Q4 2020 Avanos Medical Inc Earnings Call
Good day and welcome to the all the notes fourth quarter, 'twenty and 'twenty earnings Conference call.
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After todays presentation, there will be and opportunity to ask the questions.
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Please note. This event is being recorded I would now like to turn the conference over to Dave Crawford Vice President of Investor Relations. Please go ahead.
Good morning, everyone and thanks for joining us it's my pleasure to welcome you to debt all of the notes of 2024th quarter Earnings Conference call with me. This morning are Joe Woody CEO, and Michael Greiner Senior Vice President and CFO.
Joe will begin with an update on our business moved to the progress we've made against our 2020 of priority and then summarize our path to value creation for 'twenty and 'twenty, one and beyond.
And then Mike will review, our 2024th quarter and full year results and provide an update on our current planning environment.
We will finish the call with Q&A.
Presentation for today's call is available on the investors section of our website I have no stock cost.
And as a reminder, our comments today contain forward looking statements related to the company our 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 and forward looking statements for more information about forward looking statements and the risk factors that could influence future results. Please see.
Today's press release and risk factors described in our filings with the SEC and.
And we will be referring to adjusted results and outlook. The press release of information on these adjustments and reconciliations to comparable GAAP financial measures now I'll turn the call over to Jeff.
Thanks, Dave Good morning, everyone and thank you for your interest and all of those.
As I reflect on 'twenty and 'twenty I'm inspired by our team's strong execution.
Net to succeed and resilient attitude and responding to the challenges presented by the pandemic.
Throughout the year their dedication to getting patients back on the things that matter remains at the forefront as we continue to meet the needs of our customers.
We successfully responded to the challenges of the pandemic and delivered on three priorities.
Keeping our employees and their families safe.
Ensuring of sufficient supply of our life saving respiratory health products and maintaining our solid financial position.
Well of managing the challenges presented by the pandemic was top of mind, we remain equally focused on our long term strategy and achieving our 'twenty and 'twenty priorities.
And I'm proud that we delivered meaningful progress against each of these priorities.
The first priority was to drive top line growth across our franchises.
And chronic care, we maximize the opportunity and respiratory health I quickly increasing production capacity of our clinically proven and closed suction catheters to meet the urgent needs of our customers within.
Within our digestive health franchise, and we launched our core Trek standard of care sales strategy, which helps contribute to double digit growth across the core patent portfolio.
Also our knee and med portfolio generated double digit growth.
Accelerating growth and international regions is another key component of our growth strategy. This.
This year, we treat achieved double digit growth internationally, partially aided by the pandemic related demand.
Okay.
Well the postponement of elective procedures affected the growth of our pain management franchise, we strengthened the long term growth potential of the franchise through a range of selling and marketing initiatives implemented during the early stages of the pandemic.
We advanced our clinical evidence for coolly and had several articles published and medical journals, demonstrating the clinical benefits of Cooley, the other pain management therapies, including its superiority to hyaluronic acid and the treatment of osteoarthritis knee pain.
With respect to argue we saw significant double digit sales growth through customers using lighters. Despite overall lower sales due to the pandemic.
At the end of the year, we entered several partnerships with the medical distribution and servicing organization to promote on Q and expand our sales force capabilities and connections with customers.
I'm encouraged by the solid start of these partnerships and we will continue to evaluate their benefit.
The second priority was the integration of our recent acquisitions, while working from home, we leveraged our global I T system to complete the integration of each acquisition of schedule.
This was a significant milestone and enabled us to generate synergies and the back half of 'twenty and 'twenty that we will carry forward.
The final priority was to rebuild our cash position, while the pandemic impacted the generation of free cash flow. Our rapid response to reduce costs and maintained disciplined capital spending and improved working capital resulted in meaningful progression.
Over the last three quarters, we generated positive cash from operations.
In summary, we executed well on a difficult environment and the quarter over quarter momentum, which positions us well to deliver on future growth opportunities.
In addition to these priorities and we began our we stand together initiative to better understand our employees perspectives regarding the systemic issues of racial and gender inequality. So we can identify what we're doing right and where we're coming up short.
And in the midst of assembling a diversity equity and inclusion council comprised of employees from various levels of departments and regions to advance our D E and I initiatives.
I believe that if we stay on together on these efforts will have an organization, where everyone is valued appreciated and hurt the.
It's the kind of organization and we all want to work for and it's the right thing to do from both the social and business standpoint.
Now turning to our fourth quarter results. We ended the year with a solid quarter sales totaled $185 million, 3% lower compared to the prior year. While we earned 28 of adjusted diluted earnings per share.
Earnings were positively impacted by our disciplined cost control measures.
We continued to see strong demand and our chronic care business driven by respiratory health.
And digestive health, we saw double digit growth and core pack and knee of bad even though overall growth for the quarter was limited as we cycled against a strong prior year comparison.
And pain management electric procedures remain suppressed although sales grew sequentially for the quarter. They began to slow in December as Covid related hospitalizations spiked in some regions, resulting in additional suspension of elective procedures.
This dynamic has continued into the start of the year as the year unfolds, we expect to see sequential improvement, but believe procedural volume will likely remain below its full potential throughout most of the year.
Despite the near term headwinds caused by the pandemic, we continued to build on our solid foundation to accelerate growth across pain management.
And the interventional pain CMS announced its rule for enhanced reimbursement for radiofrequency knee procedures performed in ambulatory surgical care setting.
While not an immediate catalyst. This is a positive development as we continue educating both public and private payers on the clinical benefits and economic advantages of Cooley.
Also we recently presented at the annual Pain management meeting 18, and 24 month data from our large multi centered randomized trial that indicated that patients can see improvements and both pain and function last thing up to two years following a single Cooley procedure.
These catalysts and operational efficiencies identified through our newly combined the acute and interventional pain teams will drive improved sales that will return our pain management business the growth over the coming quarters.
Looking ahead, we are well positioned to advance our strategies across four areas of value creation.
Over the past several years, we've made significant yet and necessary investments in our business.
The strength of our foundation for future growth.
In 'twenty and 'twenty, one and beyond we'll leverage that infrastructure to help us drive sustainable topline growth.
Margin expansion and cash flow generation.
First of all further strengthen our sales growth profile.
We will continue to leverage our market, leading respiratory health and adjusted health portfolios further one of <unk>.
<unk> growth by executing our strategy to establish <unk> as the standard of care for nasogastric feeding along with increasing the adoption of NIE of met to further address neonatal enteral feeding needs.
And pain management will continue building our clinical evidence to further improved reimbursement for cool leaf.
For on Q, we're leveraging selling relationships to raise the therapy adoption and drive sales.
Second we'll expand our gross and operating margins gross margin improvement in 'twenty and 'twenty, one will be driven by a shift and product mix as higher margin pain management products returned to growth of demand for respiratory health products, partially subside.
Additionally, we will continue to drive cost savings and efficiencies at our manufacturing locations.
The operating margin expansion, we expect to drive savings and the final year of our cost savings program, we implemented as part of our S and IP divestiture.
While making permanent and a portion of the cost savings, we identified and 2020 and response to the pandemic.
Additionally, we recently implemented at 'twenty and 'twenty restructuring program that streamlined my senior leadership team as well as other corporate and franchise functions to further drive efficiencies and strengthen our customer relationships.
So we addressed our workspace requirements were of post Covid environment.
Finally, as I mentioned earlier, we've integrated our recent acquisitions and were real high synergies from them.
As we advance our business, we're looking at all processes through the lens of value creation with the goal of enhancing efficiencies by embedding this approach into our culture of more effectively meeting customers needs.
Our third pathway to value creation is to generate consistent repeatable cash flow and.
And 'twenty and 'twenty, one, we anticipate generating more than $100 million of free cash flow driven by higher earnings and the discipline and cost savings that I, just mentioned as well as receiving unexpected and $60 million and U S tax refunds, primarily derived from the provisions of available through the cares Act.
Our fourth pathway is disciplined capital deployment for M&A, we have of solid track record of executing value enhancing acquisitions with a disciplined eye towards balancing growth and valuation.
Our team continues to identify and evaluate potential tuck in opportunities that would leverage our existing footprint generate synergies and enhance our top line growth profile.
Well I am optimistic about the prospect of bolstering our robust portfolio in 'twenty and 'twenty one.
And we'll only do so on a disciplined manner, ensuring the generate a strong return on capital.
In summary, our team and our focus on execution remains strong.
This along with our market leading portfolio of gives me confidence, we can deliver growth and margin expansion in 'twenty and 'twenty, one and beyond.
Now I'll turn the call over to Michael.
Thanks, Joe.
He also state how pleased I am with the team's commitment to our priorities and strong execution during these challenging times and.
As Joe mentioned, we are very focused on maintaining our strong financial position during the pandemic and improving our cash flow remains the key go forward of priority are.
Our balance sheet of solid as we ended the year with $112 million of cash on hand and of $180 million of debt outstanding and our revolving credit facility.
For the second consecutive quarter, we delivered positive cash from operations, while free cash flow was an outflow of $4 million.
Cash flow for the quarter was impacted by of $25 million payment to our former parent company. The amicably resolved the surgical gown related disputes between us.
The settlement of these disputes along with the recent dismissals and other resolutions of the gown related matters significantly diminishes uncertainty from these matters going forward.
Absent this pain and free cash flow of would've been $21 million for the quarter and positive for the year.
With that backdrop I'll now review of our fourth quarter results total sales of $185 million were 3% lower compared to last year we.
We saw 3% lower volume and 1% unfavorable price and product mix, which was partially offset by 1% favorable exchange rates.
The product care sales grew 2% to $116 million in the quarter.
Saw continued demand for our respiratory health products, driven by closed suction catheters and on.
Oral care products used to treat COVID-19 patients.
As expected the sequential benefit was less than that seen in previous quarters This year and.
And digestive health and as Joe highlighted we generated double digit growth and both core pack and Neal on that core pack growth resulted from the execution of our standard of care strategy and from pandemic related demand, while Neal and that growth came from the continuation of conversion to our end state of technology.
This growth was offset by lower demand for out of legacy enteral feeding products as we cycled against a strong prior year quarter that benefited from a significant back order recovery.
Moving to pain management as we noted during the third quarter call. The usual fourth quarter uplift was suppressed and we delivered $69 million of sales, 10% lower compared to the prior year sequentially sales grew 3% the.
Cancellation of elective procedures impact of performance as well as lower procedural efficiency due to the health care protocols implemented to prevent the transmission of the virus and the reduced flexibility the schedule a new patient when another cancels of procedure after becoming infected or potentially infected with the virus.
Longer term our partnership with leaders continues to benefit customers of Prefill option for on Q for the quarter sales through lighters increased by double digits.
With respect of Cooley, we're encouraged that the demand for our new generate of remains above our internal estimates overall.
Overall, we continue to meet patient needs for effective opioid sparing pain management therapies and are committed to returning the franchise to growth and improved profitability.
Turning to international organic growth was flat for the quarter as pandemic related demand for respiratory health products was offset by a strong prior year comparison due to a significant back order recovery.
Execution and our international business remains strong and we are confident we can deliver growth in 'twenty and 'twenty one despite a lower pandemic benefit longer term the business is expected to achieve consistent mid to high single digit growth.
Now moving down the income statement adjusted gross margin decreased to 54% compared to 60% last year.
Traction was mainly due to continued unfavorable sales mix cost incurred related to the write down of the obsolete inventory and pandemic related costs.
Adjusted operating profit totaled 21 million compared to $26 million on the prior year performance was primarily impacted by lower adjusted gross margin and lower sales, partially offset by cost savings as we navigate the challenges presented by the pandemic I've been encouraged by our disciplined cost containment measures and we've identified greater than $20 million and COVID-19 related.
Savings throughout 'twenty, and 'twenty and we expect about a third of these savings will become permanent.
Additionally, the new restructuring program, Joe mentioned is expected to deliver 7 million and cash savings further enhancing margins in 'twenty and 'twenty one.
Adjusted EBITDA totaled 27 million compared to $31 million last year, and adjusted net income totaled $13 million compared to 16 million and year ago. As we earned 28 of adjusted diluted earnings per share.
Now for a brief recap of our full year results net sales increased to $715 million of 3% increase compared to 2019, the acquisitions of Neil net and stomach contributed 4% growth organic sales volume was 1% lower for the year, we earned and 79 cents of adjusted diluted earnings per share.
The gross margin for the year was 56% compared to 60% of a year ago, our 'twenty and 'twenty adjusted gross margin reflects the impact of the elevated respiratory health sales and the write down of obsolete inventory and the costs associated with our response to COVID-19, which I mentioned previously.
Adjusted operating profit for the year totaled 66 million compared to 76 million of 2019.
Finally, looking ahead of 'twenty and 'twenty one the other.
The stability of the coronavirus remains as new strains of the virus emerge shutdowns across the United States and Europe continue and the vaccine rollout pieces hurdles.
Given this continued uncertainty we don't feel we can fully follow and quantify the impact of the pandemic on our financial results. Therefore at this time, we are not providing a full year 'twenty and 'twenty, one and outlook.
With that as the backdrop, we do have some visibility into our business and 'twenty and 'twenty one of the performance first we expect adjusted gross margin to improve as we regained growth and pain management and demand for our respiratory health products, partially normalizes the pre COVID-19 levels.
Adjusted gross margins are likely to range between our 2019, and 'twenty and 'twenty margin levels with gross margin significantly improving past the first quarter.
Second operating expenses are expected to increase compared to 'twenty and 'twenty as we resume some spending on teeny reinstate merit increases and fill open roles and third as we drive sales and margin growth, we expect to build on our free cash flow momentum during 'twenty 'twenty, one and also cash outflow for unusual costs will continue to trend.
Sure.
This coupled with the expected U S tax refunds from the cares Act the Joe mentioned position us to generate more than one hundreds of millions of free cash flow in 'twenty and 'twenty one.
Fourth as in prior years, we expect quarterly sequential earnings growth driven by improved sales mix and cost savings finally reached the quarter over quarter sales results to be more variable than usual given the impact of COVID-19 on our 'twenty and 'twenty sales and how that will impact our quarterly comparable.
We will provide updates as the year unfolds and we get.
Gained more confidence and the visibility to our sales trends.
In closing we met the challenges of the pandemic and short customers received out of vital respiratory health products to treat COVID-19 patients and maintain financial discipline.
As we enter 'twenty, 'twenty, one and I'm confident and our ability to execute our strategy and that the prudent cost containment measures position us to deliver growth and margin expansion going forward.
Operator, please open the line for questions.
We will now begin the question and the answer session to ask a question you May Press Star and then one on your Touchtone phone.
If you are using a speakerphone please pick up of your handset before pressing the keys.
And if at any time of your question has been addressed and you would like to withdraw your question. Please press Star and then two.
At this time, we will pause momentarily to assemble our roster.
And the first question comes from Larry Kirsch with Raymond James. Please go ahead.
Thanks, Good morning, everyone and thanks for taking the questions here.
Joe I guess I have one for you and to start with I'm. Just you know you've touched on some of this within your prepared comments, but really just trying to understand the strategic objectives for the for the pain business and I guess as part of that question you.
How should we think about you know expansion and that portfolio and for example, you were and FDA innovation challenge winter kind of whats the status with that product.
You know how should we think about about sort of litres here and what's the right way to think about you know how you are anticipating the the more and longer term normalized growth of the of the franchise.
Right.
Good morning, and thanks, and I'll I'll take that and I think he said and he has another question perhaps.
Perhaps for Michael but just let me start with you know, we've now combined acute pain and interventional pain, if we start with Cooley and we've been experiencing double digit growth on the consistent basis in fact, even the Q1 of the 'twenty and 'twenty.
You know, we we touched up into the 20% now.
And and the objective there really is to expand our ability to get patients that are of knee OA patients and physician utilization through the clinical studies that we're doing and then also on.
Expanding reimbursement and we've had some positive on that what's the inventory of surgical center and as you know we're working off of the orthopedic reimbursement as well, but really the clinical studies will start to be published by the peer reviews and 'twenty 'twenty two and that's one of I think you'll see some inflection points and that business. So feel very good there you mentioned lighters and just the pick up.
On the 90 minute or two we.
We had our highest quarter of sales yet the.
Most of the customers are back to the mobility for medium and we spent a lot of time and acute pain with customers educating them through medical education on the webcast. So and other other forums, we're happy with some of the moves we're seeing with the the summit product and the traction we're getting with our channels. We've expanded the channel partnership there.
And that business as well. So we are aside from the pandemic issues. I mean, obviously was on Q, it's really the core of its use where there's multiple day stays and the hospital and are the things that would have looked of surgeries and we've been very happy with the progression of both areas, both strategically and tactically the.
But it's a positive things as well and the S. Etiology of journal they came out with respect of long lasting locals and regular single shots and that gives us an opportunity I think the position of our problems and get better economic values of generally you know what we're saying is as we get through the elected you should see us continue to progress that business and we're we're pretty calm.
And so I'll pause there and I think you had another question from Michael Yeah, I did thanks for that Joe and and then just for my call. You know obviously there is.
A lot of focus on your operating expenses for 'twenty and 'twenty, one and and you did provide some commentary around that but maybe you can just help unpack that a little bit what was your or what were your of cost savings and that that you were able to execute against in 'twenty and 'twenty.
You said that you know of.
A portion of that would come back so again, how much of that and what what is what is and what is driving that and then how do we think about the two components of the cost savings are first associated with the initial our long range plan as you spun out and then this new.
The restructuring programs and so just sort of trying to peel apart the lay of sand and a little bit here.
Yeah, great. Thanks, Larry and first off David and I. We're excited of the 10 year conflict and a couple of weeks the look forward to senior than sort of true.
Two questions in there I'll unpack them and of short term level you know as most of US stated when we came up against February and March April of last year, we weren't really sure of how deep and how long and so we try to think of very measured approach here. We did some things very immediately and then some other things of that kind of layered in as the year went on and so things like Mary.
The increases we Didnt do last year, obviously, all travel stopped there were shorter term investments are more on the selling and marketing side that weren't as relevant because we couldn't be in the hospital and so there was the range of things like that that we are immediately stopped and then also you know continue to not do conference attending throughout 'twenty.
20 of that you know of meaningful amounts of that we do think will occur in 'twenty, one and so there's a $10 million plus or so of investments that we have within the businesses that we plan to invest on the selling and marketing a level of maybe are doing merit increases.
Yeah, and actually currently and for those that didn't get merit increases last year, and we do plan to have some travel not necessarily and the first half of the year and conference attendees, but as the year went on and now that being said the other thing we learned is that hey, some of these things we actually can do without a on a permanent basis on which we talked about and our prepared remark.
And so that was about $7 million or so that we believe just as its cost us now embedded in and the organization, which is which is terrific. So when you. When you think about longer term you know our first quarter of last year, which was our last kind of somewhat normalized quarter and maybe the last two weeks of last year's first quarter start.
And the C. Some of the pandemic impact and we were about 45% SG&A as a percentage of revenue and for.
For the full year, we're going to finish about 41% with the last two quarters being in the high Thirty's. So when you think about where we want to take the story SG&A as a percentage of revenue mid forty's or not where we want it to be and we had a plan to the you'll get down to a more reasonable level lower forties as a nice stopping and place for us here on the near term, but ultimately what you saw.
And the third and fourth quarter for US These high thirties, and that's where we're taking the story from the standpoint of SG&A as a percentage of revenue and the restructuring as well as these permanent savings are getting our fixed cost base to a place that we can monetize out of revenue growth without having to.
Add additional cost and that's how you ultimately are going to see us getting down into those high thirties out into the next couple of few years.
Okay terrific. Thanks, very much appreciate it.
Thanks Laurie.
Yeah.
The next question comes from Ravi Misra with Bear and Bird capital. Please go ahead.
Hi, good morning, Thanks for taking the questions and <unk>.
Yes, my questions on more for Mike the today.
Wanted to get some more color on the kind of gross margin ramp that you're referring to in terms of you know the long the the mid term throughout the year and and really the drivers of that.
It sounds like a mix shift issue more so than anything else and then maybe one more specifically for Joe and Mike low how should we think about any kind of supply or kind of production issues given the the recent cold snap in the Midwest and I'm, assuming your plants may or may not had been affected and and the macro doors or you know is there anything that we.
Should be contemplating there I appreciate that thank you.
It takes the G. G M. Let me just quickly on knock off the supply chain and Michael can focus on G M and all and anything that.
He doesn't hit but I think of the law, but really you know what I don't think we would have a major on quarter event was this I think it's unfortunate obviously for everyone that's going through it.
But our distribution centers near the low down for a couple of days, but that's going to be something that we can catch up as we go and you're right Mexico isn't the as affected by the us, but I think it's just affecting distribution for this week.
But it won't be any kind of a major event for US sorry, Michael go ahead.
Yeah, the totally agree with that so on the gross margin. So the majority of what we're seeing and the third and fourth quarter is the mix shift and and ironically and the fourth quarter was a little bit different set of products all of that had the mix shift impact versus the third quarter, but predominantly you know with with the respiratory sales are continuing to have some nice tailwind Oh.
Although we've had a great come back in the back half of the year on electives with pain and that's not added a full allotment on that we would expect that from a baseline standpoint, so when we enter 'twenty one.
The meaningful impact 200 basis points or so will positively impact our gross margin and addition, though we did have meaningful write offs lots of associated with Covid and the third and then also into the fourth quarter.
Most double the number of write offs, we would normally have any given year.
We anticipate 21 to be a more normalized here and then we also had COVID-19 standard for vulnerable employees. Some of that spend will continue but some of that spend and that was embedded on whether it be spacing or are other things we've had to do and the cafeteria that those costs are now incurred and embedded interfaces and and we won't see additional cost there.
And then we had one small transfer pricing.
Item with our Mexico plant and that was a little bit of a catch up of transfer pricing a correction that we had and the fourth quarter that was about 60 basis points of that is obviously, a very much of a onetime thing that won't occur and 'twenty 'twenty, one and so ultimately when you add all of those one time things that won't recur and 21 better mix and you can see clearly how we can.
Get back more in line with Ah somewhere between where we're ending 2019, where any of 'twenty and 'twenty sorry on where we were in 2019. So 2019 was 59, 7% <unk> and 'twenty and 'twenty, we're at 56 and a half we believe you know somewhere and.
And between there.
And that's where we'll end up in 'twenty and 'twenty one.
The only the only thing I would add Ravi this is only going on there.
And Jim I mean, the <unk>.
Mix was about a third of the impact of one of the events in Q4 was and respiratory was sort of more oral care and IV infusion for acute pain, which are some of our lowest but I mean I think what Michael is articulating is.
We're very focused on the gross margin I think we have some COVID-19 and mix issues and some kind of onetime things that are making it look a little worse at the moms, but we're very focused on it for improving going forward into 'twenty 'twenty, one and so sorry since the get another question.
Yeah. Just this is just I guess, maybe a little bit more.
The pushing on that on that segment, if I may.
Med supply of companies you know historically and the peer group is always kind of been and that kind of mid to high fifty's. The.
Margins just how do you how do you see your guys you know it.
You know getting beyond that level or is that possible given the kind of existing asset base that you have.
And then just maybe one against the against the kind of commentary again on 22019 and 2020, you know exiting the year. If all goes the plan should we think about closer to 2019 or you know are you, saying that you know somewhere in the middle of as more of the way to think about it. Thanks a lot.
So think of all that I'll answer the last question first I would say closer to 2019 and necessarily in the middle of I think we've got some good tailwind going into 'twenty, one and that goes to your first question and which as you know our existing set of assets with the additional cost savings that we're executing on and some other things we're doing just from an efficiency standpoint.
You know should allow us to see 60% plus and gross margins going further however to get up into a kind of mid 60 range that would require.
You know, it's a little bit of a change of the portfolio either through M&A or perhaps looking at some sort of SKU rationalization that doesn't make sense for us going forward are we are actually doing that with and a restructuring of part of our restructuring as the shuttering of plan and France, We had negative gross margins associated with that plant. So it was of the types of.
Things that we will continue to do and execute on that and the fourth quarter of but we absolutely have a portfolio that should produce 60% plus gross margins on a normalized environment.
But she gets the that was mid 60 range is there some other portfolio of shifts that would have to occur likely through M&A.
Yeah.
Thanks Rami.
The next question comes from Chris Cooley with Stephens incorporated please go ahead.
Thank you and good morning, I appreciate you taking the questions maybe just for me.
The clubs on the margins, let's talk about grows a little bit.
And maybe Michael if you could help us.
The sequential gating is just clearly going to be different and 21 versus historical patterns.
Just trying to help us think about maybe what could.
Further alter that to make it look more like a traditional kind of sequential gating here.
What are the levers that could help you offset because if we think about it a little bit here and you know obviously you.
You had pressure and the pain and parents of a franchise from the kind of going on.
But a nice lift there chronic care, what's probably looks normal and the first quarter, but then you have tough comps throughout the back half.
And just kind of help us thinking of what what's in place today that could maybe counter this or is that really the way we should just be thinking about the sequential gating all the top line and then I'll have a quick follow up.
And Michael I could say a couple of things of the top and then you can sort of talk some of the gating or pick up, whereas where I leave off but generally we do believe Chris were of solid mid single digit grower and and non pandemic situation with the you know go through a couple of things and building that the just to help you in the solid mid single digit.
Lower we're seeing high single digit and sometimes double digit growth of the neo med.
If this year as well, we do think on Mickey feeding business, we'll get some favorability, where we didn't have that this year, obviously respiratory helps cause of the challenge a $25 million of of the revenue and respiratory health is yours, COVID-19 related and cold and flu is likely to be a little bit lower so those are kind of offsets.
And given the environment that we're in but electives do you we saw and come back pretty strong and Q3, they were starting to progress a little further on in Q4. So we get through these hospitalizations of infections and hopefully the variance. The right is the problem the vaccine gets out and we do the secondhand and that's really come out we'll have a good a good comparative there the only thing I would say we're Michael asked.
His his comments to this would be the you know typically with us even in the non pandemic Q4 to Q1 is sequentially a little bit lower and that's based upon some of the high deductible insurance programs and things like that but Michael feel free to you know sort.
And sort of adds and some of that tee up there.
Yeah of course specific to the gating and so it is of Great question I think the numbers were so stark when you look at the second quarter, what came back and third and fourth quarter, There's just not on.
You know rhythm that I can foresee that would get that the normalization I remember the second quarter. As an example, we're gonna of a tremendously positive.
The positive comp on the paint business and vice versa on the restaurant business and respiratory and will continue to be a tougher comp and in Q3, I think Q4 of this year and we'll start to see Oh, what flu season will look like for next year.
What does this pandemic.
Or like an endemic and therefore, it's not just added to our flu season going forward, we don't know yet and we're analyzing all of that but the the numbers of just so stark and the second and third quarter and particular, there's not a change and the ordering or selling pattern that would be able to make up for those type of numbers. So I think we're just gonna have to live with the Lumpiness and that goes to why we felt uncomfortable.
Providing guidance are in total because there's just still so many moving parts.
Thank you appreciate that and then just awesome.
Awesome, and then I'll get back with the two I just wanted to and some more clarity around.
The expectations of their debt on the pain franchise, and particular gets we wouldn't see the restaurants and the kind of pre.
COVID-19 of the volume levels, and I understand and it sounds as the we've also and took place and the variance arises on the virus itself.
Just wondering sort of I understand of what you're assuming the are you assuming that there are no ah.
And since he was realized in the up and of course reschedule lenses that are implemented by providers such that you could get back to those levels or is it more of the.
Continuance of the Spike and just want to make sure I kind of understand of the underlying assumptions there and similarly.
Are you assuming the same core the chronic career of franchise in terms of.
The business is obviously growing with the tier ones, but on the on a baseline or just just want to make sure I understand the baseline expectation. Thanks, so much.
Yes, no problem, Chris look on pay and you know we we have a view of we took a little bit of heat actually in Q2 of 'twenty and 'twenty that we thought it would take longer and get back to normalized and there might be slow down and the fourth quarter and that did happen and so we're talking about the pin growths and considering that we probably don't get back.
It's the full procedures until we get toward the end of the year, but that said, we do see progression of every quarter.
You know happening and in that business and then you know as we get to the end of the year, you know and you go into 'twenty, two and nothing else surprises us I do see us getting back to and total growth. So it was sort of the high single digit growth for that franchise. I mean, that's that's where it should be you know any of the non pandemic situation.
On the ground secured and are the only thing and it's really going on here. This year over year, you know, primarily maybe a little bit of core track, but primarily serves the true health closed suction, but generally the just the palace should be pretty solid mid single digit grower on the global basis, and the fact and international we're growing above the market. There. So you know it's really related to the.
Severity and duration of.
Of the electives and and moving into as Michael said endemic but we feel like we've really positioned the company for growth going.
Going forward, we just got on like everybody else on rent and wrangler from all of this.
Chris I would just add the you know I think we feel confident that the revenue that we should have acquired through both our chronic care of franchise and as elective picked up we didn't lose any customers Oh, we didn't.
And the elective opportunities that we should have gotten the respiratory opportunity that was made available and and we were grateful that we were able to help the the pandemic with our closed suction catheter system. We we achieved all of those games that we like to so whatever that percentage is 80 590 or 82.
Not so much looking at that as much as that our price products, serving the customers and the patient and said that we needed the service and we feel very confident that at that percentage of that was 100%.
Thank you and stay well.
Thank you too.
The next question comes from March Michigan on with Keybanc. Please go ahead.
Hey, guys. This is Brad it's been on for Matt Today, I'm just want to start off I know you guys gave some qualitative commentary, but just how youre looking at potentially being able to provide more specific guidance as the year progresses, and what you'd be looking to see between now and April to potentially do that on the first quarter call.
My take I'll give you my take and certainly Michael can give you his take but you know one of the things is on you know.
We want to.
See how the vaccines rollout and I think the you know the they've been pushed out a little bit of further for the broader population.
How the patients are returned to.
And to the conflict consumer if you will approach to go on out and getting the the procedures done, but also being cognizant of protocols.
With the new surgical throughput and then how the experience of play out do we have any other further issues going to hit and I do think the to the extent the debt you know we can check the boxes and all of those areas and there's more clarity and as you get out to sort of the into the second quarter or mid year, and there's a possibility that we would the change our approach here.
And then Michael please add anything you'd like to yeah. I was just gonna stage of I agree with that I think the the the issue that we struggle with thinking about what's the right range as if we were to provide guy and so it's really revenue driven when you look at our Opex our plans for gross margin. Although obviously gross margin will have the mixed impact as we talked about before we have a pretty good feel for what we're gonna do true.
The year. So if if all of a set of electric slowed down again, and we know the levers we pull on the on the <unk>.
The Opex savings so we feel really good about that side of the plan, but to your point Joe the the revenue pieces and do have a wide range of variability and we werent, we just weren't comfortable giving a range that was reasonable.
Alright, and then just flow more from me and have you guys seen any early benefit from the positive reimbursement change for Kuwait, and the ASC setting and and how are you looking to drive increased penetration there now that there's new rates at and then.
Follow up do you have of specific sales force and addressing that opportunity. Thanks.
Thanks very much.
Yeah, and we do have a sales force that would be the same sales force sales with our RF standard and coolly products, we think the benefit.
Because of the reimbursement of $800 for the facility versus 1800 at the hospital outpatient department, it's likely more of and RF standard on rail opportunity. We think we'll get some benefit from that the bigger opportunity is to really get a better reimbursement and in that setting than that but we'll take a move up and then obviously ultimately get in the orthopedic.
Office setting so you'll probably see some impact from that on the positive in the end of Q3 into the Q4 as well.
As of rolling that out now and talking to those customers and getting them set up for.
You know putting some units in place.
Thank you.
Hi, guys, thanks very much.
The next question comes from Rick Wise with Stifel. Please go ahead.
Good morning, Joe Good morning, Good morning, Michael.
Good morning to you.
I thought maybe we should.
Talk about one aspect of growth, we havent really touched on a lot which is the M&A, obviously, you've done a good job with the acquisitions you've made so far you've highlighted your growing competence and the I T and your integration capabilities, Michael underscored the the the balance sheet proof, but you know.
Some of the encumbrance and sort of falling away have fallen away.
And to me that.
Says that maybe the potential for M&A and 'twenty one.
It could be greater more cash better balance sheets better execution all of those good things.
Is that the right way to think about it is there a pipeline how big of a priority and the should.
Should we come away from your comments today thinking.
That there's a greater likelihood this year of sort of the accelerated.
Uh Huh M&A type.
And to better growth.
<unk>.
Yeah, Rick and so youre right. It means that I've just had a couple of conversations recently you can never time. These things we've kept in touch with all of our pipeline and they're the same types of acquisitions that you've been seeing obviously of strategic fit and we're trying to improve our sales and gross margin, we'd like deals where we can get.
Selling and.
Other synergies pretty quickly into the business like we've done you know rich or greater than the cost of capital of 9% and.
And the more accretive deals and you're also right the to the you know.
And the extent that we execute obviously, we could end the year approaching towards 600 million and capacity. So we do and both businesses have a number of active dialogues we feel like in this environment down that we're on managing a little bit differently and let's call. It endemic and that we can do that we conduct these and we're having a conversation and you just can never predict them, but our intent is to try and get one or two and like we did in the.
And the prior year before the before the pandemic to make that happen and so it will be more of them.
Great.
And just you know again your top priority is driving top line growth. So just as I reflect on that mindset.
Maybe you could give us a little more color on two other topics.
And you I think you said something like it.
I think I'm of course, and your comments that we've entered into several on key partnerships and obviously, there's a lot. There are other partnerships are the migrants relationship.
And Q et cetera.
Are there a lot of other opportunities or you know.
You know for <unk> for other parts of the business where partnerships like these the could.
Could be maybe.
Growth potential.
When you want and beyond that maybe we're not thinking about are you working on things like that.
Yeah. So just to pick up on you know, there's still a lot more orthopedic large and independent and too many non orthopedic and opportunities for us debt as the year progresses, we'll roll out.
Two or three of those are being worked on as we speak right now and I think that's a nice broadening there and we do also partner on the international level.
With the international growth and that's primarily the chronic care business and I could see the you know as we as we get a better reimbursement of footprint, both with payers and and insights different sites and with respect to cooling, but there could be some opportunities for that as well because one of our aim is to get reimbursement and the orthopedic office space and we just have so much better.
The result against steroids and H, a and I think it's the great way for a company of our size to broaden our channel look at better opportunities and do it and a cost effective way Gingrich.
And that's great and then maybe one last one from me on it.
I'm, not clear and I'd like to be about.
Your O U S growth potential and the initiatives I know you hired Don Hayden.
The the one pain franchise and I think just as I agree with and the third quarter.
The transcript.
Reminding myself, the global strategy as part of that but.
So from that from the one pain perspective from other perspectives.
One of the major drivers that could accelerate growth and the year or two of head you know again beyond the COVID-19 recovery. Thanks, So much right yeah, no problem with good talking to you. So I wouldn't when I joined the company roughly we read about 100, and Thirtyish million and in the international sales and they were negative and know what they weren't growing.
Now we've had some acquisitions, obviously, but we're gonna be approaching you know towards more towards the 185 ish and that range as we close the year.
And it's the mid single digit grower for us on the pretty solid basis, obviously, the double digit this year had the pandemic, but the drivers are mainly chronic care at the moment, we're going to really focus on maybe five or six series and bill Heyman and his team and Orange and sort of who runs international on the pain franchise.
Franchise, but were really drove him and the Ya man and core track.
And through those channels and just like we would and the U S. The who recommendation on closed suction is going to help us maintain.
On respiratory there and.
We're doing it and.
Really a nice job I'm also with the sort of the legacy digestive health the business and.
And what's driving that is we've put a.
And the past couple of years executives in place from companies like Smith, <unk> nephew, and Bard and really put them.
Structures in place to drive that and really doing the medical education. The standard of care change that we that we enjoyed in the U S. So we do think that's a good lever and catalysts for the business.
And again, it's largely chronic here, but we're gonna start with bill hait and to move up the move paying more into the channel as well.
Thank you.
Yeah.
Yeah.
As a reminder, if you have a question. Please press star and then one to be joined into the queue.
Our next question comes from Marissa Bice with Morgan Stanley. Please go ahead.
Hey, good morning, and this is more of spots on for David and then at Morgan Stanley and.
And can you first of all comment on and I appreciate some of the commentary earlier, but and it's.
And just any improvement on either or both of the cooling passenger or answer the blocks on the past couple of weeks relative to the January and then.
Also a quick follow up on it.
Most of this is Joe Yeah, we've seen a slight change its not enough to make us jump up and down yet, but definitely our feeling is that and maybe where you're going to see.
You know some of these areas that shut down regionally come back and I think as the.
Quarter progresses that that will improve we did say earlier on the call debt in terms of 100% back to normal we think that's more of the end of the year, but then it does probably accelerate into Q2 given that we don't have something you know obviously that we're on the aware of them.
Okay, Great and then secondly, I.
Acknowledging you're not providing guidance, but looking at consensus estimates and this appears to be modeling.
And I'll touch on total revenue dollar growth and total 21 versus 2019.
And so that that seem to keep of both of US based on your comments earlier and considering that the greater contribution birthdays.
Can you just comment on sort of level of comfort and delivering that 'twenty 'twenty one decline or.
If there's making great models of care to be right in line and I think.
Yeah, we're not giving any guidance you know, but what I can say is debt.
All of it is primarily driven by how fast it like this do come back and if they came back and be like fast and all of the stars align you could that be potentially be in a range of of baby, but it's that's not our views of the all of it.
Back to that level, and we do have a little bit of.
And respiratory health of the 25 million it was a.
It depends and it shows the impacts of chronic care business, but in the non pandemic situation. We definitely feel we're solid mid single digit mid single digit grower and and like a lot of the companies I think of the reporting it's the how fast is the elective and.
All of them come back and how much of a backlog comes through quickly the pitch the goods.
Change it either way.
Okay. Thanks very much thank.
Thank you.
This concludes our question and answer session I would now like to turn the conference back over to Joe Woody Chief Executive Officer for any closing remarks.
Thank you look I just want to thank everybody for their continued interest and avenues, Oh, well, we continue to execute well and the I think everybody's having an uncertain environment, we do remain committed to creating shareholder value the comp.
And the priorities that we've detailed our combined with our portfolio and the attractive markets that we're in and we are positioned for sales growth margin expansion and who caused the free cash flow and 21 I wanted to also mention though that Michael will present at the Raymond James Institutional Investor Conference Monday March one and the information on how to access the presentation can be found on our Investor relations.
Section of our website dominos dot com and.
And enjoy the rest of your day everybody. Thank you very much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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