AVANOS MEDICAL, INC. Discusión y análisis de la administración de la situación financiera y los resultados de las operaciones (formulario 10-Q)

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Introducción


This Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") is meant to supply traders with an understanding of
our latest efficiency, and must be learn together with the condensed
consolidated monetary statements contained in Item 1, "Financial Statements" in
this Form 10-Q and our audited consolidated monetary statements and associated
notes included in our Annual Report on Form 10-Ok for the yr ended December 31,
2021. This MD&A incorporates forward-looking statements. Refer to "Information
Concerning Forward-Looking Statements" at the start of this Form 10-Q for an
clarification of a lot of these statements.

Se discutirá y analizará lo siguiente:

•Adquisición de Negocios

•Resultados de Operaciones e Información Relacionada

•Liquidez y Recursos de Capital; y

•Políticas Contables Críticas y Uso de Estimaciones

Adquisición de Negocios


On January 20, 2022, we acquired the entire fairness voting pursuits and
accomplished the acquisition of OrthogenRx, Inc. ("OrthogenRx"), which is concentrated
on the event and commercialization of therapies for knee ache brought on by
osteoarthritis. We count on the acquisition of OrthogenRx will improve our continual
ache portfolio. The preliminary buy value was $130 million at closing much less
working capital changes, with as much as an extra $30 million payable in
contingent money consideration based mostly on OrthogenRx's progress in internet gross sales throughout
2022 and 2023. The buy value was funded by out there money readily available and the
proceeds of borrowings, together with from the incurrence of a brand new incremental
tranche of time period loans of $125.0 million. The accompanying condensed consolidated
earnings assertion for the three and 6 months ended June 30, 2022 contains $21.8
million and $36.5 million of internet gross sales, respectively, from OrthogenRx because the
closing of the acquisition. In the three and 6 months ended June 30, 2022, we
incurred $0.3 million and $1.4 million of prices in reference to the
OrthogenRx acquisition, respectively, that are included in "Selling and common
bills."

Resultados de Operaciones e Información Relacionada

Uso de medidas no GAAP


In this part, we current "Adjusted working revenue (loss)," which is a
profitability measure that isn't calculated in accordance with accounting
ideas usually accepted in the United States ("GAAP") and is due to this fact
known as non-GAAP monetary measure. We present this non-GAAP measure
as a result of we use it to measure our operational efficiency and supply higher
perception into our ongoing enterprise operations. This measure isn't meant to
be, and shouldn't be, thought-about individually from, or a substitute for, the
most straight comparable GAAP monetary measures. A reconciliation of the
non-GAAP measure to essentially the most straight comparable GAAP monetary measures is
offered under beneath "Adjusted working (loss) revenue."
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Net Sales

Nuestras ventas netas se resumen en la siguiente tabla para los tres y seis meses terminados 30 de junio de 2022 y 2021 (en millones):

                                     Three Months Ended June 30,                                      Six Months Ended June 30,
                                        2022                2021               Change                   2022                2021               Change
Chronic Care:
Digestive well being                  $        80.2          $  79.5                     0.9  %       $      161.6           $ 157.5                    2.6  %
Respiratory well being                         32.1             36.5                   (12.1) %               70.2              79.6                  (11.8) %
Total Chronic Care                        112.3            116.0                    (3.2) %              231.8           $ 237.1                   (2.2) %
Pain Management:
Acute ache                        $        41.2          $  43.7                    (5.7) %       $       79.9           $  80.8                   (1.1) %
Interventional ache                        49.5             26.7                    85.4  %               88.7              49.2                   80.3  %
Total Pain Management                      90.7             70.4                    28.8  %              168.6             130.0                   29.7  %
Total Net Sales                   $       203.0          $ 186.4                     8.9  %       $      400.4           $ 367.1                    9.1  %

                                                           Total              Volume(a)             Pricing/Mix           Currency            Other(b)
Net gross sales - share change                  QTD           8.9  %                 10.2  %                0.5   %          (1.7) %                (0.1) %
Net gross sales - share change                  YTD           9.1  %                  9.9  %                0.5   %          (1.4) %                 0.1 

%

______________________________

(a) El volumen incluye ingresos incrementales resultantes de adquisiciones. (b) Otros incluye redondeo.

Descripciones de categorías de productos

El cuidado crónico es una cartera de productos que incluye:


•Digestive well being merchandise equivalent to our Mic-Key enteral feeding tubes, Corpak
affected person feeding options and NeoMed neonatal and pediatric feeding options;
and

•Respiratory well being merchandise equivalent to our closed airway suction methods and different
airway administration gadgets marketed beneath the Ballard, Microcuff and Endoclear
manufacturers.

El management del dolor es una cartera de soluciones para el dolor no opioides que incluyen:

•Productos para el dolor agudo como las bombas quirúrgicas para el dolor On-Q y ambiT y los sistemas de terapia de frío y compresión Game Ready; y

•Soluciones de intervención para el dolor, que brindan terapias mínimamente invasivas para el alivio del dolor, como nuestra terapia para el dolor Coolief y los productos de inyección para el alivio del dolor de OrthogenRx.

Segundo Trimestre de 2022 Comparado con el Segundo Trimestre de 2021


Net gross sales elevated by 8.9% for the three months ended June 30, 2022 in comparison with
the prior yr interval, primarily on account of incremental income from the acquisition
of OrthogenRx. In addition to quantity, 0.5% of favorable pricing was offset by
1.7% of unfavorable overseas foreign money translation results.

Primeros seis meses de 2022 en comparación con los primeros seis meses de 2021


Net gross sales elevated by 9.1% for the six months ended June 30, 2022 in comparison with
the prior yr interval, primarily on account of incremental income from the acquisition
of OrthogenRx. Digestive well being merchandise skilled sturdy demand and quantity,
which was offset by decreased demand and quantity in respiratory well being merchandise.
In addition to quantity, 0.5% of favorable pricing was offset by 1.4% of
unfavorable overseas foreign money translation results.

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Las ventas netas por Región geográfica

Las ventas netas por región se presentan en la siguiente tabla (en millones):

                                Three Months Ended June 30,                                      Six Months Ended June 30,
                                  2022                 2021                Change                  2022                2021                Change
North America               $        160.0          $  138.6                   15.4  %       $       317.7          $  272.0                   16.8  %
Europe, Middle East and
Africa                                24.1              26.8                  (10.1)                  47.4              56.3                  (15.8)
Asia Pacific and Latin
America                               18.9              21.0                  (10.0)                  35.3              38.8                   (9.0)
Total internet gross sales             $        203.0          $  186.4                    8.9  %       $       400.4          $  367.1                    9.1  %



Gross Profit (in tens of millions)

                                                   Three Months Ended June 30,                 Six Months Ended June 30,
                                                     2022                  2021                 2022                 2021
Net gross sales                                      $       203.0           $   186.4          $      400.4           $    367.1
Cost of merchandise offered                                   88.1               100.7                 178.3                190.1
Gross revenue                                           114.9                85.7                 222.1                177.0
Gross revenue margin                                     56.6   %            46.0  %               55.5   %             48.2  %

Segundo Trimestre de 2022 Comparado con el Segundo Trimestre de 2021

Por los tres meses terminados 30 de junio de 2022 En comparación con el período del año anterior, el margen de utilidad bruta mejoró principalmente debido a una combinación favorable de productos, así como también a eficiencias de fabricación ligeramente mejoradas que fueron parcialmente compensadas por costos más altos en toda nuestra cadena de suministro.

Primeros seis meses de 2022 en comparación con los primeros seis meses de 2021

Por los seis meses terminados 30 de junio de 2022 en comparación con el período del año anterior, el margen de utilidad bruta se vio afectado por los mismos elementos mencionados anteriormente para el segundo trimestre.

Investigación y desarrollo (en millones)


                                                     Three Months Ended June 30,                 Six Months Ended June 30,
                                                       2022                  2021                2022                 2021
Research and improvement                         $        8.0            $     8.0          $      15.8           $     16.3
Percentage of internet gross sales                                   3.9    %             4.3  %               3.9   %              4.4  %


Research and improvement consists primarily of compensation for personnel and
bills for product trial prices, exterior laboratory and license charges, the fee
of laboratory gear and services and asset write-offs for gear
related to unsuccessful product launches. Research and improvement has
traditionally ranged between 4% and 6% of internet gross sales.


Gastos generales y de venta (en millones)


                                            Three Months Ended June 30,                Six Months Ended June 30,
                                              2022                 2021                 2022                 2021
Selling and common bills            $       87.1           $    76.7          $      177.2           $    150.1
Percentage of internet gross sales                         42.9   %            41.1  %               44.3   %             40.9  %

Los gastos de venta y generales aumentaron tanto en los tres como en los seis meses finalizados
30 de junio de 2022 en comparación con los períodos del año anterior, impulsado por mayores costos de venta, junto con mayores costos relacionados con la adquisición y costos de cumplimiento asociados con el Reglamento de Dispositivos Médicos de la Unión Europea («EU MDR»).

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Otros gastos, neto (en millones)

                                                     Three Months Ended June 30,                Six Months Ended June 30,
                                                       2022                  2021                2022                2021
Other expense, internet                               $        0.8            $     8.3          $      0.9           $     30.3
Percentage of internet gross sales                                   0.4    %             4.5  %              0.2   %              8.3  %


Other expense, internet decreased in each the three and 6 months ended June 30,
2022 in comparison with the prior yr intervals pushed by decrease authorized prices. Legal prices
within the six months ended June 30, 2021 included quantities related to a
$22.2 million cost associated to the Deferred Prosecution Agreement ("DPA") with
the United Sates Department of Justice described in Note 8, "Commitments and
Contingencies" in Item 1 of this Form 10-Q.


Utilidad (pérdida) operativa (en millones)


                                                     Three Months Ended June 30,                Six Months Ended June 30,
                                                       2022                 2021                2022                 2021
Operating revenue (loss)                          $       19.0           $    (7.3)         $      28.2           $    (19.7)
Operating revenue margin                                   9.4   %            (3.9) %               7.0   %             (5.4) %


The objects beforehand described drove working revenue to $19.0 million for the
three months ended June 30, 2022 and $28.2 million for the six months ended June
30, 2022, in comparison with working losses of $7.3 million and $19.7 million for the
three and 6 months ended June 30, 2021, respectively.


Ganancia (pérdida) operativa ajustada

En la siguiente tabla se proporciona una conciliación de la ganancia (pérdida) operativa ajustada, una medida no GAAP, con la ganancia (pérdida) operativa (en millones):


                                                   Three Months Ended June 30,                Six Months Ended June 30,
                                                     2022                  2021                2022                 2021
Operating revenue (loss), as reported (GAAP)   $          19.0          $    (7.3)         $       28.2          $   (19.7)
COVID-19 associated bills                                   -                0.2                     -                0.2
2020 Restructuring prices                                  -                8.5                     -                8.7
Post divestiture restructuring prices                      -                1.7                     -                2.6
Post divestiture transition prices                         -                3.6                     -                3.6
Acquisition and integration-related prices               1.0                0.2                   2.8                0.6
EU MDR Compliance                                         1.7                1.0                   3.2                1.2
Litigation and authorized                                        -                2.7                     -               25.2
Intangibles amortization                                  6.2                4.1                  11.9                8.3

Ganancia (pérdida) operativa ajustada (no GAAP) $ 27.9 $ 14.7 $ 46.1 $ 30.7

Los elementos señalados en la tabla anterior se describen a continuación:

Gastos relacionados con COVID-19: El gasto incremental debido a la pandemia de COVID-19 fue
$0.2 millones en cada uno de los tres y seis meses terminados 30 de junio de 2021.


2020 Restructuring prices, publish divestiture restructuring prices, and publish
divestiture transition prices: As beforehand described within the Form 10-Ok, these
prices have been related to a multi-phase restructuring plan meant to align
our organizational construction, IT platform, provide chain and distribution
channels to be extra applicable for our enterprise following the divestiture of
our Surgical and Infection Prevention enterprise. As of December 31, 2021,
restructuring actions related to the plan have been considerably full.

Acquisition and integration-related prices: Acquisition and integration-related
prices have been $1.0 million and $0.2 million for the three months ended June 30,
2022 and 2021, respectively, and $2.8 million and $0.6 million for the six
months ended
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June 30, 2022 and 2021, respectively. Expenses within the three and 6 months ended
June 30, 2022 have been associated to the acquisition of OrthogenRx. Expenses incurred
within the prior yr intervals have been associated to integration actions for earlier
acquisitions.

EU MDR Compliance: The EU MDR grew to become efficient in 2021 and brings important
new necessities for a lot of of our medical gadgets. Incremental prices related
with EU MDR compliance are primarily associated to re-certification of our merchandise
beneath the improved requirements. We count on the actions leading to incremental
prices related to our preliminary compliance with the EU MDR will proceed into
2023.

Litigio y authorized: Incurrimos $2.7 millones y $ 25,2 millones de gastos en los tres y seis meses terminados 30 de junio de 2021, respectivamente, por ciertos litigios que se incluyeron en «Otros gastos, neto». Estos costos incluían montos asociados con un $ 22,2 millones pago relacionado con el DPA.


Intangibles amortization: Intangibles amortization is said primarily to
intangibles acquired in enterprise acquisitions and was $6.2 million and $11.9
million for the three and 6 months ended June 30, 2022, respectively, and $4.1
million and $8.3 million for the three and 6 months ended June 30, 2021,
respectively. The improve in amortization is because of incremental amortization of
intangibles acquired with OrthogenRx earlier this yr.


Gastos por intereses


Interest expense consists of curiosity accrued and amortization of debt issuance
prices on our revolving credit score facility internet of curiosity capitalized on long-term
capital initiatives. See Note 5, "Debt" in Item 1 of this Form 10-Q. Interest
expense was $2.7 million and $4.0 million for the three and 6 months ended
June 30, 2022, respectively, in comparison with $0.9 million and $1.7 million,
respectively, within the comparable intervals final yr. Our long-term debt
excellent balances have been $254.0 million and $130.0 million as of June 30, 2022
and December 31, 2021, respectively.


Impuestos sobre la Renta


The earnings tax provision was $5.1 million and $7.2 million within the three and 6
months ended June 30, 2022, respectively, in comparison with a advantage of $46.1 million
and $51.7 million within the three and 6 months ended June 30, 2021. Our efficient
tax fee was 30.9% and 29.5% within the three and 6 months ended June 30, 2022,
respectively. For the three and 6 months ended June 30, 2021, our efficient
tax fee was (562.2)% and (241.6)%, respectively. The prior yr earnings tax
profit and efficient tax charges have been because of the impression of non-deductible prices
and development of earnings within the first six months of 2021.

Liquidez y Recursos de Capital

General


Our main sources of liquidity are money readily available offered by working
actions and quantities out there with our revolving credit score facility beneath our
credit score settlement. We count on our working money circulate might be adequate to satisfy
our working capital necessities and fund capital expenditures within the subsequent
twelve months. In addition, with our borrowing capability, we count on to have the
potential to fund capital expenditures and different investments essential to develop our
enterprise for the foreseeable future for each our home and worldwide
operations.

As of June 30, 2022, $62.4 million of our $106.5 million of money and money
equivalents was held by overseas subsidiaries. We take into account the undistributed
earnings of our overseas subsidiaries to be indefinitely reinvested abroad and
at present wouldn't have plans to repatriate such earnings. We don't count on
restrictions on repatriation of money held exterior of the United States to have a
materials impact on our general liquidity, monetary situation or outcomes of
operations for the foreseeable future.

Cash and money equivalents decreased by $12.0 million to $106.5 million as of
June 30, 2022 in comparison with $118.5 million as of December 31, 2021. The lower
was primarily pushed by $116.7 million used within the acquisition of OrthogenRx and
$34.1 million used to repurchase shares of our frequent inventory, partially offset by
$28.8 million offered by working actions and $125.0 million in proceeds
obtained from the issuance of incremental long-term debt.

In the prior yr, money and money equivalents decreased by $11.6 million to $99.9
million as of June 30, 2021. The lower was pushed by $15.0 million repaid on
our revolving credit score facility, $11.5 million of capital expenditures and $1.8
million of unfavorable foreign money trade results partially offset by $12.0
million offered by operations and $5.2 million of proceeds from the train of
inventory choices.

Long-Term Debt

On June 24, 2022, we entered right into a credit score settlement (the "Credit Agreement")
with sure lenders which established credit score services in an mixture
principal quantity of $500.0 million, consisting of a five-year senior secured
time period mortgage of $125.0 million (the "Term Loan Facility") and a five-year senior
secured revolving credit score facility permitting borrowings of as much as $375.0 million,
with a letter of credit score subfacility in an quantity of $75.0 million (the
"Revolving Credit Facility"). All obligations beneath

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the Credit Agreement and sure hedging agreements and money administration
preparations thereunder are: (i) assured by every of the Company's direct and
oblique, current and future, materials wholly owned home subsidiaries
("Guarantors") and (ii) secured by a primary precedence lien on considerably all
the belongings of the Company and the Guarantors. The Credit Agreement incorporates an
accordion function that permits us to incur incremental time period loans beneath the Term
Loan Facility or beneath new time period mortgage services or to extend the quantity of the
commitments beneath the Revolving Credit Facility, together with by the
institution of a number of tranches beneath the Revolving Credit Facility. The
Credit Agreement will mature on June 24, 2027.

Borrowings beneath the Term Loan Facility and Revolving Credit Facility bear
curiosity at our choice at both: (i) an adjusted time period secured in a single day
financing fee ("SOFR"), plus a margin ranging between 1.50% to 2.00% every year,
relying on our consolidated whole leverage ratio; (ii) an adjusted day by day
easy SOFR fee, plus a margin ranging between 1.50% to 2.00% every year,
relying on our consolidated whole leverage ratio; or (iii) a base fee
(calculated as the best of (a) the prime fee, (b) the NYFRB fee (being the
higher of the federal funds efficient fee or the in a single day financial institution funding fee)
plus 0.50%, and (c) the one month adjusted time period SOFR fee plus 1.00%), plus a
margin ranging between 0.50% to 1.00% every year, relying on our consolidated
whole leverage ratio. The unused portion of the Revolving Credit Facility will
be topic to a dedication price ranging between 0.20% to 0.25% every year,
relying on our consolidated whole leverage ratio.

The Credit Agreement requires compliance with sure customary operational and
monetary covenants. As of June 30, 2022, we have been in compliance with these
covenants. In addition, the Credit Agreement incorporates sure different customary
limitations on our potential to, amongst different issues: incur extra
indebtedness; pay dividends on or repurchase or redeem our capital inventory; make
loans, investments and acquisitions; promote, switch or in any other case eliminate
belongings; assure different obligations; create or grant liens; and enter into
sure kinds of transactions with associates. Notwithstanding such limitations,
the Credit Agreement permits us to pay dividends, repurchase inventory and make
investments as much as an "Available Amount," as outlined within the Credit Agreement,
offered no occasion of default has occurred and sure monetary ratios have been
achieved on a professional forma foundation. As of June 30, 2022, we had $130.0 million of
borrowings beneath the Revolving Credit Facility.

En relación con la celebración del Contrato de Crédito, rescindimos el Contrato de Crédito Modificado y Actualizado con fecha de 30 de octubre de 2018 por y entre la Compañía, los prestamistas en virtud de la misma y Citibank NA., como agente administrativo.

Consulte la Nota 5, «Deuda» en el Punto 1 de este Formulario 10-Q para obtener más detalles sobre nuestros acuerdos de deuda.


Share Repurchase Programs

On December 15, 2021, we introduced that our Board of Directors had accredited a
share repurchase program authorizing us to repurchase as much as $30.0 million of our
frequent inventory. In the fourth quarter of 2021, we repurchased $10.7 million of our
frequent inventory, and through the first quarter of 2022, we repurchased an extra
$19.3 million of our frequent inventory.

On May 16, 2022, the Board of Directors accredited a brand new one-year program beneath
which we might repurchase as much as $25.0 million of our frequent inventory. Repurchases
beneath this program might be made infrequently at administration's discretion on
the open market or by privately negotiated transactions. This share
repurchase program doesn't obligate us to buy any explicit quantity of
frequent inventory and could also be suspended, modified or discontinued by us with out prior
discover. Under this program, through the second quarter of 2022, we repurchased
$14.1 million of our frequent inventory, and through July 2022 we repurchased the
remaining $10.9 million.

Para mayor información ver Nota 11, “Programas de Recompra de Acciones” en el Punto 1 de este Formulario 10-Q.

Políticas Contables Críticas y Uso de Estimaciones


Our monetary statements are ready by making use of sure accounting insurance policies.
See Note 1, "Accounting Policies" in Item 8, "Financial Statements and
Supplementary Data" within the Form 10-Ok, which describes our most important
accounting insurance policies. In addition, our vital accounting insurance policies and estimates
are offered beneath the caption "Critical Accounting Policies and Use of
Estimates" in Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operation" within the Form 10-Ok. Certain of those insurance policies
require administration to make estimates or assumptions that will show inaccurate or
be topic to variations that will considerably have an effect on our reported outcomes and
monetary place for the interval or in future intervals. Management views these
insurance policies as vital accounting insurance policies. See Note 1, "Accounting Policies" in
Item 1 of this Form 10-Q for updates to our vital accounting insurance policies and a
dialogue of latest accounting pronouncements. In the six months ended June 30,
2022, there have been no important modifications to our vital accounting estimates
from these disclosed in Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operation" within the Form 10-Ok.



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