Hill-Rom Caps Off Successful Fiscal 2016 With Fourth Quarter Financial Results Exceeding Guidance

CHICAGO, Nov. 3, 2016 /PRNewswire/ -- Hill-Rom Holdings, Inc., (NYSE: HRC) today announced strong financial results for its fiscal fourth quarter and full-year ended September 30, 2016, and provided its fiscal first quarter and full-year 2017 financial outlook.

For the fourth quarter, Hill-Rom reported earnings of $0.77 per diluted share compared to a loss of $0.16 per diluted share in the prior-year period. On an adjusted basis, earnings of $1.18 per diluted share rose 33 percent from $0.89 per diluted share in the prior-year period, exceeding the company's previously-issued guidance of $1.12 to $1.14 per diluted share. These results reflect diversified revenue growth, continued gross margin expansion and disciplined cost management.  Adjustments to reported earnings are detailed in the reconciliation schedules provided.

"Our fourth quarter financial performance capped off a successful year for our company," said John J. Greisch, president and chief executive officer of Hill-Rom. "In 2016, we achieved our strategic objectives, exceeded our operating margin and earnings guidance and established a solid foundation for the future.  We will build on this success by driving sustainable growth across a more diversified portfolio with disciplined focus on commercial and operational execution, as well as enhancing value for patients, customers and shareholders."

Fourth Quarter Financial Results

Worldwide revenue in the fourth quarter of $706 million grew 23 percent (or 24 percent on a constant currency basis) compared to the prior-year period. On a pro forma constant currency basis, revenue increased 1 percent. Domestic revenue of $497 million advanced 29 percent (or 5 percent on a pro forma basis), while revenue outside the United States of $209 million increased 10 percent (or on a pro forma constant currency basis, declined 8 percent). Pro forma revenue reflects the inclusion of Welch Allyn in both the current and prior-year periods. By reporting segment:

• North America Patient Support Systems: North America revenue of $290 million advanced 5 percent on a reported and constant currency basis.
• International Patient Support Systems: International revenue of $92 million declined 12 percent on a reported basis, and declined 11 percent on a constant currency basis.
• Front Line Care: Front Line Care, which includes Welch Allyn and Respiratory Care, generated revenue of $212 million. On a pro forma constant currency basis, Front Line Care revenue increased 6 percent.
• Surgical Solutions: Surgical Solutions revenue of $112 million declined 6 percent on a reported basis, and declined 5 percent on a constant currency basis.

Gross margin expanded by 440 basis points to 49.1 percent, while operating margin improved to 13.2 percent.  On an adjusted basis, gross margin expanded by 260 basis points to 49.2 percent and operating margin expanded by 400 basis points to 18.6 percent.  Adjustments to gross margin and operating margin are detailed in the reconciliation schedules provided.  

Full-Year 2016 Financial Results

For the fiscal full-year 2016, Hill-Rom reported earnings of $1.86 per diluted share compared to $0.82 per diluted share in the prior-year period. On an adjusted basis, earnings of $3.38 per diluted share rose 28 percent from $2.64 per diluted share in the prior-year period.

Worldwide revenue for the fiscal year of $2.66 billion grew 34 percent (or 35 percent on a constant currency basis) compared to the prior-year period. On a pro forma constant currency basis, revenue grew 3 percent compared to the prior year. Domestic revenue of $1.83 billion advanced 44 percent (or 8 percent on a pro forma basis), while revenue outside the United States of $826 million increased 15 percent (or on a pro forma constant currency basis, declined 7 percent).

Gross margin expanded by 300 basis points to 47.3 percent, while operating margin improved to 8.7 percent.  On an adjusted basis, gross margin expanded by 280 basis points to 48.1 percent and operating margin expanded by 350 basis points to 15.3 percent.

Fiscal full-year 2016 operating cash flow increased $67 million, or 32 percent, to $281 million, a new record level for the company.  As a result of strong cash flow generation, the company contributed $30 million to its pension and reduced debt by $101 million during the year, while returning $44 million to shareholders in the form of dividends.

Fiscal Year 2016 Highlights

Complementing the company's strong financial performance were a number of significant achievements, including:

• Successfully integrating Welch Allyn, following the acquisition in September 2015, resulting in a combined organization with greater diversification, scale, resources and broader geographic reach to drive improved patient care, lower costs and efficiencies for customers.
• Investing in innovative products and service solutions while capitalizing on a number of product introductions to drive accelerated future growth, such as:
  • Integrated Table Motion for the da Vinci® Xi® Surgical System in the United States in collaboration with Intuitive Surgical. The surgical system and table seamlessly integrate allowing surgeons and anesthesiologists – for the first time – to make a comprehensive range of table adjustments easily and efficiently during da Vinci Surgery.
  • Welch Allyn® RetinaVue™ 100 Imager, a breakthrough handheld technology which makes diabetic retinopathy screening simple and affordable for primary care settings. Diabetic retinopathy is the leading cause of blindness among working-age adults because it often goes undetected. With early detection and treatment, as much as 95 percent of vision loss cases can be prevented^1.
  • Welch Allyn Connex® Spot Monitor, an easy-to-use, full-color, touchscreen monitor that provides comprehensive and accurate patient vital signs (blood pressure measurement, pulse oximetry for assessing respiratory conditions, and thermometry) documentation using a single device.
  • VisiVest™ Airway Clearance System, a connected therapeutic solution for patients with chronic lung disease that is designed to help inform decisions caregivers make for their patients, resulting in reduced risk of respiratory infections, hospitalizations and medical costs.
• Creating new strategic partnerships including the exclusive global distribution agreement with Haldor Advanced Technologies, Ltd. to market its leading ORLocate® suite of products and technology. The ORLocate® patented solution is an innovative, inter-operable system that leverages radio frequency identification (RFID) technology to track, manage, and analyze sponges and surgical instruments during and post-surgical procedures, improving patient safety and operational efficiency for hospital customers.
• Optimizing Hill-Rom's global manufacturing network and driving efficiencies with the initiation or completion of several manufacturing facility closures. In addition, the company's recent acquisition of Tridien Medical, a manufacturer and developer of support surfaces and patient positioning devices, allows for insourcing of a significant supply function that is expected to further streamline supply chain operations.
• Enhancing the company's product portfolio with the divestiture of non-core products, including WatchChild, an integrated perinatal data management system. This divestiture, along with others contemplated for 2017, allows the company to direct resources, investment and focus to strategic, core growth platforms.

"We are proud of our accomplishments and the dedication demonstrated by our employees in enhancing outcomes for patients and caregivers around the world," Mr. Greisch continued. "We enter 2017 with continued confidence in our solid growth prospects, delivering sustainable and profitable long-term growth and providing attractive returns for shareholders." 

2017 Financial Outlook

For the full-year, Hill-Rom expects revenue growth of approximately 3 percent on both a reported and constant currency basis, and adjusted earnings per diluted share of $3.74 to $3.82. Hill-Rom also expects to generate $330 to $340 million in operating cash flow (including the outflows associated with ongoing restructuring and integration activities).  

For the first quarter 2017, Hill-Rom expects revenue growth to be approximately flat on both a reported and constant currency basis, and adjusted earnings per diluted share of $0.75 to $0.77.

Discussion of Adjusted Financial Measures

Hill-Rom Holdings, Inc. routinely provides gross margin, operating margin and earnings per share results and guidance on an adjusted basis because the company's management believes these measures contribute to an understanding of our financial performance and provide additional analytical tools to understand our results from core operations and reveal underlying trends. These measures exclude strategic developments, acquisition and integration costs, special charges or other unusual events. The company also excludes expenses associated with the amortization of intangible assets associated with prior business acquisitions. These adjustments are made to allow investors to evaluate and understand operating trends excluding the non-cash impact of acquired intangible amortization on operating income and earnings per share.   

Management uses these measures internally for planning, forecasting and evaluating the performance of the business. Investors should consider non-GAAP measures in addition to, not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP.

Reconciliations of GAAP measures to adjusted measures appear in the financial tables of this release.  Management does not include adjusted items in forward looking measures because some of these items can be highly variable and cannot be reasonably predicted. As such, prospective quantification of such items is not feasible and a reconciliation of non-GAAP earnings per share guidance to GAAP earnings per share has not been provided. 

The company also presents certain results on a constant currency basis. Constant currency information compares results between periods as if foreign currency exchange rates had remained consistent period-over-period. Management monitors sales performance on an adjusted basis that eliminates the positive or negative effects that result from translating international sales into U.S. dollars. Management calculates constant currency by applying the foreign currency exchange rate for the prior period to the local currency results for the current period.

Conference Call Webcast and Dial-in Information

As previously announced, the company will host a conference call and webcast today beginning at 7:30 CT or 8:30 a.m. ET.

Webcast: To join the live webcast with audio on November 3, visit http://ir.hill-rom.com/events.cfm. The webcast slide deck will be posted to the Hill-Rom website prior to the webcast.

Conference Call Audio Only Dial-in information:  To join the live conference call, dial 877-868-1829 domestic callers / 631-291-4543 international callers.  The following Confirmation Code is required for both: 85442817.  Callers will need to provide their name, company affiliation and telephone number to the conference operator.

A recording of the webcast/call audio will be available for telephone replay through November 10, 2016.  To access the replay, dial 855-859-2056 domestic callers / 404-537-3406 international callers.  For the replay, callers will need to use Confirmation Code 85442817.  If you are unable to listen to the live webcast or the telephone replay, the webcast will be archived at http://ir.hill-rom.com/events.cfm.

ABOUT HILL-ROM HOLDINGS, INC.

Hill-Rom is a leading global medical technology company with 10,000 employees worldwide. We partner with health care providers in more than 100 countries by focusing on patient care solutions that improve clinical and economic outcomes in five core areas: Advancing Mobility, Wound Care and Prevention, Patient Monitoring and Diagnostics, Surgical Safety and Efficiency and Respiratory Health. Around the world, Hill-Rom's people, products, and programs work towards one mission: Every day, around the world, we enhance outcomes for patients and their caregivers. Visit www.hill-rom.com for more information.

Disclosure Regarding Forward Looking Statements

Certain statements herein contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, regarding the company's future plans, objectives, beliefs, expectations, representations and projections. It is important to note that forward-looking statements are not guarantees of future performance, and the company's actual results could differ materially from those set forth in any forward-looking statements. 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. The company assumes no obligation to update or revise any forward-looking statements.

¹ Facts About Diabetic Eye Disease; The National Eye Institute (NEI); https://nei.nih.gov/health/diabetic/retinopathy

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