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AVANOS MEDICAL, INC. (AVNS) Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 delivered modest top-line growth and an EPS beat vs consensus: revenue $175.0M (+1.9% YoY) and adjusted diluted EPS $0.17, with adjusted EBITDA $17.0M; GAAP results reflect a $77.0M non-cash goodwill impairment in PM&R, driving GAAP diluted EPS to $(1.66) .
  • Versus Wall Street, AVNS beat revenue ($175.0M vs $165.5M*) and EPS ($0.17 vs $0.15*), supported by strength in Specialty Nutrition Systems (SNS) and 13.7% growth in Radiofrequency Ablation (RFA) .
  • 2025 guidance maintained: revenue $665M–$685M and adjusted EPS $0.75–$0.95; management reiterated ~$15M incremental tariff headwind and expects ~$40M FY free cash flow despite Q2 FCF of $(4.2)M .
  • Strategic catalysts: divestiture of the Hyaluronic Acid (HA) product line (7/31) to streamline portfolio, sustained RFA momentum with generator-driven probe pull-through, and a new CFO appointment; near-term watch item is Q3 margin pressure as >$8M Q2 tariffs flow through COGS .

What Went Well and What Went Wrong

What Went Well

  • SNS delivered above-market performance: Q2 SNS net sales $102.7M (+5.1% YoY), with enteral feeding +2.5% and neonate solutions +12.8%; operating income was $18.0M (18% of SNS net sales) .
  • RFA execution: RFA net sales +13.7% YoY on stronger generator sales and procedure pull-through; CEO emphasized that “people see us as the RF company” with a “three-tiered offering” supporting continued momentum into 2026 .
  • Portfolio focus and leadership: HA divestiture executed (7/31), reaffirming transformation priorities; appointment of Scott Galovan as CFO brings M&A/portfolio optimization experience .

What Went Wrong

  • Tariffs materially pressured margins: reported gross margin fell to 52.6% (from 55.7% YoY); adjusted gross margin 55.7% (from 59.6% YoY), with management citing Q2 China-origin shipments at 145% tariff before rates were cut to 30% .
  • Surgical Pain & Recovery weakness and Game Ready softness: surgical pain net sales −9.4% YoY; continued coverage denials slowed “No Pain Act” implementation, and Game Ready was slightly lower .
  • Free cash flow inflected negative in Q2 due to tax timing and higher capex for supply chain initiatives (FCF $(4.2)M vs $21.9M prior year); FY 2025 still targeted at ~$40M .

Financial Results

Multi-period comparison

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Millions)$179.6 $167.5 $175.0
Adjusted Diluted EPS ($USD)$0.43 $0.26 $0.17
GAAP Diluted EPS ($USD)$(8.63) $0.14 $(1.66)
Adjusted EBITDA ($USD Millions)$28.6 $21.6 $17.0
Gross Margin % (Reported)54.6% 53.6% 52.6%
Gross Margin % (Adjusted)58.7% 56.7% 55.7%
SG&A % of Sales (Adjusted)41.6% 43.4% 45.2%

Year-over-Year Q2 comparison

MetricQ2 2024Q2 2025
Revenue ($USD Millions)$171.7 $175.0
Adjusted Diluted EPS ($USD)$0.34 $0.17
Adjusted EBITDA ($USD Millions)$26.8 $17.0
Gross Margin % (Adjusted)59.6% 55.7%

Actual vs S&P Global Consensus (Q2 2025)

MetricConsensusActual
Revenue ($USD Millions)$165.5M*$175.0M
Primary EPS ($USD)$0.15*$0.17

Consensus values marked with * retrieved from S&P Global.

Segment breakdown (Q2)

SegmentQ2 2024 ($M)Q2 2025 ($M)YoY Change
Enteral Feeding (SNS)$72.7 $74.5 +2.5%
Neonate Solutions (SNS)$25.0 $28.2 +12.8%
Total SNS$97.7 $102.7 +5.1%
Surgical Pain & Recovery (PM&R)$27.8 $25.2 −9.4%
Radiofrequency Ablation (PM&R)$31.5 $35.8 +13.7%
Total PM&R$59.3 $61.0 +2.9%
Corporate & Other$14.7 $11.3 −23.1%
Total Net Sales$171.7 $175.0 +1.9%
SNS Operating Income$21.8 $18.0 −17.4%
PM&R Operating Income$0.1 $1.8 N.M.

KPIs

KPIQ4 2024Q1 2025Q2 2025
Cash and Cash Equivalents ($M)$107.7 $97.0 $90.3
Total Debt ($M)$134.7 $107.4 $105.1
Free Cash Flow ($M)$53.1 $19.0 $(4.2)
Adjusted Operating Income ($M)$23.9 $17.1 $12.2
Goodwill Impairment ($M)$436.7 (Q4) —$77.0 (Q2)
Tariff Costs Incurred ($M)—~$1.5 capitalized in Q1, amortized in Q2 >$8 incurred in Q2, expensed in Q3

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY 2025$665M–$685M (set Q4’24) $665M–$685M (maintained Q2’25) Maintained
Adjusted Diluted EPSFY 2025$1.05–$1.25 (set Q4’24) $0.75–$0.95 (lowered Q1’25, maintained Q2’25) Lowered (Q1), Maintained (Q2)
GAAP Diluted EPSFY 2025$0.63–$0.86 (set Q4’24) $0.33–$0.56 (Q1’25; maintained Q2’25) Lowered
Free Cash FlowFY 2025N/A~ $40M (management outlook) New commentary
Tariffs Incremental CostFY 2025N/A~ $15M (incremental manufacturing costs) New commentary
SNS Organic Revenue GrowthFY 2025N/AMid-single-digit expected (management) New commentary

Earnings Call Themes & Trends

TopicQ4 2024 (Prev)Q1 2025 (Prev)Q2 2025 (Current)Trend
Tariffs/MacroInitial 2025 guide flagged headwinds; transformation savings offset some costs Lowered FY adjusted EPS on tariff impact; assumed China tariffs well below 145% Reaffirmed ~$15M tariff cost; Q2 included >$8M tariffs to be expensed in Q3; China rate cut to 30% on some shipments Tariffs peaking Q3; mitigation ongoing
RFA/Product MomentumInterventional pain stable, digestives strong RFA +8.2% YoY; generator momentum RFA +13.7% YoY; generator pull-through; “RF company” positioning Strengthening
Surgical Pain & RecoveryPressure from Game Ready; category down −9.3% YoY; in line with expectations −9.4% YoY; “No Pain Act” adoption slower; coverage denials Persistent headwind
SNS ExecutionDigestive health led Q4 SNS +6.9% YoY; UK Go Direct timing aided Q1 SNS +5.1% YoY; double-digit short-term feeding; NeoMed >12% YoY Above-market growth
Portfolio ActionsCompleted RH obligations; transformation continues New CEO appointed (Mar 17) HA divestiture closed July 31; CFO appointed; CEO added to Board Refocusing accelerating
Supply ChainTransition/efficiency benefits Working capital improvements; UK transition Capex up for supply chain investments; plan to exit China-sourced NeoMed by 2026 Building resilience
CurrencyMild headwind Headwinds noted in guide Less material than anticipated (Q&A) Improving

Management Commentary

  • “Building off our first quarter results, we delivered a strong second quarter anchored by continued healthy performance in our life-sustaining Specialty Nutrition Systems segment along with continued progress in our opioid-sparing Pain Management & Recovery segment.” — CEO David Pacitti .
  • “This divestiture represents a meaningful step in advancing our transformation strategy and reinforcing our commitment to focused growth.” — CEO David Pacitti on HA divestiture .
  • “People see us as the RF company… we have a three-tiered offering… there’s a lot of momentum there on the RF ablation side.” — CEO David Pacitti .
  • “We still estimate approximately $15 million in incremental tariff related manufacturing costs for the year… [Q2] incurred over $8 million of tariffs which we will be expensing in the third quarter… some incurring the 145% tariff rate prior to the US administration reducing… to 30%.” — Jason Pickett .

Q&A Highlights

  • Guidance reaffirmed despite HA divestiture: management comfortable with top and bottom-line ranges; currency headwinds “not as material” as anticipated .
  • RFA sustainability: growth supported by generator placements and higher-margin probe pull-through; field execution and focused positioning drive durability into 2026 .
  • Divestiture margin impact: challenge was price, not volume; limited bottom-line impact post-divestiture given strategic segment strength .
  • Tariff mechanics: Q1 tariffs capitalized and amortized in Q2; >$8M Q2 tariffs will pressure Q3 COGS; mitigation via pricing, exemptions, and supply chain shifts .

Estimates Context

  • Q2 2025 beat consensus: revenue $175.0M vs $165.5M* and EPS $0.17 vs $0.15*; we expect near-term revenue estimates to drift higher given SNS/RFA momentum, while Q3 EPS/margins may face pressure as Q2 tariffs are expensed .
  • Coverage was limited (one estimate for EPS and revenue); monitor estimate dispersion as more analysts update after tariff details and HA divestiture [GetEstimates].

Consensus values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Near-term: Expect Q3 margin pressure as >$8M Q2 tariffs hit COGS; watch adjusted gross margin and EPS trajectory relative to the $0.75–$0.95 FY range .
  • Top-line resilience: SNS and RFA performance supports revenue durability; RFA growth and probe pull-through provide mix tailwinds; revenue beat vs consensus is constructive for revisions .
  • Portfolio focus: HA divestiture and leadership changes sharpen execution; CFO brings M&A discipline to accelerate transformation .
  • Cash generation: Despite Q2 FCF dip, management targets ~$40M FY FCF; balance sheet remains flexible (cash $90.3M, debt $105.1M) .
  • Valuation drivers: Track tariff mitigation progress (pricing, exemptions, supply chain exit from China by 2026) and RFA adoption pace; positive surprise if tariff burden declines faster than modeled .
  • Risk checks: Surgical Pain & Recovery softness and “No Pain Act” reimbursement friction may cap PM&R upside near term; monitor Game Ready stabilization .
  • Trading lens: Into Q3, bias to volatility around margin prints; constructive on multi-year pivot to higher-quality growth (SNS/RFA) as portfolio refocus and supply chain actions mature .
Document sources: Q2 PR and 8‑K exhibits **[1606498_20250805CL44095:0]** **[1606498_20250805CL44095:1]** **[1606498_20250805CL44095:2]** **[1606498_20250805CL44095:6]** **[1606498_20250805CL44095:8]** **[1606498_20250805CL44095:9]** **[1606498_20250805CL44095:10]** **[1606498_0001606498-25-000106_avns2q2025form8kex991.htm:0]** **[1606498_0001606498-25-000106_avns2q2025form8kex991.htm:2]** **[1606498_0001606498-25-000106_avns2q2025form8kex991.htm:6]** **[1606498_0001606498-25-000106_avns2q2025form8kex991.htm:9]** **[1606498_0001606498-25-000106_avns2q2025form8kex991.htm:10]** **[1606498_0001606498-25-000106_avns2q2025form8kex991.htm:11]** **[1606498_0001606498-25-000106_avns2q2025form8kex991.htm:12]** **[1606498_0001606498-25-000106_avns2q2025form8kex992.htm:0]** **[1606498_0001606498-25-000106_avns2q2025form8kex993.htm:0]**; Q2 earnings call transcript **[1606498_2054888_1]** **[1606498_2054888_3]** **[1606498_2054888_4]** **[1606498_2054888_5]** **[1606498_2054888_6]**; Q1 PR **[1606498_20250506CL80580:0]** **[1606498_20250506CL80580:1]** **[1606498_20250506CL80580:4]** **[1606498_20250506CL80580:5]** **[1606498_20250506CL80580:6]** **[1606498_20250506CL80580:7]**; Q4 PR **[1606498_20250226CL27710:0]** **[1606498_20250226CL27710:1]** **[1606498_20250226CL27710:4]** **[1606498_20250226CL27710:5]** **[1606498_20250226CL27710:6]** **[1606498_20250226CL27710:7]**.

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