Q1 2022 Avanos Medical Inc Earnings Call
[music].
Good morning, and.
And welcome to <unk> first quarter 2022 earnings call.
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I would now like to turn the conference over to Scott Kelvin. Please go ahead.
Good morning, everyone and thanks for joining us.
My pleasure to welcome you to the <unk> 2022 first quarter earnings Conference call.
<unk> today will be Joe Woody CEO , and Michael Greiner, Senior Vice President and CFO .
Joe will begin with an update on our quarter and current business environment as well as a review of our key objectives for 2022.
Then Michael will discuss additional detail around our first quarter and affirm our 2022 planning assumptions, we will finish the call with Q&A.
A presentation for today's call is available on the investors section of our website habanero stock comp.
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 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 today's press release and risk factors are described in our filings with the SEC and.
Additionally, we will be referring to adjusted results and outlook. The press release has information on these adjustments and reconciliations to comparable GAAP financial measures now I'll turn the call over to Joe.
Thanks, Scott Good morning, everyone and thank you for joining us to review, our operational and financial results for the first quarter of 2022.
I was very pleased with how our operational and commercial teams continue to execute against a range of challenging macroeconomic dynamics as always we remain focused on getting patients back to the things that matter as we meet the needs of our customers.
I'll begin with a brief review of our results for the quarter before reviewing our 2022 priorities.
We achieved sales of over $197 million for the quarter with 3% organic growth in constant currency and earned 26 cents of adjusted diluted earnings per share.
Our chronic care portfolio remained flat, despite an 11% contraction experienced in our respiratory business due to a tough comparison with last year's first quarter Covid outbreak.
However, as compared to the first quarter of 2019, the last quarter without a pandemic impact on our respiratory business sales were up 3%.
Our digester franchise delivered another strong quarter with greater than 6% growth versus prior year.
Our pain portfolio overall grew by more than 6% with our original pain franchise growing over 9%.
And there are acute pain product portfolio delivering more than 4% growth.
This performance driven by both elective procedure improvement and solid commercial execution.
We were very pleased with the performance of Ortho Gin Rx, which we owned for a little over two months of the first quarter.
We remain confident that we will generate in excess of $70 million of net sales for fiscal year 2022 from our orphan <unk> offering.
Including ortho <unk> sales for the first quarter our growth rate for the company was a little over 9%.
Another bright spot for us in the quarter was the delivery of gross margin of over 56%.
Gross margin improved more than 400 basis points compared to the first quarter of 2021.
And sequentially improved by 340 basis points compared to the fourth quarter of 2021.
We experienced favorable product mix in the quarter inclusive of the fourth of generics as well as solid execution by our plans and delivering on manufacturing efficiencies.
Although we are very pleased with our gross margin results for the first quarter, we remain cautiously optimistic for the duration of the year given continued headwinds related to raw material availability inflation and escalated shipping cost due to fuel increases in overseas capacity availability.
Our backwater throughout the first quarter was between seven and $11 million and is currently under $6 million on a net sales basis, but continues to be volatile on a weekly basis.
We still believe that most of these headwinds are ultimately transitory and will not impact our ability to ultimately drive our gross margins back into the high Fifty's.
Finally, we remain confident that gross margins inclusive of our ortho generics acquisition will be between 55 and 57% for the full year 2022.
Turning to SG&A as we noted during our year end earnings call. We identified a range of expenses that would impact our SG&A margin profile in the first half of 2022 and that we would still execute on maintaining SG&A as a percentage of revenue to be less than 40% for the full year 2022.
Although first quarter SG&A was slightly elevated versus our expectations. We remain focused on delivering full year SG&A as a percentage of revenue below 40% Michael.
Michael will provide additional detail with regards to our expectations in a few minutes.
With that as a background, let's review some detail on our product portfolio as we stated on our year end earnings call, we anticipated our pain portfolio would lead the way from a growth perspective, as we start to see market tailwind from elective procedures turn in our favor.
Although the volume of electric procedures being performed remains depressed our anki franchise returned to growth, while Cooley experienced mid single digit growth versus the prior year's first quarter.
We anticipate low single digit growth for our pain portfolio for the second quarter due to a tough prior year comparison, but we then anticipate a return to double digit growth across the portfolio for the second half of the year.
In 2022, we are leveraging and seeing momentum on some of the product offerings and enhancements that were last year to improve the efficacy and ease of use for our care partners for <unk> and <unk>. The continued adoption of pain block pro our data collection and patient engagement App is driving momentum and adoption in the business.
Cooley the launch and conversion to our advanced school Radiofrequency probe kits continues to be a positive driver as we continue to strengthen our cooler leadership position this year and beyond.
Shifting to chronic care as a positive trend across our digestive health franchise continues we maintained double digit growth across our near mid portfolio and anticipate strong growth throughout 2022.
Behind North America, and if it conversions.
Our legacy Enteral feeding products continue to grow mid single digits, and we anticipate that to continue throughout 2022 as well.
Separately, although our respiratory health business was soft in the first quarter versus our own expectations, primarily due to product availability, we anticipate growth to revert to historical rates as we see more normalized comparisons in the second quarter and beyond.
Our next priority for 2022 was to demonstrate our ability to generate consistent repeatable free cash flow as you may recall, we generated $26 million of normalized free cash flow in 2021, excluding a number of onetime impacts and anticipate generating approximately $90 million in 2022.
Michael will discuss the first quarter and full year dynamics of our free cash flow profile in a few slides.
Our final priority for 2022 is focused on efficient and value added capital deployment, our M&A pipeline remains healthy and we are engaged in active dialogue with a number of potential tuck in targets, which would leverage our existing footprint generate synergies and enhance our topline growth.
We're very pleased with our addition of ortho <unk> and its performance to date is in line with our initial expectations.
We remain focused on the second half of the year as the reimbursement landscape changes for both our five and three shot Colorado asset offerings based on current understanding of the reimbursement outcome. We are anticipating rates in line with our expectations, which would be favorable in helping us maintain our position in the fashion category as we simultaneously work to expand.
Our position within the three shot market.
In summary, we're off to a solid start to the year building upon our 2021 execution and are well positioned to achieve our primary objectives for 2022 around consistent organic growth.
Delivering on our ortho <unk> strategy, making meaningful improvements in our gross margin profile and demonstrating our ability to deliver material free cash flow.
Additionally, we have an excess of $200 million of immediately available capital to execute on further bolt on acquisitions as well as consider additional share repurchases should our shares remain meaningfully below our calculated intrinsic value for an extended period of time.
Now I'll turn the call over to Michael.
Thanks, Joe.
As you noted we're off to a solid start for the year and look forward to executing on our priorities for 2022, we deliver on both our organic growth plans and ortho generate strategy in the first quarter as well as meaningfully improving our gross margins.
Although our SG&A spend was slightly higher than anticipated we are committed to ensuring full year spend remained below 40% as a percentage of revenue the additional spending in the first quarter related to selling and marketing investments planned for later in the year and inflationary cost on compensation and outside services.
Now, let's review our first quarter results total reported sales was 197 million up nine 2% compared to last year with adjusted EPS of <unk> 26 cents on a constant currency basis organic growth was 3%. This excludes the contribution from ortho generate sales in the first quarter as well as removing match the generated revenue from the prior year's first quarter.
Chronic care sales were flat to last year at $119 million in the quarter, excluding the prior year impact of sales coming from our exited matched their facility.
We continued to see strong growth in our digestive health business with first quarter growth of over 6%.
Within our digestive health portfolio Neilmed grew more than 30% for the continuation of conversions and bit technology. Despite supply constraints impeding even further growth separately adjusting for the product supply challenges respiratory health sales would have been down closer to 5% consistent with our ASP.
Patients given the pandemic tailwind from the first quarter of last year.
Moving to pain management.
Excluding the contribution of our still generates we delivered $63 million of sales 3 million ahead of prior year driven by return of elective procedures for <unk> and a strong performance across our intervention pain portfolio growing more than 9%.
With this start to the year the pain portfolio is poised to capitalize on a return of procedural demand.
The addition of ortho generates will help accelerate growth within the broader paint business as an extension in the continuum of care, giving us access to a wider base of patients and physicians.
Additionally, the pain franchise will continue to benefit from the momentum and release, our recent commercial products and initiatives like pain block pro and the advanced Cooley probes.
Now moving down the income statement.
Adjusted gross margin improved more than 400 basis points to 56, 2% versus last year.
As indicated earlier, we are pleased with the progress on gross margins with a combination of better product mix, including ortho generates benefits from our pricing initiatives and improved plant performance.
Although we are very encouraged with our first quarter results with regards to gross margin the global supply chain environment remained disrupted inflationary pressures are elevated and the availability of certain raw material components presents a challenge as we work through our existing rolling back order.
That being said as Joe already noted we are confident in our ability to achieve our previously stated objective of full year gross margins between 55 and 57%.
Adjusted operating profit totaled $18 million compared to 16 million in the prior year higher sales and improved gross margins were partially offset by higher spend across SG&A.
Adjusted EBITDA totaled $24 million compared to $22 million last year, and adjusted net income totaled 12 million compared to $11 million a year ago translating to 26 of adjusted diluted earnings per share.
Turning to the balance sheet and cash flow statement.
Our balance sheet remains a strength for us and continues to provide us with strategic flexibility as we currently have over $100 million of cash on hand with $255 million of debt outstanding post the closing of the ortho generates acquisition and completion of our share repurchase program.
Given our pro forma EBITDA post acquisition.
We are levered at approximately one times.
The cash outflow of just over 3 million for the first quarter was weaker than we anticipated and was primarily driven by poor collections in the quarter.
We remain focused on delivering our free cash flow target, which will require a meaningful improvement in our cash collection activities combined with appropriate inventory management we.
We still anticipate approximately 25 million of capital expenditures for the full year.
I still indicated our primary objectives in 2020 to center around consistent organic growth delivering on our ortho generate strategy, making meaningful improvements in our gross margin profile and demonstrating our ability to deliver material free cash flow.
To summarize organic net sales is expected to grow 3% to 6% in constant currency with ortho generates delivering sales of $70 million. This year. The low end of this range assumes continued challenges with accessing raw materials and unevenness with the return of elective procedures.
As you already stated we anticipate annual gross margins in the range of 55% to 57% with the lower end of that range, Catherine elevated inflation and distribution costs.
We continue to target free cash flow of approximately $90 million in 2022, as we drive sales and margin expansion and finally adjusted diluted EPS is anticipated to range from $1 55 to $1 75.
We were off to a strong start and made progress towards our key priorities already we remain confident in our ability to execute our strategy and are taking the necessary steps to drive both gross and operating margin improvement as well as deliver more consistent results throughout 2022.
Operator, please open the line for questions.
Okay.
Yes.
Yes.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
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Your question. Please press Star then tail.
At this time, we will pause momentarily to assemble our roster.
Yeah.
Okay.
Our first question comes from Chris Cooley with Stephens. Please go ahead.
Hey, good morning, Joe and Michael I appreciate you, taking the questions and congrats on the solid start to the new here.
Thanks, Chris maybe.
Maybe just two quick ones for me here at the outset I apologize I was shuffling two calls here a little bit if you already touched on it but.
But I just want to make sure I'm I'm level set first correctly on ortho <unk> on the year.
So essentially a $15 million contribution into <unk> with that growth rate accelerating through the year to get to this to the $70 million.
Just want to make sure I understand the underlying assumptions there for that acceleration as you get to the back half of the year.
I know several of your public participants in the same space have talked about.
Changes from a disclosure perspective, hitting here in the second half of the year and continued migration to one and three are injection modalities. So just want to.
Make sure I fully understand kind of what what youre expecting there both in terms of reimbursement utilization and kind of macro market and then I've got a quick follow up thanks, so much.
Okay, Chris I can I can start with that I mean, we're confident in the 70 million that we've talked about we have said that the entire business will be modestly accretive.
To overall avenues and then in our diligence we were very much aware of the reimbursement changes, which is sort of reporting asps. If you will currently in in Q2, and then Q3 reimbursement shift to more of an ASP plus 4% to 6% depending on where Medicare.
Lands and Thats really going to affect all suppliers at any type of level of shots was five three.
Our one.
So again I think we can capture that in diligence and part of thinking about the confidence we have in the $70 million.
The way that we're kind of going after that strategically managing our pricing.
We have differentiable approaches with the customer and different customer access points and then obviously in a non avian product offering.
Well, but more importantly, as we're going to be incorporating more 10 90 nines in our own channel.
With this product over the second half of the year, it's actually already started in some places.
And just to kind of go back up for a second when we made the acquisition we talked about.
The accretive growth this year and the $70 million and we said the reimbursement changes could mean a level this year.
In 'twenty three but then going forward, we really see it for US is it's a solid.
Mid single digit grower and that's really what we need to achieve from.
From the strategic aspect of tying this into the other areas of OA treatment Cooley, if that we want to head toward so hopefully that helps.
No that was great I really appreciate all the additional color there makes it makes sense.
And then just just lastly from me when I look to the P&L here in the quarter, you know really good nice to see the gross margin moving up.
But I did want to look at just the overall opex spend in the quarter I know you alluded to some comments and I apologize I think there is a right when I hopped in but.
Kind of an elevated one time level there on the SG&A side, but could you just walk us through how that comes back down.
Such that you stay below 40% and you know actually can realize some leverage as that gross margin comes out because its not burned away to the middle of the P&L. Thanks, so much.
For correct I think Michael will handle that yes.
Sorry, Michael Michael No that's okay. We're in.
Two different places so sorry about that guys Yep, sorry, guys. So.
The two things I mean.
One we had we had indicated that the first half of the year, we would be about 40%.
Now once you did come in to your point, Chris did come in a little bit harder than we thought and so specific to your question. The reason for that is we had a couple of selling and marketing initiatives that we expected to spend in Q2 or Q3, we decided to bring those forward. So we would just won't have those spend in Q2 Q3. So those will normalize throughout the year that being said there was also about 2 million.
Of additional headwinds with inflationary factors on compensation and outside services. Those we're gonna have to make up for this year goes on so there's about 2 million that we're gonna make upward as the year goes on the other part of the headwind that we experienced in Q1 are things that will normalize as the year goes on.
We've already spent it.
Okay, and maybe could you help us maybe just quantify that part last part Michael and I'll get back in queue is that.
50 basis points is that a 100 basis points I'm just trying to think about you know what's how much did you pull forward into the quarter.
You're pulling forward into the quarter was about 100 basis points.
Got it okay Super Super Thanks, so much and again congrats on a good start for you.
Thank you.
Yeah.
Our next question comes from Matthew Michelle with Keybanc. Please go ahead.
Hey, Matt.
Hey, good morning, Joe and Michael and Thank you congratulations on a nice start to our two year I wanted to start off on the gross margin.
Definitely the sequential improvement.
Pretty impressive what's the what do you consider to be kind of sustainable.
Versus the last three or four quarters, where you were in the low fifties whats kind of whats changed there that makes this this this run rate here.
Little bit more sustainable.
And is the way to look at it did exceed expectations on them on the gross margin side in the first quarter and then incrementally worse, we're seeing some some tougher inflationary conditions and some more raw material issues.
Issues.
I'll just say one thing and then I think Michael wants to take you through some of them further on gross margin, but generally on the on the commercial side the mix.
It was a positive we're seeing you know more paint sales and I would expect that to increase each quarter throughout.
Throughout the year, so definitely some mix and eventually some pricing, but Michael can take you through where we think sort of the new normal is in some of the other things that are happening Michael yeah, great. So now.
If you recall at year end, what we said was.
Affirmed again today, our range for the year was $55 57.
Off of last year's 52.
Said.
50% to 55%, so that 400 basis points or 300 basis points 50 to 55 half of that would be just the favorable impact of <unk>. The other half of that in the 150 basis points would be manufacturing efficiencies cost savings initiatives, just better plant performance.
56% that we executed on in the first quarter was about that half and half of the performance, but worth a <unk> gross margin was slightly better than we had anticipated which is good.
And our overall plant performance was slightly better than we anticipated we don't expect.
That's changed the year. It goes up we expect to see much of that continue and improve now the one thing that would keep us in the 55% level versus 57 would be as Joe mentioned, some additional headwinds some additional inflationary.
The issues that we are not currently dealing with so we think we priced in the current environment. We think we priced in the shipping issues that we've experienced and will continue to see some of them.
And that leaves us at 55.
We continue to perform better than that which we did in the first quarter.
You know, we could beat ourselves up to 57, which would be a great year ultimately, though as we said in the in the.
Written comments Theres No reason why we can't get back up to the high 50 to get in a more sustainable basis in a more normalized environment.
Okay excellent and then just going back to Ortho Jenner X.
How should we be thinking about modeling it.
The cadence of that $70 million.
Is it steady like from from here or is it or do you have embedded in a little bit of cushion for the reimbursement change.
In the second half of the year.
Yeah, Yeah, that's fine.
Typically with the H and the Q1 is a little bit softer as things go on in the year and then at a gross and theyre not unlike the pain business. So that's one thing yes, we did.
Consider the reimbursement change and any effect that might have in the Q3.
Time period, but at the same time, we're bringing on.
A number of new 10, 90 nines and selling.
Channels into the market to sort of convert tried this accounts more in the orthopedic space.
And early indications are that are going well. So it's kind of all comes together is how Atlanta is that 70.
Okay excellent and then just last one on that one.
I guess you have the reimbursement rates been been finalized the when do you when do you expect to see at a kind of a final result, there.
They've not been I think we will probably hear June is what most people think from Medicare It could push into July and then it will take some time to implement those but generally in June .
If we do hear and others here I think they'll all be talking about that.
In the next call.
Okay excellent. Thank you very much guys.
Yep.
Yeah.
Again, if you would like to ask a question press Star then one.
Our next question comes from Rick Wise with Stifel. Please go ahead.
Good morning to you both.
Maybe.
Going back to your comments on our pain management.
Okay.
As I as I understand what youre, saying.
So cool if game ready.
And it.
Sort of steady on track mid single digit outlook.
No change so the real factor.
An improvement as you go through the year is going to be out in Q.
And if I'm understanding you correctly and please correct me if I'm wrong.
It's sort of inverse it's the it's the uncovered so it's COVID-19 wanes hospitals go down and electric co op <unk> done better so two questions specifically.
Does it yeah.
Did it improve.
My sense is improved throughout the quarter and did that.
Improvement in utilization continue into April .
How do you sort of what's next as you if things get back to normal what marketing issue or are there new products how big.
What kind of impact is.
The pain block pro App have just help us understand yeah.
Turnaround underway yep.
Absolutely. So coolly just didn't think about paint is generally Rick.
<unk> grew high single digits, where we had the tough quarters January February .
And then things came back to life in March.
At a fairly accelerated rate than I think most everybody's been talking about on their calls, but we did have good performance from game ready and ambit.
It was high double digit is an excellent product.
For the ambulatory surgical center, where we're putting a lot of focus.
And with paying block pro which is more of a clinical training and analytic differentiator for us.
Q was coming back to growth in the low single digits. We do think we'll see sequential improvement in <unk> from quarter to quarter and just generally in.
And the elective procedures, but we've just got momentum in game ready and really in <unk>, which is a part of the acute pain.
Alongside of on Q.
And.
That and but to me it seems like it has legs for double digit solution. So to the extent of double digit growth for.
Growth in the ambulatory surgical centers for some some good times. Some good runway. So really you know your land into low single digit growth for on Q that go into mid and that and that puts us into an opportunity for pain.
Get more back to where it was before the pandemic, which is high single digit as a total business.
Obviously, we want to be active with bolt ons in there. So generally from the inside perspective, we were very pleased with the performance and the comeback in paint.
Okay.
Mike You commented on I think it was.
Your comment about respiratory health being down 5% adjusting for supply chain challenges I wanted to make sure I understood what what those were and what you were suggesting.
And so.
So supply shortfalls impacted your ability to fill actual demand and orders or just.
Where are we in resolving that.
Yeah. So we've had a better part of six months now are rolling back order.
We noted it was about.
About seven to 10 million, a 711 million Ralph's Q1, a lot.
Last year was slightly higher than that we ended the quarter, where we are right now.
Of course, we can make here just under 6 million. So we're making progress, but it's a rolling back order. So at some point that respiratory health products at some point that other products in the chronic care franchise.
And it just happened that debt.
Some of the shortages, we had in raw materials at a period of time impacted our closed suction catheter product availability. So those are sales that ultimately ended up happening in April .
I gotcha.
And last from me maybe also.
Actually I'll just throw it out there.
It's sort of one half.
Strong you're positive continued free cash flow comments and.
The M&A comments.
Joe you you've highlighted your hope to do.
Two transactions in the not too distant future.
You've done one.
Any update on the second one I know you said you're engaged in active dialogue.
And maybe tie that back into free cash flow.
All right.
What's your priority beyond this.
Other transaction that might not be that far away.
Do you hope to tee up others this year.
For the first time I'm hearing you talk about Europe .
Your ability to repurchase shares what are the priorities now as we think about your financial flexibility. Thank you yeah. Thanks, Rick I'll comment on a couple of M&A question and then Michael can finish off on some of the capacity and cash flow pieces, but yes, we have a couple of near term bolt ons you can never predict these.
Things, but I would definitely see that you know by early late summer, we probably have another bolt on to talk about.
And we have a very full pipeline as we've stated each time, we get on the calls and so one or two of our very much.
And in the ice sites for this year and very doable.
And again I think we've got a pretty good track record on getting these things done when we say we're going to get them done so that got a lot of confidence there and then ultimately as you move into 'twenty three 'twenty. Two I think you know with the frankly, the capacity and the cash flow that we're generating for US. We can look at a larger type of acquisition that might be meaningful we have opportunities really in both businesses for that and.
That can be something that.
Would be a little bit more transformational for us.
You know and getting scale and also looking at opportunities to expand internationally. So we're pretty pleased with that perspective, and then Michael you can you can sort of outline the capacity elements.
Yes, absolutely Joe.
Great.
I'll I'll tie it to your question around the share repurchase so recall that we just completed the share repurchase program that we announced at the tail end of last year.
While we announced that we talked about it in two ways one.
We believe our stock is meaningfully undervalued.
Versus our own internal DCF based on our outlook and if you look at any of our peers were completely undervalued. So we think it's a good place to deploy capital.
The extent that we have enough capital to do all the M&A that we are we want to do so that's what we stated last year, we put in a share repurchase program.
<unk> completed that already and our stock remains depressed we still believe we have enough capacity to do all the M&A, we're looking to do so.
Another repurchase program.
During the year should we remain at these levels or even above these levels.
Seem to make sense as far as deploying some capital. So we would always do that under two.
Two scenarios, one that we have enough capital for the M&A would want to do and to that we believe we are undervalued, which we which we clearly do we think it's important to support our.
Our view of what we're going to do to execute over the next three to four years.
I appreciate all the detail thank you.
Thank you.
Our next question comes from through ran Yang with Morgan Stanley . Please go ahead.
Hi, Joe and Michael Thanks for taking the question just to go back on the H a for a moment.
I understand that there could be potential disruptions coming with the pricing changes for Medicare and you have that baked into your plan, but kind of just curious what you kind of think about in terms of the mix of your five injection and three injection where that stands today.
Does this new pricing regime coming from Medicare maybe shift to your three injection it as youre looking longer term I guess 2024 and beyond with a mid single digit growth outlook for the ortho Gen asset.
How does mix kind of factor in with the shift from five to three injections. Thank you.
Drew thanks for the question Yeah, it's more of a maintain for us in the base.
Of the <unk>, which is largely the five today, but we are increasing.
The <unk> three and that'll that'll mean that we ship more into the orthopedic space that's our strategy.
And.
Just picture there the game ready 10, 90 nines that we have the 10 99 that we have.
That are working with us on <unk> and the base of 10, 90 nines that and direct sales force that are north of <unk>, we have an ability to expand that and put a focus on that and that's how we build out the model internally and what we've talked about that externally as well and yes, just to reiterate we did consider Q3 impact.
As people settle through the reimbursement if that prolongs or whatever that could be upside, but we're confident in the $70 million.
Got it thank you.
And maybe Michael for you just to go back to gross margins for a moment you did 56 a bit over 56 this quarter.
You maintained your guidance and just to be clear are you, suggesting that should be kind of just improving sequentially throughout the year or is there any risks that you see a downturn in gross margins in the second quarter or just some of the other inflationary.
Sherri pricing.
Inflationary concerns kind of pushed through your your inventory. Thanks.
We could see a slight downtick in Q.
Drew possibly does not necessarily anticipated, but could see a slight downtick in second quarter.
Due to mix and expectations of some of the programs, we're putting in place and when those savings will take hold.
More confident Q2 will be obviously above our 50 states and we think we.
We should be able to be above that midpoint of between 50 557 for the year given how we got off to start for the year and the programs that are in place, but we're just we're very cognizant of the of the overall macro environment. We just don't want to get too far ahead of something until we put a few more.
Quarters on the board.
Yeah.
Jordan I think that might be it on the questions that right.
That's correct. This concludes the question and answer session I would now like to turn the conference back over to Joe Woody for any closing remarks.
I'd like to as always thank everybody for their continued interest in avenues and while we're very pleased with the overall execution. This quarter given the uncertain environment, we are committed to creating meaningful shareholder value and anticipate that 2022 results are going to deliver on that commitment I'm confident the priorities you've detailed combined with our market leading portfolio in attractive markets. They are all going to position us.
For gross margin expansion and positive free cash flow as we go through 2022, thanks, and we look forward to further discussions this week. Thank you all.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.