Q4 2020 Hill-Rom Holdings Inc Earnings Call

[music].

Good morning, and welcome to heal.

Fourth quarter 2020 earnings conference call.

During the presentation, all participants will be in listen only mode.

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I would now like to turn the call over to Ms., Mary Kay Ludlum, Senior Vice President corporate development strategy and Investor Relations.

Mr. John you may begin.

Good morning, and thanks for joining us for our fiscal fourth quarter and full year 2020 earnings Conference call. Joining me today are John Girdle Art, President and Chief Executive Officer of Hill, ROM and Barbara Bottone, Chief Financial Officer.

Before we get started let me begin by reminding you that this presentation includes forward looking statements that are subject to risks uncertainties assumptions and other factors that could cause actual results to differ materially from those described including any impact related to the cove. It 19 pandemic. Please refer to today's press.

Lease at our SEC filings for more information concerning risk factors that could cause actual results to differ materially.

In addition on today's call non-GAAP financial measures will be used reconciliations between GAAP and non-GAAP financial measures are included in our earnings release issued this morning.

Finally, I would also like to mention that in addition to the press release issued this morning, we have posted a supplemental presentation, which highlights Hill rom's performance and details regarding our 2021 financial guidance. These materials can be accessed on the Investor Relations page of our website.

So with that introduction, let me now turn the call over to John.

Thanks, Richard Good morning, everyone. Today, we're pleased to announce our fiscal 2020 financial results and provide guidance for 2021.

It goes without saying that fiscal 2020 has been extraordinary and historic year for Hill ROM and the world at large.

I am impressed by the progress we have made toward our vision of advancing connected care.

I am inspired by the commitment and execution of our global team.

And energized by the steps, we're taking to accelerate hill rom's business transformation.

Despite challenging circumstances posed by the pandemic Hill Rom's overall financial performance has been strong relative to many of our peers in the med Tech industry.

For fiscal 2020 core revenue increased 3% we.

We exceeded our expectations and delivered more than $570 million in new product revenue.

We achieved a new record level for both gross and operating margins with solid execution.

We advanced our growth platforms was organic investments and three acquisitions.

And finished the year with adjusted earnings of $5.53, an increase of 14% after adjusting for the 2019 divestiture of our surgical consumables business.

This was in line with our guidance range provided a year ago.

And we are proud to have delivered this level of performance during these unprecedented times.

For the year onetime kobin related purchases for bed systems, and noninvasive ventilators accounted for $180 million in revenue.

And earnings of approximately 75 cents per diluted share.

As we cycle through some difficult comparisons over the next few quarters, we remain confident in the underlying fundamentals of our business.

The compelling value propositions, we offer across our connected care solutions, and our proven ability to deliver enhanced value to patients caregivers.

And our shareholders.

While Barbara will walk through the TNL in more detail, let me provide some perspective on our fourth quarter results and recovery dynamics.

As expected our fiscal fourth quarter reflects the impact from hospital capacity expansion that occurred in the earlier phases of the pandemic.

Customers turn to Hill ROM and we quickly responded to the urgent needs.

As you know this resulted in Q3 financial performance that far exceeded our internal expectations and affected visibility on normalization and recovery dynamics across our portfolio.

Forecasting trends in that environment was more complex and less predictable due to patient shifting profiles, improving treatment options and the ability of providers to rapidly adapt and trailers coated and uncoated patients.

With that backdrop Q4 performance came in above our projections with revenue of $705 million and adjusted EPS of one dollar and 17 cents per diluted share.

This reflects normalization of demand for beds following record Q3 performance and sequential recovery across most of the remaining portfolio.

We are now observing early signs of improved trends as recovery progresses and year over year declines are decelerating.

We will keep a keen eye on areas that have recently seen a rise in KOVA cases and are experiencing setbacks in the process of reopening.

But we have not seen any material impact to date.

Therefore, we expect that Q4 it represents the trough from a growth perspective, as we move into fiscal 2021.

Geographically.

Typically U.S. core revenue declined 15% driven by lower capital revenue like beds and surgical equipment.

International revenue on the other hand advanced 5%, we are very pleased with the recovery in the emerging markets where growth exceeded 10%.

Led by double digit growth in China, and the Middle East.

Developed markets like you're up in Canada, so solid gains across the portfolio outside of the surgical business, where large construction projects continue to be delayed.

Now let me briefly review the performance by business at constant currency rates first.

First patient support systems revenue declined 13% in Q4.

This reflects a challenging comparison to prior year growth of 14% and follows the third quarter peak coal the demand for med surge and I see you beds.

As expected our bed revenue declined by more than 20% overall, despite a covert tailwind of approximately $25 million driven primarily by elevated demand across Europe.

For the year, our portfolio of smart beds grew double digits, including mid teens growth in the second half.

We continue to enhance our leadership and share position with a differentiated ecosystem of smart beds and connected care solutions.

The good news is that throughout Q4, our bed orders and backlog in the U.S. accelerated and the remaining port PSS portfolio experienced encouraging sequential improvement this.

This includes the care communications business with a sequential increase of nearly 30% versus Q3.

As hostile access restrictions have eased quoting activity has accelerated and revenues rebounded to near pre covert levels.

Do you for front line care revenue increased 1% perform.

Performance was driven by double digit growth in vital signs monitoring.

Pressure and thermometry as well as the completion of the U.S. stockpile order for noninvasive ventilators.

The remaining FSC portfolio was down double digits, but showed sequential improvement of 15% as U.S. physician office visits resumed.

This is a trend that has continued into the start of our new fiscal year.

Lastly, before revenue in surgical solutions declined 29%, reflecting a difficult comparison.

The remaining impact from a surgical consumables divestiture and the impact from capital project timing.

The strong sequential growth and improving order funnel and easier comparisons for 2021, we expect gradual recovery in surgical from here.

Last November.

We unveiled a compelling multiyear plan, reflecting durable mid single digit revenue growth double digit earnings growth and strong cash flow. This was a plan that included benefits from new product momentum emerging market penetration and value creation from M&A.

I am pleased to reiterate with confidence that these key growth platforms remain intact.

Obviously, the long range outlook, we provided did not reflect an impact from a global pandemic in the first year of our plan.

However, I am confident that as we cycle through difficult comparisons from 2020.

And with fiscal 2021, as a new baseline we are well positioned to deliver on both our long term aspirations and growth objectives in a post covert world.

This pandemic has demonstrated that the work we've done to build a strong portfolio provides us with unique solutions and capabilities to tackle accelerated transformation of the global healthcare environment.

We believe hill ROM is very well positioned to benefit from these new trends in 2021 and into the future.

For fiscal 2021, many uncertainties remain around cobot, including how the pandemic will evolve how governments worldwide will respond to new policies and winter vaccine will be available.

While the pandemic continues to be fluid, we believe the guidance range provided today is both balanced and achievable.

For fiscal 2021, we expect revenue to decline 3% to 5%.

And adjusted earnings of $5.25 to $5.45 per diluted share.

After adjusting for the 2020 onetime cobot impact to revenue and earnings of $180 million.75 per diluted share our guidance range reflects underlying base business revenue growth of mid single digits and adjusted EPS growth of at least 10% for the full year.

This implies underlying growth is aligned with our longer term growth aspirations.

In closing as I reflect on the progress of our ongoing business transformation I am extremely proud of what we have accomplished.

Our global Hill ROM team has displayed a winning spirit rose.

Rose to the challenge during these uncertain times and I would like to humbly, thank them for their commitment resilience and dedication.

As I have mentioned our mission has never been more vital.

Our passion is focused on enhancing outcomes for patients and caregivers with connected care solutions that add significant value to the delivery of health care across all care settings from the hospital to.

Surgical suite to the physician's office and at home.

We look forward to the future with conviction as we build on the solid foundation in pursuit of our vision of advancing connected care.

Thank you and let me turn the call over to Barb.

Thanks, John and good morning, everyone.

I will briefly walk through our financial results before turning to our guidance for fiscal 2021.

As mentioned worldwide revenue in the fourth quarter of $705 million declined 10% compared to our record finished last year with revenue of $783 million.

John discussed recent business trends, but there are two other points I would like to highlight.

For Q.

Q4, non core revenue of $13 million reflects the international surgical OEM business.

As previously disclosed we expect to complete the exit of this business by the end of this calendar year.

And we are now retiring the core definition.

In addition to.

During the fourth quarter, we lap the anniversary of the surgical consumable divestiture as well as the breed acquisition.

Both of which were concluded in 2019.

So revenue projection going forward reflect organic growth.

Moving on.

Adjusted gross margin in the fourth quarter of 51% expanded by 110 basis point.

This was the result of favorable product mix and operational improvements.

For the full year, we achieved a new record gross margin of 51.5%.

Selecting an improvement of 200 basis points versus the prior year.

This includes the positive impact from onetime cobot revenue of approximately 70 basis points.

Moving on to operating expenses.

R&D in the quarter increased 2% to $36 million.

At CNH increased 8% to $207 million as we continue to fund investments in our strategic growth platform, an IP transformation, while managing our discretionary spending.

Our adjusted operating margin in the fourth quarter was 16.5%.

For the full year operating margin improved by 100 basis points to 18.8%.

This performance is consistent with our strong multiyear track record of driving annual operating margin expansion.

Interest and other non operating expenses for the quarter totaled $18 million and the adjusted tax rate was 20.3%.

So this.

This translates to adjusted earnings per share of $1.17 cents per diluted share for the fourth quarter.

It's declined 31% versus the prior year.

For the full year adjusted earnings per share increased 9% to $5.53 per diluted share.

Excluding the impact of the surgical consumable divestiture adjusted earnings per share increased 14%.

Now turning to cash flow.

Cash flow from operations for the year was $482 million, reflecting an improvement of $81 million versus the prior year.

Which was a 20% increase.

Capital expenditures totaled $106 million.

And as a result, we generated free cash flow of $376 million, which is 15% higher than last year.

In terms of the balance sheet and financial leverage our debt to EBITDA ratio at the end of September was 2.9 times.

And we have returned $129 million to shareholders through dividends and share repurchases during the 2020 fiscal year.

Let me conclude my prepared remarks, with our guidance for fiscal 2021.

Today, we're issuing guidance range that we believe that both balance and achievable.

Incorporating various scenarios and uncertainty.

This outlook assumes the return towards normalized demand trends and those areas significantly benefited from the coding related activity in 2020.

And our guidance also incorporates a gradual recovery from product category negatively impacted.

As mentioned earlier, the ongoing scope and evolution of the pandemic remains uncertain and could present incremental growth as well as opportunities for the company.

We are not including any potential benefit from a substantial surge and covered related purchases.

Nor are we including significant financial or operational impacts to hill ROM or our hospital customers from government policies associated with the pandemic.

Our guidance also does not reflect an impact from potential healthcare government for tax reform.

Or from future M&A.

So for fiscal 2021 full year, we expect revenue to decline 3% to 5%.

Both on a reported and constant currency basis.

As we previously mentioned we are retiring the non core definition as we expect to complete the exit of the international surgical OEM business by the end of the calendar year.

Our guidance includes a headwind of approximately $30 million or 110 basis points related to the year over year impact of this excess.

In addition, our revenue guidance reflects the headwind from the onetime coded impact of $180 million in fiscal 2020.

Which presents a challenge in comparison to fiscal 2021.

Excluding both the one time coated impact ambit surgical OEM excess right.

Revenue growth is expected to be in the mid single digits.

In line with our longer term objectives.

By business segment at constant currency rates.

We expect patient support systems to decline, 6% to 10% due to the current headwind.

Excluding the onetime coated impact from surge demand growth is expected to be in the low single digits.

We expect front line care revenues to be comparable to the prior year.

As the impact from the onetime use stockpile order of noninvasive ventilators in 2020.

Is the offset by continued recovery related to physician office visits.

And finally, we expect surgical solutions revenue growth of 3% to 5% driven.

Driven by gradual recovery towards pre coated level.

Inclusive of the surgical OEM exit.

From a profitability standpoint, we expect some modest pressure to adjusted gross margin and operating margin with both set to be within 50 basis point on the record level set in fiscal 2020.

We expect gross margin to exceed 51%.

Operating margin in the range of 18.3% to 18.8%.

We expect R&D to approach approximately 5% of sales.

And we expect adjusted as CNN to decline in low single digit umbrella.

And represent approximately 28% of sales.

Our SGN a guidance includes investments in key growth initiatives underway.

And approximately $50 million in accelerated business optimization savings from actions, we announced in September.

We expect other expense, which includes interest of approximately $70 million.

And lastly, we expect a tax rate of approximately 19%.

And share count of approximately 67 million shares.

We look to offset stock option dilution with share repurchases just like we EBITDA historically.

This translates to an adjusted earnings guidance range of $5.25 to $5.45 per diluted share.

On a reported basis adjusted earnings per share are expected to be down 1% to 5%.

However, when excluding the prior year, one time cover the impact of approximately 75 cents.

Adjusted earnings per share growth is expected to be at least 10%.

From a cash flow perspective, we expect operating cash flow of $370 million to $400 million.

Which reflects our earnings guidance as well as outflows related to our business optimization effort.

And the timing of receivable collection.

Capital expenditures in 2021 are expected to be approximately $100 million.

And free cash flow is expected to be $270 million to $300 million.

For the fiscal fourth quarter, we expect revenue to decline, 3% to 5% on both a reported and constant currency basis.

We expect adjusted earnings of $1.85 cents to $1.10 cents per diluted share.

There is no prior year impact of Kobe.

Before I turn the call back over to John I.

I wanted to mention that we have provided additional quarterly information on the 2020 revenue and earnings per share impact of coded in our supplemental presentation posted to our website.

This information will help you understand the expected quarterly trajectory of reported revenue and earnings per share guidance and.

And the performance of the underlying business during the recovery.

Thanks, and now I'll turn the call back over to John.

Thanks, Bob.

For those of you who have followed hill ROM over the years, you know that we have significantly diversified our business.

We strengthened our business model will enhance value propositions and improved our durable growth profile with internal R&D and deployment of capital into M&A.

Our continued balanced approach towards growth and investment is leading to an exciting and compelling transformation as Hill ROM.

I will reiterate.

At our strategy long term fundamentals growth prospects and investment thesis remains intact.

Prior to and during the pandemic. Our company has established a strong track record of performance, we have consistently delivered on our objectives and met expectations.

While the macro environment has proven challenging for most including Hill ROM.

With shocks to traditional demand and evolving dynamics never seen before we are entering 2021 with improved visibility and cautious optimism as our business begins to recover.

Our commentary today is intended to provide a transparent depiction of current business trends and our future outlook, which we believe will aid investors in their evaluation of Hill ROM as a long term investment.

With a solid foundation, a clear strategy and seasoned leadership team, we will continue to grow above and beyond to deliver enhanced value to our customers and shareholders and position our company for sustained success.

With that let's open up the call for today.

Thank you we.

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Danny W Dot Hill ROM Dot com.

Our first question comes from Rick Wise from Stifel. Your question. Please.

Good morning.

Thanks for taking the question then.

Good to see the solid finish for the year.

And also you also thank you are there.

R&D ramp all the moving pieces that really helps maybe.

Maybe John.

Talk a little bit more about your.

The not just the guidance for the year ahead, I think it's clear, but just how you're envisioning your unfolding.

Solid first quarter clearly.

But.

Okay help maybe help us think about how you're thinking about the flow of the quarters.

For the year and what you think could get better at your unfolds. Thank you.

Yes sure. Thanks for the questions Rick I'll point, you refer to slide number 25 in the presentation materials in that slide you will see the breakdown of the closing benefit.

Fiscal 20, I think thats, a really important found.

Foundational set of numbers I understand so with that in mind.

Here's here's how I'd characterize 21, obviously Q4 was our trough.

It's a really good about broad based momentum were seeing across all businesses and all geographies as we exit the year and entered fiscal 2001.

So thats, a very encouraging sign in something that gives us a tremendous amount of confidence around our Q1 guidance.

As we start to come into Q2 in Q3 were going to start, especially in Q3 hitting up against some really difficult cogent related comps from last year.

And so the shape of that recovery curve continues to build momentum in the underlying business.

And and our emerging market growth continues to be in double digits throughout the year, we will be launching a significant number of new products.

North of 10, new products planned for launch this year.

So the fundamental drivers of new product growth emerging market growth and the recovery of our businesses that were negatively impacted are all well in play and going to deliver for us during the year.

And we will see that sequential improvement excluding that so the impact from last year.

So as you look at the second half of the year, we would expect to see growth thats, assuming that could benefit and certainly see.

Nice organic growth in the fourth quarter.

In a second I assume since some challenging comps on the opex side of things and on the recovery of our business, which you're starting to see as we noted compare Q4 Q1.

Thank you nice sequential recovery.

In our in our business just in that period, whereas no code impact.

Sorry.

Final point I would make is our growth drivers as we mentioned in the past those in terms of product categories. Those continue to be in the same areas that we've seen them.

Very excited about the growth.

Rose rock or opportunities in ice you expansion to care communications, several new product launches in that category coming this year.

Noninvasive ventilation remote monitoring and diagnostics, especially with the importance of tele health and remote diagnostics.

There are several exciting new products in our connected exam tools and screening tools, both for vision screening as well as for physical exam.

And then in our surgical solutions business with the recent acquisition of video, Matt and connected video and all our integration so.

Really.

I think the fundamentals are there and recovery curve is well in place and a new product launches emerging market growth is that going to really position us very nicely as we get towards the end of the year and capacity so that benefit comps.

We have.

Overcome this year.

That's great them lots of.

Clearer direction there John.

On the other side.

Thinking about it.

Investor concerns or questions I get a lot of it obviously lot of vector body revolves around the outlook for capital spending at the hospital level.

Course, very specifically always on.

On.

The bed business with PSS side, you're talking maybe talk to us if you would.

About your capital spending environment and.

What's your.

Going into your expectation.

And when you contemplate VP at that.

Low single digits.

Hello, Brad.

Maybe talk about what people are going to be concerned about the competitive environment.

Impact on central among other initiatives.

Can you put some of that perspective for us as well. Thank you.

Yes, sure there's a lot to unpack that Rick So let me let me take the data.

And Mr. important questions and it takes patience to start with the environment Onest right that the environment is so much better.

From a capex point of view and and.

PCG recovery physician office visit recovery and we're seeing that as we outlined in summary of our businesses not just here in the west but globally.

So that increased level of certainty allows us to really issued guidance quite candidly and thats the fundamental.

Difference between.

First wave.

Versus where we are today obviously.

Yes.

I won't get into the details between firstly and secondly on net win and what we're now experiencing with a third way, but the summary of all that is.

Not just us, but our providers and our customers have a lot more confidence on how to deal with surgeons, how to treat patients and non covered patients and how to treat those patients and effectively keep healthcare.

Treating patients involved on both sides of the equation so.

Overall very good certainty very good recovery of procedures and as a result financial.

Profile of our customers in the financial certainty for our customers is significantly improved particularly in the U.S internationally. It was.

Wasn't ever impacted the same way.

And while some capex.

Aggregate Capex is just.

Just down from where it was going to be a year ago.

It plays to our portfolio very nicely and I see you embed expansion in care communications and ventilation. So.

Relatively speaking we feel the capex environment is quite.

Quite improved from where it was.

Even three months ago, and certainly significantly improved from where it was six months ago. So.

Thats why we feel confident enough to reissue guidance only we have.

So thats that part of the question, yes. The second part of the question related to the bed business. If you look at if you take a step back and and avoid looking at quarter to quarter against that and second if you look at the full year last year, our bed business grew in double digits right.

And and now if we look forward, we're seeing and we're seeing really nice recovery of orders and backlog for our Medsurg and I assume that offering.

And we're seeing that number sequentially as about 20% improvement from Q4 into into this current period. So.

Not only that but the activity level around quoting an order is actually near pre covert levels for a bit for our pet business. So we feel really good about that and.

From a competitive point of view you can maybe get into details.

And a follow on question, but that's a really good competitively. This is not a surprise to us. We knew this loss was coming and we can be expected to come a lot earlier than it is.

And quite frankly, the comparison between our bid offering.

Which really is more of a patient monitoring and connected care solutions versus.

Versus the Stryker that offering.

Like apples and oranges.

I am happy to get into the comparison of that if you want but we feel really good competitively.

And are prepared for that introduction.

Hi, Thanks, so much I'll leave it there thank you.

Thank you Rick.

Paul Hopkins from Bank of America. Please state your question.

No thanks, and good morning.

Morning, So.

A couple of things I'm going to do.

Q My question is kind of on the macro level. So just two things I'd love to.

Here, you guys comment on a little bit.

One is if you just wouldn't mind talking about the potential pipeline for deals or over the course of this fiscal year or what you're seeing out there.

And what we should expect as a result, and then also there's so many moving pieces to the business. This year I understand things will get a little cleaner as we progress later in the year, but if you are saying what are the things that we should be tracking you know on a quarterly basis that will give us a better sense for what's really going on with the underlying business.

I'll leave it at that thank you.

Yes, great I'll take that second part of your question first Bob I think is really fundamentally.

And this is why were being so so you're about to covert impact, but fundamentally it looking at the recovery curve of our businesses that were negatively impacted and seeing how that recovery is improving sequentially right. We had.

Reported a negative 10% in Q4.

Guidance for the first quarter is a significant improvement of that.

And we would expect that to continue overtime.

So thats one thing the other part is in particular.

The businesses that are recovering.

Yes. It is.

Thats, our significant to us our care confident and our surgical business, which will which are coming back to pre filled at levels, but they are not quite there yet and once they cross over that the CASM I think we'll be in a really good place to start.

To start showing year over year growth.

So I would be looking at that Bob certainly, we'll be talking about new product launches as we get as we get closer to them.

And I would look at is our emerging markets. We do expect with the investments we made to continue to see double digit growth in emerging markets throughout the year.

And high double digit growth in China, where we've made some significant investments so we feel particularly.

Good about that part of it as well.

Related to your question on M&A.

We as you know and remains like this we've completed three deals smaller tuck in deals during the last fiscal year.

We continue to remain busy and we're optimistic that we'll fine.

Find some meaningful.

Looking at opportunities as we come into fiscal 21.

We are very busy on that front, we've seen a lot of.

Nice opportunities in private.

Privately held companies that would fit very nicely with our portfolio and our and our vision of advancing connected care and our ability to do.

To advance in those areas that we talked about in the past.

Right.

Great Thats it for me thanks very much.

I think it's just to conclude that I think you did investors should expect us to stick to our financial discipline of our criteria of being growth accretive being margin accretive and providing an.

An ROI season is three to five year timeframe.

Thanks Brandon.

Yes.

Thanks.

Mack Cali AFP.

Please state your question.

Hi, Thank you for taking the question.

So I just wanted to clarify.

Two things one is when you look at the one time positive medical that impact here in the fiscal fourth quarter was what was that comprise that we need to see some of the same trends around the orders of non invasive.

Thanks.

Do the composition, maybe any debt as it matures.

Okay and then.

Yes, I would say Matt the.

This is Rick covert benefit of $180 million you see this quarterly breakdown and then one schedule as I pointed to earlier, 80% of it is just says.

And and half of Apple just total was international the other half is in the U.S.

So those are probably two good incentive ways to think about that $180 million, 80% hedged, 20% Ventilators and then 50 50 in total in aggregate between us and international.

So thats I hope that answers your questions you have follow ons, yes, no thats great man.

Matt Okay, Yeah, let me get that in the fourth quarter, we had 35 million of co that benefit and 10 million of that was related to the ventilators $25 million related to that just to clarify Q4.

Okay. Thanks.

And then I just wanted to get some thoughts on the year ahead in terms of what you're anticipating.

Different geography, you called out the trends here.

The quarter and the year end in terms of how they're recovering differentially can you speak to the outlook for that.

You have the major regions that you're you're exposed to yes.

Yes, sure so as I mentioned earlier emerging markets, we expect double digit growth, China, we expect very high double digit growth our investments are really starting to come through there.

And.

Because of the breakdown I just gave you earlier that 180 million being roughly half of that being internationally that was mostly in Canada and Europe.

So we will have in that timeframe of Q3 and Q4, some very challenging.

Comps overcome in those regions.

So barring some unforeseen demand, which is not into our guidance. We would expect to have some challenges and in that case experience internationally.

Okay, great. Thanks.

Thank you.

David Maris with Morgan Stanley.

Your question please.

Hi can you hear me okay.

Yes, we can hear hi.

Hi, John sorry about that just two questions from me I'll ask them both upfront I guess, the first thing John is interesting about the guidance.

If I think about your guide for the year and I back out the surgical OEM headwind as well as.

The COVID-19 dynamics that you are very.

Nights and providing it kind of gets you kind of a 4% underlying number for 2021, John which frankly isn't that far off of where you were pretty cobot at 45%. So because a couple of questions is your confidence and that sort of underlying performance because it doesn't seem to imply a lot of sluggishness in the U.S. capital market. It just sort of under sort of some of your assumptions and your confidence about that number because frankly.

More robust than we were expecting and how you are thinking about sort of strikers procured do you wish to get going here in the first quarter of next year in the U.S. and then for Barb just thinking about the rate of investment 21 versus 19, I noticed that the implied STD number is lower and just want to kind of understand how you can deliver that level of SGT improvement 20, whatever 19.

On the recovery and does it factor in enough frankly relative investment back in the business to kind of maintain the growth momentum you had pre cobot sorry for the long questions, but those are my two thank you.

Thank you David.

I think the.

As mentioned before on the certainty of the environment and the relative importance of the Capex that we're bringing to the marketplace with for our beds in our sensors and communication technology. We see continued strong pipeline of activity and really quite frankly broad based.

Recovery of the businesses that were negatively impacted.

So we're quite confident.

Confident about our ability to to see that recovery come through.

And.

And then also take advantage of the investments we've made over the years to position the company for sustained durable growth, whether that's constantly emerging markets or in this case.

We are deploying new incremental investments for our chair Tom team, our digital business to expand.

And our enterprise accounts team, which is.

Focuses us to also expand we do expect our customers become.

Larger and more significant in terms of large.

Enterprise wide purchasing decisions. So we're we're scaling up in those two areas specifically.

To make sure we're positioned for ongoing growth as the recovery.

Continues.

And I'll turn it over to prior to the second question.

Good morning.

Your question about the level of overall investment in 21 versus 20 and are we about sustaining that the answer is yes to where were reinvesting incremental investment in 21 at a very similar levels to what we had 20.

And the way that we're able to do that.

Your line.

Oh and pulled forward.

The business optimization and.

Robert breaking up there.

Thank you breaking apart.

Oh I'm, sorry was there not Claire let me, let me try again.

Can you hear me now.

Yes.

Okay, David I'm, sorry to repeat if you heard the first time through.

At our level then incremental investment in 21 is very consistent with 20.

And we're able to do that because of the pull forward.

Approximately $50 million worth of business optimization into 21.

That Claire.

Yep.

Okay great.

Sorry for the technical question, David did you have a procuring question as well David.

Hi, This is marathon.

Comment on any trends that we see.

Hi, I'm sorry in the channel you have.

Great Okay. Thank.

Thank you yeah, we have not seen any deliveries yet obviously, there's some commentary out there of a pending launch, but we have not seen.

Hey deliveries occur at this point in time so.

So.

We expect that will happen.

In the next couple of months, but.

We've not seen anything material in the marketplace today.

Michael Polack from Baird.

Please state your question.

Hey, good morning, Thank you and thanks for all the detailed quite the deck maybe.

Maybe a few.

I appreciate that.

Out of it.

Surge buying is built into the fiscal 21 outlook seems like the conservative and prudent thing to do we have seen though in the last week or two even the world Health organization.

With predictions about IC capacity in places.

In Europe, getting really strange and so we would be interested in just kind of a real time assessment what are you hearing and.

Some of these pockets where the flare ups are.

Starting to really pick up steam are you.

Being or your customers really strain.

The trade with capacity and any color would be helpful.

Yes, sure Mark and thanks for your question the.

The terrorists.

I refer to as I mentioned is this being the third wave.

We expect this third wind to be a lot like the second wave in the summer however, it's going to be much more widespread geographically.

In that opens up more hostile capacity as a result.

Do you believe that the from what we're hearing from our customers that they feel confident that they can manage.

As anticipated.

In terms of hospitalizations their treatment protocols their ability to segregate patients their ability to the patient profiles.

Hello. This is a very different patients and the first wave and.

And it's much more geographically dispersed.

So I think in the us.

It's going to provide some tension, but manageable is the currency in Europe with the spikes that are going on in the search going on in Europe is that the level of IC capacity in particular and treatment capacity in certain regions of Europe, we are starting to see pressure building.

And.

And as a result, some some.

Some higher level of interest and demand in some of our product offerings. As a result that goes across from you offering to to our vital signs business to monitory. So we're starting to see some of that in Europe today.

But it does seem is again seem much more.

Well managed and not panicked oriented, but we are starting to see some some incremental.

Demand in those areas.

Fair to say that hasn't been fully built into the Q1.

Framework or.

Okay.

And maybe John you offered to get into a little more detail on the apples and oranges of your.

Good platform versus the upcoming competitive relief they do make your competitor makes some fairly big claims then I'd just love a few.

Extra details about how you.

You see what you have and.

How that differentiates versus what you expect.

Procured procured need to offer to customers.

Yes, I'm happy to take that question.

You know we've been building for quite some time, a very differentiated platform on our bed business. In fact, I was actually saying, we're turning the corner and it's really more of a patient monitoring and connected care system today.

Given all the technology and sensors and real time communication capabilities that we've built into the system of the bed as a digital hub the sensors and then the communication tools that surround it with our Sarcom and mobile.

Communication business.

So when you think of what we've been able to.

And the offerings that we're continuing to enhance.

What we effectively have put in place is.

From a I guess my best analogy would be.

Cellphones and smartphones having.

Having connectivity.

Is one thing having wireless connectivity is.

Effectively like flip phone from the nineties.

Having what we have put together is effectively a smartphone.

In the current day and age and what I mean by that is we can visualize wave forms we can access real time data.

We can.

Incorporate video into.

Patient and caregiver communication and it's a closed loop support so sensors from the bed communicate to the phone and then the phone you can.

Then communicate with other caregivers and patients directly so it's really.

The comparison of apples and oranges is really.

The basics of connectivity of having a cellphone versus.

Versus having a smartphone today.

Incorporating a camera. So you can do video chats and communication you can access stock.

Stock market information you can access all kinds of the mansion.

And that's the difference of jumping robustness of ecosystem that we have.

Centrella CARICOM offering on the colt acquisition.

And census was in corporate debt versus the basics of violence.

Helpful. Jon Thanks, so much.

Our final question comes from Andrew Cooper.

Your energy.

A few questions.

Thanks, a lot for an x. already but maybe just one more on.

Regarding how we think about one view and in 21 in terms of the impact to give a lot of color, but when we think about your comments on better demand in backlog and sort of the order book building relative to some of the uptick in Europe and things like that.

When we think about that 180 million or nine years, [laughter] or I'm, sorry, 104 years. So they said yes.

How much do you think about pull forward of demand to meet that third it might slow.

Slow orders and 21 relative to kind of one time.

But not necessarily impacting.

Expansions or roughly one third.

Oh, yes, maybe I'll have a far can you take that one.

Yes, I'd be happy to now and I'm happy to talk to that.

Mm.

Ooh, maybe think about elsewhere or looking to call.

Turning 21 is really about.

On the litigation.

The Birmingham and we've talked about how most of that.

We thought it was really a heck.

Sure.

And really for 21, it was about normalization of that demand and as John talked about we saw nice sequential growth in our.

Order book and are now, reaching the point, where we're getting to pretty close at levels in terms of ordering floating activity in that area.

The second thing to think about as you look across 21 food for the gradual recovery.

This product line that were negatively impacted by covered and that gradual it's going to be that that recovery, we think the more gradual.

And we will continue for across the first three quarters out of 21.

So as you think about the Calendarization and you think about the cadence as you go across 21.

We'll see about that trough in Q4, both the gradual improvement as we get normalization of demand and the recovery across the breadth.

In Q1, and Q2 as you get into Q2 in Q3, we'll have much stronger cobot headwind that we need to manage through especially in Q3, Thats a big headwind in Q3 and by the time, we get to Q4 will be bouncing back to Tim to drought.

The other thing to think about as you think about the course of the year is we will see progressively improving operating margin and gross margin throughout the year, which will also contribute to a bottom line that will look very similar to the topline improvement.

Great very helpful. Thank you.

You're welcome.

Then the final question.

Well. Thank you everybody for joining our call today, and we'll we'll see you next quarter.

Can you gentlemen, this does conclude today's conference this conference call. Thanks incorporated.

You for participating you may now disconnect.

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