Q2 2020 Avanos Medical Inc Earnings Call

Hey, Rob.

After today's presentation, there will be an opportunity to ask a question.

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Please note this event is being recorded.

I would now like to turn the conference over to Dave Crawford. Please go ahead. Good morning, everyone. Thanks for joining us. It's my pleasure to welcome you to the <unk> second quarter earnings Conference call with me. This morning, our Joe what do you feel and Michael brighter Senior Vice President CFO, Joe will discuss three topics. This morning, beginning with an update.

On a response to the pandemic that our second quarter performance.

And with our progress against our 2020 priorities.

Michael will then provide details of the actions we've taken to address the challenges presented by depend Eric and review our second quarter results, we'll finish the call with Cuda.

The presentation for today's call is available on the Investor section of our website <unk> Dot com.

As a reminder, our comments today contain forward looking statements related to the company or expected performance economic conditions and our industry no assurance can be given as to the future financial results actual results could differ materially from those in the forward looking statements.

For more information about forward looking statements and the risk factors that could influence future results. Please see todays press release and risk factors described in our filings with the FTC.

Additionally, we'll be referring to adjusted results and outlook. The press releases information on these adjustments and reconciliations to comparable GAAP financial measures now I'll turn the call over to John Thanks, Dave Good morning, everyone and thank you for your interest in our business.

Before I discuss the company's performance I want to share with your thoughts on the events that have once again highlighted social justice.

Racial inequality in our country.

We need to do better and wait to start by understanding and acknowledging the systemic issues of racial and gender inequality.

Senior leadership team will begin at listening journey to further understand our employees perspectives and feelings.

Then if I were doing right.

Where we're coming up short.

At all but as we pride ourselves on making a difference and putting concrete action behind our words. So we formally launched a strategic initiative focused on developing and implementing an <unk> diversity equality and inclusion plan to further engage and motivate our global workforce.

In parallel we also made a significant donation to the equal Justice initiative.

Nonprofit agency committed to challenging racial and justice we believe that if we stand together. These efforts it often us we will have an organization where everyone feels valued appreciated and hurt that's the kind of organization. We all the work for and it's the right thing to do from both a social and business family.

Now turning to our performance we're at the midpoint of the year and I continue to be pleased with our teams strategic execution that commitment to meet the urgent needs of patients with our critical products.

Our team has demonstrated resilience and adapting to this dynamic work environment rising to the challenges facing our business and executing their responsibilities to the high standards.

Our teams work ethic brings to life, our values, a speed collaboration and being customer centric.

He's a proven instrumental in helping us respond effectively to the pandemic.

And this ever changing environment, where there's still uncertainty around the duration and economic impact of the virus, we remain focused on our three priorities.

One maintaining the health and safety of our employees and their families.

To ensuring we have sufficient supply of our respiratory health products used to treat could be 19 patients and three preserving our strong financial metrics and meeting the needs of customers, while ensuring we're well positioned for future growth and opposed to covert 19 environment.

First the health and safety of our employees and their families remain our top priority a significant challenge has been maintaining production at our manufacturing plants to ensure availability of our critically needed products. We continue to implement additional prevention measures and protocols before during and after each shift.

For example, we increased the number of buses used to transport employees, so that physical dissonance. It could be maintain instituted procedures and shrink everyone passes the temperature screening before entering our facilities.

Adam physical barriers to ensure physical distancing and modified schedules to provide type or enhance cleaning up the plans.

These are just a few of the protocols implemented to ensure our manufacturer employees feel I remain say.

In a recent audit of our facilities for Cobot 19 readiness, the Mexican government alter made especially on the other than many positive measures we've taken to keep employee safe.

I think our product supply implant leadership teams rising to the challenges and keeping our team safe.

During the quarter, our global field sales teams began to have in person meetings with health care providers and their facilities.

Work. These teams, we provided them with P.P.E. and training.

So there are equipped to safely perform their jobs in this environment.

Our second priority is to ensure availability of our life, enabling respiratory health products during the quarter accelerated demand for these products continue to some products remained on backwater, our cross functional teams using an allocation process insured customers around the world received the needed products also preventing stockpiling.

In response to the surgeon demand during the quarter our team rose to the challenge and design installed and started a new production line at our two some facility to provide additional supply of high volume codes.

This was a complex multifaceted project as it touched all aspects of our supply chain from sourcing raw materials and assembly to packaging the finished goods.

The dedication our employees repeatedly demonstrated is a testament to the strength of the ominous team.

Third priority is to preserve our strong financial position through strategic cost containment and cash preservation measures to position us for future growth.

We executed on our plans to deliver savings and reduced unusual costs, which helped drive positive cash flow from operations.

Additionally, we limited capital spending to maintenance facilities entered boost production.

Respiratory health products.

Because of our strategic actions were entering the second half of the year and a strong financial position [noise].

Turning to our second quarter performance sales were stronger than we had expected as we were pleased to see the faster resumption of elective procedures, which positively impacted our pain management franchises.

Overall sales of 164 million were 5% lower compared to the prior year and we earned 13 cents of adjusted diluted earnings per share both metrics were above our expectations.

As the quarter unfolded, we saw monthly sequential improvement in our pain management franchises.

Thank you and Coolief, which are almost exclusively using procedures performed in hospitals. So U.S. volumes at a trough in April of roughly 25% of their pre cobot level and grew to approximately 75% of normal volume by the end of the quarter.

Well this is encouraging drivers of a sustained recovery will likely very regionally and maybe predicated on the extent and duration of cobot outbreaks in recent weeks, we have seen a surge in the number of KOVA cases in Florida, Texas in Arizona, showing signs of impacting the recovery for these franchises.

[noise] to gain a more holistic view of the recovery for industry, our team partner with hospitals customers consultants and market experts to gain insights into help frame our forecast models that contemplate the recent spike in cobot 19 cases long with the risk of regional shutdowns and economic uncertainty.

While we continue to anticipate elective procedures will increase in the second half of the year, we no longer view U.S. procedural volume returning to pre covered levels by year end and expect the recovery will continue into 2021.

Moving to chronic care as I highlighted earlier performance was driven by continued heightened demand for our portfolio a clinically proven respiratory health products, which are essential in treating coven 19 patients.

We expect this elevated demand to continue into the second half of the year, but at a slower rate than the first half.

In the just of health fewer elective procedures, coupled with patients delaying tube replacement out of fear of potentially being exposed to the virus and hospitals impacted performance. We anticipate these headwinds will continue to some extent through the balance of the year [noise].

Looking beyond the pandemic, our market, leading chronic care business remains strong and is well positioned to grow consistently at mid single digits.

Well the impact of the academic continues to evolve we're poised to respond accordingly to meet the needs of our customers while moving our business forward as we remain equally focused on our long term strategy and our 420 20 priorities.

First we're taking steps to build salesman minimum across our franchises with respect to our pain businesses. We're working to further raise awareness of our non narcotic pain therapies for on Q. During the quarter. We conducted Webinars Vumedi sessions attended by over 4000 health care professionals. These virtual sessions will continue into the second half of the.

Here and are complemented by a recently published article in the journal of orthopedic experience and innovation and by Dr. weak line and Dr. Stevenson on the use of on Q and treating teekay patients. Their research found that teekay patients, who use on Q needed fewer opioids and in some instances no opioids to effectively manage their post.

Operative pain.

Also the number of customers moving to lighters as a pre fill alternative continued to grow in fact in June we saw the highest volume of pumps filled by lighters. Despite overall volumes being affected by the pandemic.

And the just of health our portfolio is the most comprehensive enteral feeding portfolio that offer solutions for every stage and age of feeding.

To further leverage our portfolio in early June we launched a campaign that brings all three of our market leading brands Mickey core packing them at together under one family of brands.

The campaign uses various media, including digital platforms and a comprehensive educational website called two bed dotcom, a complete guide to enteral feeding in one convenient location to further educate clinicians caregivers and patients of our feeding solutions.

Family evolve and US brands enables our sales teams to better leverage the depth and breadth of our portfolio, while helping grow and protect our digestive health franchise.

Our second priority. This year is the integration of game ready near Med and summit.

Despite the challenges of working remotely we're on schedule with our integration plans and expect to close the associated facilities. During the second half of the year and recently began integrating these companies into our IC system to further gain operational efficiencies.

Our third priority complements our integration accomplishments as we're beginning to see some efficiencies from our new I see system. The improvements are enabling us to conduct more in depth analysis realize reductions in accounts receivable and improved process times for transactions.

Finally, as I mentioned, we implemented strategic cost containment measures that helped improve our cash flow for the quarter as we entered the second half of the year, we're strengthening an already solid balance sheet and I'm confident we'll be well positioned for growth in a post cobiz 19 environment.

Before turning the call over to Michael I want to share. Some good news about the class action lawsuit brought against Kimberly Clark and often us regarding microcool surgical accounts.

Two years ago, we appealed the judgment.

On July 20, Threerd, we were notified that the United States quarter Appeals to the ninth circuit had reversed the judgment against the company and instructed the trial court dismissed on us from the case altogether for lack of jurisdiction.

Circuit also rule and the class action against Kimberly Clark should not have been allowed to proceed and its order the case sent back to the truck work for further proceedings.

Overall this is a great outcome for us as we remain focused on advancing as a pure play medical device company.

In summary, we continue to manage through current challenges with strategic focus of meeting customers needs and positioning the company for long term growth in a post covert 19 environment.

Now I'll turn the call over to Michael.

Thanks, Joe I'd like to start by reiterating held Portland is for allowing us to better understand our employees perspectives and unique experiences and use those insights to identify where we can progress as a company.

Many studies have highlighted that diversity and inclusiveness across the company's inputs as a key determinant in companies, reaching their full potential the resilience. Our team has consistently demonstrated in this dynamic covered 19 environment serves as a barometer at how this team equally lean into this needed dialogue on systemic inequalities.

As we enter into the back half a year I would like to further highlight the strategic and tactical approach as we have undertaken to mitigate the impact of the pandemic on our business a number of covert cases are against baking in the United States and the pressures we faced in a second quarter, we'll continue to some extent into the balance of the year given this continued uncertainty or not.

Updating our full year 2020 financial guidance at this time.

Towards the ended the quarter, we again model multiple sales earnings and cash flow sensitivity outcomes factory in various revenue possibilities the possible lengthening of accounts receivable collections.

To find discretionary spending cost containment opportunities and other potential impacts to stress test I liquidity needs.

I'm pleased that even into the most bearish scenario. We are confident we can maintain a similar financial position as we ended the quarter.

The actions taken to date to reduce costs curtail capital spending and drive working capital efficiencies have helped us preserve our solid balance sheet as evidenced with our current cash balance of 185 million being roughly equivalent to our balanced prior to the pandemic.

The second half the year, you'll continue to execute in these areas, while looking to further enhance the efficiency of our working capital by reducing inventories.

Finally, we're working to file our amended U.S. federal tax returns in response to various provisions and the cares that.

The filing of these returns to result in a significant refunds, resulting from carrying back and allow us to periods, where we previously paid federal income taxes, while we're not planning to receive these refund and 2020. They will further enhance I returned to positive free cash flow in 2021.

In addition to a solid cash position, we also maintained minimal leverage and have no debt maturities until 2022.

As Joe highlighted despite lower sales, we generated positive cash from operations and our free cash flow improved to an outflow of just $6 million.

With that as a backdrop I'll now review our second quarter results overall sales for the quarter declined 5% to 164 million versus last year, but organic sales down 11% due to lower volumes. The difference represents a 6% growth contributed by our Neal met and kind of acquisitions.

Chronic care sales grew 18% to 120 million driven by strong demand and respiratory health for close section catheters and oral care products used to treat coping 19 patients as well as our contribution for our nailed that acquisition.

And digestive health, we saw an uptick in demand for our core packed products related to treating coping 19 patients. However, as Joe mentioned in this growth. This growth was offset by our legacy Mickey business that was affected by the postponement of elective procedures and delayed tube replacement I patients who lead the cost of possibly contracting coven 19, a hospital setting.

Persist complying with their feeding to replacement regimen, turning to pain management, while we saw elective procedures resumed during the quarter ahead of our expense expectations sales still decreased by 38% to 44 million.

Despite the slowdown our on Q lighters partnership present that strong second quarter results pretty fell back you've got palms sold at record levels and June. This momentum is continuing its a second half as existing and new accounts see the benefit of Prefilled pumps. In addition pumps filled by lighters are now approved for a 90 day shelf life versus 30 days.

Yes, this extended shelf life enables customers to ordering quantities that fulfill anticipated usage, while also providing insurance against they need to dispose of I news palms, when cases are either canceled or delayed.

With respect to Coolief 1500 physicians attended a total of 911, our training sessions, we delivered during the quarter that focused on different modalities. Additionally, we place more generator was unplanned despite hospitals restricted capital spending and our sales teams limited access to facilities. These outcomes during quarter with significant headwinds further bill.

And our confidence at Cooley will remain a solid double digit grower.

Also we are excited to see the benefits from our investments in clinical studies support Coolief as a leader and its space.

Dynamics of our international business were similar to the trends in the U.S. business, we delivered double digit growth fueled by global demand for respiratory health products and our core pack nasal gastric feeding tubes, we are well positioned to deliver on our mid single digit growth expectation for the year and longer term, we continue to see opportunities in this business that support our overall.

<unk> strategy.

Moving down the income statement adjusted gross margin decreased to 56% compared to 60% last year margin contraction was mainly due to unfavorable sales mix, primarily respiratory health product demand coupled with significant decreases in our pain businesses.

Also contributing were elevated cost associated with coping 19 that Joe referenced in his remarks.

Although cost associated with over 19 are anticipated to lessen and the second half the year. These costs still had a negative impact on our gross margin and they coming quarters.

Adjusted operating profit totaled 13 million compared to 20 million in the prior year performance was impacted by lower revenue had lower adjusted gross margin, which was partially offset by the previously mentioned cost containment measures.

Adjusted EBITDA totaled 19 million compared to 23 million in the prior here.

Net income totaled 6 million compared to 14 million a year ago, having a 13 cents of adjusted diluted earnings per share ahead of our expectation is driven by the faster recovery in elective procedures and lower operating expense profile driven by our cost savings measures.

In summary, we delivered sales and earnings that exceeded our expectations, while taking strategic steps to ensure our financial position and liquidity remains strong.

Team showed resilience and exhibited each of our values during the second quarter, which enabled us to meet customer demand and position our portfolio products for a long term growth, while getting patients back to the things that matter.

Operator, please open the line for questions.

We will now begin question and answer session to ask a question you May Press Star then one on your Touchtone phone.

We're using speakerphone, please pick up your handset Corporation.

To withdraw your question. Please press Star then Q.

[noise] first question today comes from Chris Cooley with Stephens.

Thank you good morning, such taking the questions hopefully as well.

Maybe just to for me the outset.

You touched on this in the past in your prepared remarks, but with the close suction Castro the dollar.

Endorsed by the World Health organization.

And your fourth line coming up and running now I'm just curious.

Help us think a little bit about this tailwind as it applies to Europe, and Asia, specifically, because those markets would be converting.

Do you still think that.

This business would had as a result, 25 to 50 basis points to overall corporate gross.

And a bigger impact in 21.

Just just kind of curious about make as we kind of thing to the back half the year to the extent to two can provide some additional color there would be appreciated and then put my follow up.

Just in your schedules this morning.

The GAAP to non-GAAP reconciliations.

Proximately half of the adjustments there or coated 19 related expenses.

In the quarter could you just give us some color as to how we should think about those cobot 19 related expenses to the back half the year to kind of just two or cash flow number. Thanks.

For instance, a Joe Woody I'll I'll take the respiratory question then Mike will follow up on the co bid a expenses, but the way to think about respiratory and the close section valor.

It's about a third of our headwind was offset oh by the closed suction revenue that would so you think of it in terms of we've been about 10 million ahead of our normal respiratory volume.

For the year.

And we expect that to continue to some extent.

In a in the second half next year to your question you know, we'll have some compared or issues. Because obviously, we've had boluses orders. This year, but you are right with the who a recommendation and we've seen for example, a india become active and looking at a care wells in establishing education programs.

I do think overtime.

We're going to be able to expand a that business more internationally based upon unfortunately, the the pandemic. So hopefully that helps on the revenue side. It looks like Michael can can answer your cobot expense that question. Yeah. Thanks, a question Chris So we have two sets of covert costs.

One set that we're calling out that 3 million plus that we're considering more onetime in nature. Some of that will continue into the back half of the air and then there's some costs that were incurring.

On a more routine basis that we are and expect to incur going forward and that has an impact on our gross margin that's embedded in our actual cost of goods sold.

Thank you.

Thanks, Chris.

Our next question comes from last year, Nissan with Keybanc.

Hey, good morning, guys.

Good morning.

So I just trying to get out what you what what's you're implying but some of your your commentary like on one hand, you're you're saying the virus in backlog extends into 2021.

On the other hand, you're saying you're prepared to return to growth post Cobot. You know are you are you basically saying that you're not expecting there returned to growth by the fourth quarter.

I think it's it's difficult to predict things like that at the moment, because the a duration and severity of the pandemic is just an unknown and what we've seen like I think most of the calls is on elective procedures, a return to sort of 70% to 75% overall and there's there's definitely pockets where that's maybe.

Increased or even lower the increases are probably more severe a surgical cases that need to be done and we definitely think that there was an element of a bolus of backlog that came back in that 70, 75% depends on how different regions manage the surges and now we see the midway.

Tests coming on.

I think there's a lot of focused Sunil come on unemployment how people are managing their deductibles.

And so keeping an eye on that in until we kind of get through the third quarter and ended the fourth that they can see if you get a second wave, which hasn't even happen yet. It's just a really tough thing to manage done now that said, we're really happy with our performance both on the cost side and on the revenue side.

And keeping our manufacturing plants going I think we're in a pretty good position overarching and we want to obviously maintain that but it's a very tough environment to predict anyway.

Okay, That's fair and then the.

The trajectory of the coverage in pain management is obviously, a very severe trough for you and getting back to 70, 75%.

Volume can you compare on Q birds burst it versus Coolief are there some differences in in those trajectory is there.

Very similar you know interventional pain, maybe slightly coming back a little bit.

The faster overarching, but as you can imagine you know we saw the same.

Only 25% of normal procedures and sort of the March April timeframe timeframe that went out.

In may to 50% now we're seeing that progress in June and into July to more of the 70, 75% depending on the geographical area. They were they were very a very similar.

In terms of the that progression back to the back to the you know what is now a normal 70 75, and then I think everybody's got an eye to when do you get back to you know 90 or 100% and we're just not seeing that fully happen.

In age two and we actually think depending on what happens in the fall in the winter. A you know you discussed could go well into 21.

And then.

Trajectory of the digestive health the delayed tube replacements, I guess, how long can that continue.

I hate to make the analogy is it like a hair cut you can just skip.

That doesn't necessarily need to be replaced or their backlog of that needs to be.

Yeah, well people coming back to hospital for that to I think it's starting to come back I mean look you know people, it's it's a little bit of a consumer confidence element, but obviously in this case, it's that fear of contracting the virus and the and the medical center or the healthcare environment. So there has been delayed feeding to yeah placements.

We're seeing a little bit of progression and think that as we get to the ended the year that what progress more fully there's nothing really structural.

In this and adjusted Health and then a we also you know in Q1, we were pleased with performance before all this started and and core tracking them at and they broaden our portfolio. There's the international opportunity there like we talked about.

With Chris on the respiratory side, so it's going to come back that overtime, but it's definitely one of those elements of the.

You know just waiting to get into the health care system, but we definitely I'd say in the last two months seem the improvement in that category.

So we saw solid July Matt and that to your point.

You can skip one of your re insertions, but at some point you're gonna have to.

Get your to replace so hopefully we're starting to see that yeah, just a follow up for clarity how how often is it supposed to be replaced how many times per year.

Every three months yeah, that's the normal regimen.

Thank you yeah.

Our next question comes from David Lewis with Morgan Stanley.

Good morning, David.

Hi, Good morning. This is first to on for David can you hear me, Okay, Yes, the rest of good morning worsen.

Okay, great good morning.

The comment that you made on on here that I think you said you saw record sales of pre sell through the lighters relationship and Dan can you just remind us.

What percentage of your total honesty business that is and then secondly are you specifically attributing any of those delta that.

To this actually have a longer shelf life now in other words do you think it could be the pull forward are stocking or just how would you kind of describe that thank you.

Yeah. So remember one of the key elements on the dislodge none of that market was permitting that avella.

I'm going down and really just now lighters being the only solution and we're very fortunate to have a sole source agreement.

With them, but so about half just right at about half of the 30% of our business that was being filled a is now in lighters and lighters continues to grow.

Double digit we think just like all of that procedures, there was a little bit of a pent up demand.

And you know where he that's why I, probably you're seeing such as spring back in certain categories.

In medical devices, and then it's sort of leveling out between that 70, 75% right now and everyone's got there I on the surge is but there haven't been statewide shutdowns, obviously, it's kind of more oriented the cities or at the moment.

So that's six us kind of my take on that.

Okay, Great and then just a modeling question on the M&A.

Fair to assume that I, just explained you're attributing to and now a girl with it that roughly five point or a little bit more would be coming from the amount relative to some it.

That's right.

Okay, great. Thank you. Thank you.

Hi, Dan if you have a question. Please press Star then one.

Our next question comes from Ravi Musa with Baird <unk> capital markets.

Hi, Thanks.

Hi, Good morning, how you guys and thanks for taking the question just one for me really quick one how how are we thinking about the M&A strategy here at the company given kind of everything that's going on in the world in your balance sheet.

Let me understand like what you're looking at kind of you're still going to be opportunistic or you know how you think about valuations right now thanks.

Thanks, Ravi I you know the way I think about is we're more focused on execution.

And cash building or cash preservation, I think we're doing a great job of that.

And also alongside of that a top priority is integrating game ready niamh and some of what you're going along extremely well to capture those synergies even in this environment and there are locations, obviously being changed and so that's you know and switch over of inventory things like that but that's all going very well our M&A pipeline is still extremely robust.

Just a and work is definitely continuing its obviously a little bit harder to do due diligence face to face or travel. It's the same strategy, which is the tuck in around the channel, which allows us to get that synergy.

And drive and expand our current franchises in between painting and chronic care I think you're more likely to see action and on M&A side from us and 2021 versus 2020, but that we would not forgo a great opportunity a and we feel like we're in a really good position a though in any of the near term or the one.

So it really excited about so that's a thing about it.

Great and then maybe one more just on flu I mean, we there's an article a few two weeks ago about how you know southern hemisphere levels are almost at record lows if not nothing.

Can you talk about maybe how you think that impacting some of the purchasing decisions in the back half the year as we tend to think about the puts and takes the kobe than that business line. Thanks.

Yeah on respiratory I mean, we're also experiencing some some orders from governments.

They wouldn't really affect our year over year, yeah. There. They are bulk orders that come in their cash and and then they are put into inventory for these types of had them exit we have an allocation process that we're managing tightly the utilization looking at our trace sales to make sure inventory is not a building too much that said like in the first a question, there's no doubt will have compared or issues.

Like many companies will that have products for cobalt 19, a year over year, but we're doing a.

I think a pretty good job balancing the utilization mapping that with tracing so that is not something an insurmountable likewise on the other side of the business and pain they'll be favorable compared or.

Our next question comes from Rick Wise with Stifel.

Hey, Rick Warren.

Hi, Joe it's actually a jury scenario on for Rick This morning.

[laughter] Hi, good morning, I, just a question actually on upcoming catalysts I know theres not a lot of talk about new products at the moment, just given the background well Joe you've always discussed innovation is a critical growth driver dominoes I mean could you just give us a better sense of what upcoming.

Whether product launches or clinical studies, what should we focus on so it doesn't get lost in.

The code that shuffle and maybe what is your Salesforce, maybe most excited to get all those I.

I think the things that you should focus on with us for catalysts or the international growth obviously.

Coolief continuing at a double digit growth and then everyone, including us are highly focused on the return of acute pain.

You know two or two a growth perspective on innovation. We continue you know to invest in our own R&D, but likewise, we're putting a heavy concerted effort and open innovation and were close to a deal that will announce probably this week on an open innovation technology in interventional.

Pain business I think acute pain is excited about the having some at the electronic pump right now and then we're doing some revisions on that to make it an even better products and of course, we announced a a couple of quarters ago the by acute.

Partnership are there.

Certainly chronic care.

It is excited about the core track standard of care program, a and things that niamh. It brings to the table. There's a number of conversions. It had to go on hold basically because of the hospital dealing with Covidien 18.

So that's the way to generally think about it and then the breakthrough products and acute pain are probably a couple of.

Here's off with it the idea is to maintain the investment level.

Sector positions continue to invest a in the breakthrough areas and broaden ourselves to the open innovation.

Gosh I remember when that the updated Cooley generator few months ago were just about the launch that just prior to cover 19. So we're excited to see what that looks like we had some very good early feedback on that.

Great. Thank you and maybe for Joe or Michael.

But with Coca disruptions continuing into 2021 as you discussed earlier are you thinking more about the company its cost structure balancing cash preservation and growth opportunities. It sounded like you're maybe ready to make or start layering back on some internal investments.

But as you look at costs. It today, I mean, as they're even better opportunity in front of you to take out more costs, a and took us even more on profitability.

Yeah No great question. So we continue with all of our previously announced a cost savings initiatives those that keep going you know with Calvin 19, we've had a little bit a delay in a couple of the areas, but we anticipate getting all those cost as we enter the back half a year.

We also announced some additional cost savings that were very much kogan 19 focused.

We're ahead of where we thought we would be there and as we sit here looking at 2021 to your question.

Taking a step back and thinking about which things do we really need roles that haven't been filled for months, maybe you don't need to backfill some of those roles Teeny and how we think about travel how we use video some of the other investments we had internally in R&D, although the type of product that we think are the right products or as Joe mentioned is opening up.

And I better way to approach some newer technologies. So there's a variety of things that as we kind of entered this budget season over the coming couple of months I, we're very much or try to understand what those are proper cost structure look like going forward. Both had an organizational level, but just do about those transaction type expenses like like Genie. So we.

I do believe like most companies we've learned a lot about ourselves into work from home environment.

And we do think there is a a cost structure that is more appropriate for who we're gonna be going forward.

Thank you so much taking the questions.

Thank you.

Our next question comes from Kristen Stewart with Barclays.

Hey, guys.

Well all are safe.

Do already been jumping between calls so I apologies. If this is now but I just wanted to better understand kind of see our exit run rate that you commented on July trends at all and just wanted to kind of get further clarification on this.

Covering kind of pushing out into 2021. It if that was kind of just youre lying on coal did kind of bringing over into 2021 or if there was something just a little bit more avenues to sit back.

With pain management business, so or just kind of a little bit further clarity on I'm kind of why you believe I am very was kind of pushed out into 2021.

I'm, sorry, if I understand thank God. It Kristen just a couple of things to update you. We did say on that at the beginning.

The kuni session that a third of our headwinds were.

Offset by respiratory and that we feel like we're about 10 million ahead. There, we did say that and the electives and pain management, you know that March April timeframe, we're only at 25% a normal.

Volumes that kind of went back to 50% in May and June was more 70, 75% and we see that continuing into July our commentary I'm on the on the go forward in H. chewing into 2021 was really not related on us, but just that you know without a number of anti viral and no vaccine and the timing.

They take to distribute that we think this is with us into 2021, and obviously we're seeing the.

Resurgence.

Now actually.

Watching to see there's going to be one of the Midwest and just to sort of be cautious about the unknowns and the uncertainty or in this environment and then obviously if it comes back faster I think we participate in that isn't as evidenced by kind of what happened in in June and I do believe everybody's going to be a little bit better suited sort of the ended the third quarter.

Her a into the fourth to really get a read on this I.

I think there's also the reality of Kristen is yachts as as unemployment stays high folks that have health insurance, so certain elective procedures will get pushed off or not done at all we did talk to a couple of consultants that we brought ends I try to understand the brought on that broader macro environment to Joe's point and so our comments are not all but no specific at all it's really.

We believe as is the reality of the environment that we get back to 100% sometime in 2021.

Okay that makes sense, yes, some companies are taking a little bit more optimistic feel on on the end markets. It sounds like you guys there.

Well, it's considered to be a little more reasonable [laughter] markets. So yes. It shows a lot to Joe's last point, if if those end markets do come back.

We're ready to participate and then when we participated in and the bounce back you know in the end of June July timeframe already so I got an <unk> not a commentary that we feel like we're missing something on the elective side or our products aren't set up for success. We just don't believe it's coming back to 100% you know until next year.

That's helpful. Thanks, very much thank you.

Okay. So [laughter] answer session and I'd like to turn the call back over to Joe What do you for any closing remarks I.

I just want to thank everybody has always for a the interesting dominos and a while we do continue to manage these near term challenges I think we're taking the right strategic steps to preserve cash and to continue to meet our customer demand. This in our clinically proven portfolio does give me confidence that our financial position is going to remain strong and we before.

Good to talk with everybody again next quarter. Thanks.

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