Avanos Medical's recent Q1 2024 earnings call presented a narrative of steady progress and ongoing transformation. Digestive Health maintained its robust growth, the Pain Management and Recovery portfolio exhibited signs of stabilization, and gross margins stayed healthy. However, a compelling detail emerged from the optimistic forecasts and strategic announcements: the understated performance of Avanos' IV infusion and needles, kits, and trays product families.

These seemingly ordinary product categories, often overlooked in investor presentations, saw an unexpected decline in Q1 2024, adversely affecting the overall growth of the Pain Management and Recovery portfolio. While this dip was attributed to 'strategic rationalization within low-growth, low-margin product categories,' CFO Michael Greiner also indicated a renewed focus on these product families, implying the possibility of strategic adjustments in the second half of the year.

Could these seemingly commonplace products hold the key to unlocking even greater growth for Avanos in 2024? What if, rather than just streamlining underperforming SKUs, Avanos is setting the stage for a broader strategy, utilizing these essential products to expand its reach in core markets, particularly ambulatory surgical centers (ASCs)?

"One thing to add, Danny, on the Pain business, it primarily hurt us in the first quarter in Pain with our IV infusion and needles, kits and trays product families. Those are less focused on, obviously, historically. We do have some things throughout the year that we will refocus some energies there and strategies there. But those were the 2 categories, IV infusion which is in our surgical pain grouping and needles, kits and trays which is in our interventional pain grouping. That hurt us in the first quarter from a total growth standpoint but we don't anticipate that to be the case as we enter the back half of the year... - Michael Greiner, CFO, Avanos Medical"

The decline in IV infusion products, categorized under surgical pain, prompts inquiries about its relation to Avanos' ON-Q/ambIT pain pump portfolio, the company's leading non-opioid pain management solution for surgical procedures. Is it possible that Avanos intends to bundle IV infusion products with ON-Q/ambIT pumps, offering a more complete pain management solution for ASCs? Such a move would harmonize with their declared strategy of prioritizing this high-growth market and leverage the growing trend of minimally invasive procedures.

Furthermore, the dip in needles, kits, and trays, belonging to the interventional pain category, could suggest a more proactive endeavor to integrate these products with Avanos' radiofrequency ablation (RFA) portfolio, especially their recently acquired Trident product line. This integration could enable Avanos to deliver a more efficient and budget-friendly option for ASCs conducting interventional pain procedures, a market anticipated to expand considerably in the coming years as the need for minimally invasive pain management solutions rises.

Avanos' Potential Strategy with IV Infusion & Needles, Kits, and Trays

The following diagram outlines Avanos' potential strategy of bundling lower-margin products with their higher-margin pain solutions.

The figures further support this theory. While the precise revenue figures for IV infusion and needles, kits, and trays are not disclosed, the fact that their decline was substantial enough to impact the overall Pain Management and Recovery portfolio growth indicates a considerable revenue base. If Avanos can successfully merge these products with its higher-margin pain management solutions and capitalize on its expanding presence in ASCs, it could establish a significant revenue source, potentially exceeding the anticipated growth for the pain portfolio.

Additionally, consider Avanos' latest acquisition of Diros Technologies and their promising Trident product line. Trident has already surpassed expectations in its US market debut, and Avanos is actively increasing manufacturing capacity to satisfy the growing demand. Combining needles, kits, and trays with Trident could create an attractive value proposition for ASCs, further driving Trident's acceptance and strengthening Avanos' position in the rapidly changing RFA market.

Quarterly Performance of Pain Management and Recovery Portfolio

The following graph illustrates the quarterly performance of the Pain Management and Recovery portfolio. Note that Q1 2024 has been negatively impacted by the strategic rationalization of IV infusion and needles, kits, and trays.

This strategy of leveraging seemingly basic products to attain a competitive edge is not a novel approach for Avanos. Their Digestive Health portfolio, driven by the highly successful MIC-KEY feeding tubes and the innovative NeoMed neonatal feeding solutions, demonstrates this methodology. By concentrating on essential products and constructing a comprehensive system surrounding them, Avanos has secured a dominant market share and sustained above-market growth.

Could the modest decline in IV infusion and needles, kits, and trays represent the initial phase in replicating this achievement within the Pain Management and Recovery portfolio? The potential is undeniable. By strategically combining these products with its higher-margin pain management offerings, targeting the thriving ASC market, and harnessing the momentum of its recent acquisitions, Avanos could unveil a new pathway for growth, one that surpasses the projections outlined in their latest earnings call and possibly positions the company for an even more remarkable transformation in the years ahead. Only time will reveal if this concealed weapon, hidden within seemingly ordinary products, will drive Avanos to even greater heights.

"Fun Fact: Avanos Medical's commitment to patient care extends beyond product development. The company actively supports organizations like the Feeding Tube Awareness Foundation, demonstrating its dedication to improving the lives of patients who rely on enteral feeding."