J.P. MORGAN HEALTHCARE CONFERENCE. Joe Woody Chief Executive Officer

Transcription

1 J.P. MORGAN HEALTHCARE CONFERENCE Joe Woody Chief Executive Officer 0

2 OVERVIEW FORWARD-LOOKING INFORMATION Certain matters in this presentation and webcast, including our outlook, expectations and planning assumptions, and any estimates, projections, and statements relating to our business plans, growth opportunity or objectives, 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 conditions, business and technology acquisitions, product development execution, 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 posted on our website ( 1

3 Focused Medical Devices company to deliver superior returns Pure-play Medical Devices company in attractive end markets Dual-track growth strategy focused on M&A and product development Scalable infrastructure and disciplined plan to right-size cost structure Invest in R&D capabilities and introduce innovative technology Allows for clear playbook for future double-digit revenue and earnings growth 2

4 Halyard s evolution to a focused Medical Devices company Formation of Halyard Became independent publicly-traded company Built infrastructure Developed R&D capability Attracted top-tier Board Increased Medical Devices growth Accelerated investment for organic growth Executed Corpak acquisition Generated record cash flow Continued to meet or surpass external expectations Appointed new leadership Medical Devices organic revenue growing mid-single digit Announced S&IP divestiture Underpinned by strong business momentum in Medical Devices ($ in millions) $ % 25.0% $600 $550 $500 $ % 20.8% 21.2% $600 $567 $502 $ A 2015A 2016A LTM 9/30/17A 23.0% 21.0% 19.0% Medical Devices Net Sales Operating Profit Margin 3

5 Multi-year transformation accelerated with S&IP sale Transaction Overview Transaction Overview Closing Announced sale of S&IP for $710 million to Owens & Minor, Inc. Includes Halyard brand name and current IT platform Use of Proceeds Net after-tax proceeds of approximately $600 million* Portion allocated to the corporate rebrand and new IT platform Rebranding expected in mid-2018 Ongoing evaluation of M&A opportunities Received regulatory approvals needed to close Expected to close at the end of Q TSAs Halyard will provide IT services to OMI for at least one year Finalizing TSAs and working to separate IT infrastructure Established governance process to manage transition Separation and close progressing as planned *Reflects recent tax legislation 4

6 Business drivers behind Halyard s future value creation 2017: Execution 2018: Separation 2019: Transformation : Acceleration End State 1 Growth Execution Organic Growth Driven by Innovation M&A to Accelerate Growth and Build Scale International Growth Breakthrough Products Accelerated Growth Right-Sized Organization 2 Organizational Optimization 3 Restructuring New Organizational Structure Transform IT Landscape / TSAs New Name & Brand Identity Enhanced Performance Through Commercial Excellence Elimination of Stranded Costs and Dis-synergies Supply Chain/Distribution Optimization Scalable Infrastructure Investment For Growth Margin Accretion 5

7 Positioned to win in core areas with attractive opportunities Strong Position in Large Addressable Market Pain Management Overview Chronic Care Overview Addressable Market Chronic Care Pain Management $6.0 B Medical Devices Sales Q Includes Surgical Pain and Interventional Pain Key therapies: - Non-opioid post surgical solutions - Radio frequency nerve ablation for chronic back, knee and hip pain Fastest-growing part of our business, driven by COOLIEF and ON-Q success Includes Digestive Health and Respiratory Health Key therapies: - Enteral and nasogastric feeding tubes - Closed suction catheters for infection control for ventilated patients Mature market, with leading positions further enhanced by success of CORPAK acquisition Pain Management Chronic Care 6

8 (%) Pain Management: Market development and broadening relevance Key Brands and Products Addressable Market: $4.5 B Interventional Pain Surgical Pain Historical Sales Growth E* T* Strategic Priorities Increasing reimbursement Enhancing innovation Growing clinical research Expanding site access and evolving call points Key Growth Drivers Battle against opioids Aging population Orthopedic expansion Mid-term technology innovation to support new procedures M&A focused on innovative treatments for pain * Target based on the midpoint of guidance 7

9 (%) Chronic Care: Exploring adjacencies and investing in commercial capabilities Key Brands and Products Addressable Market: $1.5 B Digestive Health Respiratory Health Strategic Priorities Pursuing complementary and transformational M&A Increasing product differentiation with technology Leveraging existing infrastructure Pursuing international growth as standard of care evolves Historical Sales Growth T* Key Growth Drivers Market growth and portfolio expansion International opportunities Alternate site expansion Commercial excellence Transformational M&A around minimally invasive treatments * Target based on the midpoint of guidance 8

10 Accelerating growth through R&D and innovation Investing in R&D Building strong R&D team through targeted device industry recruitment and M&A Increasing Product Launches in Devices Delivering disciplined project execution, realizing ROI on breakthrough products in Historic R&D investment up from 3% to 5%, targeting above 6% with greater focus on transformative R&D 3 (2015) 2 (2014) 5 (2016) 9 (2017) Go-forward Priorities Leveraging pain management center of excellence Increasing investment focused on transformative R&D Pursuing non-opioid pain therapies and technologies Looking into broader therapeutic applications Driving increased efficiency for healthcare practitioners Historical R&D Spending (% of Net Sales) LTM* * Q

11 Significant firepower for strategic M&A Strengthening capabilities following Corpak acquisition and S&IP divestiture Focus Strengthening M&A capability Completed strategic portfolio review Evaluating: - New and emerging technologies - Adjacent markets and additional platforms - Various transaction structures - Range of target sizes Criteria Leverages or expands call points, technologies or therapeutic solutions Develops our addressable market Ability to deliver growth and margins at or above current business Free cash flow generation Accretive over time Realizable synergy opportunities $700 - $750 million in M&A capacity following S&IP divestiture and change in tax legislation 10

12 Transformation to a right-sized, growing and scalable business Organic Top-line Growth: Halyard Today Flat Future Halyard Mid-single digit Gross Margin: Mid-30s Low-60s R&D*: 5% >6% SG&A* (ex. R&D) Post divestiture: Operating Margin Growth: *as % of sales Low-40s Flat Multi-year Growth Drivers Mid-30s Growing Organic growth and gross profit drop-through Cost take-outs ($30-$40 million in ) M&A opportunities 11

13 Focused Medical Devices company to deliver superior returns Pure-play Medical Devices company in attractive end markets Dual-track growth strategy focused on M&A and product development Scalable infrastructure and disciplined plan to right-size cost structure Invest in R&D capabilities and introduce innovative technology Allows for clear playbook for future double-digit revenue and earnings growth 12

14 APPENDICES 13

15 2017 outlook summary February August November Adjusted diluted EPS $1.70 to $2.00 $1.85 to $2.05 $2.03 to $2.13 Net sales 0% to 2% 0% to 2% 0% to 2% Medical Devices Includes 3% growth attributed to CORPAK 7% to 9% 7% to 9% 7% to 9% S&IP, excluding sales to Kimberly-Clark Contemplates 2% to 4% lower selling prices 0% to -2% 0% to -2% -1% to -3% S&IP sales to Kimberly-Clark $40M to $45M $40M to $45M $50M to $55M Corporate sales $10M to $15M $10M to $15M $10M to $15M FX translation impact on net sales 0% to -2% 0% to -2% 0% to -2% Commodity inflation $10M to $20M $5M to $10M $10M to $15M Research & Development $40M to $45M $40M to $45M $40M to $45M Adjusted effective tax rate 32% to 34% 32% to 34% 31% to 33% Note: Guidance updates denoted in bold text. 14

16 Non-GAAP reconciliations In millions Gross Profit Operating Profit Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, As reported $ $ $ $ $ 28.8 $ 20.9 $ 84.3 $ 71.6 Divestiture-related charges Spin-related transition charges 4.5 (1.6) (0.8) 10.6 Acquisition-related charges Litigation and legal Intangibles amortization As adjusted non-gaap $ $ $ $ $ 47.8 $ 42.7 $ $ Income before taxes Income tax provision Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, As reported $ 21.4 $ 12.7 $ 62.4 $ 47.4 $ (4.8) $ (3.6) $ (15.9) $ (17.6) Effective tax rate, as reported 22.4% 28.3% 25.5% 37.1% Divestiture-related charges (3.1) (3.1) Spin-related transition charges 6.7 (0.8) 10.6 (2.3) 0.2 (3.9) Acquisition-related charges (0.8) (1.7) (2.0) (5.6) Litigation and legal (1.3) (1.9) (6.5) (5.7) Intangibles amortization (2.0) (2.3) (6.0) (6.2) Regulatory tax changes 3.7 As adjusted non-gaap $ 40.4 $ 34.5 $ $ $ (12.0) $ (11.8) $ (33.3) $ (35.3) Effective tax rate, as adjusted 29.7% 34.2% 30.7% 33.8% 15

17 Non-GAAP reconciliations In millions, except per share amounts Net Income Three Months Ended Nine Months Ended September 30, September 30, As reported $ 16.6 $ 9.1 $ 46.5 $ 29.8 Diluted EPS, as reported $ 0.35 $ 0.19 $ 0.98 $ 0.63 Divestiture-related charges Spin-related transition charges 4.4 (0.6) 6.7 Acquisition-related charges Litigation and legal Intangibles amortization Thailand statutory tax rate change 3.7 As adjusted non-gaap $ 28.4 $ 22.7 $ 75.1 $ 69.0 Diluted EPS, as adjusted $ 0.60 $ 0.48 $ 1.58 $ 1.47 EBITDA Three Months Ended Nine Months Ended September 30, September 30, EBITDA, as reported $ 44.9 $ 37.5 $ $ Divestiture-related charges Spin-related transition charges 6.7 (0.8) 10.6 Acquisition-related charges Litigation and legal Adjusted EBITDA $ 58.5 $ 53.3 $ $

18 Non-GAAP reconciliations In millions Medical Devices: Three Months Ended Nine Months Ended Twelve Months Ended ($ in millions) December 31, 2016 September 30, 2017 September 30, 2017 Net Sales $ $ $ Operating Profit Operating Profit Margin 21.6 % 26.1 % 24.9 % Free Cash Flow Three Months Ended Nine Months Ended September 30, September 30, Cash provided by operating activities $ 23.4 $ 49.9 $ 80.1 $ Capital expenditures (14.0) (7.6) (30.6) (21.7) Free Cash Flow $ 9.4 $ 42.3 $ 49.5 $

19 Non-GAAP reconciliations In millions, except per share amounts Estimated Range Adjusted diluted earnings per share $ 2.03 to $ 2.13 Amortization (0.28) to (0.28) Divestiture-related charges (0.33) to (0.26) Spin-related transition expenses 0.01 to 0.01 Acquisition related charges (0.09) to (0.07) Other (0.38) to (0.28) Diluted earnings per share (GAAP) $ 0.96 to $