THIRD QUARTER 2015 EARNINGS CALL - Avanos …2015...Third Quarter 2015 Earnings Call 14 $63 $46 Q3 2014 Q3 2015 Adjusted Operating Profit 15.4% 11.8% 36% 15% •Lower S&IP sales volume

THIRD QUARTER 2015 EARNINGS CALLNovember 3, 2015

THIRD QUARTER EARNINGS CALL AGENDA

2Third Quarter 2015 Earnings Call

• Third Quarter Update – Robert Abernathy, Chairman

and Chief Executive Officer

• Third Quarter 2015 Results and 2015 Outlook – Steve Voskuil, Chief Financial Officer

CONFERENCE CALL REMINDERS


FORWARD-LOOKING INFORMATION Certain matters in this presentation and conference call, including our 2015 outlook, expectations and planning assumptions, and any estimates, projections, and statements relating to our business plans or objectives, constitute forward-looking statements and are based upon management’s expectations and beliefs concerning future events impacting the Company.

These statements are subject to risks and uncertainties, including currency exchange risks, cost savings and reductions, raw material, energy, and other input costs, competition, market demand, economic condition, and legislative and regulatory actions. There can be no assurance that these future events will occur as anticipated or that the Company’s results will be as estimated. Forward-looking statements speak only as of the date they were made, and we undertake no obligation to publicly update them. For a more complete listing and description of other factors that could cause the Company’s future results to differ materially from those expressed in any forward-looking statements, see the Company’s most recent Form 10-K and Quarterly Reports on Form 10-Q.

NON-GAAP FINANCIAL MEASURESManagement believes that non-GAAP financial measures enhance investors’ understanding and analysis of the company’s performance. As such, results and outlook have been adjusted to exclude certain items for relevant time periods as indicated in the non-GAAP reconciliations to the comparable GAAP financial measures included in this presentation and in today’s earnings release posted on our website (www.halyardhealth.com/investors).

THIRD QUARTER UPDATEROBERT ABERNATHY, CHAIRMAN AND CHIEF EXECUTIVE OFFICER

THIRD QUARTER UPDATE

5

• Celebrated one-year anniversary as an independent company

• Strategic vision to create shareholder value through portfolio transformation

• Achieved meaningful accomplishments and faced some challenges

• Third quarter results mixed

Third Quarter 2015 Earnings Call

THIRD QUARTER UPDATE


• Building Halyard as an independent company- Exiting Transition Services Agreements (TSAs)

- Internal focus on improving efficiencies and reducing costs

- Rebranding and repackaging on track

•Medical Devices on plan

- 5 percent growth this quarter

- Continued strong growth of COOLIEF*

- Improved ON-Q* performance

•Challenges in S&IP

SURGICAL AND INFECTION PREVENTION RESULTS


• Challenges attributed to 3 factors:- Market dynamics affecting price

- Competitive market intensity in Surgical Drapes and Gowns

- Sales conversion in Exam Glove business

• Encouraged by recent progress- Renewing key contracts

- Accelerating market share in Exam Gloves

SURGICAL AND INFECTION PREVENTION IMPAIRMENT


• Annual impairment testing

• Preliminary non-cash goodwill impairment - No impact on cash flow from operations

- No impact on bank covenants or liquidity

- No change to daily operations or long-term growth strategy

• Remain confident in long-term strategy

THIRD QUARTER RESULTS


• Reported $0.52 adjusted diluted EPS- Slightly above plan- Growth in Medical Devices- Favorable commodity prices

- Manufacturing cost savings

• Controlled discretionary spending

• Solid balance sheet

• Increased research and development investment

OUTLOOK FOR BALANCE OF 2015


• Narrowed EPS range to the top end

• Full-year adjusted diluted EPS, $2.00 to $2.10

• Focused on delivering sales and EPS guidance

• Laying the groundwork for 2016

THIRD QUARTER 2015 RESULTSSTEVE VOSKUIL, CHIEF FINANCIAL OFFICER

THIRD QUARTER 2015 HEADLINES


• Third quarter sales totaled $390 million

• Adjusted operating margin of 12 percent

• Adjusted EBITDA of $56 million

THIRD QUARTER CONSOLIDATED PERFORMANCE


$409 $390

Q3 2014 Q3 2015

Total Net Sales

36%

15%

$143$136

Q3 2014 Q3 2015

Adjusted Gross Profit

34.9% 34.9%

• $13 million net sales impact due to unfavorable currency exchange rates• Manufacturing cost savings and lower commodity costs• Lower production volume and price erosion in S&IP

Millions

Change in NS Q3

Total Change -5%

Volume 0%

Price/Mix -1%

Currency -3%

Other -1%

THIRD QUARTER CONSOLIDATED PERFORMANCE


$63

$46

Q3 2014 Q3 2015

Adjusted Operating Profit

15.4%

11.8%

36%

15%

• Lower S&IP sales volume and pricing

• Stand-alone costs• Adjusted operating profit

excludes:

- $16 million post-spin related charges

- $9 million for litigation matters

- $7 million intangible amortization expense

- $476 million preliminary non-cash goodwill impairment

Millions

THIRD QUARTER S&IP


$279$257

Q3 2014 Q3 2015

S&IP Net Sales

36%

15%

$37

$26

Q3 2014 Q3 2015

Operating Profit

10.2%

• Competitive price dynamics• Lower volume in Surgical Drapes and Gowns and Protective Apparel • $11 million of incremental annual Exam Glove contracts• Slower sales conversion in Exam Glove business• Lower Exam Glove sales to Kimberly-Clark

Millions

13.2%

Change in NS Q3

Total Change -8%

Volume -2%

Price/Mix -2%

Currency -4%

Other 0%

$20

$29

Q3 2014 Q3 2015

Operating Profit

22.6%16.7%

THIRD QUARTER MEDICAL DEVICES


$123

$126

Q3 2014 Q3 2015

Devices Net Sales

36%

15%

• 22 percent growth in Interventional Pain• Continued momentum in COOLIEF*• 5 percent ON-Q* volume growth within Surgical Pain • Operating profit driven by higher sales, manufacturing cost savings and lower G&A expense

Millions

Change in NS Q3

Total Change 3%

Volume 4%

Price/Mix 1%

Currency -2%

Other 0%

ANNUAL S&IP GOODWILL IMPAIRMENT TEST


• $476 million preliminary non-cash goodwill impairment charge

• Last year’s fair value exceeded carrying value by only 6 percent

• Challenging competitive dynamics in S&IP

• Anticipate pricing loss of approximately 2 percent

• Impairment reflects the significant size of the carrying value of:

- Goodwill related to legacy acquisitions

- Net step-up in intangible assets

• No impact on our long-term growth strategy

18

BALANCE SHEET & CASH FLOW


• Cash from operations was $19 million

• Ended the third quarter with $113 million of cash

• Build out of M&A pipeline

• Well-positioned to shift portfolio to Medical Devices

2015 OUTLOOKSTEVE VOSKUIL, CHIEF FINANCIAL OFFICER

UPDATED KEY PLANNING ASSUMPTIONS


• Full-year S&IP sales to decline 5 to 7 percent, constant currency basis

• Cost deflation benefit of $25 to $30 million

• Currency headwinds remain volatile

- Currency translation impact on net sales between 2.5 and 3.5 percent

- Impact on operating profit in the range of $10 to $15 million

UNCHANGED KEY PLANNING ASSUMPTIONS


• Net sales for the year to decline 1 to 3 percent, constant currency basis

• Full-year medical device growth of 2 to 4 percent, constant currency basis

• Research & Development investment of $30 to $35 million

• Capital spending at the low end of the $70 to $75 million range- Slightly above long-term target of 3 percent, due to spin-related projects

• Post spin-off transitional costs of $45 to $55 million-$60 to $75 million in total for 2014, 2015 and 2016

• Adjusted effective tax rate of 37 to 39 percent

THIRD QUARTER SUMMARY


• Delivered solid adjusted diluted EPS

• Medical Device Segment results in line with expectations

• Encouraging signs in Exam Gloves

• Well-positioned to execute long-term growth strategy

Q&A

APPENDICES

NON-GAAP RECONCILIATIONS


Three Months Ended September 30, 2015

As Reported (a)Spin-Related

Transition ChargesGoodwill

Impairment LitigationIntangibles

Amortization As Adjusted

Cost of products sold $ 258.5 $ (4.1) $— $— $ (0.7) $ 253.7

Gross profit 131.0 4.1 — — 0.7 135.8

Research and development 10.2 (0.3) — — — 9.9

Selling and general expenses 97.2 (11.6) — — (5.8) 79.8

Operating (loss) profit (461.2) 16.0 475.5 9.1 6.5 45.9

(Loss) income before income taxes (469.0) 16.0 475.5 9.1 6.5 38.1

Income tax provision (1.5) (6.3) - (3.5) (2.4) (13.7)

Effective tax rate -0.3% 36.0%

Net (loss) income $ (470.5) $ 9.7 $ 475.5 $ 5.6 $ 4.1 $ 24.4

Adjusted diluted EPS $ (10.10) $ 0.21 $ 10.16 $ 0.12 $ 0.08 $ 0.52

(a) For the three months ended September 30, 2015, potentially dilutive stock options and restricted share unit awards were excluded from the computationof earnings per share as their effect would have been anti-dilutive.

26




Pre Spin-Off

As Reported

Spin-RelatedTransaction

Charges

ManufacturingStrategicChanges

IntangiblesAmortization

As AdjustedNon-GAAP

Cost of products sold $ 276.3 $ (3.7) $ (5.7) $ (0.9) $ 266.0

Gross profit 132.2 3.7 5.7 0.9 142.5

Research and development 8.5 (0.1) — — 8.4

Selling and general expenses 111.3 (31.6) — (7.7) 72.0

Operating profit 13.1 35.4 5.7 8.6 62.8

Income before income taxes 14.0 35.4 5.7 8.6 63.7

Income tax provision (21.4) (15.3) (6.5) (3.3) (46.5)

Effective tax rate 152.9% 73.0%

Net (loss) income $ (7.4) $ 20.1 $ (0.8) $ 5.3 $ 17.2

Adjusted diluted EPS $ (0.16) $ 0.43 $ (0.02) $ 0.11 $ 0.37

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Nine Months Ended September 30, 2015

Post Spin-off

As Reported (a)

Spin-RelatedTransitionCharges

ManufacturingStrategic Changes

GoodwillImpairment Litigation


As AdjustedNon-GAAP

Cost of products sold $ 775.0 $ (8.2) $ (0.3) $— $— $ (2.3) $ 764.2

Gross profit 398.0 8.2 0.3 — — 2.3 408.8

Research and development 22.5 (1.0) — — — — 21.5

Selling and general expenses 300.2 (37.2) — — — (16.9) 246.1

Operating (loss) profit (398.2) 46.4 (12.0) 475.5 9.1 19.2 140.0

(Loss) income before income taxes (423.0) 46.4 (12.0) 475.5 9.1 19.2 115.2

Income tax (provision) benefit (17.8) (17.7) 3.6 - (3.5) (7.4) (42.8)

Effective tax rate -4.2% 37.2%

Net (loss) income $ (440.8) $ 28.7 $ (8.4) $ 475.5 $ 5.6 $ 11.8 $ 72.4

Adjusted diluted EPS $ (9.46) $ 0.61 $ (0.18) $ 10.16 $ 0.12 $ 0.25 $ 1.55

(a) For the nine months ended September 30, 2015, potentially dilutive stock options and restricted share unit awards were excluded from the computation of earnings per share as their effect would have been anti-dilutive.

28




Pre Spin-off

As Reported


Charges

ManufacturingStrategicChanges


As AdjustedNon-GAAP

Cost of products sold $ 840.6 $ (4.1) $ (54.7) $ (2.7) $ 779.1

Gross profit 392.1 4.1 54.7 2.7 453.6

Research and development 26.1 (0.1) — — 26.0

Selling and general expenses 298.1 (57.0) — (21.5) 219.6

Operating profit 70.3 61.2 54.7 24.2 210.4

Income before income taxes 73.1 61.2 54.7 24.2 213.2

Income tax provision (43.6) (22.7) (20.5) (9.3) (96.1)

Effective tax rate 59.6% 45.1%

Net income $ 29.5 $ 38.5 $ 34.2 $ 14.9 $ 117.1

Adjusted diluted EPS $ 0.63 $ 0.83 $ 0.73 $ 0.32 $ 2.52




As Reported


GoodwillImpairment Litigation Adjusted

Net (Loss) Income $ (470.5) $ 9.7 $ 475.5 $ 5.6 $ 20.3

Interest income/expense, net 7.8 — — — 7.8

Income tax provision 1.5 6.3 — 3.5 11.3

Depreciation and amortization 16.3 — — — 16.3

EBITDA $ (444.9) $ 16.0 $ 475.5 $ 9.1 $ 55.7


As Reported


Charges

Manufacturing StrategicChanges Adjusted

Net (Loss) Income $ (7.4) $ 20.1 $ (0.8) $ 11.9

Interest income/expense, net (0.9) — — (0.9)

Income tax provision 21.4 15.3 6.5 43.2

Depreciation and amortization 26.8 — — 26.8

EBITDA $ 39.9 $ 35.4 $ 5.7 $ 81.0




As Reported


Manufacturing Strategic Changes

Goodwill Impairment Litigation Adjusted

Net (Loss) Income $ (440.8) $ 28.7 $ (8.4) $ 475.5 $ 5.6 $ 60.6

Interest income/expense, net 24.8 — — — 24.8

Income tax provision 17.8 17.7 (3.6) — 3.5 35.4

Depreciation and amortization 48.6 (0.8) — — — 47.8

EBITDA $ (349.6) $ 45.6 $ (12.0) $ 475.5 $ 9.1 $ 168.6


As Reported


Charges

Manufacturing Strategic Changes Adjusted

Net Income $ 29.5 $ 38.5 $ 34.2 $ 102.2

Interest income/expense, net (2.8) — — (2.8)

Income tax provision 43.6 22.7 20.5 86.8

Depreciation and amortization 61.6 — — 61.6

EBITDA $ 131.9 $ 61.2 $ 54.7 $ 247.8

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2015 OUTLOOK(unaudited) Estimated Range

Adjusted diluted earnings per share $ 2.00 to $ 2.10

Goodwill impairment $ (10.20) $ (10.20)

Post-spin transition related charges $ (0.69) to $ (0.57)

Amortization $ (0.34) $ (0.34)

Diluted earnings per share (GAAP) $ (9.23) to $ (9.01)

Documents

THIRD QUARTER 2015 EARNINGS CALL - Avanos …2015...Third Quarter 2015 Earnings Call 14 $63 $46 Q3 2014 Q3 2015 Adjusted Operating Profit 15.4% 11.8% 36% 15% •Lower S&IP sales volume