Avanos Medical Inc

Item 1A. Risk Factors

There have been no changes to the risk factors described in Part I, Item 1A, Risk Factors, of the Form 10-K, except as follows:

The recent imposition of new tariffs by the United States, along with retaliatory tariffs and other trade restrictions imposed by other countries, could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Most of our manufacturing facilities are located in Mexico. In addition, we have a manufacturing facility located in Canada and use contract manufacturers outside the United States. Further, we source many of our raw materials and components from foreign suppliers, including suppliers in China and Mexico. We distribute and sell our products globally.

We are subject to tariffs and taxes in the United States and numerous foreign jurisdictions. Since February 2025, the United States has imposed a number of new tariffs on goods originating from many countries in the world. Additional tariffs have been threatened by the U.S. administration. As of the date of this Form 10-Q, it remains unclear what tariffs will be imposed on imported goods from each country and, if so, at what level and for how long. These tariffs, for so long as they remain in effect, will increase the costs of the foreign-origin goods that are incorporated in our products and may disrupt our established supply chains. We have taken action to mitigate the impact tariffs, including through cost containment measures, pricing actions where appropriate, supply chain adjustments and reliance on existing international agreements that allow for reduced or duty-free importation of products. However, if we are unable to successfully pass through the additional cost of these tariffs to our customers, or if higher prices reduce demand for our products, or if we are otherwise unable to mitigate the impact of tariffs through supply chain adjustments and other actions, it could have a material adverse effect on our business, financial condition, results of operations and cash flows.

The U.S. administration has also expressed antipathy towards certain existing international trade agreements and organizations, including the United States-Mexico-Canada Agreement (the USMCA) and the United States membership in the World Trade Organization (the WTO). An amendment to or the United States withdrawal from the USMCA or the WTO could result in additional increased tariffs or other new trade restrictions on imports from Mexico, Canada, China and other countries.

In addition, we generate a significant portion of our revenues from sales to customers located outside the United States, including in Europe, Asia and Latin America. Many of these countries have implemented, or may implement, retaliatory tariffs in response to the tariffs imposed by the United States. The imposition of such retaliatory tariffs will likely increase the cost of our products in those countries, which would negatively impact customer demand for such products and our revenues.

The ultimate impact of these tariffs and trade measures on our business, financial condition, results of operations and cash flows is uncertain and may be affected by various factors, including the amount, scope and nature of such tariffs and trade measures, the timing of when such measures become implemented and the length of time they remain in effect, and our ability to execute strategies to mitigate the negative impacts of such trade measures.

These developments, along with other new or increased tariffs and trade restrictions, may have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our customers depend on third-party coverage and reimbursements. The failure of healthcare programs to provide coverage and reimbursement, or reductions in or eliminations of reimbursements, could have a material adverse effect on our business.

The ability of our customers to obtain coverage and reimbursements for products they purchase from us is important to our business. Demand for many of our existing and new medical products is, and will continue to be, affected by the extent to which government healthcare programs and private health insurers reimburse our customers for patients medical expenses in the countries where we do business. Any reduction in or elimination of the amount of reimbursements received by our customers could harm our business by reducing their selection of our products and the prices they are willing to pay.

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In addition, as a result of their purchasing power, third-party payors are implementing cost-cutting measures such as seeking discounts, price reductions or other incentives from medical products suppliers and imposing limitations on coverage and reimbursements for medical technologies and procedures. These trends could compel us to reduce prices for our existing products and potential new products and could cause a decrease in the size of the market or a potential increase in competition that could have a material adverse effect on our business, results of operations, financial condition and cash flows.

Our PMR portfolio of products includes RFA treatments for peripheral nerve pain. Currently, Medicare covers RFA treatments for peripheral nerve pain when deemed medically necessary and other treatments have not been successful. Recently, a number of Medicare Administrative Contractors (MACs) have drafted a proposed coverage policy questioning whether RFA treatment for peripheral nerve pain is reasonable and necessary for Medicare coverage. A final determination on this issue is expected to be made in early 2026. While Avanos has joined an industry coalition and taken other steps to advocate against any change to the existing Medicare reimbursement policies for peripheral RFA treatments, there can be no assurance that such efforts will be successful. A final determination by certain MACs that RFA treatment for peripheral nerve pain is not reasonable and necessary for coverage would eliminate Medicare reimbursements for such treatments for such MACs, which could have a material adverse effect on sales of our RFA products.