First Quarter 2018 Financial Results. January 26, 2018

Transcription

1 First Quarter 2018 Financial Results January 26, 2018

2 This presentation contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of All statements included herein that are not historical facts are forwardlooking statements, including without limitation statements regarding Hill-Rom s ability to drive sustainable profitable growth and shareholder value, the timing and success of new product launches and portfolio expansion, the ability to achieve the anticipated benefits of the Mortara acquisition, the achievement of long-range financial objectives, the continuation of stable customer demand trends, a stable U.S. capital environment, the timing and success of M&A and optimization initiatives, our ability to reduce debt, the impact of the new U.S. tax reform legislation, and all other statements concerning future strategy, plans, objectives, projections, expectations and intentions. Such forward-looking statements involve a number of risks and uncertainties and are subject to change at any time. In the event such risks or uncertainties materialize, Hill-Rom s results could be materially adversely affected. For a more in depth discussion of factors that could cause actual results to differ from those contained in forward-looking statements, see the discussions under the heading Risk Factors in the company's previously filed most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q. Hill-Rom assumes no obligation to update or revise any forward-looking statements. Certain financial figures presented herein have been presented on an adjusted basis (non-gaap). Reconciliation between non-gaap financial measures and reported U.S. GAAP measures are included in the appendices to this slide deck. Page 2

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4 Q Highlights

5 Leadership $2.7B global medical technology leader with market-leading positions 2017 Revenue by Business US$ Billions Surgical Solutions Front Line Care $2.7B FY 2017 Patient Support Systems Note: Hill-Rom fiscal year end is September 30 Innovation Advancing global scale and brand equity while enhancing outcomes Increased Investment in R&D US$ Millions 4.6% of revenue $92 4.9% of revenue $ Value Transforming to drive sustainable profitable growth and shareholder value Key Valuation Metrics As of 12/31/2017 $5.5B $7.6B +51% $97M Market Capitalization Enterprise Value LTM Total Shareholder Return Fiscal 2017 Returned to Shareholders* *Includes dividends and share repurchases Page 5

6 Accelerating growth by advancing strong brands and geographic footprint Driving commercial momentum and operational execution with Q1 core revenue* growth of 2% Establishing a diversified business to drive sustainable growth and profitability Innovating to enhance outcomes for patients and their caregivers Launching Centrella Smart+ bed in the U.S. and Canada, optimizing safety, satisfaction and efficiency; and TruSystem 7500 MR Neuro Surgical Table, for better patient treatment and surgical workflow Capitalizing on significant introductions such as Integrated Table Motion, Connex Spot Monitor, RetinaVue and Spot Vision Screener Transforming the portfolio with select M&A and optimization initiatives Integrating Mortara, driving accretive gross margin and realizing synergy benefits Optimizing product portfolio through completed divestitures and exit of non-strategic assets Driving operational execution and strong financial performance Delivering solid revenue growth, expanding margins and growing adjusted EPS by 23% to $0.92 Increasing full-year adjusted EPS guidance to $4.57 to $4.65 per diluted share, including positive contribution from new U.S. tax reform legislation of $0.30 per diluted share Enhancing Shareholder Value By Executing Our Strategy Page 6 Note: Adjusted gross margin, operating margin and EPS are non-gaap measures. See reconciliation to reported GAAP numbers in the appendix to this presentation *Core revenue excludes foreign currency, divestitures, exit of nonstrategic assets (third-party rental and third-party surfaces), and Mortara

7 Q Financial Summary

8 Revenue Operating Margin Earnings Per Share Operating Cash Flow 2% Core* Growth +10 BPS +23% Growth +31% Growth $670M 14.6% 14.7% $0.75 $0.92 $71M $93M $637M Q Q Q Q Q Q Q Q Exceeding Q Revenue and Adjusted EPS Guidance Page 8 Note: Adjusted gross margin, operating margin and EPS are non-gaap measures. See reconciliation to reported GAAP numbers in the appendix to this presentation; Axis not to scale; *Core revenue excludes foreign currency, divestitures, exit of non-strategic assets (third-party rental and third-party surfaces), and Mortara

9 Fiscal First Quarter Adjusted P&L YOY Change Revenue $637M $670M +3% constant currency +2% core growth* Gross Margin 47.5% 47.7% +20 bps Operating Margin 14.6% 14.7% +10 bps Adjusted EPS $0.75 $ % Driving 10 th Consecutive Quarter Of Double-Digit Adjusted EPS Growth Page 9 Note: Adjusted gross margin, operating margin and EPS are non-gaap measures. See reconciliation to reported GAAP numbers in the appendix to this presentation *Core revenue excludes foreign currency, divestitures, exit of non-strategic assets (third-party rental and third-party surfaces), and Mortara

10 Patient Support Systems Front Line Care Surgical Solutions Q Q Q Building momentum with new products like Centrella, Envella and Accella Growing U.S. core bed portfolio MSD Improving international trends in Middle East, Europe and Canada Accelerating exit of lowmargin third-party rental and third-party surfaces Capitalizing on recent product introductions Growing thermometry, blood pressure and physical assessment revenue Delivering strong core international growth with One Hill-Rom approach Driving 10%+ growth in Respiratory Care Exceeding expectations with Integrated Table Motion adoption Continuing strong international growth Introducing new TruSystem 7500 MR Neuro Surgical Table Advancing innovation and partnerships to drive future growth Note: All revenue growth rates are constant currency *Core revenue excludes foreign currency, divestitures, exit of non-strategic assets (third-party rental and third-party surfaces), and Mortara Page 10

11 Adjusted Gross Margin Adjusted Operating Margin +90 bps +20 bps (70) bps 47.5% 47.7% (10) bps 14.6% 14.7% Q Mix Surgical & Rental* Q Q GM Expansion Opex Leverage Q bps Gross Margin Expansion +10 bps Operating Margin Expansion Offsetting Temporary Margin Headwinds With New Products, Portfolio Diversification And Ongoing Optimization Initiatives Note: Adjusted gross margin, operating margin and EPS are non-gaap measures. See reconciliation to reported GAAP numbers in the appendix to this presentation; Axis not to scale *Includes impact from hurricane related expenses Page 11

12 Solid core revenue* growth of 2% Offsetting temporary headwinds with margin improvement from new products and portfolio optimization Strategic investments within R&D and SG&A to drive future growth Positive benefit from new U.S. tax reform legislation, resulting in benefit of $0.06 per diluted share Adjusted EPS Growth US$ $ % growth $0.92 $0.92 Adjusted Earnings Per Diluted Share Q Q Exceeding Expectations With 23% Adjusted EPS Growth Page 12 Note: Adjusted gross margin, operating margin and EPS are non-gaap measures. See reconciliation to reported GAAP numbers in the appendix to this presentation *Core revenue growth excludes foreign currency, divestitures, exit of non-strategic assets (third-party rental and third-party surfaces), and Mortara

13 Strong Cash Flow Generation US$ Millions $71 $93 Operating Cash Flow $49 Q Q $66 Free Cash Flow +31% Growth Q Operating Cash Flow Capital Allocation Priorities Reducing debt levels Re-investing in business (R&D and CapEx) Delivering quarterly dividend Executing disciplined M&A strategy emphasizing: Accelerated growth with diversified revenue streams and accretive P&L profile Products and services that strengthen clinical and economic value with customers ~4.0x ~3.2x* 2017 Leverage 2018 Leverage Enhancing Financial Flexibility With Strong Cash Flow Generation Note: Leverage calculated as Total Debt divided by EBITDA as defined in Hill-Rom s compliance certificate *Assumes no further M&A activity Page 13

14 2018 Financial Outlook

15 ~3% Core Revenue Growth* ~100 bps Operating Margin Expansion 18% - 20% Growth in Adjusted EPS Adjusted P&L 2018 Outlook Prior 2018 Outlook Current Revenue Growth (reported) 3% - 4% 3% - 4% Gross Margin +50 bps +50 bps Operating Margin +100 bps +100 bps Adjusted EPS $ $4.30 $ $4.65 Operating Cash Flow $330M - $340M ~$350M Capital Expenditures ~$110M ~$110M Raising 2018 Adjusted EPS And Cash Flow Guidance Page 15 Note: Adjusted gross margin, operating margin and EPS are non-gaap measures. See reconciliation to reported GAAP numbers in the appendix to this presentation; *Core revenue excludes foreign currency, divestitures, exit of non-strategic assets (third-party rental and third-party surfaces), and Mortara prior to the anniversary date of the acquisition

16 2018 Revenue Growth Outlook 2018 Revenue Growth Constant Core* Patient Support Systems ~Flat Low-Single Digits ~3% 3% - 4% Front Line Care High-Single Digits Low-to-Mid Single Digits 2% - 3% Surgical Solutions Low-to-Mid Single Digits Total Hill-Rom 2% - 3% ~3% Core Revenue* Mortara Non-Strategic Constant Currency FX Reported Revenue Delivering Solid 2018 Core Revenue Growth Of ~3% Page 16 Note: All growth rates are constant currency *Core revenue excludes foreign currency, divestitures, exit of nonstrategic assets (third-party rental and third-party surfaces), and Mortara prior to the anniversary date of the acquisition

17 Adjusted P&L Q Outlook Q Outlook Reflects: Continuing core momentum and benefit from new products Annualizing Mortara acquisition Revenue Growth ~4% Reported Anticipating higher margins: Higher revenue Revenue Growth ~2% Constant ~ 2% Core* Improved surgical margins Mortara synergy benefits Adjusted EPS $ $1.02 Cost and business optimization initiatives savings Solid Revenue Growth And Operating Leverage Driving Adjusted EPS Growth *Core revenue excludes foreign currency, divestitures, exit of non-strategic assets (third-party rental and third-party surfaces), and Mortara prior to the anniversary date of the acquisition Page 17

18 2020 Long-Range Plan Update (Updated For Benefit Of New U.S. Tax Reform Legislation)

19 4% - 5% Core Revenue Growth* 300+ bps Operating Margin Expansion 12% - 14% Growth in Adjusted EPS Adjusted P&L 2020 Outlook Prior 2020 Outlook Current Revenue Growth (constant) 3% - 4% CAGR 3% - 4% CAGR Gross Margin ~50% ~50% Operating Margin 19% - 20% 19% - 20% Adjusted EPS Growth 10% - 12% CAGR 12% - 14% CAGR Operating Cash Flow Capital Expenditures $1.1B+ [ ] ~$350M [ ] ~$1.2B [ ] ~$350M [ ] Updating 2020 Outlook To Reflect New U.S. Tax Reform Legislation Note: Adjusted gross margin, operating margin and EPS are non-gaap measures. See reconciliation to reported GAAP numbers in the appendix to this presentation; CAGR calculated ; outlook assumes an effective tax rate of ~24% and diluted shares of ~68 million *Core revenue excludes foreign currency, divestitures and exit of non-strategic assets (third-party rental and third-party surfaces); collectively, 2017 divestitures and non-strategic Page 19 revenue totaled ~$100M

20 Strong Cash Flow Generation US$ ~$1.2B Cumulative Operating Cash Flow ~$350M Cumulative CapEx ~$850M Cumulative Free Cash Flow ~$1.2B Cumulative Operating Cash Flow Capital Allocation Priorities Reducing debt levels Re-investing in business (R&D and CapEx) Increasing dividends Executing disciplined M&A strategy emphasizing: Accelerated growth with diversified revenue streams and accretive P&L profile Products and services that strengthen clinical and economic value with customers <2.5x Leverage by 2020 Enhancing Cash Flow By ~$50M Related To New U.S. Tax Reform Legislation Note: Leverage calculated as Total Debt divided by EBITDA as defined in Hill-Rom s compliance certificate Page 20

21 Revenue Operating Margin Earnings Per Share Operating Cash Flow +4% - 5% Core CAGR* $3.0B BPS 19% - 20% +12% - 14% CAGR $ $ % - 14% CAGR ~$1.2B $3.86 $806M $2.7B+ 16.3% Outlook Outlook Outlook Cumulative Cumulative Outlook Compelling Strategy To Create Value For Shareholders Page 21 Note: Adjusted gross margin, operating margin and EPS are non-gaap measures. See reconciliation to reported GAAP numbers in the appendix to this presentation; Axis not to scale; CAGR calculated ; *Core revenue excludes foreign currency, divestitures and exit of non-strategic assets (third-party rental and third-party surfaces); collectively, 2017 divestitures and non-strategic revenue totaled ~$100M

22 Revenue Schedules

23 Q Q % Actual Rates % Constant Rates United States International Total United States International Total United States International Total United States International Total Patient Support Systems $ $ 90.8 $ $ $ 86.8 $ % 4.6% -0.2% -1.9% -2.0% -1.9% Front Line Care % 22.8% 11.3% 7.1% 17.0% 9.8% Surgical Solutions % 18.6% 10.3% 1.8% 9.7% 5.8% Total Hill-Rom $ $ $ $ $ $ % 13.4% 5.1% 1.5% 6.5% 3.0% Page 23

24 Q Q % Actual Rates % Constant Rates United States International Total United States International Total United States International Total United States International Total Patient Support Systems $ $ 86.8 $ $ $ $ % -13.5% -1.9% 2.9% -10.7% -1.1% Front Line Care % -16.9% -8.4% -4.8% -15.7% -8.0% Surgical Solutions % -8.3% 1.1% 12.9% -4.5% 3.2% Total Hill-Rom $ $ $ $ $ $ % -13.2% -3.6% 1.2% -10.6% -2.7% Q Q % Actual Rates % Constant Rates United States International Total United States International Total United States International Total United States International Total Patient Support Systems $ $ 99.8 $ $ $ 93.8 $ % 6.4% 3.0% 1.8% 9.2% 3.8% Front Line Care % 20.7% 13.9% 11.1% 22.8% 14.5% Surgical Solutions % 8.8% 10.4% 12.2% 12.6% 12.4% Total Hill-Rom $ $ $ $ $ $ % 10.9% 7.3% 5.7% 13.7% 8.2% Q Q % Actual Rates % Constant Rates United States International Total United States International Total United States International Total United States International Total Patient Support Systems $ $ 99.7 $ $ $ $ % -2.5% -1.7% -1.4% -0.2% -1.1% Front Line Care % 20.2% 17.9% 17.0% 23.6% 18.8% Surgical Solutions % 9.4% 5.5% 1.6% 12.4% 7.0% Total Hill-Rom $ $ $ $ $ $ % 6.3% 5.1% 4.6% 9.0% 6.0% Q Q % Actual Rates % Constant Rates United States International Total United States International Total United States International Total United States International Total Patient Support Systems $ $ 97.9 $ $ $ $ % -5.3% -2.9% -2.0% -8.7% -3.8% Front Line Care % 33.9% 16.0% 10.0% 31.8% 15.5% Surgical Solutions % 4.8% 8.6% 12.3% 0.9% 6.6% Total Hill-Rom $ $ $ $ $ $ % 7.1% 4.6% 3.5% 4.0% 3.6% Fiscal Year 2017 Fiscal Year 2016 % Actual Rates % Constant Rates United States International Total United States International Total United States International Total United States International Total Patient Support Systems $ 1,039.7 $ $ 1,423.9 $ 1,037.4 $ $ 1, % -3.9% -0.9% 0.2% -2.8% -0.6% Front Line Care % 12.8% 9.3% 8.0% 14.0% 9.7% Surgical Solutions % 3.4% 6.4% 9.6% 5.0% 7.2% Total Hill-Rom $ 1,887.6 $ $ 2,743.7 $ 1,819.5 $ $ 2, % 2.4% 3.3% 3.7% 3.7% 3.7% Note: Segment revenue by U.S. and International for Fiscal Year ended 9/30/2017 and 9/30/2016 in US$ million; Certain revenue amounts have been reclassified for Surgical Solutions between U.S. and International to more accurately align with the destination of the revenue and to be consistent with the 2018 Page 24 presentation. These changes do not have a significant impact in comparison to previously reported amounts and growth rates

25 Appendix Reconciliations of Non-GAAP Disclosures

26 Quarter Ended December 31 US OUS As Constant As As Constant Reported Currency Reported Reported Currency Product Sales and Service $ $ % 3.8% 2.2% 13.9% 7.0% Rental (1.0%) (1.9%) (1.8%) 4.7% (2.9%) Total $ $ % 3.0% 1.5% 13.4% 6.5% US OUS As Constant As As Constant Reported Currency Reported Reported Currency Patient Support Systems $ $ (0.2%) (1.9%) (1.9%) 4.6% (2.0%) Front Line Care % 9.8% 7.1% 22.8% 17.0% Surgical Solutions % 5.8% 1.8% 18.6% 9.7% Total $ $ % 3.0% 1.5% 13.4% 6.5% Page 26

27 ($ in millions) Quarter Ended December Selling and Administrative Expenses (As Reported) $ $ Acquisition and integration costs (2.4) (6.0) Acquisition-related intangible asset amortization (26.7) (25.5) Litigation settlements and expenses (4.0) - Selling and Administrative Expenses (Adjusted) $ $ Selling and Administrative Expenses (Adjusted) As Percent of Total Revenue 28.2% 27.8% Year Over Year % Change 6.4% Year Over Year Change 40 bps Page 27

28 Gross Margin Quarter Ended December 31, 2017 Income Before Operating Margin 1 Income Taxes Income Tax Expense Diluted EPS 1 Gross Margin Quarter Ended December 31, 2016 Income Before Operating Margin Income Taxes Income Tax Expense Diluted EPS 1 GAAP Basis 47.7% 7.9% $ 30.8 $ (57.5) $ % 8.8% $ 35.3 $ 11.8 $ 0.36 Adjustments: Acquisition and integration costs - 0.4% % Acquisition-related intangible asset amortization - 4.0% % Litigation settlements and expenses - 0.6% Special charges - 2.0% % Tax law changes (0.89) (2.2) 0.03 Gain on disposition - - (1.0) - (0.01) - - (1.0) (0.4) (0.01) Adjusted Basis 47.7% 14.7% $ 76.4 $ 14.6 $ % 14.6% $ 71.6 $ 21.6 $ Total does not add due to rounding. Page 28

29 Gross Margin Year to Date Ended September 30, 2017 Income Operating Margin 1 Before Income Taxes Income Tax Expense Diluted EPS Gross Margin Year to Date Ended September 30, 2016 Income Operating Margin Before Income Taxes Income Tax Expense Diluted EPS 1 GAAP Basis 48.1% 10.0% $ $ 50.7 $ % 8.7% $ $ 15.5 $ 1.86 Adjustments: Acquisition and integration costs 0.2% 0.9% % 1.5% Acquisition-related intangible asset amortization - 4.0% % Field corrective actions (0.2) (0.1) - Litigation settlements and expenses % (9.4) (3.4) (0.09) Special charges - 1.9% % Foreign tax law change (2.2) 0.03 Foreign valuation allowance (0.29) Debt refinancing Gain on disposition - - (1.0) (0.4) (0.01) - - (10.1) (3.7) (0.10) Adjusted Basis 48.3% 16.3% $ $ 98.7 $ % 15.3% $ $ 92.3 $ Total does not add due to rounding. Page 29

30 Appendix Other Supplementary Schedules

31 ($ in millions) Q Revenue Q Revenue Reported Growth Constant Currency Growth Other PSS U.S. $248.4 $243.6 (1.9%) (1.9%) OUS $86.8 $ % (2.0%) Total $335.2 $334.4 (0.2%) (1.9%) CWS & Patient Handling $1,424M FY 2017 Rental & Service MedSurg Beds Specialty Beds Frames & Surfaces Clinical Workflow Solutions Patient Handling Diversified Portfolio Drives Stable, Long-Term Growth Page 31

32 ($ in millions) Q Revenue Q Revenue Reported Growth Constant Currency Growth U.S. $147.7 $ % +7.1% OUS $54.1 $ % +17.0% Total $201.8 $ % +9.8% Respiratory Other FLC $885M FY 2017 Thermometry & Blood Pressure Physical Assessment Vital Signs Physical Assessment Vital Signs Respiratory Care Significant Opportunity To Drive Commercial Value And Innovation Page 32

33 ($ in millions) Q Revenue Q Revenue Reported Growth Constant Currency Growth Blades & Scalpels U.S. $50.0 $ % +1.8% OUS $50.4 $ % +9.7% Total $100.4 $ % +5.8% Other OR Consumables $435M FY 2017 OR Tables & Lights Patient Positioning OR Booms, Pendants & Other Operating Tables Operating Lights Consumables Accelerating Long-Term Global Growth Of Strong, Innovative Portfolio Page 33