Third Quarter 2018 Financial Results. July 27, 2018

Transcription

1 Third Quarter 2018 Financial Results July 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 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 business 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 6/30/2018 $5.8B $7.8B +11% $46M Market Capitalization Enterprise Value LTM Total Shareholder Return YTD Fiscal 2018 Returned to Shareholders* *Includes dividends and share repurchases Page 5

6 Advancing category leadership with differentiated solutions and innovation Building on a diversified portfolio to drive sustainable growth and profitability Capitalizing on several new product introductions with Q YTD revenue of $180M+ Expanding internationally and penetrating emerging markets Continuing international momentum while absorbing headwinds in Asia Pacific and Latin America Driving increased penetration with Hill-Rom s global presence, brand and One Hill-Rom approach Transforming the portfolio with select M&A and optimization initiatives Optimizing business portfolio with completed divestitures and exit of non-strategic assets Realizing Mortara synergies; divesting third-party rental; winding down third-party surfaces business Driving operational execution and strong financial performance Accelerating core revenue growth to 4%*, expanding margins, growing adjusted EPS by 26% to $1.15 Reaffirming full-year adjusted EPS guidance with tightened range of $4.62 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 and non-strategic assets the company plans to exit

7 Q Financial Summary

8 Revenue Operating Margin Earnings Per Share Operating Cash Flow $689M +4% Core* Growth +120 BPS $709M 17.3% 16.1% $ % Growth $1.15 $240M +4% Growth $250M Q Q Q Q Q Q Q3 YTD 2017 Q3 YTD 2018 Accelerating Core Revenue Growth 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 and non-strategic assets the company plans to exit

9 Fiscal Third Quarter Adjusted P&L YOY Change Revenue $689M $709M +1% constant currency +4% core* growth Gross Margin 48.3% 49.1% +80 bps Operating Margin 16.1% 17.3% +120 bps Adjusted EPS $0.91 $ % Driving 12 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 and non-strategic assets the company plans to exit

10 Patient Support Systems Front Line Care Surgical Solutions Q YTD 2018 Q YTD 2018 Q YTD 2018 Delivering strong U.S. core growth across key capital product categories Driving double-digit MedSurg orders and backlog growth Meeting large customer demand for CWS with +15% YTD growth Winding down lowermargin third-party surface business Driving growth with new product introductions Continuing solid growth in thermometry and physical assessment Delivering +10% YTD Respiratory Care growth Increasing international penetration with One Hill-Rom approach Sustaining solid Integrated Table Motion placements Enhancing safety and easeof-use with new products and upgrades Advancing innovation and partnerships to drive future growth Absorbing difficult growth comparison in MEATI and lower OEM revenue Note: All revenue growth rates are constant currency *Core revenue excludes foreign currency, divestitures, non-strategic assets the company plans to exit, and Mortara prior to the anniversary date of the acquisition Page 10

11 Patient Support Systems Front Line Care Surgical Solutions Launched iled 7 Surgical Light TS 3000 Surgical Table Accella (OUS MedSurg/ICU Bed System) Linq Mobile Next-Gen RetinaVue Next-Gen Surgical Table Next-Gen Allen Advance Table LikoGuard Patient Handling Integrated Table Motion Centrella Smart+ Bed (MedSurg Bed System) Patient Handling OH Platform Spot Vision Screener (New Indications) Physical Assessment Revitalization Connex Spot Monitor VisiVest Welch Allyn Home Hypertension Next-Gen Surfaces Connex Vital Spot Monitor With ECG Vital Signs Patch Spot Vision Screener RetinaVue Monarch Vest WatchCare Incontinence Welch Allyn Home Products Next-Gen Respiratory Therapy Outlook New Products Contributing $180M+ YTD 2018 Page 11

12 Centrella Smart+ Bed Linq Mobile Improving patient safety and satisfaction with enhanced features, minimizing the risk of falls Enhancing caregiver features for quick and easy updates, such as integrating with NaviCare Patient Safety applications Connecting members of care teams to each other, to their patients and to patient information, in real-time Integrating clinical workflows and driving connectivity in the care setting Meeting customers evolving needs by creating a scalable platform Improving care-team collaboration, communication and efficiency Page 12

13 Vision Care Portfolio Monarch Airway Clearance System Providing convenient and easy-to-use solutions to improve vision care Elevating patient quality-of-life with portable, Bluetooth enabled vest Delivering an objective and consistent approach to screenings with Spot Vision Screener Increasing therapy compliance with increased flexibility from mobility freedom Enabling diabetic retinopathy exams in primary care settings with RetinaVue Enhancing connected care discussions and early interventions via connectivity options Spot Vision Screener RetinaVue Network Page 13

14 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 Page 14

15 Adjusted Gross Margin Adjusted Operating Margin +45 bps +35 bps +80 bps +40 bps 48.3% 49.1% 16.1% 17.3% Q Portfolio Optimization Mix & Operational Efficiencies Q Q GM Expansion Opex Leverage Q bps Gross Margin Expansion +120 bps Operating Margin Expansion Driving Margin Expansion With Ongoing Optimization Initiatives, New Products, Manufacturing Productivity And Procurement Efforts 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 15

16 Accelerating core revenue growth to 4%* Driving positive contribution from new products, portfolio diversification and ongoing operational efficiencies Enhancing global commercial capabilities by investing in key strategic initiatives Realizing benefit from U.S. tax reform legislation and stock-based compensation Adjusted EPS Growth US$ $ % growth $1.15 $1.15 Adjusted Earnings Per Diluted Share Q Q Exceeding Guidance With +26% Adjusted EPS Growth Page 16 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 and non-strategic assets the company plans to exit

17 Cash Flow US$ Millions $240 $250 Operating Cash Flow $166 Q3 YTD 2017 Q3 YTD 2018 $178 Free Cash Flow Balanced Capital Allocation Reducing debt levels Re-investing in business (R&D and CapEx) Sustaining 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 17

18 2018 Financial Outlook

19 ~3% Core Revenue Growth* ~100 bps Operating Margin Expansion ~20% Growth in Adjusted EPS Adjusted P&L 2018 Prior Outlook 2018 Current Outlook Revenue Growth (reported) 3% - 4% 3% - 4% Gross Margin +75 bps +75 bps Operating Margin +100 bps +100 bps Adjusted EPS $ $4.65 $ $4.65 Operating Cash Flow ~$350M ~$350M Capital Expenditures ~$110M ~$100M Driving Strong Adjusted Earnings And Cash Flow Growth Page 19 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, nonstrategic assets the company plans to exit, and Mortara prior to the anniversary date of the acquisition

20 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, non-strategic assets the company plans to exit, and Mortara prior to the anniversary date of the acquisition Page 20

21 Adjusted P&L Q Outlook Q Outlook Reflects: Maintaining core revenue growth momentum and benefit from new products Revenue Growth ~2% Reported Anticipating higher margins: Higher revenue Revenue Growth ~2% Constant 3% - 4% Core* Improved surgical margins Cost and business optimization initiatives savings Adjusted EPS $ $1.53 Executing on strategic initiatives and key investments to drive future growth Sustaining Core Revenue Growth While Investing In Key Strategic Growth Initiatives *Core revenue excludes foreign currency, divestitures and non-strategic assets the company plans to exit Page 21

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% 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 $ % 6.5% -2.2% -5.5% -2.0% -4.5% Front Line Care % 17.0% 12.7% 10.9% 10.1% 10.7% Surgical Solutions % 18.4% 12.0% 5.4% 5.8% 5.6% Total Hill-Rom $ $ $ $ $ $ % 12.5% 4.7% 1.0% 3.5% 1.8% 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 $ $ 91.1 $ $ $ 99.7 $ % -8.6% 1.4% 5.3% -12.5% 0.3% Front Line Care % 8.1% 5.2% 4.1% 3.7% 4.0% Surgical Solutions % -2.5% 2.4% 7.8% -7.9% -0.4% Total Hill-Rom $ $ $ $ $ $ % -2.2% 2.8% 5.2% -6.6% 1.4% YTD 2018 YTD 2017 % Actual Rates % Constant Rates United States International Total United States International Total United States International Total United States International Total Patient Support Systems $ $ $ 1,049.1 $ $ $ 1, % 0.7% -0.4% -0.7% -5.7% -2.1% Front Line Care % 15.6% 9.6% 7.3% 9.9% 8.0% Surgical Solutions % 11.2% 8.2% 5.0% 2.3% 3.6% Total Hill-Rom $ 1,412.4 $ $ 2,088.8 $ 1,377.1 $ $ 2, % 7.7% 4.2% 2.6% 0.9% 2.0% 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 Gross Margin Quarter Ended June 30, 2018 Quarter Ended June 30, 2017 Operating Margin 1 Income Before Income Taxes Income Tax Expense Diluted EPS Gross Margin Operating Margin 1 Income Before Income Taxes Income Tax Expense Diluted EPS GAAP Basis 49.1% 11.1% $ 55.5 $ 10.3 $ % 5.9% $ 16.1 $ 10.4 $ 0.09 Adjustments: Acquisition and integration costs - 0.4% % 0.9% Acquisition-related intangible asset amortization - 3.8% % Field corrective actions % 0.0% Litigation expenses - 0.0% % 0.2% Special charges - 2.0% % Tax method and law changes and related costs (1.0) % Gain on disposition Adjusted Basis 49.1% 17.3% $ 99.7 $ 21.6 $ % 16.1% $ 86.5 $ 25.5 $ 0.91 Gross Margin Year to Date Ended June 30, 2018 Year to Date Ended June 30, 2017 Income Income Operating Margin 1 Before Income Taxes Income Tax Expense Diluted EPS Gross Margin Operating Margin 1 Before Income Taxes Income Tax Expense GAAP Basis 48.7% 8.5% $ $ (54.2) $ % 8.0% $ 92.7 $ 29.5 $ 0.95 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 - 0.3% % Special charges - 3.1% % Tax method and law changes and related costs (0.99) (2.2) 0.03 Gain on disposition - - (1.0) - (0.01) - - (1.0) (0.4) (0.01) Adjusted Basis 48.7% 16.1% $ $ 55.6 $ % 15.3% $ $ 67.9 $ 2.54 Diluted EPS 1 1 Total does not add due to rounding. Page 26

27 Appendix Other Supplementary Schedules

28 ($ in millions) Revenue Q Q3 YTD 2018 Rev. Growth CC Growth Revenue Rev. Growth CC Growth Other PSS U.S. $ % +5.3% $760.9 (0.7%) (0.7%) OUS $91.1 (8.6%) (12.5%) $ % (5.7%) Total $ % +0.3% $1,049.1 (0.4%) (2.1%) 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 28

29 ($ in millions) Q Q3 YTD 2018 Revenue Rev. Growth CC Growth Revenue Rev. Growth CC Growth U.S. $ % +4.1% $ % +7.3% Other FLC Thermometry & Blood Pressure OUS $ % +3.7% $ % +9.9% Total $ % +4.0% $ % +8.0% Respiratory $885M FY 2017 Physical Assessment Vital Signs Physical Assessment Vital Signs Respiratory Care Significant Opportunity To Drive Commercial Value And Innovation Page 29

30 ($ in millions) Q Q3 YTD 2018 Revenue Rev. Growth CC Growth Revenue Rev. Growth CC Growth Blades & Scalpels U.S. $ % +7.8% $ % +5.0% OUS $54.3 (2.5%) (7.9%) $ % +2.3% Total $ % (0.4%) $ % +3.6% 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 30