Avanos Medical, Inc.

financial targets at our investor day on June 20th to be held at the convene 101 Park Avenue location in New York City now I'll turn the call over to Michael who will continue to lead these efforts in his expanded role as chief transformation officer and will further discuss our first quarter financial results thanks Joe before diving deeper into these transformation efforts I'll provide additional color to our first quarter results

Total reported sales for the first quarter was $191.7 million, a decrease of 2.9% compared to last year. Adjusted EBITDA for the quarter was greater than $26 million compared to $23 million a year ago, with EBITDA margin improving 200 basis points versus last year. Adjusted net income for the quarter totaled almost $13 million compared to $12 million a year ago, translating to $0.27 of adjusted diluted earnings per share versus 25 cents a year ago. We ended the quarter with 96 million of cash on hand and a leverage ratio of 0.8. As Joe already noted, we delivered on both our gross margin and SD&A as a percentage of revenue targets. Our gross margin for the quarter was 56.4%, a 50 basis point improvement versus the prior year, primarily driven by the positive impact of our manufacturing efficiency programs. We anticipate second quarter gross margin to be slightly improved versus the first quarter. Separately, SD&A's percentage of revenue improved by 140 basis points versus the prior year primarily related to our cost savings efforts to streamline the organization and reduce our external spend profile. As with gross margin, we anticipate our SD&A levels will be largely similar during the second quarter versus the first quarter. with material improvement expected in the second half of the year as our cost management transformation efforts begin to accelerate. As we previously shared, 2023 will be a transition year, given our product portfolio rationalization and cost management initiatives. And the first quarter was an example of this unevenness, with slightly lower revenue than anticipated across some of our product categories, while profitability measures were either in line or exceeded our expectations. In summary, we are pleased with our first quarter execution in total and remain confident in our ability to meet our previously announced guidance for the year of earning between $1.60 and $1.80 of adjusted diluted earnings per share, while delivering at least $60 million in free cash flow, excluding the one-time cash costs associated with the restructuring efforts, expected to total approximately $25 million. Finally, including the current year impact of the approximately $35 million annualized impact of product portfolio rationalization, the company anticipates organic revenue growth to be low single digits. Now, turning to our transformation priorities, which are designed to shift our product portfolio over time into a higher growth portfolio, leveraging our cornerstone product families in digestive health, as well as our orthopedic pain and recovery-focused products. In addition, These priorities will right-size our cost structure and enhance our operating profitability, allowing us to generate significantly greater annual free cash flow over the next three years, while meaningfully improving ROIC over this transformation horizon. As already shared, we expect to realize approximately 10 million of savings in 2023, while anticipating 45 to 55 million of gross cost savings by 2025, most of which will be achieved in 2024. I will end with reiterating what I shared at the end of my prepared remarks for the year-end earnings call. We are excited to embark on our transformation journey and are confident we will improve on each of our financial metrics as 2023 progresses, with a slow start for the first quarter followed by acceleration in the back half of the year, similar pacing to what we experienced in 2022.

Operator, please open the line for questions.