AVANOS MEDICAL, INC. (AVNS) Q1 2025 Earnings Summary

Executive Summary

Q1 2025 delivered modest topline growth and solid profit improvement: revenue $167.5M (+0.8% y/y), GAAP diluted EPS $0.14, and adjusted EPS $0.26; adjusted EBITDA was flat y/y at $21.6M, with adjusted gross margin at 56.7% vs 59.8% a year ago due to HA pricing pressure .
Specialty Nutrition Systems (SNS) remained the growth engine (sales $101.1M, +6.9% y/y; operating margin ~21%), while Pain Management & Recovery (PM&R) stabilized (sales $56.2M; RFA +8.2% y/y) and “Corporate & Other” declined on HA pricing pressure .
2025 revenue guidance maintained at $665–$685M, but adjusted EPS guidance was cut to $0.75–$0.95 (from $1.05–$1.25) driven primarily by newly announced tariffs; GAAP EPS guidance cut to $0.33–$0.56 (from $0.63–$0.86) .
Management detailed ~$15M estimated 2025 incremental tariff costs and near-term mitigation levers; Q1 incurred ~$1.5M of tariffs (capitalized, to flow in Q2). Free cash flow targeted at ~$65M for 2025 excluding tariff effects; Q1 FCF was $19.0M .

What Went Well and What Went Wrong

What Went Well
- SNS led with above-market growth: $101.1M sales (+6.9% y/y), 8.7% volume growth; operating profit ~21% (up 460 bps y/y) on higher volume and lower SG&A .
- RFA momentum within PM&R (RFA +8.2% y/y) tied to generator placements and stronger ESENTEC/TRIDENT lines; Ambit continued double-digit growth; international COOLIEF benefiting from reimbursement tailwinds (U.K., Japan) .
- Operating leverage and cash generation improved: GAAP operating income rose to $10.3M (from $4.0M y/y); operating cash flow $25.7M and FCF $19.0M vs outflows a year ago .
- CEO tone constructive on execution: “transformation efforts ... positioned us well to accelerate our growth profile” and focus on go-to-market and margin profile enhancements .
What Went Wrong
- Gross margin compressed (reported 53.6%, adjusted 56.7%) vs prior-year (57.1%/59.8%) on unfavorable HA pricing; “Corporate & Other” sales fell 32.9% y/y .
- PM&R total flat to slightly down (-0.2% y/y) as surgical pain & recovery declined 9.3% y/y; segment operating profit only $0.2M (breakeven) despite RFA strength .
- Macro/tariff overhang forced a guidance cut: adjusted EPS to $0.75–$0.95 (from $1.05–$1.25) and GAAP EPS to $0.33–$0.56 (from $0.63–$0.86), with ~$15M FY25 tariff cost now assumed; Q1 incurred ~$1.5M tariffs that will hit Q2 COGS .

Financial Results

Metric	Q3 2024 (oldest)	Q4 2024	Q1 2025 (newest)
Net Sales ($M)	$170.4	$179.6	$167.5
YoY Growth (%)	(0.5)%	3.6%	0.8%
Gross Margin % (reported)	54.5%	54.6%	53.6%
Gross Margin % (adjusted)	58.0%	58.7%	56.7%
SG&A % (reported)	43.6%	44.4%	45.2%
SG&A % (adjusted)	39.8%	41.6%	43.4%
Operating Income ($M, GAAP)	$12.0	$(418.5)	$10.3
Operating Income ($M, adjusted)	$25.3	$23.9	$17.1
Diluted EPS (GAAP)	$0.12	$(8.63)	$0.14
Adjusted Diluted EPS	$0.36	$0.43	$0.26
Adjusted EBITDA ($M)	$30.6	$28.6	$21.6
Cash From Operations ($M)	$23.0	$57.9	$25.7
Free Cash Flow ($M)	$20.0	$53.1	$19.0

Segment revenue breakdown (Q1 2025 vs Q1 2024):

Segment/Subcategory	Q1 2024 ($M)	Q1 2025 ($M)	YoY %
Specialty Nutrition Systems – Enteral feeding	$70.0	$74.5	6.4%
Specialty Nutrition Systems – Neonate solutions	$24.6	$26.6	8.1%
Total Specialty Nutrition Systems	$94.6	$101.1	6.9%
PM&R – Surgical pain & recovery	$27.0	$24.5	(9.3)%
PM&R – Radiofrequency Ablation	$29.3	$31.7	8.2%
Total Pain Management & Recovery	$56.3	$56.2	(0.2)%
Corporate & Other (incl. HA/IV infusion)	$15.2	$10.2	(32.9)%
Total Net Sales	$166.1	$167.5	0.8%

Segment operating income (Q1 2025):

Segment	Operating Income ($M)	YoY %
Specialty Nutrition Systems	$21.1	37.0%
Pain Management & Recovery	$0.2	(109.5)% (improved from loss)
Corporate & Other	$(11.0)	18.3%
Total Operating Income	$10.3	157.5%

KPIs and balance sheet (end of Q1 2025 unless noted):

KPI	Q4 2024	Q1 2025
Cash and Cash Equivalents ($M)	$107.7	$97.0
Total Debt Outstanding ($M)	$134.7	$107.4
Cash from Operations ($M)	$57.9 (Q4’24)	$25.7
Capital Expenditures ($M)	$4.8 (Q4’24)	$6.7
Free Cash Flow ($M)	$53.1 (Q4’24)	$19.0
Diluted Shares (M)	46.0 (Q4’24)	46.7

Estimates vs actuals (Q1 2025):

Consensus (S&P Global) for Q1 2025 was unavailable at time of analysis; therefore beat/miss vs estimates cannot be determined [GetEstimates error].

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	FY 2025	$665–$685M	$665–$685M	Maintained
Adjusted Diluted EPS (non-GAAP)	FY 2025	$1.05–$1.25	$0.75–$0.95	Lowered
Diluted EPS (GAAP)	FY 2025	$0.63–$0.86	$0.33–$0.56	Lowered
Free Cash Flow	FY 2025	N/A	~ $65M (ex tariffs)	Introduced (ex tariffs)
Tariff cost assumption	FY 2025	N/A	~ $15M incremental cost	New headwind

Management cited tariffs announced/implemented in recent months as the primary driver of the EPS guidance cut; Q1 ~$1.5M tariffs were capitalized and will amortize through Q2 COGS; mitigation includes cost containment, pricing, USMCA/exemptions, and relocating syringe manufacturing out of China by 1H26 .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q3 2024)	Previous Mentions (Q4 2024)	Current Period (Q1 2025)	Trend
Tariffs/macro	Not a driver in Q3 narrative; risks noted broadly	FY25 guide set pre the latest tariff surge; macro “challenging” noted	~$15M FY25 tariff cost; $1.5M Q1 tariffs capitalized; EPS guide cut; mitigation via USMCA, pricing, exemptions	Worsening headwind; management activating mitigations
Supply chain/operations	ON-Q supply/backorder issues cited; recovery planned	Transformation and separation complete; margins managed	Distributor order timing in SNS; expect Q2 normalization; improved demand planning lowering inventories	Stabilizing execution; near-term intra-quarter timing effects
Product performance	DH strong; ON-Q softness; COOLIEF soft NA; Game Ready double-digit -	Digestive strong, IVP/Trident solid; Game Ready strong; HA flat seq	SNS above market; RFA +8.2% y/y; surgical pain -9.3% y/y; Game Ready low-single-digit; HA pricing pressure -	Mixed: structural strength in SNS/RFA; surgical pain/HA weigh
Go-to-market/regional	Refocus, ASC strategy; ENFit tailwinds -	Continued execution; 2025 guide framed	Go-direct transition in Europe; UK MIC‑KEY distribution to direct effective July 25, 2025	Building direct model; temporary channel timing effects
Regulatory/reimbursement	Awaiting No Pain Act impact on ON-Q	—	No Pain Act improves non-opioid options; ON-Q/Ambit positioned; COOLIEF international reimbursement tailwinds (UK, Japan)	Positive reimbursement tailwinds
R&D/innovation	CORGRIP SR 510(k) approval	—	U.S. CORTRAK SoC expansion incl. new CORGRIP 2 Retention System	Continued incremental innovation

Management Commentary

CEO strategic focus: “the transformation efforts made around the portfolio, the organizational structure and cost management have positioned us well to accelerate our growth profile… leverage[d] for more consistent execution… and continued margin profile enhancements.” — David Pacitti, CEO .
Segments clarified and capital allocation frame: management reorganized to SNS and PM&R to “better guide internal capital allocation decisions… and highlight the financial profiles” of each .
Tariffs and mitigation: “In the first quarter, we incurred $1.5M of tariffs… We now estimate approximately $15M in incremental tariff-related manufacturing costs for the year… assumes mitigation through USMCA and other agreements… [and] tariffs on China origin goods… significantly below the 145% rate announced in April.” — Prepared remarks .
Operational de-risking: “plan to have all syringe manufacturing and supply chain operations inside of China transitioned by the first half of 2026” to reduce tariff exposure .

Q&A Highlights

Q2 cadence and SNS distributor timing: Management expects some pullback in SNS in Q2 due to Q1 distributor order timing tied to Europe go-direct, but maintained FY revenue outlook; HA softer than planned (3‑shot pressure), with sales strategies under way to stabilize .
CEO priorities and commercial focus: New CEO emphasized optimizing go-to-market strategies and partnerships across SNS and PM&R to drive execution and growth .
Tariff assumptions and guide: FY25 tariff impact estimated at ~$15M (assumes lower than 145% China rate); mitigation levers include USMCA, exemptions for neonatal products, advocacy, pricing, and cost actions .
Free cash flow framework: FY25 FCF target ~$65M excludes tariff impact; Q1 FCF includes ~$9M of one-time benefits (tax/customs/TSA); tariff cash impact could be ~+$20M vs P&L timing .

Estimates Context

Q1 2025 consensus (revenue/EPS): Unavailable from S&P Global at time of analysis (unable to retrieve).
Forward consensus snapshot (S&P Global):
- Q3 2025: Revenue $164.5M*, Primary EPS $0.12*; actuals now reported at $177.8M/$0.22 (for context)
- Q4 2025: Revenue $174.7M*, Primary EPS $0.25*
- Q1 2026: Revenue $169.5M*, Primary EPS $0.23*
- Q2 2026: Revenue $175.9M*, Primary EPS $0.24*
  Values retrieved from S&P Global.*

Period	Revenue Consensus Mean ($M)	Primary EPS Consensus Mean ($)
Q3 2025	164.5*	0.12*
Q4 2025	174.7*	0.25*
Q1 2026	169.5*	0.23*
Q2 2026	175.9*	0.24*

Values retrieved from S&P Global.*

Implication: With FY revenue guidance maintained and tariff-driven EPS reset, street models will likely compress FY25 margin/EPS while preserving SNS/RFA growth trajectories; watch for Q2 step-down in SNS (order timing) and tariff pass-through efficacy .

Key Takeaways for Investors

SNS is structurally strong (mid-single-digit growth outlook, higher margins), providing a resilient base; RFA is comping positively with generator-led procedure growth, supporting PM&R stabilization -.
The key overhang is tariffs: the ~ $15M FY25 cost estimate drove an immediate EPS reset; upside exists if exemptions/USMCA/pricing mitigate more than assumed; downside if final rates or coverage are worse than modeled .
Near-term cadence: expect SNS Q2 softness from distributor timing tied to go-direct transition, with back-half normalization; surgical pain remains a watch item as ON‑Q recovery and No Pain Act translation unfold .
Margin dynamics: HA pricing pressure is the main gross margin drag; mix shift to SNS and operational efficiencies should help, but tariff pass-through success is critical for 2H margin trajectory .
Cash generation remains a support: $97M cash, $107M debt, FCF guide ~$65M ex tariffs; deleveraging continues while preserving M&A optionality in SNS .
Trading setup: Narrative likely centers on tariff path/mitigation and Q2 SNS step-down; catalysts include tariff clarity/exemptions, No Pain Act reimbursement traction, and evidence of further RFA share gains .

Additional Context and References

Q1 press release and 8‑K furnished exhibit (Item 2.02) include full P&L, non‑GAAP reconciliations, balance sheet/cash flow, segment details, and outlook - -.
Prior quarters: Q4 2024 results and initial FY25 guidance (pre-tariff cut) -; Q3 2024 commentary on ON‑Q supply constraints, Game Ready/IVP strength, and transformation progress - -.
Go-direct update for UK MIC‑KEY effective July 25, 2025 may affect order timing and channel inventory near-term .