Q4 2019 Earnings Call

Additionally will be referring to a Justice.

Results in 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.

Thanks, Dave. Good morning everyone and thank you for your interest in avanos. I'd like to start by welcoming Michael Greiner who join the team at the beginning of the year and has been busy immersing himself in the business office. Michael has deep experience in change management and portfolio optimization, and we're excited to have him on board at a time when we're focused on driving efficiencies and accelerating revenue and earnings growth.

Now I'll turn to the fourth quarter results and the progress you made on our key Focus areas of growing sales and executing against our strategic goals. We ended the year with a strong fourth-quarter sales increased 12% $190 million, and we earned $0.34 of adjusted diluted earnings per share for the year sales increased 7% to $690 million, and we earned $1.07 of a wage earnings per share.

During the quarter are chronic care business delivers solid mid-single-digit top-line organic growth Rose partially benefited from the recaptured sales missed from our third quarter back orders pain management positive organic growth of the quarter in our acute pain business donkey sales declined by listing all digits in line with our expectations.

An Interventional pain as expected performance was driven by continued double-digit growth in cool leaf.

We announced yesterday the FDA cleared for marketing our new radio frequency system for neurological lesion procedures. This new easy-to-use system comprised of a newly-designed wage generator peristaltic pump and therapy cables enables Physicians to perform a full spectrum of procedures.

This Advanced Cooley far up generator demonstrates our commitment to introduce Innovation to the marketplace as the cooled RF Authority.

We're excited to debut our new system at the upcoming American Society of Interventional pain Physicians annual meeting.

During the quarter we continue to show clinical differentiation for cool Leaf as reported in several studies first at the 18th Annual pain medicine meeting of the American Society of regional anesthesia and pain medicine reported the 12-month results from a clinical study comparing coolief to how ironic acid these results demonstrated that study participants who received coolief experienced clinically relevant pain relief lasted up to 12 months in addition the 24 months data from a clinical trial that compared Cooley to a steroid injection was published in the medical journal pain practice with this newly published data demonstrates that up to 2 years of pain relief as possible following a single Cooley for treatment.

Turning two twenty20. We plan to execute on the priorities set last year centered around positioning the company for long-term revenue and earnings growth at the same time. We recognize that some of our 2019 results are below our expectations. Therefore, we're focused not only on doing what it takes to meet our long-term objectives, but balancing that with achieving near-term goals to ensure our business reaches its full potential.

our for priority

For 2020 R1 build sales momentum across our for product categories both domestically and internationally to integrate our recent acquisitions three generate positive free cash and for realize efficiencies from RIT system.

No, I'll cover a bit about each of these priorities beginning with our focus on accelerating top-line growth across our categories. Let's begin with our pain management business. We continue to see demand for a reduction in the use of opioids and our portfolio of elastomeric and electronic pumps offers a compelling solution and acute pain through the acquisition of summits and portfolio of electronic pumps. We have cars that are offering to customers so far this Edition has been well received and helped us reinforce relationships with On-Q customers within On Cue. We are leveraging our strong ran to win back customers impacted by the industry-wide pre-filter disruption while this Remains the near to mid-term headwind. We are seeing signs of improvement the shifting of customers to lighters resulted again in double-digit growth sequentially off in the number of customers sourcing volume through lighters.

Additionally overall purchases of On Cue by customers who have moved to lighters increased by double-digits in 2019 compared to the prior-year.

An Interventional pain, we plan to continue to invest in.

Evidence and marketing to maintain coolest double-digit growth as I mentioned earlier. We're building a strong compendium of clinical evidence that demonstrates the value of Cruelty to both patients and payers wage differentiate and coolly from alternative therapies this year. We expect a publication of several studies in Orthopedic journals comparing cool Leaf to Hellenic acid in the treatment of any pain. We're also reaching new audiences including Sports Medicine doctors and Orthopedics through our participation in conferences and symposiums on the marketing front to build on last year's direct to Patient TV ad campaign. We're focusing on driving demand and increasing awareness of Cooley to our social media campaign.

Turning to Chronic Kia our Focus remains on growing our market-leading positions in Digestive and respiratory Health chronic care represents 60% of our business and has strong fundamentals, including stable Revenue growth and significant cash flow generation.

The upcoming launch of our next-generation intro feeding tube Mickey SF demonstrates how investment in Innovation helps us maintain our market-leading positions. Mickey guards against tube dislodged through a balloon indicator that provides a visual cue when the balloon is below the recommended level in respiratory Health our recent acquisition of endo clear demonstrates our commitment to open a Novation wage provides a strategic addition to our portfolio across each of our product categories. We continue to view International as an important Catalyst for long-term growth in 2019. We accelerate need to double digits in our asia-pacific region that we fell short of our growth plan in emea and Latin America. We are confident that we can enhance our performance across these regions, but recognize that it will take longer with new teams in emea and Latin America compared to the more established asia-pac team.

Priority is the integration of our recent acquisitions of game ready neomed and Summit a more stable platform yields more efficient integration of our Acquisitions helping us to more quickly realized targeted synergies. Both neomed and Summit are performing in line with expectations and positioning us to strengthen our customer relationships, Although. Our near-term focus is on integrating recent future m&a remains a catalyst in our overall long-term growth, but that is a backdrop our business development team continues to identify and evaluate potential future opportunities.

Our third priority is to return the business deposit free cash flow in twenty-twenty as we progress in stabilizing our it systems. We will overtime recapture the working capital in efficiencies experience life. In addition with the it implementation behind us. We expect to return to a normalized level of capital spending. Finally. We expect a decline in unusual or non-recurring costs following the it implementation the completion of last year's as an IP divestiture.

combine these three factors position

Has to be cash flow positive for the year.

Our final priority is to stabilize our it environment and realize the plant operational efficiencies and cost-savings implementation of our Global it system was a huge undertaking and I want to thank the team for their efforts throughout this process. We've made significant inroads in addressing the challenges. We Face the last quarter and have it detailed roadmap to address the remaining issues while we work through certain inefficiencies in the first half of the money back water levels have close to normalized and no additional issues have surfaced.

In summary over the course of 2019. We took significant and necessary steps to fundamentally transform our business. We completed the separation of the S&P business and launched a new Global it system invested to drive future growth and deployed capital for three Acquisitions increasing scale across our categories.

We have the right strategy in place to crease your holder value and I'm confident in our ability to deliver on our 2020 priorities and financial guidance now, I'll turn the call over to Michael.

Thanks, Joe.

And good morning everyone. Let me start by saying I'm excited to be part of the oven esteem. I spent the past two months meeting with members of our team to learn more about the business and the challenges and opportunities. We face off my short time here. I've been impressed with the talent on the team and their dedication and focus on accelerating growth across each of our businesses. I look forward to partnering with Joe and the rest of the leadership team to accomplish our 2020 priorities wage and execute on the strategy in place. Now, let me begin with a review of our fourth-quarter results as Joe shared. We delivered sales 190 million a 12% increase compared to the prior-year home sales growth of 4% was driven by increased volume while price and sales mix had minimal impact compared to the prior-year our Acquisitions of neomed and Summit contributed 7% of that growth chronic are we return to Mid single-digit growth as we made progress in reducing back orders as Joe mentioned earlier ending the year at a close to normalize level.

campaign management wearing

That organic sales growth was positive in line with our expectations.

Within pain management, we're continuing to see signs of improvement in our business as sales declined in the quarter by low single-digits as we enter 2020. There is more work ahead for us to return on Thursday with our partnership with lighters continues to benefit customers who moved to this option sales through leaders for the quarter increased by double digits. Sequentially, finally moving to Interventional pain cool Leaf continue to grow double digits this quarter.

International sales increased by mid single-digits as their teamwork to resolve some of the headwinds that stemmed from the it system implementation positive performance was driven by continued strong execution and our asia-pacific region where sales increased by double digits for the second consecutive quarter, overall, our international business remains a key growth Catalyst for avanos, and we're confident we can deliver consistent mid single-digit growth in the coming year.

Well, the quarter adjusted gross margin was

50% in line with the prior-year sequentially margin expanded 260 basis points reflecting the recovery from last quarter's it implementation that required to disrupting our manufacturing facilities and increasing distribution costs to minimize backorders. Looking ahead. We continue to see the business as I mean gross margin in the low sixties with the opportunity for exposure and overtime driven by cost savings and mix shift.

Adjusted operating profit total $26 billion for the quarter compared to twenty Million last year while adjusted ebitda. Total 31 million up from $22 million on higher sales volume the in Chrome step up and adjusted ebitda compared to adjusted operating profit reflects the impact of depreciation of our new it system in 2020. We expect to even a growth to continue to accelerate faster. Let me see escrow adjusted net income totaled $16 million compared to fourteen million a year ago, and we earned 34 cents of adjusted diluted earnings per share compared to Thirty cents a year ago.

now for a brief

Half of our full-year results net sales increase the 698 billion a 7% increase compared to 2018. This includes sales from game-ready neomed and Summit which took almost all of that growth organic sales volume was up 2% while unfavorable price and selling mix negatively impacted growth by 1% performance was driven by continued strong ma'am and Interventional pain from cool leaf and growth and chronic care adjusted gross. Margin for the year was 60% compared to 61% a year ago our 2019 adjusted gross margins black, but that impact of cost savings programs that were offset by the impact of last quarter's implementation as well as recent acquisitions with a lower margin profile.

Adjusted operating profit for the year totaled $76 million compared to $62 million in 2018.

Shifting to our balance sheet. We ended the year and a solid financial position with 205 million of cash on hand and significant available Capital that will allow us to be opportunistic regarding emanate and other strategic what we did see sequential Improvement in free cash flow. We saw increases in both accounts receivable and inventory related to issues stemming from RIT implementation. I should mention stabilizing and realizing the efficiencies from RIT system is a strategic priority for the year and something I'm particularly focused on we made significant advances with the implementation and the team continues to prioritize commercial related front and impacts as we resolve these it challenges during the first half of 2020. Our Focus will be on providing greater visibility into the business office teams and eliminating manual intervention in the system. So it can more effectively manage each of our businesses and drive working capital outcomes to the levels that are appropriate for our business.

As I mentioned my primary.

Focusing near-term is to stabilize the it environment. Once the system is stabilized. We will be better positioned to establish the appropriate cost structure for the company deliver operational and working capital efficiencies as previously mentioned as well as successfully integrate our current and future Acquisitions. The progress our team is made today gives me confidence that went to the second half of the year with challenges mostly behind us. Now. Let's move to our 2020 Outlook and keep planning assumptions based on current trends in our business. We expect net sales on a constant-currency Beijing increased by to 7% compared to the prior-year for the year. We expect to earn between $1 and $1.20 of adjusted diluted earnings per share. The following too many assumptions are incorporated into our sales and earnings guidance. One foreign currency translation is not expected to have an impact on twenty-twenty and to adjusted effective tax rate is dead.

participate it's a range between

25 + 27%

in conclusion. I'm excited to be part of this team and look forward to driving value-creating outcomes that helped the business realize its full potential. We are focused on the right drivers to create long-term shareholder value pack, and I believe we will identify additional drivers once we start to leverage the capabilities associated with the implementation of our new system operator. We're ready for questions. We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you're using speakerphone, please pick up your life before pressing the keys to withdraw your question, please press * then two at this time. We will pause momentarily to assemble our roster.

Our first question comes from Larry Kirsch with Raymond James, please. Go ahead. No, thank you. Good morning. Everyone Joe. I guess first question. Just starting out with you. So it it sounds like there are a number of factors that are impacting On Cue and I guess is Italian I see just challenges and getting customers Thursday had switched away back onto the On-Q pump moving customers on two lighters as you've certainly discussed and then I guess there's probably some pricing Dynamic out there. So could you could you talk about the different Dynamics in the business and and whether you still expect to get the pump back into growth month in the second half of the year and then I I follow up

Thanks.

Thanks, Larry. So a couple of things, you know on a global basis acute pain was a low single-digit negative business for the quarter and then in North America that was awful low mid single-digit. We do show sequential Improvement and and we've outlined at the biggest issue really around the return of a pain to growth is moving customers that were filling with for medium wage as an example and another five or three Bs over two lighters. And when we do that, we definitely see strong growth. I think we've got in the slides there. We talked about double-digit growth off the customers secondary to that. We're seeing some real positive reception of customers on the summit acquisition and the electronic pump as we move into kind of the middle of Q2 and then to the summer we think that that will be strong we've set our aim is for level growth this year in that business. It's possible to get into H2 into some into some growth and we've we've wage

Are are seeing a lot of customers for lighters and even larger customers wanting to come back. So I think it's possible and we are showing Improvement.

Okay, that that's

Yeah, and and then I guess uh to two other quick ones here. So, um just uh, Michael perhaps if you could just speak to what are the inefficiency sure that you are anticipating in the first half from the Erp implementation. And and and how do you get past those and then secondly just on the lrp, I know that's still sitting out there surfing way. It would feel like that those goals are are extended or maybe not doable at this point. But again, how should we be thinking about the lrp that that's still sitting home think what I'm going to do is Michael's been doing a lot of work on the in efficiencies and I T and really grab the bull by the horns that he wants to say a couple of things and then I'll come back to your second question. Great. Great. Thanks, Larry. So in the in the first half of the years we talked about in our prepared remarks were very focused on ensuring we don't have some of the self-inflicted foot faults. We had in the back half of last year and the team has been dead.

incredibly diligent on those kind of front-end commercial related activities whether that be on the on the manufacturing and supply chain front or just on the you know,

Or analysis we do with our customers but I don't anticipate the first half to have any of those types of issues, but I'm more excited looking forward to is what will start to be able to bring the system for in the second half of the year. And that's really leveraging it for what would you think of all the money to do in the first place which is to get a front-end analysis with customers be able to make some strategic choices that we haven't had the information available and to make sure that we're using a system broadly across the company and that's going to create a lot of training needs in this first half of the year. We did a bunch of training a couple of years ago many of those folks have moved on for one reason or another and one of the things that we've identified as simple as it seems is that a lot of people knew people are in seats wage using a system and we need to reinvigorate that training so that we're using the system as intended.

Great and literal if you just repeat the question or the guidance question you had yeah. I know the the question Joe was you know, obviously that that three year was sitting out there and you know again just trying to wrap my arms around whether we should still be thinking about that as those objectives is doable. Will there be an lrp updates? Just just again just trying to put that that existing lrp into context right now given where the businesses definitely and we communicated a bit of this at JPMorgan. We we definitely believe that you know, even that can be in the mid twenties in operating margin the low 20s and that you know, for example high single-digit is possible for our business over a number of years, obviously m&a and our performance can enhance that with what we want to do that and we also did communicate that's going to be over a longer period of time than we originally laid out. Obviously the big change in in Fortune. They're being the pain Market dislodgement Thursday.

Dealing with which is change the time frame there, you know, and so what we want to do is probably in the summer after we go through our strategic process with our Board of director.

Is update and refresh the lrp and then also gives Michael a chance to you know, not only in Grain initially in the business, but run through a strategic cycle with us get a couple of quarters of life and then we'll likely be talking about new numbers then some. Okay. Great. Thanks very much. Appreciate it. Yeah.

Our next question comes from Matthew Mission with KeyBank, please go ahead great and thank you for taking the questions. You know, just the first one of the clarification is the m&a contribution to the constant currency Revenue growth this year.

What for that you talking about for twenty twenty? Yeah about 3 and 1/2 points of growth Matt. Okay, excellent. So it's about 1 and 1/2 just read a half organic.

So I could range absolutely. Yep. And then just Joe Michael. How did you approach guidance this year kind of versus the the last several years. I guess I could have you put in this plan. You know, I a couple of things I can say and then let Michael add cuz you know, it's important that Michael put his eyes on things and it's nice to having a an outside of money coming in. But if you think about our queue for you know, it was strong but there was some seasonality there was some recovery in chronic care of the backlog and we we've talked about I think in the release and outlined about a point or so a growth an IV infusion that said we still think that you know that the implied organic growth if you take out the individual factors, we entered the year sort of two to 3% organic growth. But um, you you you know, we have seasonality in the business you have to balance the risks and the opportunities and you know, we see our chronic are businesses at Mid single-digit wage.

Topline uh

Grower we obviously are happy with Cooley remaining at double-digit. There's been a little bit of a change in our outlook on International being more of a mid single-digit growth. We just still thinking get to high single-digit overtime. So it's actually a catalyst for our business. So that was some of the thinking on the top one let Michael maybe give you his views and sort of how he's also viewing EPS a little bit off a great. Thanks Joe. Yeah, man, I think you know to add to what Joe is just saying we've learned a lot over the last two years and so a lot of the effort I made in the first month is to really understand. You know, what were some of the puts in th that we experienced. What were some of the things that could have been avoided what are some of the competitive Dynamics and let's make sure we capture with Warren who as you age a great job as interim for the last handful of months. Let's make sure that we capture the puts and takes as we go into twenty-twenty. So by no stretch do I think are we putting out?

Guidance that a super conservative if that's where your question was headed, but I do think we've done a very good job of looking at the various factors as we enter the year to me.

Sure that we understand what are some of the downside and headwinds. But also what are some of the attractive Tailwinds that could kick in especially as we get to the back half of the year.

Last thing I would say, I mean, you know, I think we're well prepared to compete against Medtronic and we're proven that so far but you do have that to consider and then we also have hair on entering acute pains. So for all the upsides that we actually in fact do have an opportunities. We're bouncing that risk. Okay, excellent. And I and I just wanted to clarify you guys made a made a point where you still think you are dead 60s gross margin company. Do you think you're going to be at 60% plus gross margin in does the plan imply that for twenty twenty? I think that's impossible. Michael is welcome to share some of his views but um, you know, we have a lot of things distribution costs won't be the same in 20 as an example. We've got a lot of cogs of fact that we're working on. So I think that the that's possible Michael you want to add your thoughts look man. I think that there's upwards of one hundred twenty five basis points are more wage.

cost savings initiatives that were executed

See you again. Obviously all those have to come through. And of course there is some some headwinds including some mixed headwinds as we think about the revenue with the Acquisitions. We did down below our our corporate level gross margins, but the the sense that we are absolutely a a low 60% gross margin player with opportunities for a couple of hundred basis points above that a little bit midterm. I think it's absolutely realistic. Okay. Excellent. Thanks Joe. Thanks, Dave. Welcome, Michael.

Our next question comes from Chris Cooley with Stevens, please go ahead morning. And thanks for taking the questions. Just wanted to Circle back on your comments pertaining to the increase in accounts receivable and inventory and which is during the fourth quarter. Just hoping you could kind of help us frame. How much of that was transitory when we think about the cash flow in the four q and while it sounds like the lrp guidance is tabled till late summer early fall just thoughts on you know cash flow as we go through the year both interest Cadence and and the amount of cash flow we can see there for for twenty twenty things. Yeah. I'll say just a couple of let Michael take that and he's been working really hard in this area as well. But we did have a sequential Improvement about thirteen million and and obviously if you were unusual costs, but Michael you want to take take Chris do that. Yeah, I think a couple of things on on anything working capital related and the systems that we have birth.

Built a manual workarounds in the near-term to ensure that the things working capital that aren't we're wanting to be are starting to move forward, but that's obviously not a sustainable.

So as I look through twenty twenty one of the reasons that we have confidence in having positive free cash flow for the full year is the fixes that we're putting into the system wage being able to ensure that we have timely collections on AR and make sure that we're managing our payables appropriately with regards to inventory. One thing we're not going to do this year is fall short of products at any stage. So if we have to have a little extra build any given time to make sure that we're meeting front end demands we will do that. So we're not making any commitments working capital improvement with regards to inventory this year. Although I will tell you the manufacturing facilities are definitely focused on that. But with with were absolutely putting in sustainable fixes, and we do anticipate seeing improvements in both of those current assets and current liabilities categories.

That's really helpful. If I could squeeze one other quick one in but then I'll get back in queue. Just we think about the cool Leaf growth in the quarter, you know, continuing to see good double-digit growth there. Could you give us some additional color eyes to the types of accounts or where you're seeing the greatest amount of growth just curious candidly if there's been any change Indian market environment that you're sensing in terms of purchasing patterns, or you. Thanks. So obviously the there's still the greater portion of that Chris the rear portion of the growth of that not the growth of the business itself is in the spine area, but the higher growing areas must are off of the knee and I think that the positive CMS reimbursement that we received towards the end of last year is helping us out line and our primary customer is still the Interventional pain specialists, but these studies are drawing in a lot of orthopedic surgeons and we're working behind the scenes to try to to get reimbursement in the ambulatory Surgical Center, which would be an even greater Catalyst wage.

Business. Thank you.

And if you'd like to ask a question, please press * then 1 our next question comes from Kristen Stewart with Barclays, please go ahead. Can you guys hear me? Okay, we can hear you Crystal morning. Okay. Thank you. Good morning. And welcome Michael to having a great time. Are you in terms of the previous Lee identified Thirty to forty million in restructuring savings. I know some of that we've kind of seen come through and being reinvested with the number of last year was 7 to 10 the numbers for 2020 and then put up moving a little bit. How can we just think about that in terms of what the number to be 425 realize some of that probably will be reinvested and then just going forward how much of that will actually flip through the bottom line or not will be earmarked to go for birth.

Investments for

Just need to be reinvested back and keep it up. Yeah, Chris and I just a couple of things. I think Michael was going to want to weigh in on this but we've really been getting the cost in each year off and then obviously primarily been cogs related to date and 10 until we stabilize r i r i t system. But obviously we have costs headwinds coming in like a short-term incentive another area. We talked a little bit of a JPMorgan about really the inflection point being in twenty Twenty-One. But Michael if you want to know I think that's right driving just numbers-wise anticipate twelve to sixteen million life savings in 2020, but it's Joe just referenced. They'll be quite a bit of offsetting of those. So the net savings will be quite a bit less and then 11:00 to 14 million or so and twenty Twenty-One, but we have some good line of sight that most of that dropped to the bottom line.

Our next question comes from David Lewis with Morgan Stanley, please go ahead. Good morning. Thanks for taking the questions. Just give me a few from me here. Just ask for Joe just for Cooley for 2020. What's what's embedded in guidance in terms of growth for that product and and what assumptions sort of are made around the metronic of a tronic entry in the market. So we would we are continuing in double-digit growth with Cooley to date David. We have not seen a strong competition from Cooley if we've now as a press release Thursday, I believe last night introduced a new console and technology that we think is even further Advanced. So we we we between that and the fact that we're the only cool Leaf off technology right now are approved for treatment of of the need we feel pretty strong about that cool Leaf growth and look. Is there anything further you wanted it now my clothes just agreeing with me.

Okay, just two more for me. I'll ask them both the front. I think you may have said this but I think about the back half of the Year organic growth in the third quarter of the fourth quarter 4% in the fourth for the second half.

Of nineteen organic growth came at around 2% Is that the right way to think about how you think this business is entering twenty-twenty and then from Michael guidance sort of implies flat even marginal. You said low 60s GM. So it's the right way to think about sg&a, you know, two points of Leverage to have something around the 43% range. Thanks so much. Yeah David and I'll take the first part and then I will take the second part of the call. But when you think about the 4% organic and keyboard and what you were looking at for Q3, and we did talk a little bit earlier on the call about IV infusion being about a point. I do think are implied organic growth without the unusual factors is more like to the 3% entering the year. Obviously, there's seasonality in our business, especially on the the pain side of the business that we take into effect as we go through q1 and Q2. So that's that's how we see entering the year and then Michael. Yeah, so I think you were directly, correct on yep.

Of the math we do anticipate even da on an absolute value to grow strongly double-digits teens double-digits and we do anticipate even a margin to in fact about a hundred basis points.

Our next question comes from Ravi misra with berenberg, please. Go ahead. Hi. This is Emily on for Robbie. Thanks for taking my question just to start off with the FDA approved. Eighty watt cooling system. He's just briefly talked about what the new features for this are and what benefits they bring. Yes. It's this Joe. It has a better interface, you know for our customers. It does allow for a faster throughput of the procedures in a more broad utilization of the probe. So just think of it as sort of a state-of-the-art, So that's going to allow for a a faster and better procedure. So we're excited about it, especially given the fact that we now have another entrant in cool even Medtronic. We think it's a jump in technology.

Okay, thank you. And if I could just ask one more R&D was a bit lower than we had anticipated. Was there any reason for this and how can we think about R&D for a 2020 Dodge a couple of things and I think Michael wants to say something but essentially, you know, our Target is to be at 6% of sales for R&D. It can change at any given quarter obviously due to just projects pin and we're looking at and reviewing projects off their returns are at the same time. We also invest alongside and open Innovation like bio Q so, you know, and that was a five million dollar investment a couple of years ago to get an electronic state-of-the-art pump into the acute pain business, but Our intention is to maintain that 526 range. Did you? Okay? Thank you. Thank you.

Our next question comes from Rick Wise with stifel please. Go ahead. Hi John and Michael, it's driven Ariane for Rick. I just wanted to start on m&a integration wage stabilization and continuing to progress. Could you talk about maybe the steps for m&a integration and where you could you capture potential revenue synergies and as the it system is stabilized has how are your thoughts evolving on growth and profitability of the prior transactions? Should we think about their growth rates and profitability as continuing to meet your expectations or could we potentially see an acceleration in 2020 and 2021. So the the way we view the Integrations is that obviously as you can imagine, we have three major project teams going on and plus some of the things that we're doing on our own structure, but the bulk of those benefits happen is if we begin H2 as we we stabilize the it system and really get the benefits of those synergies really as we're sort of ending dead.

Into the second half we do.

That and and I think core pack is a good example of this that we can enhance, you know profitability certainly gross margin to sales for these Acquisitions in the abyss example, I found the gross margin side. Yeah Drew, I think as you you asked about the Integrations from a system standpoint, most of that Synergy is took a cost energy and our ability to leverage the system and and business processes. And then also as I mentioned earlier in the back half of your ads, we start to leverage our new system from an analysis standpoint. Those are the types of things that'll lead to insights that'll hopefully have some Revenue outcomes positive Revenue outcomes, but on the front end of our Integrations, especially systems related those off to be all across the focus Energies.

And then just on back to cool Leaf just with the new 80 watt system. Can you touch one? Maybe the opportunity there in the near-term? Is it about converting existing accounts and how quick life that happen, or is it more about getting adoption from new accounts? And just to tell us in there does the 80 watt system really kind of help you drive adoption or adoption in the ambulatory Surgical Center. I think a couple of things one is I think you'll see some great opportunity people are going to want the the newer system for the efficiencies also think it's a good way now that we have another entrant into the market to differentiate ourselves from that perspective it really the ambulatory Surgical Center component of this is more about reimbursement than it is about about technology so that once there's a a reimbursement that makes economic sense. For example for orthopedic surgeons. I think that there's an opportunity for us to expand into ambulatory Surgical Center.

Thanks for taking the question. Thank you.

Again, if you'd like to ask a question, please press * then 1 our next question is a follow-up from Matthew Mission with KeyBank, please go ahead. Hey, thank you for taking the follow-up wage in the press release you talked about a couple and in the scriptures talked about a couple of of the surveys the one specifically with Cooley forces or hyaluronic acid at 12 months versus six months, Could you go into a little bit more detail on on how big the difference in pain relief was for Cooley at the one-year Mark versus versus hli. Yeah, man, it's very similar to Age to study and then obviously, you know at the at the midpoint, I believe that sort of showed 12 12 months and then it's a study went on were able to talk about a 24-month lease. So I think it's pretty strong pretty significant and if you think about h a in some cases that may work a few weeks or a few months. So I think there's a really strong economic story as well.

Again how that becomes a catalyst for us in our business is is oriented to reimbursement.

In the ambulatory Surgical Center, we're going to have and that's why we're doing the data by the way is the clinical studies are going to allow for that. It's also going to allow for us to have a better conversation with commercial payers. So it's a several several year process, but it's a it's a good thing for us for the future. And then last one for Michael. I think a lot of the stuff you're talking about is is exiting momentum exiting twenty-twenty with a lot of money on the car side cuz you also talked to your expectations on the potential reprice long-term debt at the end of the year. And then I was how do you get the tax rate close to piercing 25-27 wage was was a little bit of a surprise. You have a great. Thanks, man. I'll take the tax one first. So the tax one definitely longer-term. We anticipate being in that twenty-three to twenty-five percent range. I hope you have a couple of years here. We're from a tax standpoint. We're in a loss position. We're not able to benefit from things like foreign tax credits. There's a variety of things going on there as well with guilty. Yep.

So it's just this is a little bit of a temporal factor for our taxes cash taxes. However will continue to be very low and so that's what I tend to focus on more than the effective tax.

Okay, which can bounce around a bit, but from a modeling standpoint anticipate longer-term are twenty-three to twenty-five percent effective tax rate regards to our debt. We do have the opportunity you correctly stayed around ability to reprice our debt at the in the fall time. Dave and I will closely monitor where the markets are at that point what our capacity needs are from an m&a standpoint and what our strategy looks like from m&a whether that be tucking or larger types of opportunities, so that'll all be all of those factors will be incumbent upon what we do for a debt standpoint, but I do anticipate that we will look at that piece of our capital structure in the fall when the opportunity to reprice arises. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Joe Woody for any closing remarks.

I want to thank everybody for your interest in Alvin owes as you can tell. I'm confident in the business Outlook and our ability to deliver against the priorities that we have outlined today and continue to outline. I believe or solid fundamentals of this business and know we're well-positioned to create value for our shareholders. Also Michael and Dave will be at the upcoming Raymond James institutional conference in Orlando, and the three of us will be Barclays Global Healthcare conference in Miami Beach. I believe that's the week after that meeting information about how to access the presentations can be found on the investor relations section of our website at Avenue, Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.