8-K
AVANOS MEDICAL, INC. (AVNS)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: January 10, 2023
(Date of earliest event reported)
Commission file number 001-36440
AVANOS MEDICAL, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 46-4987888 | |||
|---|---|---|---|---|
| (State or other jurisdiction of incorporation) | (I.R.S. Employer Identification No.) | |||
| 5405 Windward Parkway | ||||
| Suite 100 South | ||||
| Alpharetta, | Georgia | 30004 | ||
| (Address of principal executive offices) | (Zip code) |
Registrant’s telephone number, including area code: (844) 428-2667
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of exchange on which registered |
|---|---|---|
| Common Stock - $0.01 Par Value | AVNS | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934.
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.05 Costs Associated with Exit or Disposal Activities.
On January 10, 2023, Avanos Medical, Inc. (the “Company”) approved a three-year transformation process (the “Transformation Process”) pursuant to which the Company plans to: (i) combine its Chronic Care and Pain franchises into a single commercial organization focused on the Digestive Health and Orthopedic Pain & Recovery product categories; (ii) exit certain low-margin, low-growth product categories, including through targeted divestitures; (iii) undertake additional cost management activities to enhance the Company’s operating profitability; and (iv) pursue efficient capital allocation strategies, including through acquisitions that meet the Company’s strategic and financial criteria.
As part of the Transformation Process, Kerr W. Holbrook, currently the Company’s Senior Vice President and General Manager, Chronic Care, has been appointed to the position of Senior Vice President and Chief Commercial Officer. In that position, Mr. Holbrook will be responsible for executing on the commercial aspects of the Transformation Process. In addition, Michael C. Greiner, the Company’s Senior Vice President and Chief Financial Officer, will assume the additional role of Chief Transformation Officer. As a result of the combination of the Chronic Care and Pain franchises into a single commercial organization, the position of Senior Vice President and General Manager, Pain Franchise, currently held by William D. Haydon, will be eliminated.
Other than the costs associated with the termination of Mr. Haydon’s employment, which are described in Item 5.02 of this Current Report and incorporated herein by reference, the Company is currently unable in good faith to estimate: (i) the total amount or range of amounts expected to be incurred in connection with each major type of cost associated with the Transformation Process; (ii) the total amount or range of amounts expected to be incurred in connection with the Transformation Process; or (iii) the amount or range of amounts of the charge that will result in future cash expenditures related to the Transformation Process. The Company will file an amended Current Report on Form 8-K within four business days after it makes a determination of such an estimate or range of estimates.
Note Regarding Forward-Looking Statements
This Current Report contains “forward-looking statements” within the meaning of the federal securities laws that are intended to qualify for the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995. “Forward-looking statements” generally can be identified by the use of forward-looking terminology such as “plans,” “will,” “expect” (or the negative or other derivatives of each of these terms) or similar terminology. The “forward-looking statements” include statements regarding the expected Transformation Process and the impact and timing of the Transformation Process. These statements represent the Company’s expectations and beliefs and involve a number of known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from those expressed or implied by such forward-looking statements. These factors include, among others, general economic and business conditions, and other risks set forth in Item 1A - “Risk Factors” in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 and in its most recent Quarterly Reports on Form 10-Q. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Current Report. Except to the extent required by applicable law, the Company undertakes no obligation to update any forward-looking statement contained in this Current Report, whether as a result of new information, future events, or otherwise.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On January 10, 2023, the Company and William D. Haydon, the Company’s Senior Vice President and General Manager, Pain Franchise, entered into a Severance and Separation Agreement (the “Severance and Separation Agreement”) pursuant to which: (i) Mr. Haydon’s employment with the Company will terminate effective March 31, 2023 (the “Separation Date”); (ii) the Company will, within 60 days following the Separation Date, pay Mr. Haydon a one-time lump sum cash severance payment equal to $972,000; (iii) the Company will pay 100% of Mr. Haydon’s monthly COBRA premiums for a period of 12 months following the Separation Date; (iv) the Company will provide Mr. Haydon with outplacement services for a period of six months following the Separation Date; and (v) Mr. Haydon will be eligible to receive a bonus (the “Transition Incentive Bonus”) of up to $300,000 based on the extent to which he meets certain performance metrics prior to the Separation Date, as determined in the Company’s sole discretion. The Transition Incentive Bonus will be paid as soon as practicable after the Separation Date, but in no event later than May 31, 2023. Mr. Haydon’s eligibility to receive the benefits described above is conditioned on: (i) his continuing to perform his assigned duties and responsibilities in a satisfactory fashion through the Separation Date, and (ii) his execution of a general release in favor of the Company and its directors, officers, employees and affiliates.
Item 7.01 Regulation FD Disclosure.
On January 11, 2023, the Company will present and discuss during the JP Morgan Healthcare Conference the slide presentation furnished herewith as Exhibit 99.1 to this Current Report and incorporated herein by reference.
On January 11, 2023, the Company issued a press release announcing the appointment of Mr. Holbrook to the position of Senior Vice President and Chief Commercial Officer and the appointment of Mr. Greiner to the additional role of Chief Transformation Officer. A copy of such press release is furnished as Exhibit 99.2 to this Current Report and is incorporated herein by reference.
The information furnished pursuant to Item 7.01 of this Current Report, including Exhibit 99.1, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section. The information in Item 7.01 of this Current Report, including Exhibit 99.1, shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended, or the Exchange Act, except as otherwise expressly stated in such filing.
Item 9.01 Financial Statements and Exhibits
(d)Exhibits.
| Exhibit No. | Description |
|---|---|
| 99.1 | Presentation dated January 11, 2023 delivered to JP Morgan Healthcare Conference |
| 99.2 | Press release issued by Avanos Medical, Inc. on January 11, 2023 |
| 104 | Cover Page Interactive Data File (embedded within the inline XBRL document) |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| AVANOS MEDICAL, INC. | |||
|---|---|---|---|
| Date: | January 11, 2023 | By: | /s/ Mojirade James |
| Mojirade James<br>Senior Vice President and General Counsel |
a2023avanos_vfa01
1 UPDATE & TRANSFORMATION DISCUSSION JOE WOODY CHIEF EXECUTIVE OFFICER JANUARY 11, 2023
2 FORWARD-LOOKING INFORMATION NON-GAAP FINANCIAL MEASURES Certain matters in this presentation, including expectations and planning assumptions, any comments about our expected performance, and any estimates, projections, or statements relating to our business plans, objectives, acquisitions and transformation initiatives, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and are based upon current plans and management’s expectations and beliefs concerning future events impacting the Company. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in such statements, including risks related to the ongoing COVID-19 pandemic, competition, market demand, cost savings and reductions, raw material, energy, and other input costs, supply chain disruptions (including availability of drugs used in our Acute Pain products), inflation, the ongoing conflict between Russia and Ukraine, economic conditions, currency exchange risks, human capital risks, cyber risks, intellectual property risks, and legislative and regulatory actions. There can be no assurance that these future events will occur as anticipated or that the Company’s results will be as estimated. Forward-looking statements speak only as of the date they were made, and we undertake no obligation to publicly update them. For a more complete listing and description of these and other factors that could cause the Company’s future results to differ materially from those expressed in any forward-looking statements, see the Company’s most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. This presentation includes financial measures that have not been calculated in accordance with accounting principles generally accepted in the U.S., or GAAP. The company provides these non-GAAP financial measures as supplemental information to its GAAP financial measures. Management believes that such non-GAAP financial measures enhance investors’ understanding and analysis of the Company’s performance. As such, results and outlook have been adjusted to exclude certain items for relevant time periods as indicated in the non-GAAP reconciliations to the comparable GAAP financial measures included in this presentation and posted on our website (www.avanos.com/investors). These non-GAAP financial measures should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP.
3 WHO WE ARE $815M+ Global Revenue* Pain Management Chronic Care Diversified portfolio with 8 market-leading products in the U.S. International Business operations in 90+ countries U.S. ~$10B Addressable Market *Est. 2022 figure Our Vision: To be the best at getting patients back to the things that matter Our two franchises – Chronic Care and Pain Management – address some of today’s most important healthcare needs.
4 CHRONIC CARE A VITAL LIFELINE FROM HOSPITAL TO HOME MIC-KEY* Long-term feeding market share leader with low- profile balloon-retained gastrostomy feeding tubes. CORTRAK* Short-term feeding leader delivering guided nasal gastric feeding tube placement. BALLARD* Leader in closed suction catheter technology offering advanced infection control features. NeoMed* Portfolio of specialized feeding and medication dosing products for neonatal and pediatric patients.
5 Market-leading provider of cold and compression therapy systems. Portfolio of non-opioid post- surgical pain relief infusion pumps and accessories. Cooled and standard radiofrequency nerve ablation for thermal treatment of chronic pain. ambIT* Electronic ambulatory infusion pumps for various infusion therapy needs. Multi-regimen hyaluronic acid treatment relieving mild-to- moderate knee pain. PAIN MANAGEMENT GETTING BACK TO LIFE
✓ Capital deployment via M&A and $55M share repurchases ✓ Successful OrthogenRx integration; ahead of plan ✓ Organization transformation underway STRATEGIC ✓ Meaningful gross and EBITDA margin improvement ✓ Effective OpEx management; below 40% SG&A as % of revenue ✓ Delivered strong free cash flow ✓ Uneven sales performance due to supply chain and currency headwinds CORE EXECUTION 2022 IN REVIEW … SETTING UP TRANSFORMATION 6
7 STRATEGIC AND COMMERCIAL OPTIMIZATION TRANSFORM THE PRODUCT PORTFOLIO TRANSFORMATION PRIORITIES: 2023 - 2025 DELIVERING VALUE TO ALL STAKEHOLDERS CONTINUED EFFICIENT CAPITAL ALLOCATION STRATEGIES TO EXPAND RETURN ON INVESTED CAPITAL ADDITIONAL COST MANAGEMENT INITIATIVES TO ENHANCE OPERATING PROFITABILITY
8 STRATEGIC AND COMMERCIAL OPTIMIZATION TRANSFORM THE PRODUCT PORTFOLIO TRANSFORMATION PRIORITIES: 2023 - 2025 ✓ Portfolio focus by increasing investments in Digestive Health (MIC-KEY, CORTRAK and NeoMed) and Orthopedic Pain and Recovery (Game Ready, COOLIEF, AmBit and OrthogenRx) product categories ✓ New commercial leadership with synergistic opportunities ✓ Grow market share in alternate sites (e.g., ASC setting) ✓ Exit low-margin and low-growth product categories ✓ Advance SKU rationalization, price increases, and divestitures ✓ Focus M&A on core and near-adjacent categories 2 1 DELIVERING VALUE TO ALL STAKEHOLDERS
9 CONTINUED EFFICIENT CAPITAL ALLOCATION STRATEGIES TO EXPAND RETURN ON INVESTED CAPITAL ADDITIONAL COST MANAGEMENT INITIATIVES TO ENHANCE OPERATING PROFITABILITY ✓ Direct internal capital allocation toward focus categories ✓ Maintain M&A discipline and leverage levels below 3.0x (current <1.0x) ✓ Continue share repurchases when market is dislocated vs our internal intrinsic value estimates ✓ Reduce indirect spend ✓ Pursue outsourcing opportunities as appropriate ✓ Simplify supply chain/other functions through product focus and improved plant execution ✓ Deliver SG&A as percentage of revenue between 37%-38% 3 4 TRANSFORMATION PRIORITIES: 2023 - 2025 DELIVERING VALUE TO ALL STAKEHOLDERS
10 TRANSFORMED BUSINESS PROFILE: 2025 Enhanced Financial Profile Gross Margins >60% Operating Margins in high teens EBITDA Margins in low-mid 20% FCF >$100mm Focused M&A to provide additional growth Optimized Product Portfolio Upcoming Communications ▪ February 21st: Q4 Earnings Call ▪ Early Summer: Investor Day
11 The best at getting patients back to the things that matter
Document
| Investor Contact: Michael Greiner |
|---|
| Avanos Medical, Inc. |
| 470-562-2692 |
| Investor.Relations@Avanos.com |
| Media Contact: Katrine Kubis |
| Avanos Medical, Inc. |
| CorporateCommunications@Avanos.com |
Avanos Medical, Inc. Announces New Leadership Appointments
ALPHARETTA, Ga., Jan. 11, 2023 / PRNewswire / -- Avanos Medical, Inc. (NYSE: AVNS) today announced two executive leadership appointments that support the company’s long-term strategic priorities: Michael Greiner has been named chief transformation officer (in addition to his current responsibilities as senior vice president and chief financial officer), and Kerr Holbrook has been named senior vice president and chief commercial officer.
“Our global teams have been working diligently to identify changes that will allow us to reimagine our business and create sustainable value for both internal and external stakeholders,” said Joe Woody, chief executive officer. “We have established the groundwork for a three-year transformation aimed at optimizing our commercial organization and enhancing our financial performance. Our chief financial officer, Michael Greiner – who has led many of our efforts in margin improvement, M&A, and free cash flow generation – will take on the additional and newly created role of chief transformation officer. In that position, he will lead our transformation efforts as we remain focused on achieving our strategic and financial priorities.”
The transformation will be focused on four key priorities over the next three years: optimizing the commercial organization, transforming the product portfolio, implementing cost management initiatives to enhance operating profitability, and continuing to efficiently deploy capital while maintaining a focused and disciplined approach to M&A.
Greiner added, “We have made meaningful improvements to our profitability measures and free cash flow generation over the past 18 months while working through a range of macro dynamics. These improvements have established the initial framework for this transformation, which we believe will further enhance our operational and financial performance. We are laser-focused on the execution of these four priorities to ensure we have an aligned and cohesive strategy.”
Effectively immediately, Avanos will bring the North America Chronic Care and Pain franchise functions under one organization, led by Kerr Holbrook in the company’s newly created role of senior vice president and chief commercial officer.
Holbrook joined Avanos in 2019 as senior vice president and general manager for the company’s Chronic Care franchise. His background includes more than 25 years as a healthcare industry executive focused on sales, marketing, strategy and general management. Prior to joining Avanos, Kerr served as chief commercial officer at AlloSource, a global biologic and regenerative implant company.
“I’m enthusiastic about the many benefits this new structure is expected to bring to Avanos, including improved best-practice sharing, a more consistent strategic approach, and an enhanced ability to scale critical functions like digital marketing and strategic analytics,” said Holbrook. “With twin goals of accelerating sales and improving our commercial
impact, our unified commercial organization is designed to help us drive efficiencies and focus on core categories and channels.”
“I am confident that under Kerr’s leadership, our new commercial structure will enable us to accelerate sales and improve our overall impact in the market,” stated Woody. “We believe our three-year transformation will deliver significant value to our shareholders and the other stakeholders who have an interest in Avanos. We look forward to providing additional color on our transformation efforts during our year-end earnings call on Feb. 21.”
About Avanos Medical, Inc.
Avanos Medical, Inc. (NYSE: AVNS) is a medical technology company focused on delivering clinically superior breakthrough medical device solutions to improve patients' quality of life. Headquartered in Alpharetta, Georgia, Avanos is committed to addressing some of today's most important healthcare needs, such as reducing the use of opioids while helping patients move from surgery to recovery. Avanos develops, manufactures and markets its recognized brands in more than 90 countries. For more information, visit Avanos.com and follow Avanos Medical on Twitter (@AvanosMedical), LinkedIn and Facebook.
SOURCE Avanos Medical, Inc.
For further information: Investor Contact: Michael Greiner, Avanos Medical, Inc., Investor.Relations@Avanos.com; Media Contact: Katrine Kubis, Avanos Medical, Inc., CorporateCommunications@Avanos.com