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Avanos Medical, Inc (NYSE:AVNS) 2021 Second Quarter Earnings Conference Call, August 3, 2021, 9:00 AM Eastern Time
Good day, welcome to Avanos' second quarter 2021 earnings conference call. 【Instructions】
I now want to transfer the meeting to Dave Crawford, Vice President of Investor Relations. please continue.
Dave Crawford-Vice President of Investor Relations
Good morning everyone and thank you for joining us. I am happy to welcome you to Avanos’ second quarter 2021 earnings conference call. With me this morning are CEO Joe Woody; and senior vice president and chief financial officer Michael Greiner. Joe will first introduce our quarterly update, and then discuss our business environment and the progress of our 2021 priorities. Then Michael will review our second quarter results and update our 2021 planning assumptions. We will end the call through a question and answer. The "Investors" section of our website avanos.com provides a presentation of today's conference call. As a reminder, our comments today contain forward-looking statements related to the company, our expected performance and economic conditions, and our industry. No guarantee of future financial performance. Actual results may differ materially from those in the forward-looking statements. For more information about forward-looking statements and risk factors that may affect future results, please refer to the risk factors described in today's press release and our filing with the SEC. In addition, we will refer to the adjusted results and outlook. The press release contains information about these adjustments and adjustments to comparable GAAP financial measures.
I will now transfer the call to Joe.
Joseph F. Woody - CEO and Director
Thanks, Dave. Good morning everyone, and thank you for your interest in Avanos. As we enter the second half of the year, I am encouraged by the start of the new year and continued resilience of our business team in response to the challenging dynamics brought about by the pandemic. Throughout our business, we still focus on getting patients back to the important things that we meet our customers' needs. Before discussing the current environment and our progress on our 2021 priorities, I will first briefly review our results for the quarter. Sales for the quarter increased by 14% to US$186 million, and our adjusted diluted earnings per share was US$0.21. Our sales results are at the high end of our planning assumptions. We not only benefited from the return of the elective program, but more importantly, we executed our growth plan very well. The quarter's performance was lower than our expectations in the manufacturing and distribution areas, which had a negative impact on the gross profit margin of the quarter. These higher costs are a temporary impact on our business, mainly cross-industry caused by the pandemic, and do not mean that our operating structure will undergo permanent changes. My management team and I have made this our top priority, and I believe we will make meaningful progress in the second half of the year. Michael will further expand on the steps we are taking in his comments.
I am satisfied with the execution of our team, they found extra efficiency in the whole business to reduce operating expenses. The team is looking for ways to increase productivity and reduce cost structure, which will not only help offset some of our annual gross margin headwinds, but also enable us to deliver on our SG&A promise, as revenue as a percentage of revenue is less than 40%. Moving forward basically. With this as a background, I will discuss our market environment and introduce you to the progress of our 2021 priorities, first of all how we can strengthen our growth. As I mentioned in the last earnings call, as the electric program began to accelerate again, the revenue growth momentum of our pain management franchise began this quarter. The momentum continued throughout the quarter. We saw the fastest acceleration of COOLIEF and Game Ready, and the recovery rate of outpatient surgery continued to be faster than that of in-hospital surgery. Sales of both therapies surpassed the second quarter of 2019 before the pandemic. Although the recovery of ON-Q lags behind our other pain therapies, we achieved continuous sales growth throughout the quarter. Based on the gradual increase in operations and conversations with our surgeons and hospital administrators, we still believe that by the end of this year, the number of inpatient operations may still be below its full potential.
As we enter the second half of the year, we will continue to build on a solid foundation to accelerate the growth of the pain management field. For COOLIEF, we plan to launch the next generation cooled RF probe kit. The new probe will make it easier for doctors to perform the COOLIEF procedure while maintaining our premium look and feel. The new probes will also be more efficiently manufactured and provide scalability, thereby increasing COOLIEF's already high gross profit margin. Combined with the new generator we launched last year, our new probe kit consolidates our leading position in cooling RF. Regarding ON-Q, we continue to see positive results from the channel cooperation agreement, and we are using orthopedic sales partners to contact orthopedic surgeons. In order to differentiate us from other manufacturers, in the next few months, we will launch Pain Block Pro, a data collection and patient engagement app that allows doctors to track the recovery of patients and understand them Your satisfaction and opioid consumption can be viewed in real time without having to talk to patients. Pain Block Pro will also help us attract patients and improve their experience by providing education about pumps and our ability to answer their questions. We will be the only pump company that provides both data collection and patient participation.
Finally, we continue to use our exclusive relationship with Leiters to further strengthen our customer base. Turn to chronic care. The positive trend of our digestive health franchise continues. We have maintained double-digit growth in the entire digestive system health sector. The positive trend of our digestive health franchise continues. Our NeoMed franchise maintains double-digit growth, and our CORPAK standard of care strategy is accelerating our CORTRAK hardware sales to record levels. In view of the tailwind of the pandemic last year, sales of the respiratory health business fell as expected. Finally, we continue to execute our international expansion opportunities. Our market development plan focused on the clinical benefits of our therapies continues to deliver dividends, and we are supporting the growth of recently acquired products through our global footprint. Despite the slowdown in growth this quarter taking into account the benefits of the pandemic last year, our performance is still at the high end of expectations. Our second area focuses on the expansion of gross profit margin and operating profit margin. As I pointed out earlier, we must start to recover the gross profit loss since the pandemic began. Last year, we took necessary measures to protect our employees from the impact of the pandemic and expanded the manufacturing of products to treat COVID patients. In the face of these challenges, we have made a good response, but now we need to solve the inefficiency and cost issues generated by our manufacturing sites.
In addition, this year, we have made short-term trade-offs to seize market share in the NeoMed product line at the expense of higher freight costs to ensure that we take full advantage of its growth potential. These short-term cost increases will allow us to make the most of the long-term investment acquired by NeoMed, but it is clear that there are some annual headwinds that we did not anticipate in terms of gross margin. Our continued cost discipline and focus on improving efficiency and spending continue to produce results. I see how our team reviews investments and makes the necessary trade-offs to achieve the cultural shift for the best value of spending. The increase in efficiency also helps to improve the management of working capital, which helps to promote the return of free cash flow in the quarter to a positive value. Our third priority is to start generating consistent and repeatable free cash flow, and continue to expect that free cash flow will accelerate significantly in the second half of the year as we wait to receive the tax rebates that we highlighted in the previous conference call and our improved operations Performance and working capital discipline. Our last focus this year is capital deployment. Our M&A channels remain healthy, and we are in active dialogue with many potential targets, which will leverage our existing footprint, generate synergies and improve our revenue growth. Mergers and acquisitions are our priority, but we will continue to rigorously determine goals that meet our strategic plan and exceed our financial obstacles to ensure that we generate strong capital returns.
Finally, as a follow-up to the DOJ investigation, we notified you of the latest situation in the last quarter, in early July. We reached an agreement with the US Department of Justice to defer prosecution, which resolved the DOJ’s relationship with the company’s macro accrual surgery. Of criminal investigation gallons, which was part of the S&IP business that we divested more than three years ago. As part of the agreement, we paid US$22.2 million, which was in line with our previously communicated expectations. I want to assure our customers and our team members that we will continue to maintain a robust compliance and quality program, and we will continue to strengthen them through new and revised policies, procedures, and training requirements. All in all, since our focus on execution is still strong, we are still in a good position to advance our strategy in these four value creation areas. This, coupled with our market-leading product portfolio, makes me believe that we can successfully achieve our 2021 priorities.
I will now transfer the call to Michael.
Michael C. Greiner - Senior Vice President and Chief Financial Officer
Thanks, Joe. As you pointed out, we are still in a challenging environment, especially in the supply chain and operations, but the team is still looking for ways to overcome these challenges. Now let us begin to review our second quarter results. Compared with last year, total sales amounted to US$186 million, an increase of 14%. We saw a 13% increase in transaction volume and a 1% gain from a favorable exchange rate. Unfavorable prices offset 1% of sales, as we saw price changes returning to normal ranges after being slightly higher than normal price effects in the previous quarter. Given the US$10 million tailwind associated with the pandemic in the respiratory health sector in 2020, Chronic Care’s sales fell 4% this quarter to US$116 million. According to the 2020 tailwind adjustment, respiratory health sales will decline slightly this quarter as we see hospitals reduce their inventory of closed suction catheters and other related products, as the number of hospitalizations related to the pandemic has dropped significantly. Although a new wave of hospitalizations related to the pandemic appears to be on the horizon, as of July, we have not experienced a substantial acceleration in dealerships or hospital orders.
Our planning assumptions for respiratory health in the second half of 2021 do not include the additional benefits of the pandemic, and we also expect the cold and flu season to begin normally. Turning to digestive health, we have seen above-normal growth because we experienced some pandemic-related disruptions last year, and our traditional MIC-KEY franchise provides a favorable comparison this year. NeoMed continues to convert to our ENFit technology, again growing by double digits. Turn to pain management. As a result of the pandemic’s cancellation of selective procedures, we achieved $70 million in sales, an increase of 62% over the previous year. As Joe emphasized, the growth of our COOLIEF and Game Ready therapies has recovered faster. The sales growth of both therapies exceeded the pre-pandemic levels in the second quarter of 2019. Regarding ON-Q, although the recovery of the therapy lags behind COOLIEF and Game Ready, we continue to see average daily growth rates for this quarter’s monthly sales growth. As our partnership with Leiters continued to benefit customers as a pre-fill option, sales through Leiters and new customers who used them as pre-fills increased again by double digits.
Finally, despite the difficulties compared with the previous year, international organic sales continued to grow at a low single-digit growth rate this quarter. However, due to the original schedule of shipments to distributors at the beginning of July and the end of June, sales did gain approximately US$1 million. Move the income statement down. The adjusted gross profit margin dropped from 56% last year to 51%. As we pointed out in the previous earnings conference call, and Joe pointed out earlier, due to the high transportation costs of bringing NeoMed products from China to the United States to meet customer needs, gross margins are expected to be affected. In addition, our manufacturing plants are still inefficient, partly to protect our employees from the pandemic and the safety precautions of other employees we hire in the factory during the pandemic. These factors have resulted in reduced productivity, increased management costs and increased waste in recent quarters. Although we see an improvement in the portfolio given the increase in pain management sales, these unfavorable factors have kept us behind our gross margin expectations for the quarter. Looking into the second half of the year, based on the following factors, we continue to expect the adjusted gross profit margin to improve significantly. First, with the continuous growth of pain management, we expect to continue to benefit from our sales mix, while we expect the demand for our respiratory health products to remain at the normal level before COVID. Since we expect our pain management franchise will experience a normal seasonal increase, this favor will be amplified in the fourth quarter.
Secondly, compared with the first half of the year, we will see a significant drop in air freight costs. Although the expected revenue in the second half of the year will be lower than the original plan, considering the higher shipping cost is still related to our NeoMed product series. In addition, in order to ensure that we achieve higher gross profit margins in the second half of the year, we took a number of measures in July to restore our facilities to their pre-pandemic efficiency levels. We recently reduced the number of employees in our manufacturing plants by approximately 10% to restore employment in our factories to pre-pandemic levels. We have also taken steps to reduce waste and scrap levels and worked with our commercial team to sell unsold inventory to reduce the recent increase in write-offs. Finally, in order to offset some of the inflationary pressures in our supply chain, we will begin to notify some customers of price increases later this year. Due to the slow start of this year, our adjusted gross profit margin is now expected to be slightly lower than the profit margin level in 2020. In order to offset this reduced level of gross profit margin, we are reducing operating expenses to maintain our commitment to increase operating margins this year. Now turn our attention to some bottom-line financial indicators.
The adjusted operating profit totaled 15 million U.S. dollars, compared with 13 million U.S. dollars the previous year. The performance was mainly driven by higher sales, which was partially offset by the lower adjusted gross margin that I just reviewed. Total adjusted EBITDA was US$20 million, compared with US$19 million last year, and total adjusted net income was US$10 million, compared with US$6 million a year ago, because our adjusted diluted earnings per share was US$0.21. Turn to the balance sheet and cash flow statement. As Joe emphasized, we achieved positive free cash flow without receiving any CARES bill refunds. Maintaining a healthy balance sheet and generating meaningful free cash flow remains a key forward priority. Our balance sheet is robust and we continue to provide us with strategic flexibility because we had $100 million in cash on hand at the end of the quarter and outstanding debt with a revolving credit line of $165 million, an increase from the end of the previous quarter 10 million US dollars to a small repayment. Free cash flow inflows of US$10 million increased due to improved working capital. Finally, although the coronavirus still has some unpredictability, we reiterate that net sales at constant exchange rates have increased by 2% to 4% compared to the previous year. However, due to increased manufacturing and transportation costs, partially offset by operating expense savings, we are lowering the upper limit of our profit guidance. We now expect adjusted diluted earnings per share to be between $1.10 and $1.20. Finally, we have a good start halfway through the year. I believe we have the ability to execute our strategy and take the necessary measures to promote the improvement of gross profit margin and operating profit margin, and provide considerable free cash flow in the second half of the year.
Operator, please open the phone for consultation.
[Operator Instructions] The first question comes from Matthew Mishan and KeyBanc. please continue.
Matthew Mishan - KeyBanc - Analyst
Good morning guys. I just want to start with NeoMed first. I mean this is an acquisition you made a few years ago. From the annualized sales run rate, it seems to be doing well, but gross profit margin is still a problem. Can you show us where you started with NeoMed? Where are you now and how do you see the progress of the business's gross profit margin?
Joseph F. Woody - CEO and Director
Yes, Matt, I have to say a few things, and as always, Michael may join. But this is a very successful acquisition for us. It grew by double digits, and it grew again this quarter. Another thing that happened at the same time was that there was a kind of conversion called infant conversion, which is a global standard. It really needs to be completed when the customer enters next year. So what you see from us is-we have-we make in China, and during the pandemic, the shipping rate has increased, especially when we need to ship the products by air. We have decided to ship air so that we can get the conversion.
They have a timetable, our customers, they object, and when we get repeat sales related to this, they will definitely benefit us. But this is obviously detrimental to our gross profit margin. So in general, when I think about this model, I think that once we overcome some time items in the pandemic and gross margin, we will be in a very good position on all the indicators we invest. So it looks like we are very satisfied with CORTRAK. But Michael, I don’t know if you want to add anything?
Michael C. Greiner - Senior Vice President and Chief Financial Officer
Yes. No, I think, yes, we are here to make choices, as far as Joe is concerned, to ensure these conversions. Even with these unfavorable factors affecting gross profit margin, when we look at our model, DCF is still very attractive to this business in the next few years. Even from the beginning, we have never modeled NeoMed as a gross margin that exceeds our comprehensive gross margin set. Therefore, when NeoMed is in a more normalized state, Matt will still be below the company's level-slightly lower than the company's gross profit margin. Due to the headwinds of these freight costs, it is now significantly lower than it is now. But even in a normalized state, NeoMed has never been modeled as a gross margin higher than our company's level, if that helps.
Matthew Mishan - KeyBanc - Analyst
Yes. But what-back to this question, when you buy it, I think its annualized run rate is about 40 million US dollars. After completing the in-state transition, how much business does NeoMed have for you?
Joseph F. Woody - CEO and Director
I mean, so I think it's like a lever similar to international business, but more like COOLIEF, it's similar in size, growing by double digits, and maintaining a certain consistency in the next few years. So we like it very much.
Matthew Mishan - KeyBanc - Analyst
OK. Then just moved to COOLIEF. How about-the new probe you will launch next year-I mean it has a higher gross profit margin, but is it more effective to allow doctors to do this in ASC or doctor's office?
Joseph F. Woody - CEO and Director
We will have some later. This is not-I think what we are talking about in the prepared comments, we think that you will see upgrade opportunities in the new business, which are excluded from this introduction.
Matthew Mishan - KeyBanc - Analyst
OK. Finally, the gross profit margin. I realize that there are many-many things are happening, and people are talking about headwinds, freight, and manufacturing inefficiencies across the board. But when you say that 2H has significantly improved, please let us know-can you let us know what this means? I know that the gross profit margin will now be lower than last year, but what should we expect—for example, in terms of improvement?
Joseph F. Woody - CEO and Director
Yes. I'm going to talk about a few things, and then Michael, I think, will show you some of the ways we look at H2 and think about it. We did talk about this in the previous conference call and said that we believe that in the second quarter, we still see gross margin headwinds. Obviously, we have seen more than expected. When you think-we are just talking about NeoMed, in fact half of the tailwind is reflected in NeoMed, which is why we say, see, this is a temporary rather than a fundamental change in our business. "And I think there are some things because we are dealing with China and the aviation and air transportation there and some of the things we do in Mexico to remind everyone that we have invested in our plans. Obviously, we are dealing with Mexico, the government and Employees, but also established a closed suction line so that we don’t experience delays-defense DPA from the government. So when you put them together, you have two unique situations. That is, we second half There is a completely different sight. I think Michael wants to take people through difficult times.
Michael C. Greiner - Senior Vice President and Chief Financial Officer
Yes. Matt, we are-Joe hinted that we were about 200 basis points lower than we thought in the second quarter. So this is a starting point. When we consider the direction of development in the second half of the year, several things are just part of the mathematics. Therefore, we will not be affected by the revaluation in the first half of the year. This is about 200 basis points. We expect the price/combination to increase by about 150 basis points. Part of this is some price increases that we passed along with our customers. Some of them are the continuous slow but steady improvement of ON-Q business that we have been seeing, namely the daily rate we quoted. The other 200 basis points are related to factory performance, some of which are related to layoffs of 10% and reducing our write-offs in the first half of this year.
Then there is another 50 basis points of freight, mainly to NeoMed. Now, we think it will be a little higher, but what we see is an increase in freight from a waterline perspective, but it is obviously much cheaper than the air freight we have been doing in the first half of the year. So this gives you about 600+ very specific project base points, and then we have some other projects under study. So this will let you go-your question is, how important is it? We think it makes a lot of sense. Unfortunately, since the second quarter is below 200 basis points, we will be at or slightly below the level of 2020, which is obviously not our plan for this year.
Matthew Mishan - KeyBanc - Analyst
Ok, I see. Thank you for clarifying this point.
Joseph F. Woody - CEO and Director
The next question comes from Chris Cooley and Stephens. please continue.
Joseph F. Woody - CEO and Director
Ross Osborne-Stephens-Analyst
Hi. Hi, good morning. This is actually Chris' Rose Osborne. So I thought-so starting from the top line, can you tell us the put options that you assume in the lower and upper limits of your income guidance?
Joseph F. Woody - CEO and Director
Yes. So what I mean is that I might say something-something about this quarter, and then Michael might want to comment more on the future and guidance part we see. But we have seen the continuous development of our pain business, especially in Game Ready and COOLIEF. We think this is obviously because of the outpatient department of the hospital and their performance. We have already discussed some questions about ON-Q, although that is slightly less than 19 years. It did make progress, but then some operations in the hospital did not recover as it did during outpatient operations. We believe that in terms of our internal plan, the trajectory of chronic care is the single-digit trajectory for the entire year that we are talking about in this business. Then it is obvious that we saw some comparative problems with COVID in breathing and closed suction last year. So, as a concrete example, before I hand it to Michael, I think everyone should consider $12 million, which is part of respiratory sales in 2020 but will not be part of 2021. In any case, this will affect some of our thoughts on coaching in the second half. So Michael?
Michael C. Greiner - Senior Vice President and Chief Financial Officer
Yes. I think the benefits of Joe’s point of view include that ON-Q continues to improve and accelerate with the return of elective courses, and in terms of breathing, we have a normal breathing season. On the downside, you will see that ON-Q stabilizes here, and will not continue elective courses due to variants, and the treatment plan no longer needs to look for closed suction catheterization. So we will continue to get a normal respiratory system, but we will not get additional benefits. So we will have normal breathing ON-Q falling, because elective courses are falling, which will make us more biased towards the low end. On the bright side, these two projects are actually moving forward. We are hospitalized, and the closed suction catheter is part of the treatment plan, and the elective courses will not shrink like last year.
Ross Osborne-Stephens-Analyst
understood. This is really helpful. Then there is a bigger problem. Therefore, the guide price for the whole year is 2% to 4% x 100 basis points (in currency). I think what is preventing income from growing close to the mid-single digits on an organic basis?
Joseph F. Woody - CEO and Director
Yes. I think Michael talked about some of it. We should talk about it a bit more. We have a respiratory system comparator worth $12 million, but it will not show up around us. That is one thing. Then there is still some uncertainty, although we haven't seen a regional discussion about elective courses affected by Delta variants and how this might affect any of our international business, by the way, mainly chronic care. So what I mean is, obviously it will be less affected. But what is certain is that respiratory and chronic care products are there. Don't know what else you want?
Michael C. Greiner - Senior Vice President and Chief Financial Officer
Ross, I mean, this is a fair question. If you look at the comparison between the second quarter of 2019 and the second quarter of 2021, we do have organic growth of more than 7%. So this really puts you in the middle single digits. I think we only maintained proper caution in the second half of this year. We just don’t know how the new variant will work and how the hospital and other treatment options will respond to it.
Ross Osborne-Stephens-Analyst
OK. very fair. Then there is a question of clarification. Just to make sure you have the right rhythm for the rest of the year. So the lower gross profit margin is then expected to be offset by a larger reduction in operating expenses?
Michael C. Greiner - Senior Vice President and Chief Financial Officer
this is correct. this is correct. Just to clarify this question, Rose. We canceled the top end of the guidance, which doesn't necessarily mean that $1.17 and $1.18 are unattainable, right? So $1.10 to $1.25. We want—not us, but something that happens in the community, and when you take the midpoint, this gives you $1.17. Our rise from US$1.25 to US$1.20 just shows that US$1.25 is impossible. This does not mean that $1.17 and $1.18 are still impossible. We are just-we are trying to align intellectually with lower gross margins. Operating expenses will help offset this. But in the case of gross margin headwinds, we are only-$1.25 does not seem appropriate. This does not mean that US$1.17 and US$1.18 cannot be achieved.
Ross Osborne-Stephens-Analyst
Joseph F. Woody - CEO and Director
[Operator Instructions] The next question comes from Ravi Misra and Berenberg. please continue.
Joseph F. Woody - CEO and Director
Ravi Misra - Berenberg - Analyst
Hi, good morning. Thank you for your question. So one, if I can start ON-Q and selective rebound. Are you still under the current parameters? Is this a business that can eventually resume growth throughout the year? Kind of-or we need-it sounds like you are more cautious about the prospects of electives there. If you can help me think about how to model this from the perspective of program growth?
Joseph F. Woody - CEO and Director
Yes, this will be the biggest driving force, and elective courses are the biggest lever for growth. We see that our measures have worked. As a channel partner with the large orthopedic 1099 group, we are really concerned about the pair. We are satisfied with the ambIT acquisition and how we now offer electric pump products, which is working well for us from a portfolio perspective. From the initial launch of some Pain Block Pros, we have seen success, and customers are very interested in being able to track the results of not only our products but also the results of other pain management methods. We are satisfied with what Bill Haydn has done under his leadership to point the business in the right direction.
Then it was obvious that we just ended the strategic board meeting, where we discussed some future products, especially the electronic nerve block that we think can change the rules of the game in this field. So we are satisfied with where we are. We again believe that the biggest lever that determines whether you will grow and how fast is the elective program. Therefore, if Delta does not calm a lot of things, then we can do better.
Michael C. Greiner - Senior Vice President and Chief Financial Officer
Like Ravi, elective courses have become an important word in medical equipment in the past 16 months. When you look at Game Ready and COOLIEF, as Joe said in the prepared comment, they are back where we are. So the definition of elective courses works well and we have captured all the appropriate content. But it is obvious to remember that it is usually for very specific types of procedures, and a multi-day stay is usually a multi-day recovery. So these types of elective courses do not come back so quickly.
Ravi Misra - Berenberg - Analyst
OK. great. Then it’s just on gross profit margin. Sorry, I don’t want to go on. I don’t want to go on. But I’m very curious. Your portfolio shift this quarter is very clearly inclined towards the pain management business. And you are talking about the shipping cost of this NeoMed, the higher shipping cost. How-just to help us calibrate maybe, I don't know if you mentioned the actual quantification of shipping costs. I mean if that doesn't exist, you will always be kind-53 sounds like your internal goal? Or is there something more? Because I think moving the mix to pain management will offset some of it.
Michael C. Greiner - Senior Vice President and Chief Financial Officer
right. So freight is part of it. It basically offsets the mixing change. Then, as far as you are concerned, we have additional planned performance-from an efficiency point of view, this is an additional 100 or so basis points for our underperformance. So you are right. Shipping costs are part of it, but we also plan to perform poorly in the second quarter, and we have now taken some measures in mid-July to correct it.
Ravi Misra - Berenberg - Analyst
great. Then maybe the last one, Joe. It's just about the safety of opioids in that project. What should we think about here for the rest of this year? Or is this now an event in 2022?
Joseph F. Woody - CEO and Director
Sorry, I did not hear the first part of your question, Ravi.
Ravi Misra - Berenberg - Analyst
New technology, opioid products.
Joseph F. Woody - CEO and Director
Go-yes. So in fact, we are actually launching this product now. We will continue in the second half. So this will be what we will launch at the end of 22 years, Pain Block Pro, it is called.
Ravi Misra - Berenberg - Analyst
OK. That's the software-ok. understood. OK.
Joseph F. Woody - CEO and Director
Since we have no other questions, this is the end of our Q&A session. I will now turn the meeting back to any closing remarks from Joe Woody.
Joseph F. Woody - CEO and Director
Thank you. Many of you probably know it and have been talking to Dave Crawford nine years after switching from Halyard to Avanos, and Dave will move on. He has always been our head of finance and obviously our head of investor relations. Of course, we have to thank him for his services to the company, but I would like to say that his business guidance and consulting, and partnerships are indeed very good. So we wish Dave all the best, and we will definitely keep in touch with him. I thank everyone for your continued interest in Avanos. We continue to perform well in an uncertain environment. We remain truly committed to creating shareholder value. I believe that we have obtained the correct query details and combined with our investment portfolio, we believe that we are in an attractive market. We are prepared for sales growth, profit margin expansion and the free cash flow we want to generate. So look forward to chatting as we move forward. thank you all.
Dave Crawford-Vice President of Investor Relations
Joseph F. Woody - CEO and Director
Michael C. Greiner - Senior Vice President and Chief Financial Officer
Matthew Mishan - KeyBanc - Analyst
Ross Osborne-Stephens-Analyst
Ravi Misra - Berenberg - Analyst
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