Second Quarter 2018 Financial Results€¦ · This presentation contains forward-looking...

Second Quarter 2018 Financial Results

April 27, 2018

© 2018 Hill-Rom Services, Inc. ALL RIGHTS RESERVED

This presentation contains forward-looking statements, within the meaning of the Private Securities

Litigation Reform Act of 1995. All statements included herein that are not historical facts are forward-

looking 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.

Q2 2018 Highlights


InnovationAdvancing global scale andbrand equity whileenhancing outcomes

Leadership$2.7B global medical technology leader with market-leading positions

2017 Revenue by BusinessUS$ Billions

Increased Investment in R&DUS$ Millions

Patient Support SystemsFront

Line Care

Surgical Solutions

$2.7BFY 2017

Key Valuation MetricsAs of 3/31/2018

Market Capitalization

$92

$134

2015 2017

4.6% of revenue

4.9% of revenue $5.8B

$7.8B

+24%

$25M

LTM Total Shareholder Return

Enterprise Value

YTD Fiscal 2018 Returned to Shareholders*

ValueTransforming to drive sustainable profitable growth and shareholder value

Note: Hill-Rom fiscal year end is September 30 *Includes dividends


Enhancing Shareholder Value By Executing Our Strategy

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

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

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

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

Q2 2018 Financial Summary


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

+19%Growth

Q2 2017 Q2 2018

$0.88

2%Core*

Growth

Q2 2017 Q2 2018

Flat+120BPS

Q2 2017 Q2 2018

Delivering Solid Core Revenue And Exceeding Adjusted EPS Guidance

$679M 15.0%

Q2 YTD 2017 Q2 YTD 2018

OperatingMargin

RevenueEarnings Per Share

OperatingCash Flow

$711M16.2% $1.05 $126M $126M


Driving 11th Consecutive Quarter Of Double-Digit Adjusted EPS Growth

Fiscal Second Quarter

Adjusted P&L 2017 2018 YOY Change

Revenue $679M $711M

Gross Margin 48.0% 49.3% +130 bps

Operating Margin 15.0% 16.2% +120 bps

Adjusted EPS $0.88 $1.05 +19%

+2%constant currency

+2%core*

growth

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


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 lower-margin businesses

Continuing solid Integrated Table Motion adoption

Maintaining strong international growth momentum

Enhancing safety and ease-of-use with new products and upgrades

Advancing innovation and partnerships to drive future growth

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

Patient Support Systems Surgical SolutionsFront Line Care

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

Q2 2018 YTD 2018 Q2 2018 YTD 2018Q2 2018 YTD 2018


15.0%

16.2%

Q2 2017 GMExpansion

OpexLeverage

Q2 2018

+130 bpsGross Margin Expansion

Expanding Margins With New Products, Portfolio Diversification And Ongoing Optimization Initiatives

48.0%

49.3%

Q2 2017 PortfolioOptimization

OperationalEfficiencies

Q2 2018

Adjusted Gross Margin Adjusted Operating Margin

+100 bps

+130 bps

+120 bpsOperating Margin Expansion

+30 bps

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

(10) bps


$0.88

$1.05

Q2 2017 Q2 2018

$1.05Adjusted Earnings Per Diluted Share

Exceeding Expectations With +19% Adjusted EPS Growth

Adjusted EPS GrowthUS$

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

+19% growth

• 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


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

Cash FlowUS$ Millions

$126

$79

$126

$74

OperatingCash Flow

FreeCash Flow

Q2 YTD 2017

Q2 YTD 2018

~4.0x → ~3.2x*

Enhancing Financial Flexibility With Strong Cash Flow Generation

2017 Leverage 2018 Leverage

Note: Leverage calculated as Total Debt divided by EBITDA as defined in Hill-Rom’s compliance certificate *Assumes no further M&A activity

2018 Financial Outlook


19% - 20%Growth in

Adjusted EPS

~100 bpsOperating Margin

Expansion

~3%Core Revenue

Growth*

Driving Strong Adjusted Earnings And Cash Flow Growth

Adjusted P&L

2018 Prior

Outlook

2018 CurrentOutlook

Revenue Growth

(reported) 3% - 4% 3% - 4%

Gross Margin +50 bps +75 bps

Operating Margin +100 bps +100 bps

Adjusted EPS $4.57 - $4.65 $4.60 - $4.65

Operating Cash Flow ~$350M ~$350M

Capital Expenditures ~$110M ~$110M

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


CoreRevenue*

Mortara Non-Strategic ConstantCurrency

FX ReportedRevenue

Delivering Solid 2018 Core Revenue Growth Of ~3%

2018 Revenue Growth

~3% 3% - 4%

2018 Revenue Growth Outlook

Constant Core*

Patient Support Systems

Front Line Care

Surgical SolutionsLow-to-MidSingle Digits

Total Hill-Rom

Decline Low-Single Digits

Low-Single Digits

High-SingleDigits

Low-to-Mid Single Digits

2% - 3% ~3%

2% - 3%

Note: All 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


Q3 2018 Outlook Reflects:

• Accelerating core revenue momentum and benefit from new products

• Anticipating higher margins in 2H:

✓ Higher revenue

✓ Improved surgical margins

✓ Mortara synergy benefits

✓ Cost and business optimization initiatives savings

• Executing on strategic initiatives

Adjusted P&L

Q3 2018Outlook

Revenue Growth ~3%Reported

Revenue Growth

Adjusted EPS $1.12 - $1.14

Accelerating Core Revenue Growth While InvestingIn Key Strategic Growth Initiatives

~1%Constant

3% - 4%Core*

*Core revenue excludes foreign currency, divestitures, exit of non-strategic assets and Mortara prior to the anniversary date of the acquisition

Revenue Schedules


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

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

United States International Total United States International Total United States International Total United States International Total

Patient Support Systems 248.4$ 86.8$ 335.2$ 241.4$ 100.3$ 341.7$ 2.9% -13.5% -1.9% 2.9% -10.7% -1.1%

Front Line Care 147.7 54.1 201.8 155.1 65.1 220.2 -4.8% -16.9% -8.4% -4.8% -15.7% -8.0%

Surgical Solutions 50.0 50.4 100.4 44.3 55.0 99.3 12.9% -8.3% 1.1% 12.9% -4.5% 3.2%

Total Hill-Rom 446.1$ 191.3$ 637.4$ 440.8$ 220.4$ 661.2$ 1.2% -13.2% -3.6% 1.2% -10.6% -2.7%


Patient Support Systems 263.1$ 99.8$ 362.9$ 258.4$ 93.8$ 352.2$ 1.8% 6.4% 3.0% 1.8% 9.2% 3.8%

Front Line Care 146.9 64.1 211.0 132.2 53.1 185.3 11.1% 20.7% 13.9% 11.1% 22.8% 14.5%

Surgical Solutions 51.6 53.4 105.0 46.0 49.1 95.1 12.2% 8.8% 10.4% 12.2% 12.6% 12.4%

Total Hill-Rom 461.6$ 217.3$ 678.9$ 436.6$ 196.0$ 632.6$ 5.7% 10.9% 7.3% 5.7% 13.7% 8.2%


Patient Support Systems 255.0$ 99.7$ 354.7$ 258.7$ 102.3$ 361.0$ -1.4% -2.5% -1.7% -1.4% -0.2% -1.1%

Front Line Care 162.8 64.3 227.1 139.2 53.5 192.7 17.0% 20.2% 17.9% 17.0% 23.6% 18.8%


Total Hill-Rom 469.4$ 219.7$ 689.1$ 448.7$ 206.7$ 655.4$ 4.6% 6.3% 5.1% 4.6% 9.0% 6.0%


Patient Support Systems 273.2$ 97.9$ 371.1$ 278.9$ 103.4$ 382.3$ -2.0% -5.3% -2.9% -2.0% -8.7% -3.8%

Front Line Care 174.3 71.1 245.4 158.4 53.1 211.5 10.0% 33.9% 16.0% 10.0% 31.8% 15.5%


Total Hill-Rom 510.5$ 227.8$ 738.3$ 493.4$ 212.6$ 706.0$ 3.5% 7.1% 4.6% 3.5% 4.0% 3.6%


Patient Support Systems 1,039.7$ 384.2$ 1,423.9$ 1,037.4$ 399.8$ 1,437.2$ 0.2% -3.9% -0.9% 0.2% -2.8% -0.6%

Front Line Care 631.7 253.6 885.3 584.9 224.8 809.7 8.0% 12.8% 9.3% 8.0% 14.0% 9.7%


Total Hill-Rom 1,887.6$ 856.1$ 2,743.7$ 1,819.5$ 835.7$ 2,655.2$ 3.7% 2.4% 3.3% 3.7% 3.7% 3.7%

Q2 2017 Q2 2016 % Growth @ Actual Rates % Growth @ Constant Rates


Fiscal Year 2017 Fiscal Year 2016 % Growth @ Actual Rates % Growth @ Constant Rates



AppendixReconciliations Of Non-GAAP Disclosures


US

As Constant As As Constant

2018 2017 Reported Currency Reported Reported Currency

Product Sales and Service 610.7$ 579.6$ 5.4% 2.2% 1.1% 13.0% 4.1%

Rental 99.8 99.3 0.5% (0.8%) 0.1% 3.6% (8.0%)

Total 710.5$ 678.9$ 4.7% 1.8% 1.0% 12.5% 3.5%

US



Patient Support Systems 355.0$ 362.9$ (2.2%) (4.5%) (5.5%) 6.5% (2.0%)

Front Line Care 237.9 211.0 12.7% 10.7% 10.9% 17.0% 10.1%

Surgical Solutions 117.6 105.0 12.0% 5.6% 5.4% 18.4% 5.8%

Total 710.5$ 678.9$ 4.7% 1.8% 1.0% 12.5% 3.5% -$ -$ -$ (0.0)$ (0.0)$ 0.0$ 0.0$

US



Product Sales and Service 1,185.9$ 1,121.5$ 5.7% 3.0% 1.7% 13.4% 5.5%

Rental 194.3 194.8 (0.3%) (1.3%) (0.8%) 4.1% (5.5%)

Total 1,380.2$ 1,316.3$ 4.9% 2.4% 1.2% 12.9% 4.9%

US



Patient Support Systems 689.4$ 698.1$ (1.2%) (3.3%) (3.8%) 5.6% (2.0%)

Front Line Care 462.5 412.8 12.0% 10.2% 9.0% 19.6% 13.3%

Surgical Solutions 228.3 205.4 11.1% 5.7% 3.6% 18.5% 7.7%

Total 1,380.2$ 1,316.3$ 4.9% 2.4% 1.2% 12.9% 4.9%

OUS

OUS

Year to Date Ended March 31

OUS

Quarter Ended March 31

OUS


($ in millions)

2018 2017 2018 2017

Selling and Administrative Expenses (As Reported) 232.7$ 222.4$ 454.4$ 431.2$

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) 200.5$ 188.6$ 389.1$ 366.0$

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

Quarter Ended March 31 Year To Date Ended March 31


Gross

Margin

Operating

Margin

Income

Before

Income

Taxes

Income Tax

Expense Diluted EPS

Gross

Margin

Operating

Margin1

Income

Before

Income

Taxes

Income Tax

Expense

Diluted

EPS1

GAAP Basis 49.3% 6.5% 21.5$ (7.0)$ 0.42$ 47.8% 9.4% 41.3$ 7.3$ 0.51$

Adjustments:

Acquisition and integration costs - 0.4% 2.6 0.7 0.03 0.1% 1.1% 7.2 3.4 0.06

Acquisition-related intangible asset amortization - 3.8% 27.0 6.9 0.30 - 3.9% 26.6 9.0 0.26

Field corrective actions - - - - - 0.1% 0.1% 0.5 (0.1) 0.01

Litigation expenses - 0.3% 1.8 0.4 0.02 0.0% 0.1% 0.9 0.3 0.01

Special charges - 5.2% 36.9 9.7 0.40 - 0.5% 3.1 0.9 0.03

Tax method and law changes and related costs - 0.8 8.7 (0.12) 0.0% - - - -

Adjusted Basis 49.3% 16.2% 90.6$ 19.4$ 1.05$ 48.0% 15.0% 79.6$ 20.8$ 0.88$

1 Total does not add due to rounding.

Gross

Margin

Operating

Margin

Income

Before

Income

Taxes

Income Tax

Expense Diluted EPS

Gross

Margin

Operating

Margin1

Income

Before

Income

Taxes

Income Tax

Expense Diluted EPS

GAAP Basis 48.5% 7.1% 52.3$ (64.5)$ 1.73$ 47.6% 9.1% 76.6$ 19.1$ 0.87$

Adjustments:

Acquisition and integration costs - 0.4% 5.0 1.3 0.05 0.1% 1.0% 13.2 5.6 0.11

Acquisition-related intangible asset amortization - 3.9% 53.7 13.5 0.60 - 4.0% 52.1 17.3 0.52

Field corrective actions - - - - - - - 0.5 (0.1) 0.01

Litigation expenses - 0.4% 5.8 1.5 0.06 - 0.1% 0.9 0.3 0.01

Special charges - 3.7% 50.4 13.2 0.55 - 0.7% 8.9 2.8 0.09

Tax method and law changes and related costs - 0.8 69.0 (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% 167.0$ 34.0$ 1.97$ 47.7% 14.8% 151.2$ 42.4$ 1.63$

1 Total does not add due to rounding.

Quarter Ended March 31, 2017

Year to Date Ended March 31, 2017

Quarter Ended March 31, 2018

Year to Date Ended March 31, 2018

AppendixOther Supplementary Schedules


Centrella™ SmartBedSystem

✓ 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

✓ Meeting customers’ evolving needs by creating a scalable platform

U.S. AverageBed Lifespan

U.S. MedSurg Portion Of Installed Beds

Global MedSurgMarket

✓ Providing solutions that improve clinical outcomes and patient safety

✓ 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

Connex® SpotMonitor

# Of Minutes ToScan All Vitals

Within Acute CareSettings

U.S. AutomatedVitals Market


Spot™Vision Screener

✓ 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%

RetinaVue™ Network

Children WithVision Disorders

Children ScreenedPrior To Kindergarten

U.S. MarketPotential

Americans With Diabetes

Contract DiabeticRetinopathy

Recurring RevenueU.S. Market Potential


Welch Allyn® HomeHypertension

✓ Delivering clinically accurate connected blood pressure device for home use

✓ Enabling patients to track and communicate readings with mobile applications

✓ Incorporating a free and cloud-based system to ease clinician's review of data

✓ Elevating patient quality-of-life with portable, Bluetooth enabled vest

✓ Increasing therapy compliance with increased flexibility from mobility freedom

✓ Enhancing connected care discussions and early interventions via connectivity options

Monarch™Airway Clearance System

U.S. Blood PressureDevices Sold Annually

U.S. PhysicianOffices

U.S. ExistingMarket

U.S. Cystic FibrosisPatients

U.S. BronchiectasisPatients

U.S. HRCWOMarket

Trusted Device Patient Application Clinical Portal


Integrated TableMotion

✓ Delivering seamless system for table adjustments during robotic-assisted surgical procedures

✓ Enhancing safety and efficiency in the operating room

✓ Incorporating technology to improve hospital efficiency and information flow

✓ Optimizing the lighting environment at all times during surgery

✓ Improving safety and efficiency by eliminating the need for manual lighting adjustments

✓ Driving innovation with streamlined design and options for additional integration features

iLED™ 7Surgical Light

U.S. Acute CareOperating Rooms

Annual MarketGrowth Rate

Global SurgicalEquipment Market


Q2 2018 Q2 YTD 2018

RevenueRev.

GrowthCC

GrowthRevenue

Rev. Growth

CC Growth

U.S. $248.7 (5.5%) (5.5%) $492.3 (3.8%) (3.8%)

OUS $106.3 +6.5% (2.0%) $197.1 +5.6% (2.0%)

Total $355.0 (2.2%) (4.5%) $689.4 (1.2%) (3.3%)

Frames & Surfaces

Rental & Service

Specialty Beds

MedSurgBeds

CWS & Patient Handling

Other PSS

Clinical Workflow Solutions Patient Handling

$1,424MFY 2017

Diversified Portfolio Drives Stable, Long-Term Growth

($ in millions)


Thermometry

& Blood Pressure

Vital SignsPhysical Assessment

Respiratory

Other FLC

$885MFY 2017

Significant Opportunity To Drive Commercial Value And Innovation

Physical Assessment Vital Signs Respiratory Care

Q2 2018 Q2 YTD 2018

RevenueRev.

GrowthCC

GrowthRevenue

Rev. Growth

CC Growth

U.S. $162.9 +10.9% +10.9% $321.1 +9.0% +9.0%

OUS $75.0 +17.0% +10.1% $141.4 +19.6% +13.3%

Total $237.9 +12.7% +10.7% $462.5 +12.0% +10.2%

($ in millions)


OR Tables & Lights

OR Booms, Pendants &

Other

Patient Positioning

Other OR Consumables

Blades & Scalpels

$435MFY 2017

Accelerating Long-Term Global Growth Of Strong, Innovative Portfolio

Operating Tables Operating Lights Consumables

Q2 2018 Q2 YTD 2018

RevenueRev.

GrowthCC

GrowthRevenue

Rev. Growth

CC Growth

U.S. $54.4 +5.4% +5.4% $105.3 +3.6% +3.6%

OUS $63.2 +18.4% +5.8% $123.0 +18.5% +7.7%

Total $117.6 +12.0% +5.6% $228.3 +11.1% +5.7%

($ in millions)

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