Good morning, and welcome to Avanos First Quarter 2020 Earnings Conference Call. I would now like to turn the conference over to Mr. Dave Crawford, Vice President of Investor Relations. Please proceed.

Good morning, everyone, and thanks for joining us. It's my pleasure to welcome you to the Avanos first quarter earnings conference call. With me this morning are Joe Woody, CEO; and Michael Greiner, Senior Vice President and CFO. Joe will begin with the impact of COVID-19 on our business and our response, followed by an update on the progress made against our 2020 priorities. Then Michael will provide details of the actions we're taking to address the challenges presented by the pandemic and review our first quarter results. We'll finish the call with Q&A. A presentation for today's call is available on the Investors section of our website, avanos.com. 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 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. Additionally, we'll 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, Dave. Good morning, everyone, and thank you for your interest in Avanos. As we confront COVID-19 together, I'm proud of the resilience demonstrated by our team in stepping up to meet the urgent needs of patients with our critical products. The pandemic has made clear the importance of global healthcare. Our mission to deliver clinically proven medical device solutions to improve quality of life proves most relevant today. Early on, the World Health Organization published guidelines for using a closed suction system on mechanically ventilated patients to help reduce the incidence of ventilator-associated pneumonia when COVID-19 was suspected. Our market-leading Ballard closed suction system not only maintains ventilation and oxygen therapy throughout the suctioning procedure, but also helps reduce patient risk of exposure to outside pathogens and cross-contamination to the caregiver. Further, CORTRAK is being used in the placement and confirmation of nasogastric tubes as the WHO also recommends providing COVID-19 patients early nutrition. Additionally, as a result of this global pandemic, we're accelerating the exploration of respiratory innovations that can help provide and expand care in the future. For instance, we're currently partnering with Dr. Niklason and her team at the Yale University School of Medicine to evaluate novel respiratory solutions for ventilated patients. Across Avanos, we're pleased to be playing a leadership role in treating COVID-19 patients and executing on our vision of being the best at getting patients back to the things that matter. As we face the challenges of the pandemic, we are focused on three priorities; first, maintaining the health and safety of our employees and their families; second, ensuring we have sufficient supply of our respiratory health products used in treating COVID-19 patients; and third, preserving our strong financial position and ensuring we remain well-positioned to support customers when elective procedures return. While navigating this challenging environment, our top priority continues to be the health and safety of our employees. Since mid-March, our non-manufacturing employees have been working remotely to minimize their exposure to the virus. This challenge hasn't been easy, but we remain connected with our employees through frequent communications and provide them with resources, including information sessions with our Chief Medical Officer to answer their questions about COVID-19. At the onset, our senior leadership team implemented precautionary measures across the organization to protect our teams. The leadership team and I meet almost daily and are providing frequent updates to the Board of Directors. At our manufacturing facilities, which continue to operate, we've instituted additional rigorous safety precautions to protect our employees and to ensure a safe working environment. The work of our manufacturing organization is critical to ensure the availability of our products to treat those infected. The global nature of the pandemic placed challenges on us early in the quarter in managing inventory for NeoMed, which is manufactured by a third party in China. Our team anticipated the risk and implemented a mitigation plan, ensuring our products remained available for new customers, enabling us to grow by double digits. Across the organization, I'm proud of the resilience of our employees and what they've demonstrated in adapting to this dynamic work environment, while rising to the new challenges facing our business and executing their responsibilities to the highest standards. The dedication our employees have demonstrated is a testament to the strength of the Avanos team. Also, we want to thank the frontline healthcare workers who are doing so much for all of us. And keeping with our culture of community involvement, we donated $250,000 to direct relief for the purchase of PPE. Additionally, we initiated a program whereby our employees can nominate local charities who are directly supporting frontline workers in our communities to receive cash donations. Moving to our second priority. We're ensuring our clinically proven respiratory health products remain available to customers and patients suffering from COVID-19. As the pandemic spreads, we saw an increase in demand for our respiratory health and core products. In anticipation of this demand, we executed on our business continuity plans to minimize supply chain disruption and increased production while ensuring the health and safety of our employees. We added shifts to our Magdalena plant, which is now operating 24 hours, seven days a week, to ensure supply of our closed suction catheters are available for patients. Meanwhile, our Digestive Health team has found innovative ways to deliver virtual training for caregivers who are using CORTRACK to place feeding tubes. Moreover, we formed cross-functional teams to ensure customers receive the products they need during this time and implemented an allocation process to help prevent hoarding and minimize back orders. We're proud of our clinically preferred portfolio of Respiratory and Digestive Health products; it is essential in treating COVID-19 patients. Moving to our third priority. We're focusing on taking strategic steps to preserve our solid financial position so that we can continue meeting customers' needs in a post-COVID-19 environment. We are confident that our existing cash position will allow us to navigate the global market disruption without requiring other liquidity resources. We're taking disciplined steps to preserve our cash by strategically reducing our capital expenditures, cutting discretionary spending and suspending our 2020 planned merit increases. These steps are in addition to delivering the $12 million to $16 million of our previously announced cost savings measures. Also, we plan to use the tax relief provisions specific to net operating loss carrybacks provided in the Coronavirus Aid, Relief, and Economic Security Act or CARES Act to enhance our cash flow over the coming quarters. Michael will provide additional details about our mitigation actions. Although the current environment presents near-term challenges, the long-term fundamentals of our business remain strong. We have a solid financial position, market leadership across our portfolio and operate in attractive markets. These factors, combined with the strategic actions we're instituting to preserve cash, position us to meet customers' needs in a post-COVID-19 environment. Now let's turn to our first quarter result. Sales totaled $180 million and we delivered $0.16 of adjusted diluted earnings per share. Sales were broadly in line with our plans until mid-March when our franchises were impacted by COVID-19 in the second half of March. We saw a tailwind from increased orders of closed suction catheters and related respiratory health products. Offsetting this momentum was the postponement of elective procedures, which impacted our pain management franchise. This headwind has continued into the second quarter with ON-Q and COOLIEF volumes down significantly compared to the prior year. We believe this impact will continue into the second quarter of this year, and to a lesser extent, into the second half of the year. Given the rapidly evolving environment and the continued uncertainty surrounding the scope and duration of the impact of COVID-19, we are withdrawing our previously announced full-year 2020 financial guidance. At this time, we cannot fully quantify the impact of the pandemic on our financial results. However, we anticipate providing more detailed updates later this year. Although the pandemic is top of mind, we remain focused on our long-term strategy and continuing progress on our 2020 priorities. Our first priority is to build sales momentum. The recent launch of our new state-of-the-art 80-Watt COOLIEF RF generator has been received favorably by physicians and demonstrates our commitment to innovation. Also, during the quarter, a key opinion leader published an article that reviews the clinical literature that supports the use of COOLIEF in the treatment of OA knee pain. The introduction of our new generator, coupled with increasing our robust clinical evidence demonstrating the efficacy of COOLIEF, is expected to drive future growth. Second, we remain mostly on track in integrating the Game Ready, NeoMed and Summit acquisitions and continue to expect to gain synergies from them post integration. NeoMed's growth exceeded our expectations for the quarter, while Game Ready and Summit sales were impacted at the end of the quarter from the decline in elective procedures. Third, given the current environment and impact on our business, we no longer anticipate generating positive free cash flow for the year. However, as I mentioned earlier, we are implementing mitigation actions and planning to use the opportunities in the CARES Act to help us maintain our strong liquidity position and minimize cash outflow. Finally, we continue to progress the stabilization of our new IT system and realize its efficiencies. Before the pandemic, we expected to enter the second half of the year with our IT challenges behind us. We remain committed to that goal. But given the current work environment and travel restrictions, we now expect a few areas of work to continue into the second half of this year. In summary, we continue to manage these challenges with a strategic focus and remain confident that our long-term fundamentals remain strong. This, coupled with the prudent actions we're taking to preserve cash, positions us to weather the storm and maintain our strong financial position in a post-COVID-19 environment. Now I'll turn the call over to Michael.

Thank you, Joe. And let me reiterate that amid this pandemic, our priority is the safety and well-being of our employees and their families. I'm grateful for our team's unwavering commitment to execute on our priorities in this environment. As Joe mentioned, given the uncertainty resulting from COVID-19, we believe it's prudent to withdraw our full-year 2020 financial guidance. As the first signs of a potential disruption surfaced, we began modeling multiple cash flow sensitivity analyses, factoring in various revenue outcomes, lengthening of accounts receivable collection, identifying discretionary spending opportunities and other potential impacts to stress test our liquidity needs. This work has been updated throughout the past few months and repeatedly demonstrated across all scenarios, including the most pessimistic, so we have sufficient cash to meet our working capital and core investment needs and maintain compliance with our debt covenant. None of the current scenarios would require us to access our revolving credit facility. In fact, we anticipate ending the year with more than $100 million of cash on hand, even under the most bearish scenario. We currently have $188 million of cash on hand, minimal leverage, and no debt maturities until 2022. As Joe stated, we plan to use the tax law changes in the CARES Act to carry back our 2019 loss to prior years, which will accelerate a refund that we anticipate receiving late in 2020 or early 2021. Also, we plan to defer our 2020 payroll tax payments. Even with our solid financial position, we are focused on cash preservation during this disruption as our revenue and cash flow have become less predictable and we want to ensure we are well positioned to be opportunistic as business conditions start to normalize. Let me highlight five strategic and prudent steps we're taking to lower expenses across the company. First, we made a difficult decision to suspend our planned 2020 merit increases for all salaried, non-manufacturing employees. Second, we're streamlining processes while leaving non-critical positions vacant. Third, we've identified investment spending that can be postponed in areas like marketing, clinical trials, and R&D projects. Fourth, we're reducing, and in some cases, eliminating our travel and entertainment expenses for the balance of the year. And finally, while we are decreasing our overall capital expenditures, we are selectively increasing CapEx related to ensuring additional supply capacity for our respiratory health products. We will continue to evaluate this ever-evolving situation and quickly react when necessary with additional cost containment or other strategic initiatives that help strengthen our already solid financial position while continuing to meet customers' needs. With that as a backdrop, I'll now review our first quarter results. Overall, sales for the quarter grew 10% to $180 million. Organic sales increased 3%, driven by a 4% volume increase, while unfavorable price and sales mix impacted results by 1%. Our acquisitions of NeoMed and Summit contributed 7% of our growth. Overall, Chronic Care sales grew 16%, driven by NeoMed and enhanced respiratory health sales related to the Coronavirus pandemic. In Digestive Health, the year started slowly as we saw lower than expected distributor orders over the first two months. However, our tracing data indicates no loss of volume at the end-user level. As the quarter unfolded, we saw an uptick in demand for CORPAK products related to treating COVID-19 patients. This opportunity is likely to offset a slight headwind to our legacy enteral feeding business, given the limited access our sales force has to hospitals and the impacts from fewer elective procedures. Finally, as we mentioned earlier, we saw double-digit growth in NeoMed and continue to be excited about the growth potential as we move forward. Pain Management sales increased by 1% to $65 million. Interventional pain delivered mid-single-digit growth for the quarter, and COOLIEF's growth increased more than 20% for the first two months of the quarter. Similar to other companies, our March performance was impacted by the delay in elective procedures. Long-term, we continue to view COOLIEF as a solid double-digit performer and are seeing the benefits from our investments in innovation and clinical studies. Acute pain performed primarily on target to our plans through mid-March. Sales in ON-Q were down as expected, and we continue executing on our plans to stabilize and return this business to growth. We continue to move customers to Leiters as a pre-fill alternative and saw continued double-digit growth sequentially in a number of customers sourcing volume through Leiters. Our international business delivered 6% organic growth, driven by a strong increase in respiratory health in response to COVID-19. Overall, the business is performing in line with our full-year expectations and remains a long-term growth catalyst. Looking at the remainder of the P&L. Adjusted gross margin for the quarter was 59% compared to 62% last year. Margin contraction was due to unfavorable product sales mix and higher distribution costs, primarily as a result of end-of-March COVID-related activities. Adjusting operating profit for the quarter totaled $14 million compared to $10 million last year, driven by higher sales and cost savings that were partially offset by lower gross margin. Adjusted EBITDA totaled $20 million compared to $14 million, and adjusted net income totaled $8 million compared to $7 million a year ago, and we earned $0.16 of adjusted diluted earnings per share compared to $0.15 a year ago. In conclusion, we had a solid first quarter from an operational and execution standpoint, while also taking the necessary and prudent steps to ensure our financial position and liquidity remains strong as we manage through this near-term disruption. While we have been impacted by this pandemic, we remain resilient and particularly focused on ensuring that our products that are most in need during this time are timely supplied with the highest of quality. I'm confident that our actions taken over the past two months and any additional actions that may be required as we monitor the situation for the balance of the year will ensure a strong financial profile for Avanos post-COVID-19. Operator, we're ready for questions.

First question comes from Kristen Stewart of Barclays. Please go ahead. Let's move on to the next question that comes from Larry Keusch of Raymond James. Please go ahead.

Thanks, good morning everyone. Glad to hear everyone's safe. I guess two questions. Maybe just to start off on ON-Q. Joe, can you remind us what percentage of ON-Q sales come from orthopedics? And where do you see those procedures fitting into the resumption of elective surgeries?

Yes, Larry. Thanks for the question. Roughly about 50% to 60% of the procedures in ON-Q are orthopedics. There are some procedures that are non-elective, which is why some of the decline has a little bit of a smaller base than COOLIEF, albeit it is declining alongside of elective surgeries, but it's roughly 50% to 60% on ON-Q.

And just to finish that question there. As elective surgeries resume, how are you guys thinking about where orthopedics fits into that? Is that sort of earlier? Later? Do you have any insights into that at this point?

I think on the elective side, orthopedics will obviously play a part in the ON-Q recovery. Generally, as we thought about the second quarter, we don't think there'll be much in the way of elective surgery in the second quarter, but we see that sort of changing at the end of the second quarter into Q3. And then obviously, we think there's an opportunity in Q4 to get back to a place where we're almost at what would have been a normal level of expected performance prior to COVID-19. Of course, all of that depends on the duration and severity of the virus and whether or not something comes back in the fall, but there certainly could be some alignment alongside of the orthopedic elective surgery return for ON-Q.

Okay. Great. And then just last question. Maybe if you could just I'll just ask the two quickly upfront. Maybe you should give some sense of sort of how you've transitioned from March into April across your businesses. And then on the Respiratory side, just sort of curious what's going on there relative to, again, stocking or destocking moves. And I guess what I'm trying to think about is we've had this dynamic where COVID has picked up significantly. Hopefully, it's going to start to dwindle here and then thinking again about the fall. So really just trying to get some sense of from you guys, how much inventory do you think is out there? Do you think that gets consumed before we get to the fall? Just any thoughts as we think about sort of the gating through the rest of the year.

Yes. I'll say a couple of things around April. And actually, Michael may want to say a few things as well because it kind of plays a little bit into the way we look at the full year. But April for us looks about like what we consider our base to be. We do see Chronic Care, we see chronic kind of at the levels that we would have expected for pre-COVID-19, and obviously, a little bit more in Respiratory Health. In fact, if you think of the first quarter, we probably saw about $4 million ahead in Respiratory Health, offset a little bit by COOLIEF, maybe down $2 million, and sort of ON-Q similar, but on a smaller base. And again, we think that the elective surgeries will pick up in Q3 and get back to some form of normalcy in Q4. On the side of inventory, we're being very careful with allocation for a number of reasons. One is we don't want to see a lot of inventory stocked up and have that be a bad situation in the future. Also, we're trying to deliver the respiratory suction products to the hotspots, if you will. We as you can imagine, in some of these situations, you get large orders for six months or a year based upon the severity of the situation, and we're able to kind of look at that. We're looking at the patient numbers and being able to deliver those over periods of time, although we are investing a little bit and expanding our capacity in Respiratory Health because I think would ultimately could come out of this would be with the WHO recommendation flow suction for ventilators and just a natural flu season happening and a different view of these Chronic Care products and preparedness, we see that as a positive for the products. We're obviously have a lot of sympathy and empathy for what is happening with the patients, especially the families, they are losing loved ones, but that is emerging out of this as well. And Mike, I don't know if you want to say anything more about Larry's question on April.

No. I think you covered it. That was great.

Guys, thanks.

Thank you. The next question comes from Rick Wise of Stifel. Please go ahead.

Maybe just to start with at a high level, help us better understand what's left to do with your IT system fix and resolution of challenges. You were very clear you're now expecting to list in the second half, and there's a few areas of work left to do. Is it 80% done? Is it 90% done? And maybe help us better appreciate, as it is fully done, what impact does it have on the business? And how should we be reflecting that in our thinking about the second half?

I'm going to let Michael hint, but I'll tee them up this way, which is I'm very pleased with what he and the team have accomplished over the last couple of months, and then we are working very effectively from home with this IT system and are starting to see a lot of improvements. But Michael, you probably want to talk about that a bit.

Yes. Great. Thanks, Joe. Thanks for the question, Rick. The reality of our IT system, and to Joe's point, it stood up very well as we worked from home, did the closing, we're going to file our Q today or tomorrow, in line with what our expectations would have been. So we're not taking advantage of any of the extended timeline that the SEC has provided for filers like ourselves. So from a day-to-day, debits and credits, so to speak, Rick, the system is working as intended now. And so you want to put 90% complete. You asked about a percentage that would be appropriate. Well, where we're not yet satisfied with the system is on some of the analytic tools, how the system speaks to itself, how we're integrated with salesforce.com, things that provide data analytic opportunities for us to look around corners to more quickly integrate as we do our bolt-on M&A, as that resumes, hopefully, back half this year into next year as things are to normalize. So it's more the tools that make us efficient that put us in a position to be able to, like I said, look around corners, and provide that kind of frontline insights to the sales and marketing organization. That's not quite yet where we are with the SAP tool. But as a testament to this first quarter close, on a debits and credits standpoint, getting things closed, the accuracy of data for financial reporting, we feel really good about where that stands at this point.

Okay. And my next question is sort of a 2-part question. In general, how are you thinking about M&A now? You've obviously done a number of really compelling, interesting deals over the last 6, 12, 18 months. But how are you prioritizing it now? Are there opportunities? Are there more opportunities now? And my part B of that, given what we're hearing my conversations with doctors and hospitals about a likely greater perhaps accelerated shift to out-of-hospital settings like ambulatory surgical centers or clinics or doctor's offices, how are you thinking about Avanos' positioning there? And maybe that ties into M&A. I don't know. Just it's an interesting studio in your perspective there.

Yes. A couple of things. On the M&A front, our strategy remains intact. And to your point, thank you for recognizing that the M&A to date has been really value-creating for us in the channel where we can get accretive acquisitions and get a lot of synergy. And the plan is to continue. We have a very full pipeline. I think you're right. And that there are some smaller companies and even some really technology companies that may have liquidity issues, they are looking at seeking acquisition. And as we stated in the prepared remarks, with a company of our size, we're in a good position there. I still I think, obviously, what we're focused on until we get completely through the crisis is preserving cash and protecting our own liquidity, but it doesn't mean that we couldn't transact something along the lines of what we've done before in the past couple of years at some point by the end of the year, always going back to the severity and duration of COVID-19. We do I think, as the various healthcare systems come back to life regionally, and that will be very basic and regional. COOLIEF, as an example, has performed in the hospital outpatient department. And so as that shift happens, we're there and ready, that will pick up over time. Although, I think also various facilities are prioritizing emergency procedures and the severity of procedures versus how they actually come back. We are working on ambulatory surgical center reimbursement for both COOLIEF and even for the elastomeric pumps, the ON-Q pump, and do think that there will be a shift there. It might just my personal review, which you asked for, is for example, take one specific example, orthopedic, I think we'll now make a faster move in my view to the ASC. And so that's why I think you see some of the orthopedic companies having offerings more oriented to ASC and talking a lot about the pump economics and patient throughput there and services related to that. And so I do think in the Pain segment, in particular, that will mean some opportunities for us. And we actually are looking at the technologies and smaller companies that are in and around what we're doing in Pain that would be outpatient related. So generally, I agree with what you're saying.

Rick, the only thing I would add real quick is just on a valuation level, in theory, valuations have come down a little bit. But I think most people that we're looking at, the types of private companies that fulfill our bolt-on technology type of model right now are seeing this as hopefully temporal and transient and aren't looking to necessarily sell into this weakness. Now some that may have other cash or liquidity concerns may be looking to do that, to raise capital if it's a part of a PE-backed firm or something like that. But we don't see the type of valuations that would instruct us to act in M&A right now versus, to Joe's point, continue to focus on cash preservation in the near term.

Okay. And I'm going to sneak in one more; I can't help it. COOLIEF, you've highlighted several times that the second-gen 80-Watt COOLIEF generator launch. How important is that? What do you do to maybe second half volumes? And does that and the recovery together to get you back to that 20% pace by the fourth quarter? Is that the right way to think about it? Any color would be appreciated.

Sure. I mean, obviously, Rick, you know it's really hard to predict this. Now I do think that the new console gives us another technology jump over our competitors and faster throughput, a better, actually, procedure for the patient as well. And then there's other releases that we'll have throughout the year. And I do think that it's possible for us to get back to that sort of double-digit type of performance that we were delivering heading into the last part of March. It will all be dependent upon whether or not there's a surge in the fall and how many of the major metropolitan areas obviously come back. But generally, between the clinical studies that we're doing in COOLIEF, the installed base that we have and the lead in technology, we see that as a sustainable double-digit grower for us for sure in the near and mid-future for sure.

Thanks again.

Thank you. Our next question comes from Kristen Stewart of Barclays. Please go ahead.

Hey guys, can you hear me now?

We can hear you now.

So I was wondering, sorry if I missed this early on. Did you guys quantify what you thought the estimated net benefit or kind of impact was to the quarter for COVID? I know it's probably difficult to do, but maybe relative to plan. I know you saw some benefit, obviously, within the Respiratory business maybe a little bit maybe within just the broader Chronic health, probably a little bit of offsets within Pain. But any way to quantify that?

Yes. So a couple of things. One is we were feeling that we were certainly comfortably on our plan coming into the close of March for the first quarter. I was happy and bullish about that. Obviously, the last two weeks, you probably heard on call after call that change with elective surgeries. So generally, Respiratory Health is about a $4 million sort of ahead of expectations in the last two weeks. And COOLIEF where we actually performed those procedures in the hospital, outpatient department was behind about $2 million, and sort of similar on ON-Q, so kind of offsetting which is why we still were there, thereabouts on our quarter. Generally, we've said that we feel like that, that kind of profile on elective surgery is going to continue into Q2 start to come back in Q3 with the possibility of getting back to more of propane normal pre-COVID-19 elective procedure volume in Q4.

Okay. And then last year, you guys had tried to or were hoping, I guess, I should say, for an improved payment for COOLIEF in the physician office as well as ambulatory surgery center. Do you think there is any hope? I'm sure you guys are trying very hard. But do you think there is any real opportunity there now with what's just going on with COVID and just maybe just this push to get more patients into ambulatory surgery centers, just to use those this kind of moment to identify maybe some of the disparity to Medicare and maybe use this as an opportunity to kind of push some changes from a reimbursement standpoint? I guess when would be the next update that we could maybe see if that could potentially change and reimbursement be raised in the physician office and ambulatory surgical center for COOLIEF, particularly for the knee?

I think it's an opportunity for sure. We have a multipronged approach. One is the clinical studies. Obviously, they've been slowed a bit with COVID-19, but that's part of it. We're currently in dialogue on a regular basis around ambulatory surgical center reimbursement for ON-Q, but also for the COOLIEF product. I do think the tone it's a different world, right? So many things have changed. The way that, for example, the FDA is working with people and CMS right now is completely different than it would have been just three, four, five months ago. So I think there's opportunity, but extremely difficult to forecast. That's for sure. And probably, the second half of the year, maybe into the fall is when we could update a little bit further on successes there. But definitely, we're going after that strongly.

Okay. I'm going to be greedy like Rick and have one more. Any opportunity just from a restructuring perspective? It sounds like you guys are making some efforts on the cost management front. But are you guys thinking holistically about something bigger and broader just from a cost perspective and downsizing at this stage? Or is this too early in the process?

It's too early right now that you're talking about any kind of a major program. But I would highlight that. And Mike, certainly pick up on this if you would like to. But we definitely have planned structural and cost efforts that we're working on even above and beyond the dollars that we've talked about because we just want to continually be after efficiency, but it's nothing that we would be announcing now. And in the future, we would certainly when we're ready to do that would do that. But Michael, do you want to talk a little bit more about some of the just general cost component?

Yes. So I think, Kristen, the way that we've thought about this initial phase is ensuring that we're being prudent, but also making sure that we're not getting too far out ahead of it depending on the depth and the length of the COVID-19 situation. So we want to make sure, to your questions around coming back in elective surgeries and whether we can be active in M&A, getting after the ambulatory scenario, there's a lot of things that we can be very active on. And we want to make sure that we have the right structure and the right dollars available to do that. At the same token, we have also not been numbed to the fact that if we get a second wave or a third wave, that would go a little bit deeper into where we currently estimate our base plan to be, and that would obviously trigger some additional cost savings initiatives that would lend itself to a larger restructuring opportunity above and beyond the types of things we're already talking about.

Thanks so much, guys.

Thank you. Our next question comes from Ravi Misra, Berenberg Capital Markets. Please go ahead.

Hi, good morning. Thanks for taking the question. I hope everyone is OK, just like everyone else is saying. I have a question on international sales as it comes to Respiratory. Joe, you talked about strength in that business due to COVID. Just wondering how the awareness maybe of your products and portfolio may be increasing given that this is a global pandemic and how maybe some of the strength or weaknesses that you're seeing in the international markets as a result. And then second, maybe one for Mike. If I heard you right, did you say that kind of your cash flow or your cash position expectation is around $100 million? That would be a pretty significant decrease from where we are today. So just if you could just walk us through the drains on cash for the rest of the year. That would be great.

Thanks, Ravi. This is Joe Woody. I'll start and then Michael will follow with the cash question. But generally, we see international as a mid-single-digit type of grower for us, moving from the low single digits. And certainly, the awareness of closed suction with the use of ventilators is helping the WHO and has published guidelines that these healthcare systems should be using closed suction, and we do have high share. So I do think there's opportunity internationally in the adoption level, but also probably for our products CORPAK products, CORPAK replacement of the feeding tubes as well has become there's a lot of awareness for all these COVID-19 patients. It's unfortunate because of what's happening with these patients and then obviously the deaths. But it has created an awareness for us that we'll look to addressing as we get through this. So I think what it really essentially does is it just bolsters that longer-term view that we have of mid-single-digit growth internationally, which is a key growth driver for us in our overall plan. With that, Mike, I'll turn it over to you for some of the cash discussion.

Great. And Ravi, thanks for the question on the $100 million, so we have a chance to clarify that point, which is only in the most bearish of cases would we see anywhere near that. The point of that number was that we would not be needing it was a demonstration of not needing to go into the revolver. The reality though is even in that most bearish of case, back to Kristen's point, we would be enacting other cost savings and restructuring measures. So the $100 million is our most bearish case and not doing any other cost savings initiatives, and it was just to demonstrate that there will be no need for us to tap the revolver under any sort of liquidity scenario. But the $100 million would not be necessarily a real number because we would enact not that we have the plans necessarily all ready to go yet, but we would enact by the back half of the year meaningful restructuring and other cost containment measures that would put us well north of $100 million even in the most bearish case.

Great. And then maybe one last one on ON-Q and supply issues. Just are you can you give us your kind of latest take on anything that may be seen there?

I mean on the positive side, we do continue to see sequential improvement with Leiters and customers coming over. We've converted some larger accounts as well. And we're happy with what we're seeing with some of the initial opportunities with Summit, which was our acquisition of the electric pump. Obviously now, as we talked about a little bit earlier in the call, we're going to be that business has come down significantly with elective surgeries and will build up over the course of the year. But our strategy there of stabilizing and then enhancing our electric pump profile and then moving to breakthrough with our internal R&D remains intact.

Thank you. Our next caller for the question is Matthew Mishan of KeyBanc. Please go ahead.

Great, thank you for taking the questions. Great. And I really like this free for all that we're all having in Q&A. We might be here for a while. All right.

We got to have something to do, Matt. You're right.

So just first off. Most of the other companies have been able to give us a sense of kind of what April volumes have looked like. I think you said Chronic Care was fairly normal. Can you give us a sense of what the base of Pain Management volumes were and ON-Q versus COOLIEF, so that we can kind of get a sense of where we go from here assuming that April is the bottom?

So a couple of things, Michael may want to jump in too because there's a chance for him to talk about some of this baseline forecast. But what we've seen in April is pretty much aligned with the base forecast that we have. Most of our Chronic Care, as expected, with a bit more, obviously, in Respiratory Health. And the same profile in April really for the last two weeks of March for the Pain business, which as much as 75%-ish off in COOLIEF, similar but on a smaller base to ON-Q. But the difference in April is we've been serving all of our customers directly, as you can imagine, talk to them quite a bit. Is the discussion now about coming back, and we may see some early bounce back, but low numbers in May and June, but then really expecting the fourth quarter to be more where you get to a sort of a somewhat normalized or close to what was a normalized projection for electives. But Michael, it's probably a good opportunity for you to say one or two things about your base scenario.

Yes. Just to add to that, Matt, that April, as you noted, would hopefully be the deepest part of the quarter. But we do anticipate May and June to also be fairly deep, although with increasing improvement on two fronts. One, fulfilling some of the back orders from our Respiratory Health business that we've accumulated with some of the large orders that have come in, both internationally and domestically, and then to Joe's point, elective is hopefully starting to show themselves as we get into May and June. But the second quarter is a deep quarter. It's going to be down no matter how you slice it. The trends that we saw coming out of the first quarter continued and in some cases accelerated into April. But in line with to Joe's point, in line with what we estimated. So we feel like we've done a decent job looking at what those trends look like, how they could worsen. And we're looking at May and June optimistically, not from a standpoint that the second quarter is going to be any sort of great shakes from a total number standpoint, but starting to see some improvement in areas that had been down for five, six, seven weeks consecutively.

Thank you. The next question comes from Chris Cooley of Stephens Inc. Please go ahead.

Good morning everyone and thanks for taking my questions. I'll just ask two, just on the hour here, I guess.

Okay.

For me at this point, just two I'll ask, then I'll be out. So I just wanted to get some clarification. You mentioned that the Digestive Health franchise started slow, but was ramping. I just kind of want to get a better sense again of that baseline of where we're starting here in the June calendar quarter, and that kind of rough expectations as we flow through the back of the year. And then maybe just as an offshoot of that, I think it was asked, I think, a couple of different ways this morning, but now we're all hearing on these various calls about nonessential personnel not being allowed anywhere near the doctor's office or the hospital. We're seeing improved productivity with the sales force. No travel. Just curious, from a big picture perspective, are you seeing anything structurally in the way that you go to market that you think would further enhance the middle of the P&L, not so much just from a cost-cutting initiative, but just changes, fundamental changes to the business? And I realize it's early, but you might be able to just opine on a little bit there for us here this morning.

Okay. Chris, there's not really been any fundamental change in Digestive Health, and we see it as a global mid-single-digit grower. We definitely have variability quarter-to-quarter. And the trace underlying trace sales are mapping with what we would expect them to be. One thing that you may be seeing in January and February, and I think some of the other companies were talking about distributor build and really a lot of different categories. I think if we added NeoMed in, year-over-year, we would be more level-ish in the quarter in total. And we are dealing a little bit with the bounce back in Q3 from the IT backlog situation where folks over-ordered a bit in Q4, but we don't really feel like there's been any fundamental change in that business, and that's also why we continue to make acquisitions like NeoMed. I do think you're onto something on the future of sales interactions. It's obviously been very different regionally. Some healthcare systems are requiring testing and PPE, and in some cases, they want you in the OR procedure with them. Others are moving more toward remote type of interaction. We've seen over the course of the past couple of weeks a lot of opportunities to do virtual education, reaching a broader group of physicians in areas that we're focused. I do think that it will have the opportunity in the future to segment where you need to be in with the person on a procedure versus where you have an account that really is well educated or adept with the procedure and can deal with a medical device company more through telephone conversations or it might be FaceTime or video conferencing. So I do think there'll be some efficiencies in different models in different ways that beyond social media, you can get adoption and take a product to market. And so we're looking at that as well. So I agree with you. I think there will be opportunity in the future there.

And Chris, just to summarize a little bit, just goes back to a couple of the earlier questions. But our initial attempt at looking at our business over the last handful of weeks was really about liquidity, solvency, near-term moves that we should be making to ensure product supply, especially around Respiratory for those that are suffering from this disease. And that was our kind of Phase 1. These other questions around how do we get back in the market, are there new go-to-market strategies, those are definitely things that we're looking at, not just because of what we've seen over the last 5, six weeks. And as we see, as things start to open up, whether it be around elective procedures or other areas where those procedures will be done or how productive we can make sales organization sales and marketing with new strategy. But just overall, what have we learned in the last 2.5 years as a company as we've embarked upon this pure-play med device business, broken into Pain Management and Chronic Care. And so there's a lot of great learnings that we've developed. And we've been heightened by those learnings in the last six weeks. And so to Joe's point, there are absolutely things we're going to be analyzing. But these first few handful of weeks here has been about ensuring that we're in a good offensive position to be in as we enter the back half of the year. Just to clarify the two different ways we thought about this early on.

And if I could squeeze one last just clarifying question in. With the CARES Act, is that retroactive? Or do we see that implemented on a rolling basis here in the June quarter when we think about the deferral of payroll taxes? I'm just trying to think about how to treat that as I model going forward as well.

You go ahead, Michael, on the payroll tax.

Yes. So it's $7 million for the full year, and we would have to pay that back during 2021 or 2022. That being said, our determination of when we pay back would be determinant upon our tax filings, and we don't want to lose any sort of deductibility that may be available. So we will defer through the duration of 2020. It will be about $7 million. And then our determination of payback in 2021 and '22 is going to be totally determinant upon permanent ability to deduct some of those taxes.

Thank you. The next question is from David Lewis of Morgan Stanley. Please go ahead.

Hi, this is Marissa Bych on for David. Thanks for taking my questions. I want to thank you for the commentary you gave us on what you're seeing in procedures versus the past five to six weeks. I'm just curious if you would be confident in saying that you've seen a trough in elective procedures or if it's still too early to really make that conclusion. And then secondly, are you seeing any geographic shifts for the few procedures that may be coming back into May and June, whether that's by care setting or by region? Any additional color would be great.

Marissa, I do think it's early to predict some of these things because of the unknown on further surges or what happens in the fall. But I will say that in our discussion with customers, the dynamic is changing. And with our sales channels, they're starting to talk about plans to come back, and we are seeing that. And to your point, it's a bit at the moment, more regionalized. So for example, areas like Texas and some of the southeast as opposed to California and the Northeast. And generally, on the types of procedures, if a procedure can be done in the ambulatory surgical center then it looks like it's coming back sooner or areas where there are still some healthcare systems, though, they're not all the same. They're looking at more urgent type of surgeries and sort of how they're going to stack those. But certainly, the hospitals and the surgeons are focused on needing to get back to work themselves, and obviously, they are big revenue sources for the hospital.

Okay. Great. And then just a quick follow-up. I know we're coming up on the hour. You touched on this earlier. But I just want to ask if you could quantify any of the cost savings that you discussed into Q2 or the remainder of the year as we think about modeling OpEx? Just in any other greater detail versus the comments earlier, and that's it for me.

Okay. Michael, I'll let you go ahead and cover some of that if you'd like to.

Yes. We're not going to lay out specifics on those cost savings right now because we may be adding to them as the year goes on and we may be adjusting them. So the categories are still relevant. The dollars may be shifting. They are meaningful though. And again, they support the primary focus of their support is on cash preservation.

Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Joe Woody, Chief Executive Officer. Please go ahead.

Thank you, Nick, and thanks, everybody, for your continued interest in Avanos. While COVID-19 as a pandemic has presented unexpected challenges to our business, I'm confident that the team is going to continue to rise to the challenge. We're taking, as you heard down the call, prudent actions to preserve cash and maintain our strong financial position. I think this, coupled with our clinically proven portfolio and the markets that we're in, gives me a lot of confidence about our financial position remaining strong. So wish everybody a good week, stay healthy and safe. Thank you.

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