FOURTH QUARTER 2015 EARNINGS CALL. February 29, 2016

Transcription

1 FOURTH QUARTER 2015 EARNINGS CALL February 29, 2016

2 FOURTH QUARTER EARNINGS CALL AGENDA Fourth Quarter Update Robert Abernathy, Chairman and Chief Executive Officer Fourth Quarter Results and 2016 Outlook Steve Voskuil, Chief Financial Officer 2

3 CONFERENCE CALL REMINDERS FORWARD-LOOKING INFORMATION Certain matters in this presentation and conference call, including our 2016 outlook, expectations and planning assumptions, and any estimates, projections, and statements relating to our business plans or objectives, constitute forward-looking statements and are based upon management s expectations and beliefs concerning future events impacting the Company. These statements are subject to risks and uncertainties, including currency exchange risks, cost savings and reductions, raw material, energy, and other input costs, competition, market demand, economic condition, and legislative and regulatory actions. There can be no assurance that these future events will occur as anticipated or that the Company s results will be as estimated. Forward-looking statements speak only as of the date they were made, and we undertake no obligation to publicly update them. For a more complete listing and description of other factors that could cause the Company s future results to differ materially from those expressed in any forward-looking statements, see the Company s most recent Form 10-K and Quarterly Reports on Form 10-Q. NON-GAAP FINANCIAL MEASURES Management believes that non-gaap financial measures enhance investors understanding and analysis of the company s performance. As such, results and outlook have been adjusted to exclude certain items for relevant time periods as indicated in the non-gaap reconciliations to the comparable GAAP financial measures included in this presentation and in today s earnings release posted on our website ( 3

4 FOURTH QUARTER UPDATE ROBERT ABERNATHY, CHAIRMAN AND CHIEF EXECUTIVE OFFICER

5 FOURTH QUARTER UPDATE Achieved 2015 goals of completing the separation and building capabilities - Exiting TSAs, establishing capabilities, rebranding & repackaging - Medical Devices performed in line with expectations Initiate first steps in transformation 5

6 FOURTH QUARTER AND FULL-YEAR RESULTS Faced difficult S&IP markets - Defending leading market positions - Bringing innovation to our categories - Maximizing cash flow Results in line with revised expectations - Fourth quarter adjusted diluted EPS of $ Full-year adjusted diluted EPS of $ Fourth quarter net sales totaled $401 million - Net sales for 2015 were $1.6 billion 6

7 MEDICAL DEVICES RESULTS Solid quarter with 6 percent growth - Third consecutive quarter of 5 percent or more growth - Three percent growth for the year Growth driven by Interventional Pain - Continued robust performance from COOLIEF ON-Q volume returned to growth Respiratory and Digestive Health in line with expectations 7

8 SURGICAL AND INFECTION PREVENTION RESULTS Fourth quarter net sales declined 9 percent - Cycled against a strong quarter a year ago Annual net sales in line with revised expectations Challenging markets - Input costs declined - Selling prices contracted - Aggressive competition for market share Dynamics expected to continue in

9 BALANCE SHEET AND CASH FLOW Ended the year with $130 million of cash - Reduced debt by $50 million Balanced cash generation 2016 free cash flow generation in excess of $100 million - Lower capital spending - Lower separation expenses 9

10 HALYARD TRANSFORMATION PORTFOLIO Increase R&D investment Enhance Medical Devices Become leading Medical Devices company COMPANY IT rationalization Gain operational efficiencies Optimize tax structure CULTURE Healthcare focus Bold and agile Innovative spirit Vision for the future of Halyard 10

11 DELIVER OUR 2016 PLAN Annual adjusted diluted EPS of $1.45 to $1.65 Net sales to decline 2 to 5 percent 11

12 FUEL GROWTH PIPELINE Accelerate investment in Pain platforms - Build on momentum and leading positions in nonnarcotic therapies Focus on innovation - Launch 10 product line extensions Complete first acquisition - Grow Medical Devices 12

13 FOURTH QUARTER SUMMARY Built a solid foundation Ready to lead Halyard through next stage Confident in our strategy 13

14 FOURTH QUARTER 2015 RESULTS STEVE VOSKUIL, CHIEF FINANCIAL OFFICER

15 FOURTH QUARTER CONSOLIDATED PERFORMANCE Millions Total Net Sales Adjusted Gross Profit $439 $401 Change in NS Q4 Total Change -9% Volume -2% 36% $164 $136 37% 34% Price/Mix -2% Currency -2% Other -3% Q Q Q Q Cycled against strong quarter; $13 million pandemic preparedness sales 15% $10 million net sales impact due to unfavorable currency exchange rates Lower volumes to Kimberly-Clark Gross Margin impacted by lower production volumes 15

16 FOURTH QUARTER CONSOLIDATED PERFORMANCE Millions Adjusted Operating Profit $77 $41 18% 10% Q Q Lower S&IP sales volume and pricing Production curtailment Increased R&D investment Planned stand-alone costs 36% Adjusted operating profit excludes: - $8 million post-spin related charges - $7 million intangible amortization expense - $8 million for litigation matters - $2 million downward revision of previously announced non-cash 15% goodwill impairment 16

17 TAX UPDATE 2015 effective tax rate benefited from the passage of the R&D tax credit R&D tax credit not in 2015 guidance Took initial steps in tax planning Expect tax rate variability - Operational changes could cause upfront increase followed by reductions in future years 17

18 FOURTH QUARTER S&IP Millions S&IP Net Sales Operating Profit $299 $263 Change in NS Q4 $48 Total Change -12% Volume -5% Price/Mix -2% Currency -3% 36% 16% $27 10% Other -2% Q Q Q Q Cycled against strong quarter a year ago Share loss in Surgical Drapes and Gowns and Protective Apparel Lower operating profit due to lower sales volume and selling price, higher manufacturing costs and planned stand-alone costs 15% 18

19 S&IP MARKETS Decline in commodity prices causing lower selling prices and market share competition Competitors more aggressively passing commodity benefit to gain share - Resulted in 2 percent price loss in Expected to continue into Anticipated 2 to 4 percent price contraction in 2016 Defending leading market positions - Launching new products in Surgical Drapes and Gowns - Leveraging growing body of clinical evidence in Sterilization Over long-term we believe commodity prices and market pricing will stabilize 19

20 FOURTH QUARTER MEDICAL DEVICES Millions Devices Net Sales Operating Profit $128 $134 Change in NS Q4 Total Change 5% $28 $21 Volume 6% Price/Mix 0% 36% 22% 16% Currency -1% Other 0% Q Q Q Q Third consecutive quarter of growth at or above 5 percent Continued momentum in COOLIEF Third consecutive quarter of growth for ON-Q; Second consecutive quarter of year-over-year growth Operating profit driven by higher volume and lower G&A offset by strategic R&D investment and increased selling expense 15% 20

21 2015 CONSOLIDATED PERFORMANCE Millions Total Net Sales Adjusted Gross Profit $1,672 $1,574 Change in NS 2015 Total Change -6% Volume -1% Price/Mix -1% Currency -3% Other -1% 36% $617 37% $545 35% Currency negatively affected sales by 3 percent Results impacted by lower sales to Kimberly-Clark 15% 21

22 2015 CONSOLIDATED PERFORMANCE Millions Adjusted Operating Profit Adjusted EBITDA $326 $288 17% $181 11% 36% $ Adjusted Operating Profit decreased due to lower selling prices, higher distribution costs and standalone costs 22

23 2015 S&IP Millions S&IP Net Sales Operating Profit $1,139 $166 $1,030 Change in NS 2015 Total Change -10% Volume -3% Price/Mix -2% Currency -3% 36% 15% $98 10% Other -2% Higher Exam Glove volume in Latin America & Asia-Pacific Lower volume in Surgical Drapes and Gowns, Facial Protection and Exam Gloves sales to Kimberly-Clark Selling prices declined primarily in Sterilization and Exam Gloves Operating profit declined due to lower volumes and selling prices, higher distribution and stand-alone costs 15% 23

24 2015 MEDICAL DEVICES Millions Devices Net Sales Operating Profit $502 $510 Change in NS 2015 $105 $108 Total Change 2% Volume 3% Price/Mix 0% 36% 21% 21% Currency -1% Other 0% Volume increase driven by strong demand in Interventional Pain Solid growth in Digestive Health Operating Profit increase driven by higher sales volume partially offset by higher selling and R&D expenses 15% 24

25 2016 OUTLOOK STEVE VOSKUIL, CHIEF FINANCIAL OFFICER

26 2016 Outlook Summary 2016 Expectation Adjusted diluted EPS $1.45 to $1.65 Net sales -2 to -5 percent Medical Devices 3 to 5 percent S&IP, excluding sales to Kimberly-Clark -3 to -5 percent S&IP sales to Kimberly-Clark $40 to $45 million Corporate sales $5 to $15 million FX translation impact on net sales -0.5 to -1.5 percent Commodity inflation $5 to $10 million Research & Development $35 to $40 million Spin-related transitional costs $10 to $15 million Adjusted effective tax rate 33 to 35 percent 26

27 SUMMARY Delivered adjusted diluted EPS ahead of revised guidance Medical Devices growth in line with plan Committed to defending S&IP leading market share positions and innovating in our categories while maximizing cash flow Shifting our portfolio to faster growing, higher margin Medical Devices 27

28 Q&A

29 APPENDICES

30 NON-GAAP RECONCILIATIONS (in millions, except per-share amounts) Three Months Ended December 31, 2015 As Reported Spin-Related Transition Charges Goodwill Impairment Litigation Intangibles Amortization As Adjusted Non-GAAP Cost of products sold $ $ (1.7) $ - $ - $ (0.9) $ Gross profit Research and development 9.8 (0.4) Selling and general expenses 98.3 (6.4) - - (5.7) 86.2 Goodwill impairment (1.5) Other expense and (income), net (7.8) - (0.3) Operating profit (1.5) Income (Loss) before income taxes (1.5) Income tax provision 2.0 (3.4) - (2.8) (2.2) (6.4) Effective tax rate (16.0)% 19.5% Net income $ 14.5 $ 4.1 $ (1.5) $ 5.0 $ 4.4 $ 26.5 Adjusted diluted EPS $ 0.31 $ 0.09 $ (0.03) $ 0.11 $ 0.09 $

31 NON-GAAP RECONCILIATIONS (in millions, except per-share amounts) Three Months Ended December 31, 2014 Pre Spin-off Post Spin-off As Reported (a) Spin-Related Transaction Charges Manufacturing Strategic Changes Spin-Related Transition Charges Manufacturing Strategic Changes Intangibles Amortization As Adjusted Non-GAAP Cost of products sold $ $ (0.4) $ (2.3) $ (0.8) $ (2.8) $ (0.9) $ Gross profit Research and development Selling and general expenses (27.4) - (11.4) - (7.1) 80.5 Operating profit Income before income taxes Income tax provision (20.5) (4.7) (0.6) (3.1) 2.8 Effective tax rate 113.3% (3.9)% Net (loss) income $ (2.4) $ 49.5 $ 12.3 $ 7.5 $ 2.2 $ 4.9 $ 74.0 Adjusted diluted EPS $ (0.05) $ 1.06 $ 0.26 $ 0.16 $ 0.05 $ 0.11 $ 1.59 (a) For the three months ended December 31, 2014, potentially dilutive stock options and restricted share unit awards were excluded from the computation of earnings per share as their effect would have been anti-dilutive. 31

32 NON-GAAP RECONCILIATIONS (in millions, except per-share amounts) Year Ended December 31, 2015 As Reported (a) Spin-Related Transition Charges Manufacturing Strategic Changes Goodwill Impairment Litigation Intangibles Amortization As Adjusted Non-GAAP Cost of products sold $ 1,042.8 $ (9.9) $ (0.3) $ - $ - $ (3.2) $ 1,029.4 Gross profit Research and development 32.3 (1.4) Selling and general expenses (43.6) (22.6) Goodwill impairment (474.0) Other expense and (income), net (16.9) Operating (loss) profit (377.7) 53.9 (12.0) (Loss) income before income taxes (410.5) 53.9 (12.0) Income tax provision (15.8) (21.1) (6.3) (9.6) (49.2) Effective tax rate (3.8)% 33.2% Net (loss) income $ (426.3) $ 32.8 $ (8.4) $ $ 10.6 $ 16.2 $ 98.9 Adjusted diluted EPS $ (9.15) $ 0.71 $ (0.18) $ $ 0.23 $ 0.35 $ 2.11 (a) For the year ended December 31, 2015, potentially dilutive stock options and restricted share unit awards were excluded from the computation of earnings per share as their effect would have been anti-dilutive. 32

33 NON-GAAP RECONCILIATIONS (in millions, except per-share amounts) Year Ended December 31, 2014 Pre Spin-off Post Spin-off As Reported Spin-Related Transaction Charges Manufacturing Strategic Changes Spin-Related Transition Charges Manufacturing Strategic Changes Intangibles Amortization As Adjusted Non-GAAP Cost of products sold $ 1,123.5 $ (4.5) $ (57.0) $ (0.8) $ (2.8) $ (3.6) $ 1,054.8 Gross profit Research and development 33.6 (0.1) Selling and general expenses (84.4) - (11.4) - (28.6) Operating profit Income before income taxes Income tax provision (64.1) (1.0) (10.5) (4.7) (0.6) (12.4) (93.3) Effective tax rate 70.3% 32.8% Net income $ 27.1 $ 88.0 $ 46.5 $ 7.5 $ 2.2 $ 19.8 $ Adjusted diluted EPS $ 0.58 $ 1.89 $ 1.00 $ 0.16 $ 0.05 $ 0.43 $

34 NON-GAAP RECONCILIATIONS (in millions) Three Months Ended December 31, 2015 As Reported Spin-Related Transition Charges Goodwill Impairment Litigation As Adjusted Net Income $ 14.5 $ 4.1 $ (1.5) $ 5.0 $ 22.1 Interest expense, net Income tax provision (2.0) Depreciation and amortization EBITDA $ 37.3 $ 7.5 $ (1.5) $ 7.8 $ 51.1 Three Months Ended December 31, 2014 Pre Spin-off Post Spin-off As Reported Spin-Related Transaction Charges Manufacturing Strategic Changes Spin-Related Transition Charges Manufacturing Strategic Changes As Adjusted Net (Loss) Income $ (2.4) $ 49.5 $ 12.3 $ 7.5 $ 2.2 $ 69.1 Interest expense, net Income tax provision 20.5 (21.7) (10.0) (5.9) Depreciation and amortization (2.3) (0.5) (3.2) 17.8 EBITDA $ 47.8 $ 27.8 $ - $ 11.7 $ (0.4) $

35 NON-GAAP RECONCILIATIONS (in millions) Year Ended December 31, 2015 As Reported Spin-Related Transition Charges Manufacturing Strategic Changes Goodwill Impairment Litigation As Adjusted Net (Loss) Income $ (426.3) $ 32.8 $ (8.4) $ $ 10.6 $ 82.7 Interest expense, net Income tax provision (3.6) Depreciation and amortization 65.4 (0.8) EBITDA $ (312.3) $ 53.1 $ (12.0) $ $ 16.9 $ Year Ended December 31, 2014 Pre Spin-off Post Spin-off As Reported Spin-Related Transaction Charges Manufacturing Strategic Changes Spin-Related Transition Charges Manufacturing Strategic Changes As Adjusted Net Income $ 27.1 $ 88.0 $ 46.5 $ 7.5 $ 2.2 $ Interest expense, net Income tax provision Depreciation and amortization 85.4 (1.1) (9.7) (0.5) (3.2) 70.9 EBITDA $ $ 87.9 $ 47.3 $ 11.7 $ (0.4) $

36 NON-GAAP RECONCILIATIONS 2016 OUTLOOK Estimated Range Adjusted diluted earnings per share $ 1.45 to $ 1.65 Amortization (0.28) to (0.28) Spin-related transition expenses (0.20) to (0.13) Other (0.18) to (0.12) Diluted earnings per share (GAAP) $ 0.79 to $