J.P. MORGAN HEALTHCARE CONFERENCEJ.P... · Owens & Minor, Inc. • Includes Halyard brand name and current IT platform • Net after-tax proceeds of approximately $600 million* •

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J.P. MORGAN HEALTHCARECONFERENCE

Joe WoodyChief Executive Officer

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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, productdevelopment 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 (www.halyardhealth.com/investors). J.P. Morgan Healthcare Conference

J.P. Morgan Healthcare Conference

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Focused Medical Devices company to deliver superior returns

Dual-track growth strategy focused on M&A and product

development

Pure-play Medical Devices company

in attractive end markets

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


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Halyard’s evolution to a focused Medical Devices company

$502 $510

$567$600

20.8% 21.2%

21.8%

24.9%

19.0%

21.0%

23.0%

25.0%

$450

$500

$550

$600

$650

2014A 2015A 2016A LTM 9/30/17A

Medical Devices Net Sales Operating Profit Margin

($ in millions)

…Underpinned by strong business momentum in Medical Devices

2015 2016 2017

• 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

Formation of Halyard…


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Multi-year transformation accelerated with S&IP sale

• Announced sale of S&IP for $710 million to Owens & Minor, Inc.

• Includes Halyard brand name and current IT platform

• 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 Q1 2018

Transaction Overview Closing

• 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

TSAsUse of Proceeds

Transaction Overview

Separation and close progressing as planned

*Reflects recent tax legislation


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M&A to Accelerate Growth and Build Scale

2017: Execution 2018: Separation 2019: Transformation 2020-21: Acceleration

Organizational Optimization New Name & Brand Identity

New Organizational Structure

Transform IT Landscape / TSAs

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Restructuring

Supply Chain/Distribution Optimization

Elimination of Stranded Costs and Dis-synergies

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Growth Execution

Organic Growth Driven by Innovation

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Business drivers behind Halyard’s future value creation

End State

“Right-Sized” Organization

Scalable Infrastructure

Accelerated Growth

Margin Accretion

Investment For Growth

International Growth

Breakthrough Products

Enhanced Performance Through Commercial Excellence


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Pain Management

Chronic Care

Positioned to win in core areas with attractive opportunities

Strong Position in Large Addressable Market Pain Management Overview Chronic Care Overview

$6.0 B

PainManagement

• 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

Medical Devices Sales

Q3 2017

Addressable Market

• 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

ChronicCare


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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

InterventionalPain

Pain Management: Market development and broadening relevance

Key Brands and Products

SurgicalPain

* Target based on the midpoint of guidance

Addressable Market: $4.5 B

Historical Sales Growth

-0.4

2.5

3.5

5.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

2014 2015 2016 2017E*

(%)

2014 2015 2016 2017T*


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DigestiveHealth

Chronic Care: Exploring adjacencies and investing in commercial capabilities

Key Brands and Products

RespiratoryHealth

* Target based on the midpoint of guidance

Addressable Market: $1.5 B

Historical Sales Growth

Strategic Priorities

• Pursuing complementary and transformational M&A

• Increasing product differentiation with technology

• Leveraging existing infrastructure

• Pursuing international growth as standard of care evolves

Key Growth Drivers

• Market growth and portfolio expansion

• International opportunities

• Alternate site expansion

• Commercial excellence

• Transformational M&A around minimally invasive treatments

2.2

3.23.8

5.0

0.0

1.0

2.0

3.0

4.0

5.0

2014 2015 2016 2017T*

(%)


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Accelerating growth through R&D and innovation

Historical R&D Spending (% of Net Sales)

3.54.5

5.95.3

2014 2015 2016 2017 LTM*

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

• Building strong R&D team through targeted device industry recruitment and M&A

• Delivering disciplined project execution, realizing ROI on breakthrough products in 2019-2020

• Historic R&D investment up from 3% to 5%, targeting above 6% with greater focus on transformative R&D

Investing in R&D

Increasing Product Launches in Devices

9 (2017)

5 (2016)

2 (2014)

3 (2015)

* Q3 2017


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Significant firepower for strategic M&A

$700 - $750 million in M&A capacity following S&IP divestiture and change in tax legislation

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

Strengthening capabilities following Corpak acquisition and S&IP divestiture


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Transformation to a right-sized, growing and scalable business

*as % of sales

Halyard Today Future Halyard

OrganicTop-line Growth:

Flat Mid-single digit

Gross Margin: Mid-30s Low-60s

R&D*: 5% >6%

SG&A* (ex. R&D)Post divestiture:

Low-40s Mid-30s

Operating Margin Growth:

Flat Growing

Multi-year Growth Drivers

Organic growth and gross profit drop-through

Cost take-outs ($30-$40 million in 2019-2021)

M&Aopportunities


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Focused Medical Devices company to deliver superior returns

Dual-track growth strategy focused on M&A and product

development

Pure-play Medical Devices company

in attractive end markets

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


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APPENDICES

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2017 outlook summary

Note: Guidance updates denoted in bold text.

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 DevicesIncludes 3% growth attributed to CORPAK 7% to 9% 7% to 9% 7% to 9%

S&IP, excluding sales to Kimberly-ClarkContemplates 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%

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Non-GAAP reconciliationsIn 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,

2017 2016 2017 2016 2017 2016 2017 2016

As reported $ 143.3 $ 138.0 $ 430.8 $ 415.2 $ 28.8 $ 20.9 $ 84.3 $ 71.6

Divestiture-related charges — — — — 8.1 — 8.1 —

Spin-related transition charges — 4.5 (1.6) 4.6 — 6.7 (0.8) 10.6

Acquisition-related charges 1.2 1.5 2.4 5.0 2.0 4.4 5.3 14.7

Litigation and legal — — — — 3.6 5.1 17.3 15.1

Intangibles amortization 1.0 0.8 2.9 2.3 5.3 5.6 16.1 16.5

As adjusted non-GAAP $ 145.5 $ 144.8 $ 434.5 $ 427.1 $ 47.8 $ 42.7 $ 130.3 $ 128.5

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,

2017 2016 2017 2016 2017 2016 2017 2016

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 8.1 — 8.1 — (3.1) — (3.1) —

Spin-related transition charges — 6.7 (0.8) 10.6 — (2.3) 0.2 (3.9)

Acquisition-related charges 2.0 4.4 5.3 14.7 (0.8) (1.7) (2.0) (5.6)

Litigation and legal 3.6 5.1 17.3 15.1 (1.3) (1.9) (6.5) (5.7)

Intangibles amortization 5.3 5.6 16.1 16.5 (2.0) (2.3) (6.0) (6.2)

Regulatory tax changes — — — — — — — 3.7

As adjusted non-GAAP $ 40.4 $ 34.5 $ 108.4 $ 104.3 $ (12.0) $ (11.8) $ (33.3) $ (35.3)

Effective tax rate, as adjusted 29.7% 34.2% 30.7% 33.8%

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Non-GAAP reconciliationsIn millions, except per share amounts

Net Income

Three Months Ended Nine Months Ended

September 30, September 30,

2017 2016 2017 2016

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 5.0 — 5.0 —

Spin-related transition charges — 4.4 (0.6) 6.7

Acquisition-related charges 1.2 2.7 3.3 9.1

Litigation and legal 2.3 3.2 10.8 9.4

Intangibles amortization 3.3 3.3 10.1 10.3

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



2017 2016 2017 2016

EBITDA, as reported $ 44.9 $ 37.5 $ 132.8 $ 120.0

Divestiture-related charges 8.1 — 8.1 —

Spin-related transition charges — 6.7 (0.8) 10.6

Acquisition-related charges 1.9 4.0 5.0 14.4

Litigation and legal 3.6 5.1 17.3 15.1

Adjusted EBITDA $ 58.5 $ 53.3 $ 162.4 $ 160.1

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Non-GAAP reconciliationsIn millions

Three Months Ended Nine Months Ended Twelve Months Ended

($ in millions) December 31, 2016 September 30, 2017 September 30, 2017

Medical Devices:

Net Sales $ 153.9 $ 445.7 $ 599.6

Operating Profit 33.2 116.3 149.5

Operating Profit Margin 21.6 % 26.1 % 24.9 %

Free Cash Flow



2017 2016 2017 2016

Cash provided by operating activities $ 23.4 $ 49.9 $ 80.1 $ 143.9

Capital expenditures (14.0) (7.6) (30.6) (21.7)

Free Cash Flow $ 9.4 $ 42.3 $ 49.5 $ 122.2

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Non-GAAP reconciliationsIn 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 $ 1.25

Documents

J.P. MORGAN HEALTHCARE CONFERENCEJ.P... · Owens & Minor, Inc. • Includes Halyard brand name and current IT platform • Net after-tax proceeds of approximately $600 million* •