FOURTH QUARTER 2017 EARNINGS CALL FEBRUARY 27, 2018

Transcription

1 FOURTH QUARTER 2017 EARNINGS CALL FEBRUARY 27,

2 Agenda and Speakers Joe Woody Chief Executive Officer Halyard Outlook and Update on Divestiture 2018 Priorities Steve Voskuil Chief Financial Officer Fourth Quarter Financial Performance 2018 Planning Assumptions Q&A 1

3 Forward Looking Statements FORWARD-LOOKING INFORMATION Certain matters in this presentation and conference call, including our 2018 outlook, expectations and planning assumptions, and any estimates, projections, and statements relating to our business plans, objectives, or the divestiture of our Surgical & Infection Prevention business, 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, S&IP separation execution 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 ( 2

4 2017 Was a Strong Year Delivered record quarter of Medical Device organic sales growth Increased number of product launches Delivered earnings ahead of plan Third consecutive year of increased Medical Device organic growth Accelerated Medial Devices Growth Rate ($ in millions) $650 $600 $550 $500 $502 $510 $566 $612 $ *Excludes impact from Corporate and Other 3

5 Fourth Quarter Summary Grew Medical Devices by 8% to $612 million Earned $0.73 adjusted diluted earnings per share Achieved full-year earnings ahead of guidance Drivers of strong performance: - Growing recognition and demand for non-opioid therapies - Continuing growth in our Corpak business - Conversion of GPO contract for Oral Care Confident in growth prospects 4

6 Investing for Growth Developed Dual-Track Growth Strategy Completed a comprehensive portfolio review Organic and inorganic opportunities with more focused business Implementing organization structure to drive performance Strengthening Leadership Team Appointed John Tushar, President Global Franchises - Experienced in Global Marketing, M&A and Corporate Strategy - Recently served as President and GM of Teleflex s Surgical Division - Deep experience dovetails with our strategy Leadership team focused on driving growth and efficiencies 5

7 Well Positioned in Large Addressable Markets Addressable Market Chronic Care Pain Management Medical Devices Sales 2017 $6 billion Growth Strategy Expand call point site access Strengthen innovation capabilities Differentiate our products through clinical outcomes data Pain Management Chronic Care Strategic Investments Differentiate through increased clinical evidence - Grow clinical studies by more than 50% - Position Coolief for enhanced reimbursement Accelerate Coolief adoption for knee osteoarthritis - Increase direct-to-patient advertising - Raise awareness with physicians Educate surgeons on the efficacy of On-Q - Unleveraged growth opportunity 6

8 Accelerating R&D Investments R&D Investments Investment growing faster than sales growth - Enhanced talent and capabilities - Increased product launches - Accelerated investments in breakthrough technologies Increasing Product Launches in Devices 9 (2017) 5 (2016) 3 (2015) 2 (2014) Pain Center of Excellence Pursuing non-opioid pain therapies and solutions Continue leveraging commercial expertise Drive improved patient outcomes 7

9 Growth Opportunities Through M&A Complement to organic growth $700 million to $750 million of acquisition capacity Exploring opportunities to: - Leverage technologies - Expand call points - Increase addressable markets Robust pipeline with targets of varying sizes 8

10 2018 Goals Build on top-line momentum and execute strategic investments Close divestiture and deliver on TSA commitments - Close expected in early second quarter - $600 million net proceeds, after tax and transaction costs Right-sizing the organization - Work to drive efficiencies and eliminate dis-synergies - Investing in more efficient IT infrastructure - Build scalable infrastructure - Reduce operating costs by $30 million to $40 million by end of 2021 Strategically deploy M&A capital 9

11 Well Positioned to Succeed in 2018 Transform into a pure-play Medical Device company Investing to build on momentum through commercial execution, product innovation and M&A Hosting Investor Day, June 21 in New York 10

12 FOURTH QUARTER 2017 RESULTS STEVE VOSKUIL CHIEF FINANCIAL OFFICER

13 Fourth Quarter Summary Continued Medical Device top line momentum Disciplined cost management Strong cash flow S&IP results treated as discontinued operations - Shared costs previously allocated to S&IP now included in continuing operations fourth quarter and full-year shared costs of $30 million and $116 million, respectively fourth quarter and full-year shared costs of $33 million and $114 million, respectively

14 Fourth Quarter Medical Device Performance Medical Device sales increased 8% to $166 million, driven by: - Solid demand for On-Q - The shift in timing of IV Infusion sales - Increased patient awareness and adoption of Coolief - Last year s Oral Care contract conversion Operating profit increased 17% to $39 million Medical Device Net Sales Medical Device Operating Profit $154 $166 $33 $39 22% 23% Q Q Q Q

15 Fourth Quarter Performance Adjusted EBITDA of $64 million Adjusted gross margin from continuing operations was 55% - Expect low 60 s Medical Device adjusted gross margin, post divestiture Net income totaled $33 million - Results include $10 million benefit from Tax Cuts and Jobs Act Earned adjusted diluted EPS of $0.73 Performance benefited from: - Higher Medical Device volume - Delayed SG&A investment in corporate and franchise teams - Stopped depreciation on S&IP and IT assets held for sale

16 2017 Performance Medical Device sales increased 8% to $612 million Medical Device operating profit increased 25% to $155 million - Third consecutive year of operating margin expansion Adjusted EBITDA totaled $226 million Reported adjusted diluted EPS of $2.35, an 18% increase Medical Device Net Sales $566 $612 Medical Device Operating Profit $124 $155 22% 25%

17 Balance Sheet and Cash Flow Ended 2017 with $220 million of cash Fourth quarter free cash flow of $52 million, new quarterly high Generated $101 million of free cash flow in 2017 Cash will help fund future growth

18 2018 Outlook and Key Planning Assumptions Provide earnings guidance after divestiture is completed Key planning assumptions for continuing operations: - Medical Device sales to increase 4% to 6%, on a constant currency basis - Accelerate growth in R&D to support innovation and breakthrough technologies - Foreign currency translation to be even compared to Adjusted effective tax rate between 25% and 27% - Dis-synergies related to the divestiture of $15 to $20 million - Expect to repay Term Loan with divestiture proceeds - Increase strategic investments to capitalize on growth opportunities 17

19 Fourth Quarter Summary Continued momentum in Medical Devices Delivered earnings ahead of plan Firepower to invest in product development and M&A Accelerating transformation into a leading Medical Device company

20 Q&A

21 APPENDICES

22 2018 Outlook Summary February Medical Device net sales, constant currency 4% to 6% FX translation impact on net sales Even Adjusted effective tax rate 25% to 27% Dis-synergies from S&IP divestiture $15M to $20M *2018 earnings guidance will be provided after the S&IP divestiture closes 21

23 Non-GAAP Reconciliations In millions Gross Profit Operating Profit (Loss)(a)(b) Three Months Ended Year Ended Three Months Ended Year Ended December 31, December 31, December 31, December 31, As reported $ 89.9 $ 78.0 $ $ $ (3.0) $ (30.4) $ (43.1) $ (107.1) Restructuring charges Acquisition-related charges Spin-related transition charges 5.9 (0.3) Litigation and legal Policy changes (1.3) (1.3) (6.0) (6.0) Intangibles amortization As adjusted non-gaap $ 90.9 $ 85.7 $ $ $ 6.6 $ (11.3) $ 5.2 $ (33.9) (a) For the three and twelve months ended December 31, 2017, operating profit includes $30 million and $116 million, respectively, of costs no longer allocated to the S&IP business and $9 million and $63 million of corporate and other expenses. (b) For the three and twelve months ended December 31, 2016, operating profit includes $33 million and $114 million, respectively, of costs no longer allocated to the S&IP business and $26 million and $98 million, respectively of corporate and other expenses. 22

24 Non-GAAP Reconciliations In millions Income Before Taxes Income Tax Benefit Three Months Ended Year Ended Three Months Ended Year Ended December 31, December 31, December 31, December 31, As reported $ (10.2) $ (38.3) $ (72.2) $ (139.2) $ 14.6 $ 16.4 $ 40.1 $ 55.9 Effective tax rate, as reported 143.1% 42.8% 55.5% 40.2% Restructuring charges (1.8) (1.8) Acquisition-related charges (0.9) (1.2) (2.9) (6.7) Spin-related transition charges (1.6) (0.1) (4.6) Litigation and legal (1.3) (1.8) (7.7) (7.5) Policy changes (6.0) (6.0) Intangibles amortization (1.8) (1.9) (7.7) (8.0) Statutory tax reform (10.1) (2.4) (10.1) 1.4 As adjusted non-gaap $ (0.6) $ (19.2) $ (23.9) $ (66.0) $ 1.0 $ 7.5 $ 12.1 $ 30.5 Effective tax rate, as adjusted 166.7% 39.1% 50.6% 46.2% 23

25 Non-GAAP Reconciliations In millions, except per share amounts Three Months Ended Income (Loss) from Continuing Operations Year Ended December 31, December 31, As reported $ 4.4 $ (21.9) $ (32.1) $ (83.3) Diluted EPS, as reported $ 0.09 $ (0.47) $ (0.69) $ (1.79) Restructuring charges Acquisition-related charges Spin-related transition charges Litigation and legal Policy changes (3.7) (3.7) Intangibles amortization Statutory tax reform (10.1) (2.4) (10.1) 1.4 As adjusted non-gaap $ 0.4 $ (11.7) $ (11.8) $ (35.5) Diluted EPS, as adjusted $ 0.01 $ (0.25) $ (0.25) $ (0.76) Income from Discontinued Operations, net of tax Three Months Ended Year Ended December 31, December 31, As reported $ 28.4 $ 31.9 $ $ Diluted EPS, as reported $ 0.60 $ 0.68 $ 2.38 $ 2.64 Divestiture-related charges Spin-related transition charges 3.4 (1.0) 4.6 Policy changes (1.3) (1.3) Intangibles amortization As adjusted non-gaap $ 34.6 $ 35.4 $ $ Diluted EPS, as adjusted $ 0.73 $ 0.76 $ 2.61 $

26 Non-GAAP Reconciliations In millions, except per share amounts Net Income Three Months Ended Year Ended December 31, December 31, As reported $ 32.8 $ 10.0 $ 79.3 $ 39.8 Diluted EPS, as reported $ 0.69 $ 0.21 $ 1.69 $ 0.85 Restructuring charges Divestiture-related charges Acquisition-related charges Spin-related transition charges 7.4 (0.6) 14.1 Litigation and legal Policy changes (5.0) (5.0) Intangibles amortization Regulatory tax changes (10.1) (2.4) (10.1) 1.4 As adjusted non-gaap $ 35.0 $ 23.7 $ $ 92.7 Diluted EPS, as adjusted $ 0.73 $ 0.51 $ 2.35 $ 1.99 EBITDA Three Months Ended Year Ended December 31, December 31, EBITDA, as reported $ 49.7 $ 32.6 $ $ Divestiture-related charges Restructuring charges Acquisition-related charges Spin-related transition charges 10.3 (0.8) 21.0 Litigation and legal Policy changes (8.1) (8.1) Adjusted EBITDA $ 63.9 $ 50.5 $ $

27 Non-GAAP Reconciliations In millions Free Cash Flow Three Months Ended Year Ended December 31, December 31, Cash provided by operating activities $ 64.1 $ 44.9 $ $ Capital expenditures (12.6) (7.4) (43.2) (29.1) Free Cash Flow $ 51.5 $ 37.5 $ $