Good morning, ladies and gentlemen, and welcome to Avanos Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Also note that this call is being recorded on February 24, 2026. I would now like to turn the conference over to Jason Pickett, Vice President, Corporate Finance and Treasurer.

Good morning, everyone, and thanks for joining us. It's my pleasure to welcome you to Avanos' 2025 Fourth Quarter and Full Year Earnings Conference Call. Presenting today will be Dave Pacitti, CEO; and Scott Galovan, Senior Vice President and CFO. Dave will review our fourth quarter and full year results and the current business environment. Scott will share additional details regarding these topics and provide our 2026 planning assumptions. We will finish the call with Q&A. A presentation for today's call is available on the Investors section of our website, avanos.com. As a reminder, our comments today contain forward-looking statements related to the company, our expected performance and current economic conditions, including risks relating to ongoing tariff negotiations and our industry. No assurance can be given as to future financial results. Actual results could differ materially from those in the forward-looking statements. For more information about forward-looking statements and the risk factors that could influence future results, please see today's press release and risk factors described in our filings with the SEC. Additionally, we will be referring to adjusted results and outlook. The press release has information on these adjustments and reconciliations to comparable GAAP financial measures. Now I'll turn the call over to Dave.

Thanks, Jason, and good morning, everyone. I'm pleased to report that we delivered solid fourth quarter and full year results driven by the excellent progress we made advancing our strategic priorities. Fueled by the strong execution of our commercial teams, we delivered full year net sales of $701 million, exceeding the range that we revised following Q3. Additionally, we finished at the high end of our earnings guidance range, which was also revised upwards following Q3 and generated $0.94 of adjusted diluted earnings per share during the year. While the impact of tariffs in 2025 obscured the profitability of the company, our team took steps to mitigate their impact, and we will see the benefits of those measures starting this year. Moreover, we are closely evaluating the potential impact of the recent Supreme Court rulings on tariffs and monitoring subsequent actions by the administration. Once there is more clarity on how that ruling may impact our financial outlook, we will pass that information along to the investment community in subsequent updates. In the meantime, and as you will hear on the call today, please note that our tariff mitigation initiatives are firmly on track. 2025 represents an important period in the continued evolution of Avanos. Over the past several years, we have taken deliberate steps to reshape the company into a more focused medical technology organization centered on categories where we have strong clinical value propositions and the ability to compete effectively. As you will hear today, those efforts combined with driving cost efficiencies have put Avanos in a better position to drive shareholder value going forward. Let's spend a few minutes reviewing key recent trends and developments in our business. Our Specialty Nutrition Systems portfolio delivered strong above-market full year results growing over 8% organically versus prior year, reaffirming…

Thanks, Dave. I'll spend the next few minutes discussing our full year's results at the segment level. In 2025, our Specialty Nutrition Systems segment grew over 8% organically, led by our short-term enteral feeding portfolio, which posted double-digit growth globally compared to full year 2024. Long-term feeding grew high single digits and was supported by continued strong execution and our U.K. Go-Direct. Finally, our Neonatal Solutions business delivered another above-market full-year performance, growing over 6% compared to the prior year. As we have previously signaled, we anticipated lower but still above-market growth for our NEOMED product line as we have entered the late stages of the ENFit adoption cycle in North America. Further, as Dave noted, the integration of Nexus has been very successful, and we are confident in the ability of our sales team to drive continued adoption and deliver double-digit organic growth in 2026. From a profitability standpoint, operating profit for our Specialty Nutrition Systems segment for the full year was 19%, down 100 basis points compared to a year ago as margin improvements from higher sales volume were offset by unfavorable tariff impacts. Now turning to our Pain Management and Recovery portfolio. Normalized organic sales for 2025 were up 2.3%, excluding the impact of foreign exchange and our previously announced strategic decision to withdraw from certain low-growth, low-margin products. Our radiofrequency ablation, or RFA, business continues to deliver outstanding results, posting full year double-digit organic growth compared to 2024. Our Surgical Pain business was down year-over-year as the potential impact from the NOPAIN Act is taking longer than anticipated. Finally, our GAME READY portfolio, while slightly down year-over-year, posted similar revenue levels throughout 2025. I'm pleased to report our operating profit for our Pain Management and Recovery segment was 4%, a 270-basis point improvement compared to a…

Thanks, Scott. Overall, I'm pleased with the team's performance in 2025 and sincerely thank everyone for their important contributions and dedication over the past year. We believe the best way to create value for Avanos, and its shareholders is the continued focus and execution on our strategic imperatives as that mindset led us to exit 2025 a more focused and cost-efficient organization. I am particularly pleased with our strong performance in SNS as we outpaced market growth, and we expect the trend to continue. We're also pleased with the early performance of our Nexus acquisition and continue to evaluate other attractive acquisition targets. Moreover, the team did a great job improving our long-term cost profile and executing on our tariff mitigation plan. As a result, we believe that we enter 2026 well positioned for continued growth and are confident about our future prospects. With that, I'll now ask the operator to open up the call to take your questions.

[Operator Instructions] And your first question will be from Danny Stauder at Citizens JMP.

Yes. So first, just on tariffs. We appreciate all the commentary here, but I was hoping you can give us a little bit more color on what 2026 could look like. You mentioned the recent Supreme Court ruling, and it sounds like you are still on track with your previous plans. But are there any milestones that we should be looking for in terms of the transition of China, potential USMCA exemption or anything around the Nairobi protocol exemption? There's a lot in that, but I'm just really trying to frame what a best-case or less than best case scenario could look like for the year ahead.

Yes, thanks for the question. So in terms of impact for 2026, we're estimating that to be roughly $30 million of impact. Now remember, as we discussed in previous calls, that we've done this cost measures and take out cost. We've done several price increases as well. So actually, when you compare it year-over-year, we expect the impact to be very similar to what it was on the bottom line as it was to 2025. The big date is being out by June, which I think in the past, we've talked about, but we haven't had the high degree of confidence that we have now that we will -- that plan will be executed and will be out by June and deliver product from Mexico and our other site in Cambodia.

Yes. Just to size it up a little bit more, Danny, on about 2/3 of that $30 million is China related. So there will be a good, nice impact when we fully exit China. That doesn't all go away because that does go to still some tariff countries. But that's a big piece of that $30 million is China.

And then, Danny, just on Nairobi, we did get Nairobi still in place for our long-term feeding tubes. So that's a tariff exemption. I'm not sure if that's a correct way to say it, but it is an exemption that we received for our long-term feeding tubes, which will be produced in Mexico. And then we have USMCA for about 60% to 70% of the products that we're making in Mexico. And as we move the syringes over, we'll have USMCA for them in Mexico as well, just to clarify your -- the other part of your question.

I was going to say, as we shared in our prepared remarks, in terms of just as you think about phasing, we do expect in the second half, we'll see improved gross margin that will continue into '27 due to just the weight of the tariff impact in the first half.

And then I think lastly, the goalpost is moving a little bit with the latest news from the Supreme Court and the latest news from the administration. So we'll evaluate all that. But we feel good about the position we have in Mexico with USMCA for the majority of our products.

Great. I appreciate it. Then just next one on revenue guidance. Again, I appreciate all the color, especially on the segment's commentary. But just with some of the moving pieces such as the HA divestiture, the addition of Nexus and some of the other product rationalization, what's an organic normalized growth rate that we should be considering for the full year for the full company and then as well as on a segment basis, just to kind of get a high-level look at it.

Yes. So it's around 5% for organic for -- at the consolidated level by segment, it's mid- to high single digits for SNS and a low to mid-single digits for PM&R on an organic basis.

Great. And I guess just shifting to operating leverage that had some great progress in the fourth quarter, and it seems like guidance implies that should continue. You've talked about some of the efforts in making the company more efficient, including the cost-saving initiatives that you announced last quarter. But could you give us just any more commentary on how confident you are in continuing to drive this in 2026, both on an R&D front as well as on the SG&A line?

Yes. Thanks, Danny. So we have a high degree of confidence with the new plans that we laid out from an R&D standpoint. Some of the -- as I mentioned, from an R&D standpoint, we'll do some projects internally, some that will be outsourced. And then, of course, we have the normal M&A activity that we've talked about in the past. So we have a high degree of confidence in that. We expect to launch a product here in the fourth quarter, a next-generation product of ours, and that plan looks good and in place. I think as it relates to -- we'll continue to run the business very efficiently, continue to manage costs. And of course, we're looking at everything. In terms of there's an underperforming business, we'll continue to evaluate that. And if it's underperforming, we'll either improve it or divest of it, as we've said in the past.

Yes. And just from a cost perspective, even though we've changed our approach to R&D, you won't see a material difference in kind of percent of sales spend to R&D. We'll continue to spend. We'll just do more of that externally than we have historically. And on other spend, as you -- as our guidance implies, we'll show expansion -- earnings expansion greater than our rate of top line growth. And that's really -- we do have added the $12 million of additional tariff expense. We do have just other investments we'll make into the business, but those are largely offset or more than offset by sales volume as well as the benefits of some of the cost containment measures, we took in the fourth quarter.

Okay. Great. And I'll try to squeeze one more in here. But just on Specialty Nutrition, really nice quarter, especially considering the benefit you saw in 3Q from going direct in the U.K. And it looks like that segment was the majority of the beat to the top line versus what we had modeled. But could you talk just a little bit more about what's going well here? You pointed to a number of things, but is there anything more incremental on how Nexus is performing early days? Or what has surprised you thus far? And remind us what we should be looking for in 2026 in terms of product launches or any other drivers there?

Yes. First of all, demand remains very high for our SNS portfolio, and the team is doing a great job from an execution standpoint, which is great to see. We're very focused on penetrating the market further with CORTRAK and then if you look at our neonatal business, it continues to be very strong as well. Really across the board, it's been great performance, and the demand remains very strong. I think Nexus, I would say, is doing better than expected. We feel very good about the performance. It was a really nice tuck-in. It fits very well with our team is doing already with the existing sales channel we have. And we're really pleased with the results to date so far. I don't know, Scott, if you want to add.

Yes, I would just say we shared last year that it would contribute $5 million of revenue, and we saw that, and we expect that business to be a double-digit grower in '26 and likely beyond that. So we're really pleased with the performance of Nexus.

And at this time, gentlemen, we have no other questions registered. Please proceed.

Well, thank you for your continued interest in Avanos and the questions. As a reminder, we'll be participating in the Citizens Bank Investor Conference in March, and we'll also be hosting our Investor Day in New York on June 23. We look forward to seeing you there, and thanks again.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Enjoy the rest of your day.