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    Avanos Medical Inc (AVNS)

    Q3 2024 Earnings Summary

    Reported on Feb 28, 2025 (Before Market Open)
    Pre-Earnings Price$22.63Last close (Oct 29, 2024)
    Post-Earnings Price$19.62Open (Oct 30, 2024)
    Price Change
    $-3.01(-13.30%)

    What went well

    • Avanos Medical anticipates strong future growth in their Digestive Health business, with the upcoming launch of the COREGRIP SR Nasal Bridle System and two other product launches planned for next year, aiming to grow above the market rate by taking market share.
    • The company expects their Pain Management and Recovery portfolio to perform well, particularly with the positive impact of the No Pain Act on their ON-Q product line, which is expected to improve reimbursement and drive growth in 2025.
    • Avanos is implementing new strategies in their Game Ready portfolio, including a direct-to-consumer approach and enhanced rental models, with early feedback being very positive, setting the stage for continued strong performance in 2025.

    What went wrong

    • Supply constraints and customer turnover in the ON-Q surgical pain product line led to a $3 million revenue shortfall in Q3, with recovery depending on regaining lost customers, contributing to underperformance in the pain management portfolio.
    • Softness in the North America COOLIEF offering resulted in a $2 million revenue decline, raising concerns about the growth prospects in the pain management segment.
    • The company is not providing guidance for FY 2025 at this time and indicates the need to reassess its growth profile, which may suggest uncertainty about achieving mid-single-digit growth targets.

    Q&A Summary

    1. 2025 Growth Outlook
      Q: Will you maintain mid-single-digit growth in FY '25?
      A: Management is not commenting on 2025 yet; an update will be provided at the JPMorgan conference in January. Despite softness in ON-Q ($3 million) and North America COOLIEF (over $2 million), the rest of the portfolio is performing as intended. They need to assess the impact of the No Pain Act on ON-Q and determine the right growth profile for the company going forward. A more comprehensive update will come in early January.

    2. Tailwinds and Key Products for 2025
      Q: What are the primary sales tailwinds for next year?
      A: Management highlighted several growth drivers for 2025. In Digestive Health, they will launch Coregrip SR and two other products to support their legacy business, which currently grows at 3% to 4%, with potential to grow faster by taking market share. NeoMed, their enteral feeding product for neonates, will achieve over $100 million in revenue by December; however, its growth rate will slow down in 2025 as they are in the later innings of the ENFit conversion cycle. In Pain Management Recovery, HA has consistently generated $10 million to $11 million in revenue for four consecutive quarters, and they expect continued volume gains in 2025. They are also assessing pricing strategies for their 3 and 5 shot markets due to changes in allowable pricing. Their IVP business saw double-digit growth this quarter, with the Diros acquisition performing slightly better than expected. Internationally, COOLIEF is growing nicely, especially with reimbursement tailwinds in the U.K. and Japan. Game Ready has had three consecutive quarters of double-digit growth, and they are optimistic about its prospects in 2025 and beyond.

    3. ON-Q Supplier Constraints and Growth Prospects
      Q: How long will ON-Q supplier constraints last, and what's the long-term growth rate?
      A: The primary supply challenges with ON-Q, related to lighters, occurred in the first half of the third quarter but have been resolved. Lost procedures during that time cannot be recovered, impacting the quarter's performance. They need to regain some customers, and fourth-quarter procedure volume will affect ON-Q's performance. Long-term, they are excited about ON-Q's prospects, primarily due to the No Pain Act. They expect to learn about reimbursement rates in the coming weeks, which will significantly influence ON-Q's future impact. The No Pain Act is a positive development, but the actual reimbursement rate will be a key determinant.

    4. Game Ready Growth Drivers
      Q: What's driving Game Ready's growth, and will it continue?
      A: Some of the recent growth in Game Ready is due to favorable comparisons, but absolute dollar revenue is growing year-over-year. They expect similar growth in total for 2025. They are testing new strategies, including a direct-to-consumer approach with positive early feedback, and deploying additional strategies in orthopedics with a more seamless rental model. They believe these strategies position Game Ready well for further growth in 2025.

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