Avanos Medical Inc (AVNS) 2018 Q2 法說會逐字稿

Good day, and welcome to the Avanos second quarter earnings conference call and webcast.

(Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference call over to Mr. Dave Crawford, Vice President, Investor Relations, Treasurer.

Mr. Crawford, the floor is yours, sir.

Good morning, everyone, and thanks for joining us.

It's my pleasure to welcome you to the Avanos second quarter earnings conference call.

With me this morning is Joe Woody, CEO; and Steve Voskuil, Senior Vice President and CFO.

Joe will begin with a brief review of our financial performance and provide an outlook for our business and progress towards our 2018 priorities.

Then Steve will review our results and offer additional detail on our financial performance and earnings outlook for 2018.

We'll 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, economic conditions and our industry.

No assurance can be given as to the 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 our prior filings with the SEC.

Additionally, we will be referring to adjusted results and outlook, both exclude certain items described in this morning's press release.

The press release has further information on these adjustments and reconciliations to comparable GAAP financial measures.

Now I'll turn the call over to Joe.

Thanks, Dave.

Good morning, everyone, and thank you for joining us for our first conference call since we rebranded the company as Avanos.

Our new name represents advancement in moving forward.

This morning, I'm excited to share with you that we have continued to move forward in the second quarter, delivering another solid set of results as a focused Medical Device company.

At the midpoint of the year, we are in a strong position having made significant progress towards achieving our 2018 goals.

We increased sales 7% year-to-date on a constant currency basis.

This strong top line performance allows for raising our full year sales planning assumption.

We completed our S&IP divestiture and are on track and fulfilling our TSA commitments.

And finally, we hosted our inaugural analyst and investor conference where we detailed the strategic framework we are executing to further drive growth, acceleration and innovation.

Turning to the second quarter, we continued our strong top line momentum and commercial execution, achieved a significant milestone towards the reimbursement of radio frequency nerve ablation for knee procedures performed at nonacute settings, launched the company's first direct-to-patient television advertising campaign, and completed our first acquisition of 2018.

Moving to Q2 results.

Revenue for the quarter grew 7% on a constant currency basis.

Multiple factors contributed to our strong sales growth.

The continued market expansion of COOLIEF generated double-digit growth in Interventional Pain.

In Chronic Care, we saw a strong demand in both categories.

In Digestive Health, innovation and a focus on MIC-KEY and extension sets drove sales.

While in Respiratory Health, we saw solid demand for closed-suction products as well as some benefit from last year's oral care contract.

In Acute Pain, sales of our ON-Q* Pump continued to be impacted by 2 external factors: first, the continuing industry-wide bupivacaine shortage; and second, a key third-party's inability to fill pumps due to the findings from its FDA audit.

During the quarter, we broadened on our pump filling relationships and established an exclusive partnership with Leiters Enterprises, a 503B outsourcing provider as an alternative for our customers to acquire prefilled ON-Q pain pumps.

As hospitals, who purchased prefilled pumps begin to add the supplier along with other third-party suppliers to their protocol, this additional capacity should help improve revenue from these customers.

As a reminder, about 1/3 of our ON-Q business is sourced through a third-party pump filler, including some of our largest customers.

While we expect the drug supply and prefilled disruption to continue through the remainder of 2018, we expect to see more positive momentum on our mitigating actions into 2019.

Aside from these supply headwinds, the fundamentals of our Acute Pain business remained strong.

Our sales force effort to deepen surgeon penetration along with position education have demonstrated positive results, as we have converted surgeons to ON-Q [as planned], especially in orthopedic procedures.

Overall, in accounts not affected by these external factors, we're on track to deliver mid-single-digit growth.

As surgeons and anesthesiologists seek alternatives to opioids, we are well positioned to meet this need with our clinically superior solution that reduces the need postoperative patients have for opioids.

Despite the supply headwinds affecting our Acute Pain business, we are raising our planning assumption for Medical Device sales for the year from 4% to 6% to 5% to 7%.

As a result of our diversified portfolio in Chronic Care and Pain Management, we have been able to not only meet but exceed our internal plan in the first half of the year.

From an earnings perspective, we delivered another solid quarter of adjusted diluted earnings per share of $0.48 for both continuing and discontinued operations.

Through the first half of the year, we earned $1.25 of adjusted diluted earnings per share.

As a result of our performance, we are raising our full year adjusted diluted earnings per share guidance from between $1.65 to $1.85 to between $1.75 to $1.90.

Clearly, we are off to a good start for the year from a financial perspective, but equally important is the progress we're making on our growth investments and capital deployment.

Earlier this year, I described some of the investments we would make to accelerate growth.

As a pure-play Medical Devices company, we now have more time and resources to invest in reimbursement, government and regulatory affairs, clinical studies and direct-to-patient marketing.

For example, with regards to reimbursement, government and regulatory affairs, we received confirmation that CMS will institute a separate code to cover new procedures for radio frequency nerve ablation in January 2020 in either acute, ambulatory surgical centers or office settings.

In addition, we continued to advance clinical studies to demonstrate the competitive advantage for COOLIEF, our opioids-bearing pain management therapy compared to other pain-relieving therapies.

These studies will not only help differentiate COOLIEF but also support our efforts to ensure appropriate reimbursement when the new code is established.

Regarding direct-to-patient marketing, we've significantly increased our efforts to drive patient awareness for COOLIEF.

During the quarter, we launched our first direct-to-patient television advertising campaign in 6 U.S. markets to raise patient awareness of our COOLIEF therapy.

We are excited about the initial response, which resulted in an increase of more than 4x our normal traffic to the mycoolief website.

Altogether, these investments will build on the already strong sales momentum we have behind COOLIEF.

Finally, as you know, the deployment of capital is a top priority for Avanos and for me personally.

I'm excited that we announced and closed the acquisition of Game Ready, a market-leading provider of cold and compression therapy systems, which enhances our already robust nonopioid pain management portfolio.

This acquisition demonstrates our wider-lens view on M&A, as it expands our sales channels and call points within the orthopedic and sports medicine markets.

We're in the early stages of the integration and all is progressing as planned.

Looking forward, our M&A pipeline is robust, and we continue to actively examine opportunities across both of our franchises to augment our current portfolio.

Given our strong performance to the first half of the year, we are well positioned to continue building on our top line momentum and deploying capital to enhance shareholder value.

With that, I'll turn the call over to Steve.

Thanks, Joe, and good morning, everyone.

First, let me say that it was an extremely busy quarter for the global Avanos team, and I'm proud of the results we delivered.

Before we go into a more detailed review of the numbers, I would like to reiterate as we've stated in our press release this morning that due to the S&IP divestiture, the results of the S&IP business are treated as discontinued operations and the Medical Devices business as continuing operations.

As a result, we are required to allocate shared costs that were previously allocated to S&IP entirely to the Medical Devices business.

These costs, previously allocated to S&IP, totaled $9 million for the quarter compared to $28 million a year ago.

With that, Avanos delivered another strong quarter with Medical Device sales increasing 8% to $161 million.

This represents a 7% increase on a constant currency basis, driven by a 5% volume growth and a favorable mix and price benefit of 2%.

We continue to see strength in Medical Devices sales across Interventional Pain, Digestive Health and Respiratory Health.

Interventional Pain continued to be our fastest-growing category, as we raised patient awareness through our marketing efforts and saw increased adoption.

With our heightened focus on commercial execution, we also saw higher conversion from our single-probe kits to multi-probe kits, driven by the acceleration of knee procedures.

Importantly, multi-probe kits significantly reduced the overall time a physician needs to perform the COOLIEF procedure.

This shift to multi-probe kits drove a portion of our favorable sales mix, given their higher selling price compared to single-probe kits.

In Digestive Health, we saw a volume growth in MIC-KEY* and extension sets, driven by efforts to gain market share in the alternative site market.

Additionally, the recent launch of the 14 French Mic-Key GJ Tube helped round out our product offerings.

Finally, in Respiratory Health, our sales force's increased emphasis on alternate sites drove strong demand for Ballard closed suction systems, including our turbo clean product line, which also benefited our sales mix.

As planned, during the quarter, we increased investments in clinical studies and market development to accelerate growth along with R&D spending to enhance our pipeline.

These investments benefited top line performance and will enhance future growth.

As we enter the second half of the year, we plan to increase these investments to further support our strategic priorities.

As a result, Medical Devices operating profit came in at $32 million for the quarter compared to $41 million a year ago, and operating margin was 20% compared to 27% last year.

The higher level of investing coupled with the expected dis-synergies from the S&IP business impacted operating margin.

Adjusted EBITDA for the quarter was $36 million compared to $51 million a year ago, as results from discontinued operations this year were only for 1 month compared to the entire quarter last year.

As expected adjusted gross margin from continuing operations expanded 230 basis points compared to the prior year to 60%.

Gross margins primarily benefited from the inclusion of only 1 month of S&IP costs allocated to continuing operations compared to 3 months a year ago.

Going forward, we expect gross margin to continue to be in the low 60s.

Adjusted net income totaled $23 million from $24 million a year ago.

As Joe mentioned, we earned $0.48 of adjusted diluted earnings per share this quarter.

Three factors contributed to our strong performance: first, Medical Device sales came in at the high end of our planning assumption.

Second, SG&A spending was lower than anticipated.

We expect SG&A to accelerate meaningfully in the back half of the year as we continue to fund our growth investments and other strategic priorities.

And finally, the lower-than-expected adjusted effective tax rate of 21.2% benefited results.

Shifting to our balance sheet and cash generation.

We ended the quarter in a strong financial position, with $531 million of cash on hand.

As previously communicated, we used $299 million of the proceeds to repay our term loan.

Following the recent acquisition of Game Ready, we have approximately $750 million of acquisition capacity.

Cash from operating activities less capital expenditures or free cash flow was an outflow of $108 million for the quarter.

The decline in free cash flow is largely attributable to classification and timing of cash flows related to the S&IP divestiture.

In addition, we saw $11 million of capital spending primarily related to our new IT system.

Our balance sheet remains strong, and we have significant firepower to invest in future growth opportunities.

Shifting to our guidance.

We are increasing full year adjusted diluted earnings per share guidance from $1.65 to $1.85 to a range of $1.75 to $1.90, which includes earnings from both continuing and discontinued operations.

Based on current trends, we are also updating the following planning assumptions.

Due to our Medical Devices sales performance, for the first half of 2018, we are raising our full year expectation from 4% to 6% to 5% to 7% growth on a constant currency basis.

The adjusted effective tax rate is now expected to range between 23% and 25% for the year.

The balance of our 2018 planning assumptions, which we reaffirmed at our June 21 analyst and investor conference remain unchanged.

In summary, we continued our sales momentum and delivered adjusted diluted earnings per share ahead of our plan.

We have a solid financial profile and are well positioned to continue investing in attractive growth opportunities.

With that, operator, we are ready to take questions.

(Operator Instructions) The first question we have will come from Matthew Mishan of KeyBanc.

Could you first talk a little bit about the strength around Chronic Care?

I mean, in the first quarter, it seemed like there was some flu-related stocking.

But in second quarter, the momentum really continued, and it seems like you were talking a lot about alternative sites.

Could you expand a little bit more of what you're doing there?

Yes, so the momentum did continue, Matt.

It also continued internationally for that business.

Remember there was about 0.5 point of Oral Care.

But we talked a couple of calls ago about a job ticket focused on getting better growth in alternative sites for that business in the U.S. outside of just the hospital setting.

That's proved well.

And also particularly, on the closed-suction product in particular there.

So just generally, across the board, the Chronic Care business was strong.

And again, there was a little bit of a benefit in international as well from that business.

And then price mix in the quarter was, I mean, stronger in the Medical Devices area than it's been historically and it seemed unusual for that segment.

What drove that?

I'd say it was a little more mix than price.

Steve may have a thing or two to say.

But generally, on the products side, the MICROCOOL probes were seeing a trend to sell 3 to do the procedure faster versus just one.

And a similar effect in Chronic Care with a shift to the turbo clean product with a better mix.

So it's a little early to tell if these things are going to stay with us.

But they were positive, and I think more oriented to mix.

I don't know.

Steve, do you want to add anything?

Yes, I agree.

Historically, we have been up 1, down 1 or flat kind of from the price mix standpoint.

This was actually the first quarter that it was a little bit more meaningful.

And it really was mix more than price.

And I think some of that has the year-over-year comparison in that equation as well.

Okay.

And then lastly on the Medical Devices margin coming in, in the low 20s versus where it's been.

I get the reinvestment portion of it.

But as far as the dis-synergies, are you allocating more of the corporate cost specifically to that Medical Devices line as a -- following the acquisition?

Sorry, no.

You've kind of hit the big pieces on the margin.

You've got more investment year-over-year, in fact more coming in the back half even than we had in the first half in all around those areas we've talked about in terms of more clinical evidence, more in R&D, more COOLIEF, direct-to-patient, which actually is having a meaningful impact.

And then you're seeing the impact of the dis-synergies begin to roll and at least for the 2 months of the quarter that we weren't together with S&IP.

Maybe we will continue to see that over the course of the back half.

And then recall last year, we actually had a pretty low investment in the second quarter, particularly in R&D.

And so you've seen a little bit of a year-over-year comp element in there as well.

And the next question we have will come from Jonathan Demchick of Morgan Stanley.

I wanted a follow-up on Matt's question about margins and really just kind of thinking how it trends more into the back half of the year.

I mean, I think if you back out the S&IP allocation this year, you get somewhere around like 15.5% operating margins.

It sounds like, obviously, an extra month of dis-synergies is going to happen or a couple of extra -- sorry, one extra month of dis-synergies as well as increased investments.

So I mean, is it safe to say that the 15.5% kind of from this quarter is probably the high point for the balance of the year and that you probably will be expecting something close to that 15% in the back half when you start allocating more of the costs in?

I mean, is that a fair kind of pro forma-base to kind of start to thinking about the cost savings that are going to build in 2019?

Yes, I don't know if I can get that specific, Jon, in terms of laying it out by quarter.

But what I would say, I mean, your -- the key themes, I think, you are hitting on a right.

We are going to have more than investment spending hitting in the back half.

We're going to have a little bit more, call it a full quarter, as you said, of dis-synergies rolling in.

And while we will see some improvement against the dis-synergies over time, we're not going to see as much in the back half as we're going to see in 2019 and certainly beyond, as we talked about at the investor conference.

And so I think that's kind of the way we're looking at it for the balance of the year.

And Jon, this is Joe Woody.

I would add that this is temporary related to the divestiture.

If you look historically at the Medical Devices business, we've been accelerating and improving the margin.

And we'll get back to that, I believe, into '19.

And those investments, though, you've seen this top line performance, they are paying off.

There's probably even more we can do.

So that's why we're continuing to invest alongside of the working on dis-synergies.

Understood.

And I'm just following up, I guess, on those a little bit.

On the earnings line guidance, it was still pretty wide.

I think it was about 10% range really between the top and the bottom.

I mean, should we think the main kind of bridges that get you the both edges of that is really on the dis-synergies side and investment side of things?

Or is there anything else that we should really be factoring in?

I think that's a big piece to dis-synergies in investment side.

I'd say we are also, as we talked about on the call, letting the Acute Pain business play out in the back half.

We certainly saw some impact in the first quarter.

We'll probably saw a little more impact in the second quarter from that business.

And I think, in fact, the third quarter may even have a bit more.

So it's really a combination of that SG&A OpEx piece combined with a little bit of hedging for the top line recovery in Acute Pain.

Great.

And then one follow-on just on Chronic Care.

I know Matt touched upon this, but it really has been doing very well in the first half of the year.

It sounds like the alternative site has been really a big driver there.

Should we be rethinking the just general growth trajectory of this business with some of these investments?

I mean, I think I have generally thought of these businesses as being more of a low- to mid-single-digit grower.

It's been close to double digits for the first half.

I mean, what is the correct trajectory to really be thinking about on this business?

I think the long-term trajectory is more mid.

I think the opportunities, though, and at the right time what we call a change would be CORPAK on the international level.

And the same with this change now with Arjun Sarker leading the international business, and we saw a little bit of a benefit already, and he's only just starting.

Although, there were some distributor movements in that for the quarter.

The 2 things would be the international business, the continued double-digit growth of CORPAK.

So mid -- solid mid-single, obviously.

And then -- but those other 2 areas could push it up a little bit.

And you'll see in the back half that Oral Care contract, which is not a big add, but it's been adding for the last -- related to last year.

That will soften out.

We kind of started to lap that.

I mean, clearly, the business has been doing great.

But as Joe said, it's probably hitting a little bit over its average here.

And the next question we have will come from Ravi Misra of Berenberg Capital Markets.

So I have a couple, if I could squeeze in, hopefully, a number of questions, try not to take to many.

But I wanted to start with that Chronic Care segment.

Would you mind quantifying that Oral Care benefit?

I think in the last quarter, you said something around 200 basis points of the combination of flu and oral care.

Could you maybe parse that out for this quarter?

And then, for the Interventional Pain business, I'm curious on that CMS comment that you made regarding the 2020 RF nerve ablation code.

That sounds pretty exciting.

And it sounds like it's geared towards -- specifically towards COOLIEF.

Could you help us understand the classification of that code?

Is that a CPT 1, 2, 3 code?

Or how does that change the reimbursement dynamic?

And then, I guess, I'll have a couple of follow-ups on guidance after those.

Yes.

Ravi, this is Joe.

On Oral Care, for the total business, it's about 0.5 point but for the Chronic Care business, it's about 1 point in this current quarter.

We are excited about the reimbursements.

The reimbursement for the knee treatment of osteoarthritis and the need for the code will actually be for both RF and COOLIEF.

But as you know, we've been doing a study on COOLIEF versus HA.

We've already done a lot on the corticosteroids.

We are going to initiate one against RF and try to prove a longer duration than even a year of the pain relief.

So I think we're well positioned, even though it's a code for all areas.

And then it does open up the chance to get into a much larger market.

So it is very key going forward in 2020, and we're definitely excited about it.

Great.

And then maybe just on the guidance.

I was curious in terms of your volume commentary.

That 5% growth coming, I think it was against the 3% comp last year.

Any sort of commentary on breaking it down between U.S. and OUS?

Are we looking at same kind of 5% in both markets?

Or how is that changing?

And just curious in terms of what your view is on the overall utilization environment that you're seeing in your businesses?

And then just maybe one last one on guidance.

On the top line, is there any change to the FX assumption that you had in your revenue guide?

And if not or if so, what would that be?

Steve will hand the currency side of that.

But the volumes were a little bit higher in international than we normally would have seen.

And that's, I think, the beginning of some of the success we'll see.

Although, there was a bit of distributor movement.

And so they've moved up across the board with the exception, really, of Acute Pain.

So Steve, do you want to handle the currency?

Yes, just on currency, we saw, for the quarter, slight benefit on the top line.

We don't think for the year it's going to be that meaningful.

So it's not a big factor going forward.

Next we have Chris Cooley of Stephens.

Congrats on your first quarter as a pure-play in devices.

Just maybe 2 for me at this point.

Could you help us parse that a little bit more on the quarter?

When you look at the growth, and as we didn't find this into the second half of the year, maybe you're kind of semi-quantifying the headwind you have on the ON-Q side relative to the incremental growth that you're seeing with COOLIEF.

And would really be interested in that latter part if you could drill down a little bit more in terms of whether you're just seeing broader utilization, more volume within existing users?

I'm just trying to help better get a handle on that growth that we're seeing in that product line, and then I've got a quick follow-up.

Okay.

Chris, I'll say a couple of things and then Steve is welcomed to join in as well.

But generally, in the quarter, we had COOLIEF continue double digit.

We talked about respiratory alternative site.

And in Digestive Health, we had an innovation impact where we had a launch.

And these are all areas where the volume is increasing.

And there was a little bit of mix benefit in respiratory.

In terms of IVP and COOLIEF, it's a combination of new sites through capital sales but also getting great pull-through in the script.

We talked about the direct-to-patient advertising that we put in place, seen 4x the kind of hits really that we've seen in the past.

And it does take a couple of months to get those patients in and processed into the office.

But that was all positive.

And the other thing is that we've seen a small bounce in international, I think, with Arjun Sarker's direct management and putting a focus on commercial there.

That quarter, frankly, could have been better volume-wise by as much as 2 points better if we weren't dealing with the bupivacaine, bupivacaine supply and the pre-fill issue around Acute Pain.

We're cautiously watching that because we did see a little bit of slight worsening of that from Q1 to Q2.

And Steve mentioned, 3 could be tougher.

And in Oral Care, it's going to back off, hence, we're not ready to go much further in raising really until we get through '19 to really understand Acute Pain.

Although, the underlying business in Acute Pain where they're not affected by the drug shortage or prefill are growing high single-digit.

And we're happy with that.

We're also converting a lot of orthopedic surgeons, well over 100, with our specifics.

But Steve, I don't know if you wanted to comment...

I think it was a pretty good deal.

The only thing I would add is, overall, utilization -- industry utilization is probably not as a big a factor.

As Joe said, our focus is more on the utilization of getting our procedures more widely adopted overcoming barriers, overcoming some of the near-term challenges in the Acute Pain side of the business.

So less about those than about overall utilization.

Right.

And then my just 2 quick follow-ups.

Could you just remind us your kind of expectations for the contribution from Game Ready here in the back half of the year with that closed now and basically on a full quarterly run rate as we think about the back half?

And then lastly, from an M&A perspective, $750 million in capacity.

I know you want to consolidate and maybe get down to maybe just a couple of IT systems, ideally one, before you find a new one.

But help us think about maybe potential timing for additional M&A if you think if that's really more of a '19 event or is there still some potential here in the back half of '18?

So I'll handle M&A and Game Ready.

I mean, Game Ready, we've talked about, it's about $35 million in sales last year.

And so we're going to get 0.5 year of benefit, and it's growing slightly better than our business.

And so that's a positive thing.

And the pipeline is really strong in M&A.

And we continue to work -- you can never time these things out.

It is possible, though, that we could see another deal before the close of the year.

And we're working toward that goal.

Yes.

On the Game Ready from an earnings contribution side, we really haven't factored anything in for the back half of this year.

(Operator Instructions) The next question we have will come from Larry Keusch of Raymond James.

Just a couple of quick things here.

Joe, just maybe talk a little bit about the visibility that you have on the bupivacaine challenge that you have in front of you right now?

Yes, there's an industry-wide shortage.

There was a big article in Fortune Magazine.

I think a lot of people have read about what's going on there.

And it looks like toward the end of the year, it could look to get a little bit better, which is why we have a little bit more of a positive outlook for 2019.

We did announce our partnership with Leiters, an exclusive relationship to give us a way to diversify with other pump fillers.

And so we think that, that's going to start to benefit us towards the middle of the fourth quarter.

The issue around it is that GPOs and IDNs and the pharmacies themselves at hospitals have to go out and validate the site.

They have changed in all their processes to switch over.

So it takes a little bit of time.

We have a much better, longer strategic plan around how to shore up our supply so that this doesn't happen to us in the future.

But there's a heavy focus by the FDA on 503Bs.

And this bupivacaine or pivacaine or [caines], if you will, shortage is really real and there's some really bad situations with hospitals that they are facing.

That said, the underlying business is strong, which is -- and I'm happy that we've got a stronger portfolio with better commercial execution to be able to weather this.

And so we think that as we get into next year, we're going to be able to put that growth back on the table.

Okay, perfect.

And did I hear you correctly that you said for the 2Q, there was, if not for these bupivacaine issues with ON-Q, volume would have been 200 basis points higher?

Yes, we would have been looking at more like a 9% growth versus 7%.

Okay, got you.

Terrific.

And then 2 last ones.

Just back to the margin, that 20% margin for the quarter.

Is that the right way to kind of think about it for the back half of the year as kind of what we're going to running at?

And the other question is, Steve, what -- if my math is right the tax rates that you -- even with the lower tax rate imply a higher tax rate for the second half of the year, what drives that up?

Yes, maybe I'll take those in reverse order.

The tax piece, we have benefited -- we had sort of a lucky strike in the second quarter that the tax -- the new tax law allows for accelerated benefit when stock options were exercised than we just happened to have 2 senior former executives that executed a significant amount of options in the second quarter.

So we got a total onetime benefit in the Q2 tax rate that kind of brought the whole waterline down for the year.

So you are right.

We're not -- that won't be sustainable at that level in Q3 and 4. We expect Q3 and 4 to look more like 25% in that range.

And that really leads the math to the guidance update that we did on the tax rate.

From a margin standpoint, Larry, I think you're thinking about it, I'll say, the right way.

That's the right starting point.

Against that 20%, we're going, though, more investment in the back half versus the first half on those growth investments that we referenced.

I mean, you'll also have a little bit more dis-synergy 2 months in Q3 versus full quarters in the back half.

So I'll say, all else equal, it'll be -- I'd expect it be down a little bit versus the 20% that we had here.

(Operator Instructions) Next we have a follow-up from Matthew Mishan of KeyBanc.

Steve, I think we talked about the med device margin in decent amount, but what -- how should we thinking about the corporate cost run rate going forward?

I think it was, like, $9 million in there, and it was a $20 million number.

What's the right run rate for the corporate costs as we kind of start to model out 3Q and 4Q?

Yes, on the -- I mean, let's say, on the order, historically, corporate costs have been high as 70, 75 probably our run rate for this year.

If we look to the back half, it's more like 60 kind of range.

Okay.

And then on the bupivacaine shortage, how does that impact the competitive landscape as far as the Pacira goes?

I mean, it doesn't seem to be -- doesn't seem as if there are impacts.

It seems like they're gaining momentum.

Are you at a disadvantage to them at this point as a result of this?

I think you see some -- in some cases, hospitals that are looking at long, acting locals, they're looking at really any solution they can -- that they can get to.

But a lot of the success that I think Pacira is seeing right now is from the shoulder indication and the focus they have in that area.

When we inspect our business on a weekly basis, we're not seeing a lot of major account turn.

And we're kind of focused a little bit in a different area and a different way with the types of procedures where a ON-Q* Pump is better suited for the patient titration and the management of the pain in getting made, for example, somebody help with a total knee in 24 hours without falling or problems that might sometimes be associated with the long-lasting local.

So I think there is -- as I said in the past, there'll be a lot of different long-lasting locals coming into the market, other pump fillers, but this is a $4 billion problem and it's low penetrated.

So I think we'd be able to carve out our unique position in that area.

And then also, I believe, outside of the reimbursement for the RF procedure and then the -- I think there's also been some recent CMS proposals to reduce the use of opioids at least a couple of weeks ago.

And I think there was some specific mention of Medical Devices in there as well.

Could you comment on what you're seeing out of those recent proposals and how it could affect you?

That's -- that bill has gone through the House.

It's working its way through the Senate.

And essentially, it's going to provide an opportunity for medical device makers, not just us but really all those associated with devices that can relieve pain versus opioids to get better reimbursement at different sites outside of even just the hospital and possibly an education component to it for physicians when they educate patients.

And that said, it'll be a little bit like this knee code, which the CMS teams will have about a 1.5 year or 2 years probably to work with the med device makers on how to make that happen.

But there'll be a pushing effort, if you will, from the legislation to CMS to really get after this.

And so there could be benefits for anybody in the pain business.

Well, at this time, we are showing no further questions.

We will go ahead and conclude our question-and-answer session.

I would now like to turn the conference call back over to Mr. Joe Woody for any closing remarks.

Sir?

I'd like to just thank everyone for their interest in Avanos.

We're very pleased with our momentum in the first half of the year and very excited to build on this as we take advantage of the very attractive opportunities we have ahead.

Thank you very much.

And we thank you, sir, and to the rest of the management team for your time also today.

Again, the conference call has now concluded.

At this time, you may disconnect your lines.

Thank you, everyone.

Take care, and have a great day.