Avanos Medical, Inc. (AVNS) Bundle
Understanding Avanos Medical, Inc. (AVNS) Revenue Streams
Understanding Avanos Medical, Inc.’s Revenue Streams
Avanos Medical, Inc. generates revenue through various product categories and geographic regions, primarily focusing on medical device solutions. The following sections provide a comprehensive analysis of its revenue streams as of 2024.
Breakdown of Primary Revenue Sources
The company’s revenue is primarily derived from two key product categories:
- Digestive Health: Products include MIC-KEY enteral feeding tubes, Corpak patient feeding solutions, and NeoMed neonatal and pediatric feeding solutions.
- Pain Management and Recovery: This includes surgical pain recovery products such as ON-Q and ambIT surgical pain pumps, as well as interventional pain solutions like COOLIEF pain therapy.
The revenue contribution from these categories for the three and nine months ended September 30, 2024, is detailed below:
| Product Category | Three Months Ended September 30, 2024 (in millions) | Three Months Ended September 30, 2023 (in millions) | Nine Months Ended September 30, 2024 (in millions) | Nine Months Ended September 30, 2023 (in millions) |
|---|---|---|---|---|
| Digestive Health | 98.2 | 95.0 | 290.6 | 276.8 |
| Pain Management and Recovery | 72.2 | 76.3 | 217.6 | 223.2 |
| Total Net Sales | 170.4 | 171.3 | 508.2 | 500.0 |
Year-over-Year Revenue Growth Rate
For the nine months ended September 30, 2024, net sales increased by 1.6% compared to the same period in 2023, driven primarily by strong demand in the Digestive Health portfolio and Game Ready products. The net sales figures for the respective periods are:
- 2024: $508.2 million
- 2023: $500.0 million
For the three months ended September 30, 2024, net sales decreased by 0.5% compared to the prior year period, primarily due to lower demand for surgical pain products and decreased pricing for HA products.
Contribution of Different Business Segments to Overall Revenue
The analysis of revenue contributions from geographic regions for the three and nine months ended September 30, 2024, is presented below:
| Region | Three Months Ended September 30, 2024 (in millions) | Three Months Ended September 30, 2023 (in millions) | Nine Months Ended September 30, 2024 (in millions) | Nine Months Ended September 30, 2023 (in millions) |
|---|---|---|---|---|
| North America | 134.3 | 136.4 | 403.0 | 401.0 |
| Europe, Middle East and Africa | 23.2 | 20.9 | 69.7 | 61.1 |
| Asia Pacific and Latin America | 12.9 | 14.0 | 35.5 | 37.9 |
| Total Net Sales | 170.4 | 171.3 | 508.2 | 500.0 |
Analysis of Any Significant Changes in Revenue Streams
During the three months ended September 30, 2024, the company experienced a 1.5% decrease in North America sales, while Europe, Middle East, and Africa saw an increase of 11.0%. In contrast, sales in Asia Pacific and Latin America decreased by 7.9%. The significant changes in revenue streams can be attributed to:
- Continued strong demand in the Digestive Health portfolio.
- Increased demand for Game Ready products.
- Lower demand and pricing for HA products.
The financial performance reflects the company's adaptability in navigating market challenges and capitalizing on growth opportunities within its product lines.
A Deep Dive into Avanos Medical, Inc. (AVNS) Profitability
Profitability Metrics
Gross Profit for the three months ended September 30, 2024, was $92.9 million, down from $95.5 million in the same period of 2023. For the nine months ended September 30, 2024, gross profit was $283.3 million, slightly lower than $284.7 million in the prior year.
The gross profit margin for Q3 2024 was 54.5%, compared to 55.8% in Q3 2023. Year-to-date, the gross profit margin decreased to 55.7% from 56.9% in 2023. This decline is attributed to costs related to restructuring and plant separation associated with the RH Divestiture.
| Period | Gross Profit ($ millions) | Gross Profit Margin (%) |
|---|---|---|
| Q3 2024 | 92.9 | 54.5 |
| Q3 2023 | 95.5 | 55.8 |
| YTD 2024 | 283.3 | 55.7 |
| YTD 2023 | 284.7 | 56.9 |
Operating Profit for the three months ended September 30, 2024, was $12.0 million, a significant increase from $1.2 million in Q3 2023. For the nine-month period, operating profit was $22.3 million, recovering from an operating loss of $7.0 million in the previous year. The operating profit margin improved to 7.0% from 0.7% in Q3 2023 and to 4.4% from a negative 1.4% year-to-date.
Net Profit for the three months ended September 30, 2024, was $4.3 million, compared to a loss of $3.7 million in Q3 2023. Year-to-date, net income was $5.2 million, a recovery from a net loss of $72.3 million in the previous year.
| Period | Net Income ($ millions) | Net Income Margin (%) |
|---|---|---|
| Q3 2024 | 4.3 | 2.5 |
| Q3 2023 | (3.7) | (2.2) |
| YTD 2024 | 5.2 | 1.0 |
| YTD 2023 | (72.3) | (14.5) |
The trends in profitability indicate a positive shift in operational efficiency, particularly in managing costs, as reflected in the reduction of selling and general expenses from $78.7 million in Q3 2023 to $74.3 million in Q3 2024. This represents a decrease in expenses as a percentage of net sales, down from 45.9% to 43.6%.
In terms of comparative profitability ratios, the company’s gross profit margin of 54.5% is above the industry average of approximately 50% for medical device companies. The operating profit margin of 7.0% also exceeds the industry average of around 5%.
Overall, the analysis of operational efficiency shows improvements in cost management and gross margin trends, contributing to enhanced profitability metrics as of September 2024.
Debt vs. Equity: How Avanos Medical, Inc. (AVNS) Finances Its Growth
Debt vs. Equity: How Avanos Medical, Inc. Finances Its Growth
As of September 30, 2024, the company's long-term debt amounted to $152.6 million, while the current portion of long-term debt was $9.4 million. The total liabilities stood at $426.5 million, with total stockholders' equity reported at $1,229.7 million.
Debt Levels Overview
The company has established credit facilities totaling $500.0 million, which includes a five-year senior secured term loan of $125.0 million and a revolving credit facility allowing borrowings of up to $375.0 million. As of September 30, 2024, the outstanding balance on the revolving credit facility was $50.0 million.
Debt-to-Equity Ratio
The debt-to-equity ratio for the company is calculated as follows:
- Long-term debt: $152.6 million
- Total equity: $1,229.7 million
- Debt-to-equity ratio: 0.124 (or 12.4%)
This ratio indicates a relatively low level of debt compared to equity, which is favorable in terms of financial stability. The industry standard for medical device companies typically ranges from 0.3 to 0.5.
Recent Debt Issuances and Refinancing Activity
In June 2022, the company entered into a credit agreement which included the term loan and revolving credit facility. Recent activity includes repayments of $6.3 million on the term loan during the nine months ended September 30, 2024. The company also borrowed and repaid $20.0 million on the revolving credit facility.
Credit Ratings
The company maintains a credit rating that supports its ability to secure financing under favorable terms. As of the latest reports, the specific rating is not disclosed; however, the terms of the credit agreement indicate compliance with customary operational and financial covenants.
Balancing Debt Financing and Equity Funding
The company utilizes a balanced approach in financing its growth, combining debt and equity. The recent share repurchase program authorized up to $25.0 million in stock buybacks indicates a strategy to return value to shareholders while maintaining adequate liquidity for operational needs.
| Year | Long-Term Debt Maturity (in millions) |
|---|---|
| Remainder of 2024 | $2.3 |
| 2025 | $9.4 |
| 2026 | $10.2 |
| 2027 | $140.6 |
| Total | $162.5 |
This table outlines the scheduled maturities of long-term debt, emphasizing the significant repayment due in 2027, which underscores the importance of maintaining liquidity and operational efficiency.
Assessing Avanos Medical, Inc. (AVNS) Liquidity
Assessing Avanos Medical's Liquidity
Current Ratio: As of September 30, 2024, the current ratio stands at 2.22 (calculated as Total Current Assets of $472.6 million divided by Total Current Liabilities of $212.9 million).
Quick Ratio: The quick ratio is approximately 1.63 (calculated as (Current Assets - Inventories) of $310.7 million divided by Current Liabilities of $212.9 million).
Analysis of Working Capital Trends
Working capital as of September 30, 2024, is $259.7 million, indicating a positive liquidity position. This is an improvement from $252.4 million as of December 31, 2023.
Cash Flow Statements Overview
| Cash Flow Category | Nine Months Ended September 30, 2024 (in millions) | Nine Months Ended September 30, 2023 (in millions) |
|---|---|---|
| Operating Activities | $42.8 | $19.7 |
| Investing Activities | ($19.9) | ($59.4) |
| Financing Activities | ($21.7) | $20.5 |
| Net Increase (Decrease) in Cash | $1.3 | ($20.6) |
Potential Liquidity Concerns or Strengths
As of September 30, 2024, cash and cash equivalents increased to $89.0 million, up from $87.7 million at the end of 2023. The company has a long-term debt of $152.6 million and a current portion of long-term debt of $9.4 million, indicating manageable debt levels.
In terms of liquidity, the company has access to a Revolving Credit Facility of $375 million, with $50 million drawn as of September 30, 2024. The weighted average interest rate on this facility is 6.83%.
Overall, the strong current and quick ratios, coupled with positive cash flow from operating activities, suggest a robust liquidity position for the company as of 2024, with no immediate liquidity concerns evident.
Is Avanos Medical, Inc. (AVNS) Overvalued or Undervalued?
Valuation Analysis
To determine whether the company is overvalued or undervalued, we will analyze key financial ratios, stock price trends, and analyst consensus.
Price-to-Earnings (P/E) Ratio
The current P/E ratio is calculated based on the latest earnings data. For the twelve months ended September 30, 2024, the diluted earnings per share (EPS) was $0.09. The stock price as of September 30, 2024, was approximately $19.67. Thus, the P/E ratio can be calculated as follows:
P/E Ratio = Stock Price / EPS = $19.67 / $0.09 ≈ 218.56
Price-to-Book (P/B) Ratio
The P/B ratio is calculated using the book value per share. As of September 30, 2024, the total equity was $678.0 million and the number of shares outstanding was 46.6 million. Therefore, the book value per share is:
Book Value per Share = Total Equity / Shares Outstanding = $678.0 million / 46.6 million ≈ $14.55
The P/B ratio is then:
P/B Ratio = Stock Price / Book Value per Share = $19.67 / $14.55 ≈ 1.35
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The enterprise value (EV) is calculated as market capitalization plus total debt minus cash. With a market cap of approximately $916.0 million, total debt of $162.0 million, and cash of $89.0 million, the EV is:
EV = Market Cap + Total Debt - Cash = $916.0 million + $162.0 million - $89.0 million = $988.0 million
The EBITDA for the last twelve months is around $54.0 million. Thus, the EV/EBITDA ratio is:
EV/EBITDA = EV / EBITDA = $988.0 million / $54.0 million ≈ 18.3
Stock Price Trends
Over the past twelve months, the stock price has fluctuated significantly. The stock began the year at approximately $15.00 and reached a high of $22.00 before settling at $19.67 as of September 30, 2024. The stock has demonstrated a 31.13% increase year-to-date.
Dividend Yield and Payout Ratios
As of the latest data, the company does not currently pay dividends, and therefore, the dividend yield is 0%. The payout ratio is also 0% since no earnings are distributed to shareholders in the form of dividends.
Analyst Consensus on Stock Valuation
The current consensus among analysts is a hold, with a few recommending buy based on recent restructuring efforts and potential for growth in the Digestive Health segment.
| Metric | Value |
|---|---|
| P/E Ratio | 218.56 |
| P/B Ratio | 1.35 |
| EV/EBITDA Ratio | 18.3 |
| Stock Price (Sept 30, 2024) | $19.67 |
| Stock Price 12 Months Ago | $15.00 |
| Stock Price High (12 Months) | $22.00 |
| Year-to-Date Increase | 31.13% |
| Dividend Yield | 0% |
| Payout Ratio | 0% |
| Analyst Consensus | Hold |
Key Risks Facing Avanos Medical, Inc. (AVNS)
Key Risks Facing Avanos Medical, Inc.
Avanos Medical, Inc. faces several internal and external risks that could significantly impact its financial health. These risks include industry competition, regulatory changes, market conditions, and operational challenges.
Industry Competition
The healthcare industry is highly competitive, with numerous companies offering similar products. In the third quarter of 2024, the company reported a 0.5% decline in net sales compared to the prior year, primarily due to lower demand for certain surgical pain products and pricing pressures in its HA product line.
Regulatory Changes
The company operates under strict regulations that govern medical devices. Compliance with these regulations is crucial to avoid potential legal issues and fines. As of September 30, 2024, the cumulative effect of compliance costs related to regulatory changes has contributed to a 54.5% gross profit margin, down from 55.8% in the prior year.
Market Conditions
Market fluctuations can adversely affect demand for products. For instance, net sales in North America decreased by 1.5% year-over-year, which reflects broader economic conditions impacting consumer spending.
Operational Risks
Operational risks include supply chain disruptions, particularly given the concentration of manufacturing in Mexico. The company has reported ongoing issues with supply chain stability, which may affect production efficiency and product availability.
Financial Risks
Financial risks are evident from the company’s long-term debt obligations. As of September 30, 2024, total liabilities stood at $426.5 million, with long-term debt constituting $152.6 million. Additionally, the company incurred an interest expense of $9.4 million for the nine months ended September 30, 2024.
| Risk Factor | Current Status | Impact |
|---|---|---|
| Industry Competition | Net sales down by 0.5% | Pricing pressure and demand fluctuations |
| Regulatory Changes | Gross profit margin at 54.5% | Increased compliance costs |
| Market Conditions | North America sales down by 1.5% | Adverse impact on revenue |
| Operational Risks | Supply chain disruptions ongoing | Production inefficiencies |
| Financial Risks | Total liabilities at $426.5 million | High interest expenses affecting profitability |
Mitigation Strategies
The company has initiated a three-year Transformation Process aimed at restructuring operations and improving efficiency. This includes cost management strategies expected to yield savings between $45.0 million and $55.0 million by 2025.
Furthermore, Avanos has entered into derivative financial instruments to hedge against currency fluctuations, with a derivative liability of $2.1 million as of September 30, 2024.
Overall, while the company faces several risks, it has implemented strategies to mitigate these challenges and enhance its financial stability moving forward.
Future Growth Prospects for Avanos Medical, Inc. (AVNS)
Future Growth Prospects for Avanos Medical, Inc. (AVNS)
The growth opportunities for Avanos Medical, Inc. are driven by several key factors, including product innovations, market expansions, and strategic acquisitions.
Product Innovations
Avanos continues to enhance its product offerings, particularly in the Digestive Health and Pain Management segments. The company has invested $20.5 million in research and development for the first nine months of 2024, representing 4.0% of net sales. This investment aims to innovate and improve existing products, such as the MIC-KEY enteral feeding tubes and the Game Ready cold and compression therapy systems.
Market Expansions
Avanos has identified significant growth potential in international markets. For the nine months ended September 30, 2024, net sales in Europe, the Middle East, and Africa increased by 14.1% to $69.7 million compared to the previous year. The company aims to leverage this momentum to penetrate further into these markets.
| Region | Net Sales (2024) | Net Sales (2023) | Change (%) |
|---|---|---|---|
| North America | $403.0 million | $401.0 million | 0.5% |
| Europe, Middle East and Africa | $69.7 million | $61.1 million | 14.1% |
| Asia Pacific and Latin America | $35.5 million | $37.9 million | (6.3%) |
Acquisitions
The acquisition of Diros Technologies in 2023 has positioned Avanos to expand its portfolio in the chronic pain management market. In 2024, the company recorded acquisition-related charges of $4.1 million, indicating ongoing integration efforts that are expected to enhance revenue streams in the long term.
Future Revenue Growth Projections
Revenue growth for Avanos is projected to continue, with net sales for the first nine months of 2024 reaching $508.2 million, up 1.6% from $500.0 million in the previous year. Analysts expect that the company will benefit from increasing demand for its Digestive Health and Pain Management products.
Strategic Initiatives and Partnerships
Avanos has initiated a Transformation Process aimed at restructuring its operations to enhance profitability and streamline its product offerings. The company anticipates gross savings of between $45 million and $55 million compared to 2022. Additionally, partnerships with healthcare providers are expected to drive sales growth in key markets.
Competitive Advantages
Avanos holds a competitive advantage through its established brand recognition and high-quality product offerings. The company’s focus on clinically superior medical devices positions it favorably against competitors in the medical device industry. The integration of new technologies and enhanced product lines will likely bolster its market presence.
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Article updated on 8 Nov 2024
Resources:
- Avanos Medical, Inc. (AVNS) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Avanos Medical, Inc. (AVNS)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Avanos Medical, Inc. (AVNS)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.