Second Quarter 2018 Financial Results. April 27, 2018

Transcription

1 Second Quarter 2018 Financial Results April 27, 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 (including the divestiture of our third-party rental business), 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 $2.7B FY 2017 Patient Support Systems Innovation Advancing global scale and brand equity while enhancing outcomes Increased Investment in R&D US$ Millions 4.6% of revenue $92 4.9% of revenue $134 Value Transforming to drive sustainable profitable growth and shareholder value Key Valuation Metrics As of 3/31/2018 $5.8B $7.8B +24% Market Capitalization Enterprise Value LTM Total Shareholder Return Note: Hill-Rom fiscal year end is September $25M *Includes dividends YTD Fiscal 2018 Returned to Shareholders* Page 5

6 Accelerating growth by advancing strong brands and geographic footprint Driving commercial momentum and operational execution with Q2 core revenue* growth of 2% Establishing a diversified business to drive sustainable growth and profitability Innovating to enhance outcomes for patients and their caregivers Enhancing Spot Vision Screener for patients with up to 3 mm pupil sizes, a first-of-its-kind application; launching Bard Parker Plus Blade with Loader to enhance safety and sharps injuries 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 and divesting third-party rental business 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 19% to $1.05 Updating full-year adjusted EPS guidance to $4.60 to $4.65 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 and Mortara prior to the anniversary date of the acquisition

7 Q Financial Summary

8 Revenue Operating Margin Earnings Per Share Operating Cash Flow 2% Core* Growth $711M $679M 15.0% +120 BPS $ % Growth Flat 16.2% $1.05 $126M $126M Q Q Q Q Q Q Q2 YTD 2017 Q2 YTD 2018 Delivering Solid Core Revenue And Exceeding 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 and Mortara prior to the anniversary date of the acquisition

9 Fiscal Second Quarter Adjusted P&L YOY Change Revenue $679M $711M +2% constant currency +2% core* growth Gross Margin 48.0% 49.3% +130 bps Operating Margin 15.0% 16.2% +120 bps Adjusted EPS $0.88 $ % Driving 11 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; Axis not to scale *Core revenue excludes foreign currency, divestitures, exit of non-strategic assets and Mortara prior to the anniversary date of the acquisition

10 Patient Support Systems Front Line Care Surgical Solutions Q YTD 2018 Q YTD 2018 Q YTD 2018 Building momentum with new products like Centrella, Envella and Accella Meeting large customer demand for CWS with double-digit growth Continuing international momentum in Middle East, Latin America and Canada Optimizing product portfolio, exiting lowermargin businesses Driving revenue acceleration with 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 Continuing solid Integrated Table Motion adoption Maintaining strong international growth momentum Enhancing safety and easeof-use with new products and upgrades 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 and Mortara prior to the anniversary date of the acquisition Page 10

11 Adjusted Gross Margin Adjusted Operating Margin +100 bps +30 bps +130 bps (10) bps 48.0% 49.3% 15.0% 16.2% Q Portfolio Optimization Operational Efficiencies Q Q GM Expansion Opex Leverage Q bps Gross Margin Expansion +120 bps Operating Margin Expansion Expanding Margins 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 Page 11

12 Solid core revenue* growth of 2% Positive contribution from new products, portfolio diversification and operational efficiencies Enhancing global commercial capabilities by investing in new products and strategic initiatives Realizing benefit from U.S. tax reform legislation Adjusted EPS Growth US$ $ % growth $1.05 $1.05 Adjusted Earnings Per Diluted Share Q Q Exceeding Expectations With +19% 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 excludes foreign currency, divestitures, exit of nonstrategic assets and Mortara prior to the anniversary date of the acquisition

13 Cash Flow US$ Millions $126 $126 Operating Cash Flow $79 Q2 YTD 2017 Q2 YTD 2018 $74 Free Cash Flow Capital Allocation Priorities Reducing debt levels Re-investing in business (R&D and CapEx) Raising 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 19% - 20% Growth in Adjusted EPS Adjusted P&L 2018 Prior Outlook 2018 Current Outlook Revenue Growth (reported) 3% - 4% 3% - 4% Gross Margin +50 bps +75 bps Operating Margin +100 bps +100 bps Adjusted EPS $ $4.65 $ $4.65 Operating Cash Flow ~$350M ~$350M Capital Expenditures ~$110M ~$110M Driving Strong Adjusted Earnings And Cash Flow Growth 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 and Mortara prior to the anniversary date of the acquisition

16 2018 Revenue Growth Outlook 2018 Revenue Growth Constant Core* Patient Support Systems Decline Low- Single Digits 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% Note: All growth rates are constant currency *Core revenue excludes foreign currency, divestitures, exit of nonstrategic assets and Mortara prior to the anniversary date of the acquisition Page 16

17 Adjusted P&L Q Outlook Q Outlook Reflects: Accelerating core revenue momentum and benefit from new products Revenue Growth ~3% Reported Anticipating higher margins in 2H: Higher revenue Revenue Growth ~1% Constant 3% - 4% Core* Improved surgical margins Mortara synergy benefits Adjusted EPS $ $1.14 Cost and business optimization initiatives savings Executing on strategic initiatives Accelerating Core Revenue Growth While Investing In Key Strategic Growth Initiatives *Core revenue excludes foreign currency, divestitures, exit of non-strategic assets and Mortara prior to the anniversary date of the acquisition Page 17

18 Revenue Schedules

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20 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 20 presentation. These changes do not have a significant impact in comparison to previously reported amounts and growth rates

21 Appendix Reconciliations Of Non-GAAP Disclosures

22 Quarter Ended March 31 US OUS As Constant As As Constant Reported Currency Reported Reported Currency Product Sales and Service $ $ % 2.2% 1.1% 13.0% 4.1% Rental % (0.8%) 0.1% 3.6% (8.0%) Total $ $ % 1.8% 1.0% 12.5% 3.5% US OUS As Constant As As Constant Reported Currency Reported Reported Currency Patient Support Systems $ $ (2.2%) (4.5%) (5.5%) 6.5% (2.0%) Front Line Care % 10.7% 10.9% 17.0% 10.1% Surgical Solutions % 5.6% 5.4% 18.4% 5.8% Total % 1.8% 1.0% 12.5% 3.5% $ - $ - $ - $ (0.0) $ (0.0) $ 0.0 $ 0.0 Year to Date Ended March 31 US OUS As Constant As As Constant Reported Currency Reported Reported Currency Product Sales and Service $ 1,185.9 $ 1, % 3.0% 1.7% 13.4% 5.5% Rental (0.3%) (1.3%) (0.8%) 4.1% (5.5%) Total $ 1,380.2 $ 1, % 2.4% 1.2% 12.9% 4.9% US OUS As Constant As As Constant Reported Currency Reported Reported Currency Patient Support Systems $ $ (1.2%) (3.3%) (3.8%) 5.6% (2.0%) Front Line Care % 10.2% 9.0% 19.6% 13.3% Surgical Solutions % 5.7% 3.6% 18.5% 7.7% Total $ 1,380.2 $ 1, % 2.4% 1.2% 12.9% 4.9% Page 22

23 ($ in millions) Quarter Ended March 31 Year To Date Ended March Selling and Administrative Expenses (As Reported) $ $ $ $ Acquisition and integration costs (2.6) (6.3) (5.0) $ (12.2) Acquisition-related intangible asset amortization (27.0) (26.6) (53.7) $ (52.1) Litigation expenses (1.8) (0.9) (5.8) (0.9) Tax method and law changes and related costs (0.8) - (0.8) - Selling and Administrative Expenses (Adjusted) $ $ $ $ Selling and Administrative Expenses (Adjusted) As Percent of Total Revenue 28.2% 27.8% 28.2% 27.8% Year Over Year % Change 6.3% 6.3% Year Over Year Change 40 bps 40 bps Page 23

24 Gross Margin Quarter Ended March 31, 2018 Income Before Income Taxes Operating Margin Income Tax Expense Diluted EPS Gross Margin Quarter Ended March 31, 2017 Income Before Operating Margin 1 Income Taxes Income Tax Expense Diluted EPS 1 GAAP Basis 49.3% 6.5% $ 21.5 $ (7.0) $ % 9.4% $ 41.3 $ 7.3 $ 0.51 Adjustments: Acquisition and integration costs - 0.4% % 1.1% Acquisition-related intangible asset amortization - 3.8% % Field corrective actions % 0.1% 0.5 (0.1) 0.01 Litigation expenses - 0.3% % 0.1% Special charges - 5.2% % Tax method and law changes and related costs (0.12) 0.0% Adjusted Basis 49.3% 16.2% $ 90.6 $ 19.4 $ % 15.0% $ 79.6 $ 20.8 $ Total does not add due to rounding. Gross Margin Year to Date Ended March 31, 2018 Income Before Operating Margin Income Taxes Income Tax Expense Diluted EPS Gross Margin Year to Date Ended March 31, 2017 Income Before Operating Margin 1 Income Taxes Income Tax Expense Diluted EPS GAAP Basis 48.5% 7.1% $ 52.3 $ (64.5) $ % 9.1% $ 76.6 $ 19.1 $ 0.87 Adjustments: Acquisition and integration costs - 0.4% % 1.0% Acquisition-related intangible asset amortization - 3.9% % Field corrective actions (0.1) 0.01 Litigation expenses - 0.4% % Special charges - 3.7% % Tax method and law changes and related costs (1.01) (2.2) 0.03 Gain on disposition - - (1.0) - (0.01) - - (1.0) (0.4) (0.01) Adjusted Basis 48.5% 15.5% $ $ 34.0 $ % 14.8% $ $ 42.4 $ Total does not add due to rounding. Page 24

25 Appendix Other Supplementary Schedules

26 Centrella SmartBed System Connex Spot Monitor Improving patient safety and satisfaction with enhanced features, minimizing the risk of falls Providing solutions that improve clinical outcomes and patient safety Enhancing caregiver features for quick and easy updates, such as integrating with NaviCare Patient Safety applications Meeting customers evolving needs by creating a scalable platform Advancing care in acute settings with highly configurable early warning score protocols Increasing efficiency with wireless connectivity to 100+ EMRs and an easy-to-use interface U.S. Average Bed Lifespan U.S. MedSurg Portion Of Installed Beds Global MedSurg Market # Of Minutes To Scan All Vitals Within Acute Care Settings U.S. Automated Vitals Market Page 26

27 Spot Vision Screener RetinaVue Network Screening for diseases that impair vision Increasing efficiency with testing in seconds Delivering an objective and consistent approach to vision screenings across care settings Expanding to 3 mm pupil size to address needs of aging populations Detecting preventable blindness with simple and convenient diabetic retinopathy screening Enabling diabetic retinopathy exams in primary care settings Increasing compliance of diabetic retinopathy exams, currently only 50% Children With Vision Disorders Children Screened Prior To Kindergarten U.S. Market Potential Americans With Diabetes Contract Diabetic Retinopathy Recurring Revenue U.S. Market Potential Page 27

28 Welch Allyn Home Hypertension Monarch Airway Clearance System Delivering clinically accurate connected blood pressure device for home use Elevating patient quality-of-life with portable, Bluetooth enabled vest Enabling patients to track and communicate readings with mobile applications Increasing therapy compliance with increased flexibility from mobility freedom Incorporating a free and cloud-based system to ease clinician's review of data Enhancing connected care discussions and early interventions via connectivity options Trusted Device Patient Application Clinical Portal U.S. Blood Pressure Devices Sold Annually U.S. Physician Offices U.S. Existing Market U.S. Cystic Fibrosis Patients U.S. Bronchiectasis Patients U.S. HRCWO Market Page 28

29 Integrated Table Motion iled 7 Surgical Light Delivering seamless system for table adjustments during robotic-assisted surgical procedures Optimizing the lighting environment at all times during surgery Enhancing safety and efficiency in the operating room Improving safety and efficiency by eliminating the need for manual lighting adjustments Incorporating technology to improve hospital efficiency and information flow Driving innovation with streamlined design and options for additional integration features U.S. Acute Care Operating Rooms Annual Market Growth Rate Global Surgical Equipment Market Page 29

30 ($ in millions) Revenue Q Q2 YTD 2018 Rev. Growth CC Growth Revenue Rev. Growth CC Growth Other PSS U.S. $248.7 (5.5%) (5.5%) $492.3 (3.8%) (3.8%) OUS $ % (2.0%) $ % (2.0%) Total $355.0 (2.2%) (4.5%) $689.4 (1.2%) (3.3%) 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 30

31 ($ in millions) Q Q2 YTD 2018 Revenue Rev. Growth CC Growth Revenue Rev. Growth CC Growth U.S. $ % +10.9% $ % +9.0% OUS $ % +10.1% $ % +13.3% Total $ % +10.7% $ % +10.2% Respiratory Other FLC $885M FY 2017 Thermome try & Blood Pressure Physical Assessment Vital Signs Physical Assessment Vital Signs Respiratory Care Significant Opportunity To Drive Commercial Value And Innovation Page 31

32 ($ in millions) Q Q2 YTD 2018 Revenue Rev. Growth CC Growth Revenue Rev. Growth CC Growth Blades & Scalpels U.S. $ % +5.4% $ % +3.6% OUS $ % +5.8% $ % +7.7% Total $ % +5.6% $ % +5.7% 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 32