All right. Welcome back to the Citizens Life Sciences Conference. Next up on our med tech track, we're joined by Avanos Medical. With us here is CEO David Pacitti and CFO Scott Galovish. Gentlemen, thank you for coming.
Thank you.
Welcome to Miami.
Thank you.
Great. I guess just to start off, Dave, you know, you're approaching your 1-year anniversary at the helm, so I just want to give you the opportunity to, you know, give your high-level thoughts.
Yeah.
What do you think has gone well? What's surprised you? What's been a challenge?
Yeah.
How do you want to take it?
Yeah, yeah, absolutely. We've been excited, been very focused on execution, as you know. Part of that execution was a cost takeout that we did back in December, really streamlined the business. I would say what was surprising to me this year is how much time we spent on tariffs, right? We've talked to you a lot about that as well. We see the light at the end of the tunnel and it's not a train, which is good. You know, a big part of our tariff situation was around syringe products that we made in China. We'll be out of China by June. It's actually going quite well. We feel like we're ahead of schedule, and we're producing those syringes now in Mexico and Cambodia.
We're not selling them yet from there, but the fact that we're producing them is really good. That's been a big part of our focus. A lot of it's been about cleanup. We sold two businesses, hyaluronic acid and our Game Ready rental business, and it's sort of that sticks to our philosophy of divesting of underperforming assets, and they were definitely two underperforming assets. We acquired Nexus Medical, which has been a good acquisition for us. It fits perfectly into the back of our NICU team, which, you know, a big part of our business is specialty nutrition. When you look at our business, Pain Management & Recovery, and Specialty Nutrition, Specialty Nutrition being the bigger, and that's been our focus.
You know, acquisitions, most of our capital allocation will be very focused in Specialty Nutrition as we work on improving the execution and Pain. Except for one of those businesses, which I think it's one of the questions you have for me, Pain is going quite well too, especially in RF ablation. We've seen about double-digit growth. We have a really nice platform there. We're competing against some of the bigger companies that everybody knows about, Boston Scientific, Medtronic, and Stryker. We're very focused in RF ablation and have a three-tier portfolio that seems to differentiate us from the competition. We ended the year strong. As you know, we raised guidance, and we're off to a really good start this year as well. We're excited about this year.
Great. You know, hit on almost all of them there. You know, the five strategic imperatives.
Yeah
have been a big part of your strategy going forward. I would love if you could, you know, just gave a lot of detail.
Yeah
Just quickly outline if you've got.
really focusing on our two segments, right? Our Pain Management & Recovery and Specialty Nutrition. We want to see solid mid-single-digit growth in those areas.
Mm-hmm.
A little bit higher on Specialty Nutrition. That will be important for us. I think when we talk about mitigating tariffs is a big part of this. We've done that now, right?
Mm-hmm.
We're at the back end of the tariff challenge. Most of the production we have now is in Mexico. About 70% of what's made in Mexico falls under USMCA. We also even have Nairobi Protocol for our long-term feeding tube, which is another form of a tariff exemption, so that's important. Unless something changes in the tariff landscape, we feel really good about where we're at, and we see it as actually a benefit in 2027 because we'll be past all the heavy lifting from a tariff standpoint. I think we wanna continue to have our operating efficiencies, right? We take out costs, but that wasn't a one-time event. We'll continue to do that.
We're looking for synergistic acquisitions, most of them being in specialty nutrition, I would say 90% of what we're doing. If there's something that comes up where there's an important investment that can help us, I would say differentiate the pain franchise, we would do it. A heavy emphasis like Nexus Medical and specialty nutrition. As we see, we need to do about one of those a year, right, as we continue to grow the organic business.
Great. Then just stepping back a little bit to 2025, I wanna hit on financials a little bit. You know, you just announced full year results a few weeks ago. It's above your estimate on the top line and high end of your EPS. Came in ahead of the street. I'll have to add that those consensus estimates are very well thought out and, you know, very strategic and very thorough.
That's true.
I guess, you know.
The best.
What's your confidence level there in terms of, you know, the organic mid-single digits? Just, you know, talk about, you know, what's baked into the high end, the low end, and how you think about that confidence level for organic growth.
Yeah. We're really pleased with how we ended 2025. As you may recall, at the end of Q3, we did raise guidance for the year for both revenue and EPS. As you said, we exceeded on revenue and we're right at the top end on EPS. We feel like that gives us good momentum going into 2026, which we have outlined mid-single-digit growth for the year comprised of mid- to high in Specialty Nutrition and low- to mid-single digits in Pain Management. We feel like we have good momentum from the end of 2025, and we're seeing that already in the beginning of 2026.
From an earnings perspective, the midpoint of our EPS range does show, you know, good earnings expansion, especially in the face of $12 million of additional tariffs, which we may talk about, which our estimate for this year is $30 million. That's really the exposure for this syringe-related tariff that we're gonna incur this year. Even in light of additional tariff expense this year, we feel good about the earnings expansion and feel like we're, you know, have good momentum to achieve what we've laid out.
Great. Looking a little bit beyond that, at the beginning of the year, you gave longer term financial targets. About $1 billion by 2030 is kind of the broad-
Mm-hmm
... you know, goal you have in mind. I guess, you know, we can get into the specifics a little bit more later, but just high level, a little bit more color on the pathway there. Why do you think it was the right time to give those estimates and just the thought process that went into that?
Yeah. I think one, people wanted to have a better understanding of our vision as a company, so we thought it was important to share where we see ourselves going from a financial perspective. Now, we'll give more detail around that on June twenty-third, our investor day, where we'll get very specific on all the high level numbers we talked about. $1 billion was a number that we talked about by 2030. Now, we didn't say it was a full year run rate or exiting the year, but we'll get into that on June twenty-third. For us, that means solid mid-single-digit% growth organically, and then roughly an acquisition a year slightly bigger than the Nexus acquisition we did last year.
Okay.
Now that's, of course, assuming there is no divestiture. If we divest something, then we got a bigger hole to fill, right? The math is relatively easy. It's about $100 million of acquisition that we have to do in total.
Mm-hmm.
over that period of time, and then have those mid-single-digit growth that we feel really good about in our organic businesses.
Great. We'll hit on some of that M&A.
Yeah.
you know, topics a little bit later. I guess, as we think about specialty nutrition, that's really been the primary engine as you've mentioned. You know, I guess could you just give a little more color on the dynamics in 2025 and, you know, the different puts and takes we should be thinking about in 2026 as we look at that growth?
Sure. There's three parts of our Specialty Nutrition Systems segment. We have a NICU, a neonatal or NICU business. Neonatal Solutions is what we call it. That includes our NeoMed business that's been a solid grower since we acquired it in 2019. As we've signaled, that's pulled back a little bit on growth as we've really fully converted the NICUs on this ENFit conversion standard. We've added Nexus to that part of the business, and Nexus has had a great year, and we're projecting double-digit growth for Nexus this year. NeoMed will be a mid- to high-single-digit grower, or Neonatal Solutions will be a mid- to high-single-digit grower. Our long-term feeding business, which is our core MIC-KEY franchise, that's a solid mid-single-digit grower.
Our short-term feeding business also expecting mid- to high-single digits in that category as well. That's really driven by expansion of guided tube placement. Guided tube placement as a therapy is actually under-penetrated in the market as compared to blind placement. We feel good that there's a lot of runway there for us, and CORTRAK's a great technology. Feel good about the profile that we have in SNS for this year.
Yeah. Great. You know, I wanna dig into some of those core products, the MIC-KEY, CORTRAK and CORGRIP, and these portfolios are both first in the market leaders. Could you talk a little bit more about the differentiation? You mentioned some of the guidance that's evolving, but, you know, why are these winning and what gives you confidence that you can continue to be the market leader here?
Yeah. CORTRAK, there's not a lot of competition in the guided tube placement space. The competition is the standard of care, which has been blind tube placement, right? As hospitals have more complications with a blinded tube placement, you're seeing more and more convert to having one in a guided system. As we've gotten some large, I would say some of the big university health systems, get on board with CORTRAK and convert to it, you're starting to see a lot of momentum in that area. There's a ton of opportunity for growth 'cause it's relatively, as Scott mentioned, not a highly penetrative market yet, so there's a lot of room for growth there as we start converting more and more of these accounts.
Again, not a lot of competition in this space, and this has been the standard. CORTRAK has been the best product out there, and we continue to iterate it. It works incredibly well and it only takes a couple of minutes to get a, you know, a nasogastric tube in.
Right.
CORGRIP just helps keeps things secure. We launched that last year. I would say deficiencies in CORTRAK, CoreGrip, CORGRIP fixes in terms of keeping the tube in place. You don't wanna have any tube movement, and that's what it does there. MIC-KEY, it's just been the standard for so many years in terms of long-term feeding tubes. We expect to come out by the end of the year, a next generation MIC-KEY. What that's about is these patients live on nutrition. They have a normal life. They can't eat. They have some kind of nutrition deficiency, so they don't wanna have their life complicated. They want it to be seamless. You have a feeding tube that's placed permanently in you, and the lower profile it is, like, doesn't get caught on a chair or a table, the better for the patient.
They don't wanna bring any, I would say. They wanna live a normal life. The smaller that technology can be, the better, and that's what our next generation is focused on, being even smaller profile that's hard to recognize, that people can still get nutrition that they need, which is really important for them.
Yeah. Definitely. I did wanna hit on the Neonatal Solutions. You talked about Nexus, but there's a few dynamics at play here. It was double-digit growth for a while. That was driven by some NeoMed conversions. Those are starting to wane off. I guess, you know, with Nexus in mind as well as some of this NeoMed, you know, not a headwind, but kind of tailing off, just how do you think about that division going forward, both in 2026 and beyond that?
Yeah. We view Neonatal Solutions as continue to be a mid to high single digit grower. Nexus will be a double digit grower this year and beyond, we believe. It also, Neonatal Solutions, creates a great platform for us to acquire. Our hypothesis heading into the Nexus acquisition is that we could provide a broader portfolio of products to the NICU channel or the NICU site of care beyond our core feeding products, which is really how we got started in the NICU with some syringe feeding products. That's actually played out really well, which is, Nexus is actually kind of exceeding our plan right now, and we're really pleased with how our teams that are focused on that channel have been able to really drive adoption of the Nexus technology.
It'll be a basis for continued kind of M&A strategy, which is what else can we add to that Neonatal Solutions portfolio that we can sell through our existing channels, and drive adoption. We're happy with it.
The sales channel's an important part that Scott mentioned. You know, the team's got a very strong brand in the NICU. The NICU is sort of a very sacred place in the hospital. The adding to that portfolio, we think is really important. It's got great price, durability in that market. Not a lot of questions when it comes to managing price, when it comes to the safety of a baby and getting a baby healthy. We learned that as we took several price increases due to the tariffs in that market. We're really seen as a company there, and we have clinicians that work for us in that field. We have dieticians, nutritionists that work for us, nurses.
It's just a really strong brand. Building upon that makes a lot of sense. Now, there's not a lot of big markets in the NICU. There's more smaller TAM markets available, but they add up quickly. You'll see us continue to iterate and acquire in that space.
Okay. I guess as we think about 2026, you know, those kind of three buckets, long term, short term, and neonatal, where do you think there's the most opportunity for upside?
I would say, for us, short term, right?
Okay.
Short-term because of the penetration of the market being still so low. There's just a tremendous opportunity to convert more and more accounts. At some point, we'll put a number to how much we feel the market should be penetrated by guided tube placement. We're not quite there yet, but that has the most upside.
Could you remind us of the sizing of those markets? You know, what's the largest and just relative size between those three buckets?
Yeah. Long term is probably the largest of that, and then it would be short term and NICU are similar. Really, I agree with Dave. Biggest opportunities for upside is probably even in short term, where just the value proposition is so clear. If you're doing blinded placement or blind placement with X-ray confirmation, you know, there's just a lot of risk of pneumothorax and other issues. I think there's a lot of upside there.
Right. You know, back to M&A, specifically within your specialty nutrition, can you remind us of some of those kind of adjacent areas that are of interest and, you know, just how you think about those as you progress through this M&A strategy?
Other areas in NICU, right? You know, that could be breast milk management. There's new tools out there now for monitoring babies, like high-end secure camera systems. There could be more medication delivery tools in the NICU. There could be better management using AI tools for making sure the baby's getting the right nutrition at the right time. We have some investments in that area. I would say NICU, you know, the areas we're focusing, building around that. I think as we look at nutrition in general, we have the tubes, we have the long-term feeding tube, we have a short-term solution, but there's other pieces to the puzzle. We don't have a pump, right? A feeding pump's an opportunity for us.
We have an internal program, but we could go external in that area as well. The other question is, we don't actually have nutrition, right? So that's something that we're looking at. That's a very different business, and that's something we have to think about very carefully. We have an ongoing project that we're looking at blended foods, right? We look at that as that's where that market will go, into a blended nutrition. The question for us will be, do we need to be a part of that since we have all the rest of the delivery mechanisms at one point in time or another?
Great. I guess within those areas, could you talk about kind of the competitive landscape? How fragmented is it? Is it, you know, one or two players or kind of just?
Pumps is an area where we certainly have a right to win, we think, because we provide so much already to this enteral feeding patient. It does, there's a couple of large providers today to the space. Blended nutrition is an area, it's actually a pretty fast growth market. I think there's just been a lot, there's a lot of clinical evidence around whole foods and organic foods and as opposed to some of the current nutrition that these patients are on today. That's a good growth market. It's not that competitive, and it's higher growth, that could be an area to get into. We're assessing that opportunity. In the ICU, it just depends on kind of the category.
We do feel like because we have an ICU presence with our short-term feeding business, that there could be expansion opportunities there. You know, competitive intensity just kind of varies by market. You know, yeah. Then on the pain side, there's obviously a different competitive set, but we do like the competitive set that we have on nutrition and the potential adjacencies.
Okay. We touched on it a little bit, but I do wanna focus more on pain management. You know, I guess just how are we thinking about this segment for the year ahead? I think you said low single digits, but just, I guess, even broader than that, long term, how do you think about this business and the role it plays in the company?
Yeah. I think that's where we get a lot of questions because they're two very different businesses. You know, as we mentioned, RF ablation, we seem to have a really strong niche there in terms of the offering we have, and we're growing at a high single digits to almost double-digit growth. I'd see us being in that business, you know, for the time being. There's no reason not to be in it. There's no connectivity to that and the other one, so it's pretty much a standalone. You know, the one we probably have had the most conversations with you about is surgical pain pumps, so that's a market phenomenon. You get a knee replaced, you go home with a non-opioid surgical pain pump that's catheter-based. It's highly effective therapy.
It lasts for, you know, more than five or six days, and it's non-opioid. There's now other products out there. There's Exparel, there's other types of products that you see the market shifting to. What we've talked about with you in the past and with others is we did get the NOPAIN Act reimbursement. It's significant. It's actually material to an ASC, sometimes a couple thousand dollars for every pain pump that goes in. There's an economic argument that there wasn't before that gave a little bit of wind in the products, you know, in terms of maybe some momentum there. We're learning a lot about the reimbursement landscape and people actually getting the reimbursement approved by payers.
We had a fair amount of denials in the first six months of last year, so we had to work with the local MACs in educating them. We're seeing a higher rate of approvals, which is good, but that's a business I would say we're watching very closely. If we go back to our imperatives, which are up here, if we can't improve that business, then you know we're gonna have to either make it look a lot different than it is today in terms of restructuring or divest at some point in time if we don't see the kind of momentum that we wanna see. We have a really good sales team in that business right now.
We think that that's an opportunity to partner with another type of company, maybe an orthopedic company, and some kind of co-marketing arrangement. You know, we announced a co-marketing arrangement with my former company, Siemens Healthineers, on RF ablation, where we're sort of packaging those products together, in the ASCs for RF ablation and their mobile C-arms. We see something similar. We have to find the right company to partner with the pain pumps, but a potential opportunity from a commercial standpoint. Game Ready is in a good market. The market's growing mid-single digits. It's got a great brand recognition. Not a lot of work to do there. We got rid of the problem child, which was the rental business. We just had people focused on the wrong thing. Now we're just focused on our direct sales channel.
Great. I did wanna hit on the other piece of your pain management business, just RF ablation. You've given a little bit of color already, but, you know, what did 2025 look like? Were there any specific dynamics that you thought were encouraging in 2026 and beyond? How does it look?
Yeah. What's gone really well there is you know, what drives the volumes in RF is placement of generators, right? We continue to see kinda record years on generator sales and we monitor those things and make sure that that capital is producing the procedural volume, the procedural pull-through that we need. Those are delivering. We have a really strong three-tiered offering that has. We have a high-end product for the hospital that gives us the really focused more on the hospital. It has a highest term of pain relief. We have a mid-tier product. It was actually part of our acquisition of Diros we did a few years ago that's gone very well. It's really more of an ASC-focused product called the Trident.
Our conventional RF, which is Ascenx. We have a portfolio of products or therapies that helps treat procedures at the hospital, at the ASC, and has kind of different features and benefits and a really effective team that's executing well. The last thing I'd say there is we've had good tailwinds from international. There's some good reimbursement trends and dynamics in the UK and in Japan that are helping that business. The base is lower, but we're seeing really good organic growth numbers out of our RF business internationally.
Great. I guess just to wrap the product segments, could you talk a little bit about product development, what we can expect in 2026, and kind of your pipeline beyond that?
Yeah. When we did our announcement of restructuring of the company and the cost takeout that we did, we also announced a restructuring of our R&D. We have an internal R&D team that'll be focused on certain projects, but we're gonna outsource projects. We've already signed an agreement with two companies, one with a feeding pump and one tied to ablation. We'll have someone else do the R&D work for us. The reason why we did that, and I'll talk about the products in a second, but the reason why we did it is if there are areas that we don't think we have the expertise, rather than us banging our head against the wall and keep trying to develop it, let's farm that out to someone who's got expertise. We can put a contract together with them.
They'll give a certain confidence level that the product that they're developing for us will come out by a certain period of time. Flex is a company like that as an example, not just on the manufacturing, but they do R&D work too. We feel like we've removed, I would say, some of the uncertainty that the organization had in the past about getting products out by outsourcing a lot of it. Insourcing, especially or mostly in our Specialty Nutrition, our next generation, long-term feeding tube, the replacement for MIC-KEY, that will be something we come out with by the end of the year. You know, by the end of the year or the beginning of early next year, that will be an important development for the team.
There's an aspiration device for in the NICU that the team's developing as well. What was the other?
The Moana.
Moana.
Yeah.
It's.
It's a bolus.
It's a bolus system.
Yeah.
The internal team will work on that. They're all 12- to 18-month projects. On the external side, it's feeding pumps. There could be. We're not talking much about it yet, but an extension of our indications in RF ablation with an external partner.
Right
as well. We're also looking at Game Ready, if there's some innovation there that we need to do, you know, we'll look at that as well.
Great. I wanna bring it back to some of your focus on tariffs. I mean, we talked about your mitigation plans, and, you know, it sounds like you're ahead of schedule in kind of getting the syringes out of China.
Yep.
You know, I guess since your earnings call, is there anything else that's new? I know, you know, the Supreme Court has made some rulings, seems like those might have been flipped. You know, there's some other macro events that are happening in the world. You know, any other color on tariffs that you could add?
Yeah. I mean, again, we feel that we have tariffs coming to a helping us from a positive standpoint as we get to June because our big tariff burden was the Section 301 tariff in China for syringes. As we now are since our earnings call, now producing products in our 2 new locations, now we have the confidence that, you know, we'll be able to sell out of those 2 locations here shortly, which will be important for us. Everything in Mexico has been pretty steady state.
Now, as it relates to the ongoing events around the world, you know, it's probably hard to call, but if things continue the way they are, we'll have to watch that because, you know, we have increased costs in shipping and maybe raw material impact. We don't know at this point in time if we have an issue there. We don't see it, but as you know, you don't wanna see anything progress too long, and then it creates another problem. We don't see another tariff situation right now that would hurt us moving forward from everything we're hearing from the administration. Again, for us, it was the 301 tariff, getting that behind us, which we're, you know, like, weeks away from at this point in time, which will be good for us.
Okay. I guess just to continue on that, within the scope of EPS for 2026, you got it to $1. That's with an extra, I think, $12 million-$13 million in incremental tariffs. You know, could you talk about your confidence there? What's at the high level and low level of that guidance?
Yep
You know, how you think about that?
We feel good about it. We're in, you know, mid-March, I guess, and we feel good about that guidance at this point. It assumes mid-single digit growth on a consolidated basis, and obviously we've talked about what that means for the segments. What was really important, especially as Dave came on, was knowing that we would have a tariff headwind coming into 2026, and we've now quantified that, which is about $12 million of additional tariff as compared to 2025. Yes, could we more than offset that so that we could show earnings expansion this year? Our guidance reflects that, and we're confident in that plan, which is, you know, through pricing. We've worked with some customers who understand the tariff situation and the impact of Section 301.
We've been able to get some price, as well as the benefits from the cost savings program that was really executed in Q4. We announced $15 million-$20 million of incremental annualized savings from that. Between price and the savings we'll realize from that, we'll be able to, again, in the face of $12 million of additional tariff, we'll be able to show, you know, good solid earnings expansion above our, you know, revenue growth. Feel good about that plan, and obviously if there's any updates to that that are relevant for kind of the broader investing community this year, we'll share those if or when they're.
Great
relevant.
Well, with that, we're at time, and thank you both again. Dave, Scott.
Thank you very much.
Thanks for coming.
We appreciate it.