Halyard Health, Inc. Announces First Quarter 2018 Results

Performance was driven by increased demand in interventional pain, digestive health and respiratory health as volumes increased 6 percent and favorable currency exchange rates benefited sales by 1 percent.

Operating loss was $7 million compared to a loss of $18 million in 2017. Volume growth and lower expenses related to excluded items helped drive performance. On an adjusted basis, operating profit was $2 million compared to a loss of $2 million in 2017.

As a result of the previously announced divestiture, the S&IP segment operating results are reflected as discontinued operations for all periods presented. Treating S&IP as discontinued operations results in significant shared overhead costs previously allocated to the S&IP business that are now included in continuing operations. Included in first quarter continuing operations are costs previously allocated to S&IP of $28 million in 2018 and$29 million in 2017.

Adjusted operating profit for the first quarter excludes $3 million of restructuring and IT charges, $2 million for litigation matters and $5 million of intangible amortization expense.

Adjusted EBITDA for the first quarter, excluding divestiture-related charges, restructuring and IT charges, and litigation expenses was, $59 million compared to $53 million in the prior year.

Cash Flow and Balance Sheet

Total debt at the end of the first quarter was $542 million, consisting of a secured term loan and unsecured notes, compared to $581 million at the end of 2017. The decrease in total debt was due to the $40 million repayment of the secured term loan, as required in the company's credit agreement for excess cash generation in the prior year.

Cash from operations less capital expenditures, or free cash flow, for the quarter was $17 million compared to $27 million a year ago. The decrease was primarily due to changes in working capital. The company's cash balance was $203 million at the end of the quarter, compared to $220 million at the end of 2017.

Discontinued Operations

First quarter net sales from discontinued operations were $264 million, a 6 percent increase, compared to the first quarter a year ago. On a constant currency basis, sales were up 4 percent. Five percent volume growth was driven by continued strong demand for exam gloves and an increase in facial protection due to the cold and flu season. Volume growth was partially offset by 2 percent lower selling prices, concentrated in exam gloves. Adjusted net income for the quarter totaled $41 million compared to $28 million in the prior year.

2018 Key Planning Assumptions

For the full-year 2018, the company expects to earn adjusted diluted earnings per share of $1.65 to $1.85, which includes earnings from both continuing and discontinued operations. Additionally, the key planning assumptions that it provided on its Year-End 2017 conference call remain unchanged.

Non-GAAP Financial Measures

This press release and the accompanying tables include the following financial measures that have not been calculated in accordance with accounting principles generally accepted in the U.S., or GAAP, and are therefore referred to as non-GAAP financial measures:

• Adjusted net income 
• Adjusted diluted earnings per share 
• Adjusted gross and operating profit 
• Adjusted effective tax rate 
• Adjusted EBITDA 
• Free cash flow

These non-GAAP financial measures exclude the following items, as applicable, for the relevant time periods as indicated in the accompanying non-GAAP reconciliations to the comparable GAAP financial measures:

• Expenses associated with the divestiture of the S&IP business and the corporate restructuring and IT transformation costs.
• Prior year transition costs relating to the separation from Kimberly-Clark Corporation, which included costs to establish Halyard Health's capabilities as a stand-alone entity. These costs are related primarily to rebranding and other supply chain transition costs.
• Expenses associated with the amortization of intangible assets associated with prior business acquisitions.
• The positive or negative effect of changes in currency exchange rates during the year.
• Expenses associated with certain litigation matters.
• Certain prior year acquisition and integration charges related to the acquisition of CORPAK MedSystems, Inc.
• Prior periods impact of tax regulatory changes.

The company provides these non-GAAP financial measures as supplemental information to our GAAP financial measures. Management and the company's Board of Directors use net sales on a constant currency basis, adjusted net income, adjusted diluted earnings per share, adjusted operating profit, adjusted EBITDA, and free cash flow to (a) evaluate the company's historical and prospective financial performance and its performance relative to its competitors, (b) allocate resources and (c) measure the operational performance of the company's business units and their managers. Management also believes that the use of an adjusted effective tax rate provides improved insight into the tax effects of our ongoing business operations.

Additionally, the Compensation Committee of the company's Board of Directors will use certain of the non-GAAP financial measures when setting and assessing achievement of incentive compensation goals. These goals are based, in part, on the company's net sales on a constant currency basis and adjusted EBITDA, which will be determined by excluding certain items that are used in calculating these non-GAAP financial measures.

Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the attached financial tables.

Conference Call Webcast

Halyard Health, Inc. will host a conference call today at 9 a.m. ET. The conference call can be accessed live over the internet at https://halyardhealth.investorroom.com or via telephone by dialing 877-240-5772 in the United States. A replay of the call will be available at noon ET today by calling 877-344-7529 in the United States and entering passcode 10118578. A webcast of the call will also be archived in the Investors section on the Halyard website.

About Halyard Health

Halyard Health (NYSE: HYH) is a medical technology company focused on delivering clinically superior breakthrough medical device solutions to improve patients' quality of life. Headquartered in Alpharetta, Georgia, Halyard is committed to addressing some of today's most important healthcare needs, such as reducing the use of opioids while helping patients move from surgery to recovery. Halyard develops, manufactures and markets its recognized brands in more than 90 countries. For more information, visit www.halyardhealth.com.

Forward-Looking Statements

This press release contains information that includes or is based on "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on the current plans and expectations of management and are subject to various risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in such statements. Forward-looking statements include all statements that do not relate solely to historical or current facts, and can generally be identified by the use of words such as "may", "believe", "will", "expect", "project", " estimate", "anticipate", "plan", or "continue" and similar expressions, among others. Such factors include, but are not limited to: weakening of economic conditions that could adversely affect the level of demand for our products; pricing pressures generally, including cost-containment measures that could adversely affect the price of or demand for our products; S&IP separation execution; changes in foreign exchange markets; legislative and regulatory actions; unanticipated issues arising in connection with clinical studies and otherwise that affect U.S. Food and Drug Administration approval of new products; changes in reimbursement levels from third-party payors; a significant increase in product liability claims; the impact of investigative and legal proceedings and compliance risks; the impact of the federal legislation to reform the United States healthcare system; changes in financial markets; and changes in the competitive environment. Additional information concerning these and other factors that may impact future results is contained in our filings with the U.S. Securities and Exchange Commission, including our most recent Form 10-K and Quarterly Reports on Form 10-Q.

HALYARD HEALTH, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
(unaudited)
(in millions, except per share amounts)
	Three Months Ended March 31,
	2018				2017			Change
Net Sales	$	156.4			$	145.7		7.3		%
Cost of products sold	65.3				64.2			1.7
Gross Profit	91.1				81.5			11.8
Research and development expenses	9.9				7.3			35.6
Selling and general expenses	86.4				84.8			1.9
Other expense, net	1.8				7.0			N.M.
Operating Loss	(7.0)				(17.6)			(60.2)
Interest income	1.0				0.4			N.M.
Interest expense	(8.8)				(7.6)			15.8
Loss Before Income Taxes	(14.8)				(24.8)			(40.3)
Income tax benefit	3.5				9.9			(64.6)
Loss from Continuing Operations	(11.3)				(14.9)			(24.2)
Income from discontinued operations, net of tax	31.5				27.7			N.M.
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