Avanos Medical - Q2 2023

Transcript

Operator (participant)

Please note, today's call is being recorded. At this time, I'd like to hand the floor over to Avanos CEO, Joe Woody.

Joe Woody (CEO)

Good morning, everyone. This is Joe Woody. We've asked the New York Stock Exchange, they agreed to halt our trading as our results were inaccurately reported by one news outlet and possibly more. Our total results, inclusive of Respiratory Health, were $199.8 million in revenue, and we delivered $0.37 at EPS. Throughout the day today, we're gonna work with the various agencies and news outlets to correct the information. Now I'm going to turn the call over to Scott Galovan, to begin our prepared remarks. Thank you.

Scott Galovan (SVP of Strategy and Corporate Development)

Good morning, everyone, thanks for joining us. It's my pleasure to welcome you to Avanos's 2023 second 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 second quarter and expectations for the remainder of 2023, as well as provide further insights around the strategy we laid out at our Investor Day in June. Michael will provide additional detail regarding these topics and provide an update of our 2023 planning assumptions, given our Respiratory Health business discontinued operations. 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, current 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'll 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.

Joe Woody (CEO)

Thanks, Scott. Good morning, everyone, and thank you for joining us to review our operational and financial results for the second quarter of 2023. We are pleased with our second quarter. We noted in our year-end earnings call and reiterated at our Investor Day in June, our quarterly results for 2023 would be uneven, given the timing uncertainties associated with our transformation plan, which included some of the transactions we announced just prior to our Investor Day. The demand for our products remains strong, and although supply chain disruptions have lessened, we continue to experience ongoing product supply challenges and the effects of inflation throughout our supply chain. Coming into the year, we anticipated that 2023 would continue to present supply chain headwinds and pockets of product availability challenges, but that many of these headwinds would ease as we reached the back half of the year.

We still believe this to be the case with our anticipated year-end backorder levels to be around $3 million, down from over $10 million at the beginning of the year. 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, we achieved sales of $169 million from continuing operations or down approximately 1% compared to last year. Excluding both the negative impact of foreign exchange and the $5 million impact related to our previously announced decision to eliminate revenue that was not meeting our returns criteria, organic growth was favorable 2.6% for the quarter. We also generated $0.24 of adjusted diluted EPS and almost $23 million of adjusted EBITDA from continuing operations during the quarter.

While our adjusted gross margin was almost 60% and our SG&A as a percentage of revenue was 45.1%. Actual sales for the quarter, inclusive of our Respiratory Health business, was $200 million or 2.5% growth, also excluding the adjusted revenue items I just referenced. SG&A, as a percentage of revenue, was 40%, supporting an adjusted EBITDA margin of almost 16% for the quarter. I'll spend the next few minutes discussing our results at the product category level. On a constant currency basis, our digestive health portfolio grew almost 17%, bolstered by our NEOMED product line, which posted another strong quarter versus the prior year, as we continue to take advantage of the demand for ENFit conversions in North America.

Our legacy enteral feeding product line grew double digits globally, primarily driven by the continued expansion of our U.S. CORTRAK standard of care offerings. As noted during Investor Day, we continue to deliver above-market growth and leadership in our core digestive health markets and are poised to sustain this momentum through innovations that we plan to launch over the next 12 months, expansion into high-potential global markets, and actionable M&A targets in large, attractive adjacencies. Turning to our pain management and recovery portfolio, actual reported sales were down close to 11% for the quarter, with soft results across our Interventional Pain, Game Ready, and five-shot HA product categories, each of which were down at least 5% versus the prior year. Separately, our surgical pain pump business was flat for the quarter, excluding the negative impact of foreign exchange and low-growth, low-margin products.

We are no longer selling in this category. As I shared earlier, we continue to experience supply headwinds within these businesses, although we expect these headwinds to ease during the second half of this year. Alleviating these supply chain challenges is critical to supporting our pain management and recovery portfolio sales lift in the second half of the year. Finally, our HA portfolio experienced a weaker than expected first half. However, this softness was primarily concentrated in our five-shot or GenVisc products. Five-shot market has specific pricing and competitive dynamics that are not as prevalent within the three-shot market. TriVisc, our three-shot offering, continues to align with our overarching orthopedic call point strategy and is largely meeting our internal performance expectations.

We expect volatility will continue to be a factor in both of these HA markets for the next several quarters, as we face strong 2022 comparables and continue to experience the related swings from entering the ASP reporting environment in Q3 2022. Despite this volatility, we believe we have the right strategies in place to capitalize on our HA opportunities. Our pain management and recovery business results have not met our expectations over the last year. We are confident in our new strategy outlined during Investor Day. This strategy connects our pain brands across the patient lifecycle and sets the stage for sustainable mid-single digit growth as we enter 2024, with gross margins exceeding 60%. Our investments in the pain management and recovery business will be very selective over the short to midterm as we focus on securing consistent organic financial results.

Now moving to an update on our 2023 priorities and transformation efforts, which includes some of the initiatives that I just described. As we originally outlined in the beginning of the year, and further highlighted in June during Investor Day, 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 include: 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 continue to execute well against these priorities, as evidenced by our recent divestiture and acquisition activity, implementation of our new go-to-market strategy for our pain management and recovery business, margin improvement, additional portfolio optimization decisions, and delivery on our transformation program expense savings. Our board has recently approved a $25 million share repurchase program. This will not impact our ability to continue to execute our tuck-in acquisition strategy, but rather provides us flexibility to allocate capital towards repurchasing shares that we believe are meaningfully undervalued versus our internally calculated intrinsic value. I'd like to thank everyone who participated in our Investor Day on June 20th, and the subsequent feedback we received from many of you.

Now I'll turn the call over to Michael, who continues to lead these efforts in his expanded role as Chief Transformation Officer, and will further discuss our second quarter financial results.

Michael Greiner (SVP, CFO, and Chief Transformation Officer)

Thanks, Joe. Before providing color on our discontinued operations reporting related to the sale of our Respiratory Health business, I'll first provide additional color and detail around our consolidated second quarter results. Total reported sales for the second quarter on an actuals basis was $199.8 million, an increase of 2.5%, excluding the negative impact of foreign exchange and the impact of low margin and low growth products we have ceased selling. From a continuing operations standpoint, net sales were $169.4 million, adjusted gross margins were 59.9%, and adjusted net income for the quarter totaled $11 million, translating to $0.24 of adjusted diluted earnings per share. Adjusted EBITDA for the quarter was $23 million, in line with prior year.

Separately, we ended the quarter with 82 million of cash on hand and a leverage ratio of less than one. Looking at our total results, including Respiratory Health, gross margin for the quarter was 56.7%, or 270 basis points lower than prior year, primarily driven by the unfavorable impact of the Mexican peso, as well as unfavorable product mix impact, mostly related to softness in our HA portfolio. Sequentially, gross margin improved by 30 basis points. Separately, SG&A, as a percentage of revenue, improved by 60 basis points versus the prior year and 160 basis points sequentially, primarily related to our cost savings efforts to streamline the organization and reduce our external spend profile. Adjusted diluted earnings per share were $0.37 and adjusted EBITDA totaled $31.8 million, or 15.9%. Now, focusing on our continuing operations results.

Adjusted gross margin for the quarter was 59.9%, which reflects the benefits of our portfolio optimization decisions. SG&A, as a percentage of revenue, was 45.1%, an improvement of 100 basis points versus the prior year, and a sequential improvement of 280 basis points. We anticipate SG&A, as a percentage of revenue, to be approximately 43%-44% for the full year from a continuing operations standpoint, with substantial improvement in 2024, ultimately leading to our 2025 goal between 38%-39%. Adjusted diluted earnings per share were $0.24 versus $0.26 a year ago, with adjusted EBITDA margin of 13.5%, compared to 13.4% in 2022. For the first six months of 2023, the impact of discontinued operations totaled $19 million of EBITDA reduction.

We anticipate the full year impact to be approximately $40 million, which also is directionally representative of the annual stranded cost impact for the RH divestiture. These stranded costs include allocations from shared service functions, shipping and freight dyssynergies, and loss of scale in our international operations, among other fixed costs. Through 2024, we will offset a portion of these stranded costs via our transition services agreements with AirLife. We are accelerating and expanding our existing cost reduction program to mitigate the majority of the remaining stranded costs, expecting approximately $30 million in incremental cost reduction by the end of 2025, leaving an estimated $10 million-$15 million of go-forward dyssynergies. Future M&A, of course, would enable additional stranded cost absorption.

As a result of the Respiratory Health divestiture, which we anticipate will close early in the fourth quarter, we expect adjusted diluted EPS between $1.05 and $1.15 for the year, with gross margins around 60% and adjusted EBITDA margins of approximately 15%, including the current year impact of the approximately $17 million annualized impact of product portfolio rationalization that we previously discussed. The company anticipates comparable organic revenue growth to be low single digits for the year. As previously communicated, the cost management aspects of our transformation program will total between $45 million and $55 million of gross savings by 2025. We now anticipate approximately $20 million of those savings in 2023, with the majority of the remainder to be executed in 2024. These savings do not contemplate the elimination of the stranded costs that I just described, which will be addressed separately.

Our preliminary view for 2024 anticipates that we will deliver mid-single-digit revenue growth across our portfolio, with adjusted gross margins of approximately 60%. Separately, we expect to reduce SG&A as a percentage of sales to 40%-42% as a result of our cost takeout efforts and anticipate generating adjusted EBITDA of between $120 million and $140 million. These ranges will be negatively or positively impacted by our ability to accelerate our pain growth story and our cost management efforts. With regards to free cash flow, we now anticipate annual free cash flow of approximately $60 million as a result of higher interest and tax payments and weaker than anticipated performance in our pain management and recovery portfolio. This estimate also excludes one-time restructuring costs for this year.

We remain confident in our ability to deliver approximately $100 million of free cash flow for 2025. This assumes $25 million in tax payments, $20 million in capital expenditures, and $15 million in interest payments. In closing, we will continue to execute on each of our transformation priorities and have a laser focus on both the digestive health and pain management and recovery business strategies. We believe that execution of these portfolio strategies, combined with our other transformation priorities, will support delivering mid-single-digit organic revenue growth, gross margins exceeding 60%, adjusted EBITDA margins greater than 20%, and free cash flow generation of approximately $100 million that I just shared. Finally, we will remain prudent stewards of our balance sheet, pursuing margin-accretive tuck-in acquisitions and opportunistic share repurchases. Operator, please open the line for questions.

Operator (participant)

Thank you. We will now begin the question-and-answer session. To ask a question, you may press star, then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw from the question queue, you may press star, then two. At this time, we will pause momentarily to assemble our roster. Today's first question comes from Rick Wise with Stifel. Please go ahead.

Rick Wise (Managing Director in the Healthcare sector, covering Medical Technology and Supplies)

Good morning, Joe Woody. Hi, Michael Greiner. Thanks for, for all the detail and, and, and the clarity. You know, a, a lot to absorb and, and think through, but you gave us a lot of good data. I, I want to start off just, you know, Michael Greiner, you said it, you know, very clearly in give-- in giving us a, a first look at 2024, that pain growth acceleration or re-acceleration, cost reduction are the two critical pillars, if I understood your words, correct me if I'm wrong, to achieving that growth. Maybe take us through. I'm gonna guess cost reduction is more in your control. Just give us even more detail about why you're confident that you can achieve, you know, your goals and some of the specific actions, so we can understand that.

Maybe just-- I'm just looking at your, your slide seven, where you talk about the pain portfolio being challenged. If you'd be so kind, you know, take us through each piece and help us understand your action plan that's going to-- You wouldn't say it if you didn't have a plan and didn't believe it, I'm confident, that's gonna help us more credibly understand and believe that pain growth can re-accelerate in 2024. That's sort of my, my first and second question. Thank you.

Michael Greiner (SVP, CFO, and Chief Transformation Officer)

Yeah. No, great. Thanks, Rick. I'll just turn it over to Joe in a second to talk about the pain strategic approach and tie that back to what we shared on Investor Day and why we are confident in our ability to execute mid-single digit next year. What I was trying to convey in the EBITDA and the cost and the pain growth, 120-140 is our current preliminary early view of 2024. The lower end of that range would mean we didn't execute as well as we wanted to on the pain growth and/or the cost management efforts, which I agree are in our control, maybe were a little bit slower.

You know, maybe there were some things that occurred through the transition agreements that, you know, had us distracted for a, a short period of time in the early half of the year, and so we had to get at some of those cost management efforts in the back half of 2024. You know, these 2025 targets, we feel really good about, because, one, we have programs in place like you just described, and the 2024 range, we feel really good about. Whether we're at 120 or 140 will be entirely dependent upon our ability to grow mid-single digits in the pain category, which Joe will talk about in a minute, and the quickness at which we get at these cost management programs. Those programs will happen, Rick.

It's just, you know, can we get them done in March or do we get them done in July?

Joe Woody (CEO)

Rick, this is Joe Woody. Just to kind of pick up on the pain growth for 2024. I mean, if you think about this quarter, the company, either way, we're about sort of 2.5%-ish organic growth when you remove all the noise. What we've said is, is we've unfortunately continued in IVP and acute pain with pretty significant supply chain issues. This is before we talk about the new initiative. We're almost sort of, without those, kind of at a four-ish or five-ish type of, of growth as a, as a overall Avanos, in the new Avanos go forward or the continued operations, if you look at it, that way. The other thing I would say is we're very confident in bringing Diros in, and that's gonna give us an opportunity to play in the ambulatory surgical center.

It's also gonna give us the ability, we think, to take share in the standard RF market, which is gonna be good for us. We've got some things going on in the business. Internationally, we've got a positive reimbursement in Japan. We've got NICE in the U.K. coming out for COOLIEF, talking about giving us the ability to expand our reimbursement in Europe. Really, from a strategic perspective, being completely different with, you know, an approach with the ambulatory surgical center and primarily the orthopedic call point, and we are changing a lot of people out and a lot of distributors. I think, frankly, we'd, we'd pretty much be there if we didn't have some of the...

It's not the whole story, but if we didn't have the supply chain issues, we'd be pretty doggone close. Frankly, we're gonna have pretty, pretty easy comparables. But even beyond that, what we're pointing to is we feel that we really can get to a sustainable mid-single-digit growth because we're participating now in the places that we can win.

Rick Wise (Managing Director in the Healthcare sector, covering Medical Technology and Supplies)

Yeah, got it. I lied, I'll, I'll ask a half. The, the, the likely or the potential of Diros contribution, and then thank you.

Joe Woody (CEO)

Yeah. This year it's gonna be sort of, call it $6-ish million in revenue.

Rick Wise (Managing Director in the Healthcare sector, covering Medical Technology and Supplies)

To 2024, and how are you thinking about 2024 and 2025?

Michael Greiner (SVP, CFO, and Chief Transformation Officer)

It'll be double digit growth, no doubt about. It'll be an uplift, but obviously on a lower base. So the impact on the mid-single digit for pain will be somewhat de minimis.

Rick Wise (Managing Director in the Healthcare sector, covering Medical Technology and Supplies)

Thank you.

Operator (participant)

The next question comes from Matthew Mishan with KeyBanc. Please go ahead.

Matthew Mishan (VP, Equity Research Analyst)

Hey, good-- hey, good morning. Thanks for taking the questions. I just wanted to, to start off with the new baseline for 2023. The $1.05-$1.15 of EPS and $100 million-$110 million of EBITDA. Those are, those are clean numbers, excluding the divestiture. There's no necessarily revenue coming out and, and costs that are, that are, that are kind of stuck in the P&L. Those are- those would be exclusive completely of the divestiture?

Michael Greiner (SVP, CFO, and Chief Transformation Officer)

Well, they, they are there are, there is that $30 million of trapped costs that still remain in there that we will be getting at, over the next 12 to 18 months. They're clean, but there are fixed costs that are trapped, stranded, whatever words you guys want to use, you know, post, and that doesn't include that. However, when you get to the 2024 and 2025 numbers, those include our ability to get those costs out, if that makes sense, Matt.

Matthew Mishan (VP, Equity Research Analyst)

No, no, it makes, it makes complete sense with, with how you're looking at it. And then if you think about the progression to 2024, it's about at the midpoint on the EBITDA, about $25 million of improvement year-over-year. Just can you help us, kind of, walk us to how you, how you're getting there? It seems like a lot of that is gonna be just from cost reductions that you have an opportunity and have a pretty good handle on.

Michael Greiner (SVP, CFO, and Chief Transformation Officer)

Yeah, I think it's the two things. Absolutely, a good portion is cost reductions, and then it's the mid-single-digit growth combined against a higher gross margin profile, right? Our gross margin profile next year will be going up versus this year meaningfully. Our SG&A or percentage of revenue will actually be up next year a little bit versus this year, but will be slowly be coming down to our, ultimately, our end targets of 38-39 in 2025. It is a mix of good mid-single-digit growth, better mix of product portfolio, dropping to the bottom line, plus, you know, working on our transformation cost efforts that you just mentioned, and also starting to lean in on the additional cost takeout post-... the, the, the divestiture, the full divestiture of RH, right?

We're gonna be entangled with AirLife for, you know, the better part of a year post-closing. As they do some manufacturing for us, we do some manufacturing for them. The two plants that they will take over, we get out of, and, and condense our footprint, which is what was shared on, on Investor Day. It's a combination of both. I think the, the point you're making there, Matt, which I totally agree on, is all of that we have control over. Now, do we have exact control over whether it's the second quarter or third quarter next year? I mean, that's tough to tell, right? This is why, you know, these are very preliminary 2024 numbers.

As we get to the back half this year, as we get beyond the close date, which we hope is gonna be the early part of the fourth quarter, we're on track for that, we will have, you know, for fourth quarter earnings, we will have a much better defined runway of how quick we can get at each of these costs and what next year looks like. Yes, we feel good about these ranges because, to your point, majority of what's in there for next year and into 2025 is very much in our control, assuming we execute on the pain strategy.

Matthew Mishan (VP, Equity Research Analyst)

All right, excellent. Then last question, just on, on the HA market. As you think about the, the ASPs coming to closer to parity, between OrthogenRx and, and some of the competition, kind of where, where is that in, in getting closer to parity, and then kind of when do you expect that to, to, to converge completely?

Joe Woody (CEO)

Matt, this is Joe Woody. I, I think we have several quarters. I maybe even said it in the prepared remarks, but I can't remember exactly, but I think it's about several quarters. You move into 2024, we're gonna settle out a different base, and then we're very confident that we can get a, a low single-digit growth out of that business on a go forward.

Matthew Mishan (VP, Equity Research Analyst)

Okay. Thank you.

Joe Woody (CEO)

Mm-hmm.

Operator (participant)

The next question comes from Kristen Stewart with CL King. Please go ahead.

Kristen Stewart (Managing Director of Equity Research Analyst)

Hi, congratulations on a good quarter when you look at the numbers in totality. I was just wondering if you could go through the digestive health business. You had a really strong quarter there. How should we just think about the sustainability of that franchise?

Joe Woody (CEO)

Kristen, thanks, thanks for your comments on the quarter. I think that we had a very strong NEOMED performance at very high double digit, good CORTRAK, really good in our legacy business. We think NEOMED has the type of growth that we've been experiencing, double digit anyway, at least the next 12 months. We've got some great global opportunity in the legacy side of our business. That said, obviously, we'll have tough comparators next year. Nonetheless, we still see it as a really rock solid, mid-single digit grower across the board. Of course, as we said at the Investor Day, we're gonna be additive with M&A bolt-ons there, too.

Kristen Stewart (Managing Director of Equity Research Analyst)

Just on the M&A environment, is there anything that you can share with us in terms of anything proceeding?

Joe Woody (CEO)

No, as you can imagine, our, we're heads down on execution right now and integration, and all the things that, that, that you saw in the release. We do think that as we move into 2024, we'll start to open our aperture again there.

Michael Greiner (SVP, CFO, and Chief Transformation Officer)

Yeah, the only thing I would add, Kristen, to that, obviously, we just have a lot to absorb right now, and we, we really wanna execute on what we just laid out today over 2024, 2025, and ties back to what we shared on Investor Day. We are very focused going forward, though. We're not adding a third leg. We'll be very focused, primarily in the DH space. We've done a couple of nice things, we believe in the pain space. We've got to go execute organically there. Should we do anything actionable over the, you know, next 12 months, you most likely would see that come from the DH space.

Kristen Stewart (Managing Director of Equity Research Analyst)

Perfect. Thanks very much.

Joe Woody (CEO)

Thank you.

Operator (participant)

As a reminder, to ask a question, you may press star, then 1. The next question comes from Daniel Stauder with JMP Securities. Please go ahead.

Daniel Stauder (Director of Equity Research specializing in Medical Technology)

Yeah, great. Thanks. Just first one would be on gross margin. I mean, you talked about 60%, both today and during your Investor Day, and you're almost there right now with earnings. You know, you talked about 59% for the full year. Really just looking out, just wanted to ask about, you know, how do some of these new products play into that? I think you had talked about them being accretive to margins, you know, upon full ramp. I just wanted to ask, you know, post-launch of some of these new products in the next 12 months, how long will it take to, you know, really add to that gross margin and, and add some even more power there? Thanks.

Michael Greiner (SVP, CFO, and Chief Transformation Officer)

Yeah. I, I think you're referring to a couple of launches we have in DH, plus, obviously, adding the Diros Technology. They, they will be, over time, Daniel, they, they will be additive to gross margins, which could provide some upside to our 60%-61% that we have previously disclosed. We also have those inflationary headwinds that we described, which some may argue were conservative, that we shared on Investor Day. It was over 400 basis points of inflationary headwinds. We still feel very comfortable with the 60%-61%. As you see, the numbers already roll up at 59.9. What we're looking at, you can make other, other assessments that perhaps 60%-61% is, is too conservative.

We're, we're comfortable with that range right now until we see how the inflationary environment in Mexico plays out over the next 12 to 18 months, and ensuring that these launches occur successfully, and that Diros is what we, we strongly believe it will be for us.

Daniel Stauder (Director of Equity Research specializing in Medical Technology)

Great. Then just one more for me on pain management. You know, you mentioned that the softness was due to some supply chain issues, but I really just wanted to ask about the underlying procedure demand here. You know, how is that trending throughout the year? Then as far as the supply challenges, what was the main issue there? It seems, you know, interesting to us that the headwinds were so broad-based, so any specific thing you can-?

Michael Greiner (SVP, CFO, and Chief Transformation Officer)

Yes.

Daniel Stauder (Director of Equity Research specializing in Medical Technology)

post would be, would be helpful. Thanks.

Joe Woody (CEO)

I mean, the underlying, the underlying is trending up, and we're in a situation with backorder where, you know, we're sort of having to allocate to our top 200 accounts, and we can't take advantage, to your point, of the upswing in procedures. We think that's gonna close out as we move into the fourth quarter, really more towards the mid part of the fourth quarter and as we go into 2024, so we can take advantage of those, which is why, you know, we're feeling a little bit more positive around that. The actual areas are around chips and components and some of our CRGs, some of the supplies that, that are a part of the COOLIEF or the RF procedure.

Then we have a catheter issue that we're dealing with on a supplier, that affects the ON-Q growth in particular. It's really holding us back. We're frustrated by it. We work, worked our way through it. We, again, have said we think we'll be through it by the end of the year, and that's when we'll start to jump in and take advantage of some of this natural procedural growth, which is there.

Daniel Stauder (Director of Equity Research specializing in Medical Technology)

Great. Thank you very much.

Joe Woody (CEO)

Yeah.

Operator (participant)

This concludes our question and answer session. I would now like to turn the call back over to Joe Woody for his closing remarks.

Joe Woody (CEO)

Thank you. I think everybody can, can get the feeling that we're focused on execution and delivering this plan, and all the things that we outlined at Investor Day. This year, already, we've executed on product exits, divested our RH business, acquired, what we think is a valuable technology in Diros, and approved an additional share repurchase program, and we're delivering on most of our financial objectives. Our feeling is these results have established a necessary foundation for us to deliver our midterm financial commitments. We're confident that the transformation priorities, and our market-leading portfolio and attractive markets position us for sales growth and the margin expansion that we're talking about, and of course, meaningful free cash flow generation. I know we'll be talking to a number of you going forward. Thanks for attending the call and your continued interest in Avanos.

Operator (participant)

The conference is now concluded. Thank you for your participation. You may now disconnect.