10-Q 1 avns-20220630.htm 10-Q avns-20220630
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
OR
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________  
Commission file number 001-36440
avns-20220630_g1.jpg
AVANOS MEDICAL, INC.
(Exact name of registrant as specified in its charter)
Delaware46-4987888
(State or other jurisdiction of incorporation)(I.R.S. Employer Identification No.)
5405 Windward Parkway
Suite 100 South
Alpharetta,Georgia30004
(Address of principal executive offices)(Zip code)
Registrant’s telephone number, including area code: (844) 428-2667
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of exchange on which registered
Common Stock - $0.01 Par ValueAVNSNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerEmerging growth company
Smaller reporting company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes      No  
As of July 29, 2022, there were 46,487,028 shares of the registrant’s common stock outstanding.    




Table of Contents


2



Information Concerning Forward-Looking Statements
This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are included throughout this Form 10-Q, including in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements include all statements that do not relate solely to historical or current facts, and can generally be identified by the use of words such as “may,” “believe,” “will,” “expect,” “intend,” “predict,” “potential,” “project,” “estimate,” “anticipate,” “plan,” or “continue” and similar expressions. The matters discussed in these forward-looking statements are based on the current plans and expectations of our management and are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied in the forward-looking statements. These factors include, but are not limited to:
general economic conditions, particularly in the United States;
fluctuations in global equity and fixed-income markets;
risks related to the ongoing COVID-19 pandemic;
the competitive environment;
the loss of current customers or the inability to obtain new customers;
litigation and enforcement actions;
disruption in the supply of raw materials or the distribution of finished goods;
price fluctuations in key commodities;
fluctuations in currency exchange rates;
changes in governmental regulations that are applicable to our business;
our ability to realize the intended benefits of acquisition or merger transactions;
changes in asset valuations, including write-downs of assets such as inventory, accounts receivable or other assets for impairment or other reasons; and
any other matters described in Item 1A - “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “Form 10-K”) and Part II, Item 1A - “Risk Factors” in this Form 10-Q.
You are cautioned not to unduly rely on such forward-looking statements when evaluating the information in this Form 10-Q. Where, in any forward-looking statement, an expectation or belief as to future results or events is expressed, such expectation or belief is based on the current plans and expectations of our management and expressed in good faith, and is believed to have a reasonable basis. There can be no assurance that any such expectation or belief will be achieved or accomplished.
Any forward-looking statement made in this Form 10-Q speaks only as of the date of this report. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by applicable securities laws.
3

PART I – FINANCIAL INFORMATION
Item 1.     Financial Statements
AVANOS MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(in millions, except per share amounts)
(Unaudited)
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Net Sales$203.0 $186.4 $400.4 $367.1 
Cost of products sold88.1 100.7 178.3 190.1 
Gross Profit114.9 85.7 222.1 177.0 
Research and development8.0 8.0 15.8 16.3 
Selling and general expenses87.1 76.7 177.2 150.1 
Other expense, net0.8 8.3 0.9 30.3 
Operating Income (Loss)19.0 (7.3)28.2 (19.7)
Interest income0.2  0.2  
Interest expense(2.7)(0.9)(4.0)(1.7)
Income (Loss) Before Income Taxes16.5 (8.2)24.4 (21.4)
Income tax (provision) benefit(5.1)46.1 (7.2)51.7 
Net Income$11.4 $37.9 $17.2 $30.3 
Earnings Per Share
Basic$0.24 $0.79 $0.36 $0.63 
Diluted$0.24 $0.78 $0.36 $0.62 


See Notes to the Condensed Consolidated Financial Statements.
4

AVANOS MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
(Unaudited)
 Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Net Income$11.4 $37.9 $17.2 $30.3 
Other Comprehensive (Loss) Income, Net of Tax
Unrealized currency translation adjustments(5.7)2.3 (4.0)(1.9)
Comprehensive Income$5.7 $40.2 $13.2 $28.4 

See Notes to the Condensed Consolidated Financial Statements.


5

AVANOS MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
(Unaudited)
June 30,
2022
December 31,
2021
ASSETS
Current Assets
Cash and cash equivalents$106.5 $118.5 
Accounts receivable, net of allowances145.4 131.2 
Inventories169.0 150.3 
Prepaid and other current assets16.2 18.6 
Total Current Assets437.1 418.6 
Property, Plant and Equipment, net164.3 168.1 
Operating Lease Right-of-Use Assets33.9 38.6 
Goodwill825.0 801.6 
Other Intangible Assets, net264.9 141.2 
Deferred Tax Assets11.1 10.0 
Other Assets16.5 16.5 
TOTAL ASSETS$1,752.8 $1,594.6 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Current portion of long-term debt$4.7 $ 
Current portion of operating lease liabilities13.5 14.7 
Trade accounts payable64.2 56.4 
Accrued expenses68.7 68.1 
Total Current Liabilities151.1 139.2 
Long-Term Debt249.3 130.0 
Operating Lease Liabilities38.4 42.8 
Deferred Tax Liabilities34.7 9.6 
Other Long-Term Liabilities27.7 9.1 
Total Liabilities501.2 330.7 
Commitments and Contingencies
Stockholders’ Equity
Preferred stock - $0.01 par value - authorized 20,000,000 shares, none issued
  
Common stock - $0.01 par value - authorized 300,000,000 shares, 46,849,951 outstanding as of June 30, 2022 and 48,206,156 outstanding as of December 31, 2021
0.5 0.5 
Additional paid-in capital1,637.4 1,628.8 
Accumulated deficit(293.1)(310.3)
Treasury stock(55.4)(21.3)
Accumulated other comprehensive loss(37.8)(33.8)
Total Stockholders’ Equity1,251.6 1,263.9 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$1,752.8 $1,594.6 

See Notes to the Condensed Consolidated Financial Statements.
6

AVANOS MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(in millions)
(Unaudited)
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Common Stock$0.5 $0.5 $0.5 $0.5 
Additional Paid-in Capital, beginning of period1,633.3 1,617.3 1,628.8 1,609.4 
Exercise or redemption of share-based awards0.1 0.4 0.8 5.2 
Stock-based compensation expense4.0 3.6 7.8 6.7 
Additional Paid-in Capital, end of period1,637.4 1,621.3 1,637.4 1,621.3 
Accumulated Deficit, beginning of period(304.5)(323.1)(310.3)(315.5)
Net income11.4 37.9 17.2 30.3 
Accumulated Deficit, end of period(293.1)(285.2)(293.1)(285.2)
Treasury Stock, beginning of period(40.7)(9.8)(21.3)(9.8)
Purchases of treasury stock(14.7)(0.5)(34.1)(0.5)
Treasury Stock, end of period(55.4)(10.3)(55.4)(10.3)
Accumulated Other Comprehensive (Loss) Income, beginning of period(32.1)(32.3)(33.8)(28.1)
Other comprehensive income (loss), net of tax(5.7)2.3 (4.0)(1.9)
Accumulated Other Comprehensive (Loss) Income, end of period(37.8)(30.0)(37.8)(30.0)
Total Stockholders’ Equity, end of period$1,251.6 $1,296.3 $1,251.6 $1,296.3 


See Notes to the Condensed Consolidated Financial Statements.


7

AVANOS MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
(in millions)
(Unaudited)
Six Months Ended June 30,
20222021
Operating Activities
Net income$17.2 $30.3 
Depreciation and amortization22.7 19.2 
Stock-based compensation expense7.8 6.7 
Net loss on asset dispositions and impairments 4.9 
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable(6.9)1.3 
Inventories(17.1)8.7 
Prepaid expenses and other assets0.6 1.3 
Accounts payable33.5 (2.2)
Accrued expenses(28.7)(5.6)
Deferred income taxes and other(0.3)(52.6)
Cash Provided by Operating Activities28.8 12.0 
Investing Activities
Capital expenditures(9.1)(11.5)
Acquisition of assets and investments in businesses(116.7) 
Cash Used in Investing Activities(125.8)(11.5)
Financing Activities
Proceeds from issuance of secured debt250.0  
Secured debt repayments(125.0) 
Revolving credit facility proceeds150.0  
Revolving credit facility repayments(150.0)(15.0)
Purchases of treasury stock(34.1)(0.5)
Payments of debt issuance costs(2.9) 
Proceeds from the exercise of stock options0.8 5.2 
Cash Provided by (Used in) Financing Activities88.8 (10.3)
Effect of Exchange Rate Changes on Cash and Cash Equivalents(3.8)(1.8)
Decrease in Cash and Cash Equivalents(12.0)(11.6)
Cash and Cash Equivalents - Beginning of Period118.5 111.5 
Cash and Cash Equivalents - End of Period$106.5 $99.9 


See Notes to the Condensed Consolidated Financial Statements.

8

AVANOS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1.    Accounting Policies
Background and Basis of Presentation
Avanos Medical, Inc. 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. We develop, manufacture and market clinically superior solutions in more than 90 countries. References herein to “Avanos,” “Company,” “we,” “our” and “us” refer to Avanos Medical, Inc. and its consolidated subsidiaries.
Interim Financial Statements
We prepared the accompanying unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to the Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements, and the condensed consolidated financial statements in this Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021. Our unaudited interim condensed consolidated financial statements contain all necessary material adjustments, which are of a normal and recurring nature, to fairly state our financial condition, results of operations and cash flows for the periods presented.
Use of Estimates
Preparation of our condensed consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting periods. Estimates are used in accounting for, among other things, distributor rebate accruals, future cash flows associated with impairment testing for goodwill and long-lived assets, loss contingencies, and deferred tax assets and potential income tax assessments. Our estimates are subject to uncertainties associated with supply chain disruptions, which have caused volatility and adverse effects in global markets. Actual results could differ from these estimates, and the effect of any change could be material to our financial statements. Changes in these estimates are recorded when known.
Recently Adopted Accounting Pronouncements
Effective January 1, 2022, we adopted Accounting Standards Update (“ASU”) No. 2021-04, Issuers Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This ASU is intended to clarify accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity-classified after modification or exchange. The accounting is determined based on whether the transaction was done to issue equity, issue or modify debt or for other reasons. Adoption of this ASU did not have a material effect on our financial position, results of operations or cash flows.
Recently Issued Accounting Pronouncements
In October 2021, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2021-08, Business Combinations: Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU pertains to acquired revenue contracts with customers in a business combination and addresses diversity in practice and inconsistency related to recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer. This ASU is to be applied prospectively for years beginning after December 15, 2022. Adoption of this ASU is not expected to have a material effect on our financial position, results of operations or cash flows.


9

Note 2.    Business Acquisition
On January 20, 2022, we acquired all of the equity voting interests and completed the acquisition of OrthogenRx, Inc. (“OrthogenRx”), which is focused on the development and commercialization of treatments for knee pain caused by osteoarthritis. We expect the acquisition of OrthogenRx will enhance our chronic pain portfolio. The initial purchase price was $130 million at closing less working capital adjustments, with up to an additional $30 million payable in contingent cash consideration based on OrthogenRx’s growth in net sales during 2022 and 2023. The purchase price was funded by available cash on hand and the proceeds of borrowings, including an incremental $125.0 million tranche of term loans. The accompanying condensed consolidated income statement for the three and six months ended June 30, 2022 includes $21.8 million and $36.5 million of net sales, respectively, from OrthogenRx since the closing of the acquisition. In the three and six months ended June 30, 2022, we incurred $0.3 million and $1.4 million of costs, respectively, in connection with the OrthogenRx acquisition, which are included in “Selling and general expenses.”
We accounted for the OrthogenRx acquisition under the acquisition method of accounting for business combinations. Accordingly, the purchase price paid was allocated to the underlying net assets in proportion to their respective fair values. The fair value of the net assets acquired are based on estimates and assumptions relating to certain intangible assets acquired, liabilities assumed, income taxes and loss contingencies, which are subject to change during the measurement period (up to one year from the acquisition date). Any excess of the purchase price over the estimated fair values was recorded as goodwill. Fair values of assets acquired and liabilities assumed were determined using discounted cash flow analyses, and the fair value of the contingent cash consideration was estimated using a Monte Carlo simulation. The purchase price allocation, net of cash acquired, is shown in the table below (in millions):
Accounts receivable, net$14.3 
Inventory2.8 
Other current assets0.4 
Accounts payable(5.4)
Other current liabilities(13.0)
Contingent consideration(9.2)
Other non-current assets (liabilities)(9.5)
Deferred tax liability(23.7)
Identifiable intangible assets135.6 
Goodwill24.4 
Total$116.7 
Goodwill arising from the OrthogenRx acquisition is not fully tax deductible. The identifiable intangible assets relating to the OrthogenRx acquisition include the following (in millions, except years):
Identifiable Intangible Asset AmountWeighted Average Useful Lives (Years)
Trademarks$1.3 10
Other134.3 14
Total$135.6 
Other intangible assets are primarily related to the OrthogenRx products that we currently market and distribute, combined into one composite intangible asset that includes customer relationships and exclusive distribution rights.

10

The following unaudited pro forma financial information is presented in the table below for the three and six months ended June 30, 2022 and 2021 as if the acquisition had occurred on January 1, 2021 (in millions, except per share amounts):
Three Months Ended June 30,Six Months Ended June 30,
2022 (Unaudited)2021 (Unaudited)2022 (Unaudited)2021 (Unaudited)
Net sales$203.0 $205.9 $402.7 $401.1 
Net income$12.2 $43.9 $20.2 $38.2 
Earnings Per Share:
Basic$0.26 $0.91 $0.43 $0.79 
Diluted$0.26 $0.90 $0.42 $0.78 
The pro forma financial information has been adjusted to include the effects of the acquisition, including acquisition-related costs, amortization of acquired intangibles and related tax effects. The pro-forma financial information is not necessarily indicative of the results of operations that would have been achieved.

Note 3.    Supplemental Balance Sheet Information
Accounts Receivable
Accounts receivable consist of the following (in millions):
June 30, 2022December 31, 2021
Accounts receivable$143.6 $122.0 
Income tax receivable7.9 13.0 
Allowances and doubtful accounts:
Doubtful accounts(5.8)(3.6)
Sales discounts(0.3)(0.2)
Accounts receivable, net$145.4 $131.2 
Losses on receivables are estimated based on known troubled accounts and historical experience. Receivables are considered impaired and written off when it is probable that payments due will not be collected. Our provision for doubtful accounts was a net expense of $0.3 million and $0.6 million for the three and six months ended June 30, 2022, respectively, compared to a net benefit of $0.2 million and $0.6 million for the three and six months ended June 30, 2021, respectively.
Inventories
Inventories at the lower of cost (determined on the LIFO/FIFO or weighted-average cost methods) or market consists of the following (in millions):
June 30, 2022December 31, 2021
LIFONon-
LIFO
TotalLIFONon-
LIFO
Total
Raw materials$48.5 $1.7 $50.2 $45.6 $2.1 $47.7 
Work in process34.7  34.7 33.2  33.2 
Finished goods67.1 19.5 86.6 55.7 15.9 71.6 
Supplies and other0.2 7.2 7.4  6.8 6.8 
150.5 28.4 178.9 134.5 24.8 159.3 
Excess of FIFO or weighted-average cost over LIFO cost(9.9) (9.9)(9.0)— (9.0)
Total
$140.6 $28.4 $169.0 $125.5 $24.8 $150.3 
11


Property, Plant and Equipment
Property, plant and equipment consists of the following (in millions):
June 30, 2022December 31, 2021
Land$1.1 $1.1 
Buildings and leasehold improvements49.0 48.0 
Machinery and equipment226.2 223.2 
Construction in progress34.1 32.0 
310.4 304.3 
Less accumulated depreciation(146.1)(136.2)
Total$164.3 $168.1 
Depreciation expense was $5.4 million and $10.8 million for the three and six months ended June 30, 2022, respectively, compared to $5.4 million and $10.9 million for the three and six months ended June 30, 2021, respectively.
Goodwill and Intangible Assets
The changes in the carrying amount of goodwill are as follows (in millions):
Goodwill
Balance, December 31, 2021$801.6 
Goodwill acquired (a)
24.4 
Currency translation adjustment(1.0)
Balance, June 30, 2022$825.0 
____________________________________________
(a)We acquired $24.4 million of goodwill in conjunction with the acquisition of OrthogenRx described in Note 2, “Business Acquisition.” Goodwill was allocated to our existing medical devices reporting segment.
Intangible assets subject to amortization consist of the following (in millions):
June 30, 2022December 31, 2021
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying AmountGross
Carrying
Amount
Accumulated
Amortization
Net Carrying Amount
Trademarks$92.5 $(65.6)$26.9 $90.9 $(64.0)$26.9 
Patents and acquired technologies278.8 (189.7)89.1 271.7 (177.7)94.0 
Other187.6 (38.7)148.9 61.2 (40.9)20.3 
Total$558.9 $(294.0)$264.9 $423.8 $(282.6)$141.2 
In the first quarter of 2022, we acquired $135.6 million of identified intangibles in conjunction with our acquisition of OrthogenRx, as described in Note 2, “Business Acquisition.” Amortization expense for intangible assets is included in “Costs of products sold” and “Selling and general expenses” and was $6.2 million and $11.9 million for the three and six months ended June 30, 2022, respectively, compared to $4.1 million and $8.3 million for the three and six months ended June 30, 2021, respectively.

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Amortization expense for the remainder of 2022 and the following four years and thereafter is estimated as follows (in millions):
Amount
Remainder of 2022$18.5 
202329.9 
202429.9 
202529.3 
202622.7 
Thereafter134.6 
Total$264.9 
Accrued Expenses
Accrued expenses consist of the following (in millions):
June 30, 2022December 31, 2021
Accrued rebates and customer incentives$21.0 $24.5 
Accrued salaries and wages29.2 29.3 
Accrued taxes and other5.2 3.0 
Other13.3 11.3 
Total$68.7 $68.1 
Other Long-Term Liabilities
Other long-term liabilities consist of the following (in millions):
June 30, 2022December 31, 2021
Accrued compensation and benefits$4.2 $4.4 
Other (a)
23.5 4.7 
Total$27.7 $9.1 
__________________________________________________
(a)For the June 30, 2022 period presented, amounts primarily relate to contingent consideration and indemnification liability associated with the OrthogenRx acquisition as described in Note 2, “Business Acquisition.”
Note 4.    Fair Value Information
The following fair value information is based on a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels in the hierarchy used to measure fair value are:
Level 1: Unadjusted quoted prices in active markets accessible at the reporting date for identical assets and liabilities.
Level 2: Quoted prices for similar assets or liabilities in active markets. Quoted prices for identical or similar assets and liabilities in markets that are not considered active or financial instruments for which all significant inputs are observable, either directly or indirectly.
Level 3: Prices or valuations that require inputs that are significant to the valuation and are unobservable.

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A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The following table includes the fair value of our financial instruments for which disclosure of fair value is required (in millions):
June 30, 2022December 31, 2021
Fair Value
Hierarchy
Level
Carrying
Amount
Estimated
Fair
Value
Carrying
Amount
Estimated
Fair
Value
Assets
Cash and cash equivalents1$106.5 $106.5 $118.5 $118.5 
Liabilities
Revolving Credit Facility2$130.0 $130.0 $130.0 $130.0 
Term Loan Facility2124.0 124.0   
Contingent consideration related to acquisition39.2 9.2   
Cash equivalents are recorded at cost, which approximates fair value due to their short-term nature. The fair value of amounts borrowed under our Revolving Credit Facility and Term Loan Facility approximates carrying value because borrowings are subject to a variable rate as described in Note 5, “Debt.” The fair value amount of the contingent consideration was determined using a Monte Carlo simulation using assumptions regarding net sales volatility, discount rate and others. See further discussion of the acquisition of OrthogenRx in Note 2, “Business Acquisition.”
Note 5.     Debt
As of June 30, 2022 and December 31, 2021, our respective debt balances were as follows (in millions):
Weighted-Average Interest RateMaturityJune 30, 2022December 31, 2021 (a)
Revolving Credit Facility4.18 %2027$130.0 $130.0 
Term Loan Facility4.18 %2027125.0  
255.0 130.0 
Unamortized debt issuance costs(1.0) 
Current portion of long-term debt(4.7) 
Total Long-Term Debt, net$249.3 $130.0 
____________________________________________
(a)Borrowings for this period presented were under the Amended and Restated Credit Agreement dated as of October 30, 2018.

On June 24, 2022, we entered into a credit agreement (the “Credit Agreement”) with certain lenders which established credit facilities in an aggregate principal amount of $500.0 million, consisting of a five-year senior secured term loan of $125.0 million (the “Term Loan Facility”) and a five-year senior secured revolving credit facility allowing borrowings of up to $375.0 million, with a letter of credit subfacility in an amount of $75.0 million (the “Revolving Credit Facility”). All obligations under the Credit Agreement and certain hedging agreements and cash management arrangements thereunder are: (i) guaranteed by each of the Company’s direct and indirect, existing and future, material wholly owned domestic subsidiaries (“Guarantors”) and (ii) secured by a first priority lien on substantially all the assets of the Company and the Guarantors. The Credit Agreement contains an accordion feature that allows us to incur incremental term loans under the Term Loan Facility or under new term loan facilities or to increase the amount of the commitments under the Revolving Credit Facility, including through the establishment of one or more tranches under the Revolving Credit Facility. The Credit Agreement will mature on June 24, 2027.
Borrowings under the Term Loan Facility and Revolving Credit Facility bear interest at our option at either: (i) an adjusted term secured overnight financing rate (“SOFR”), plus a margin ranging between 1.50% to 2.00% per annum, depending on our consolidated total leverage ratio; (ii) an adjusted daily simple SOFR rate, plus a margin ranging between 1.50% to 2.00% per annum, depending on our consolidated total leverage ratio; or (iii) a base rate (calculated as the greatest of (a) the prime rate, (b) the NYFRB rate (being the greater of the federal funds effective rate or the overnight bank funding rate) plus 0.50%, and (c) the one month adjusted term SOFR rate plus 1.00%), plus a margin ranging between 0.50% to 1.00% per annum, depending on our consolidated total leverage ratio. The unused portion of the Revolving Credit Facility will be subject to a commitment fee ranging between 0.20% to 0.25% per annum, depending on our consolidated total leverage ratio. Unamortized debt discount
14

and issuance costs are being amortized to interest expense over the life of the Term Loan Facility using the interest method, resulting in an effective interest rate of 4.4% as of June 30, 2022.
The Credit Agreement requires compliance with certain customary operational and financial covenants. As of June 30, 2022, we were in compliance with these covenants. In addition, the Credit Agreement contains certain other customary limitations on our ability to, among other things: incur additional indebtedness; pay dividends on or repurchase or redeem our capital stock; make loans, investments and acquisitions; sell, transfer or otherwise dispose of assets; guarantee other obligations; create or grant liens; and enter into certain types of transactions with affiliates. Notwithstanding such limitations, the Credit Agreement allows us to pay dividends, repurchase stock and make investments up to an “Available Amount,” as defined in the Credit Agreement, provided no event of default has occurred and certain financial ratios have been achieved on a pro forma basis. We are permitted to prepay all or a portion of the Term Loan Facility and the Revolving Credit Facility at any time without premium or penalty. As of June 30, 2022, we had $130.0 million of borrowings under the Revolving Credit Facility.
In connection with entering into the Credit Agreement, we terminated the Amended and Restated Credit Agreement dated as of October 30, 2018 by and among the Company, the lenders thereunder and Citibank N.A., as administrative agent (as amended and supplemented, the “Prior Credit Agreement”). The Prior Credit Agreement established a $250.0 million senior secured revolving credit facility, with a letter of credit sub-facility of $25.0 million. The Prior Credit Agreement was scheduled to mature on October 30, 2023. As a result of terminating the Prior Credit Agreement, for the three months ended June 30, 2022, we incurred a debt extinguishment loss of $1.1 million which is included in “Interest expense” in the accompanying consolidated income statement.
Debt Payments
The Credit Agreement requires quarterly principal installment payments on the Term Loan Facility of 10 percent of the total principal borrowed for the first eight quarters following funding and then quarterly installment payments of 20 percent of the total principal borrowed, at which time the remaining unpaid principal amount of the Term Loan Facility is due and payable by the Company upon the maturity date of June 24, 2027. The current portion of the Term Loan Facility is $4.7 million. Interest is payable quarterly. We have the right to voluntarily prepay the Term Loan Facility in accordance with the terms of the Credit Agreement. Interest is payable at the same rates set forth above for the Revolving Credit Facility
As of June 30, 2022, the aggregate amounts of long-term debt that will mature during each of the next four years and thereafter are as follows (in millions):
Amount
Remainder of 2022$1.6 
20236.2 
20247.0 
20259.4 
202610.2 
Thereafter220.6 
Total$255.0 
15

Note 6.    Accumulated Other Comprehensive Income
The changes in the components of Accumulated Other Comprehensive Income (“AOCI”), net of tax, are as follows (in millions):
Unrealized Currency
Translation
Accumulated
Other
Comprehensive Loss
Balance, December 31, 2021$(33.8)$(33.8)
Other comprehensive income (loss)(4.0)(4.0)
Balance, June 30, 2022$(37.8)$(37.8)
The net changes in the components of AOCI, including the tax effect, are as follows (in millions):
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Unrealized currency translation$(5.7)$2.3 $(4.0)$(1.9)
Change in AOCI
$(5.7)$2.3 $(4.0)$(1.9)
Note 7.     Stock-Based Compensation
Stock-based compensation expense is included in “Cost of products sold,” “Research and development,” and “Sales and general expenses.” Stock-based compensation expense for the three and six months ended June 30, 2022 and 2021 is shown in the table below (in millions):
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Stock options$0.2 $0.5 $0.6 $1.1 
Time-based restricted share units2.9 2.5 5.5 4.3 
Performance-based restricted share units0.8 0.6 1.5 1.2 
Employee stock purchase plan0.1  0.2 0.1 
Total stock-based compensation$4.0 $3.6 $7.8 $6.7 

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Note 8.    Commitments and Contingencies
Legal Matters
We are subject to various legal proceedings, claims and governmental inspections, audits or investigations pertaining to issues such as contract disputes, product liability, tax matters, patents and trademarks, advertising, governmental regulations, employment and other matters. Under the terms of the distribution agreement we entered into with Kimberly-Clark Corporation (“Kimberly-Clark”) prior to our 2014 spin-off from Kimberly-Clark, legal proceedings, claims and other liabilities that are primarily related to our business are our responsibility and we are obligated to indemnify and hold Kimberly-Clark harmless for such matters.
Government Investigation
In June 2015, we were served with a subpoena from the Department of Veterans Affairs Office of the Inspector General (“VA OIG”) seeking information related to the design, manufacture, testing, sale and promotion of MicroCool and other surgical gowns produced by the Company. In July 2015, we became aware that the VA OIG subpoena and an earlier VA OIG subpoena served on Kimberly-Clark requesting information about gown sales to the federal government were related to a United States Department of Justice (“DOJ”) investigation. In May 2016, April 2017 and September 2018, we received additional subpoenas from the DOJ seeking further information related to the Company’s surgical gowns.
On July 6, 2021, we entered into a Deferred Prosecution Agreement (“DPA”) with the DOJ that resolved their criminal investigation related to our MicroCool surgical gowns. Pursuant to the terms of the DPA, in July 2021 the Company made a payment of $22.2 million. We continue to comply with the terms of the DPA.
Patent Litigation
We operate in an industry characterized by extensive patent litigation. Competitors may claim that our products infringe upon their intellectual property. Resolution of patent litigation or other intellectual property claims is typically time consuming and costly and can result in significant damage awards and injunctions that could prevent the manufacture and sale of the affected products or require us to make significant royalty payments in order to continue selling the affected products.
At any given time, we may be involved as either a plaintiff or a defendant in a number of patent infringement actions, the outcomes of which may not be known for prolonged periods of time.
General
While we maintain general and professional liability, product liability and other insurance, our insurance policies may not cover all of these matters and may not fully cover liabilities arising out of these matters. In addition, we may be obligated to indemnify our directors and officers against these matters.
We record provisions in the consolidated financial statements for pending litigation when we determine that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. For any matters that are reasonably possible to result in loss and for which no possible loss or range of loss is disclosed in this Form 10-Q, management has determined that it is unable to estimate the possible loss or range of loss because, in each case, at least the following facts applied: (a) the matter is at an early stage of the proceedings; (b) the damages are indeterminate, unspecified or determined to be immaterial; and (c) significant factual issues have yet to be resolved. At present, although the results of litigation and claims cannot be predicted with certainty, we believe that the ultimate resolution of any pending legal proceeding to which we are a party will not have a material adverse effect on our business, financial condition, results of operations or liquidity.
Environmental Compliance
We are subject to federal, state and local environmental protection laws and regulations with respect to our business operations. We believe we are operating in compliance with, or are taking action aimed at ensuring compliance with, these laws and regulations. None of our compliance obligations with environmental protection laws and regulations, individually or in the aggregate, is expected to have a material adverse effect on our business, financial condition, results of operations or liquidity.

17

Note 9.    Earnings Per Share (“EPS”)
Basic EPS is calculated by dividing net income by the weighted average number of common shares outstanding during each period. Diluted earnings per share is calculated by dividing net income by the number of common shares outstanding and the effect of all dilutive common stock equivalents outstanding during each period, as determined using the treasury stock method.
The calculation of basic and diluted earnings per share for the three and six months ended June 30, 2022 and 2021 is set forth in the following table (in millions, except per share amounts):
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Net income$11.4 $37.9 $17.2 $30.3 
Weighted Average Shares Outstanding:
Basic weighted average shares outstanding47.2 48.1 47.3 48.0 
Dilutive effect of stock options and restricted share unit awards0.4 0.5 0.4 0.6 
Diluted weighted average shares outstanding47.6 48.6 47.7 48.6 
Earnings Per Share
Basic$0.24 $0.79 $0.36 $0.63 
Diluted$0.24 $0.78 $0.36 $0.62 
Restricted share units (“RSUs”) contain provisions allowing for the equivalent of any dividends paid on common stock during the restricted period to be reinvested into additional RSUs at the then fair market value of the common stock on the date the dividends are paid. Such awards are to be included in the EPS calculation under the two-class method. Currently, we do not anticipate any cash dividends for the foreseeable future and our outstanding RSU awards are not material in comparison to our weighted average shares outstanding. Accordingly, all EPS amounts reflect shares as if they were fully vested and the disclosures associated with the two-class method are not presented herein.
For the three and six months ended June 30, 2022, 2.0 million and 1.7 million of potentially dilutive stock options and RSU awards were excluded from the computation of earnings per share as their effect would have been anti-dilutive.

Note 10.    Business and Products Information
We conduct our business in one operating and reportable segment that provides our medical device products to healthcare providers and patients in more than 90 countries with manufacturing facilities in the United States and Mexico.
We provide a portfolio of innovative product offerings focused on chronic care and pain management to improve patient outcomes and reduce the cost of care. Our management evaluates net sales by product category within our single reportable segment as follows (in millions):
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Chronic Care:
Digestive health$80.2 $79.5 $161.6 $157.5 
Respiratory health32.1 36.5 70.2 79.6 
Total Chronic Care112.3 116.0 231.8 237.1 
Pain Management:
Acute pain$41.2 $43.7 $79.9 $80.8 
Interventional pain49.5 26.7 88.7 49.2 
Total Pain Management90.7 70.4 168.6 130.0 
Total Net Sales$203.0 $186.4 $400.4 $367.1 
Chronic care is a portfolio of products including:
Digestive health products such as our Mic-Key enteral feeding tubes, Corpak patient feeding solutions and NeoMed neonatal and pediatric feeding solutions; and
18

Respiratory health products such as our closed airway suction systems and other airway management devices marketed under the Ballard, Microcuff and Endoclear brands.
Pain management is a portfolio of non-opioid pain solutions including:
Acute pain products such as On-Q and ambIT surgical pain pumps and Game Ready cold and compression therapy systems; and
Interventional pain solutions, which provide minimally invasive pain relief therapies, such as our Coolief pain therapy and OrthogenRx’s pain relief injection products.
Liabilities for estimated returns, rebates and incentives are presented in the table below (in millions):
June 30, 2022December 31, 2021
Accrued rebates$11.4 $14.3 
Accrued customer incentives9.6 10.2 
Accrued rebates and customer incentives21.0 24.5 
Accrued sales returns(a)
0.1 0.1 
Total estimated liabilities$21.1 $24.6 
__________________________________________________
(a)Accrued sales returns are included in “Other” in the accrued expenses table in Note 3, “Supplemental Balance Sheet Information.”
Due to the nature of our business, we receive purchase orders for products under supply agreements which are normally fulfilled within three to four weeks. Our performance obligations under purchase orders are satisfied and revenue is recognized at a point in time, which is upon shipment or upon delivery of our products, depending on shipping terms. Accordingly, we normally do not have transactions that give rise to material unfulfilled performance obligations.

Note 11.    Share Repurchase Programs
On December 15, 2021, we announced that our Board of Directors had approved a share repurchase program authorizing us to repurchase up to $30.0 million of our common stock. We established a pre-arranged trading plan in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Rule 10b5-1 trading plan permits common stock to be repurchased over a twelve-month period. In the fourth quarter of 2021, we repurchased $10.7 million of our common stock and during the first quarter of 2022, we repurchased an additional $19.3 million of our common stock.
On May 16, 2022, the Board of Directors approved a new one-year program under which we may repurchase up to $25.0 million of our common stock. Repurchases under this program will be made from time to time at management’s discretion on the open market or through privately negotiated transactions in compliance with Rule 10b-18 under the Exchange Act, subject to market conditions, applicable legal requirements and other relevant factors, and we have established a pre-arranged trading plan under Rule 10b5-1 of the Exchange Act. This share repurchase program does not obligate us to purchase any particular amount of common stock and may be suspended, modified or discontinued by us without prior notice.
For the six months ended June 30, 2022, our repurchases of our common stock were as summarized in the table below.
Shares RepurchasedAggregate Purchase Price
(in millions)
Average Price per ShareAmount Remaining in
Program for Purchase
(in millions)
# of SharesProgram to Date
First quarter of 2022588,293 911,433 $19.3 $32.85 $ 
Second quarter of 2022522,162 522,162 $14.1 $27.00 $10.9 
From July 1, 2022 to July 29, 2022, we repurchased 399,957 shares of our common stock for $10.9 million, or $27.25 per share.
In addition to the share repurchase program, we withheld 23,118 shares of common stock for $0.7 million in taxes associated with stock-based compensation transactions for the six months ended June 30, 2022.
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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide investors with an understanding of our recent performance, and should be read in conjunction with the condensed consolidated financial statements contained in Item 1, “Financial Statements” in this Form 10-Q and our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2021. This MD&A contains forward-looking statements. Refer to “Information Concerning Forward-Looking Statements” at the beginning of this Form 10-Q for an explanation of these types of statements.
The following will be discussed and analyzed:
Business Acquisition
Results of Operations and Related Information
Liquidity and Capital Resources; and
Critical Accounting Policies and Use of Estimates
Business Acquisition
On January 20, 2022, we acquired all of the equity voting interests and completed the acquisition of OrthogenRx, Inc. (“OrthogenRx”), which is focused on the development and commercialization of treatments for knee pain caused by osteoarthritis. We expect the acquisition of OrthogenRx will enhance our chronic pain portfolio. The initial purchase price was $130 million at closing less working capital adjustments, with up to an additional $30 million payable in contingent cash consideration based on OrthogenRx’s growth in net sales during 2022 and 2023. The purchase price was funded by available cash on hand and the proceeds of borrowings, including from the incurrence of a new incremental tranche of term loans of $125.0 million. The accompanying condensed consolidated income statement for the three and six months ended June 30, 2022 includes $21.8 million and $36.5 million of net sales, respectively, from OrthogenRx since the closing of the acquisition. In the three and six months ended June 30, 2022, we incurred $0.3 million and $1.4 million of costs in connection with the OrthogenRx acquisition, respectively, which are included in “Selling and general expenses.”
Results of Operations and Related Information
Use of Non-GAAP Measures
In this section, we present “Adjusted operating profit (loss),” which is a profitability measure that is not calculated in accordance with accounting principles generally accepted in the United States (“GAAP”) and is therefore referred to as non-GAAP financial measure. We provide this non-GAAP measure because we use it to measure our operational performance and provide greater insight into our ongoing business operations. This measure is not intended to be, and should not be, considered separately from, or an alternative to, the most directly comparable GAAP financial measures. A reconciliation of the non-GAAP measure to the most directly comparable GAAP financial measures is provided below under “Adjusted operating (loss) profit.”
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Net Sales
Our net sales are summarized in the following table for the three and six months ended June 30, 2022 and 2021 (in millions):
Three Months Ended June 30,Six Months Ended June 30,
20222021Change20222021Change
Chronic Care:
Digestive health$80.2 $79.5 0.9 %$161.6 $157.5 2.6 %
Respiratory health32.1 36.5 (12.1)%70.2 79.6 (11.8)%
Total Chronic Care112.3 116.0 (3.2)%231.8 $237.1 (2.2)%
Pain Management:
Acute pain$41.2 $43.7 (5.7)%$79.9 $80.8 (1.1)%
Interventional pain49.5 26.7 85.4 %88.7 49.2 80.3 %
Total Pain Management90.7 70.4 28.8 %168.6 130.0 29.7 %
Total Net Sales$203.0 $186.4 8.9 %$400.4 $