Q2 2021 Hill-Rom Holdings Inc Earnings Call
Okay.
Good morning, and welcome to Hill ROM fiscal second quarter 2021 earnings Conference call.
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I would now like to turn the call over to MS. Mary came of down Senior Vice President Corporate development strategy Investor Relations. Mr. Mcgough, you may begin.
Good morning, and thanks for joining us for our fiscal second quarter 2021 earnings Conference call. Joining me today are John <unk>, President and Chief Executive Officer of Hill, ROM and Barbara boat I'm, the 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 COVID-19 pandemic.
These refer to todays press release, and 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, we have posted a supplemental presentation, which highlights Hill rom's performance and our updated 2000 in 'twenty one 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, Mary Kay good morning, everybody.
Pleased to present, our Q2 financial results, which reflect another strong quarter of execution.
As a result, we are raising both our revenue and earnings guidance for the full year.
We continue to see momentum building with continued recovery across our portfolio and geographic regions.
All of its performance highlights the resilience of our diverse portfolio and our ongoing transformation.
This strengthens our ability to unlock significant value for patients caregivers and shareholders as we deliver on our mission.
I remain extremely impressed by the passion of our team around the world who are.
Executing against our four strategic priorities, while managing the more challenging environment and delivering financial results that exceeded our guidance.
Q2 revenue advanced 5% with stronger than expected performance across the vast majority of the portfolio.
Operating margin expanded by 280 basis points, while we continue to invest in our strategic growth platforms and benefited from our accelerated business optimization program.
Finally.
Adjusted earnings of $1 73 per diluted share increased 35 per cent versus the prior year.
Barb will walk through the updated guidance, which now includes reported revenue growth of 1% to 3% net.
Adjusted earnings of $6 to $6.10 per diluted share.
This reflects solid mid single digit top line growth and high teens EPS growth.
Excluding the COVID-19 impacts in both the current and prior year importantly.
Importantly, we are continuing to deliver this high level of performance, while investing in our business to drive accelerated and sustainable future growth.
We continue to make excellent progress in advancing our category leadership strategy with new product momentum Inc.
International and emerging market growth and creating value through portfolio transformation and business development.
All of which further strengthens our durable growth profile.
Let me take a moment to share a few highlights.
First new product revenue again grew 20 per cent in Q2 exceeding $160 million.
We have now launched seven new products several of which were highlighted in today's press release and advance our vision of connected care.
We remain on track to achieve our goal of at least 10, new product launches in 2020 one.
And despite a tougher comparison in the third quarter, we are on track to exceed our objective of $620 million in new product revenue for the fiscal year.
On the international front revenue increased 6% on a constant currency basis with double digit growth across Europe and emerging markets.
In Europe, we continue to see healthy growth across the entire portfolio with particular strength coming from a favorable environment for Hill ROM products have received the greater priority.
Across other regions, there's been more variability driven by elevated COVID-19 dynamics.
And the emerging markets growth was led by China.
Where our strategic investments continue to pay dividends, resulting in double digit growth for seven of the last eight quarters.
With the targeted go to market commercial strategy ongoing recovery and new opportunities, we expect China to continue to deliver strong performance in the coming years.
We continue to transform our portfolio with the growth oriented strategy as you know, we've divested approximately $300 million of low growth non strategic revenue over the last several years.
This quarter, we finalized the exit of our international surgical OEM business.
At the same time, we've deployed capital towards six of acquisitions, while adhering to a disciplined approach with rigorous strategic and financial criteria.
Organic growth from these completed the acquisition is expected to exceed 30 per cent for the year.
We remain focused on driving attractive returns and enhancing shareholder value with our M&A initiatives.
Now let me provide some additional perspectives on our quarterly financial results for Q2 revenue growth of five per cent reflects the stronger than expected performance as recovery progressed faster than expected.
And as we continue on this path towards normalization.
Relative to our guidance, one time COVID-19 purchases accounted for about half of the upside.
With revenue of approximately $40 million and adjusted earnings of 20 cents per diluted share.
This was the result of of steep rising COVID-19 hospitalizations in January and February.
In March the volume of cases began to decline and as a result, we are not anticipating any material onetime COVID-19 purchases in the second half of our fiscal year.
Now let me briefly review of the performance by business at constant currency rates first.
First patient support systems revenue increased 2%.
This includes the onetime COVID-19 benefit mentioned earlier.
<unk> performance reflects strong international growth of 12% driven by continued market expansion of med surge and ICU bed systems across Europe and other markets.
This performance is the basis of our optimism on the long term potential to expand the international ICU market.
In the U S fed purchases showed sequential improvement over the last two quarters, but were down versus the prior year.
Similar to Q1.
Rentals were very strong given the rising COVID-19 cases, resulting in growth of more than 20 per cent.
The communications rebounded with the growth of 15 per cent setting the stage for sustained acceleration.
We continue to be very well positioned with our superior value proposition of smart beds smartphones and connected care solutions.
This includes our early sense contact free continuous monitoring technology integrated with our centrella smart bed that helps identify clinical deterioration that can lead to improve survival decreased costs and decrease the need for ICU admissions.
We have now activated early sense and over 150 hospitals.
The initial feedback has been very positive one major customer recently noted that they have experienced zero code of blues or cardiac arrest since turning on this capability.
This further validates the clinical and economic value of our offering that sets us apart from others in the industry.
We continue to build on our legacy of leadership and care of communications with several new product launches.
Will allow us to sustain above market growth in double digits as the recovery progresses.
This includes the modernization of the traditional nurse call system.
Digital patient engagement application on an iPad called bolt experience and the volt alert and alarm management solution aimed at reducing alarm fatigue, and providing real time streaming of waveforms on the finish of his mobile device to aid in clinical decision, making.
By expanding these capabilities within the hill rom's connected care ecosystem, we are delivering significant differentiation and addressing key customer challenges.
In frontline care second quarter revenue increased 8% driven.
Driven by strong demand for patient monitoring of equipment and accelerated recovery across key products as physician office visits return to pre COVID-19 levels.
Physician based products consist of physical assessment tools diagnostic cardiology monitors.
In vision care products, including retina Vue for screening of diabetic retinopathy.
Year to date frontline care has led the company performance with revenue growth of 7%.
New products have contributed over half of this growth.
Adding new innovations like the recent global launch of our digital physical assessment tools is a game changer.
Aimed to improve patient outcomes with earlier and more accurate diagnosis of ear and eye conditions.
These new devices are digital image ready and allow for the capture secure tracking trending and transfer of images for easy and efficient consultation with specialists.
Lastly, surgical solutions revenue declined 9%, reflecting strong growth in our tables, including integrated table motion.
This was more than offset by the impact of the now completed the exit of the international surgical OEM business.
Any more gradual recovery in infrastructure projects due to the pandemic.
Excluding the surgical OEM business revenue growth was flat to the prior year.
Despite the first half dynamics in surgical we remain encouraged by the positive momentum and growth in our order book and building backlog.
And surgical procedures bounce back and hospital access constraints moderate we expect improved performance in this business for the rest of the year.
In closing I want to reiterate how proud I am of our year to day performance and the confidence we have in the bright future for Hill ROM as we continue to drive meaningful value to all stakeholders.
This year has demonstrated more clearly than ever the importance of our vision of advancing connected care.
Our strong and diverse portfolio set the solid foundation for durable growth.
And with exciting catalysts like new product momentum emerging market penetration and contributions from completed M&A transactions, We expect hill ROM to uniquely benefit from the accelerated transformation of the global health care environment.
Now, 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 updated guidance.
As mentioned worldwide revenue in Q2 of $762 million grew five per cent compared to $723 million in revenue last year.
Revenue growth on a constant currency basis of 3% was balanced reflecting the continued recovery of the underlying businesses.
And onetime COVID-19 benefits of approximately $40 million.
Adjusted gross margin was $53 seven per cent and expanded by 250 basis points versus the prior year.
This was the result of favorable product mix and operational improvements.
The onetime COVID-19 purchases accounted for approximately 100 basis points of this expansion.
R&D spending of $35 million was comparable to the prior year.
Adjusted SG&A of $214 million increased five per cent as we continue to invest in our strategic growth platforms. While also realizing benefits of 150 basis points from our business optimization program implemented last year.
As a result, adjusted operating margin improved 280 basis points to 21.1 per cent.
Interest and other non operating expenses for the quarter totaled $16 million and the adjusted tax rate was 21 per cent.
Overall this translates into adjusted earnings for the fiscal second quarter of $1.73 per diluted share, which is an increase of 35 per cent from one dollar and 28 cents per diluted share in the prior year.
Now turning to cash flow.
Cash flow from operations for the first six months of 2021 was $279 million of 78 per cent increase compared to the prior year, primarily driven by higher net income and change in working capital.
Capital expenditures on a year to date basis totaled $53 million $7 million higher than the prior year.
Which includes the investment we are making in our global information technology transformation.
As a result year to date free cash flow of $226 million has more than doubled versus the prior year.
Our balance sheet and financial position also remains very strong.
Good day, we've returned to $86 million to shareholders through dividends and share repurchases and we have raised our dividend for the 11th consecutive year.
We ended the quarter with $270 million in cash and our debt to EBITDA ratio at the end of March was 2.4 times or 2.1 on the net basis.
Now, let me conclude my remarks, with our updated fiscal 2021 guidance.
Similar to last quarter, we have not included the impact of the party diagnostics acquisition and our revised revenue guidance.
Or.
The new earnings guidance range does contemplate sufficient flexibility to absorb deal related dilution in fiscal 2021 under various scenarios.
So with that said for the full year, we now expect revenue to increase one per cent to 3% on a reported basis, which includes the benefit from foreign currency of approximately 100 basis points.
This compares to our prior guidance of revenue growth in the zero to two per cent range.
As John mentioned, we are not contemplating any onetime COVID-19 purchases in our current fiscal 2021 second half the outlook.
By business segment at constant currency rates, we now expect patient support systems revenue to decline between one and three per cent.
Front line care revenue to grow between three and five per cent.
And finally, we continue to expect surgical solutions revenue growth of three to five per cent.
From a profitability perspective, we now expect adjusted gross margin of approximately 52 per cent.
And then operating margin of approximately <unk> 19 per cent.
We continue to expect R&D to approach five per cent of sales.
S G and H represent approximately 28 per cent of revenue.
We now expect other expense, which includes interest of <unk>.
At least $60 million reflected the estimated savings related to our upcoming bond redemption, and we now expect the tax rate of approximately 20 per cent.
This translates into adjusted earnings of $6 to $6.10 per diluted share for the year, which reflects earnings per share growth of eight to 10 per cent.
Excluding the COVID-19 impact from both the current and the prior year period, our new guidance contemplates earnings per share growth of 17% to 19%.
From a cash flow perspective, we are now expecting operating cash flow of $440 million to $460 million, an increase of $35 million at the midpoint compared to our prior guidance of 400 million to $430 million.
We continue to expect capital expenditures of approximately $100 million.
The resulting in free cash flow of $340 million to $360 million.
For the fiscal third quarter 2021, we are facing some challenging comparisons to the prior year.
As a reminder, last year onetime COVID-19 related of revenue contributed revenue of approximately $130 million and estimated earnings per diluted share of 60 cents.
As a result, we expect revenue to decline seven per cent to 9% on a reported basis.
And expect adjusted earnings excluding special items of $1.32 to $1.36 per diluted share.
I'd also like to highlight that our second half outlook remains unchanged from last quarter.
And reflects recovery momentum in the underlying business as we exit this fiscal year.
The ongoing scope and evolution of the pandemic remains uncertain and could present pandemic related risks or opportunities that may require of updates to the fiscal 2021 guidance ranges provided today.
And now I'll turn the call back over to John.
Thanks Barb.
We are very pleased with our strong execution and our ability to support our customers during the pandemic.
Our first half financial performance has been better than expected, reflecting our portfolios of resilience and benefits from our company's compel.
Compelling transformation.
Our updated financial outlook remains balanced and achievable.
We remain optimistic in the return to normalization later this year and the tremendous opportunities afforded the hill ROM to improve patient outcomes and the delivery of health care, while unlocking significant value for shareholders.
Before opening up the call for Q&A I'd like to close by saying that the last year has created new challenges for many both personally and professionally.
As we all face new reality is posed by the pandemic.
I'd like to take a moment to acknowledge Barbara.
For her strength and resolve.
And she has been dealing with their own personal health issue over the last several months.
I am pleased to share. The she has now completed her treatment is on the road to recovery.
And we continue to wish her well and thank her for the resilience and commitment that she has demonstrated to our organization during this difficult period.
So that concludes our prepared remarks, and now I'd like to open up the call for Q&A.
Thank you we will now begin the question and answer session. If you have a question. Please press star one on your Touchtone phone if he wished her music yourself from the queue press the pound key if you're using a speaker phone. Please lift the handset to ask your question, we will pause from AMR.
For a moment while we.
While the list of being compiled I would like to remind participants that this call is being recorded and the digital replay will be available on the Hill ROM website for seven days at Www Dot Hill ROM Dot com.
Our first question comes from Rick Wise of Stifel. Your question. Please.
Hi, Good morning, John Good morning, everybody.
Wonderful to see.
Another solid.
The quarter and solid quarter of improvement and that's sort of my from my first question I feel like you're embracing a stronger recovery than we've heard from others.
You know, particularly in Europe. I mean is do you think it's the unique nature of your business.
Is it I'm sure it's a combination of Ah.
Your product offering, but maybe the new product offerings, just maybe help us better understand at a high level.
What youre seeing and you know and how that impacts your confidence in your second half outlook.
Yeah. Thanks, Rick I appreciate the question.
We're very.
The coughing and having high conviction around the transformation steps, we've made and I think we're seeing that play out.
We could think about the acquisitions that we've made all around supporting connected care and category leadership.
The investments we've made in emerging markets, particularly.
Particularly in China, and then are you know our new product performance has continued to exceed expectations. So all three of those growth drivers really have the have laid the foundation for sustained and durable top line performance.
As we entered the year, we you know we had to.
We anticipate you know what what the pandemic would give us in the winter quarter.
And I think we've been impressed with our over performance, both pandemic related but the underlying organic growth.
<unk> expense exceeded our expectations with the recovery across.
Cross our care com business across our physician office.
Businesses.
And we really are pleased with the speed of recovery.
The demonstrates that the party of the portfolio that does have capex exposure is prioritized.
And then our customers have prioritized.
Elements of our portfolio of that improve patient monitoring a patient workflow and and invest.
The investments.
And that's really where our where our current portfolio is nicely positioned so I hope that captures the the elements that you were asking about Rick Yep. Thank you.
And just you know maybe I'm Rusty can two four for Barb, if I could maybe help us understand where you are.
And the business optimization.
The you know our process.
Uh huh.
How much more to go in the.
The implications of this program is part of it and maybe on the guidance from you.
Would it help us more clearly understand full year guidance.
The second half gross margin stepped down a bit.
I think if I'm understanding it from the 53, 7% net in the second quarter of more like 52% if my rough math is right.
Is that the COVID-19 benefit or there are other reasons, just making sure I'm understanding the cadence of gross margin in the second half and I am thrilled to youre, feeling better and doing better.
Thanks, <unk>, that's very kind of you.
With regards to of the business optimization, you know line.
Last year at the end of the year, we announced the $50 million.
Business optimization program for 2021, and we executed that quickly and that has been in place for the full year. So what you have seen in the first half of the year is the first half of about 50, So we're well on track there.
As to whether or not this is the end of business optimization. It's never the end of business optimization, but this was a significant program that we put into place at the end of last year and that piece is in place. We will always look for opportunities to continue to improve the performance of the business.
With regards to gross margin in the guidance you have it exactly right. The the step down is really related to are not anticipating any further expansion of benefit in gross margin from our onetime COVID-19 sales.
We don't expect that the sales of gonna be significant in the second half of the year, it's not going to be material and therefore, we're not going to see that continued gross margin benefit.
Got it thank you.
Thank you.
Bob Hopkins of Bank of America is on the line with the question. Please state your question.
Oh, great. Thanks, very much I'm just.
A couple of things I'd love to get some comments on first maybe barb with the with the guidance can you just kind of walk through the the difference of gene EPS this quarter versus the guidance for next quarter I'm, you know I'm I'm sure. Some of that is COVID-19 versus non COVID-19, but the just love to understand the kind of of the breakdown of the decline from.
This quarter versus next.
So as we as we think about Q3, the key thing to keep in mind is we have a.
The significant a comp to overcome from last year.
In Q3 of 2020, we had approximately $130 million of onetime COVID-19 revenue and the 60 cent benefit.
From that.
As we think about our Q2 of 2021 as we've talked about the results. This year at the the 173, we're still getting about a 20 cent benefit as we as we look at that so going into next quarter and for the second half of the year, we're not expecting to see any continued onetime COVID-19 benefit.
We're going to see more of the underlying business and the recovery curves as we improve in the latter half and that's really what is driving the comparison on an EPS from quarter to quarter and year over year.
Okay.
I just wanted to ask also John one other question.
I guess two things one first just can you give us any thoughts on.
Bharti and just kind of maybe some thoughts on next steps from here or catalysts or timelines that we should be aware of and then secondly, also just wanted to ask kind of of longer term question. You know of a year from now hopefully we'll have some cleaner of year over year growth rates to look at and you know certainly not asking for guidance for next year.
But when you think about the progress you're making with your new products and your growth businesses.
By the time, we get to the second half of next year do you know do you think directionally.
You can be approaching more of that mid single digit type growth rates that you aspire to by that time, given the progress we're making currently in the in the underlying business.
Yes sure. It bother me, let me take that last question first.
As it relates to guidance and looking around the corner into 'twenty. Two so let me talk about the exit for this year first and then come around to that if.
If you take the underlying revenue growth and exclude the COVID-19 impact our second half.
Top line performance is actually double digits at the 10% of.
Approximately constant currency growth rates.
Compared to a first half of 'twenty, one that was flat if you exclude the.
COVID-19 impact and are looking at constant currency rates. So we see a really nice acceleration first half the second half we're moving all of the noise of the COVID-19 benefit from last year and this year.
And then looking around the corner into 'twenty, two although we're not giving guidance here, we do remain committed to our what we've said many times that the mid single digit top line and a double digit EPS growth is something we remain committed to and excluding the COVID-19 benefit we feel we can deliver that.
And the with confidence.
That's the first question as it relates to Bharti.
So obviously as you know we're in the middle of the litigation. So my my comments seem to be very limited, but I would say first of all of our we do believe and reaffirm our position the company material adverse effect has occurred or of Mac.
And therefore, the Poland conditions have not been satisfied we've said this consistently and although we're not gonna expected on the outcome, we have high conviction and confidence in our case.
And of that trial will begin next week, starting on May 5th and we would expect a ruling sometime in mid to late in the.
So that's all I can really save a lot of already at this time as Bart said in your prepared comments.
Looked at all of the various scenarios for BARDA and of incorporated any potential impact in our guidance of with respect to EPS.
That's great really helpful. Thank you very much.
Thank you.
Larry cash of Raymond James is on the line with the question. Please state your question great. Thanks, Ed Good morning, everyone.
I guess just.
Maybe partially for Barb.
For John the.
The leverage.
You talked about now.
Around 2.1 times I would have to believe that's probably at the well end of your target zone. So.
How should we be thinking about you know of M&A.
The M&A and maybe just a little bit of a refresh.
On the M&A strategy would be helpful.
Yeah, maybe I'll start with the M&A strategy, we remain busy here, Larry a lot of activity going on as normal.
And we're pleased with the progress of the.
All of the opportunities in our pipeline will remain a focus on shareholder value creation in our financial criteria as well of the strategic fit.
But we like what we see there and then hopefully you know.
Of course, there's lots of them were talking about I'll turn it over to Barb for the remainder of the question.
So Larry you know, we we are really pleased with the cash generation that we've had and are happy that we've created as much room as we now have four additional M&A or our capital allocation priorities remain the same so we're going to continue to focus on M&A and where can we continue to grow the business from a top line.
And.
Gross margin and ultimately from a profitability perspective as well that.
That's gonna be our number one priority the.
And that our commitment to dividends remains the same you know we announced the 9% increase in our dividend earlier in the year that most of the 11th consecutive year of increases so that that approach the dividends is gonna be unchanged.
What kind of continue to look at our repurchases.
As and opportunities to offset dilution and then any excess cash was that just kind of use it to pay down debt and create more capacity for more M&A when the right deals come along.
Yeah, no that's great. Thank you.
And then I guess second second question here just.
It's kind of a two parter.
First John how are you thinking about them.
The U S patient support business in the in the second half of the year and and and sort of longer term and then the second part of the question is.
I was really intrigued by early sense now as you indicated in the 150 hospitals and it made me start to think about it.
How do you how do you monetize all of this connected care, maybe you can just kind of refresh us on how youre actually getting paid for these various feature sets that you've got out there.
Yeah sure I'm happy to answer the question so.
So on the international front first of all the first half overall international performances now at 12%.
Because of challenging comps in the second half and and an anticipated slowing of some COVID-19 related purchases around ICU expansion in our PSS business would you expect that to moderate.
In the second half.
The U S begins to pick up steam in Asia Pac against the pick up steam. So so all in all of that's kind of the the way we see things playing out we do believe there's still an ICU expansion opportunity internationally as we've mentioned before.
Capacity is severely limited in many countries across Europe, and in Canada, and we've seen in the last several quarters.
A spike in that demand and we don't think it's just the one time thing that's going to be an ongoing acceleration of demand that we paid around $200 million of incremental opportunity over the years to come.
I'm glad you asked the question on the connected care piece.
There because you know as.
We think about connected care and we've talked about it quite a bit we've recently gone back and look at our portfolio and so what part of our portfolio today is connected care and how fast is it growing and.
And you might be surprised to learn that the over 20 per cent of our current portfolio and total revenue is connected care revenue and it's growing at 20% plus.
So we're very pleased with the.
The underlying performance there, it's it's closely linked and overlaps with our new product launches because many of our new product launches are aligned around connected care.
However, you're really seeing that those investment.
Taking place both organically and Inorganically are are really driving towards the strategy of advancing connected care of having a meaningful and material impact to our top line.
Terrific.
That's super helpful. Thank you very much.
Okay.
Matt Taylor of UBS is online with the question. Please state your question.
Hi, Thank you for taking the question and Barbara that Youre doing well that's good to hear.
So I just wanted to ask Bob's question in a slightly different way I guess, if I strip out all of the COVID-19.
Benefits to EPS, if you look at the forecast for next quarter in terms of the relationship to 2019, it's growing about the <unk>.
9% I think versus.
The last quarter, if I strip that out it would be more like 30% of cars.
Can you just talk about the difference in the phasing there if there is.
The underlying.
The Delta is between the quarters that are driving that are spending and help us bridge that a little bit better.
Meant that the it's a great question and I'm glad you gave me an opportunity to come back to the question. Bob asked earlier I think the the key the key difference that you want to think about book year over year on Q3 is really around SG&A spend so in Q3 of 2020 it would've been.
Very much the press because we are in the height of the pandemic and activities were all focused very much on delivering product to our customers and so you probably would have seen the lowest point of our SG&A spend relative to where we are today.
And where we're anticipating for the remainder of the year and that really is a reflection of the of two things. One is the normalization of of some of the activity, we're getting back to normal and the fact that we've turned on significant investment as we've.
Looked at our opportunities to continue to fuel top line growth going forward. So as we talked about Q2 performance.
In our Q2 performance we.
Showed both the contribution.
The contribution from our business optimization, which was about 150 basis points, but that was more than offset by the investments that we're making and investing and where we want to go going forward our commitment around delivering the.
The the double digit earnings per share growth.
<unk> remains strong and we just are looking for those opportunities where our outperformance on the top line is allowing us to reinvest in the area.
Do you think about that sequential and you think about the year over year guidance that SG&A investment is is the.
The missing piece of the equation for you.
Okay great.
And then as we think about the second half outlook, you've got another COVID-19 benefit here with purchasing of beds in this quarter, but you're not forecasting much or any going forward or are you. Finally, seeing hospitals now kind of caught up to where they want to be in the short run around being able to.
Manage COVID-19.
The patients or do you is it possible that some orders come in this quarter that youre not anticipating it could get more.
More upside.
Towards the end of the quarter when capital typically comes in.
Oh, sorry, yeah in the U.
Oh, I'm, sorry, John if you'd like to go ahead.
No I think we're there I think I think we are seeing normalization, we don't have any additional upside anticipated in our rental fleet or are.
Any surge of demand from international that we did we did see in Q1 and Q2. So none of that is anticipated nor put into our guidance for the rest of the year.
Okay, great. Thanks, a lot of the color.
Thank you.
Michael Corollary of Baird is on the line with the question. Please state your question.
Good morning, two from me please Kurt Communications I appreciate the update there and the evolution of the portfolio highlighted some innovation as it relates to the bolt.
I heard the comments on revenue performance in the quarter I Didnt hear of comment on bookings or pipeline, how that is trending I recall last quarter you.
You've called out the largest win.
And this platform's history curious for any fresh comment on the how.
The March quarter was from a booking standpoint or how.
How the pipeline looks.
The next couple of quarters for care Communications.
Yeah, Hey, Mike. Thanks for the question and bookings are up and continue to look strong we had a very large deal we talked about last quarter. That's just beginning to.
Flow in terms of orders and we expect that will continue to accelerate into the second half with most of the revenue recognition of actually happening next year.
That large deal.
But we're seeing a very nice recovery as we said in our prepared comments resolve of 15% growth in the quarter, we expect that to accelerate as we get through the second half of the year and are very pleased with our performance there and care com and the <unk>.
Whole portfolio as you know between the our nurse call business or our mobile of volt business. The enhancements we've made through a couple of acquisitions.
With the enhanced alert and alarm management and now of your kind of weighted forms really provided such a comprehensive and integrated communication platform. The debt. We're really pleased with how we're positioned in the marketplace there.
The second one shifting gears.
Do you do business in India, we see the headlines of their heartbreaking COVID-19 really taking its toll.
Do you of the business there number one and if not is there.
Easy on ramp to do business there to help.
Of that country deal with the stresses and strains that are quite severe at the moment.
Yeah, like we do a small amount of business. There in fact, it's not been of strategic focus for us over the last couple of years, just our product mix and the market opportunity.
We didn't see a good alignment.
For the long term so we have.
Some presence, but it's very minimal.
At this point so if we if we're looking for places where we can help and we're certainly.
Looking for that opportunity, but as of.
As of now.
We have not been called the duty so to speak to to really help out from the crisis.
Okay. Thank you very much.
Thank you.
Can we win the area of Morgan Stanley from the line with the question. Please state your question.
Hi, John I, just wanted to the kind of go back to care Com for a second so you were just mentioning the comprehensive portfolio and it's clear that it touches many aspects of the hospital, but can you maybe talk about the opportunity you have in front of you at it out of existing hospitals to upsell of the entire portfolio.
Versus just entering new accounts, just kind of wanted to get the the magnitude of the opportunity yet at existing accounts versus the first what you could even go with for new accounts coming up.
Yeah true good question.
I would say the majority of our revenue growth is coming from existing installed base.
Slightly more than half of that growth would come from.
Upselling and cross selling between the mobile platform, the alert alarm management, and MDI opportunity, but the medical device integration and opportunity.
And our installed base with with nurse call and moving into the mobile space. So.
For us it's been it's not always it's not always taking out of competitor, it's really enhancing the.
The systems that are in place integrating them more efficiently and more effectively to drive a better clinical workflow and better outcomes and really better productivity for the health care system.
Which is why it's so well positioned in the you know in the current.
Current environment, especially on the kind of post.
The post event analysis or postmortem analysis of of.
COVID-19, the stresses and strains of that put on the acute care systems.
How can they do more with the with the same resources.
As hospital volumes ramp up.
In the post COVID-19 environment. So we're like you know I think Mary Kay might have the common she wants to add to that but I think that's how I would answer it yeah true you know the the total market as we look at it is about a $2 billion market from our mobile platform perspective, and that's less than 25% penetrated today, so as John mentioned.
And it's more about penetration and increasing penetration versus you know competitive games.
Alright, one final from Andrew you.
You mean, the investors may not be aware of this but it's it's mandatory the nurse call systems are installed at every hospital right. So by virtue of that we have a nice footprint already.
Because we're a leader in the in the nurse call business. So we have a natural opportunity to upsell.
You know our next generation nurse call system, which we just announced as well as cross sell into mobile platforms.
Okay.
Got it thanks for thanks for the color there and then just two last questions. Just one on physician offices. John can you just talk about the recovery trends Youre seeing.
And the physician offices.
Are they 80%, 90% back to normal and how much pent up demand.
Is there for evaluating new product launches and then the second question is just touching on breeze.
The acquisition you made a couple of years ago, but besides.
The size, you're looking to get passed through past COVID-19 can you just talk about any investment or development plans you have for breathe to bring it to the home. Thank you.
Yeah Okay.
So on front line care or specifically in the physician offices, we're pretty close to the pre COVID-19 levels right now, so probably 95% ish in that range and we would expect that it gets back to normalization in the second half of the year.
So that's very positive and the second half year comps for App for our front line care Division has the breed or non invasive ventilation.
Comp in there that was $30 million last year, so some of them.
Full year of growth perspective, we expect 3% to 5% growth, but if you exclude the stockpiling orders, where the high single digit growth rate for the second half of the year, which is similar to the first half of the year. So.
Consistent performance out of out of our front line care business first half and second half of it.
As we look at the total portfolio.
With respect to breathe.
The opportunity there.
It was primarily in the home and in the non acute environment.
And taking ventilation into the home.
And allowing patients who have COPD or other chronic conditions to avoid hospitalization and to get their ventilation therapy in the home and to and to be mobile and in the ambulatory are in the process. So we like we continue to like that opportunity, we're seeing that underlying prescription.
<unk> volume growth for the breed device.
And we would expect it to be.
The growth driver for many years to come as that market expansion continues to take shape.
Thank you John.
Casey we have time for two more questions.
Thank you, Matt and the Shine of Keybanc is on the line with the question. Please state your question.
Okay. Thank you for taking the question of Hey, John can you give us the update on the rollout and kind of where you are with a large retail pharmacy partner you talked about last quarter.
Yeah, we're excited about it.
Matt It's the it's really in the early phases of rollout.
The equipment is being placed in the various locations in the retail environment shipments.
Shipments began for that in Q2, and we would expect as those get connected and training of curves that the recurring revenue portion of that begins to occur late this year and into next year.
So everything is on track very pleased with the way, it's rolling out exceeding our expectations and exceeding the.
The creating delight in the eyes of of our of our retail partner there.
Okay.
Could you can you day in the retail partner yet.
Phil.
No. It's still we're still waiting to do a bigger announcement later this year, but alright.
Yeah, it'll be a familiar name.
Okay.
And then.
You mentioned digital capture of images for the sort of new physical assessment tools of kit the sense of specialists.
It may be speculating a little bit, but are you contemplating of ready to eat strategy with the with those tools zero net worth of specialists.
You know that is one of the potential opportunities there.
Probably a little longer term, Matt in the near term I mean, the ability to sort of such an exciting product I mean, we all know we use physical assessment tools. We've had we've had oh, the scopes and ophthalmoscope to use the on all of us and our kids. Many many times, but this is the first time, we're able to first of all of you don't get a better image, we actually made.
Moving to the lighting of the image quality itself, but now we're gonna actually captured digitally.
And by doing that we can we can archive. It we can share. It we can get a referral it's gonna be recorded in the EMR. So you'll have the longitudinal history, Oh, that's going to develop over time of these images.
To track the progress of of ear and eye.
Diseases. So we're excited about that and does it create an opportunity for a retina vue type business. It could it could and it's something we will evaluate I think importantly also it could help enable.
The reach of telemedicine.
Now you can remotely.
Images and share them.
It doesn't need to be of synchronous telemedicine visit but it could be an asynchronous visit where you have the image captured in any of you that just like you would of lab result.
During the telehealth visits so we're excited about it from many angles. So the first time in many many years, if not decades, where innovation has been brought to the physical assessment tools space.
And as you know we are moving.
Through our wealth channel and brand are.
By far the the market leader in that space.
So that's exciting.
The squeeze one more in I, just want to make sure I'm clarifying it.
As you think about FY 'twenty, two youre going to have the you're going to have the 82 was part of it is probably a $100 million.
The COVID-19 related of hurdles youre going to have to youre going to have to get through next year.
But I think what I heard you say is in the first half of this year you. All you're also not back to pre COVID-19 levels of it a lot of of your businesses is it in that and that may be necessarily you know an offset.
That is is that how is that how to think about that.
Matt. This is barb yeah, yeah, I think that that is I think that is how you want to look at it and John talked about how excluding the COVID-19 benefit the first half of this year. We've been we've been roughly flat and that is reflective of the fact that we're still in the recovery mode.
In parts of our business as we continue to see that improve and we see that going into 'twenty two that will be that will help the an offset.
To the COVID-19 benefits that we've received so far this year.
Thank you know as we think about the future.
Can you to focus the on that mid single digit.
Our top line and double digit growth and as we think about 'twenty two I'm, absolutely committed to delivering that excluding the COVID-19 impacts that we've seen in in 'twenty one.
Thank you Brett.
Mike Mattson of Needham <unk> co is on the line with the question. Please state your question.
Yeah. Thanks, just in terms of of the M&A.
M&A.
And the party deal.
Go ahead of the trial and everything I mean it is.
Is there anything contingent upon you know what happens of party in other words, if the D.
The old doesn't end up happening does that mean that you have something else kind of waiting in the wings or is that all completely independent of whatever happens with bharti.
Yeah. Good question, Mike it's completely independent of what what goes on with Bharti has no impact on our ability our of bandwidth to them.
Execute additional M&A.
Okay. Thanks, and then just the.
The integrated table motion has done really well with your partnership with intuitive and.
We've got a couple of other surgical robots coming from Medtronic and J&J. So are there any opportunities there to offer something similar with those platforms.
Our relationship with intuitive has been a very positive one and one where.
I think both parties have the high level of loyalty. So it's not something we would look to.
Proactively change.
We do get of course, the integrated with not just robotics, but with a C T and MRI imaging.
The systems and the intra operative environment as well so when it comes to being a preferred partner and having the technology and capability to integrate with.
Various imaging or robotic modalities, we've we've been really well positioned with some of the top.
Yeah.
The company's you'd want to be aligned with them.
So we're pleased with that and not looking for any changes.
In terms of the you know since you brought up the surgical I did want to just reiterate that despite.
And we just exited non core if you look at the the headwinds provided we have of 100 basis point headwind in this current year and current year of guidance because we just finished the exit of our surgical OEM business.
Of which was about $15 million of revenue this year.
And about $46 million last year, so it's about a 1%.
100 basis point headwind from the top line this year.
Okay, great. Thank you.
Thank you well I guess that concludes our call and I'd like to make a closing comment and embarrassed of one of my colleagues who is celebrating her 100.
Earnings call today, Ms. Mary tailored zone 100 earnings calls.
I don't know how many other people can have that that kind of bragging rights, but she she carries the banner and she carries it well and we want to congratulate her on completing her 100 the earnings call today.
Thank you John and thanks, everyone look forward to chatting with you later today.
Bye bye thank you.
Ladies and gentlemen, this concludes today's conference call with Hill ROM Holdings incorporated thank you for joining.
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