first quarter 2018 financial results · numbers in the appendix to this presentation *core revenue...

First Quarter 2018 Financial Results

January 26, 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, 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.

Q1 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 12/31/2017

Market Capitalization

$92

$134

2015 2017

4.6% of revenue

4.9% of revenue $5.5B

$7.6B

+51%

$97M

LTM Total Shareholder Return

Enterprise Value

Fiscal 2017 Returned to Shareholders*

ValueTransforming to drive sustainable profitable growth and shareholder value

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


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 23% to $0.92

• Increasing full-year adjusted EPS guidance to $4.57 to $4.65 per diluted share, including positive

contribution from new U.S. tax reform legislation of $0.30 per diluted share

Innovating to enhance outcomes for patients and their caregivers• Launching Centrella™ Smart+ bed in the U.S. and Canada, optimizing safety, satisfaction and efficiency;

and TruSystem™ 7500 MR Neuro Surgical Table, for better patient treatment and surgical workflow

• 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, driving accretive gross margin and realizing synergy benefits

• 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 Q1 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 (third-party rental and third-party surfaces), and Mortara

Q1 2018 Financial Summary


2%Core*

Growth

Q1 2017 Q1 2018

+31%Growth

+23%Growth

+10BPS

Q1 2017 Q1 2018Q1 2017 Q1 2018

Exceeding Q1 2018 Revenue and Adjusted EPS Guidance

$637M

$670M

14.6%

14.7%$0.75

$0.92

Q1 2017 Q1 2018

$71M

$93M

OperatingMargin

RevenueEarnings Per Share

OperatingCash Flow

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 (third-party rental and third-party surfaces), and Mortara


Driving 10th Consecutive Quarter Of Double-Digit Adjusted EPS Growth

Fiscal First Quarter

Adjusted P&L 2017 2018 YOY Change

Revenue $637M $670M

Gross Margin 47.5% 47.7% +20 bps

Operating Margin 14.6% 14.7% +10 bps

Adjusted EPS $0.75 $0.92 +23%

+3%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 *Core revenue excludes foreign currency, divestitures, exit of non-strategic assets (third-party rental and third-party surfaces), and Mortara


Q1 2018

Building momentum with new products like Centrella, Envella and Accella

Growing U.S. core bed portfolio MSD

Improving international trends in Middle East, Europe and Canada

Accelerating exit of low-margin third-party rental and third-party surfaces

Exceeding expectations with Integrated Table Motion adoption

Continuing strong international growth

Introducing new TruSystem™ 7500 MR Neuro Surgical Table

Advancing innovation and partnerships to drive future growth

Capitalizing on 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 (third-party rental and third-party surfaces), and Mortara

Q1 2018 Q1 2018


+20 bpsGross Margin Expansion

Offsetting Temporary Margin Headwinds With New Products, Portfolio Diversification And Ongoing Optimization Initiatives

14.6% 14.7%

Q1 2017 GMExpansion

OpexLeverage

Q1 2018

47.5% 47.7%

Q1 2017 Mix Surgical& Rental*

Q1 2018

Adjusted Gross Margin Adjusted Operating Margin

+90 bps +20 bps

(10) bps

+10 bpsOperating Margin Expansion

(70) 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 *Includes impact from hurricane related expenses


$0.75

$0.92

Q1 2017 Q1 2018

$0.92Adjusted Earnings Per Diluted Share

Exceeding Expectations With 23% 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 growth excludes foreign currency, divestitures, exit of non-strategic assets (third-party rental and third-party surfaces), and Mortara

+23% growth

• Solid core revenue* growth of 2%

• Offsetting temporary headwinds with margin improvement from new products and portfolio optimization

• Strategic investments within R&D and SG&A to drive future growth

• Positive benefit from new U.S. tax reform legislation, resulting in benefit of $0.06 per diluted share


Capital Allocation Priorities

• Reducing debt levels

• Re-investing in business (R&D and CapEx)

• Delivering 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

Strong Cash Flow GenerationUS$ Millions

$71

$49

$93

$66

OperatingCash Flow

FreeCash Flow

Q1 2017

Q1 2018

+31% GrowthQ1 2018 Operating Cash Flow

~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


18% - 20%Growth in

Adjusted EPS

~100 bpsOperating Margin

Expansion

~3%Core Revenue

Growth*

Raising 2018 Adjusted EPS And Cash Flow Guidance

Adjusted P&L

2018 Outlook

Prior

2018 OutlookCurrent

Revenue Growth

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

Gross Margin +50 bps +50 bps

Operating Margin +100 bps +100 bps

Adjusted EPS $4.22 - $4.30 $4.57 - $4.65

Operating Cash Flow $330M - $340M ~$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 (third-party rental and third-party surfaces), 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

~FlatLow-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 (third-party rental and third-party surfaces), and Mortara prior to the anniversary date of the acquisition


Q2 2018 Outlook Reflects:

• Continuing core momentum and benefit from new products

• Annualizing Mortara acquisition

• Anticipating higher margins:

✓ Higher revenue

✓ Improved surgical margins

✓ Mortara synergy benefits

✓ Cost and business optimization initiatives savings

Adjusted P&LQ2 2018Outlook

Revenue Growth ~4%Reported

Revenue Growth

Adjusted EPS $1.00 - $1.02

Solid Revenue Growth And Operating Leverage Driving Adjusted EPS Growth

~2%Constant

~ 2%Core*

*Core revenue excludes foreign currency, divestitures, exit of non-strategic assets (third-party rental and third-party surfaces), and Mortara prior to the anniversary date of the acquisition

2020 Long-Range Plan Update(Updated For Benefit Of New U.S. Tax Reform Legislation)


12% - 14% Growth in

Adjusted EPS

300+ bpsOperating Margin

Expansion

4% - 5%Core Revenue

Growth*

Adjusted P&L

2020Outlook

Prior

2020 OutlookCurrent

Revenue Growth(constant) 3% - 4% CAGR 3% - 4% CAGR

Gross Margin ~50% ~50%

Operating Margin 19% - 20% 19% - 20%

Adjusted EPS Growth 10% - 12% CAGR 12% - 14% CAGR

Operating Cash Flow$1.1B+

[2018 - 2020]

~$1.2B[2018 - 2020]

Capital Expenditures~$350M[2018 - 2020]

~$350M[2018 - 2020]

Updating 2020 Outlook To Reflect New U.S. Tax Reform Legislation

Note: Adjusted gross margin, operating margin and EPS are non-GAAP measures. See reconciliation to reported GAAP numbers in the appendix to this presentation; CAGR calculated 2017 - 2020; 2017 - 2020 outlook assumes an effective tax rate of ~24% and diluted shares of ~68 million *Core revenue excludes foreign currency, divestitures and exit of non-strategic

assets (third-party rental and third-party surfaces); collectively, 2017 divestitures and non-strategic revenue totaled ~$100M


Note: Leverage calculated as Total Debt divided by EBITDA as defined in Hill-Rom’s compliance certificate

Capital Allocation Priorities

• Reducing debt levels

• Re-investing in business (R&D and CapEx)

• Increasing dividends

• 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

Enhancing Cash Flow By ~$50M Related To New U.S. Tax Reform Legislation

Strong Cash Flow GenerationUS$

<2.5xLeverage by 2020

~$1.2B Cumulative 2018 - 2020 Operating Cash Flow

CumulativeOperatingCash Flow

CumulativeCapEx

Cumulative FreeCash Flow

~$1.2B ~$350M

~$850M


OperatingMargin

2017 2020Outlook

2017 2020Outlook

2017 2020Outlook

2015 - 2017Cumulative

2018 - 2020Cumulative

Outlook

+12% - 14%CAGR

+12% - 14%CAGR

300+BPS

+4% - 5%Core

CAGR*

Compelling Strategy To Create Value For Shareholders

Revenue

$2.7B+

$3.0B+

EarningsPer Share

OperatingCash Flow

$806M

~$1.2B

16.3%

19% - 20%

$3.86

$5.40 - $5.70

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; CAGR calculated 2017 - 2020; *Core revenue excludes foreign currency, divestitures and exit of non-strategic assets (third-party rental and third-party surfaces);

collectively, 2017 divestitures and non-strategic revenue totaled ~$100M

Revenue Schedules


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

Patient Support Systems 243.6$ 90.8$ 334.4$ 248.4$ 86.8$ 335.2$ -1.9% 4.6% -0.2% -1.9% -2.0% -1.9%

Front Line Care 158.2 66.4 224.6 147.7 54.1 201.8 7.1% 22.8% 11.3% 7.1% 17.0% 9.8%

Surgical Solutions 50.9 59.8 110.7 50.0 50.4 100.4 1.8% 18.6% 10.3% 1.8% 9.7% 5.8%

Total Hill-Rom 452.7$ 217.0$ 669.7$ 446.1$ 191.3$ 637.4$ 1.5% 13.4% 5.1% 1.5% 6.5% 3.0%

Q1 2018 Q1 2017 % Growth @ Actual Rates % Growth @ Constant Rates


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


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%


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%



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



AppendixReconciliations of Non-GAAP Disclosures


US

As Constant As As Constant

2017 2016 Reported Currency Reported Reported Currency

Product Sales and Service 575.2$ 541.9$ 6.1% 3.8% 2.2% 13.9% 7.0%

Rental 94.5 95.5 (1.0%) (1.9%) (1.8%) 4.7% (2.9%)

Total 669.7$ 637.4$ 5.1% 3.0% 1.5% 13.4% 6.5%

US

As Constant As As Constant

2017 2016 Reported Currency Reported Reported Currency

Patient Support Systems 334.4$ 335.2$ (0.2%) (1.9%) (1.9%) 4.6% (2.0%)

Front Line Care 224.6 201.8 11.3% 9.8% 7.1% 22.8% 17.0%

Surgical Solutions 110.7 100.4 10.3% 5.8% 1.8% 18.6% 9.7%

Total 669.7$ 637.4$ 5.1% 3.0% 1.5% 13.4% 6.5%

OUS

Quarter Ended December 31

OUS


($ in millions)

2017 2016

Selling and Administrative Expenses (As Reported) 221.7$ 208.8$

Acquisition and integration costs (2.4) (6.0)

Acquisition-related intangible asset amortization (26.7) (25.5)

Litigation settlements and expenses (4.0) -

Selling and Administrative Expenses (Adjusted) 188.6$ 177.3$

Selling and Administrative Expenses (Adjusted) As Percent of Total Revenue 28.2% 27.8%

Year Over Year % Change 6.4%

Year Over Year Change 40 bps

Quarter Ended December 31


Gross

Margin

Operating

Margin1

Income

Before

Income

Taxes

Income Tax

Expense

Diluted

EPS1

Gross

Margin

Operating

Margin

Income

Before

Income

Taxes

Income Tax

Expense

Diluted

EPS1

GAAP Basis 47.7% 7.9% 30.8$ (57.5)$ 1.31$ 47.5% 8.8% 35.3$ 11.8$ 0.36$

Adjustments:

Acquisition and integration costs - 0.4% 2.4 0.6 0.03 - 0.9% 6.0 2.2 0.06

Acquisition-related intangible asset amortization - 4.0% 26.7 6.6 0.30 - 4.0% 25.5 8.3 0.26

Litigation settlements and expenses - 0.6% 4.0 1.1 0.04 - - - - -

Special charges - 2.0% 13.5 3.5 0.15 - 0.9% 5.8 1.9 0.06

Tax law changes - - - 60.3 (0.89) - - - (2.2) 0.03

Gain on disposition - - (1.0) - (0.01) - - (1.0) (0.4) (0.01)

Adjusted Basis 47.7% 14.7% 76.4$ 14.6$ 0.92$ 47.5% 14.6% 71.6$ 21.6$ 0.75$

1 Total does not add due to rounding.

Quarter Ended December 31, 2016Quarter Ended December 31, 2017


Gross

Margin

Operating

Margin1

Income

Before

Income

Taxes

Income

Tax

Expense

Diluted

EPS

Gross

Margin

Operating

Margin

Income

Before

Income

Taxes

Income

Tax

Expense

Diluted

EPS1

GAAP Basis 48.1% 10.0% 183.0$ 50.7$ 1.99$ 47.3% 8.7% 138.3$ 15.5$ 1.86$

Adjustments:

Acquisition and integration costs 0.2% 0.9% 23.5 9.7 0.21 0.8% 1.5% 38.9 11.3 0.41

Acquisition-related intangible asset amortization - 4.0% 108.4 34.2 1.10 - 3.6% 95.9 31.7 0.96

Field corrective actions - - - (0.2) - - - 0.2 (0.1) -

Litigation settlements and expenses - -0.3% (9.4) (3.4) (0.09) - - - - -

Special charges - 1.9% 52.5 10.3 0.63 - 1.5% 39.9 13.4 0.40

Foreign tax law change - - - (2.2) 0.03

Foreign valuation allowance - - - - - - - - 19.5 (0.29)

Debt refinancing - - - - - - - 12.9 4.7 0.12

Gain on disposition - - (1.0) (0.4) (0.01) - - (10.1) (3.7) (0.10)

Adjusted Basis 48.3% 16.3% 357.0$ 98.7$ 3.86$ 48.1% 15.3% 316.0$ 92.3$ 3.38$

1 Total does not add due to rounding.

Year to Date Ended September 30, 2016Year to Date Ended September 30, 2017

AppendixOther Supplementary Schedules


Rental & Service

Specialty Beds

MedSurgBeds

CWS & Patient Handling

Other PSS

Frames & Surfaces Clinical Workflow Solutions Patient HandlingFrames & Surfaces Clinical Workflow Solutions Patient Handling

Q1 2017 Revenue

Q1 2018Revenue

ReportedGrowth

Constant Currency Growth

U.S. $248.4 $243.6 (1.9%) (1.9%)

OUS $86.8 $90.8 +4.6% (2.0%)

Total $335.2 $334.4 (0.2%) (1.9%)$1,424M

FY 2017

Diversified Portfolio Drives Stable, Long-Term Growth

($ in millions)


Thermometry& Blood Pressure

Vital SignsPhysical Assessment

Respiratory

Other FLC

Q1 2017 Revenue

Q1 2018Revenue

ReportedGrowth

Constant CurrencyGrowth

U.S. $147.7 $158.2 +7.1% +7.1%

OUS $54.1 $66.4 +22.8% +17.0%

Total $201.8 $224.6 +11.3% +9.8%$885M

FY 2017

Significant Opportunity To Drive Commercial Value And Innovation

Physical Assessment Vital Signs Respiratory Care

($ in millions)


OR Tables & Lights

OR Booms, Pendants &

Other

Patient Positioning

Other OR Consumables

Blades & Scalpels

Q1 2017 Revenue

Q1 2018Revenue

ReportedGrowth

ConstantCurrencyGrowth

U.S. $50.0 $50.9 +1.8% +1.8%

OUS $50.4 $59.8 +18.6% +9.7%

Total $100.4 $110.7 +10.3% +5.8%$435M

FY 2017

Accelerating Long-Term Global Growth Of Strong, Innovative Portfolio

Operating Tables Operating Lights Consumables

($ in millions)

first quarter 2018 financial results · numbers in the appendix to this presentation *core revenue...

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