Q3 2021 Hill-Rom Holdings Inc Earnings Call
Good morning, and welcome to the Hill rooms of fiscal third quarter 2021 earnings Conference call.
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I would now like to turn the call over to MS. Mary Kay led zone.
Senior Vice Pres.
I didn't.
Britt development Strat.
The strategy and Investor Relations.
Mr. Don you may begin.
Good morning, and thanks for joining us for our fiscal third quarter 2021 earnings Conference call. Joining me today are John <unk>.
The right evidence and Chief Executive Officer of Hill, ROM and Barbara <unk>, 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.
Really from the described including any impact related to the COVID-19 pandemic. Please refer to today's 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 2021 financial guidance. These materials can be.
On the Investor Relations page of our website.
So with that introduction, let me now turn the call over to John.
Thanks, Mary Kay and good morning, everybody.
Let me begin with the review of our fiscal Q3 financial results, which reflect another strong quarter of execution by our Hill ROM team.
We continue to see building.
The momentum and recovery in the underlying business.
This resulted in the third quarter financial performance that exceeded expectations.
This clearly illustrates the benefits of hill rom's transformation, the resiliency of our portfolio and our ongoing commitment to advancing connected care.
As previously highlighted.
Last year in Q3, we benefited from onetime COVID-19 related demand generating approximately $130 million in revenue.
And adjusted earnings of <unk> 60 per share.
With this challenging comparison Q3 revenue declined 6% on a reported basis.
Excluding the Covid headwind revenue.
Advanced 10% on a constant currency basis.
Fueled by stronger than expected performance across the vast majority of the portfolio.
Adjusted earnings of $1.38.
Our guidance range of $1.3 of <unk>.
The $1.36 per diluted share.
<unk> of given our strong performance over the course of this year and positive recovery dynamics, we're pleased to be raising our financial guidance across all metrics for fiscal 2021.
Even with the unprecedented impacts from the global Pandemic Hill ROM has successfully navigated a challenging environment and we will have delivered double digit.
EPS growth over the last 2 years, something we are very proud of.
Looking forward, we remain very committed to our category leadership strategy with new product momentum international expansion emerging market growth and creating value through portfolio transformation and business development.
All of which further strengthen our.
Our durable growth profile.
Let me take a few moments to share a few highlights.
First we.
We are making excellent progress with our strategic focus on connected care.
1 measure of success is the growth we are achieving from our connected care solutions.
We define this measure us devices and software.
Can collect analyze or communicate information back to caregivers <unk>.
Example span across all 3 businesses and include our care communications platforms connected monitoring devices, intelligent diagnostics and connected devices and software from the operating room.
We are pleased to report.
Port to day, nearly 1 third of Hill Rom's revenue is connected.
Less than 20% of revenue just a few years ago from.
For fiscal 2021, we are on track to realize growth of more than 20% from across disconnected care portfolio.
We look forward to updating you on us important metric going forward.
As it reflects the evolution and advancement of Hill Rom's compelling transformation.
It's also worth noting that we do not include our connected smart beds in this measure.
Which as you know represents another 20% of Hill Rom's annual revenue.
Turning to new products.
We remain on track to exceed our objective of $620 million in new product revenue for 2021.
Year to date, we have achieved new product revenue of more than $480 million, an increase of 11% and we have launched 10, new products over the course of the year.
Our new product pipeline.
Line is robust and remains weighted towards our connected care growth platforms, which is intended to boost our overall weighted average market growth rate towards mid single digits in the years to come.
On the international front, given tough year over year comparisons due to Covid revenues were down.
But the underlying business grew in low single.
Single digits, our top performing region was Asia Pacific with 10% growth in the quarter. We continued to see strong China performance as revenues more than doubled in Q3 off of an easy prior year comparison related to the pandemic.
In terms of M&A, we continue to transform our portfolio with.
The growth oriented strategy.
We remain focused on deploying capital with a disciplined approach adhering to our rigorous strategic and financial criteria to drive attractive returns and shareholder value.
Over the last 2 years, we have deployed capital of approximately $350 million across 6 transactions.
Actions in fiscal 'twenty, 1 of these acquisitions are expected to contribute approximately $80 million in annual revenue.
And collectively generate organic growth of more than 30%.
M&A has been and continues to be an important part of our overall growth strategy.
With improved balance sheet flexibility, we are in a strong position to enhance.
Our category leadership and further our growth objectives.
We remain active in evaluating additional tuck in opportunities that are aligned with our connected care vision enhance our business and improve outcomes for patients and their caregivers.
Now, let me briefly review performance by business at constant currency rates.
First as you may recall, our patient support systems business generated record revenue last year of 21% growth the business benefited from the global surgeon demand for ICU and med <unk> bed systems as hospitals around the world expanding capacity in the early phase of the Covid outbreak the.
This translated.
<unk> into the PSS headwind of more than $105 million, resulting in the expected Q3 revenue decline of 18% when compared to the prior year. However.
Excluding last year's onetime Covid benefit.
Revenue growth was 9%.
Reflecting sequential improvement and underlying growth.
<unk> of our bed systems, and rentals as well as strong demand for our care communications platforms.
And care communications revenue increased more than 35% in Q3 setting the stage for sustained acceleration.
This business remains an important platform within our connected care ecosystem in the acute.
We are setting and is well on its way to comprising nearly 10% of hill Rom's total annual revenue.
In frontline care third quarter revenue increased 3%. However, excluding last year's 1 time impact from the ventilator stockpile orders of approximately $25 million.
Growth was.
Was 14% reps.
Representing the highest quarterly growth rate since the Welch Allyn acquisition in 2016.
Solid performance was driven by accelerated recovery as physician office visits return to pre COVID-19 levels as well as the continued contribution from new products, including the retina Vue imager.
<unk> for screening of diabetic retinopathy.
Lastly, surgical solutions revenue increased 8%, reflecting strong growth in operating room tables, including record placements of integrated table motion as well as patient.
Patient positioning products as surgical procedures rebound this more than offset the difficult.
Difficult comparison from the completed the exit of the international surgical OEM business as.
Excluding the surgical OEM revenue in Q3 last year of approximately $13 million surgical revenue growth exceeded 30%.
Overall, we are very encouraged by the positive momentum and growth in our surgical order book.
And backlog of.
The strong indication that hospital constraints are easing and providing enhanced visibility into growth acceleration for fiscal 2022.
Before turning the call over to Bob I'd like to update you on the BARDA diagnostics transaction.
Following the Delaware Court of Chancery us ruling.
We thoroughly explored and assess the variety of strategic options.
We have now concluded that the best path forward for our company and for our shareholders is to complete the transaction under the previously announced terms.
Even with recent reimbursement decisions.
We have renewed.
2 weeks since in the underlying strength of the body business the value of RT solutions provides the caregivers and patients and the opportunities that lie ahead for the <unk> portfolio as part of Hill ROM.
Although this didn't turn out as originally contemplated we believe there is a compelling strategic rationale for the acquisition.
BARDA has differentiated diagnostic cardiology platform is complementary and further strengthens hill rom's existing cardiology portfolio and our connected care of vision.
We expect to be able to leverage our brand and presence in the acute and primary care settings and capabilities around market access payer contracting.
<unk> data security and EMR integration to accelerate the adoption of bodies can patch among other solutions.
Additionally, the Bharti technology and innovation capabilities will enable us to advance the roadmap of our digital transformation.
As for the reimbursement landscape.
Once we close the transaction, we will be in a better position to work directly with reimbursement decisions with CMS and Medicare administrative contractors, including Nova to us too.
To ensure that patients have access to critical lifesaving monitoring solutions at appropriate and accessible prices.
We look forward of closing the acquisition in the next week or so and welcoming the BARDA team to Hill ROM.
With that let me now turn the call over to Barbara.
Thanks, John and good morning, everyone I will briefly walk through our financial results before turning to our updated guidance.
As mentioned worldwide revenue.
The Q3 of $718 million declined by 6% on a reported basis compared to $768 million in revenue last year.
Revenue declined 9% on a constant currency basis.
Excluding last year's onetime COVID-19 benefit of approximately 130.
Million.
Revenue growth was 10%.
Adjusted gross margin was 52, 2%, which exceeded our expectations.
This is 160 basis points below last year's record gross margin of 53, 8%, which included a benefit of 230 basis.
Basis points from onetime COVID-19 related purchases.
Excluding the Covid impact our gross margin expanded 70 basis points due to continued favorable product mix and operational improvements.
R&D spending of $36 million or 5% of total revenue was in line with expectations.
Patients and nearly $2 million higher than last year.
Adjusted SG&A of $202 million increased 3% as we continued to invest in our strategic growth platforms. While also realizing benefits from our business optimization program implemented last year.
As a result, the adjusted operating margin was 18, 9%.
Interest and other non operating expenses totaled $19 million and the adjusted tax rate was 21%.
Overall this translates into adjusted earnings for the fiscal third quarter of.
$1.38 per diluted share of decline from the record set last year of $1.95 per diluted share.
Now turning to cash flow cash.
Cash flow from operations for the first 9 months of 2021 was $410 million a 30.
1 of an increase compared to prior year.
Primarily driven by higher net income and favorable change in working capital.
Capital expenditures on a year to date basis totaled 69 million $3 million lower than the prior year, which includes the investment we are making in our global information technology transformation.
<unk> as a result year to date free cash flow was $341 million an increase of 41%.
Our balance sheet and financial position remains very strong to date, we've returned $186 million to shareholders through dividends and share repurchases and we.
Raised our dividend for the 11th consecutive year.
We ended the quarter with $272 million in cash and our debt to EBITDA ratio at the end of June was 2.6 times or 2.2 on the net basis.
Now, let me conclude my remarks with our.
Updated fiscal 2021 guidance.
As John shared earlier, we now plan to close the Bardy diagnostics acquisition in the coming weeks.
Therefore, our fourth quarter and full year guidance now includes bharti.
Despite modest dilution related to the <unk> transaction, we are pleased to be raising our revenue.
Adjusted earnings and operational cash flow guidance for fiscal 2021.
So for the full year, we now expect revenue to increase 3% to 4% on a reported basis, which includes the benefit from foreign currency of at least 150 basis points.
Excluding.
<unk> Covid impact in both the current and the prior year, our underlying revenue growth is expected to be 5% to 6%.
By business segment at constant currency rates, we now expect patient support systems revenue to decline between 1 and 2%.
Frontline care revenue to.
Leading the growth between 5 and 6% which includes Bharti and.
And finally, we continue to expect surgical solutions revenue of 3% to 5%.
From a profitability perspective, we continue to expect adjusted gross margins of approximately 52% and an operating margin of approximately.
<unk>, 19%.
We continue to expect R&D to approach, 5% of sales and SG&A to represent approximately 28% of revenue.
We continue to expect other expense, which includes interest of approximately $60 million, reflecting estimated savings related.
Grow Andre redemption.
And the tax rate of approximately 20%.
This translates into adjusted earnings of $6.8 to $6.12 per diluted share for the year, which reflects double digit adjusted earnings per share growth.
Excluding the Covid impact from both the current.
To our band the prior year, our updated guidance contemplates earnings per share growth of nearly 20%.
From a cash flow perspective, we are now expecting operating cash flow of approximately $480 million.
An increase of $30 million at the midpoint compared to our prior guidance of 4.
<unk> hundred $42.460 million.
We continue to expect capital expenditures of approximately $100 million.
Resulting in free cash flow of approximately $380 million.
For the fiscal fourth quarter 2021, we expect revenue growth of 6.
To 7% on a reported basis and expect adjusted earnings excluding special items of $1.44.
To $1.48 per diluted share.
As a reminder, last year in the fourth quarter onetime COVID-19 related purchases contributed revenue of 30.
Billion dollars and estimated earnings per diluted share of approximately <unk> 10.
Excluding the Covid impact, we expect Q4 revenue growth of 10% to 13% and adjusted earnings per share growth of 35% to 38%.
I would highlight that our fourth.
Quarter outlook continues to reflect recovery momentum in the underlying business as we exit this fiscal year and does not include any COVID-19 related purchases.
The ongoing scope and evolution of the pandemic remains uncertain and could present pandemic related risks or opportunities that may require updates to the fiscal.
5 months in in 'twenty, 1 guidance ranges provided today.
And now I'll turn the call back over to John.
In summary, we reported solid results for Q3 and raised our guidance for the third consecutive quarter.
We are on track to deliver another year of strong financial performance with underlying mid single digit revenue and double digit.
Bottom line growth.
Showcasing the benefits of our diversified portfolio and Optionality. It creates us we successfully navigate challenging events like the global pandemic.
Importantly, we continue to generate this high level of performance, while investing in our business to drive accelerated and sustainable growth in the future.
We appreciate the many of you are evaluating hill rom's growth prospects and opportunities beyond the current fiscal year.
And while it's too early to provide details of 2022 guidance.
We want to reiterate our conviction and commitment toward our previously disclosed long term growth profile. This.
This includes mid single digit revenue.
Revenue growth and double digit EPS growth for the future years.
Specifically for fiscal 2022, we expect the flow of our guidance range to reflect this profile after adjusting for the onetime COVID-19 related benefit in the first half of fiscal 'twenty 1.
This benefit includes approximately 80.
Sales and revenue and adjusted earnings of <unk> 40 per share.
Obviously, there continues to be uncertainty regarding the pandemic the effectiveness of vaccination efforts and resurgence of new variance. These factors as well as the underlying strength of the portfolio the impact of the Bard transaction.
<unk> and litigations around of rising cost environment are all contemplated in this outlook.
Let me close by once again thanking the hill ROM team around the world for the resilience unwavering commitment passion for meeting the evolving needs of our customers and their winning spirit.
Our vision of advancing connected care us more vital than ever.
80 million by successfully executing on our strategy, we look forward to unlocking significant value for patients caregivers and shareholders as we deliver on our mission.
That concludes our prepared remarks, and now I'd like to open it up for Q&A.
Thank you.
We will now begin the question and answer session.
Ever you have a question.
Please press star 1 on your thoughts of stone phone.
If you wish to remove yourself from the queue press about key.
If you are using a speaker phone.
Please lift the handset to ask your question.
We'll pause for a moment of the list is being combined.
I would like to remind participants that this call is being recorded.
The digital replay will be available on the Hill ROM website for 7 days.
Triple double you dot.
Hill ROM Dot com.
Our first question comes from Rick Wise of.
Stifel. Your question please.
Another excellent quarter.
Right.
Im going to start off.
The hope not an uncomfortable place.
Theres been a few rumors and speculation.
And the market as you know I'm sure you don't want to address the specifically because I felt that maybe a way to ask you about it would be to us.
The.
Following the question, John where do you see yourself, where does the hill ROM team see themselves in what I know is a multiyear positive transformation.
Acceleration of growth margin expansion and is there anything as we contemplate the future.
You might be a good team better able to achieve.
Inside maybe a larger portfolio or the.
The access the greater capital or something.
So that you could do better to reach those goals as opposed to independently and pursuing the clearly positive plan that's underway.
Yeah, Thanks, Rick as you kind.
You can appreciate we can't comment on rumors or speculation.
But I can say that we're laser focused on.
Driving our strategy of connected care and category leadership, and we're very pleased with the progress we're making.
To your question of where are we in the journey I might point to the statistics that we shared on the call today, the 30% of our revenue today is connected care devices and it's growing at 20%.
So.
On the proxy we think that's a very important metric that we will continue to update investors on.
So you might say there were 1 third of the way there and we have 2 thirds of our portfolio to go turn it into a complete connected care portfolio.
Drilling at those kind of market growth rates and as you may have seen in our.
Slides slide number 8 you'll see that.
Those growth categories of care communications and connected monitoring.
Those of the highest growth categories that we're in double digit growth categories. If we can move our entire portfolio into double digit growth markets.
I would say we have achieved our objective.
<unk>.
Got it that's great and just as the second question to follow up on on the guide totally understand the fourth quarter guide.
And.
And I appreciate the comments.
Sort of early setup and look at 'twenty, 2 but just.
Sorry to use your words against true here John but.
My goodness of third of the portfolio.
Growing more rapidly than the rest.
10, new products still launching markets recovering.
The the.
The acceleration.
Investments continuing M&A, the great balance sheet.
Why should we believe you.
And I say that with the smile when you talked about mid single digit the fiscal 'twenty to us.
As a way to sort of why wouldn't it be given all of the things that are happening in recovery in the portfolio of X y.
And maybe sort of thinking.
Instead of your 5% plus language that you used in the past why aren't we thinking 6% of pluses.
Contemplate the year ahead, I know you are conservative but anyway. Thank you for the question.
Yeah. Thanks, Rich I appreciate that and I do take it with the smile eye can see.
I wouldn't read.
We're very pleased with the progress right if I just start with the.
The stripping out all of the Covid factors for this year.
Would be first half of the year flat growth on the top line. We've just reported 10% in Q3 and our guide in Q4 is 12% plus so we.
Can you frame of the momentum we see in the underlying business.
And are very pleased with the progress that we're making with all of the various investments you outlined through M&A through new products through connected care.
Through emerging markets. So those are all clicking it's a little bit early for us to provide guidance for 2022.
<unk>.
We like having a solid track record of meeting or beating guidance that we put out there I think we've done that now 16 quarters in a row.
Measured and will be.
Balanced in our outlook and.
As we get closer to each of the quarters, we'll update you but.
We like but the reason for optimism, we're comfortable with where consensus currently sits in the next couple of months close out of our year and talk about 'twenty 2.
Sounds great. Thanks, John.
Okay.
Bob Hopkins of Bank of America Us on the line with the question.
<unk>. Please state your question.
Great. Thank you and good.
Morning, So just a.
Follow up there.
The 22, I guess, John I heard you like.
When you contemplate all of the things that you mentioned in there that now the Bharti is happening in all of the things you see.
You're kind of dealing with the comparisons on COVID-19 that you're as it where it stands today, you're roughly comfortable with how consensus modeling for next year. At this point is that the the message on next year, yes.
Okay great.
And then couple.
A couple of the really quick things on Bharti.
Yes, some sense for what that is growing today and how things are progressing with that business.
Just want to make sure that previously you had said kind of whatever happens with bharti.
You won't let it disrupt the double digit EPS growth outlook, just want to confirm that's officially part of the portfolio are going to be that that remains the same. So how is the already doing.
You just get them and still have that same 10% commitment.
Even with this deal now going to close yeah.
Yes, sure Great question Bob.
When we obviously we're in litigation for several months with Bharti, we didn't have visibility to their performance during that period, but a few weeks ago, we got visibility to it and we were extremely.
Now with the execution of the team has continued to.
Yes of to add.
To your question about growth is well over 50% growth in revenue.
On a year over year basis.
Going to contribute even just even just in 2 months of our fourth quarter there'll be a 100 basis points of inorganic growth.
And we expect it will be a minimum of 100 basis points of inorganic growth next year as well.
<unk> gross margins better than the company average.
From a dilution point of view.
Obviously, a cut in reimbursement for roughly 30% of the business does have a bottom line impact it's about 4.
Impressive.
This quarter and as the business scales into next year.
Quarterly.
Dilution rate will will will subside and we have a lot of levers inside the company, we're a big diverse company.
Lot of levers, we can pull to offset dilution. So yes, there is some dilution.
For the 2.
But nothing we feel we can handle and incorporate as we manage the business going forward.
But we still love the <unk>.
Part of team the Bharti technology it is growing at.
2 to 3 times market growth rates.
It's highly differentiated it is exceptionally.
The good diagnosing cardiac arrhythmias, and we bring a tremendous amount of capability with EMR integration and market access and payer relations not to mention the important really important work of Medicare and Mac.
Pricing decisions that will be forthcoming.
Coming in the in the near future.
So we intend to lean in on all of those items and really help to help the business accelerate under our ownership.
Great.
Thanks very much.
I'll get back in queue. Thank you.
Thank you Bob.
Mr. Michael <unk>.
<unk> of Baird is on the line with the question. Please state your question.
Hi, good morning.
I'll double click on the BARDA thread there on reimbursement John I'd, just love to get your.
The latest thoughts there I mean, I think the note current posted novae tax rate in Houston the 115.
Yes.
What are the things realistic outcome here and over what time horizon, whether that be.
Through the contractors or with Medicare would love to get your update there now that you are moving forward with the transaction.
Sure. Thanks, Mike.
It's a really important part of our.
Diligence or evaluation of strategic options in the last few weeks.
We're really pleased with the progress party was making as well as the work that they were doing with other industry players.
And without getting into specifics we feel.
Confident that positive changes can be made.
Without the CMS or the Max or.
<unk> to us.
In the coming months that we can make some progress to advance those discussions and we're hopeful that a more positive reimbursement rate will follow for calendar year 'twenty 2.
No promises yet we haven't factored in that kind of upside into.
Our outlook.
But theres reason to have hope that that that could be in the cards for the next calendar year.
I appreciate that and I know you don't know.
The old rate round numbers $300 range now of 100.
15.
Alright, do we what are you seeing something with the higher 1 with the 2 on it back to the 3.
Order of magnitude what.
What are we talking about here, yes, I think I think microwave of you or maybe another sell side analyst.
Observing that.
At the.
The proposed higher rate of mid 4 hundreds.
Probably viewed us too high and then the current certainly of the 55 initially and now the 110 north.
The test rate was viewed us too low.
So yes, I think someone was framing it that way and that seems like a reasonable way to frame it I'm not going to put a number out there.
But but it's.
That is currently of level is not sustainable.
For appropriate access for Medicare patients that I think we'd all agree on and Thats. The case that we need to present data to the Max and Nova to us and CMS that thats not a reimbursement rate that.
As viable.
And does not provide appropriate access for these patients so we'll see where those discussions end up but.
We can all of I think we've all of the industry side and those who have.
Access this information and see what the true cost of delivering the service in the devices is.
All of them agree that the current reimbursement rate is too low.
Yes.
If I can sneak 1 last 1 in on care com shifting gears.
Heard about a good revenue growth rate in that business in the quarter. It would be curious of what the forward looking indicators looked like new bookings in the period backlog development.
<unk>.
Youre close peer in that space.
With another positive set of numbers last night, So I would love your.
Your comments John.
Yes, I mean, obviously in our prepared remarks, we commented the grew 35% in the quarter, which was an acceleration from from Q2.
2 of 15%.
We're really pleased with our broad portfolio of offerings there.
We generally don't comment on the details of our backlog, but I will tell you of that.
Of that large deal that we discussed several quarters now is underway orders are.
Being received in <unk>.
Shift of we'll expect to see some revenue recognition in the in our.
<unk> fourth quarter and with that in our pipeline and into next year. We continue to expect double digit growth in net net overall category.
Thank you so much thank.
Thank you.
Drew Ranieri of Morgan Stanley is on the line with the question.
Please state your question.
Hi, Ron Thanks for taking the question.
John just to touch on the <unk> acquisition that you made to us.
Jim ago.
Just like to get an update there now that we're kind of getting back to.
On the environment kind of what's the revisions to the product in the home sites at Inc.
And maybe what investments are you going to be putting behind the product.
Really see that vision playing out.
Yes, thanks for the question.
The.
The Covid period of time was very challenging for that component of our respiratory.
<unk> business because of respiratory therapists, we're so busy with the COVID-19 patients.
Now with the returning to normalcy of of workflow and patient therapies. The rest for all logistics and respiratory therapists are dealing with we are seeing really nice traction resuming.
And the last couple of quarters with our.
At home ventilator product, which is the life of 2000.2000 device.
And we're kind of back on track with the trajectory that we that we had shortly after the acquisition.
As you'll remember last year, we had a very large stockpile order for that ventilator product.
And now that we're passing in Q4 were past the comp of that which we pass part of it in this last quarter, but it was a significant I think $25 million comp.
In Q4, and once we cycle past that we'll start to see more.
More transparently the performance of that business, but where.
Pleased with the rate of prescription growth and the rate of placements in the home of that therapy, Jerry just to just to clarify the 25 million year over year comp was in Q3, and it's about a $10 million.
When the in Q4 on breathe and excluding the Covid impact this business continues.
Really to generate double digit growth.
Okay, great. Thank you.
Just shifting gears to the surgical solutions business, John you talked about constraints being lifted in the hospital environment.
But just maybe talk about the remaining opportunity that you see for integrated table motion I know US you said record.
Record placements in the quarter.
And then just.
Just help us frame the order book backlog anything that you can give to just show us the health of the business would be appreciated. Thank you.
Yes.
Now the.
Things are normalizing and access us largely.
<unk>.
Our.
We've been building the backlog.
And an order book during during the last 6 quarters and now that's starting to get deployed.
So we're really pleased with the performance there.
Talking about our prepared comments GSS grew.
At 8%.
Excluding COVID-19, but if you take out the OEM exited was actually 30%.
And then if you look into Q4, we expect that growth rate is that high high double digit growth to continue.
And we're really excited about the new Healy on launch, which is our really our first truly connected or.
Integration product.
It is such a cool product for for you to see if I can definitely can demonstrate of 1 for 1 day for you.
But without the surgeon without the surgeon touching anything they are able to control all of the video elements.
Net are going on in the or all of the video the imaging elements of.
The other day to that they need to us to navigate during the procedure and have access to timely information.
This is really truly next generation.
Video integration in the <unk>.
And we're very excited about the opportunities for that platform to serve as our or.
Activity hub as we build out the additional digital solutions in the operating room.
So we're excited about that business.
Really excited about the new launch for Helios.
The integrated table motion now that.
<unk>.
Robotic placements are picking up.
Our attachment rate to that robotic system is extremely high so we're pleased with that performance too.
Thanks, John and just 1 last 1 on the China performance in the corner you called out double digit growth, but on an easy comp, but just like the here maybe an update on that.
That segment of the business, where youre seeing the most.
S growth and just.
Remind us kind of where your emerging market penetration is today and what the growth options are going forward. Thank you.
Yes, just to clarify Asia Pacific was up 10%, but the China business last quarter doubled.
It wasn't double digit.
<unk> had double digit growth in China for.
8 of the last 9 quarters.
There was 1 quarter during the pandemic, where it went backwards.
But otherwise we're very pleased with the traction we're seeing there.
And continue to believe we have significant untapped potential in our China market for our portfolio.
Thanks for taking the questions.
Thank you.
Matt Taylor of UBS is on the line with the question.
Please state your question.
Alright. Thanks can you hear me okay, yes.
Yes.
Sure.
So the first question I wanted to ask you is now that you just.
The reported a quarter for the first time in a while it hasn't had the.
<unk> of an impact.
Could you talk about your ability to grow.
The fiscal 'twenty 2 over what you still have us some tough COVID-19 comps.
In the first half or should we continue to see any COVID-19 benefit going forward or is that all of them.
Yes, we're not calling out any expected COVID-19 benefit in the future.
Didn't see anything in Q3 don't expect anything in Q4.
So with the exception of the $80 million of benefit that we saw in the first 2 quarters. This year 40 million each quarter on top line.
That's true.
That's the comp or the headwind that we will overcome as we enter 2002.
Okay and could you make any comments on your ability to grow over that comp based on the kind of interesting from the underlying business.
Look I think the underlying business I'll repeat those metrics I mean, I think that the progression we're seeing of the acceleration.
<unk> of of our performance this year.
Is it apples to apples excluding COVID-19.
Q1, and Q2 were flat.
Excluding the Covid, we had a we had a covered benefit in Q1 Q2, the drove the growth the strip that out of it was flat Q3 was 10% growth and we expect Q4 to 12.
So.
That's a pretty good progression, we're very pleased with that progression.
Obviously, you have some headwind comps to overcome in Q1 and Q2.
And once we finalized guidance for 'twenty, 2 will be will be here in 3 months of talking about it.
Okay. Okay.
And then this.
This may be an unanswerable question, but I had to ask because.
Speculation about turning down a $144 offer could you just offer some thoughts on what you think the business is worth and.
I guess, if there wasn't approach from from someone.
Notwithstanding the rumors.
How would you think about addressing that kind of an approach.
Yes, I can't comment on the list kind of rumors net.
Okay.
Alright, Thanks John.
Okay.
Matthew Misha <unk> of Keybanc is on the line with the question. Please state your question.
Hey, Good morning, just first can you guys give us a sense.
The early reaction from the docs on the digitalization of the physical assessment tools.
Yeah. Great question. This is our enhanced physical assessment tools of ads smartphone technology to OTA scopes and ophthalmoscope.
The initial response has been very strong.
John.
We are seeing.
A lot of great use cases that we expected.
And the ability to capture images store them see disease progression share them with other caregivers are shown with family members.
All of the things we expected.
Those customers.
There hasn't been that kind of innovation in this space for a long long time.
So we're super excited by the feedback we're getting and we think it is going to bring growth 2 of our large category. This has largely been flat year.
Year over year 4 from for many years.
Right.
And then a follow up on breathe.
Excuse me the opportunity from from a competitor of ventilator recall.
You know, what I'd say nothing material to date.
We're looking closely at ways, we can help meet patient needs and demand, but we haven't directly seen any benefit there.
And then the last 1 is a follow up on on on Bharti I, just want to make sure I understand.
I think when you announced it.
You said it would be tens of dilutive, but anyway, the captured within within the range.
What is it.
Isn't part of guidance book before it now is part.
Of guidance and it's 4 to 5 dilutive to 2 of the fourth quarter, which means you could of extra the if it wasn't part of it your EPS would've been would've been a little bit higher.
Is that correct, that's exactly right Matt.
Okay, Alright, thank you very much.
Brent do you have time for 1 more question.
Thank you.
Mr. Mike Madsen of Needleman <unk> company is on the line with the question the state your question.
Yeah.
I wanted to ask about <unk>.
9 where you show the change in the portion of your business Thats kind of.
Coming from connected care.
I mean, I don't know if you can answer this but how much of that 15% to 30% of increase driven by M&A vs.
Internal product development or.
Just growth of the products that you have already.
Slide sure well of the 6 acquisitions, we've done 5 of them would be in the connected care category.
In total of it we said in our prepared comments all of those acquisitions were $80 million.
So of the 5 that are connected care. The 1 that's not us as the ventilator right.
The <unk> acquisition.
So of the $80 million I think it's around $50 million of it would be connected care.
So it's not a material.
A portion of that of that growth is really it's part of it is not us.
The meaningful material.
The Louvre.
Okay Mike.
Mike 1 other 1.
The other point is that about 40% of the connected care revenue is also in the new product bucket that we talk about.
Okay.
And then the expert.
Just in terms of the upper limit I mean, I think you mentioned earlier, John when you think you could get us to a 100%.
Of the business I mean is.
That's essentially taking things that the.
The products that you're selling and just adding in some sort of connectivity to them essentially are.
Yes that was probably more of a hypothetical let me clarify that comment I mean, we're at 30% today of course, there's no.
There is no reason.
To have certain parts of our portfolio of connected so maybe maybe the upper limit of the of the practical.
The interesting just for the sake of connecting them, it's got to have value to the customer. So maybe it's more of like that the upper threshold is probably the more like 80% of the portfolio would.
It would be benefited by a connected solution.
And Thats also incorporating the mix rate of new products, becoming a larger portion of the mix the acquisitions, becoming a larger portion of the mix.
And that also helps our gross margin by the way because these are accretive gross margin products. So so that's another benefit to 2 of these connected care products as that mix shifts.
At the time, and it's moved quite a bit in the last couple of years as you've seen from that slide on slide 9.
The debt becomes the growth driver in the company.
Gives us the gross margin and op margin leverage were looking for.
Okay got it thank you.
Thank you.
I think that wraps it up operator, thank you for everyone joining the call today.
Ladies and gentlemen, this concludes today's conference call with Hill ROM Holdings incorporated.
For joining.
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Shifts.
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Yes.
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Okay.
The foundry.
<unk> growth.
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True.
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