it's going to be accretive to our growth.

Okay, excellent. I just wanted to make sure I understood the growth margin trajectory correct. What you're saying is half of the, half of from 52 to 55 is from OrthoGenRx. not the bump from 52 all the way to 55. Is that correct?

That's right, exactly.

Okay. And then you said you were making some investments in SG&A and R&D to start the year. What are some of those investments, and where are you putting dollars to work?

So last year, as the back half of the year, we started to see continued headwinds with gross margins, we made choices around stopping or delaying selling and marketing and R&D activities that we felt comfortable doing. I think we mentioned this on our third quarter call as well, that we didn't think would have a long-term disruption in our investment profile. As we enter into this year, with obviously the benefit of the OrthoGenerex acquisition, other things that we believe are starting to loosen up as far as opportunities for us, we wanted to make sure we put those investments back in. We're adding back in a couple million of R&D that we delayed from last year, and then also some key selling and marketing initiatives. We have some small launches we have for this year. We want to continue and invest behind Neomed and the opportunity that we have there. So it's kind of spread around now, but it's primarily related to delaying of things that we put off in the last four to six months of last year.

Okay. And just last question on the free cash flow of $90 million. Is that just flowing down from EBITDA like core or are there some moving pieces there where there's some lump sums that you're bringing in?

No, so that's $90 million of core. In addition to that, we still have $13 million of tax receivables, some lingering CARES Act and then other tax receivables. That is not in the $90 million. If we were to secure those tax receivables, that would be in addition to the $90. The $90 is poor. It also assumes a heavy headwind with inventory. So if we manage our inventory in a slightly different way and or supply chains react differently, there may be some potential upside as well. This is all core, and it doesn't include some potential upside. Okay.

Thank you very much.

Thank you.

Thank you. Once again, please press star, the one, if you would like to ask a question. And the next question comes from Rick Wise with Stifel.

Good morning, Joe. Hi, Michael. Maybe just going back to recent trends, you were emphasizing that maybe December wasn't as impacted by some of the COVID headwinds. I assume January was. Just what are you seeing more specifically now that we're basically two-thirds through the quarter? Are you actually seeing that? In your business, what we're reading in the newspapers, the lessening of COVID headwinds, and are you starting to see some early encouraging signs on the elective procedure front that sort of underpin your optimism about the year?

Yeah, Rick, I would say that generally, you know, a piece of December, as everybody has reported, and then into January, as we've emerged into February, we're seeing a little bit of green shoots, if you will. I do think Q1 is still going to be affected, you know, in terms of elective procedures, probably getting better into Q2 and certainly better in the second half, and that's considering that we don't have any other issues or variants impacting. I think others have spoken to, and we feel like there is a bolus of procedures, especially in the orthopedic space, that are going to need to get done and start coming to fruition as soon as the majority of the hospitals go back to a normalized level, and that's the big debate. The normalized level hasn't always come as quickly as everyone anticipated throughout the pandemic. And again, now there's the staff shortage component. But I do think it's looking to get better. Omicron moved through pretty quickly. I think as we exit the quarter, we will start to see a little bit of an uptick. And primarily in our business, as you probably know, the biggest impact is on OnCue, less so on Cool Leaf and the chronic care business.

Right, right. And just maybe it's a naive question a little bit, but obviously your costs, you're detailing it multiple ways. Your costs or pressures are rising, supply chain, product shortages, et cetera. To what extent are you all able to pass it along? Are you talking to your customers about it? Are you negotiating with them? Just how's that unfolding?

Yeah, I think the difficulty, I mean, everyone's going to experience some compensation inflationary issues that will probably remain with us, and then some of the raw material pieces will come and go. I do think that there's an opportunity for some price increase for us throughout the year, but the majority of what we do is GPO and IDN-based, and I think that's the struggle for medical devices versus, as an example, a consumer products company that can pass it on a little bit more quickly. So we do have some plans that we think, you know, that we can roll into this year and we'll get some benefit. And then as we renegotiate contracts, I think there's a general understanding from GPOs and IDNs that not just us, but all medical device companies are going to be looking to pass along some of this transportation and some of the general raw material increases as well.

Great. And just last for me, Joe, you know, you've been absolutely spot on and you know, straight ahead in terms of highlighting that your M&A activities continue, that you're working on multiple things, and, you know, most recently you've, you know, captured Orthogenerex, which is clearly a compelling acquisition. As you're thinking about this year, are you as optimistic? Are you as confident? any color on the, you're hoping it's more in the first half than the second half, and any incremental color about what, where, how it's going to fit in?

Sure. I mean, you know, we exited the year talking about two that were very near term. I would say that we have three bolt-ons that we're looking at. We're looking across both the chronic care business and the pain business. You never can time these things, so I wouldn't call it necessarily for the first half, but we'll do what we can. But certainly I think we will leave 2022 with one or two additional bolt-ons of the type and variety that we've been working on. I think we're going to start to benefit from the cash flow generation and be in a good position then to do what I would see as a larger deal for us in 2023, obviously first delivering and executing what we're laying out here today. And meaningful for us and larger can be, you know, several hundred million. It doesn't have to be a $2 billion or a billion-dollar deal, and that probably is not realistic. But there are some bigger things that we can do that would have a greater impact on the business. So I'd say another one or two this year, and then looking at something larger probably next year.

Okay. And I apologize if I could sneak in one more I meant to ask. Sure, sure. On the orthogenetics revenue growth outlook, the $70 million forecast is Just help me understand, because I've been asked and haven't had a great answer, with reimbursement getting hit in 23, how does it grow? How do we think about growth this year and next? Or said differently, how does it not get impacted, you know, given that headwind? What are the offsets? Thank you so much.

Thank you. Yeah, thank you, Rick. For us, there's two things to benefit us. One, we're coming from a smaller base versus some of the competitors that have larger bases. Also, the way that CMS is looking at this is they're looking at the ASP, and generally our ASPs are in a good spot. They're definitely going to get reduced, but we're in a good spot as we stand now. And so when we speak of, or Michael said on this call, still north of our albinos growth, that would contemplate even a reduction in reimbursement. So we've built this all in, and we still think it's going to be accretive to our growth and accretive to our margins as well.

Very helpful. Thank you.

Yep.

Thank you. And the next question comes from Drew Ranieri with Morgan Stanley.

Hi, Joe and Michael. Thanks for taking the questions. Just a follow-up on the OrthogenRx question that Rick had. can you maybe just talk a little bit more about the components of growth? I mean, how you're thinking about the three and five injection markets and your ability to drive growth there. Is OrthoGenRx, is it all about just expanding the customer base, or is this largely kind of a mixed benefit of moving five to three injections?

So a couple things, you know, one, just a reminder, you know, we will be able to develop, if we choose to, a single injection, but that's sort of in the future. But if you think about the growth, pretty good growth from the existing sales force. Ultimately, we want to put this into our group so there's an opportunity for expansion and growth there so that we're both selling together the products. I think the other thing to think of is that there are a lot of physicians, a good percentage of them, that believe that three to five is a better route because oftentimes in a single injection, the pain relief is not very long. And so if it's spread out over a period of time, and then additionally, we have different call points that we think are going to be interested in this product, interventional pain, where we call with Cool Leaf, you know, the various pain clinics that we work with on a different basis. So we feel like there's a good runway of growth for us and also longer term to contemplate whether or not we would develop a single. So we don't feel like the runway or the projections or what we're talking about being north of our current growth rate would require us to have a one injection in there.

And then just maybe a little bit more kind of on the strategy, combined strategy with OrthoGenRx and Cool Leaf. I mean, how does this product fit in with Cool Leaf? I think there was data that you were developing for Cool Leaf versus HA, but just kind of curious if this uplifts Cool Leaf sales or there could be potentially some cannibalization between the two products. Thank you.

I think ultimately it's going to help both ways, so the 1099 group that is selling currently, Orthogen, and then our own Cool Leaf Direct group, you know, when we start to think about calling on interventional pain clinics and orthopedic surgeon offices and ambulatory surgical centers, so you can also think about the fact that we're working internally and externally on another approach to something Cool Leaf related for ambulatory surgical centers. I don't think that certain modalities are going to disappear. We've kind of seen that with corticosteroids. They're here. They're not as effective, but there's usually a cycle and different viewpoints of treatment. I don't think HA is going to go away, but I think that there's an interesting market in total, which we're going to spend a lot of time in and develop on treating OA of the knee. And so we sort of have two forays now, cooled frequency RF hyaluronic acid, and then there are other technologies that we're considering and looking at, either for open innovation investments or potential acquisitions. So I think there's going to be sort of a pathway. It actually starts with kind of going in and, you know, looking at the patient and seeing about, you know, an opportunity to lose weight or to exercise, and it sort of moves to the Advils and Aleves and then on to steroids and then HA. So I think that it's a good place for us to be where we can build a competency.

And sorry, just one last one for Michael, and I'm sorry if I missed this, but how should we be thinking about 2022's tax rate and share count kind of given that you have the $30 million repurchase authorization outstanding? Thank you.

Yeah, the share count I would think kind of flatted slightly down versus last year. And then the tax rate, you know, you guys are getting the kind of 26%, 27% rate normalized. This one-time opportunity we had from a tax planning strategy in the fourth quarter, that was discrete and one-time in nature. That won't repeat. That was a good opportunity around the master closure that we had. The 26%, 27% rate in 2022 and likely into 2023 still remains appropriate. Thank you.

Thank you. And we have another question. Chris Cooley with Stevens.

Oh, thank you for taking the follow-up. Just maybe one other quick one as we think about generation of cash in the course of the year. I know in prior presentations you have mentioned an evaluation of the existing portfolio and potential monetization of some of those assets to help provide additional growth capital for the business going forward. Any update on your thoughts there as we enter the new year? Are you comfortable with the portfolio as you have it here today or alternatively do you see some opportunities to prune and enhance the growth and margin profile and as a result have more capital for these tuck-ins? Thank you.

I think there's more opportunity for us and I think Maxter is kind of a good example to think about in terms of we saw something that was gross margin dilutive and And we decided to exit. I think there's opportunities for us to sell some other SKUs and other portions of our business that aren't attractive or part of the strategy on the go forward that would be beneficial to us in the metrics that we're driving alongside of the strategy. And we're continuously looking at the portfolio and getting honed in and more specific. So there's more of that, I think, to come. And that should benefit us, I think, on a future M&A or on future M&A opportunities as well.

Thank you.

Thank you. And this concludes the question and answer session. I would like to turn to Florida Joe Woody for any closing comments.

I'd just like to thank everybody for the continued interest in Avanos. And we're very pleased with the execution in 2021, given certainly an uncertain environment. We're certainly committed to creating shareholder value and anticipate 2022 is going to begin to deliver on that commitment. I'm confident the produce we've detailed, combined with our market-leading portfolio and attractive markets, position us for sales growth, margin expansion, and positive free cash flow as we continue into 2022, and look forward to talking to all of you more about this. Thank you.

Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines.