Avanos Medical, Inc.

Good morning and welcome to Avanos' third quarter 2023 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. 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 Scott Gallivan, Senior Vice President of Strategy and Corporate Developments. Please go ahead.

Good morning, everyone, and thanks for joining us. It's my pleasure to welcome you to Avanos 2023 Third Quarter Earnings Conference Call. Presenting today will be Joe Woody, CEO, and Michael Greiner, Senior Vice President, CFO, and Chief Transformation Officer. Joe will review our third quarter, expectations for the remainder of 2023, and provide an update on our transformation efforts. Michael will share additional detail regarding these topics. 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, current economic conditions, and our industry. No assurance can be given as to future financial results. After 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'll be referring to adjusted results and outlook. The press releases 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 third quarter of 2023. We are pleased with our third quarter results, which align with the expectations outlined during our second quarter earnings call. We anticipated a continued reduction in supply chain disruptions and strong demand for our products. Last quarter, we indicated that our year-end backorder would be around $3 million, down from over $10 million at the beginning of the year, and we are making steady progress toward achieving this target by the end of December. Additionally, we continue to make steady progress against each of our transformation priorities, which I will further comment on in a few minutes. As always, our primary focus is on getting patients back to the things that matter as we meet the needs of our customers. For the quarter, our sales from continuing operations were $171 million, adjusted for the adverse effects of foreign exchange and the impact of our earlier decision to discontinue revenue that didn't meet our return criteria. In addition, we generated 30 cents of adjusted diluted earnings per share and almost $28 million of adjusted EBITDA from continuing operations during the quarter. Our adjusted gross margin exceeded 58%, and our SG&A as a percentage of revenue stood at approximately 42%. Now I'll spend the next few minutes discussing our results at the product category level. On a constant currency basis, our digestive health portfolio showed robust growth exceeding 10.5%. This growth was bolstered by our NeoMed product line, which delivered another strong quarter compared to the previous year. as we continue to take advantage of the demand for NFIT conversions in North America. Our legacy digestive health product line grew just shy of double digits globally, primarily behind the performance of our legacy enteral feeding portfolio, coupled with the continued expansion of our U.S. core tract standard of care offering. Our ability to continue to deliver above-market growth and leadership in our core digestive health markets will be supported by innovations that we plan to launch over the next 12 months, expansion into high potential global markets, low growth product rationalization, and actionable M&A targets in large attractive adjacencies. Turning to our pain management and recovery portfolio, this quarter sales were down approximately 10%, excluding the benefit of dearest revenue. The negative impact of foreign exchange and our previously announced decision to discontinue certain low-growth, low-margin products. We continue to see softness across the game-ready and HA product categories, both of which were down greater than 10% versus the prior year. Our interventional pain portfolio experienced an 8% decline compared to the previous year due to supply challenges. Given our Q4 supply chain improvements, we anticipate our IBP portfolio to be at least flat versus prior year, excluding the positive impact of DEROS revenue. Separately, our surgical pain business is showing improvement. After several consecutive quarters of decline, we're making progress in executing our new go-to-market strategy and structure. In the current quarter, we delivered low single-digit growth, excluding the previously described market withdrawals of certain low-growth and low-margin products. We anticipate that our fourth quarter revenue for our surgical pain business will be largely consistent with our third quarter results. Our HA portfolio, though down versus prior year, met our internal expectations. As discussed during last quarter's call, we continue to experience volatility in our three- and five-shot offering, largely due to the competitive pricing and dynamics of the market environment. Nevertheless, we believe we have the right strategies in place to capitalize on our HA opportunities over the long term, but continue to anticipate near-term volatility and sequential quarterly declines. Finally, early performance of our newly acquired Trident product line has been solid, and we are excited about the U.S. market launch, which kicked off yesterday. Now I'm moving to an update on our 2023 transformational priorities and efforts. As a reminder, we have four key priorities for the next three years that will optimize our go-to-market opportunities and meaningfully enhance our financial profile. These priorities are strategically and commercially optimizing our organization, transforming our portfolio to focus on categories where we have attractive margin profiles and the right to win, taking additional cost management measures to enhance operating profitability, and continuing our path of efficient capital allocation to meaningfully improve our ROIC. We are very pleased with our execution against these priorities as evidenced by divesting our respiratory health business, enhancing our portfolio growth and margin outlook, closing the DEROS acquisition, which broadens our interventional pain portfolio with accretive growth and margin products, continuing strong performance throughout our DH portfolio, progressing our pain go-to-market strategy, as I just noted, and accelerating our transformation cost savings, which we now expect to exceed $20 million in 2023. As we have consistently communicated since I first presented our transformation plan at the J.P. Morgan Conference in January, This year would be a bit uneven given to the transformation priorities, the realignment of our commercial organization, M&A execution, and our other portfolio optimization activities. We continue to execute solidly on each of these priorities, which serve as the building blocks for achieving the 2024 and the 2025 financial metrics we outlined in our June 2023 Investor Day. Now I'll turn the call over to Michael. who continues to lead these efforts as Chief Transformation Officer and will provide further insights into our third quarter financial results.