Hill-Rom Holdings, Inc. (HRC)

Goldman Sachs 33rd Annual Global Healthcare Conference

June 06, 2012, 14:20 p.m. ET


John Greisch - President and CEO

Mark Guinan - CFO

Andy Rieth - VP, IR


David Roman - Goldman Sachs


David Roman - Goldman Sachs

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Good morning everyone. We go ahead and get started with the next presentation. I’m very pleased to welcome management team from Hill-Rom. We have John Greisch and Mark Guinan; CEO and CFO, respectively, here this morning and as always like to keep it as interactive as possible. Andy Rieth is hiding in the audience. So, any of you guys who want to tap him for a question he is sitting right over here in front.

But John maybe we can sort of start off by giving us an update on how the business has progressed and if you put out the LRP just over a year May of 2011 you presented a long range plan and since that, I think business dynamics have not exactly played out. I think as most might have expected. Just frame pretty impressed. What’s changed in the macro environment over the past year and what have been through the surprises to the upside and the downside relative to what you laid out last May?

John Greisch

Yes, I think the rigorous change since then is probably Europe which I think is [two-fold]. Everybody in the med device world the uncertainty in the impact of austerity measures and spending on healthcare in Europe is certainly different than I think what we had anticipated going back 18 months when we began pulling the LRP together. I think as we came into this year, our expectations for Europe included decline in revenues in the low single-digit range which is what we have experienced and that certainly wasn’t part of our long range planning for Europe. So, in that timeframe I think Europe certainly would be at the top in the list of what’s changed.

Over the past several quarters, I think the North American acute care market for bed frames and surfaces that the rate of growth has slowed relative to what we experienced in 2010, 2011, so that’s probably decelerated faster than what most of us in the industry had anticipated going back 1.5, 2 years ago.

I think on the positive side, I think our ability to generate strong sustainable cash flow in a challenging top line environment has certainly matched or exceeded our expectations and I think the strength of what I call the cash flow machine that Hill-Rom represents has been solidified over that timeframe. So, that’s where are encouraged, we got a very strong balance sheet and consistently improving operating cash flows. At the same time, I think when I first got here couple of years ago; we laid out a goal to get our SG&A rate down below 30%. We are just about there right now. So, I think looking back we probably gotten there little sooner than I thought even in an environment where revenues were more challenged than what we had anticipated. So, a bit of a mixed bag, but a lot of positives at the same time, we are dealing with some of the headwinds that were not as visible two years ago as they are today.

David Roman - Goldman Sachs

Is there a quarter for debt cycle, because if you look at the past, I know you expected that five years where unique economic operating environment, but you did this for credit driven meltdown in 2008 and ‘09 you had this massive resurgence in 2010 and ‘11 and now things appear to be sort of softening, but not nearly to a degree to where thought ‘08 and ‘09 and that we are coming off what was very heavy growth to little bit more moderate.

John Greisch

Yes, I think if you look overtime the replacement cycle has been in the 12 to 14 year timeframe. I think it was on the short end of that back in the ‘07 timeframe when credit was cheap and available to everybody. It got to the high end if not above that in ‘08, ‘09 credit crunch timeframe and I think the last couple of years I don’t think the cycle has changed but now it was two more years under our belt and visibility. I think it's clear the pent-up demand that was not being spent in the ‘08, ‘09 timeframe came back in ‘10 and ‘11. And as we come into this year as you all know, I think we have all seen probably a more rapid slowdown in that rate of growth of spending and probably more now in the more normalized replacement rate that would be the expected historical turn.

So, it has ebbs and flow I use the term, this is the lumpy business many times and not just in the United States but oversees as well. And I think if you look back over the last six years this cycle has been more pronounced and probably it had been part of that period.

David Roman - Goldman Sachs

And you think of credit right now is cheap and available as well it seems like the dollars and optimal CapEx are relatively flattish an issue of shifting priorities at the hospital level. Sometimes it's HVAC, sometimes its pumps or beds or who knows MR, CT that sort of the dynamics that you guys are seeing?

John Greisch

It's hard to generalize across the hospitals within the United States and point to anyone single thing that’s impacting the industry broad way. I think every hospital has its own set of dynamics that is dealing with, but I think as you said capital spending broadly appears to be relatively flat. I think our case as best as we can tell, with the pent-up demand accounting for a portion at least of the 2010, 2011 growth that we saw. I think our frame and surface business was up 25% last year over 2010 clearly that wasn’t sustainable. And I think other capital priorities had probably jumped ahead of beds as we are now in 2012, but again hospital to hospital it's a different story, but I think broadly the priorities will focus more towards beds in ‘10 and ‘11 to catch up with some of the demand that had been delayed. And now what we are seeing that growth rates for now.

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