Hill-Rom Fourth Quarter 2016 Financial Results. November 3, 2016

Transcription

1 Hill-Rom Fourth Quarter 2016 Financial Results November 3, 2016

2 Forward Looking Statements Certain statements in this presentation contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, regarding the Company s future plans, objectives, beliefs, expectations, representations and projections. It is important to note that forward-looking statements are not guarantees of future performance, and the Company s actual results could differ materially from those set forth in any forward-looking statements. For a more in depth discussion of factors that could cause actual results to differ from those contained in forwardlooking 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. The Company 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). Reconciliations between non-gaap financial measures and reported US GAAP measures are included in the appendices to this slide deck. Page 2

3 Table of Contents Page 3

4 2016 Highlights

5 Hill-Rom: Trusted Medical Technology Innovator Leadership $2.7B global medical technology leader with market-leading positions Innovation Leveraging global scale & brand equity while enhancing outcomes Value Transforming to drive sustainable profitable growth 2016 Revenue By Business US$ Billions 2016 Revenue By Geography US$ Billions Surgical Solutions Front Line Care Int'l PSS $2.7B +3% cc* North America PSS U.S. $2.7B +3% cc* Europe Asia-Pac Canada Middle East Latin America PSS = Patient Support Systems *Pro-forma growth including Welch Allyn in both 2015 and 2016 Page 5

6 2016 Highlights: A Successful Year Executing on our strategic priorities while Building sustainable and profitable businesses with attractive growth prospects Successfully integrating Welch Allyn and driving expected synergies Investing in R&D capabilities resulting in multiple new product launches Optimizing global footprint; announcing five facility closures and in-sourcing key supply Enhancing product portfolio by divesting non-core products and businesses Enhancing shareholder value with disciplined financial management +3% pro-forma constant currency revenue growth +350 bps adjusted operating margin expansion +28% adjusted EPS growth and adjusted EPS of $3.38 per diluted share Operating Cash Flow of $281 million (+32% increase over prior year) Establishing a solid foundation for driving future growth and value Page 6

7 Exceeding Guidance With Disciplined Financial Management Pro Forma Revenue Growth % Growth at Constant Currency 3% Adjusted EPS $ per Diluted Share $3.38 1% $1.18 Q FY2016 Q FY2016 Latest Guidance (2) Original Guidance (1) Latest Guidance (2) Latest Guidance (2) Original Guidance (1) Latest Guidance (2) Flat Low-to-mid single digits 2% - 3% $ $1.14 $ $3.14 $ $3.34 Establishing a solid foundation for driving future growth and value (1) Original guidance provided on Q earnings call on November 5, 2015 (2) Latest guidance provided on Q earnings call on August 4, 2016 Page 7

8 Strong Execution Validates Company s Commitment To Enhancing Shareholder Value +3% Patient Support Systems Front Line Care Surgical Solutions 2016 Pro Forma Revenue Growth (constant currency) North America FY 2016 International FY 2016 FY 2016 FY bps 2016 Operating Margin Expansion Gross Margin FY 2016 Driving SG&A Leverage Increased R&D Investment Momentum of Key Product Launches Integrated Table Motion Spot Vision Screener Connex Spot Monitor RetinaVue TM Network Note: All revenue growth rates are constant currency * On a pro forma basis Page 8

9 PSS Stronger, More Diversified Business Profile 2016 Revenue By Product Line US$ Billions Product Portfolio Overview Specialty Frames & Surfaces: High acuity hospital beds Surgical Solutions MedSurg Frames & Surfaces: Lower acuity hospital beds Service & Rental: Acute care capital rentals on-demand, recurring maintenance and support services Other PSS Front Line Care Clinical Workflow Solutions & Patient Handling: Connectivity solutions and patient lift products CWS & Patient Handling $2.7B +3% cc* Other PSS: Includes both complementary acute care capital offerings and other non-core assets Vital Signs Monitoring & Physical Assessment Service & Rental Specialty Frames & Surfaces MedSurg Frames & Surfaces SS FLC Blood Pressure Monitoring & Thermometry Respiratory Care Operating Room Equipment: Tables, lights, booms Patient Positioning: Surgical site access equipment *Pro-forma constant currency growth including Welch Allyn in both 2015 and 2016 Surgical Consumables: Blades, scalpels, accessories Significant revenue diversification over the past five years Page 9

10 Non- Capital Capital with More Predictable Revenue Streams 2016 Revenue By Type US$ Billions Non-Capital Product Portfolio Overview Specialty Frames & Surfaces: High acuity hospital beds MedSurg Frames & Surfaces: Lower acuity hospital beds Operating Room Equipment: Tables, lights, booms $2.7B +3% cc* Capital Sales Service & Rental: Acute care capital rentals on-demand, recurring maintenance and support services Clinical Workflow Solutions & Patient Handling: Connectivity solutions and patient lift products Other PSS: Complementary acute care capital offerings Vital Signs Monitoring & Physical Assessment Blood Pressure Monitoring & Thermometry Respiratory Care Patient Positioning: Surgical site access equipment Surgical Consumables: Blades, scalpels, accessories *Pro-forma constant currency growth including Welch Allyn in both 2015 and 2016 Over 60% of revenues are not dependent on hospital capital expenditure spending Page 10

11 Well-Positioned to Deliver on Long-Range Financial Objectives Key Metric Results 2016 Results Long-Range Plan Revenue $2B $2.7B CAGR 3% - 5% Adjusted GM% 45.3% 48.1% bps Adj. Operating Margin % 11.8% 15.3% bps Adjusted EPS $2.64 $3.38 Mid-to-high teens CAGR Operating Cash Flow $214M $281M 2 $1B+ cumulative (FY 16-18) Leverage 4.5x 3.9x Below 3.0x 4 1 Includes Welch Allyn financial results since September 8, 2015 transaction completion, including interest associated with new borrowings, but excludes one-time costs associated with the transaction and the impact of a noncash stock compensation charge. Operating cash flow includes one time Welch Allyn related transaction costs of $21M operating Cash Flow includes $30M funding to U.S. pension plan and $4M incurred to refinance credit facility. Adjusting for these outflows, Operating Cash Flow was $315M 3 Revenue CAGR relative to full-year 2015 pro-forma revenue of ~$2.6B. All other metrics are relative to 2015 results, which includes contribution from Welch Allyn only during the period since the transaction completion. 4 Assumes no capital deployment for M&A transactions. Enhancing shareholder value through sustainable growth Page 11

12 Hill-Rom: A Compelling Investment Opportunity 1 We are successfully transforming to drive sustainable profitable growth 2 We are expanding our leading market positions through our innovative solutions, leveraging our brand equity 3 We are driving solid operational execution and significant operating margin expansion Page 12

13 Financial Summary

14 Building Sustainable & Profitable Businesses Patient Support Systems North America International Front Line Care * Surgical Solutions Q FY 2016 Q FY 2016 Q FY 2016 Q FY 2016 Stable U.S. capital environment Driving growth in highermargin products (CWS, Patient Handling, ICU) Orders +5% and Backlog +11% in Q %+ Asia-Pacific growth curbs declines in Middle East and Latin America Successfully integrating Welch Allyn Leveraging HRC brand and customer relationships New products driving growth in Vital Signs and Physical Assessment Diagnostic screening launches (RetinaVue, Spot Vision Screener) Strong growth in core markets (US, Europe, Asia- Pacific) Accelerating Integrated Table Motion revenue Investing in innovation to drive future growth Macro environment impacting Middle East and Latin America Note: All revenue growth rates are constant currency * Represents pro forma (adjusted for Welch Allyn transaction closed 9/8/2015) constant currency growth Page 14

15 Delivering Strong Financial Performance Actual Results FY2016 Guidance Q FY 2016 Original 1 Latest 2 Revenue $706M $2.7B $2.66-$2.70B $2.65B Revenue Growth (pro forma cc) 1% 3% Low-to-mid single digit 2%-3% Adj. Gross Margin 49.2% 48.1% 47%-48% 48% Adj. Operating Margin 18.6% 15.3% n/a 15%+ Adj. Tax Rate 28.2% 29.2% 30%-31% 30% Adj. EPS per Diluted Share $1.18 $3.38 $3.08-$3.14 $3.32-$3.34 Operating Cash Flow $76M $281M 3 $300M $320M Executing strategic priorities to create shareholder value Page 15 (1) Original guidance provided on Q earnings call on November 5, 2015 (2) Latest guidance provided on Q earnings call on August 4, 2016 (3) Includes $30M pension funding and $4M debt refinancing cost. Excluding one-time cash flow impact, Operating Cash Flow would have been $315M

16 Adjusted Gross Margin and Operating Margin Adjusted Gross Margin Adjusted Operating Margin +170 bps +110 bps +280 bps +110 bps -40 bps 45.3% 48.1% 11.8% 15.3% FY2015 Actual Welch Allyn Organic Expansion FY2016 Actual FY2015 Actual GM Expansion SG&A Leverage R&D Investment FY2016 Actual 280 bps FY2016 Gross Margin Expansion 350 bps FY2016 Operating Margin Expansion Growth and cost discipline leading to significant operating leverage Page 16

17 Adjusted Earnings per Share Q Adjusted EPS Driving diversified revenue growth Expanding gross margin with improved mix (business, product, and geographic) Creating operating leverage with disciplined cost management while investing in R&D Exceeding guidance of $ $1.14 per diluted share $1.18 Q Adjusted EPS FY 2016 Adjusted EPS US$ $4.00 $3.00 $2.00 $1.00 $0.00 $2.25 FY2014 Actual +17% growth $2.64 FY2015 Actual +28% growth $3.38 FY2016 Actual Consistent track record of double-digit earnings growth Page 17

18 Cash Flow and Capital Allocation Priorities FY 2016 Operating Cash Flow US$ Millions Capital Allocation Priorities Reducing debt levels $300 Maintaining current dividend policy $250 $281 Re-investing in business (R&D and CapEx) Executing disciplined M&A strategy emphasizing: $200 $210 $214 Accelerated growth with diversified revenue streams and accretive P&L profile $150 Products and services that strengthen clinical and economic value with customers $100 FY2014 Actual FY2015 Actual FY2016 Actual <3.0x Target Leverage by 2018 Enhancing financial flexibility with strong cash flow generation Page 18

19 Executing on Strategic Priorities Customers Capabilities Serve as a trusted partner for healthcare providers Deliver innovative solutions for patient care Leverage worldclass sales and marketing capabilities Drive operational excellence Continue transforming through acquisitions Unparalleled care setting expertise enables enhanced market leadership Investing in innovation to enhance outcomes for patients and caregivers Leveraging brand equity, customer relationships and channels to accelerate innovative solutions Proven track record of operational execution with top-tier management team Strengthening portfolio through M&A and business development initiatives Committed to achieving long-term financial objectives with disciplined financial management Page 19

20 Business Review

21 Patient Support Systems Growth Drivers Leveraging relationships and broad, differentiated portfolio across installed base Placing commercial focus on higher growth and margin opportunities (CWS, patient handling, ICU, Service) Diversifying revenue while creating operational flexibility to address capital volatility Innovating to provide caregivers predictive insights that result in lower costs and efficiencies US$M 2015 Revenue 2016 Revenue Reported Growth CC Growth US $959 $1,037 +8% +8% OUS $468 $400 (15%) (11%) Total $1,427 $1,437 +1% +2% Frames & Surfaces Clinical Workflow Solutions Rental & Service Specialty Frames & Surfaces $1.4B +2% cc CWS & Patient Handling MedSurg Frames & Surfaces Patient Handling Other PSS Diversified portfolio drives stable long-term growth and reduces volatility Page 21

22 Front Line Care Growth Drivers Providing solutions that improve clinical outcomes and patient safety Leveraging HRC global reach, brand and commercial capabilities Combining Welch Allyn technological leadership to further advance sensing and connectivity solutions Expanding portfolio leadership in ambulatory care with new diagnostic screening products (RetinaVue, Spot Vision Screener) US$M PF 2015 Revenue 2016 Revenue Reported Growth PF CC Growth US $543 $585 +8% +8% OUS $231 $225 (3%) +2% Total $774 $810 +5% +6% Physical Assessment Vital Signs Respiratory Care Physical Assessment $810M +6% PF cc Thermometry & Blood Pressure Vital Signs Other Respiratory Note: Revenue and growth reflects full-year Welch Allyn results in each period Significant opportunity to drive commercial value and innovation Page 22

23 Surgical Solutions Growth Drivers Optimizing position with key customers while leveraging commercial presence in targeted geographic markets Capitalizing on comprehensive service infrastructure to support critical surgical equipment Focusing on patient safety and efficiency in the OR and peri-operative environment Expanding portfolio for minimally invasive surgical access with launch of Integrated Table Motion Operating Tables Operating Lights Consumables Blades & Scalpels Other OR Consumables US$M 2015 Revenue 2016 Revenue Reported Growth CC Growth US $197 $207 +5% +5% OR Booms, Pendants & Other $408M (1%) cc Patient Positioning OUS $226 $201 (11%) (7%) Total $423 $408 (3%) (1%) OR Tables & Lights Accelerating long-term growth of strong, innovative portfolio across global footprint Page 23

24 2017 Financial Outlook

25 2017 Financial Guidance ~3% Revenue Growth (constant currency) Revenue Growth (constant currency) Gross Margin FY 2017 Guidance ~3% bps expansion 16%+ Operating Margin Operating Margin ~100 bps expansion Tax Rate ~30% Adj. Earnings per Diluted Share $ $ % - 13% Growth in Adjusted EPS Operating Cash Flow $330M - $340M Capital Expenditures $120M - $130M Page 25

26 2017 Financial Guidance (Revenue by Business) Patient Support Systems Front Line Care Surgical Solutions FY 2017 (constant currency growth) FY 2017 (constant currency growth) FY 2017 (constant currency growth) Assuming stability in U.S. capital environment Leveraging Hill-Rom global commercial platform Assuming modest growth in surgical procedures Driving growth of higher margin platforms Divesting non-core assets with lower growth and margin profile Flat to declining international revenue Note: All revenue growth rates are constant currency Continuing momentum in U.S. Vital Signs portfolio Driving adoption of new diagnostic screening portfolio Expanding recurring revenue streams in Respiratory Care Accelerating revenue of Integrated Table Motion Launching new products in patient positioning Driving OUS growth following recent commercial realignment Page 26

27 Q Financial Guidance Revenue Growth (constant currency) Q Guidance Approximately Flat Q Guidance Reflects Solid underlying market fundamentals and operational leverage Year-over-year revenue comparison impacted by: - Large PSS customer order in 2016 Diluted EPS $0.75 to $ December quarter in 2016 was Welch Allyn s fiscal year end EPS growth of 10% to 13% in line with full-year guidance Page 27

28 Revenue Reclassification 2015 and 2016 by New Reporting Segment

29 Reported Revenue - Reconciliation of Segments 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 $ 241 $ 100 $ 342 $ 219 $ 119 $ % -16% 1% 10% -7% 4% Front Line Care N/M N/M N/M N/M N/M N/M Surgical Solutions % -13% -5% 5% -3% 0% Total Hill-Rom $ 443 $ 218 $ 661 $ 284 $ 181 $ % 21% 42% 56% 34% 47% 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 $ 258 $ 94 $ 352 $ 232 $ 121 $ % -22% 0% 11% -20% 1% Front Line Care N/M N/M N/M N/M N/M N/M Surgical Solutions % -14% -4% 8% -12% -3% Total Hill-Rom $ 438 $ 194 $ 633 $ 297 $ 178 $ % 9% 33% 48% 13% 35% 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 $ 259 $ 102 $ 361 $ 240 $ 114 $ 354 8% -10% 2% 8% -10% 2% Front Line Care N/M N/M N/M N/M N/M N/M Surgical Solutions % -6% 3% 13% -6% 3% Total Hill-Rom $ 451 $ 204 $ 655 $ 308 $ 167 $ % 23% 38% 47% 24% 39% 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 $ 279 $ 103 $ 382 $ 269 $ 113 $ 382 4% -8% 0% 4% -8% 0% Front Line Care N/M N/M N/M N/M N/M N/M Surgical Solutions % -10% -6% -2% -8% -5% Total Hill-Rom $ 497 $ 209 $ 706 $ 384 $ 190 $ % 10% 23% 29% 12% 24% YTD 2016 YTD 2015 % Actual Rates % Constant Rates United States International Total United States International Total United States International Total United States International Total Patient Support Systems $ 1,037 $ 400 $ 1,437 $ 959 $ 468 $ 1,427 8% -15% 1% 8% -11% 2% Front Line Care N/M N/M N/M N/M N/M N/M Surgical Solutions % -11% -3% 5% -7% -1% Total Hill-Rom $ 1,829 $ 826 $ 2,655 $ 1,273 $ 715 $ 1,988 44% 15% 34% 44% 20% 35% Page 29 Note: Segment revenue by U.S. and International for Fiscal Year Ended 9/30/2015 and 9/30/2016 in US$ million

30 Pro Forma Revenue* - Reconciliation of Segments 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 $ 241 $ 100 $ 342 $ 219 $ 119 $ % -16% 1% 10% -7% 4% Front Line Care Pro Forma % -5% 6% 11% 4% 9% Surgical Solutions % -13% -5% 5% -3% 0% Total Hill-Rom $ 443 $ 218 $ 661 $ 403 $ 248 $ % -12% 2% 10% -3% 5% 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 $ 258 $ 94 $ 352 $ 232 $ 121 $ % -22% 0% 11% -20% 1% Front Line Care Pro Forma % -4% 5% 10% 1% 7% Surgical Solutions % -14% -4% 8% -12% -3% Total Hill-Rom $ 438 $ 194 $ 633 $ 397 $ 232 $ % -16% 1% 11% -13% 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 $ 259 $ 102 $ 361 $ 240 $ 114 $ 354 8% -10% 2% 8% -10% 2% Front Line Care Pro Forma % 8% 1% -1% 10% 2% Surgical Solutions % -6% 3% 13% -6% 3% Total Hill-Rom $ 451 $ 204 $ 655 $ 427 $ 216 $ 643 6% -5% 2% 6% -4% 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 $ 279 $ 103 $ 382 $ 269 $ 113 $ 382 4% -8% 0% 4% -8% 0% Front Line Care Pro Forma % -7% 6% 11% -7% 6% Surgical Solutions % -10% -6% -2% -8% -5% Total Hill-Rom $ 497 $ 209 $ 706 $ 472 $ 229 $ 701 5% -9% 1% 5% -8% 1% YTD 2016 YTD 2015 % Actual Rates % Constant Rates United States International Total United States International Total United States International Total United States International Total Patient Support Systems $ 1,037 $ 400 $ 1,437 $ 959 $ 468 $ 1,427 8% -14% 1% 8% -11% 2% Front Line Care Pro Forma % -3% 5% 8% 2% 6% Surgical Solutions % -11% -3% 5% -7% -1% Total Hill-Rom $ 1,829 $ 826 $ 2,655 $ 1,699 $ 924 $ 2,623 8% -11% 1% 8% -7% 3% Page 30 Note: Segment revenue by U.S. and International for Fiscal Year Ended 9/30/2015 and 9/30/2016 in US$ million * Pro Forma includes Welch Allyn in both periods

31 Appendix Reconciliation of Non-GAAP Disclosures

32 Reconciliation: Constant Currency Revenue (by Segment) Quarter Ended September Foreign Exchange Constant Currency As Reported Impact Adjusted As Reported Change North America Patient Support Systems $290.4 $0.1 $290.3 $ % International Patient Support Systems 91.9 (1.1) % Front Line Care (0.3) N/M Surgical Solutions (1.3) % Total $706.0 ($2.6) $708.6 $ % Year Ended September Foreign Exchange Constant Currency As Reported Impact Adjusted As Reported Change North America Patient Support Systems $1,076.9 ($2.7) $1,079.6 $1, % International Patient Support Systems (13.0) % Front Line Care (10.4) N/M Surgical Solutions (8.4) % Total $2,655.2 ($34.5) $2,689.7 $1, % N/M - Not Meaningful Page 32

33 Reconciliation: Operating Expenses Quarter Ended September 30 Year Ended September Selling and Administrative Expenses (As Reported) $212.8 $208.7 $853.3 $664.2 Acquisition and integration costs (4.7) (31.9) (18.9) (46.6) Acquisition-related intangible asset amortization (23.8) (10.7) (95.9) (34.1) Supplemental stock compensation charge - (6.1) - (6.1) Litigation settlements and expenses FDA remediation expenses - (0.8) - (3.8) Selling and Administrative Expenses (Adjusted) $184.3 $159.2 $738.5 $574.2 Selling and Administrative Expenses As Percent of Total Revenue Adjusted 26.1% 27.7% 27.8% 28.9% Year Over Year % Change 15.8% 28.6% Year Over Year Change (160) bps (110) bps Page 33

34 Reconciliation: Gross Margin, Operating Margin and Earnings Per Share Gross Margin Quarter Ended September 30, 2016 Quarter Ended September 30, 2015 Operating Margin 1 Income Before Income Taxes Income Tax Expense Diluted EPS 1 Gross Margin Operating Margin (Loss) Income Before Income Taxes Income Tax (Benefit) Expense Diluted EPS GAAP Basis 49.1% 13.2% $ 69.1 $ 17.7 $ % -1.0% $ (16.5) $ (6.4) $ (0.16) Adjustments: Acquisition and integration costs 0.1% 0.7% % 7.5% Acquisition-related intangible asset amortization - 3.4% % FDA remediation expenses % Field corrective actions % -0.1% (0.4) (0.1) - Special charges - 1.2% % Supplemental stock compensation charge % Foreign valuation allowance (0.01) Debt refinancing Gain on disposition - - (10.1) (3.7) (0.10) Adjusted Basis 49.2% 18.6% $ $ 30.9 $ % 14.6% $ 73.3 $ 20.4 $ 0.89 Gross Margin Year Ended September 30, 2016 Income Operating Margin 1 Before Income Taxes Income Tax Expense Diluted EPS 1 Gross Margin Year Ended September 30, 2015 Income Operating Margin 1 Before Income Taxes Income Tax Expense Diluted EPS GAAP Basis 47.3% 8.7% $ $ 15.5 $ % 4.2% $ 65.1 $ 18.3 $ 0.82 Adjustments: Acquisition and integration costs 0.8% 1.5% % 3.2% Acquisition-related intangible asset amortization - 3.6% % FDA remediation expenses % Field corrective actions (0.1) - 0.2% 0.2% Litigation settlements and expenses (0.6) (0.2) (0.01) Special charges - 1.5% % Supplemental stock compensation charge % Foreign valuation allowance (0.29) (0.03) Debt refinancing Gain on disposition - - (10.1) (3.7) (0.10) Adjusted Basis 48.1% 15.3% $ $ 92.3 $ % 11.8% $ $ 63.3 $ Total does not add due to rounding. Page 34